Damages for Late Delivery under Time Charters: Certainty at Last?

• Author: Gary Richard Coveney
• Position: Barrister, Queensland Bar
• Pages: 205-210

(2009) 23 A&NZ Mar LJ

DAMAGES FOR LATE DELIVERY UNDER TIME CHARTERS: CERTAINTY AT LAST?

Gary Richard Coveney*

Introduction

In Transfield Shipping Inc v Mercator Shipping Inc (Transfield),1 the House of Lords examined the circumstances in

which a defaulting charterer would be liable to the ship owner for lost profits when redelivering late under a time

charter. On the facts of the case, the court held that the charterers were not liable. However, views differed between the

judges as to the correct approach to be adopted when examining this issue. One approach was based on assumption of

risk,2 while the other looked to losses that were ‘within contemplation’ as being the relevant test.3

To what extent has Transfield given ship owners and charterers certainty in respect of their potential liabilities? This

paper examines how the decision has affected the law relating to remoteness of damage in cases of late delivery under

time charters. Each of the tests relied on by the judges will be analysed to see if either should be adopted as the best

approach in future cases.

Background to Transfield

Mercator was the owner of the ship Achilleas. In January 2003, Mercator entered into a time charter with Transfield in

respect of Achilleas. Pursuant to the time charter, Achilleas was to be redelivered on 2 May 2004.

A legitimate final voyage was approved by Mercator. This voyage was still expected to allow delivery by 2 May 2004.

As fate would have it, there were delays discharging the cargo of the final voyage and redelivery did not occur until 11

May 2004.

In the meantime, Mercator, having received notice from Transfield that redelivery was expected to take place on or

before 2 May 2004, entered into a follow-on time charter with another party. Under that forward charter, the charterer

was entitled to cancel the charterparty if the Achilleas had not arrived at the delivery point by 8 May 2004. When it

became apparent that the Achilleas would not be available by this date, the subsequent charterer threatened to cancel the

charterparty.

In order to avoid the follow-on charter being cancelled, Mercator negotiated an extension of the cancellation date to 11

May 2004, but was forced to accept a review of the contract price. Unfortunately, by that time the market rate for the

hire of the ship had fallen by approximately US$8,000 per day. The follow-on charter was ultimately renegotiated,

however, it was at the lower rate.

Mercator subsequently claimed damages from Transfield of approximately US$1.3m, representing their loss of profit as

a result of having to reduce the daily rate of hire under the follow-on charter by US$8,000 per day. Transfield

contended that their liability in damages was confined to the difference between the market rate of hire and the

charterparty rate for the period from 2 May to 11 May 2004, which was calculated to be approximately US$158,000.

Mercator succeeded at arbitration. This decision was appealed to a single judge and then to the Court of Appeal, both of

whom upheld the decision of the arbitrators. Transfield then appealed to the House of Lords. The appeal turned on a

single point: Could the damages claimed by Mercator fit within the accepted principles of remoteness as laid down in

Hadley v Baxendale4 and other subsequent cases?

The development of remoteness in contract law

The general principle governing damages for breach of contract is that where a party sustains a loss by reason of a

breach of contract, he or she is, so far as money can do it, to be placed in the same situation, with respect to damages, as

if the contract had been performed.5 However, not all damages are recoverable on this basis. Only those damages

which, in the eyes of the law, are not considered to be too remote will be awarded by the courts.

* Barrister, Queensland Bar.

1 [2008] UKHL 48.

2 Lord Hoffmann and Lord Hope.

3 Lord Rodger and Baroness Hale in particular.

4 [1843-60] All ER 461 (Hadley).

5 Robinson v Harman (1848) 1 Ex 850 at 855 per Parke B.

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