Lords rule on remoteness of damage

The decision in Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48 concerned a claim for late redelivery under a charterparty. The Lords considered whether the owners were entitled to recover damages in respect of the entire period of a subsequent fixture which had to be renegotiated (at a less advantageous rate) as a result of the late redelivery. Allowing the appeal, the Lords held that the loss was too remote to recover. The parties had not contemplated that the Charterers, in entering the contract, were exposing themselves to liabilities of this nature.

It has long been understood by shipping lawyers that damages for late delivery were to be measured by reference to market rates, and that damages in respect of lost subfixtures were too remote to recover. In one respect, therefore, the decision restores certainty and orthodoxy to the law of damages in this context. However, the reasoning of the Lords differed substantially, with Lords Hoffmann and Hope seeking to introduce the notion of assumption of risk or responsibility as a key determinant of whether damages were recoverable. While the inquiry will still focus upon the (objective) knowledge of the parties at the time of contracting, the decision arguably permits greater weight to be given to general expectations or practices within a particular trade vis-a-vis the usual division of responsibilities.