Despite a significant rise in market rates during an overrun period, the High Court held that Owners could only recover ‘nominal damages’ in Hapag-Lloyd AG v Skyros Maritime Corporation and Agios Minas Shipping Company [2024] EWHC 3139 (Comm). Owners were precluded by the MOAs from entering into new charter fixtures after expiry of the charterparties, according to the judgment, which offered insights into damage calculations and third-party agreements. Jeong-Sook Kim and David Owens summarise.

On 13 December 2024, the High Court delivered its judgment in Hapag-Lloyd AG v Skyros Maritime Corporation and Agios Minas Shipping Company [2024] EWHC 3139 (Comm). This case involved two related arbitration appeals concerning the assessment of damages upon the late redelivery of containerships under time charters.

Despite a significant rise in market rates during the overrun period, the Court held that the Owners could only recover ‘nominal damages’ as they were precluded by the MOAs from entering into new charter fixtures after the expiry of the charterparties.  This judgement offers important insights into the calculation of damages and the role of third-party agreements in such disputes.

Factual Background

The Owners of the containerships, ‘Skyros’ and ‘Agios Minas’, let the vessels to Hapag-Lloyd AG (“Charterers”) under time charterparties. Both vessels were due to be redelivered at the end of May 2021.

Before redelivery and while the vessels were still in the Charterers’ service, the Owners entered into Memorandum of Agreement (“MOAs”) to sell the vessels to ‘MSC Shipping SA’ and ‘Maersk A/S’, respectively. Under the MOAs, the Owners agreed not to enter into any further charter fixtures, following the expiry of the charterparties, effectively preventing them from chartering the vessels on the charter market. 

In breach of the charterparties, the Charterers redelivered both vessels late—Skyros by two days and Agios Minas by seven days. During this overrun period, the market rates for hire had risen above the charter rates specified in the contracts, though the exact market rates and potential losses were not quantified.

The Arbitrators’ Awards

After the late redelivery of the vessels, the Owners commenced arbitration proceedings seeking damages for the delay in redelivery, claiming the difference between the charter rate and the market rate for the overrun period. The Charterers contended that the Owners suffered no loss because the MOAs precluded rechartering. Therefore, the Owners would never have been in a position to obtain a higher hire rate whenever the vessels had been redelivered.

The arbitral tribunal ruled in favour of the Owners, awarding substantial damages. It accepted the Owners’ arguments, including claims based on quantum meruit, user damages, and negotiating damages.

The Charterers appealed the awards under section 69 of the Arbitration Act 1996.

The Commercial Court decision

The Cout held that the Owners were entitled only to nominal damages, on the basis that hire at the charter rate had been paid, and the MOAs would have prevented from the Owners from re-chartering the vessels at a higher rate. The Court addressed and dismissed the Owners’ arguments on several grounds:

1. Quantum meruit: This is a restitutionary remedy that compensates for services provided where no specific contract or payment terms exist.  However, the Court rejected the restitutionary claim, holding that services rendered during the overrun period were part of the time charter terms, which specified a contractual hire rate. The Charterers’ request for an illegitimate final voyage did not create a non-contractual obligation for the Owners but was instead a continuation of the original charterparty terms, if the Owners choose to comply. The Owners would then have a right to claim damages if the charter rate did not leave them fully compensated.
    
2. User damages: These damages are awarded when one party wrongfully uses another's property. While the Charterers’ failure to redeliver the vessels on time was wrongful, the Court found that the Owners did not lose possession of the vessels. The Charterers never had ‘possession’ of the vessels, as they remained in Owners’ possession (through the Masters on board) at all times. Charterers had the right to use the vessels, but this was not wrongful; it was caused by Owners’ decision to accept illegitimate last voyage orders. Further, Owners could not establish that any breach resulted in an economic loss.
    
3. Negotiating damages: These are relatively rarely claimed damages in a shipping context that are awarded by reference to the sum a claimant could hypothetically have negotiated from the defendant in exchange from the claimant agreeing to release the defendant from a contractual obligation which the defendant breached. However, it is necessary that the breach deprives the claimant of a valuable right or asset that the contractual obligation protected.  The Court found that not only was it unlikely that negotiating damages would apply in a claim under a conventional time or time trip charter, but further the Owners had not lost any asset due to the Charterers’ late redelivery. The Owners could not have rechartered the vessels due to the MOAs, there was no conventional loss that could trigger negotiating damages.
    
4. The Achilleas: Lord Hoffman stated in The Achilleas that “If the orders are accepted and the last voyage overruns, the owner is entitled to be paid for the overrun at the market rate. All this will be known to both parties”. Owners argued that this was because of a general principle that in redelivery cases that other contractual relationships are irrelevant – in legal terms they are res inter alios acta. However, the Judge considered that nothing in The Achilleas was intended to a claimant that had suffered no loss to make a recovery.
    
5. Res Inter Alios Acta: The Court then considered the res inter alios acta principle as it had been applied to third-party contracts in a series of sales of goods cases. The Court held that the doctrine of res inter alios acta in most of those cases was not applicable to the current matter. In those cases, the question was usually whether contract breaker could rely upon the fact that the innocent party had obtained benefits under a third party contract to reduce the damages payable, or whether such benefits were collateral and to be ignored in assess damages.

They were irrelevant to the question at hand, as the Charterers did not claim that the purchase price for each vessel should be brought into account in assessing loss, but that the Owners would never have earned the charter hire they claimed. The significance therefore was not that the MOAs gave a benefit to the Owners, but that they precluded the Owners from entering the chartering market and therefore meant that Charterers’ breach caused Owners no loss.

Commentary

The Judge stated in his conclusions that the normal measure of damages for late redelivery under a time charter is the difference between the hire rate and the market rate for the overrun period. This is the test set out in the leading textbooks and has been emphasised in case law. However, this is the ‘normal’ measure of damages. Each case turns on its own facts. The underlying reason for the rule is to compensate the Owners; if as a matter of fact the Owners suffered no loss, they would have no need of compensation.

This therefore may be seen as an unusual case on facts that are unlikely to commonly arise. A late-redelivering Charterer will usually not be able to demonstrate that an Owner could not have entered the market.

Nevertheless, charterers of vessels will undoubtedly welcome a judgment that takes a pragmatic approach to whether their owners actually suffered any loss or not. However, while it is true that the Owners in the current case would never have been able to realise the hire rates for which they claim damages, in different circumstances the ‘orthodox’ measure of damages may have left the same Owners unable to claim their full losses from Charterers. In The Achilleas itself, for instance, the owners were unable to recover the full resulting from losing a follow-on time charter but were limited to the difference between the market rate and contract rate for the overrunning period.

In light of the fact that the orthodox measure of damages is somewhat charterer-friendly, it may well have seemed less unfair to the Owners that they should be able to claim damages from Charterers even in circumstances where they would not have been able to re-charter the vessel in the market. The Judge in the current case appears to have considered that the case may go to the Court of Appeal. This may therefore not be the end of this matter.