Facts
- The case concerned a charterparty agreement between Transfield Shipping Inc (charterers) and Mercator Shipping Inc (owners) for the vessel "The Achilleas."
- The charterers returned the vessel late, causing the owners to lose a lucrative follow-on charter at a reduced rate.
- The owners claimed damages for the difference between the original and reduced rates over the entire follow-on charter period.
- The charterers contended that their liability should be limited to the difference in rates for the period of delay only.
Issues
- Whether damages for late redelivery should cover the entire period of the lost follow-on charter or be limited to the period of delay.
- Whether the loss claimed fell within the two-limb Hadley v Baxendale test, particularly the second limb regarding reasonable contemplation.
- Whether, beyond foreseeability, contractual liability for loss required evidence that the party in breach assumed responsibility for that type of loss in the commercial context.
Decision
- The House of Lords held that the charterers' liability was limited to the difference in rates for the period of the delay, not for the whole duration of the follow-on fixture.
- It was determined that, although the charterers knew of the follow-on charter, they had not assumed responsibility for losses resulting from market rate changes affecting that charter.
- The traditional Hadley v Baxendale test was refined by considering the specific commercial context and market expectations.
- Damages were restricted to those types of losses for which the parties specifically assumed responsibility in their contractual arrangements.
Legal Principles
- The remoteness of damages in contract is not determined by foreseeability alone; liability is limited to losses for which the party has assumed responsibility.
- Hadley v Baxendale continues to provide the fundamental test, but its application must consider commercial context and the expectations of the relevant market.
- The assessment of contractual damages requires a focus on whether, from the contract and context, responsibility for the claimed loss has been assumed.
- Established market practice may delineate the extent of recoverable damages for specific breaches, such as late redelivery in shipping.
Conclusion
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) marked a significant development in contract law by clarifying that recoverable damages depend on the parties’ assumption of responsibility for specific losses in their commercial context, as opposed to mere foreseeability, thereby ensuring contractual remedies align with business expectations and established practices.