Hapag-Lloyd AG v. Skyros Maritime Corporation and Agios Minas Shipping Company [2024] EWHC 3139 (Comm)
In a significant new case, the UK Commercial Court assessed damages following late redelivery of two vessels under time charterparties where, pursuant to the terms of MOAs signed with third party buyers for their sale, Owners could not charter the vessels and earn hire after redelivery.
The Court therefore awarded only token damages to Owners instead of market-based damages for the period of the overrun, which is most often the normal measure.
Key facts
The vessels in question, Skyros and Agios Minas were chartered by the defendant Owners to Hapag-Lloyd under two time charterparties.
Owners had entered into memoranda of agreements (“MOAs”), under which the vessels would be sold to third party buyers. The terms of the MOAs prevented Owners from chartering the vessels again after they had been redelivered under the charterparties.
But the vessels were redelivered late; the Skyros by about two days, and the Agios Minas by about seven days. Charterers paid hire for the overrun period at the rates agreed in the charterparties. However, the market had risen significantly since the charterparties were entered into.
The arbitration
Owners commenced arbitration proceedings seeking, in the normal way, damages for the difference between the market rate and the hire rates under the charterparties for the period of the overrun.
Charterers’ position was that their breach did not cause any loss because Owners could not have chartered out the vessels even if they had been delivered on time, for the simple reason that the MOAs prevented it.
The Tribunal was asked to determine a preliminary issue as to whether Owners were in principle entitled to recover substantial, rather than merely nominal (or token), damages. The Tribunal decided that they could.
Appeal to the Commercial Court
Charterers appealed the Tribunal’s decision under section 69 Arbitration Act 1996, which allows for a challenge on a point of law.
The Court allowed Charterers’ appeal and held that the Owners were only entitled to nominal damages.
The key reasons given by the Court were as follows:
Applicability of the ‘orthodox’ usual measure of damages
The normal measure of damages for late redelivery under a time charter is the difference between the vessel’s charter rate and its market rate during the period of overrun. This allows an owner to be compensated for the loss of the opportunity to take advantage of the market rate during the period of overrun. However, if the owner did not actually lose the opportunity to charter the vessel during that period, then there can be no compensation of this kind.
The MOAs prevented Owners from chartering the vessels and earning hire after they were redelivered. Charterers’ breach therefore made no difference to Owners as they could not have chartered the Vessels anyway.
The Court said that the assessment of damages does not require an answer to the question “why were the vessels not let?”. It only requires an answer to the question “Have Owners lost the opportunity to earn hire?”.
The answer to that question was ‘no’.
The ‘res inter alios acta’ doctrine did not apply
Owners’ position was that the terms of the MOAs should be disregarded because they were considered to be ‘res inter alios acta’, i.e. that they were entirely separate contracts that should not affect Owners’ recoverable loss, to which they had no relationship.
The Court considered the oft-cited decision in the Achilleas[1]. The outcome in that case was that the owner could not recover the loss that was actually suffered (being loss of a lucrative follow-on fixture) but could recover on the basis of the market rate that would have been available had it gone into the market at the time of the breach. Owners relied on this decision in support of their argument that they could recover the difference between the charter rate and market rate for the overrun period, as a matter of legal principle, and so the MOAs must be ignored.
The Court disagreed. The judge commented that the Achilleas did not (unfortunately for Owners), make it possible to recover sums that have not actually been lost. The Court emphasised that the validity of the basic compensatory principle of damages was never questioned in that case.
The Court also declined to follow the Privy Council decision in Wertheim that a distinct res inter alios acta rule applies in cases of late performance that permits the Court to take into account an onward contract when assessing damages.
But the Court did follow the Court of Appeal’s decision in Slater v. Hoyle & Smith, ruling that the res inter alios acta rule does not apply where either: (i) an onward contract (i.e. the MOA) is for the same specific goods as those delivered under the main contract (i.e. the charterparties); or (ii) the intended use of the same goods was known to, or at least contemplated by, the parties when the main contract was agreed.
Here, the MOAs were for same specific goods (the vessels). Therefore, the Court found that the MOAs must be taken into account when assessing damages and declined to accept that the res inter alios acta doctrineapplied.
Comment
This case is as a clear and helpful reminder of the fundamental compensatory principle in assessing damages for late delivery under a time charterparty.
The critical question in any late redelivery case is “have owners lost the opportunity to earn hire?”. If they have not, there was no loss, and, according to this decision, no recovery of market-based damages.
The case also reaffirms that the normal measure of damages for late redelivery of a time-chartered ship is the difference between the charter rate and the market rate for the vessel during the period of overrun. But, this is just a starting point. An owner will not always be entitled to recover these damages, as the facts of this case demonstrated.
This is a fact-specific decision, which turned on the existence of the bespoke terms of the MOAs. It will not therefore apply in every late delivery claim, but as a matter of principle it is significant in confirming that the owner will not always recover market-based losses irrespective of its actual loss.
As the Court itself made clear, the case is suitable for appeal. The Court granted permission to appeal on issues relating to damages, remoteness and res inter alios acta. A detailed analysis of the Achilleas judgment and its implications on the res inter alios acta doctrinewill no doubt be undertaken in the Court of Appeal, should Owners take up the opportunity. This is a space to be keenly watched.
[1] Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48
