View source for Hapag-Lloyd AG v (1) Skyros Maritime Corporation (2) Agios Minas Shipping Company (The “Skyros” and “Agios Minas”)

'''DMC/SandT/25/01'''

'''England'''

'''HAPAG-LLOYD AG v (1) SKYROS MARITIME CORPORATION (2) AGIOS MINAS SHIPPING COMPANY (THE “SKYROS” AND “AGIOS MINAS”)'''

'''English Admiralty Court: Bright J: [2024] EWHC 3139 (Comm): 13 December 2024'''

Judgment available on BAILII @ <nowiki>https://www.bailii.org/ew/cases/EWHC/Comm/2024/3139.html</nowiki>  

Steven Berry KC and Adam Board (instructed by MFB Solicitors Ltd) for the Claimants

Julian Kenny KC and James Lamming (instructed by Wikborg Rein LLP) for the Defendants

'''TIME CHARTERS: LATE REDELIVERY OF TWO VESSELS BY CHARTERERS: VESSELS ON REDELIVERY IMMEDIATELY DELIVERED INTO SALE & PURCHASE AGREEMENTS MADE BY OWNERS: ARBITRATORS HELD OWNERS ENTITLED TO SUBSTANTIAL DAMAGES AT MARKET RATE FOR PERIOD OF OVERRUN: APPEAL BY CHARTERERS ON QUESTION OF LAW UNDER SECTION 69 OF ARBITRATION ACT 1996: WHETHER OWNERS ONLY ENTITLED TO NOMINAL DAMAGES BECAUSE NO LOSS OF MARKET RATE SUFFERED'''

Note: Permission has been granted to Owners to appeal the High Court’s decision

'''DMC Classification: Developed'''

'''Summary'''

In an appeal under s.69 of the Arbitration Act 1996, the High Court overturned two arbitration awards, under which the Owners of the two vessels concerned, the “Skyros” and the  “Agios Minas”, had been awarded substantial damages for late redelivery from their respective time charters.  The Court held that nominal damages only should be awarded, as the vessels had, on their redelivery, been delivered to new buyers under MOAs (Memorandum of Agreement) into which the Owners had entered shortly prior to the vessels’ redelivery. Because Owners were already committed to selling the Vessels under the MOAs, they did not lose any opportunity to profit from the higher charter market rates current at the time of the late redelivery, and thus had not suffered any recoverable loss. 

Case note contributed by Captain Amarinder Singh Brar, Master Mariner, LLM (Maritime Law), Marine Manager with MFB Solicitors, and International Contributor to DMC’s CaseNotes

'''Background'''

Containerships “Skyros” and “Agios Minas” were time chartered on an NYPE form by their (then) Owners to Charterers, Hapag-Lloyd AG, in 2017 and 2020, respectively.  Redeliveries were contemplated on 30 May 2021 and 31 May 2021, respectively. 

Later, on 22 April 2021 and 23 March 2021, respectively, Owners entered into MOAs, to sell the Vessels to other leading container lines. 

Charterers redelivered the Vessels late — one vessel by about two days and the other vessel by about seven days (“overrun periods”). Charterers continued to pay hire as per the charterparty rates for the overrun periods.  These daily hire rates were significantly lower than the prevailing market rates for time charter hires for vessels of similar size with similar hire periods assumed.

It was common ground between parties that even if the Vessels had been redelivered on time, Owners would not have chartered them out again post-redelivery but instead delivered them directly to the buyers.  Therefore, the Vessels would not have earned any hire between redelivery under the charterparties and delivery upon sale under the MOAs.

In arbitration, the Arbitrators were asked to resolve, based on agreed assumed facts, whether Owners were entitled to recover from Charterers substantial damages (as Owners alleged) or only nominal damages (as Charterers alleged).

The Arbitrators found for Owners, holding that Owners were entitled to recover substantial damages from Charterers in respect of the overrun periods.  Final awards were issued in relation to both charterparties with identical reasoning.  Charterers appealed to the High Court.

'''Judgment'''

Having dealt with the background, the facts, and the arbitration awards, the Judge held as set out below.

Owners framed their claims in the arbitration proceedings as being for the difference between the charter rate and the market rate, for the overrun period concerning each Vessel.

Charterers believed that Owners were not entitled to such damages because their breach had not in fact caused Owners to suffer any market rate loss.  Owners were unable to let the Vessels on the market because of the MOAs and, accordingly, were unable to take advantage of the prevailing higher charter rates. Charterers’ breach, therefore, did not cause Owners to lose potential profit from the higher market rates; rather, Owners had already decided not to take that opportunity when they concluded the MOAs.

Charterers relied on Robinson v Harman (fn.1) for the proposition that the basic measure of contractual damage is to put the innocent party “… so far as money can do it… in the same situation, with respect to damages, as if the contract had been performed”.  They pleaded that, had there been no breach, Owners would not have been better off in monetary terms. 

Owners agreed with the above principle but stated, as a matter of legal principle, that they were entitled to claim the difference between the charter rate and the market rate. They contended that the MOAs must be disregarded.  They relied on the House of Lords judgment in The Achilleas (fn.2) and several cases concerning the doctrine of res inter alios acta (“a matter between other parties, which is not relevant to the present dispute”).  Charterers’ position was that The Achilleas was concerned with remoteness of loss and was, accordingly, irrelevant. 

The Judge endorsed the statements in Time Charters (fn.3) and Carver on Charterparties (fn.4). These establish the "normal measure of damages" but emphasised that each case depends on its specific facts and the charter terms.  Therefore, these practitioner works did not assume or deem that owners automatically suffered a loss simply due to the late redelivery of a vessel. The "normal measure" compensates owners for the loss of opportunity to benefit from market rates during the overrun.  Accordingly, if no such opportunity was lost (as with the MOAs in this case), then this compensation does not apply. 

In summary, the Judge opined that because Owners were already committed to selling the vessels under the MOAs, they did not lose any opportunity to profit from market charter rates as a result of the late redeliveries.  Therefore, Owners suffered no recoverable loss and were, in consequence, entitled to nominal damages only.

In closing, the Judge expressed concern about the limited legal arguments that the parties had presented.   While the judgment covered all relevant authorities (both those cited by the parties and others), the parties' submissions had focused only on a few key cases. Due to time constraints and with half of the hearing dedicated to other issues, the Judge felt insufficient time had been spent on the crucial judgments.

The Judge also believed that further research could have uncovered more relevant case law and academic commentary.  

He made these observations to ensure that, if the case were argued in an oral hearing before the Court of Appeal, the higher court would receive more thorough and comprehensive legal arguments and research on these important and complex legal issues.

'''Comment'''

This case very much turned on the facts.  The MOAs for sale were agreed close to the end of the time charterparties, which spanned 4 years, 3 months and 1 year, 2 months, respectively, with both charters ending close to each other.  The market rates for both vessels at the time of their late redelivery were also higher than the charter rates.  Given the nature of the containership trade, in the author’s view, the delays in redelivery were purely operational in nature.

Owners claimed damages in the ‘traditional’ sense.  However, the fact that the sales were agreed at the end of the charters precluded Owners from chartering the vessels out again at the end of the charters.  Therefore, Owners were committed to accepting redelivery under the charters, and were also obliged to deliver the Vessels immediately under the MOAs to the new buyers.  This, in turn, enabled Charterers to plead successfully that Owners were entitled to nominal damages only, because Owners could not have chartered out the Vessels to take advantage of the then prevailing higher charter market rate.  Further, Owners were, in any event, being paid the agreed daily hire rates under the charters for the overrun periods, and so Owners did not go without compensation for the modest overrun periods of continued use of the Vessels by Charterers.

Permission to appeal has since been granted to Owners.  It remains to be seen which points raised by Owners will eventually be argued in the appeal. The Court of Appeal’s judgment will be keenly awaited by the maritime and commercial trade communities, as similar considerations may well apply when goods are not delivered, or are delivered late, under sales contracts. 

Footnote 1: (1848) 1 Exch 850, p 855

Footnote 2: [2008] UKHL 48

Footnote 3: (7th ed), paras 4.52 and 4.53

Footnote 4: (3rd ed), para 12-283