THE AUTHOR:
Madeline Chan, Managing Associate at Linklaters
In Skyros Maritime Corporation & Agios Minas Shipping Co v Hapag-Lloyd AG [2025] EWCA Civ 1529, a case arising from an appeal on a point of law from an LMAA (London Maritime Arbitrators Association) tribunal, the English Court of Appeal held that the appellant owners were entitled to recover compensatory damages based on the difference between the contract and market rate for the late redelivery of time-chartered vessels. This was so even though the owners had committed to selling the vessels and would not have chartered them out again, meaning they had not suffered any actual loss. In reaching its conclusion, the Court of Appeal considered as a matter of policy that commercial certainty requires a clear and predictable measure of damages.
Background
The case concerned two charterparties, both English law governed and subject to LMAA arbitration, by which the owners of two container vessels, the “Skyros” and the “Agios Minas”, chartered their vessels to Hapag-Lloyd, a major German container line operator.
The terms of the two charterparties specified deadlines for redelivery of the two vessels. Crucially, before the redelivery deadlines, the owners had entered into a Memoranda of Agreement (“MOAs”) whereby they agreed to sell the vessels to third parties. In breach of the charterparties, the charterers redelivered both vessels late. During the overrun periods, the charterers paid hire at the rates agreed in the charterparties. By this time, however, the rates which the market would have offered for the vessels were significantly higher than the charterparty rates.
Under English law, in typical cases involving late redelivery under a charterparty, the normal measure of damages (also referred to as “market-based damages”) is calculated by reference to the difference between the market and contract rates for the overrun periods, to compensate owners for the lost opportunity to charter the vessels to another party.
On the facts of this case, however, it was common ground between the parties that, if the vessels had been delivered on time, the owners would not have rechartered them again after redelivery, because the vessels would have been delivered to the buyers as soon as they were redelivered under the charterparties. Indeed, under the terms of the MOAs, the owners had agreed not to enter into any further charter fixtures before delivering the vessels to the buyers.
Against this background, the arbitral tribunal held that the owners were entitled to recover substantial sums from the charterers; albeit, principally, on a number of more atypical grounds (including claims for a quantum meruit payment, and the recovery of user damages and negotiating damages) – rather than compensatory damages for late redelivery.
The charterers appealed to the English High Court under s.69 of the Arbitration Act 1996 (a non-mandatory provision which, in English seated arbitrations, provides a limited ability to appeal points of English law to the court). The High Court allowed the charterers’ appeal, holding that the principal grounds relied upon by the tribunal were not correctly applicable. Furthermore, as to compensatory damages for late redelivery, it considered that the owners had committed under the MOAs to deliver the vessels to the buyers without concluding any further fixture. Therefore, the owners had not lost the opportunity to take advantage of the market rate during the overrun periods. Accordingly, the charterers’ breach made no difference whatsoever to the owners’ actual loss, and therefore, the owners were entitled to nominal damages only.
The owners appealed to the Court of Appeal. The key issue on which they were granted permission to appeal was whether the existence of the contracts to sell the vessels (i.e., the MOAs) should be disregarded in assessing any such compensatory damages.
The Court of Appeal’s Decision
The Court of Appeal upheld the owners’ appeal, affirming their right to substantial damages calculated by reference to the “market-based” measure. Its view was that the existence of the MOAs was not relevant to this assessment.
The Court of Appeal emphasised that it has been clear for over a century that in the event of late redelivery under a time charter where the market has risen above the contract rate, the shipowner is entitled to recover damages consisting of the difference between the market rate and the contract rate for the overrun period. The Court noted that established authorities contained no suggestion that whether the owner would, or could, have entered the market to conclude a new fixture was relevant to this.
Likewise, the Court observed that an owner may have various plans for its vessel which do not include entry into a new fixture. In any of these events, which are commonplace and foreseeable, damages for the overrun period assessed by reference to the market rate will not reflect the owner’s actual loss, but it had not been suggested that these possibilities should affect the owner’s right to recover damages in accordance with the normal measure.
In the Court’s view, this was in accordance with principle, because the late redelivery means that the owner has lost the opportunity to conclude a new fixture at the market rate, but whether it would or could in fact have done so is res inter alios acta, i.e., a collateral matter disregarded by the law for the purpose of assessing damages. Put differently, the arrangements the owners made for the sale of the vessels arose independently of the circumstances giving rise to the breach and should therefore be ignored. This is so “regardless of whether the effect of disregarding such matters is to increase or decrease the loss which the law determines the claimant to have suffered”.
The Court considered that this approach “promotes certainty in commercial dealings, and enables accounts to be closed and disputes settled with a minimum of complication and expense”. Otherwise, the Court noted, “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”. Whilst acknowledging that this may result in something of a windfall for the owner, the Court noted that “the rules of English law do not always give exact indemnity” and “it is desirable that there should be a measure of damage which can be easily and definitely found”.
Comment and Conclusions
In English law, damages for breach of contract compensate for loss, not to punish the wrongdoer. The general rule (articulated in the case of Robinson v Harman (1848) 1 Exch 850)) is that the basic measure of contractual damages is to put the claimant “so far as money can do it…in the same situation, with respect to damages, as if the contract had been performed”. This is known as the compensatory principle.
At the same time, there is an ongoing debate in English cases, insofar as the situation involves an “available market” for the claimant, about the relevance of market prices to a contract damages award. On a strict market-based approach, a claimant’s damages for late delivery or non-delivery should be the difference between the contract rate and market rate at the time of breach, regardless of what the claimant does. However, the recent judicial trend in England and Wales, including at the highest appellate levels (see e.g., Bunge SA v Nidera BV [2015] UKSC 43, at [16] and [17]) has been to depart from the strict market-based approach, focussing on the idea (consistent with the compensatory principle) that damages should provide compensation for actual loss. On this view, the market-based normal measure of damage is just a starting point, but ultimately a prima facie measure of loss that can be rebutted, if applying it would over- or under-compensate a claimant, as compared to the loss it actually suffered.
This case shows the Court of Appeal’s willingness to affirm the primacy of market-based contract damages; at least in the particular context before it. Its reasoning was clearly driven by considerations of certainty, even if by doing so a claimant may get “something of a windfall”. By categorising a claimant’s own commercial arrangements as being collateral, or res inter alios acta, the Court of Appeal has shown its willingness to award market-based compensatory damages based on loss of opportunity, even where the claimant would not have exploited that opportunity. But there is tension between this and the compensatory principle.
It remains to be seen whether this case will be further appealed. Any further clarity to be given by the English courts on this matter will likely also be of interest in cases beyond maritime law, particularly those involving sale of goods and carriage contract disputes.
ABOUT THE AUTHOR
Madeline Chan is a managing associate at Linklaters. She specialises in international arbitration and litigation. She has experience acting in a wide spectrum of commercial disputes, with particular experience in the commodities, construction, and financial services sectors. Having lived and worked abroad for most of her career, she has the linguistic ability and cultural sensitivity of managing large cross-border disputes. While at Linklaters, Madeline went on secondment to the Free Representation Unit to work as a solicitor-advocate. She has also been seconded to Linklaters’ Hong Kong office and has previous work experience at the HKIAC (Hong Kong International Arbitration Centre).
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect. This article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Readers should conduct independent research and analysis before acting and consult, as needed, qualified legal counsel.
