University of Colombo, Sri Lanka
Faculty of Law
Inaugural Professor T. Nadaraja Memorial Oration
2012
“Some Reflections on Damages for Breach of Contract”
delivered by
Professor Michael Furmston
Dean, School of Law
Singapore Management University
at
Library Auditorium
University of Colombo
27th January 2012
1
Some Reflections on Damages for Breach of Contract
Discussions of damages for Breach of Contract traditionally begin with
Hadley v Baxendale1. We all know that the plaintiff failed in this case. It is
usually assumed that the plaintiff would have done better if he had told
the defendant at the time the contract was made that he had no spare shaft
and that his mill would be out of operation until the new shaft arrived.
This assumption really raises two separate questions. One is it sufficient to
show that the defendant knew of the plaintiff’s potential loss and secondly,
is it necessary to show knowledge or will a higher degree of probability do.
We can readily answer the second question. It is clear from the decision of
the House of Lords in Koufos v Czarnikow Ltd, The Heron II2 that knowledge
is not essential. In that case the plaintiff recovered damages, which
reflected the less good price obtained from selling 9 days late in the Basra
sugar market as the result of the defendant’s deviation. The defendant did
not know that the plaintiff intended to sell on arrival. The five judgments
in the House of Lords all agree on this though they put the critical question
in a number of different ways. Lord Reid said –
“The crucial question is whether, on the information available to the
defendant when the contract was made, he should, or the reasonable man in
1
2
(1854) 9 Exch 341
[1969] 1 AC 350
2
his position would, have realized that such loss flowed naturally from the
breach or that loss of that kind should have been within his contemplation.”
The Heron II is unusual among the leading cases discussed here in that the
plaintiff won. It is clear that the defendants did not know that the plaintiffs
did intend to sell the sugar on arrival but they did know that there was a
sugar market in Basra and that sugar was often sold in that market on
arrival. So this was adequately likely. Their Lordships spent a lot of time
trying to capture the changes in words but did not attempt to put it in
numerical terms.
The first question is more difficult to answer. It is the subject of a well
known hypothetical.
Furmston rings up his local taxi driver and books a taxi to drive him to the
airport at 7am the next day. He tells the driver that it is most important,
because he is flying to New York to sign a multimillion dollar contract. The
taxi driver oversleeps; Furmston misses his flight and loses his deal. Is the
driver liable? Would it, make any difference if the fare is fixed by law?
One’s intuitive feeling is that the taxi driver will not be held liable but it is
more difficult to explain why. I shall return to this question later.
The claimant will normally suffer his or her loss at the moment of breach,
and the situation at the date of breach will usually be very relevant to the
3
assessment of the damage. How far this goes was a central question in the
recent decision of the House of Lords in The Golden Victory.3 In this case, the
owners (O) of a ship chartered it for seven years to the charterers (C). In
December 2001, C wrongfully repudiated and a few days later O accepted
the repudiation as terminating the contract, and in due course started an
arbitration claiming damages. At this point the charterparty had 48 months
to run. O did not re-let the ship on a long charterparty but it was held that
there was an available market, even though it would take some three
months to re-let the ship. Everyone involved in the case (the parties, their
lawyers, counsel, the arbitrator and all the judges) proceeded on the basis
that damages should be assessed on the basis of the notional monthly hire
obtainable in the available market. Nobody appears to have thought it
necessary or appropriate to calculate on the basis of what the owners had
actually done.
There was, however, a major practical problem. In charterparty cases, the
ship is not chartered for a price but, in the case of a time charter, as in
Golden Victory, for a monthly payment of hire. The monthly figure has to be
capitalised. As discussed in the reported judgments, it looks as if the
owners were claiming 48 times the monthly notional hire on the grounds
that the charter had 48 months to run. It is perhaps worth pointing out that
cannot actually be right. If, as would be the case if the arbitration
proceeded in a normal way with reasonable dispatch, the owners received
the money before the end of the term, they would have, as it were, to give a
3
[2007] UKHL 12
4
discount for getting the money in advance. Further, it is hardly conceivable
that the ship would have been working continuously for the 48 months to
the end of the charter. Almost certainly, there would have been periods
when it was off hire and the charterers were not obliged to pay. Some effort
would have had to be made to estimate the value of this possibility. These
questions were not before the court in the present case.
What was before the court was a provision in the charterparty under which,
if war broke out between a number of countries, including USA, UK and
Iraq, either party should be entitled to cancel. Such a war did in fact break
out in March 2003 and C accordingly argued that the appropriate
multiplier to apply for the notional monthly hire was therefore 15 and not
48. The arbitrator, Langley J, the Court of Appeal and the majority of the
House of Lords (Lords Bingham and Walker dissenting) agreed.
All five speeches in the House of Lords agreed on one proposition.
Damages are often correctly assessed at the date of breach, but this is not a
universal rule. The difficult question, on which there is certainly not
agreement, is when one should apply the breach date rule and when one
should depart from it. It may, with the greatest respect, be doubted
whether the answer to the question is any clearer now than it was before
the decision of the House of Lords. One argument is that if the charterparty
had still been subsisting the charterer would certainly have terminated in
March 2003 on the outbreak of the war. The arbitrator held as a fact that the
charterer would have done so if it had had the option of doing so. It is,
5
however, hard to see how the charterer's actual position can be relevant. By
repudiating the charter and by the repudiation being accepted by the
owner, the charterer's right to cancel had come to an end. If the owners had
rechartered the ship, then it would have been possible to enquire what the
new charterer would have done or indeed did in March 2003.
Since the owners had not rechartered the ship it is necessary to keep
reminding ourselves that no one involved in the case inquired what the
owner had actually done. What was considered was the notional loss
suffered in the light of the notional rechartering. So perhaps the question
should be, would the notional charterer have terminated in March 2003?
This question was not put, but it is perhaps worth answering. It is believed
that the effect of the outbreak of war in March 2003 was to drive freight
rates sharply upwards. In such a situation, it is actually rather unlikely that
a charterer would terminate since this would usually involve going into the
market and rechartering at a higher rate.
The truth is that the cancellation clause gave both the owner and the
charterer the possibility of cancelling if war broke out. It is almost
inconceivable that the outbreak of war would have no effect on the charter
market and very probable, therefore, that in any normal situation one of
the parties would be glad of the opportunity to cancel, as provided by the
cancellation clause. In the circumstances in 2003, this would seem to be
much more likely to be an owner's option than a charterer's option. There is
it certainly a conceivable argument that in March 2003 either the owner or
6
the notional new charterer would have thought it expedient to use the
cancellation clause, but this is not the way the case was put. Counsel for the
owners was certainly not asked during argument in the House of Lords
whether the owners would have cancelled the notional recharter in March
2003. He might perhaps have plausibly replied that the owners had never
directed their minds to this question. If we assume that the owners would
behave in a rational but opportunistic war the answer must depend upon a
sophisticated analysis viewed from March 2003 of likely moves in the
market between March 2003 and, the normal end of the notional recharter
in December 2005. Presumably a similar analysis in December 2001 had led
the owners not actually to recharter but to let the ship on the spot market.
The most powerful argument for the owner’s position is that it would have
been perfectly possible for an arbitrator to reach a decision in December
2001 as to the value of what the owners had lost. The balance of the charter
clearly had a commercial value. One could have gone to a bank, and
borrowed against it or one could have sold it. It is perhaps worth stopping
at this point and considering how the balance of the charter should have
been valued in December 2001. Anyone buying or lending against it would
surely have read the charter carefully or got a lawyer to do so for them.
This would have involved a consideration of the cancellation clause. The
arbitrator in fact considered the cancellation clause and, indeed, both sides
called expert evidence on it. The arbitrator held
that at 17 December 2001 [a reasonably well informed person] would have
considered war or large scale hostilities between the United States or the
7
United Kingdom and Iraq to be not inevitable or even probable but merely a
possibility.
The speeches in the House of Lords revealed some puzzlement as to
exactly what the arbitrator meant by his finding. It would obviously have
been more precise, though also more likely wrong, if he had given it a
numerical value and said that it was 10% chance or whatever. The
arbitrator's finding is obviously not open to challenge in the courts. The
opinions which are being tested were probably those of people likely to
lend against or buy the balance of the charter rather than well-placed
observers in Washington with friends in the West Wing.
One can perhaps test matters by asking whether the situation would have
been different if the charterers had repudiated in the summer of 2002 rather
than in December 2001. The answer is surely that in the summer of 2002
war was much more likely and therefore the value of a long-term
charterparty with a war cancellation clause would have been significantly
reduced compared with its value in December 2001.
As a historical fact, the value of the charter in December 2001 was not
altered by the outbreak of war. One might measure this by asking what the
position would have been if, after the repudiation, the owners had in fact
rechartered the ship and six months later the ship had been the subject of a
nautical accident and had sunk. It is hard to see how this could affect the
liability of the charterers for wrongful repudiation.
8
There is clearly a more plausible case in relation to the cancellation because
the cancellation clause was part of the charterparty. This would certainly
justify taking the possibility of cancellation into account in valuing the
charter in December 2001, but this does not necessarily mean that one
should wait until March 2003 to do the sums or, indeed, that, because the
process of litigation was taken to 2003 or later, the answer should be
different.
The argument put for the owners in the House of Lords seemed to come
close to arguing that the cancellation clause could be disregarded. Such an
argument cannot, it is thought, be right. It was appropriate to discount the
possibility of the charter lasting for 48 months but not, in the light of the
arbitrator's holding, by much. It is thought that the presence of the
cancellation clause in the charterparty was an essential part of the
reasoning of the majority. It cannot be the case that the measure of
damages is at the mercy of events between the breach and the date of
judgment.
Let me turn now to The Achilleas, Transfield Shipping Inc V Mercator Shipping
Inc4
The Achilleas is certainly the most important contract damages decision
since the Heron II, if not since Hadley v Baxendale, Unfortunately it is not
4 [2008] UKHL 48 [2008] 2 Lloyd’s Rep 275
9
completely clear what it decides nor, for Jurisdictions not bound by House
of Lords, whether it is rightly decided. An alternative analysis of the facts
can be found in the Judgment of Clarke J 5 and the Court of Appeal 6
described by Baroness Hale in her speech as clearly first class.
Time Charter Parties
In order to understand the significance of the case for general contract Law
it is necessary to say something briefly about the law of time charter parties.
In a time charter party the owner transfers the use of the ship to the
charterer for an agreed time. Normally the owner provides the crew and is
in possession of the ship. The charterer pays at an agreed rate, typically
monthly in advance. The ship will usually be used for a number of voyages
(sometimes by way of subcharter).
There is an obvious practical problem of getting the last voyage to end on
the last day of the charter. It is obvious that the accidents of navigation are
such that this will not always happen. The problem can be addressed by an
express tolerance (for a charter six months, three weeks more or less at the
charterers option). It may also be that where there is no express tolerance,
an implied tolerance will be discovered. Tolerances reduce the number of
difficult case but do not eliminate them. A key factor is that hire rates go up
and down all the time, often quickly and by large amounts. Everyone
agrees that at the least the charterer has to pay for extra days at the contract
5 [[2007] Lloyd’s Rep 19
6 [2007] 2 Lloyd’s Rep 555
10
rate. If the market rate has gone down the charterer has every incentive to
finish on time and re charter at a lower rate but if the market has gone up
the charterer has a powerful reason to seek to squeeze any extra days at the
lower contract rate out of the system.
An important concept here is the lawful last voyage. When the charterer
orders the last voyage, it will often be possible to tell whether it is likely to
be completed within the contract framework. If the better view is that it
cannot then the owner is entitled to refuse the voyage. Ordering an
illegitimate last voyage is itself a breach of contract; the order may be
refused and damages be recovered unless the breach is waived. For a long
time it was unclear whether late delivery after a legitimate last voyage
could be a breach7. It was not finally decided that legitimate final voyage
followed by delayed re-delivery was a breach until The Peonia8.
By a charter party dated 22 January 2003 the Achilleas was chartered for a
period of about five to seven months at a daily rate of US$13,500. By an
addendum dated 12 September 2003 it was fixed in direct continuation for
a further period of about five to seven months at a daily rate of US$16,750.
The maximum period expired on 2 May 2004.
By April 2004 Market rate had more than doubled. On 20 April 2004
charterer gave notice of re-delivery between 30 April and 2 May. On 21
7
(see the different views obiter in House of Lords in the London Explorer [1972] AC 1)
8 [1991] 1 Lloyd’s Rep 100
11
April owners fixed a charter of about four to six months with Cargill at rate
of US$39,500 a day. The laycan date was 8 May 2004.
The last voyage was a sub charter to load a cargo of coal at Qingdao for
discharge at Tobdia and Otta in Japan. The owner did not object to this
fixture. The ship was delayed at Otta and not redelivered until 11 May.
By 5 May it had become clear that the vessel would not be available to
Cargill before the cancelling date. By that time rates had fallen steeply. The
owners negotiated for an extension of cancelling date to 11 May and in
return agreed a revision of the hire to US$31,500. This charter ran for 191
days and 11 hours.
The owners claimed that they had suffered the loss between $39,500 and
$31,500 (That is $8,000) for 191 days and 11 hours amounting to
$1,364,584.57. The charterer said owners were only entitled to difference
between Market rate and contract rate for 9 days which was US$158,301.17.
It was agreed that the charterers had broken the contract.
The owners claim was referred to Arbitration. By a majority of 2-1 the
arbitrators found for the owners. Christopher Clarke J and the Court of
Appeal affirmed.
12
It was clear that each of the steps leading up to the loss was not merely
foreseeable but readily within the contemplation of the parties or any well
informed player in the market.
It is well known that the market is volatile and that this exposed players in
the market to significant risks. It is likely that an owner will seek to re-let
the ship as soon as possible after the end of the previous charter and that
this will involve entering into a contract before the end of the previous
charter. It was not suggested that the owner’s renegotiation of the Cargill
charter was other than a reasonable attempt to mitigate its loss.
Of course the actual amount of the owner’s loss was surprising but this has
traditionally been held not to matter. In fact after the collapse of Lehman
Brothers much bigger changes occurred, from say $300,000 a month to
$5,000 a month.
The House of Lords reversed the Court of Appeal 5-0 though it is clear that
some Lords had more doubts than others. This is particularly true of Lady
Hale who comes close to dissenting (see below).
It is clear therefore that something more is neaded than that the loss is
within the contemplation of the parties. What is this? This question
receives a number of different answers and the differences are, I think ones
of substance and not merely of formulation.
13
Lord Hoffmann held that the charterers had not assumed liability for the
loss of the next fixture. This is in a sense of extension of his reasoning in the
SAAMCO Case. 9 It rests to some extent on a finding of the arbitrators.
“The general understanding in the shipping market was that liability was
restricted to the difference between the market rate and the charter rate for
the overrun period and “any departure from this rule [is] likely to give rise
to a real risk of serious commercial uncertainty which the industry as a
whole would regard as undesirable”.
“The majority arbitrators, in their turn, did not deny that the general
understanding in the industry was that liability was so limited. They said
(at para 17):
“The charterers submitted that if they had asked their lawyers or their Club
what damages they would be liable for if the vessel was redelivered late, the
answer would have been that they would be liable for the difference between
the market rate and the charter rate for the period of the late delivery. We
agree that lawyers would have given such an answer.
“If, therefore, one considers what these parties, contracting against the
background of market expectations found by the arbitrators, would
reasonably have considered the extent of the liability they were undertaking,
I think it is clear that they would have considered losses arising from the loss
9
[1997] AC 191
14
of the following fixture a type or kind of loss for which the charterer was not
assuming responsibility. Such a risk would be completely unquantifiable,
because although the parties would regard it as likely that the owners would
at some time during the currency of the charter enter into a forward fixture,
they would have no idea when that would be done or what its length or other
terms would be. If it was clear to the owners that the last voyage was bound
to overrun and put the following fixture at risk, it was open to them to
refuse to undertake it. What this shows is that the purpose of the provision
for timely re-delivery in the charterparty is to enable the ship to be at the full
disposal of the owner from the re-delivery date. If the charterer’s orders will
defeat this right, the owner may reject them. If the orders are accepted and
the last voyage overruns, the owner is entitled to be paid for the overrun at
the market rate. All this will be known to both parties. It does not require
any knowledge of the owner’s arrangements for the next charter. That is
regarded by the market as being, as the saying goes, res inter alios acta”.
It may be observed that the views of the owner and charterer objectively
determined must be industry wide since there does not appear to be any
relevant evident of the views of the particular owner and charterer. It is not
clear what evidence (if any) was before the arbitrators as to market views
and whether it would be open in another case to lead different evidence. It
is clear that none of their Lordships had personal knowledge. The best
informed Judges involved in the case were clearly Christopher Clarke J and
Rix LJ.
15
In any case it is not clear exactly where the significance of the arbitrators’
statement is. If shipping lawyers had been asked for advice in 1990 many
would have said that late re-delivery after a legitimate last voyage was not
a breach but we now know that they would have been wrong.
The House of Lords faced a similar problem in Raineri v Miles10. In this case
a seller of a house failed to complete on the agreed completion date which
was not time essential. The buyer sued for damages. The seller argued that
failure to complete on time was not a breach. Many conveyancing solicitors
thought this to be the case and that was the view taken by the leading text
Williams on Vessor and Purchaster in every edition since the first in 1903.
The House of Lords (Viscount Dilhorne dissenting) had little difficulty in
deciding that this was wrong.
Lord Hope also talks in terms of assumption of risk but for him the key
factor is that at the time of the contract the charterer, although he would
know that ship was likely to be re-let at the end of the charter would have
no idea for how long or on what terms. This is because the second fixture is
unlikely to be fixed until well into the first charter because of the changing
nature of the markets. The key paragraph is paragraph 34,
“In this case it was within the parties’ contemplation that an injury which
would arise generally from late delivery would be loss of use at the market
rate, as compared with the charter rate, during the relevant period. This is
10
[1981] AC 1050
16
something that everybody who deals in the market knows about and can be
expected to take into account. But the charterers could not be expected to
know how, if – as was not unlikely – there was a subsequent fixture, the
owners would deal with any new charterers. This was something over which
they had no control and, at the time of entering into the contract, was
completely unpredictable. Nothing was known at that time about the terms
on which any subsequent fixture might be entered into – how short or long
the period would be, for example, or what was to happen should the previous
charter overrun and the owner be unable to meet the new commencement
date. It is true that neither party had any control over the state of the market.
But in the ordinary course of things rates in the market will fluctuate. So it
can be presumed that the party in breach has assumed responsibility for any
loss caused by delay which can be measured by comparing the charter rate
with the market rate during that period. There can be no such presumption
where the loss claimed is not the product of the market itself, which can be
contemplated, but results from arrangements entered into between the
owners and the new charterers, which cannot”.
The views of Lord Hoffmann and Lord Hope provide a possible answer to
the taxi driver hypothetical. It is plausible to suggest that telling the taxi
driver about the flight is not enough for him to assume responsibility for it
being missed.
17
Lord Rodger takes what was seems to be a significantly narrower view
based on the extreme volatility of the market on the relevant dates.
“Returning to the present case, I am satisfied that, when they entered into
the addendum in September 2003, neither party would reasonably have
contemplated that an overrun of nine days would “in the ordinary course of
things” cause the owners the kind of loss for which they claim damages. That
loss was not the “ordinary consequence” of a breach of that kind. It occurred
in this case only because of the extremely volatile market conditions which
produced both the owners’ initial (particularly lucrative) transaction, with a
third party, and the subsequent pressure on the owners to accept a lower rate
for that fixture. Back in September 2003 this loss could not have been
reasonably foreseen as being likely to arise out of the delay in question. It
was, accordingly, too remote to give rise to a claim for damages for breach of
contract”.
With the greatest respect there is a major problem with this reasoning. It
suggests that if market conditions had been less volatile and the plaintiff’s
loss accordingly less it would have been awarded. But this means that if
ordinary fluctuations would have caused a loss of £200,000 it would have
been recovered but because the loss was over £1 million nothing should be
recovered. But on this approach it is hard to see why the plaintiff should
not recover at least the £200,000.
18
Lord Walker’s view are perhaps most clearly set out in paras 78 and 84 of
his judgment.
“To my mind, however, the diversity of opinion in the Heron II has another
and more important significance. Other passages in the speeches show that
their Lordships had well in mind (but did not, perhaps, spell out at length)
that it is not simply a question of probability. It is also a question of what the
contracting parties must be taken to have had in mind, having regard to the
nature and object of their business transaction. If a manufacturer of
lightning conductors sells a defective conductor and the customer’s house
burns down as a result, the manufacturer will not escape liability by proving
that only one in a hundred of his customers’ buildings had actually been
struck by lightning. The need to take account of the contract is recognised, I
think, in the passage (at page 385) from Lord Reid’s speech which I have
already quoted; in Lord Morris’s speech at pages 398 and 399; in Lord
Pearce’s speech at pages 416 and 417 (with the example of the court ceiling
collapsing during a sitting); and in Lord Upjohn’s speech at pages 424 and
425. The need for the loss suffered to be within the horizon of the parties’
contemplation (Lord Pearce at page 416) makes it less important to define its
degree of probability with any precision. Arguably a vague expression (such
as “real possibility”) is actually preferable, because it is more flexible, once it
is understood that what is most important is the common expectation,
objectively assessed, on the basis of which the parties are entering into their
contract”.
19
“The majority arbitrators referred to a number of authorities, cited by the
charterers, to the effect that the normal measure of damages for late delivery
is the market rate (if higher than the charter rate) for the period from the
latest date for re-delivery under contract until the date of actual re-delivery.
They made a passing reference to the discussion of this point by Lord
Mustill in Torvald Klaveness A/S v Arni Maritime Corporation (The
Gregos)11, on which Rix LJ commented in paras 58 and 59 of his judgment.
The majority regarded these authorities as giving the charterers only very
limited assistance. Ultimately they accepted and applied the owners’
submission that “what mattered was that the type of loss claimed was
foreseeable” (para 18 of the majority reasons). That was in my opinion too
crude a test, and it was an error of law to adopt it. What mattered was
whether the common intention of reasonable parties to a charter party of this
sort would have been that in the event of a relatively short delay in redelivery an extraordinary loss, measured over the whole term of renewed
fixture, was, in Lord Reid’s words”:
“Sufficiently likely to result from the breach of contract to make it
proper to hold that the loss flowed naturally from the breach or that
loss of that kind should have been within [the defaulting party’s]
contemplation. “
11
[1995] 1 Lloyd’s Rep 1, page 10
20
Lord Mustill’s dictum in The Gregos indicates that that would not have
been the common intention of reasonable contracting parties, and I
respectfully agree.
The speech of Baroness Hale is reminiscent of that of Lord Blackburn in
Foakes v Beer12 in that 90% of it reads like preparation for a dissent.
Nevertheless the decision not to dissert is of great importance since it goes
to the root of what the case decides. The core of this reasoning is to be
found in para 93 of the speech
“My Lords, I hope that I have understood this correctly, for it seems to me
that it adds an interesting but novel dimension to the way in which the
question of remoteness of damage in contract is to be answered, a dimension
which does not clearly emerge from the classic authorities. There is scarcely
a hint of it in the Heron II, apart perhaps from Lord Reid’s reference, at page
385, to the loss being “sufficiently likely to result from the breach of contract
to make it proper to hold that the loss flowed naturally from the breach or
that loss of that kind should have been within his contemplation” (emphasis
supplied). In general, The Heron II points the other way, as it emphasizes
that there are no special rules applying to charter parties and that the law of
remoteness in contract is not the same as the law of remoteness in tort. There
is more than a hint of it in the judgment of Waller LJ in Mulvenna v Royal
12
(1884) 9 App Cas 605
21
Bank of Scotland plc13, but in the context of the “second limb” of Hadley v
Baxendale where knowledge of an unusual risk is posited. To incorporate it
generally would be to introduce into ordinary contractual liability the
principle adopted in the context of liability for professional negligence in
South Australia Asset Management Corpn v York Montague Ltd14 . In an
examination, this might well make the difference between a congratulatory
and an ordinary first class answer to the question. But despite the excellence
of counsels’ arguments it was not explored before us, although it is explored
in academic textbooks and other writings, including those cited by Lord
Hoffmann in para 11 of his opinion. I note, however, that the most recent of
these, Professor Robertson’s article on “The basis of the remoteness rule in
contract”15 argues strongly to the contrary. I am not immediately attracted
to the idea of introducing into the law of contract the concept of the scope of
duty which has perforce had to be developed in the law of negligence. The
rule in Hadley v Baxendale asks what the parties must be taken to have had
in their contemplation, rather than what they actually had in their
contemplation, but the criterion by which this is judged is a factual one.
Questions of assumption of risk depend upon a wider range of factors and
value judgments. This type of reasoning is, as Lord Steyn put it in Aneco
Reinsurance Underwriting Ltd v Johnson & Higgins Ltd 16 a “deus ex
machina”. Although its result in this case may be to bring about certainty
and clarity in this particular market, such an imposed limit on liability
could easily be at the expense of justice in some future case. It could also
[2003] EWCA Civ 1112
[1997] AC 191, 211
15 (2008) 29 Legal Studies 172
16 [2002] 1 Lloyd’s Rep 157, 186
13
14
22
introduce much room for argument in other contractual contexts. Therefore,
if this appeal is to be allowed, as to which I continue to have doubts, I would
prefer it to be allowed on the narrower ground identified by Lord Rodger,
leaving the wider ground to be fully explored in another case and another
context”.
This bring us back to the Victoria Laundies case17, a case which has always
been regarded as correctly decided despite some doubts about the precise
language. There some loss of profits as a result of late delivery was clearly
within the contemplation of the parties as likely to result. This did not
entitle the plaintiffs to recover for the extraordinary loss. In the same way
here the possibility of losing a follow on fixture was clearly within
contemplation but the extreme volatility of the market was not.
It seems reasonably clear that their Lordships do not say exactly the same
thing. In general, like the The Golden Victory the effect is to favour
defendants and make it more difficult to recover.
The speeches which go least far in this direction are those of Lord Rodger
and Lady Hale. Though Lord Hoffmann and Lord Hope do not say exactly
the same thing they clearly go a good deal further. The key speech is that of
Lord Walker (the only Lord to sit on both appeals).
He says 17
[1949] 2 KB 528
23
“For these reasons, and for the further reasons given by my noble and
learned friends, Lord Hoffmann, Lord Hope of Craighead and Lord Rodger of
Earlsferry, whose opinions I have had the advantage of reading in draft, I
would allow this appeal”.
I do not find it easy to interpret this passage. Lord Walker does not actually
say that he agrees with Lords Hoffmann, Hope and Rodger and indeed I
am not sure if that is possible if they are not themselves agreed.
The application of The Achilleas in Singapore was considered in MFM
Restaurants Pte Ltd v Fish & Co Restaurant Pte Ltd18.
The court of Appeal made it clear that it did not think The Achilleas should
be followed in Singapore for the following reasons:
(a) It is not clear that Lord Hoffmann's view represents the ratio of
the case.
(b) It is not clear that what is said in The Achilleas can be reconciled
with what was said in The Heron II.
(c) The application of assumption of responsibility test will have
serious practical difficulties.
(d) Properly considered, it is not clear how far assumption of
responsibility differs from the rules set out in Hardley.
18 [2010]
SGCA 36
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(e) In the court of Appeal's view, the Hadley test produced greater
certainty than the The Achilleas test proposed by Lord Hoffmann.
Conclusions:
1. The plaintiff will not normally recover unless his loss flows from the
defendant’s breach of contract. There are problems where the
plaintiff’s loss can be attributed to breaches of two separate contracts.
This has caused endless debate in tort but its effect in contract must
await another day.
2. Generally speaking it is not enough to show that the loss flows from
the breach if it is rather unlikely. This however must turn on the facts.
If I sell you a faulty lighting conductor and your house is burned
down after being struck by lightning it does not matter that lightning
is very unusual in the area.
3. Conversely it is not necessary to show that the loss is certain. The
precise degree of probability is hard to capture in words. English
lawyers tends to try to avoid the use of the word foreseeable in this
context.
4. It may be that The Achilleas will lead to the adoption of an extra test
based on acceptance. In England this depends on what the case is
treated as deciding. Outside England it will also turn on whether the
decision carries conviction.
5. Usually but not always damages should be assessed as at the date of
breach. Undoubtedly there are exceptions to this rule but their extent
is still to be fully worked out.
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