Something Old Something New - The Remoteness Rule

The recoverability of damages for loss of revenue following a breach of a charter - and, indeed, the law relating to remoteness more generally - was thrust into uncertainty in July 2008, when the House of Lords handed down its judgment in The "ACHILLEAS"1 substantially qualifying Hadley v Baxendale, the seminal contractual damages decision which had remained largely unadjusted for over 150 years.

The recent decision in The "SYLVIA"2 supports the most favoured view in Hadley v Baxendale on the recoverability of damages for loss of revenue following a breach of a charter, relegating The "ACHILLEAS" to extreme circumstances.

The "ACHILLEAS" Decision and the Orthodox Rule

The majority of the House of Lords asserted that, when assessing the recoverability of damages, the relevant question is whether the loss is of the kind or type for which the "contract breaker ought fairly to be taken to have accepted responsibility" according to the interpretation of the contract in its commercial setting.

This may be seen as a radical amendment to the orthodox test which allowed a party to recover damages for breach of a contract where the loss is:

"such as may fairly and reasonably be considered as arising naturally... according to the usual course of things, from such breach of contract itself" (which a reasonable man would have realised was a "not unlikely" consequence of the breach); or "such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach". Further, the kind, though not the extent, of the damage should be foreseeable. However, comfort can be taken from the judgment of Hamblen J in The "SYLVIA", the latest in a series of decisions subsequent to The "ACHILLEAS" which adopts the position that "in the great majority of cases it will not be necessary specifically to address the issues of assumption of responsibility".

As considered below, the assumption of responsibility "supplement" to the orthodox doctrine will apply in few cases other than those identical to the decision in The "ACHILLEAS" or where, by virtue of a technicality, the rule in Hadley v Baxendale does not suffice.

Comparison - The "SYLVIA" and The "ACHILLEAS"

The "ACHILLEAS" concerned the late redelivery by time charterers of a vessel on its final (legitimate) voyage. The delay resulted in a breach of the follow on charter, which allowed the new charterers to cancel the contract. Owners...