Paul Bugden, Bugden + Co., London
Skyros Maritime Corporation v Hapag-Lloyd AG (Re ‘SKYROS’ & ‘AGIOS MINAS’) [2025] EWCA Civ 1529
In this case the defendant charterers argued that the particular arrangements which the owner had made for the further employment of its vessel after redelivery, namely here the sale of the vessel, precluded the owner from claiming damages for late redelivery of its chartered ship by reference to a new fixture at the market rate. The owners in answer contended that whether (or when) it would or could in fact have done so is res inter alios acta, namely a collateral matter disregarded by the law for the purpose of assessing damages, but that if not they were entitled to user damages.
The court began by observing that it was striking that in none of the cases or textbooks has there been any suggestion that the owner’s entitlement to recover damages in accordance with this measure has depended on whether the owner would in fact have entered the market to conclude a new fixture on the latest date when the vessel ought to have been redelivered. That is so despite the fact that entry into the market to conclude a new fixture on the date when the vessel ought to have been redelivered is probably the exception rather than the rule. Even in the (perhaps typical) case when the owner’s intention is to conclude a new fixture, the owner is likely to have concluded that fixture some time in advance of the latest contractual redelivery date, for example on receipt of the charterer’s redelivery notice, in order to minimise the time between hire earning fixtures. But it has not been suggested that the relevant market rate for the purposes of assessing damages should be the rate applicable on the date when the owner does in fact enter the market, or might reasonably have done so on receipt of a redelivery notice, which may well be different from the rate on the latest contractual redelivery date.
Moreover, an owner may have other plans for its vessel which do not include entry into a new fixture as soon as possible after redelivery. It may be convenient to have the vessel dry docked for repairs or periodic survey, or to carry out a positioning voyage at the owner’s own expense with a view to more favourable employment thereafter. Or the owner may have committed to sell the vessel, as in the present case, either because it has decided to exit the ship owning business or in order to purchase a new vessel for the future. In any of these events, which are commonplace and foreseeable, damages for the overrun period assessed by reference to the market rate at the latest contractual redelivery date will not reflect the owner’s actual loss but again these possibilities should not affect the owner’s right to recover damages in accordance with the normal measure.
In The Achilleas [2008] UKHL 48, [2009] 1 AC 61 the late redelivery caused the owner to lose the vessel’s next fixture, which had been concluded some weeks before redelivery, at a high market rate in a period of particular volatility. By the time of redelivery, the market had fallen and the owner was forced to renegotiate the follow-on fixture. The owner claimed damages, not limited to the overrun period, for the loss of this lucrative fixture consisting of the difference between the high rate initially agreed and the market rate which the owner had subsequently been forced to accept for the whole period of the follow-on charter. The House of Lords rejected this claim, holding that such damages were too remote, but that the owner was entitled to recover damages in accordance with the normal measure, that is to say the difference between the market rate and the charter rate for the period of the overrun. This was described as ‘the loss which would generally happen in the ordinary course of things’ if the vessel was redelivered late. It was recognised that the normal measure may either over or under-compensate the owner in some cases. However, that is not a reason for departing from it.
Likewise in Manchikalapati v Zurich Insurance PLC [2019] EWCA Civ 2163, it was submitted that, because the homeowners had not carried out any repairs works themselves, they had suffered no loss and in The London Corporation [1935] P 70 it was argued that, because the owners had previously arranged that the vessel was to be sold and broken up, it would never be repaired, and again there was therefore no loss. Neither argument succeeded. In the latter case, Greer LJ referred at page 78 to the sale of the vessel as an “accidental circumstance which ought not to be brought into account in the way of diminution of damages.
Just as the owner in The Achilleas was not entitled to recover damages for loss of the follow-on fixture, so too the owners in the present case would not have been entitled to recover damages for loss of the sale contracts if the late redelivery of the vessels had given the buyers a right to cancel those contracts. In that event, at least, the sale contracts would have been regarded as either too remote or res inter alios acta.
It followed that the particular arrangements which the owner may have made for the further employment of its vessel after redelivery – or in this case, for the sale of the vessels – were held to arise independently of the circumstances giving rise to the breach and were therefore to beignored by the law for the purposes of assessing damages. The result was that the owner was entitled to damages for late redelivery in accordance with the normal measure, that is to say to recover the difference between the contract rate and the market rate for the period of the overrun, regardless of any arrangements which it has in fact made for the future use of the vessel. The charterer is simply not concerned with such matters.
The court observed that this was a beneficial outcome which promotes certainty in commercial dealings, and enables accounts to be closed and disputes settled with a minimum of complication and expense. If it were otherwise, a charterer could never know the extent of its liability without investigating what the owner had arranged for the future use of the vessel, and there would be an incentive to take every case to an arbitration in the hope that something would turn up on disclosure. To the extent that this resulted in something of a windfall for the owner the court cited in answer cited Lord Justice Scrutton in Slater v Hoyle & Smith Ltd [1920] 2 KB 11, 25, that ‘the rules of English law do not always give exact indemnity’; and Lord Justice Greer in The London Corporation [1935] P 70, 78 (a case of damage to a ship in which the owner recovered the full cost of repair despite having sold the vessel to be broken up), that ‘it is ‘desirable that there should be a measure of damage which can be easily and definitely found’.
This conclusion made it unecessary strictly speaking for the court to consider the owners’ alternative case that they were entitled to the same recovery by way of user damages where the ordinary compensatory principle leads to the conclusion that the owners have suffered no measurable financial loss but the court proceeded to consider the point anyway.
The leading modern authority on user damages is the decision of the Supreme Court in One Step (Support) Ltd v Morris-Garner [2018] UKSC 20, [2019] AC 649. In that case Lord Reed described user damages as being available where there has been an invasion of the claimant’s rights to property, including intangible property, but no pecuniary loss or physical damage to the property in question. The principle, described by Lord Shaw in Watson, Laidlaw & Co Ltd v Pott, Cassels & Williamson (1914) SC (HL) 18, is that ‘wherever an abstraction or invasion of property has occurred, then, unless such abstraction or invasion were to be sanctioned by law, the law ought to yield a recompense under the category or principle, as I say, either of price or of hire’. A famous example, given by Lord Shaw, is the liveryman’s horse: ‘If A, being a liveryman, keeps his horse standing idle in the stable, and B, against his wish or without his knowledge, rides or drives it out, it is no answer to A for B to say: “Against what loss do you want to be restored? I restore the horse. There is no loss. The horse is none the worse; it is the better for the exercise”.’
The question was whether the principle should be extended to the facts of the present case and the court thought not. Although late redelivery could to some extent be characterised as a wrongful use of property it is not truly comparable with an invasion of property rights as in the case of the liveryman’s horse. In those circumstances it saw no justification for introducing into the law of damages in contract a novel basis of recovery, outflanking the basic compensatory principle and awarding user damages where in fact no loss has been suffered.