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The Award of the Appeal Court and Arbitrators

The claim Mercator v Transfield is a claim between the charterer and ship owner, which was caused by charterer delay in redelivering the vessel “The Achilleas” within the contracting time with a shipowner, who therefore suffered the reduction in the hire rate hire. At first the claim of the Mercator v Transfield was left to the arbitration consideration. By the decision of the arbitration tribunal Mercator’s claim was sustained in full by a two to one majority. The majority of the arbitrators made the decision that as Transfield could have contemplated the possible troubles beforehand, therefore, it was the shipowner’s guilt that the vessel was delivered late; this really caused the loss of profits under the fixture. Chew and Wood in their article highlighted five following arguments proving the arbitrator’s choice: The Achilleas cancellation date for the ensuing fixture would be missed as a hazard of late redelivery; the case was not very unusual, but was the kind of result two parties would have had in mind; market knowledge was of great importance as in market rates rapid variations in either direction were; the need for further vessel adjustment and its subsequent employment was within the contemplation of the parties considered as result of the breach; and the profit loss suffered by Mercator – a reduction of the hire rates, which were previously agreed, caused by the late redelivery of the vessel – was within the parties contemplation considered as the breach result (Chew, Wood, 2010).

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According to the decision of the Commercial Court and afterwards the Court of Appeal it was decided that the loss of the fixture was within the first limb of Hadley v Baxendale (Eisenberg, Melvin, 1992). Consequently, the Transfield Shipping Inc appealed again to the House of Lords arguing that the damages should be reduced.

The impacts

The decisions about the case were made during 3 years, and only nowadays it is possible to make the appropriate conclusions about the impact of The Achilleas.

The initial data provided shortly after the arbitrators decision stated that the vessel significance would be limited rather than full. It is efficient to remember the words of Lord Hoffmann, who said that he believed that the majority of the House of Lords Lordships were not intending to create some completely new test which would intend to recover the remoteness which would be different from the called rule mentioned in Hadley v Baxendale as “refined in subsequent cases, above all the decision of the House of Lords itself in  Czarnikow Ltd v Koufos” and from damages in contract (Hargrave, 1969). In other words it is possible to state that according to Lord Hoffmann’s view it was a question of law if Mercator could restore the damages. Therefore, he considered it important to formulate some new test to discover the intentions of the parties to take the risk, and that the contract should be regarded as a whole. Anyway, in his opinion, the departure from the ability to foresee or predict can not be regarded as a usual one. As a result, the arbitrators doubted whether the vessel was intended to create a new test dealing with the contract recoverability of damages and remoteness. In such way the orthodox approach was prevailing.

Another idea which should be regarded is Lord Roger and Baroness Hale’s one. They viewed the ship owner’s ability to recover damages as a question of fact. They also stated that the charterers were to pay their attention to the existence of the forward charted beforehand. The reasoning mentioned above is consonant with that formulated by Hadley v Baxendale (Eisenberg, 1992).

Consequently, The Achilleas case has been regarded quite widely, albeit it was reported less than many expected and its impact was not lasting, we can analyze the following cases representing more information on the decision.

The first one is the case of Supershield Ltd v Siemens Building Technology FE Ltd construction concerning the damage at Slaughter & May’s new office building caused by the flood. The defective valve installation made a sprinkler tank fill perpetually as overflow drains were blocked. Many claims were about leaving Siemens pursue Supershield to recover the damage (Suter, 2010). The argument was considering the remoteness of the loss, but the Court made a decision that it was not paying attention on The Achilleas fate. Toulson LJ stated that the main rule is the rationalized orthodox approach to remoteness from Hadley v Baxendale. Consequently, this allowed the Court to stray from the usual approach having found that the commercial background and the contract, this standard rule did not truly show this imputed intention (Suter, 2010). Moreover, Toulson LJ explained that according to the Achilleas principle, a party is not always responsible for a loss even when the loss was caused by the breach. Interestingly, that as a matter of logic, the similar principle may be used for a party liability even if the loss is an unlikely breach consequence. However, Supershield offered that the Achilleas formulated a new aspect of the remoteness test available for certain circumstances.

The second case considering The Achilleas principle is Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd (Hetherington, 2010). This case was dealing with the Charterers’ loss of a sub-charter caused by the Owners’ negligence in the vessel’s hold maintaining. The Charterers were looking for their losses on the sub-charter, the Owners were arguing that they were responsible for those losses and suggested The Achilleas principle as the evidence. Finally, the Charterers were successful as Hamblen J noted that there were no unusual details similar to those of The Achilleas case, that the sub-charter in The Syliva was to be accomplished for a predictable period, and it was within the four charter corners. At first blush, The Syliva tended to limit the The Achilleas impact, but Hamblen J confirmed the comprehension of The Achilleas explained in Supershield. Consequently, two approaches to remoteness were taken into consideration (Hethrington, 2010). The first one was the orthodox approach of the lasting adaptability found in Hadley v Baxendale and remaining the general and standard remoteness test. The second approach is broader and can be applied in more standard, usual cases where it is required by the surrounding circumstances, context or general market understanding. In such case, it was necessary for the Court to ask if a party had accepted responsibility for a loss. Nevertheless, according to Hamblen J this was not a “new generally applicable legal test of remoteness in damages” (Hethrington, 2010).

Conclusion

Taking into account the abovementioned paragraphs, it is obvious that The Achilleas will have a lasting impact. Though The Achilleas principle needs some refinements in the future, the remoteness of damage is the issue to which it contributes a lot. The application is presently mostly confined to non-standard cases, but still it introduces a new test of damage remoteness, which further considered in some other countries.

Lord Hoffmann’s speech in The Achilleas was the catalyst for the further developments of the given principle. It expressed his hopes and was written in the Edinburgh Law Review, revealing his thoughts and hopes for future, that effect of The Achilleas will help to “free the common law” from the need to explain the awards and decisions, and will bring the recognition that damages liability can be influenced by “commonsense distinctions between different commercial relationships”. Hoffmann has expressed his meaningful thought about the importance of  an academic writing and judicial decision-making combination (Hoffmann, 2010). In present many of Lord Hoffman’s hopes are realized. The impact of The Achilleas is proven to be long-lasting, albeit not in all the cases and terms which were predicted. The case also brings to attention the importance of foreseeing and taking into account the risk management and the commercial management while negotiating the contracts.

Comments

In addition, it is important to mention that finally it is not very clear who agreed with whom on what ground and state the pure thesis about the contradictory principle results. The profit or loss recoverability on a follow-on fixture can be called either a question of fact or a question of law. The definitions of Jim Leighton written in his article are either disputable.

Thus, the arguments about the judgment can be only limited to some specific circumstances and used in specific situations. For instance, there is no clear distinction between the first remoteness test limb of loss in contract and the second one. The knowledge relevant to the case or to the situation defines the limbs usage and the principles, compositing the whole view of the particular case afterwards.

Another argument in favor of paying attention to the particular circumstances is that it differs with on new territories depending on the wider or more narrow application of the law of contract. As a result, the determining factors can be any unusual, technical or  special information which was known only by one of the parties could not be attributed to the other one at the time of signing the contract. Consequently, it is efficient to pay attention to sharing the knowledge of the market behavior and of normal industry practices.