Legal Update September 2014
ASSESSMENT OF DAMAGES
The “Achilleas”  UKHL 48
In the “Achilleas”, the defendant time charterers redelivered the vessel late by 9 days. The claimant shipowners had entered into a follow on charter. As a result of the charterers’ late redelivery, the follow on charterers became entitled to cancel the new fixture, and the shipowners had to re-negotiate and reduce the new fixture rate by US$8,000 a day in order to avoid cancellation. The shipowners claimed hire lost on the new fixture, being US$8,000 multiplied by the duration of the follow-on fixture, which was about 6 months. The time charterers argued that the damages were restricted to the difference between the charter rate and market for the overrun period, being US$8,000 multiplied by only 9 days.
By a majority, the arbitrators awarded the shipowners’ lost hire on the follow on fixture. The charterers appealed. Applying the classic approach set out in the nineteenth century case of Hadley v Baxendale (1854) 9 Ex 341 (“Hadley v Baxendale”), the Court of Appeal dismissed the charterers’ appeal.
The House of Lords disagreed, allowing the charterers’ further appeal, and holding that the shipowners’ damages were restricted to the difference between the charter rate and the market rate for the overrun period.
A Broader Approach For Ascertaining Remoteness of Damages: Assumption of Responsibility?
The traditional or classic approach to assessing whether the loss was remote, as set out in Hadley v Baxendale can be summarised as whether, at the time of entering into the contract, the loss caused by the breach was a kind of loss which the parties would reasonably have contemplated as not unlikely to result from the breach.
The House of Lords in the “Achilleas” articulated a different approach, which would have implications on arguments to be made by counsel in subsequent cases, and would raise issues of the correct approach to be taken by judges in making the assessment.
In Lord Hoffman’s view, the fundamental question to be asked was: whether the loss was the “‘kind’ or ‘type’ for which the contract breaker ought fairly to have accepted responsibility”. Applying this approach and, significantly, relying on the general understanding in the shipping market, Lord Hoffman found that the charterers could not have assumed the risk of the shipowner’s loss on the follow-on charter.
Thus, Lord Hoffman assessed remoteness of damages upon an objective interpretation of the contract in in its commercial setting, instead of founding it on foreseeability of the loss and whether the loss ought to have been in the reasonable contemplation of the parties at the time of entering into the contract.
Singapore Reaction to the Broader Approach
In Out of Box Pte Ltd v Wanin Industries Pte Ltd  2 SLR 363, the Singapore Court of Appeal rejected Lord Hoffman’s approach, at least to the extent that it deviated from the approach in Hadley v Baxendale, re-iterating what has been said in another case:
“Consistent with the analysis set out above, we take this opportunity to confirm the approach relating to remoteness of damage in the law of contract as set out in the decision of this court in Robertson Quay … (which affirmed the principles laid down in Hadley [v Baxendale]). We also take this opportunity to state that the approach advocated by Lord Hoffmann in The Achilleas [(HL)] is not the law in Singapore, except to the extent that the learned law lord’s reliance on the concept of assumption of responsibility by the defendant is already incorporated or embodied in both limbs in Hadley [v Baxendale] itself.”
Thus, Singapore Courts continue to use the traditional approach to assessing damages. This means that the Courts here would not look at the objective interpretation of the contract in in its commercial setting (Lord Hoffman’s approach) but rather whether the loss ought to have been in the reasonable contemplation of the parties at the time of entering into the contract.
Interestingly, the Singapore Court of Appeal did not entirely reject the concept of assumption of responsibility by the defendant, holding that it was to an extent incorporated in the traditional approach.
If the “Achilleas” has been heard in Singapore, it is likely that the charterers would not have succeeded. However, this does not mean that the traditional approach would result in greater damages generally. Recoverability in the end depends on the specific facts and circumstances of each case.
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This update is for general information only and is it not intended to constitute legal advice. JTJB has made all reasonable efforts to ensure the information provided is accurate at the time of publication.
Khalisa was called to the Singapore Bar in 2012. Her areas of practice include shipping and shipping-related disputes, family, probate, criminal and construction cases.