January, 2025 - What difference did the breach make? Commercial Court considers damages for late redelivery

In the recent case of Hapag-Lloyd AG v. Skyros Maritime Corporation and Agios Minas Shipping Company [2024] EWHC 3139, the Commercial Court considered the assessment of damages following late redelivery under time charterparties where the ships were also due to be delivered to buyers under sale contracts (MOAs).

Facts

The containerships Skyros and Agios Minas were chartered from Skyros Maritime Corporation and Agios Minas Shipping Company (“the Owners”) by Hapag-Lloyd AG (“the Charterer”) under charterparties dated 20th February, 2017 and 23rd March, 2020 respectively (“the Charterparties”).  The Charterparties were on NYPE form for a minimum period of 11 months and a maximum period of 13 months. The ships were redelivered late, the Skyros by about two days and the Agios Minas by about seven days. During these overrun periods the Charterer paid hire at the rates agreed in the Charterparties but the market rates had, in the meantime, significantly increased.

Before redelivery, the ships were sold to third-party buyers pursuant to MOAs in which it was agreed that the ships would not be the subject of further charters after the expiry of the current Charterparties, but would be delivered to the buyers directly after the current Charterparties had concluded. Thus, it was common ground between the parties that even if the ships had been redelivered on time, they would not have been chartered again or earned any further hire, but they would have been delivered to the buyers upon redelivery under the Charterparties.

The Owners claimed as damages the difference between the hire rates under the Charterparties and the market rate for the overrun period in accordance with the general principles of measuring damages for late redelivery.

The Charterer’s case was that the Owners are not entitled to such damages, because its breach had not caused the Owners to suffer any such loss. The Charterer argued that since the Owners had entered into MOAs prior to redelivery in which they had agreed that they would not charter the ships after the expiry of the current Charterparties, they would not be able to take advantage of the higher charter rates prevailing in the market in any event. The Charterer contended that any loss was, therefore, purely notional.

Arbitration proceedings

The Owners commenced arbitration proceedings in which the Tribunal was asked to determine a preliminary issue as to whether the Owners were in principle entitled to recover substantial, rather than merely nominal, damages. The Tribunal decided that the Owners were entitled to recover substantial damages or a reasonable sum on grounds of quantum meruit, user damages, and negotiating damages. The Charterer appealed under section 69 of the Arbitration Act 1996.

Commercial Court judgment

In the Commercial Court, Mr Justice Bright allowed the Charterer’s appeals and concluded that the Owners were entitled only to nominal damages.

The Charterer relied on the well-known principle that the basic measure of contractual damages is to put the innocent party "so far as money can do it… in the same situation, with respect to damages, as if the contract had been performed". According to the Charterer, even if there had been no breach and the ships had been redelivered on time, the Owners had excluded their right to charter the ships and benefit from the market rates. Therefore, the Owners would have been no better off, in monetary terms.

The Owners did not contend that they would have been better off, in monetary terms, if there had been no breach. They argued that, as a matter of legal principle in measuring damages, they were entitled to claim the difference between the rates under the Charterparties and the market rate and that the terms of the MOAs should be disregarded as they were considered to be ‘res inter alios acta’ such that they were separate contracts that should not affect the Owners’ recoverable loss. The Owners relied on passages in The Achilleas [2008] UKHL 48, in which the ship owner was held not to be entitled to rely on a subsequent fixture to increase its claim (because increased losses were not foreseeable) to support why the MOAs terms should not be taken into account. They also argued that they were entitled to substantive damages on additional bases, relying on concepts of user damages, quantum meruit and negotiation damages.

However, the court disagreed with the Owners pointing out that each case will turn upon the particular terms of the charter under consideration. While it reaffirmed that "the owners are entitled to damages compensating them for the loss of the opportunity to take advantage of the market rate during the period of the overrun", if the owner has not lost any such opportunity because of a commitment such as the one in the MOAs in this case, there is no scope for this kind of compensation to arise.

The court concluded that The Achilleas was different because in that case the owner had suffered a real and substantial loss, while in this case, the Owners were no worse off because of the Charterer’s breach. The principle of remoteness and assumption of responsibility is one that constrains and limits the right to recover damages, even though loss has been suffered. It does not create a right to recover damages that would not otherwise be recoverable because there was not, in fact, any loss suffered.

As Mr Justice Bright put in plain words, it is not relevant to establish what benefit Owners would have received under the MOAs and a stipulation that the Charterer cannot refer to the MOAs will not change the answer to the question: "What difference did the breach make?...No difference whatsoever". Mr Justice Bright did, however, grant permission to appeal the judgment on points related to damages, remoteness and the principle of res inter alios acta.

Conclusion

This is an interesting decision regarding the assessment of damages in the context of a bespoke term agreed in a sale contract which precluded the Owners’ rights to charter the ships in the market and, as a result, precluded their right to make a claim for loss of profit due to late redelivery.

In this context, the principle that damages aim to place the innocent party in the position it would have been in, but for the breach, meant that there was nothing for the Owners to recover when taking into account the terms under the MOAs. This case highlights that a claim in damages is not a theoretical notion, but that damages need to be proven on the basis of the specific facts of each case.  

As always, if Members have any questions in relation to the above issues they are invited to contact the Club for further information.