Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542

Owners appealed an arbitration award concerning damages for breach of charterparty maintenance obligations causing delay and loss of a sub-charter. The court upheld the tribunal's finding that lost profits on the cancelled sub-fixture were recoverable, clarifying that The Achilleas did not establish a new general test for remoteness of damages.

Facts

The Claimant owners (‘Owners’) chartered the vessel mv ‘SYLVIA’ to the Defendant charterers (‘Charterers’) under a time charterparty dated 22 February 2000. On 30 March 2004, Charterers entered into a sub-voyage charter with Conagra for carriage of wheat from Baie Comeau to Casablanca with laycan dates of 14-22 April 2004. Following a Port State Control inspection on 15 April 2004, the vessel’s cargo holds were found to have wasted steelwork. The Canadian Food Inspection Agency rejected four of five holds for grain loading. Repairs were not completed until 26 April 2004, by which time Conagra had cancelled the sub-charter on 22 April 2004. Charterers entered a substitute fixture with York at a lower rate.

Arbitration Findings

The Tribunal found that Owners had breached their contractual maintenance obligations under the charterparty by failing to maintain the steelwork within cargo holds. They held that damages for the lost Conagra fixture were recoverable, awarding USD 273,706.12 representing the difference between the Conagra voyage earnings and the substitute York charter earnings.

Issues

The principal issue on appeal was whether the Tribunal erred in law by concluding that damages based on the loss of the Conagra sub-fixture were not too remote. The Owners contended, relying on The Achilleas [2009] 1 AC 61, that recoverable damages should be limited to the difference between charter and market rates during the period of delay.

Judgment

The Law on Remoteness

Mr Justice Hamblen conducted an extensive review of the law on remoteness following The Achilleas. He identified two approaches in that case: the orthodox approach based on Hadley v Baxendale and The Heron II, and the broader approach involving consideration of assumption of responsibility.

“In my judgment, the decision in The Achilleas results in an amalgam of the orthodox and the broader approach. The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be ‘unusual’ cases, such as The Achilleas itself, in which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility.”

Hamblen J emphasised that assumption of responsibility consideration is most likely required in:

“those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations.”

Application to the Present Case

The court found the Tribunal had correctly directed themselves by reference to the first limb of Hadley v Baxendale. Hamblen J stated:

“There is nothing surprising about this conclusion. A vessel is chartered in order to be traded… Trading will frequently involve sub-letting… The trading of the vessel will often involve fixtures for the carriage of specific cargoes… As such, one would expect it to be well within the reasonable contemplation of an owner that delay of significance in arriving or being ready to load at the designated load port may result in the loss of a fixture, as the Tribunal found.”

Critically distinguishing The Achilleas, the court noted: there was no finding of general market understanding limiting damages; the liability was not unquantifiable, unpredictable or disproportionate since loss of a sub-charter during a time charter can never exceed the charter period; and loss of a voyage fixture results in loss within reasonable and fixed confines.

Implications

This decision provides important clarification of remoteness principles following The Achilleas. It confirms that the orthodox Hadley v Baxendale test remains the ‘standard rule’ applicable in the vast majority of cases. The assumption of responsibility analysis from The Achilleas is confined to ‘unusual’ cases with specific features such as unquantifiable or disproportionate liability, or clear contrary market expectations. The decision supports the recoverability of lost profits on sub-fixtures where a charterer is deprived of the vessel’s services through the owner’s breach, consistent with established principles in Wilford on Time Charters and The Derby [1984] 1 Lloyd’s Rep 635.

Verdict: The Owners’ appeal was dismissed. The Tribunal’s conclusion that damages for loss of the Conagra sub-fixture were recoverable and not too remote involved no error of law.

Source: Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542