Introduction
It is a time charterer’s duty to redeliver the ship at the end of the charter period. If the charterer redelivers the ship after the maximum period, it has to pay hire up to the time of actual redelivery.
In addition, if the market rate during the overrun period is higher than the charter rate, the usual position is that the charterer also has to pay damages for late redelivery, measured by the difference between the hire earned by the owner and the market rate during the overrun period. The rationale for this is that the owner is to be compensated for the loss of opportunity to earn the higher market rate.
A Novel Question
But what if the owner could not or would not have chartered the ship out and thus would not have earned any further hire even if the ship had been redelivered on time? Is the owner still entitled to recover substantial damages for late redelivery based on the usual measure?
The recent judgment in Hapag-Lloyd AG v Skyros Maritime Corporation and another [2024] EWHC 3139 (Comm) (13 December 2024) looked at this novel point, and the short answer provided by Bright J is “no”.
Case Facts
The owners chartered two vessels to the charterers under two materially identical time charterparties. The charterers redelivered the vessels late, respectively by two days and seven days. The charterers paid hire at the charter rates during the overrun periods.
As is often the case in claims for late redelivery, the market rates during the overrun periods were significantly higher than the charter rates.
However, what made this case different is that there was evidence that the owners would not have chartered the vessels out further even if they had been redelivered on time. Shortly before the maximum charter periods expired, the owners entered into MOAs to sell the vessels. Under the MOAs, the owners would deliver the vessels to the buyers as soon as they were redelivered, whether redelivery was timely or not.
The parties were not in dispute that the charterers were in breach for late redelivery, and had paid hire at the charter rates up to the moments of actual redelivery. The issue was whether the owners were entitled to more, i.e. the market / charter rate differential for the overrun periods.
Procedural History
The owners commenced arbitrations against the charterers claiming substantial damages, and the arbitrators found in the owners’ favour. The charterers appealed.
The owners’ case was essentially that they were entitled to claim the market / charter rate differential as a matter of legal principle and that the MOAs should be disregarded.
The charterers argued that the owners were only entitled to nominal damages because the MOAs meant that the owners were unable to re-charter the vessels after redelivery (even if timely) and thus the breach had not caused the owners to suffer any loss.
The charterers relied on the compensatory principle that the purpose of damages is to put the innocent party in the same situation – so far as money can do – as if the contract had been performed. In this case, if redelivery had been timely, the vessels would have been delivered to the buyers under the MOAs without further chartering out. Thus, the owners were not worse off as a result of the late redelivery.
The Judge’s Findings
Although the owners raised arguments based on quantum meruit, user damages and negotiating damages, the Court felt that these were makeweights only and, after briefly considering (and rejecting) them, focused on discussing The Achilleas [2008] UKHL 48 and the line of cases flowing from Rodocanachi v Milburn [1886] 18 QBD 67.
The owners relied on Lord Hoffmann’s comment at [23] of The Achilleas that an owner’s arrangements for the next charter “is regarded by the market as being, as the saying goes, res inter alios acta.”
Whilst not a precise legal doctrine, “res inter alios acta” essentially refers to completely collateral matters which happen independently of the circumstances giving rise to the loss. The owners argued that the MOAs in this case were res inter alios acta and thus could not be taken into account in the assessment of the owners’ damages.
Bright J considered that the owners’ argument based on Lord Hoffman’s comment was unrealistic as it did not reflect the issue being considered in The Achilleas. The focus in The Achilleas was on the reduction of actual losses by application of the principles of remoteness and assumption of responsibility. On the other hand, the issue in the present case was whether a claimant who has suffered no loss at all could recover damages.
The judge then turned to the line of cases flowing from Rodocanachi v Milburn, which concern the assessment of damages by reference to the market price in sale of goods cases where there is non-delivery, defective delivery or delayed delivery. The rationale is that the innocent party has lost the opportunity to sell the goods at the market rate for goods delivered on time. Onward contracts, whether on terms above or below the market price, will not be taken into account in this assessment.
The position is different where (i) the onward contract is for the same specific goods to be delivered under the main contract and/or (ii) this was known to or at least within the contemplation of the defendant when the main contract was concluded.
Bright J considered that, in the present situation, there is no question of the MOAs being taken into account in the assessment of damages. The important question is what difference did the late redelivery make to the owners; the answer to which is that it made no difference. The onward contracts (the MOAs) were only relevant in the sense of precluding the owners from entering the charter market. The owners did not lose the opportunity to let the vessels out at the market rate by reason of late redelivery; the owners themselves ruled out this possibility by entering into the MOAs. Whether redelivery was on time or not, the vessels would not have been let on the charter market after redelivery, and the owners therefore suffered no loss.
Comment
Despite the interesting legal issues canvassed, this can be seen as an orthodox application of the compensatory principle of contractual damages. While there is a “usual” measure of damages in many cases (including late redelivery), that must yield to the facts of the case. Where, as here, the owners did not lose the opportunity to earn the market rate of hire by reason of the breach, there was no basis on which to award substantial damages.
The situation will be different if there is an express term in the charterparty specifically providing that charterers will pay hire at the market rate during an overrun period. If not, the owners must be able to prove they actually suffered a loss.
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