- Only Nominal Damages for Shipowners When MOAs Block Further Fixtures.
- MOAs Preventing Re-Chartering Nullify Substantial Damages Claim.
- Charterer Breach Without Owner Loss: Court Clarifies Redelivery Damages.
The English Commercial Court has offered helpful guidance on the scope of damages recoverable by a claimant shipowner for late redelivery of a vessel under a time charter. In particular, where there is proof that the vessel owner would have been prevented from entering into a follow-on charter, nominal damages alone will be recoverable since no actual loss has occurred, reports WFW.
Background
Hapag-Lloyd AG (the “Charterers”) agreed to two substantially similar time charters (the “Charters”) for the vessels MV Skyros and MV Agios Minas (the “Vessels”) with Skyros Maritime Corporation and Agios Minas Shipping Company.
Essential facts
- According to the Charters, the Vessels were due for redelivery on 30 May 2021 (Skyros) and 31 May 2021 (Agios Minas).
- Before these dates, the Owners had signed MOAs (Memoranda of Agreement) to sell the Vessels to MSC Shipping SA and Maersk A/S. These MOAs forbade the Owners from negotiating new charters after the Charters ended.
- Both Vessels were late redeliveries: Skyros by two days and Agios Minas by seven days. At that time, market rates for the vessels were above the charter rates.
- Although the Charterers paid hire throughout the delay, they were in default of their redelivery obligation.
- The Owners claimed they had lost more lucrative charter opportunities and claimed substantial damages — the difference between the charter hire paid and the greater market rate.
- Arbitrators ruled in favour of the Owners, awarding substantial damages. The Charterers appealed the ruling in Court.
Legal Issue
The central legal issue was:
Can the Owners recover the difference between the market rate and the charter rate if they cannot conclude a new charter because of the MOAs?
The Owners put forward three submissions:
- Quantum Meruit
- User Damages
- Negotiating Damages
They also invoked the doctrine of res inter alios acta, referring to Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48 (“The Achilleas”), to contend that the MOAs must be ignored in calculating damages.
Court’s Findings
- Quantum Meruit Rejected: The Court dismissed the quantum Meruit argument, observing that this doctrine is only invoked in cases of unjust enrichment where services are performed without agreement as to payment. The hiring was earned and paid for at charter rate. The contract for all the services performed, thus, was faithfully complied with and the Charterers did not get a service that was beyond the contemplation of the Charters, thus rendering quantum meruit inapplicable.
- No Basis for User Damages: The Court also rejected the argument of user damages, which is normally applied in the case of wrongful use of property. The wrongful failure to deliver the Vessels within the time allowed was not an improper use of property.
Significantly, the Court held that the Owners were not deprived of possession of the vessels, although the Charterers were giving voyage instructions. The scope of application of user damages to contract is very narrow. - Negotiating Damages Inapplicable: Damages are usually granted for negotiating when a breach robs a claimant of the economic value of a right (e.g., IP rights). The Court could not find such value in the obligation of redelivery. Timely redelivery did not give the Owners a right of any economic value.
Res Inter Alios Acta and Remoteness
The Owners had contended that the MOAs were too remote and must be ignored under the rule of res inter alios acta. They had urged the Court to consider damages without regard to these pre-existing contracts. The Charterers had replied that the doctrine of remoteness cannot stretch recovery to cover compensation for losses that do not exist. The Court dismissed the Owners’ reading of The Achilleas: “Wholly unrealistic.” It explained that The Achilleas relied on traditional remoteness rules damages not in the contemplation of the parties are not recoverable.
It was considered inappropriate to imply that the consequence of this analysis would be to permit recovery of damages by a claimant who had suffered no loss whatsoever.
In the end, the MOAs could not be disregarded, since they were precisely on point regarding the lack of actual loss.
Final Ruling
Since the MOAs restricted the Owners from entering the market, they did not suffer any recoverable loss. Thus, the Owners were only entitled to nominal damages for the breach by the Charterers. Shipowners should be aware that where charterers redeliver late, their ability to claim substantial damages could be limited by the existence of any contractual obligations that prevent entry into further fixtures.
Key Takeaways
- Default Rule on Damages: Normally, damages for delayed redelivery would be the difference between the charter rate and the market rate at the time of the overrun.
- Actual Loss is of Paramount Importance: Actual loss, i.e., loss of a market opportunity, has to be established by shipowners to claim more than nominal damages.
- Limited Application of Res Inter Alios Acta: This rule will not work to enhance damages by refusing to apply contracts that exclude loss.
- Remoteness Slashes Damages: Courts are not likely to entertain the claim that remoteness can be applied to enhance damages.
- Charterers Preferred: This case gives a charterers-friendly precedent under which a claim by a shipowner is in respect of speculative loss or when other contractual undertakings hamper the reuse of the vessel.
Conversely, this ruling is in favour of charterers and is a handy precedent whereby a shipowners’ damage claim might be curtailed if such claim by shipowners is based on hypothetical losses and/or where there are other causative factors (such as pre-contractual commitments) other than the breach by charterers stopping the subsequent employment of the vessel.
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Source: WFW
