Skyros Maritime Corporation & Anor v Hapag-Lloyd AG (Re 'SKYROS' & 'AGIOS MINAS')

Factual and Procedural Background

This appeal arises from an arbitration under the LMAA Rules between the Owners of two container vessels (the "Owners") and the Charterer (Company A). Two materially identical New York Produce Exchange time charterparties were entered: one for Vessel A (charter commenced 20 February 2017) and one for Vessel B (charter concluded 23 March 2020). Each charter established a latest contractual redelivery date in late May 2021. During the charter periods the Charterer employed the vessels and paid hire at the contract rates.

Before the latest redelivery dates the Owners entered into memoranda of agreement (MOAs) to sell the vessels to buyers (Company B and Company C), under which the Owners agreed not to conclude further fixtures prior to delivery to those buyers. Both vessels were nevertheless redelivered late (Vessel A by about two days; Vessel B by about seven days). The Charterer paid hire at the contract rates during the overruns, but the market hire rates at the relevant time were substantially higher.

The parties consented to refer a preliminary issue to the arbitrators: whether, on the assumed facts that the Owners would not and could not have re‑chartered the vessels after timely redelivery because of the sale contracts, the Owners were entitled either to substantial damages assessed by reference to the market rate for the overrun period or only to nominal damages. The arbitrators held the Owners were entitled to substantial damages. On an appeal under section 69 of the Arbitration Act 1996, a Commercial Court judge (Judge Bright) allowed the Charterer's appeal and restricted the Owners to nominal damages. The Owners obtained permission to appeal to the court that produced the opinion summarised here.

Legal Issues Presented

1. Whether, where a vessel under a time charter is redelivered late but the Owners had committed to sell the vessel and would not (or could not) have re‑chartered it after timely redelivery, the Owners are nevertheless entitled, in principle, to recover substantial damages assessed by reference to the market rate for the period of the overrun.
2. Whether Owners are, in principle, entitled to recover user damages for late redelivery (this was one of the two issues on which permission to appeal was given by the judge).
3. Whether the Owners' contracts for the sale of the vessels (the MOAs) must be disregarded in assessing any damages (this was the other issue on which permission to appeal was given by the judge).

Arguments of the Parties

Owners' Arguments (Appellants)

• Owners submitted they are entitled to the normal measure of damages for late redelivery: the difference between the market rate and the contract rate for the period of the overrun, regardless of whether they could or would have entered the market to fix the vessel in that period.
• That measure compensates for the value of the use of the vessel during the overrun which the Owner was deprived of by the Charterer's breach.
• Alternatively, the MOAs should be treated as too remote or as res inter alios acta (collateral) and therefore disregarded when assessing loss.

Charterer's Arguments (Respondent, Company A)

• Charterer submitted that the compensatory principle (Robinson v Harman) restricts recovery to the loss actually suffered: damages for late redelivery compensate the owner for loss of the opportunity to fix in the market, an opportunity which these Owners did not have because of the sale contracts; accordingly only nominal damages should be recoverable.

Argument on User Damages (Attorney Board)

• It was submitted that user damages compensate for invasion of a proprietary or possessory right and are not available here because the Owners retained possession and the Charterer's use conformed to the charterparty; and that timely redelivery was of no economic value to the Owners given the sale commitments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began from the established line of authority that, in actions for late redelivery under a time charter when the market rate exceeds the contract rate, the normal measure of damages is the difference between the market rate and the contract rate for the overrun period. The opinion emphasised the long and consistent maritime authority to that effect and the reflection of that position in leading textbooks.

Two important doctrinal distinctions informed the analysis. First, the court distinguished between the compensatory principle (Robinson v Harman) and the remoteness inquiry (Hadley v Baxendale) as stages in assessing damages. Second, it explained and applied the principle that certain matters are treated as collateral and disregarded when assessing what the claimant has lost (res inter alios acta).

Applying these principles, the court held that the Owners' contractual arrangements for sale of the vessels (the MOAs) were collateral to the contractual relationship with the Charterer and arose independently of the breach. Accordingly those arrangements must be disregarded when calculating the Owners' loss for the purpose of awarding compensatory damages for late redelivery. The late redelivery deprived the Owners of the opportunity to take advantage of the market rate during the overrun period; whether the Owners in fact could or would have taken that opportunity is collateral and not relevant to the assessment.

The court considered alternative bases on which the arbitrators had awarded damages (quantum meruit, user damages and negotiating damages). The court accepted that quantum meruit did not apply where the services were provided pursuant to the charterparty and hire had been paid at the charter rate (following The Paragon). On user damages, the court analysed the principles in One Step (user damages for wrongful use of property) and the analogous historic examples, but declined to extend user damages as a novel basis of recovery where the ordinary compensatory principle (with collateral matters disregarded) already afforded a remedy. The court therefore did not accept introducing user damages to award recovery where no conventional loss had been shown.

The court also considered The Achilleas and related authorities to underline that the normal measure of damages for the overrun period is the accepted compensatory rule and that broader consequential losses (such as loss of a particular follow‑on fixture or the Owners' sale arrangements) may be too remote unless they fall within the ordinary course of events contemplated by the parties.

Holding and Implications

HOLDING: The appeal is ALLOWED. The court restored the arbitrators' preliminary award that the Owners are entitled, in principle, to substantial damages for the period of the overrun assessed by reference to the market rate versus the contract rate.

Implications and direct effects:

• The case is remitted to the arbitrators to assess the quantum of damages for the overrun periods on the basis that the Owners may recover the difference between the market rate and the contract rate for those periods.
• The assessment must determine the relevant market rate for the overrun periods (the court noted that The Johnny bears on that question and that the arbitrators will need to decide which market comparator is appropriate).
• The court held that the Owners' sale contracts are to be disregarded as collateral (res inter alios acta) for the purpose of assessing compensatory loss; the Charterer's liability is not to be reduced on that account.
• The court did not accept that a novel expansion of user damages should be used to award recovery where the ordinary compensatory principle (with collateral matters disregarded) provides the award; quantum meruit and negotiating damages were not before the court on the issues on which permission was given and so were not decided here.
• The court stated that the decision promotes commercial certainty by preserving the well‑established normal measure for late redelivery and by avoiding a requirement to investigate owners' collateral arrangements to determine liability.