Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48

KEY POINTS

• When determining the appropriate starting point for assessing damages, it is crucial to consider whether the loss claimed is of a kind or type that the party in breach should reasonably be deemed to have accepted responsibility for.

• Recoverable losses are not limitless and that parties may specifically exclude or limit liability for certain types of loss in their contracts. However, any such exclusions or limitations must be clearly expressed and should not be contrary to public policy.

• Under the principle of remoteness of damages, damages must be reasonably foreseeable and within the contemplation of the parties at the time of entering into the contract.

FACTS

• Transfield chartered Mercator's ship, The Achilleas, for a period of five to seven months with a return date of no later than midnight on 2 May 2004.

• However, Transfield failed to return the ship until 11 May 2004. During this delay, Mercator had already contracted to lease the ship to another charterer, Cargill International, starting on 8 May 2004 at a rate of $39,500 per day for four to six months.

• Due to the late return, Cargill agreed to take the ship but at a reduced rate of $31,500 per day, considering the decline in the freight market.

• The dispute arose over the amount that Transfield should pay to Mercator for the delayed return of the ship.

  • Transfield argued that they should only be liable for the difference between the original contract rate and the market rate for daily hire during the delay, which amounted to $158,301.17.

  • On the other hand, Mercator contended that Transfield should compensate them for the loss they incurred on the new chartering contract, totaling $1,364,584.37 over the months.

COMMENTARY

• The Achilleas case reaffirmed the importance of foreseeability and the need to avoid awarding damages that are too remote.

• By limiting the damages to the difference between the contract rate and the market rate for the period of deprivation, the court struck a balance between compensating the injured party and preventing windfall or speculative recovery.