The Law in England
With this principle already expounded on under ‘7.1 the continuing obligation to pay hire’, it barely comes as a surprise that the owners would find success with another claim. Damages, however, is not the issue at hand; the implementation of the charter party is the main issue as it is put in line 54 of NYPE 46; ‘…hire to continue until the hour of the day of her re-delivery…’ The charterer has not challenged this obligation.
When considering the damages to an individual or party, the rule of thumb in English law as from 1880 is to put the aggravated party in the position he would have been in had the breach of contract not occurred.
Therefore, the claimant would be allowed the full claim amounting to $1,364,584.37 i.e. the amount lost due to charter rate renegotiations with Cargill. Had the Transfield re-delivered within the specified time these renegotiations would have been unnecessary. The owners could have earned $39,500 daily as opposed to the $31,500 daily amount they were earning. However, as is the case with any general rule, there are always exemptions because there are special cases where the above full compensation rule would be unfair to the paying party. For these special cases, the 1854 case of Hadley v. Baxendale is applied, similar to the way Lord Wright ruled in Liesbosch Dredger v. Edison SS:
‘The law cannot be responsible for all things that go behind wrongful doings; it concerns some subsequent issues as exterior to the extent of its collection, since ‘it were boundless for laws to judge the reasons of causes’, or the results of penalty […] In the diverse web of dealings the law should abstract some results as importance, not perhaps on fundamental of pure logic, however, simply for practical motives’.
Though this was tort litigation, the same qualities could also be practical to a case of contract contravene.
Limitation of Liability: Hadley v. Baxendale
The case of Hadley v. Baxendale contains two limbs. The first limb highlights that following an infringe of contract, the losses compensated, ‘… must be those that may be fairly and rationally reckoned as either (a) arising logically i.e. with regards to the frequent course of actions after the breach, or the ones (b) that may have been hypothetically determined by both parties, at the particular time they established the contract, as the likely result of its infringing…’
The second one provides consideration of special circumstances where the party in breach is excluded from liability. These circumstances include situations where the accused had indirect or real knowledge that the damages were redeemable.
Over the years some courts have tried to adjust this approach claiming that the loss would have had to be foreseen only by the defendant. In this regard, Lord Reid in The Heron II stated the breaching party should be liable for damages too, as the probability of certain circumstances causing loss would have had to be within reasonable contemplation of both parties.
The Case: Award and Appeal
All the three arbitrators except one accented on the rewarding in favour of the owners claiming that the first limb of Hadley v. Baxendale supported their ruling. The argument was that the renegotiations were an expected result of the late re-delivery. Both parties would have had knowledge of such consequences since they were both familiar with the formalities and particularities of the shipping market.