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THE ACHILLEAS – NO OVERTURN OF CRUCIALDECISION ON OVERRUNBy Ian Ross – Ross and Co. SolicitorsFew shipping cases can have generated as muchinterest in recent months among maritimelawyers and the shipping interests theyrepresent, as the Achilleas. It has been a longwait and a number of live disputes undercharterparties have been kept on ice whilethree distinguished judges of the Court ofAppeal have been debating whether to decidein favour of shipowners or charterers. Nowthe wait is over. The Courtgave their judgment a fewweeks ago and a number ofexperienced practitionersare surprised at theoutcome.Firstly some background.Most London arbitrationsare settled amicably longbefore they reach a fullhearing and the publicationof an Arbitration Award.Transfield Shipping Inc vMercator Shipping Inc –more popularly known asthe Achilleas is now a very notable exception tothat general rule. Not only did the disputemake its way to a full award from three highlyexperienced London Arbitrators – DavidFarrington, Bruce Buchan and ChristopherMoss, but the award then became the subjectof an appeal to the High Court and then yet afurther appeal to the Court of Appeal, (whogave their judgment on September 6th 2007).So what was all the legal fuss about?The case concerned “overrun”. Overrun hasbeen defined as “the period of time from whena vessel should have been redelivered inaccordance with the charterparty until hertime of actual redelivery”. In other wordsoverrun is when the time charterer fails toredeliver the vessel at the agreed time in theIAN ROSScharterparty. The particular issue which arosein the Achilleas was what was the level ofdamages the charterers should pay for lateredelivery.The measure of damages. The judges at firstinstance and also at the Court of Appeal werepresented with two distinct and fundamentallyopposed approaches and views, one thetraditional view and theother a much newer way oflooking at such claims. Thetraditional approach todelayed redelivery is that themeasure of damages shouldbe the difference betweenthe market rates on the onehand and the charterpartyrate on the other hand forthe period from the timewhen the vessel should havebeen redelivered until thetime of her actual redelivery.The new way looks insteadat the loss of profit on the entire subsequentcharterparty and says there is no reason whythose sums should not be claimed.The difference between the two approaches isnot merely an academic one. In the Achilleasthe damages payable by charterers under thetraditional approach were US$158,301.17. Thedamages applying the new approachand calculating owners loss of profit onthe subsequent charterparty wereUS$1,364,584.37.Those arguing for the traditional view pointedto a body of law and practice which is found inleading English cases and leading textbookcontinued on page 54
continued from page 4writers. There ample support is found, so it wasargued in the Court of Appeal, for thetraditional view. The traditionalists argued thatno court should depart from such an approachunless satisfied that they are clearly wrong. Itwas also argued that the rule was simple,certain and fair and above all one which wasadopted in practice by the shipping market.Contrary views. The owners of the Achilleaswhose vessel had been redelivered late saidthat the traditionalists had greatly overstatedthe position. There were in fact no Englishcases which had in fact decided as a matter ofabsolute principle the damages which shouldapply in a case like this. Whichever way thecharterers tried to argue it, the fact remained,(so owners said) that they had undoubtedlysuffered a loss of US$ 1,364,584.37 on accountof charterers breach of contract. On that basisthey were entitled to be put in the sameposition as if that breach had never occurred.Owners accepted that they were not entitledto recover in respect of any losses which eventhough they were caused by the breach weretoo remote. However, no one could ignore thefact that the arbitrators, having heard all theevidence of the parties to the contract thoughtthat those losses were not too remote.What did the judge decide and what did theEnglish Court of Appeal decide? Were damagesto be limited to approximately US$160,000 orUS$1.3 million?Having reviewed all the arguments andauthorities the Judge at first instance had nodoubt that the traditionalists were wrong. Hesaid:“To award damages in this case on the basis ofthe difference between the market rate andthe charter rate for the overrun wouldcompensate the owners for only a fraction ofthe true loss caused by the breach.” He alsosaid:“I have not come to the conclusion I havereached with any sense of regret. As LordAtkinson observed ……..it is a generalprinciple of law that in giving damages forbreach of contract the party complainingshould so far as it can be done by money beplaced in the same position as he would havebeen if the contract had been performed. Thatis a ruling principle. It is a just principle.”Did the Court of Appeal accept or reject theapproach adopted by the majority ofarbitrators and the judge at first instance? Theapproach was accepted – no overturn they said.They emphasized the importance of matterssuch as the likely business knowledge of thecharterer. They thought that a charterer of atime chartered vessel would know and if notcertainly ought to know that a new fixture wasvery likely to be entered into by the owner soas to follow as closely as possible the redeliveryof the vessel. That conclusion was reinforced bythe fact that this particular charterer was wellaware of the chartering market and should havebeen wary about the danger of late deliverygiven their background knowledge. They heldthat there was no fixed rule that damages forlate delivery of a time chartered vessel waslimited to the overrun period measure. On thatbasis the Court of Appeal decided that ownerswere entitled to the full sum of their claim plusinterest plus costs.SUMMARYThe decision in the Achilleas has been watchedand waited with great anticipation by ownersand charterers alike. It is likely to have a bigimpact on the negotiations for damagecompensation arising out of late delivery.Changes are likely to be needed to the tacticsto be adopted by charterers once late deliveryis known to be unavoidable. Of course the casecould reach the highest court in the land – theHouse of Lords, but until then the Achilleassounds a clear note of warning for charterersand their advisers.5
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