COMMONLAWONREMOTENESSOFDAMAGES

POSTTHEACHILLEASJUDGEMENT

BY RAHULDEODHAR

I.

TABLEOFCONTENTS I. TABLEOFCONTENTS II. INTRODUCTION III. BASICSOFLAWONREMOTENESSOFDAMAGES IV. CASESDETERMININGTHEPRINCIPLEOFLIABILITYANDCALCULATIONOFDAMAGES V. OTHERDECISIONPRIORTOACHILLEASINTERPRETINGREMOTENESS VI. THEACHILLEASCASESUMMARY VII. CASESPOSTSCHILLEAS VIII. SUMMARYOFIMPACTOFACHILLEASONSUBSEQUENTDECISIONS 2 3 4 8 21 23 30 38

II.

INTRODUCTION ThelawonRemotenessofdamagesformsacriticalpartofdamagesclaimedin breachofcontract.AsagainstdamagesinTorts,theliabilityislimitedbyvarious principlessuchase.g.doctrineagainstunjustenrichment. The primary law was formulated in 1854 in a popular case called Hadley v. Baxendale. Thereafter, it was elucidated in subsequent judgements and decisions.Inthisform,ithadserveduswell. The decision in a recent, also popular, case called The Achilleas seemingly changed the principle expanding the scope of liability of the party in breach. Naturally,posttheAchilleas,therewasaspateoflitigationurgingtheCourtsto grantexemplarydamagesundercontracts. However, subsequent judgements have clarified that Achilleas remain a modificationoftheruleinspecialcase.Thus,itwasessentialtosynthesizekey judgements explaining the law as it formed, the judgements that modified includingtheAchilleasandjudgementsthereafter. Ihavesummarizedthecurrentpositionofthelawregardingtheremotenessof damagesattheendofthisdocument.

III.

BASICSOFLAWONREMOTENESSOFDAMAGES 1. The losses arising from breach of contract are purview of, what is generally referredas,testorruleofremotenessofdamage.Thetestwasfirstestablished inlandmarkcaseofHadleyvBaxendale1andruleiscrystallizedandexplainedin Victoria Laundry (Windsor) Ltd v Newman Industries Ltd2, C Czarnikow Ltd v Koufos (The Heron II)3 and South Australia Asset Management Corp v York Montague Ltd4. BHL submits that it is important to first examine the rules in greaterdetail. 2. The test is usually formulated from the speech of Baron Alderson in Hadley v Baxendale as follows Where two parties have made a contract, which one of themhasbroken,thedamageswhichtheotherpartyoughttoreceiveinrespect ofsuchbreachofacontractshouldbesuchasmay: a. Fairly and reasonably be considered as either arising naturally, ie, accordingtotheusualcourseofthings,fromthebreachofcontractitself (firstlimb);or b. Such as may reasonably be supposed to have been in contemplation of bothparties,atthetimetheymadethecontract,astheprobableresultof breachofit(secondlimb). 3. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd, hereinafter referredtoasVictoriaLaundryCase,AsquithLJintheCourtofAppealheldthat NewmanIndustries(defendant)onlyhadtocompensatefortheordinary,notthe extraordinary loss of profits suffered by Victoria Laundry (claimants). He distinguished(atp543)lossesfromparticularlylucrativedyeingcontractsasa different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptanceofliabilityforsuchlosses.
1 2 3 4

Hadley & Anor v Baxendale & Ors., [1854] EWHC Exch J70 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd C Czarnikow Ltd v Koufos (The Heron II), [1967] UKHL 4 South Australia Asset Management Corp v York Montague Ltd, [1997] 1 A.C. 191 HL

5 4. InCCzarnikowLtdvKoufos(TheHeronII),hereinafterreferredasTheHeronII case,clarificationwasgivenaboutdegreeoflikelihoodrequiredinorderthata claimant may recover damages for a particular type of loss. In the judgement, LordReidsaidthatthepropertestiswhetherthelossinquestionisofakind whichthedefendant,whenhemadethecontract,oughttohaverealisedwasnot unlikely to result from the breach I use the words "not unlikely" as denoting a degreeofprobabilityconsiderablylessthananevenchancebutneverthelessnot very unusual and easily foreseeable. Lord Reid continues later Indeed the decisionmakesitclearthatatypeofdamagewhichwasplainlyforeseeableasa realpossibilitybutwhichwouldonlyoccurinasmallminorityofcasescannotbe regardedasarisingintheusualcourseofthingsorbesupposedtohavebeenin thecontemplationoftheparties:thepartiesarenotsupposedtocontemplateas grounds for the recovery of damage any type of loss or damage which on the knowledgeavailabletothedefendantwouldappeartohimasonlylikelytooccur inasmallminorityofcases. 5. In South Australia Asset Management Corporation v. York Montague Ltd., hereinafterreferredastheSAAMCOcase,thequestionwaswhatistheextentof theliabilityofavaluerwhohasprovidedalenderwithanegligentovervaluation ofthepropertyofferedassecurityfortheloan?Itwasheldthatthevaluerswere responsibleforthelossforwhichthevaluerassumedresponsibility.Theloss was deemed to be equivalent to what lender had suffered if there were no circumstancesaggravatingthelosscausedbythenegligentovervaluation. 6. Thus,SAAMCOcasemodifiedtheruleortestofremotenessofdamages.Evenif foreseeableandnatural,aloss,likelosssufferedbythelenderinthiscase,may not be recoverable. The House of Lords preferred to explain such cases by the agreementcentred approach of an impliedly restricted assumption of responsibility, rather than by the vaguer reasoning of a break in the chain of causation between the breach and the loss. This principle applies not only in secondlimb cases of losses foreseeable in the light of specially communicated informationaswaspreviouslythought,butalsotofirstlimbcaseslikeSAAMCO itself.

6 7. ThedecisioninTransfieldShippingIncvMercatorShippingInc(TheAchilleas)5, hereinafterreferredtoasTheAchilleascase,extendstherulefurther. 8. ThefactspertainingtothecaseofTheAchilleasarediscussedinshortherein.The owners of the ship, The Achilleas, had a time charter agreement with first chartererswhereinthelatestdateofdeliverybacktotheownerswasdecidedas May 2. The first charterers gavenoticeofdelivery between 30thApriland 2nd May. The owners entered into another time charter with new charterers with last date of delivery, to the new charterers, as May 8th at the rate of $39,500. However,thefirstcharterersfinallydeliveredtheshiponMay11th.Becauseof thedelayownershadtoagreetolowerpriceof$31,500withsecondcharterers. Theownersclaimeddamagesof$1.8millioncalculatedasthedifferenceinthe rates($39500$31500=$8000)Xtimedurationofthenewcharter.Thenormin shippingindustrywastopaymarketrate(dailycharterrate)forthenumberof daysforwhichrevenuewaslost.Thusnormativedamagescameto$158,301.17 calculatedasmarketrateX9daysrevenuelost.Intheappeal,theHouseofLords heldthattheownersofTheAchilleasarenotentitledtothelossfromreduction ofcontractpriceofsubsequentcontractbutonlyequaltothepaymentfor9days oflossesatthecurrentmarketpricesamountingto$158,301.17. 9. Based on the facts and judgement in The Achilleas, following things are to be consideredbeforeestimatingdamages: a. Whetheralosswassufficientlyforeseeableatthetimeofcontractingthat it can sensibly be said to have been within the horizon of the parties contemplation b. Any information communicated with the counterparty in a manner to allow the counterparty to prevent the excess liability if he is so faced with. c. Thepurposeoftheduty,i.e.whichinterestsitwasintendedtoprotect. d. Theabsenceofanexpressterm(especiallyexclusionclause)coveringthe risk. e. Anygeneralmarketunderstandingorexpectation.(Exclusionimplied)

Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas), [2008] UKHL 48

7 f. The price paid to the promisor, as compared with the size of potential lossesforwhichthepromisorissaidtohavetakentherisk. 10. Understandingthemeaningof:LossthatisNotunlikely a. Lord Reid has clarified not unlikely in Heron II by saying Indeed the decision makes it clear that a type of damage which was plainly foreseeable as a real possibility but which would only occur in a small minority of cases cannot be regarded as arising in the usual course of things or be supposed to have been in the contemplation of the parties: thepartiesarenotsupposedtocontemplateasgroundsfortherecovery ofdamageanytypeoflossordamagewhichontheknowledgeavailable to the defendant would appear to him as only likely to occur in a small minorityofcases. b. Lord Toulson expounds the terms used by various courts in many decisions in Supershield case para 38: Lord Reid went on to formulate thetestaswhetherthelosswasofakindwhichthedefendantatthetime ofthecontractoughttohaverealisedwas"notunlikely"toresultfromthe breach, the words "not unlikely" denoting "a degree of probability considerablylessthananevenchancebutneverthelessnotveryunusual andeasilyforeseeable".LordsMorris,PearceandUpjohnusedthewords "a serious possibility" and "real danger" as conveying the appropriate shadeofmeaning. 11. Questionofassumptionofliability a. LordReidexplainsinHeronIIIncontract,ifonepartywishestoprotect himselfagainstariskwhichtotheotherpartywouldappearunusual,he candirecttheotherparty'sattentiontoitbeforethecontractismade. b. Thus this is not a contemplation of damage within torts where liability can be extended. Liability under contracts must be assumed, either in expressedorimpliedway.ThedecisioninTheAchilleasclarifiedthatone way to deduce implied assumption of risk is to look if there was considerationpaidforassumptionofsuchrisks.

IV.

CASESDETERMININGTHEPRINCIPLEOFLIABILITYANDCALCULATIONOFDAMAGES The following cases helped evolve the law related to remoteness of damages, the principles of liability and calculation of damages:

1] Hadley&AnorvBaxendale&Ors. a. Citation:[1854]EWHCExchJ70 b. Ruleofremoteness:HadleyvBaxendaleestablishedtherulesfordeciding whether a defaulting party was liable for all the damage caused by its breach. These are commonly described as the rules of remoteness of damage: c. Wheretwopartieshavemadeacontract,whichoneofthemhasbroken, the damages which the other party ought to receive in respect of such breachofacontractshouldbesuchasmay: i. Fairly and reasonably be considered as either arising naturally, ie, accordingtotheusualcourseofthings,fromthebreachofcontract itself(firstlimb);or ii. Suchasmayreasonablybesupposedtohavebeenincontemplation ofbothparties,atthetimetheymadethecontract,astheprobable resultofbreachofit(secondlimb). d. Quotation: Alderson B in Hadley v Baxendale said at p35455: where two parties have made a contract which one of them has broken, the damageswhichtheotherpartyoughttoreceiveinrespectofsuchbreach of contract should be such as may fairly and reasonably be considered eitherarisingnaturally,i.e.accordingtotheusualcourseofthings,from suchbreachofcontractitself,orsuchasmayreasonablybesupposedto havebeeninthecontemplationofbothparties,atthetimetheymadethe contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicatedbytheclaimantstothedefendantsandthusknowntoboth parties,thedamagesresultingfromthebreachofsuchacontract,which theywouldreasonablycontemplate,wouldbetheamountofinjurywhich

9 would ordinarily follow from a breach of contract under this special circumstances so known and communicated. But, on the other hand, if thesespecialcircumstanceswerewhollyunknowntothepartybreaking thecontract,he,atthemost,wouldonlybesupposedtohavehadinhis contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, fromsuchabreachofcontract." e. Quotation: Lord Hoffman described the rule in Hadley v Baxendale and subsequentcases,as"theordinaryforeseeabilityrule". 2] R&HHallLtdvWHPimJunr&CoLtd. a. Citation:[1928]30LLR159 b. BasicFacts:PimsoldacargoofwheattoHallat51s9daquarter.Hallhad agreedtosellasimilarcargotoWilliamsat56s9daquarter,andWilliams tosellagainSuzukiat59s3daquarter.Pimboughtacargoofwheaton board the "S.S. Indianic" at 60s a quarter. Pim later secured agreement with all concerned that the sales from Pim to Hall and from Hall to WilliamsandfromWilliamstoSuzukishouldbetreated,ineachcase,as resales of the cargo the subject of the preceding purchase in the chain. PimgavenoticeappropriatingtheIndianiccargotoitscontractwithHall andthatnoticewaspasseddownthechain.PimsoldtheIndianiccargoto Rankat59s11.5daquarter.Whenthecargoarrivedthemarketpricewas 53s9daquarter.HavingsoldthecargotoRankPimcouldnotdeliverthe documentscoveringthecargotoHall.TheCourtofAppealhadheldthat Hall's damages were limited to the difference between the market (53s 9d)andthecontract(51s9d)priceatthedateofthebreach.Hallclaimed thedifferencebetweenthepriceatwhichtheyhadbought(51s9d)and theprice(56s9d)undertheirsubsaletoWilliams. c. Decision: The House restored the decision of Rowlatt J that Hall was entitled to recover the difference between the price at which it had bought and the price at which it had resold the cargo together with an indemnityforthedamagesandcostswhichHallwouldhavetopaytothe buyerswhohadbroughtfromthem.Ittreatedthequestionasoneofthe applicationoftheruleinHadleyvBaxendale.

10 d. Quotations: Viscount Haldane said the contract was not merely for the sale of corn in bulk but for the sale of the cargo of an individual ship, either specifically identified or to be identified, by which the seller contractedtoputthebuyerinapositiontofulfilsuchsubcontractashe mightmake.Itdidnotmatterwhetherthebuyerwaslikelytoenterintoa subcontract. He reached this conclusion on the terms of the contract alonewithoutreferencetowhattookplacebetweenthepartiesafterthe contractwasmade.Condition1ofthecontracthadprovidedfornoticeof appropriation to be given by Pim, "and by each other seller"; the arbitrationclausereferredtointermediatebuyersandsellersandto"the lastbuyer";andthestrikeclausereferredtonoticesbeing"passedonin duecourse". e. Quotations:ViscountDunedinsaidthatbothpartiesknewitwascommon practice to resell cargoes whilst afloat, that, apart from common knowledge, the contract itself showed this, and that the correspondence astotheactualappropriationofthevesselwasadditionalproof,ifproof were needed, of the familiarity of Pim with the practice of successive resalesofcargoafloat.Pimknewassoonasitnominatedacargothatonly delivery of that cargo could satisfy the contract, and it was sufficient to give rise to liability for loss of profit that there was an even chance of a subsaletakingplace. f. Quotations: Lord Shaw agreed with Viscount Haldane: "My principal reason is that I think that the two parties had actually provided for the very case of subsales". He stated the proposition that a "not unlikely" resultofthebreachmustbereckonedtobewithinthecontemplationof the parties as to its breach. He deprecated an "ultra analysis" of Baron Alderson's sentence into two portions "which are to be reckoned as necessarilyandalwaystwodistinctanddifferentcases"andsaid:"These two things, arising naturally from or the probable result of the breach, need not be antithetically treated; they may run into each other and, indeed,beone.Ithinkforinstance,thatinthiscase,wherethestringof saleswastotheknowledgeofthebreakerofthecontractwithinthevery scopeoftheconditionsofhisbargain,itwasfairlyandreasonablytobe

11 expected, not only, to use the language of the judgment as "arising naturally i.e. according to the usual course of things, from such breach", but also "such as may reasonably be supposed to have been in the contemplationofbothparties,atthetimethattheymadethecontract,as theprobableresultofthebreachofit".Whatmayberegardedasarising naturallyfromthebreach,mayitselfbedependentonwhatisknownto thepartiesatthetimeofthecontractasapossibleresultofthebreach. g. Quotations: Lord Phillimore thought the question to be one of contract. Noticeorknowledgeofanintendedusewouldnotdoofitself:"Butifthe tribunalwhichtriesthecasecomestotheconclusionthathecontracted to sell or to carry on terms that he should be responsible for damage which might accrue from his failure to provide for any one of certain objects then he must be held liable". The contract terms were such that thesellers"mustbetakentohaveconsented"toastateofaffairswhereby the purchasers would sell on in a string of sales and "thereby to have madethemselvesliabletopaytotheappellantstheirprofitonresale". h. Quotations: Lord Blanesburgh held that it must be taken to have been withinthecontemplationofthepartiesthatintheeventofdefaultbythe sellersintenderingdocuments"theirliabilitytotheirbuyersindamages would be in exact correspondence with what it would have been if the contract had been specific all through and if to the knowledge of the sellers the subcontract had at the date of that contract then existed or beenincontemplation". 3] MonarchSteamshipvKarlshamnsOljefabricker a. Citation:[1948]UKHL1 b. Key Facts: Mitsui contracted a ship Monarch to supply soyabeans to SwedishCompany.Becauseofdefectsintheship,thevoyagetooklonger than expected and in the meanwhile war broke. Consequently, Monarch unloadedthecargoataportfromwhereitwastakenbyothershipshired by the Swedish Co. at cost of 22,134, 7s. 4d. The argument runs as follows:theundertakingwastocarrythebeanstooneofarangeofports at the option of Mitsui or of those to whom they transferred the bills of lading; the option was exercised in favour of Karlshamn; the appellants

12 failed to carry out their obligation and accordingly the respondents had the right to fulfil the contract themselves and to charge the appellants withthecostofdoingso;theappellantsshouldhavedeliveredthebeans at Karlshamn within a reasonable time, they failed to do so because of their breach of contract to provide a seaworthy ship, and the additional expense of carrying out thecontractmust thereforefall onthem.Ifthey had not taken so unduly long a time the "British Monarch" would have arrivedatKarlshamnlongbeforetheoutbreakofwarandthehireofthe threeadditionalshipswouldhavebeenunnecessary.Appellantscontend that the war clause in the charterparty agreement absolves them of any payment towards current respondents, the Swedish Company. Some critical facts are as important. There was no damage caused to the SwedishCosavetheexpensefortranshipment.Theexpensewasincurred because Monarch was directed to other port by British Admiralty (Navy involved because of war condition). The ship owners appealed when awardwasmadeinfavourofSwedishCo.foranamountof21,000and more. c. Decision:Appealwasdismissed.AmericancaseTheMalcolmBaxterwith similarcircumstanceswasdifferentiatedanddiscarded. d. Comments: No specific deduction to be made based on principle. The causation (did unseaworthiness cause transhipment loss?) was under debateanddebatewasresolved.Itwasheldthatthroughchainofevents it was ultimately unseaworthiness that resulted in transhipment expenses. 4] VictoriaLaundry(Windsor)LtdvNewmanIndustriesLtd a. Citation:[1949]2KB528 b. Key facts: Newman Industries Ltd was meant to deliver a boiler for Victoria Laundry (Windsor) Ltd. The delivery was five months late. As a result of not having enough laundry capacity, Victoria Laundry lost a lucrativecleaningcontractfromtheMinistryofSupply.VictoriaLaundry sued for the ordinary profit that it had forgone through not having the boiler on time. The question was whether it could also claim the

13 extraordinary profit it would have made, had it been able to take advantageofthelucrativeMinistryofSupplycontract. c. Decision:AsquithLJintheCourtofAppealheldthatNewmanIndustries only had to compensate for the ordinary, not the extraordinary loss of profits. He distinguished (at p 543) losses from particularly lucrative dyeing contracts as a different type of loss which would only be recoverableifthedefendanthadsufficientknowledgeofthemtomakeit reasonabletoattributetohimacceptanceofliabilityforsuchlosses.The vendoroftheboilerswouldhaveregardedtheprofitsonthesecontracts as a different and higher form of risk than the general risk of loss of profitsbythelaundry. d. Ratio:Onlynormalorusuallossisrecoverable. 5] CCzarnikowLtdvKoufos(TheHeronII) a. Citation:[1967]UKHL4 b. Basic Facts: By charter Party of 15th October, 1960 the Respondents charteredtheAppellant'sVessel,HeronII,toproceedtoConstanza,there toloadacargoof3,000tonsofsugar;andtocarryittoBasrah,or,inthe Charterer'soption,toJeddah.ThevesselleftConstanzaon1stNovember. The option was not exercised and the vessel arrived at Basrah on 2nd DecemberTheUmpirehasfoundthat"areasonablyaccurateprediction of the length of the voyage " was twenty days ". But the vessel had in breachofcontractmadedeviationswhichcausedadelayofninedays.It wastheintentionoftheRespondentstosellthesugar"promptlyafter" arrivalatBasrahandafterinspectionbymerchants".TheAppellantdid not know this but he was aware of the fact that there was a market for sugaratBasrah.ThesugarwasinfactsoldatBasrahinlotsbetween12th and 22nd December but shortly before that time the market price had fallen partly by reason of the arrival of another cargo of sugar. It was foundbytheUmpirethatiftherehadnotbeenthisdelayofninedaysthe sugarwouldhavefetched3210s.0d.perton.Theactualpricerealised wasonly312s.9d.perton.TheRespondentsclaimthattheyareentitled torecoverthedifferenceasdamageforbreachofcontract.TheAppellant admits that he is liable to pay interest for nine days on the value of the

14 sugarandcertainminorexpensesbutdeniesthatfallinmarketvaluecan betakenintoaccountinassessingdamagesinthiscase. c. Quotation:LordReidclarifiedthelawonthedegreeoflikelihoodrequired inorderthataclaimantmayrecoverdamagesforaparticulartypeofloss. Inawellknownpassagehesaidthatthepropertestiswhetherthelossin question is (at p382G383A): of a kind which the defendant, when he madethecontract,oughttohaverealisedwasnotunlikelytoresultfrom the breach I use the words "not unlikely" as denoting a degree of probability considerably less than an even chance but nevertheless not veryunusualandeasilyforeseeable. d. Further Quotation: Lord Reid continues Indeed the decision makes it clear that a type of damage which was plainly foreseeable as a real possibilitybutwhichwouldonlyoccurinasmallminorityofcasescannot be regarded as arising in the usual course of things or be supposed to have been in the contemplation of the parties: the parties are not supposedtocontemplateasgroundsfortherecoveryofdamageanytype of loss or damage which on the knowledge available to the defendant wouldappeartohimasonlylikelytooccurinasmallminorityofcases. e. ImportantQuotationonprobability:LordReidIthasneverbeenheldto be sufficient in contract that the loss was foreseeable as " a serious possibility" or " a real danger " or as being " on the cards ". It is on the cards that one can win 100,000 or more for a stake of a few pence severalpeoplehavedonethat.Andanyonewhobacksahundredtoone chanceregardsawinasaseriouspossibilitymanypeoplehavewonon suchachance.AndtheWagonMoundNo.2[1966]3W.L.R.498couldnot havebeendecidedasitwasunlesstheextremelyunlikelyfireshouldhave beenforeseenbytheship'sofficerasarealdanger. f. Quote by Lord Morris: The Appellant at the time that he made his contract must have known that if in breach of contract his ship did not arrive at Basrah when it ought to arrive he would be liable to pay damages.HewouldnotknowthatalosstotheRespondentswascertain or inevitable but he must, as a reasonable business man, have contemplatedthattheRespondentswouldverylikelysufferloss,andthat

15 it would be or would be likely to be a loss referable to market price fluctuations at Basrah. I cannot think that he should escape liability by saying that he would only be aware of a possibility of loss but not of a probability or certainty of it. He might have used any one of many phrases. He might have said that a loss would be likely: or that a loss wouldnotbeunlikely:orthatalosswasliabletoresult:orthattherisk thatdelaywouldcauselosstotheRespondentswasaseriouspossibility: orthattherewouldbearealdangerofaloss:orthattheriskofhisbeing liable to have to pay for the loss was one that he ought commercially to takeintoaccount.Asapracticalbusinessmanhewouldnothavepaused toreflectonthepossiblenuancesofmeaningofanyoneofthesephrases. Norwouldhehavesentforadictionary. g. Damage in tort v damage in contract: There is difference between tortuousliabilityandcontractualliability,tortuousbeingmoreexpansive ofthetwo. i. Lord Hodson The approach in tort will, however, normally be differentsimplybecausetherelationshipofthepartiesisdifferent. Theclaimagainstthetortfeasorwhohasinflictedtortiousdamage isnotthesameastheclaimagainstanoppositepartyforbreachof contract for the latter claim depends on the contemplation of the partiestothecontractandquestionsofremotenessassuchdonot arise.Consequentlyliabilityintortmayoftenbeofawiderkind. ii. FurtherbyLordPearceInthepresentcase(asintheWagonMound No. 2 (reported as Overseas Tankship (U.K.), Ltd. v. Miller SteamshipCo.Pty.Ltd.[1966]2All.E.R.709))itwassuggestedin argumentthattherewasorshouldbeoneprincipleofdamagesfor bothcontractandtortandthatguidanceforonecouldbeobtained fromtheother.Idonotfindsuchacomparisonhelpful.Inthecase of contract two parties, usually with some knowledge of one another, deliberately undertake mutual duties. They have the opportunitytodefineclearlyinrespectofwhattheyshallandshall not be liable. The law has to say what shall be the boundaries of their liability where this is not expressed, defining that boundary

16 in relation to what has been expressed and implied In tort two persons, usually unknown to one another, find that the acts or utterancesofonehavecollidedwiththerightsoftheother,andthe Court has to define what is the liability for the ensuing damage, whetheritshallbeshared,andhowfaritextends. iii. FurtherbyLordUpjohnThisdifferenceisveryreasonable.Oncean examinationofthefactsestablishesabreachofdutyonthepartof the tortfeasor, the acts and omissions of the innocent party are irrelevant until the question of contributory negligence comes to be considered. A tortfeasor may and frequently is a complete stranger to the innocent party but he is, however fleetingly in manycases,hisneighbourforthepurposesofthelawandbound to act with due regard to his neighbour's rights whoever he may be. If he fails in such duty the law has rightly laid down a more stringent test for the assessment of damages. But in contract the partieshaveonlytoconsidertheconsequencesofabreachtothe other;itisfairthattheassessmentofdamagesshoulddependon theirassumedcommonknowledgeandcontemplationandnoton a foreseeable but most unlikely consequence. The parties may moreoveragreetolimitorexcludeliabilityfordamage,oragreeon a liquidated sum, or one party can disclose to the other special circumstances which will render a breach especially serious to him.Sotherulesastotheassessmentofdamageshavedivergedin thetwocases,andnowadaystheconceptof"foreseeability"and" contemplationofthe"parties"aredifferentconceptsinthelaw.It istruethatasamatteroflanguagetherewillinmanycasesbeno great difference between foreseeing the possibility of an event happening and contemplating the possibility of that event happeningandinsomeofthecases,fromLordBlackburninCory v. Thames Ironworks L.R. 3 Q.B. 181 at 188 onwards the word foreseeorforeseeableisusedinconnectionwithcontractbutitis clear that it has really been used in the sense of reasonable contemplation and in my view it is better to use contemplate or

17 contemplation in the case of contract, leaving foresee or foreseeabilitytotherealmoftorts. iv. 6] SouthAustraliaAssetManagementCorpvYorkMontagueLtd. e. Citation:[1997]1A.C.191HL f. Key Facts: The judgement is a joint judgment in three cases. The facts havetwocommonfeatures.Thefirstisthatifthelenderhadknownthe truevalueoftheproperty,hewouldnothavelent.Thesecondisthatafall in the property market after the date of the valuation greatly increased thelosswhichthelendereventuallysuffered. g. Question:Whatistheextentoftheliabilityofavaluerwhohasprovideda lenderwithanegligentovervaluationofthepropertyofferedassecurity fortheloan? h. Decision: It was held that the valuers were responsible for the loss equivalent to what lender had suffered if there were no circumstances aggravatingthelosscausedbythenegligentovervaluation. i. Ratio:WehavefollowingconclusionforSAAMCOjudgement: i. Evenifforeseeableandnatural,aloss(inthatcasethemarketand other losses resulting from the lenders lending at all) may be unrecoverable. ii. The House of Lords preferred to explain such cases by the agreementcentred approach of an impliedly restricted assumptionofresponsibility,ratherthanbythevaguerreasoning of a break in the chain of causation between the breach and the loss. iii. This principle applies not only (as was coming to be the orthodox understanding) in secondlimb cases of losses foreseeable in the lightofspeciallycommunicatedinformation,butalsotofirstlimb cases.(WeknowthisbecauseSAAMCOwasafirstlimbcase.) b. ImportantQuotations:LordHoffmansaidIthinkthatthiswasthewrong placetobegin.Beforeonecanconsidertheprincipleonwhichoneshould calculatethedamagestowhichaplaintiffisentitledascompensationfor loss, it is necessary to decide for what kind of loss he is entitled to

18 compensation. A correct description of the loss for which the valuer is liablemustprecedeanyconsiderationofthemeasureofdamages.Forthis purpose it is better to begin at the beginning and consider the lenders causeofaction. c. ImportantQuote:LordHoffmansaid,Aplaintiffwhosuesforbreachofa duty imposed by the law (whether in contract or tort or under statute) mustdomorethanprovethatthedefendanthasfailedtocomply.Hemust showthatthedutywasowedtohimandthatitwasadutyinrespectof the kind of loss which he has suffered. Both of these requirements are illustrated by Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605. The auditors failure to use reasonable care in auditing the companys statutoryaccountswasabreachoftheirdutyofcare.Buttheywerenot liable to an outside takeover bidder because the duty was not owed to him.Norweretheyliabletoshareholderswhohadboughtmoresharesin relianceontheaccountsbecause,althoughtheywereowedadutyofcare, it was in their capacity as members of the company and not in the capacity(whichtheysharedwitheveryoneelse)ofpotentialbuyersofits shares.Accordingly,thedutywhichtheywereowedwasnotinrespectof loss which they might suffer by buying its shares. As Lord Bridge of Harwich said, at p. 627: "It is never sufficient to ask simply whether A owesBadutyofcare.Itisalwaysnecessarytodeterminethescopeofthe dutybyreferencetothekindofdamagefromwhichAmusttakecareto saveBharmless. d. Quotation: Lord Hoffman How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purposeofthedutyfromthelanguageandcontextofthestatute:Gorrisv. Scott (1874) L.R. 9 Ex. 125. In the case of tort, it will similarly depend uponthepurposeoftheruleimposingtheduty.Mostofthejudgmentsin the Caparo case are occupied in examining the Companies Act 1985 to ascertainthepurposeoftheauditor"sdutytotakecarethatthestatutory accountscomplywiththeAct.Inthecaseofanimpliedcontractualduty, thenatureandextentoftheliabilityisdefinedbythetermwhichthelaw implies. As in the case of any implied term, the process is one of

19 construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuationcompeltheconclusionthatthecontractincludesadutyofcare. The scope of the duty, in the sense of the consequences for which the valuerisresponsible,isthatwhichthelawregardsasbestgivingeffectto theexpressobligationsassumedbythevaluer:neithercuttingthemdown sothatthelenderobtainslessthanhewasreasonablyentitledtoexpect, norextendingthemsoastoimposeonthevalueraliabilitygreaterthan hecouldreasonablyhavethoughthewasundertaking. e. Quotation: Differentiating between act and consequences by Lord Hoffman Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justifiedbysomespecialpolicy.Normallythelawlimitsliabilitytothose consequenceswhichareattributabletothatwhichmadetheactwrongful. Inthecaseofliabilityinnegligenceforprovidinginaccurateinformation, this would mean liability for the consequences of the information being inaccurate. I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal by an example. A mountaineer abouttoundertakeadifficultclimbisconcernedaboutthefitnessofhis knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with hisknee.OntheCourtofAppealsprinciple,thedoctorisresponsiblefor theinjurysufferedbythemountaineerbecauseitisdamagewhichwould not have occurred if he had been given correct information about his knee.Hewouldnothavegoneontheexpeditionandwouldhavesuffered noinjury.OnwhatIhavesuggestedisthemoreusualprinciple,thedoctor is not liable. The injury has not been caused by the doctors bad advice becauseitwouldhaveoccurredeveniftheadvicehadbeencorrect. f. Decision: In South Australia Asset Management Corporation v. York Montague Ltd. the lenders on 3 August 1990 advanced 11m. on a

20 property valued at 15m. May J. found that the actual value at the time was5m.On5August1994thepropertywassoldfor2,477,000.MayJ. quantified the loss at 9,753,927.99 and deducted 25 per cent. for the plaintiff"s contributory negligence. The consequence of the valuation being wrong was that the plaintiffs had 10m. less security than they thought. If they had had this margin, they would have suffered no loss. Thewholelosswasthereforewithinthescopeofthedefendants"duty.

21

V.

OTHERDECISIONPRIORTOACHILLEASINTERPRETINGREMOTENESS Following decision have been given prior to The Achilleas and have helped interpret the law related to remoteness of damages. 1] MulvennavRoyalBankofScotlandPlc a. Citation:[2003]EWCACiv1112 b. Relevance:NotApplicable c. Basic Facts: T. Mulvenna (TM) had account with RBS that RBS wrongly classified as troubled (to put it colloquially not usage of the court or judgement).ThusnootherbankwouldlendtoTM.Further,negotiations resulted in contract for settlement of this issue. RBS was found to be in breachwhentheydidnotgiveoverdrafttoTMforthedifference(which TMcalculatedas90,000whileRBSgaveonly80,000).ThismeantTM didnotgetroadcontractwhereinhewouldhaveearned400,000profits. Courtheldthatcausationisnotconfirmedandlosscannotbeattributed tobreachofcontract. d. Basis:Dealswithchainofcausationandinterpretation(slight)ofnatural consequencesandinterveningcauses. 2] Jackson&Anorv.RoyalBankofScotland e. Citation:[2005]UKHL3 f. Basic Facts: RBS disclosed the invoice and private papers belonging to claimants to the clients of claimants. The client noted the unreasonable margin charged by the claimants and discontinued their 4year relationship. Claimants sued RBS for breach of contract and damages thereof. Court awarded next 4 years prospective loss of profits as damages.Thedamagesweredecidedtooccurasanaturalconsequenceof thebreachofthecontractbyRBS. 3] BalfourBeattyConstruction(Scotland)LtdvScottishPowerPlc g. Citation: [1994] UKHL 11; [1994] CLC 321; 1994 SC (HL) 20; 1994 SLT 807

22 h. Basic Facts: In 1985 the respondents Balfour Beatty Construction (Scotland) Limited ("Balfour Beatty") were the main contractors for the construction of the roadway and associated structures of the Sighthill sectionoftheEdinburghcitybypass.Inordertocarryoutthenecessary work they installed a concrete batching plant a few miles away at HillwoodQuarry,Ratho,andenteredintoanagreementforatemporary supplyofelectricitytheretowiththeappellants'predecessors,theSouth of Scotland Electricity Board ("the Board"). During the construction of a concrete aqueduct to carry the Union Canal over the road the batching plant ceased to operate due to the rupturing of fuses provided by the Boardintheirsupplysystem.Asaresultofthefailure,theaqueductcould no longer be completed to the standard required by Balfour Beatty's contract with Lothian Regional Council and it became necessary to demolishwhathadbeenconstructedandtorebuildfromscratch.This,in summary,isthebackgroundtotheactioninwhichBalfourBeattysought to recover from the Board, as damages, the cost of demolition and reconstruction. i. RelevantFact:TheLordOrdinaryfoundthatnomoredetailwasgivento theBoardthanthattheconcretefromthebatchingplantwasrequiredfor thestructuresandroadwayofthebypass. j. Decision:ByLordJaunceyMyLords,attheendofthedayitisaquestion of fact what musthave beenwithinthereasonable contemplationofthe Board at the date of the contract. The Lord Ordinary in a carefully reasoned judgment has found that the demolition and reconstruction of theaqueductconsequentuponfailureofthepowersupplywasnotwithin that contemplation. Their Lordships were referred to no evidence from whichitcouldbesaidthatitshouldhaveappearedtotheBoardthatthese consequences of the rupturing of the fuses would have had a very substantial degree of probability, from which it follows that the Second Divisionwerenotjustifiedindifferingfromthosefindings.

23

VI.

THE ACHILLEAS CASE SUMMARY

1] TransfieldShippingIncvMercatorShippingInc g. Citation: [2009] 1 AC 61, [2008] 2 Lloyd's Rep 275, [2008] UKHL 48, [2008] 3 WLR 345, [2008] 2 CLC 1, [2008] 4 All ER 159, [2008] Bus LR 1395,[2008]2AllER(Comm)753 h. KeyIdea:Mainauthoritytomodifytheremotenessofdamagesclause i. Facts:Followingareimportantfacts: i. OwnersofTheAchilleashadatimecharterwithfirstcharterersat the rate of $13,500, further enhanced to $16,750. (All prices per day)LatestdateofdeliverywasMay2,2004.Firstcharterersgave noticeofdeliverybetween30thApriland2ndMay. ii. Ownersenteredintoanothertimecharterwithnewchartererswith lastdateofdeliveryasMay8thattherateof$39,500.However,the first charterers finally delivered the ship on May 11th. Because of the delay owners had to agree to lower price of $31,500 with secondcharterers. iii. Owners claimed damages of $ 1.8 million calculated as the difference in the rates ($39500$31500 = $8000) * time duration ofthenewcharter.Thenorminshippingindustrywastopaythe difference between old charter rate and new charter rate for the number of days for which revenue was lost. Thus normative damages came to $158,301.17 calculated as market rate * 9 days revenuelost. iv. Arbitrators decided in favour of the owners. Appeal on the arbitrationproceedingwasalsodecidedinfavouroftheowners. v. Previous rule was different as Lord Hoffman says But there is no reportedcaseinwhichsuchaclaimhasbeenmade.Instead,there hasbeenauniformseriesofdictaovermanyyearsinwhichjudges have said or assumed that the damages for late delivery are the difference between the charter rate and the market rate: see for examplesLordDenningMRinAlmaShippingCorpnofMonroviav

24 Mantovani (The Dione) [1975] 1 Lloyd's Rep 115, 117118; Lord DenningMRinArtaShippingCoLtdvThaiEuropeTapiocaService Ltd(TheJohnny)[1977]2Lloyd'sRep1,2;BinghamLJinHyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia) [1991]1Lloyd'sRep100,118.Textbookshavesaidthesame:see Scrutton on Charterparties 20th ed (1996), pp 348349; Wilford andothersTimeCharters5thed(2003),atpara4.20.Nowhereis thereasuggestionofevenatheoreticalpossibilityofdamagesfor thelossofafollowingfixture. j. QuestionsbeforetheLord:InthewordsofLordHoffman i. Istherulethatapartymayrecoverlosseswhichwereforeseeable ("notunlikely")anexternalruleoflaw,imposedupontheparties toeverycontractindefaultofexpressprovisiontothecontrary,or isitaprimafacieassumptionaboutwhatthepartiesmaybetaken tohaveintended,nodoubtapplicableinthegreatmajorityofcases butcapableofrebuttalincasesinwhichthecontext,surrounding circumstances or general understanding in the relevant market shows that a party would not reasonably have been regarded as assumingresponsibilityforsuchlosses? ii. Whether a given type of loss is one for which a party assumed contractual responsibility involves the interpretation of the contract as a whole against its commercial background, and this, likeallquestionsofinterpretation,isaquestionoflaw. k. Decision:TheAppealisallowedandtheOwnersofTheAchilleasarenot entitled to the loss from reduction of contract price of subsequent contractbutonlyequaltothepaymentfor9daysoflossesatthecurrent marketpricesroughlyamountingto$160,000. l. Thetestasdistilledfromthejudgement:TheAchilleasagreementcentred test involves the interpretation of the contract as a whole against its commercialbackground(LordHoffmannat[25][26]).Thefollowingare a few of the key factors to be weighed in the construction process by which the common basis is to be discerned, in the light of the express andimpliedtermsandthematrixoffact:

25 i. Whether a loss was sufficiently foreseeable at the time of contracting that it can sensibly be said to have been within the horizon of the parties contemplation (Lord Walker at [78]). In particular, whether the likelihood and quantum of the loss were sufficientlyforeseeableatthetimeofcontractingthatthepromisor couldhaverealisticallytakenitintoaccountinpricingthecontract, taking out insurance, drafting any exclusions, and later deciding what effort to take in trying not to breach. This purposive foreseeability approach replaces the old approachs blind applicationofalabelsuchasnotunlikelyorrealdanger.Itwas of some importance in SAAMCO (at 211EF), and Hadley v Baxendale (1854) 9 Exch. 341 Ex Ct might have been decided differently if the defendant had been a vendor of mill shafts and not a carrier (see further Lord Walker at [67]). (Foreseeability (reconceived) was the most important factor in The Achilleas for Lord Hoffmann, Lord Hope and Lord Walker: see [23], [34], [36] and [86]. For at least Lord Hoffmann and Lord Hope (at [23] and [34]),thecharterersdidnotacceptliabilityforanylossofprofits from followon fixtures, because at the time of contracting such losses were too unpredictable for the parties to have thought the charterershouldhavehadtheminmindassomethingitwouldbe liablefor(howeversmallorlargethelossinfactturnsouttobe). For these two judges it was not the extent of the losses in the particular case that was too remote (which should lead to a Victoria Laundry award of the ordinary losses, an approach that can still apply under the new approach: per Lord Hoffmann at [22]),buttheentiretypeoflossesofprofitsinrelationtofollowon fixtures(althoughLordWalkerleanstowardstheVictoriaLaundry approach at [82][86]). The difficulty with this reasoning, however, is that delays or other breaches can often lead to unpredictable follow on losses (often partly related to market movements),andthatsuchlossesareoftenrecoverable(subjectto capping under Victoria Laundry): for example the contract of

26 carriageinTheHeronIIandthesaleofgoodsinVictoriaLaundry. One possible explanation for the result in The Achilleas is that in longterm time charters there is not only a potentially volatile market but also a long period (months or longer) between contracting and breach, although one wonders whether this is enough to justify the conclusion in The Achilleas, and there are plenty of other longterm contract types, including fixedterm leases of real property (as to which see Bramley v Chesterton (1857) 2 C.B. (N.S.) 592 Ct of Common Pleas). Certainly an expectation of a long period between contracting and breach cannot be enough on its own to render a type of loss unrecoverable.) ii. Incaseswhererelevantinformationwasspeciallycommunicatedto thepromisorpriortocontracting(i.e.secondlimbcases),whether that information was communicated in circumstances (i.e. timing, casualness, to which employee, etc.) in which it could be reasonably be understood to have been taken on board by the promisorassomethingthatthepartieswouldtreatasaffectingthe extentofhisliability. iii. The purpose of the duty, i.e. which interests it was intended to protect. Thus a lightning conductor is intended to protect against lightning damage, however unlikely (Lord Walker at [78]), and a propertyvaluationisnotintendedtoprotectagainsttransactional losses through entering the property market, however likely (SAAMCO). (In The Achilleas the right to refuse to obey an illegitimatelastvoyageordercanbearguedtobesignificantboth ways: either it emphasises the importance under the contract of ensuringthattheshipownerhasthevesselontheredeliverydate, soastoprotectfollowoncharters;oritshowsthattheshipowner hasenoughprotectionanddoesnotexpecttorecoverdamagesfor the loss of profits where the order is a legitimate one: see Lord Hoffmannat[23].)

27 iv. The absence of an express term (especially exclusion clause) coveringtherisk.Thismayormaynotindicateanythingaboutthe intended allocation of risk. (In The Achilleas, Lord Hoffmann thoughtitwasofnosignificance(at[26]),whereasBaronessHale thought it pointed towards an assumption of responsibility (at [90]), while at the same time arguing for the old approach to remotenessunderwhichsuchanargumentwasirrelevant.) v. Any general market understanding or expectation. Indeed, an exclusionclausecouldbeimpliedinfactbycustom,withnoneed to discuss remoteness, if such a market understanding were sufficientlyclear.(LordHoffmanndidplacesomerelianceupona marketunderstandinginTheAchilleas,althoughnoneoftheother judgesintheHouseascribedanyrealsignificancetoit.) vi. The price paid to the promisor, as compared with the size of potential losses for which the promisor is said to have taken the risk, per Lord Hoffmann at [13] and [20] (see also the Australian decisionofStuartPropertyvCondorCommercialProperty[2006] NSWCA 334 at [97]). (This cannot have been important in The Achilleas.Althoughlarge,thelossclaimedwasstilllessthan25per centoftheamountofchartercostspaidbyTranseldduringtheir charter,i.e.notentirelydisproportionate.) m. Ruleinshort: i. Whether a loss was sufficiently foreseeable at the time of contracting that it can sensibly be said to have been within the horizonofthepartiescontemplation ii. Anyinformationcommunicatedwiththecounterpartyinamanner toallowthecounterpartytopreventtheexcessliabilityifheisso facedwith. iii. The purpose of the duty, i.e. which interests it was intended to protect. iv. The absence of an express term (especially exclusion clause) coveringtherisk.

28 v. Any general market understanding or expectation. (Exclusion implied) vi. The price paid to the promisor, as compared with the size of potential losses for which the promisor is said to have taken the risk. n. Commentaryratioofjudgement: i. LordHoffmanandLordHopealludedtothisnewrulemodifyingthe ruleinVictoriaLaundry,Hadleyv.BaxendaleandHeronII. ii. LordRogershowever,alliedwiththereasoninginVictoriaLaundry butstillmodifyingtheHadleyvBaxendaleandHeronII. iii. Baroness Hale, however, explained the judgement in accordance with interpretation of all three precedents listed immediately above. o. Important Quotations: Baroness Hale stated her understanding of his conclusion in the following terms (para. 91): "one answer to our question, given as I understand it by my noble and learned friend, Lord Rodger of Earlsferry, is that these parties would not have had this particulartypeoflosswithintheircontemplation.Theywouldexpectthat theownerwouldbeabletofindauseforhisshipevenifitwasreturned late. It was only because of the unusual volatility of the market at that particulartimethatthisparticularlosswassuffered.Itisonethingtosay, asdidthemajorityarbitrators,thatmissingdatesforasubsequentfixture waswithintheparties'contemplationas"notunlikely".Itisanotherthing tosaythat the"extremelyvolatile"conditions,whichbroughtaboutthis particularlosswere"notunlikely". p. FurtherQuotation:BaronessHalefurthersaidPara92:Anotheranswer tothequestion,givenasIunderstanditbymynobleandlearnedfriends, LordHoffmannandLordHope,isthatonemustask,notonlywhetherthe parties must be taken to have had this type of loss within their contemplationwhenthecontractwasmade,butalsowhethertheymust be taken to have had liability for this type of loss within their contemplation then.In other words,isthechartererto be taken to have undertaken legal responsibility for this type of loss? What should the

29 unspoken terms of their contract be taken to be? If that is the question, thenitbecomesrelevanttoaskwhathasbeenthenormalexpectationof partiestosuchcontractsinthisparticularmarket.Ifchartererswouldnot normallyexpecttopaymorethanthemarketrateforthedaystheywere late, and shipowners would not normally expect to get more than that, thenonewouldexpectsomethingextrabeforeliabilityforanunusualloss suchasthiswouldarise.Thatisessentiallythereasoningadoptedbythe minorityarbitrator.

30

VII. CASES POST- SCHILLEAS Following cases have been decided after the Achilleas, expounding how applicability of ratio in Achilleas is determined. 1] SylviaShippingCoLtdvProgressBulkCarriersLtd a. Citation:[2010]EWHC542(Comm) b. Dateofdecision:18March2010 c. Commentary:Achilleasnotapplied d. Basic facts: Charterers had hired the ship and subchartered it. In the meanwhile,portauthoritydeclaredthatsomerepairswereessentialtobe carriedout.Theownersdelayedtherepairsbecauseofwhichtheshiphad togotoemergencyrepairstomakeitseaworthyforspecificgoods.This caused in a delay that resulted in the loss of subcharter contract. The charterers were able to find alternate contract at lower prices. The charterers sued for damages equal to loss of profit on subcharter that waslost.Theownerscontendedthatlossfromsubcharterswasbeyond theircontemplationinaccordancewiththedecisioninAchilleas. e. Decision: It was held that Achilleas was not applicable and the requirements to apply Achilleas were not satisfied. The arbitrators however allowed the loss equal to loss suffered from subcharter less profitearnedonalternatesubcharterthatwasavailed. f. Reliedon: i. TheAmerEnergy[2009]1Lloyd'sRep.293 ii. Classic Maritime v Lion Diversified Holdings [2010] 1 Lloyd's Rep 59 iii. Supershield Ltd v. Siemens Building Technologies FE Ltd [2010] EWCACiv7,[2010]1Lloyd'sRep.Plus20 iv. g. Rationale: The decision in Slyvia Shipping helpfully clarifies the uncertaintycreatedbytheHouseofLords'decisioninTheAchilleas.The application of The Achilleas decision is now restricted to cases where

31 exceptional circumstances justify a requirement that the party seeking "firstlimb"damages(whichareassumedtoariseintheordinarycourse ofthings)alsodemonstratethatthepartyinbreachofcontractassumed responsibility for the loss in question. In the vast majority of cases, claimants will not have to demonstrate that the defendant accepted liabilityforthelosssuffered. h. Quotation:Mr.JusticeHamblensaidTheorthodoxapproachremainsthe general test of remoteness applicable in the great majority of cases. However, there may be "unusual" cases, such as The Achilleas itself, in which the context, surrounding circumstances or general understanding intherelevantmarketmakeitnecessaryspecificallytoconsiderwhether therehasbeenanassumptionofresponsibility.Thisismostlikelytobein thoserelativelyrarecaseswheretheapplicationofthegeneraltestleads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liabilitywouldbecontrarytomarketunderstandingandexpectations. 4] AsmShippingLtd.ofIndiavTTMILtd.ofEngland(TheAmerEnergy) a. Citation:[2009]1Lloyd'sRep.293 b. Quotation:FlauxJsummarisedtheeffectofTheAchilleasasfollows: c. "Para 17: First, I do not consider that the House of Lords (at least the majorityoftheirLordships)wereintendingtolaydownsomecompletely new test as to recoverability of damages in contract and remoteness differentfromthesocalledruleinHadleyvBaxendale(1854)9Exch341 as refined in subsequent cases, above all the decision of the House of LordsitselfinCCzarnikowLtdvKoufos(TheHeronII)[1967]2Lloyd's Rep.457;[1969]1AC350.SeeLordHopeatparas31to34,LordRodger at paras 47 to 52, Lord Walker at paras 66 to 78 and Baroness Hale at paras 89 to 93 Further in Para 18 he continues: Lord Hoffmann acknowledges in paras 9 and 11 of his opinion that departure from the normalprinciplesofforeseeabilitywouldbeunusual.Althoughherefers toshippingasamarketwherelimitationsontheextentofliabilityarising out of general expectations in that market might be more common, I do not consider that he was intending to say that in all shipping cases (as

32 opposed to the type of time charter case then under consideration) the ruleinHadleyvBaxendaleassubsequentlyrefined,willnolongerapply. If he was saying that, it was not a view shared by the majority and it wouldbeheterodoxtosaytheleast." 5] ClassicMaritimevLionDiversifiedHoldings a. Citation:[2010]1Lloyd'sRep59 b. Contention:Lionattemptedtorestrictthequantumoflossrelyingonthe extreme volatility cited in the Achilleas. In the words of Cooke J, Lion submitted that the House of Lords had set out a new test for the recoverabilityofdamagesforbreachofcontract,namelywhethertheloss was a type of loss for which the party in breach could reasonably be regarded as having assumed responsibility. Because of the extreme volatility of the freight market in late 2008 it was submitted that Limbungan could not be liable for the full extent of the loss claimed by Classic which reflected the full 95% fall in freight rates, but only for the lossflowingfromafallinfreightratesforvesselsofthekindinquestion, ofthemagnitudewhichthepartieswouldhavecontemplated,atthetime ofcontracting,asbeinglikelytooccurintheordinarycourseofthings. c. Decision:Achilleasnotapplicable. d. Quotation:CookeJstated(atp71)thathewouldbe"highlysurprised"if TheAchilleasestablishedanewtestfortherecoverabilityofdamagesfor breachofcontract,andnotedthatFlauxJhadbeen"whollyunpersuaded" thattheyhaddoneso. e. Quotation:InPara72CookeJsays:Inthecontextofthisactiontheexact formulationofthetestoftheremotenessdoesnotseemtometomatter. TheHouseofLordshadtograpplewithtwodifferenttypesoflosswhich aroseonthefacts.Thecontestwasbetweenthemarketrate/contractrate differential on the existing charter for the period of overrun on late delivery of the vessel and the lost profits for the whole duration of the followon voyage as a result of that late delivery. Their Lordships, for differing reasons, held that the former was the correct measure of damages.

33 f. Quotation: Further in Para 72 Here, there is only one kind of loss to be considered, namely the difference between contract and market rate for the two vessels which were cancelled. It is only the extent of that loss which is in issue, if liability is established. This raises the classic distinction,recognisedinnumerouspriorauthoritiesbetweentypeofloss and extent of loss. There is no issue here with regard to knowledge of specialcontractsorspecialprofits.Theissueiswhichoftwopartiesisto bearthelossbetweenthecontractrateandthemarketrate.Bothvessels wereontimecharterandnoquestionarisesastoextricationbyClassic, asdisponentownersfromthosecontracts.Theclaimisonebasedonthe simple principles expressed in The Elena D'Amico [1980] 1 Lloyd's Rep 75. Whatever test one adopts, in the context of breaking two fixtures of this kind, it cannot be said that the type of loss is outwith the contemplationofthepartiesatthetimeofenteringthecontract,ifoneof themshouldbreakit.ThisisaHadleyvBaxendalerule1case. 6] SupershieldLtdv.SiemensBuildingTechnologiesFELtd, a. Citation:[2010]EWCACiv7,[2010]1Lloyd'sRep.Plus20, b. Howtoclassifythiscase:Inthejudgmentpara44,LordToulsonclassifies thiscaseassimultaneousfailureofseparateprotectionmeasures. c. Basic facts: A nut and bolt connection on a float valve failed and water fromastoragetankoverflowedintothebasementofanewofficebuilding for Slaughter and May in the City of London. The water from the tank overflowed into a bunded area which contained a 600 mm high wall designedtoretainanyoverflowingwater.Thereweredrainsinthetank roomfloorwithinthebundedareabutthesebecameblockedorpartially blockedbypackaging,insulatingorothermaterialonthetankroomfloor. Thewateroverflowedthebundandcausedafloodwhichledtoextensive damagetotheelectricalequipmentinthebasement.Theclaimantssued the contractor who sued sub contractor and it went for a few levels. Eventually, the third or fourth level subcontractor Siemens settled the claimswithallclaimingpartiesupthecontractualchainbutmaintaineda suit against its subcontractor Supershield. Supershield disputed the amountofclaimsettlementthatSiemenshadenteredinto.

34 d. Quotation: The Court of Appeal summarised the position as follows in Para 43: Hadley v Baxendale remains a standard rule but it has been rationalisedonthebasisthatitreflectstheexpectationtobeimputedto the parties in the ordinary case, i.e. that a contract breaker should ordinarily be liable to the other party for damage resulting from his breach if, but only if, at the time of making the contract a reasonable person in his shoes would have had damage of that kind in mind as not unlikelytoresultfromabreach.However,SouthAustraliaandTransfield Shipping are authority that there may be cases where the court, on examiningthecontractandthecommercialbackground,decidesthatthe standard approach would not reflect the expectation or intention reasonablytobeimputedtotheparties.Inthosetwoinstancestheeffect wasexclusionary;thecontractbreakerwasheldnottobeliableforloss which resulted from its breach although some loss of the kind was not unlikely.Butlogicallythesameprinciplemayhaveaninclusionaryeffect. If, on the proper analysis of the contract against its commercial background, the loss was within the scope of the duty, it cannot be regarded as too remote, even if it would not have occurred in ordinary circumstances. 7] IspatIndurstriesLtdvWesternBulkPTE.Ltd a. Citation:[2011]EWHC93(Comm) b. Relevance:Notrelevant c. BasicFacts:CharterershiredashiptocarrycargofromVizagtoMumbai. However because of Naxal violence, Vizag cargo was unavailable. Charterers therefore cancelled the charter agreement. Owners tried to find alternate fixture for the vessel but were unsuccessful. Owners sued the charterers for payment for the days charter was contracted i.e. 12 days + some allowance for ballasting in South America where owners hoped they had best chance of finding alternate fixture. Arbitrators accepted the claim. Charterers appealed and claimed that special conditions as discussed in the Achilleas were applicable to their case. Judgeruledagainstit.

35 8] JonesvEnvironcomLtd&Anor a. Citation:[2011]EWCACiv1152 b. Relevance: The case has many loopholes with respect to incomplete evidence and the commentary, therefore, incomplete. Better to quote some other examples. Rather than quote this. There is ample chance to refute it based on other reasons not related to remoteness or Achilleas itself. 9] LansatShippingCoLtdvGlencoreGrainBV a. Citation:[2009]EWCACiv855 b. Relevance: Not relevant. The case concerns with interpretation of (1) whatconstitutesalegitimatelastvoyagefortimecharter,(2)theeffectof penal clause, though stated in the contract and within contemplation of theparties,onthefinaldamagesallocatedbythearbitrationpanel. 10] E.N.E.KosvPetroleoBrasileiroS.A.(Petrobas) a. Citation:[2009]EWHC1843(Comm) b. Key facts: Ship owners withdrew their ship from a charterparty agreement and resulting time wasted in communications between charterer (to reinstate the ship) and owners (to confirm their withdrawal) resulted in loss of days and consequent costs. Owners contended that they were indemnified of these losses by a clause in the agreement. It was held that in accordance with the Achilleas, the charterershadnotforeseenthisloss. c. Application:Restricted 11] BorealisABvGeogasTradingSA a. Citation:[2010]EWHC2789(Comm) b. Basic facts: Geogas supplied contaminated gas to Borealis thereby resulting in damage to their plant. Some alarms went off during the supply but Borealis continued to operate the plant while testing for causes.Whencausewasidentifieditshutdowntheplantbutinthemean timetherewassubstantialdamage. c. Mainissues:Thecasewaspleadedontworelevantgrounds: v. Novusactusinterveniens vi. Remotenessofdamages

36 d. Relevance:Bothgroundsweredeclaredtobenotapplicable. i. New cause that intervenes should be substantially large to nullify the effect of primary cause. As quoted in order to comprise a novus actus interveniens, so breaking the chain of causation, the conduct of the claimant "must constitute an event of such impact thatit'obliterates'thewrongdoing"ofthedefendant. ii. Achilleas was deemed not applicable as this was not a special case asenvisagedbyLordHoffman. e. Applicability:Low 12] TomHoskinsPlcvEMWLaw(afirm) a. Citation:[2010]EWHC479(Ch) b. Basic Facts: Solicitor advised a client, who was in financial distress, on saletransactionofsomepubsandabrewery.Thedelayresultedinlossto theclient.Theclientsuedforprofessionalnegligence.Courtagreedtothe claim.Thequestionsweretwofold.Firstwasthesolicitorresponsiblefor thelossofvalueonsaletransaction.Secondwasthesolicitorresponsible fortradinglossesincurredbytheclienttokeepthepubsoperativesoas tosellthemasgoingconcern.Thesolicitorsdisputewaswithrespectto foreseeability of the type of the loss (trading loss) as discussed in Achilleas.TheCourtheldthatitwasforeseeableandhencesolicitorwas liable. c. Ratio:Courtlookedattheobjectiveofenteringintothesalecontractwas topreventtradingloss.Clientwasconstrainedtokeeppubsoperating. 13] GBGasHoldingsLtdvAccenture(UK)Ltd&Ors a. Citation:[2009]EWHC2734(Comm) b. BasicFacts:Gasco.deployedsoftwarebyAccenturethatresultedinlotof errors,pendingorders,misseddeadlines.Settlementamountwasrandom $8million. Accenture contended that the damages were beyond contemplationofthepartiesandhenceitwasnotliable.Itwasheldthat damages actually form part of the first limb of Hadley v Baxendale and thusrecoverable. 14] Donoghuev.GreaterGlasgowHealthBoard&Anor. a. Note:ThisisaScottishsessioncourtdecision.Maynotbequoted.

37 b. Citation:[2009]ScotCSCSOHU_115 c. BasicFacts:Thecauseoftheaccident,asaverredbythepursuer,isthat she slipped on loose stones from the gravel path which had got transferred on to the concrete stairs, making them slippery. The defenders'claimagainstthethirdpartyisthatthepathwassurfacedwith gravelandnotwithawearingcourseofasphaltwithasurroundinggrass area,asspecifiedinthecontractdrawings.Itisacceptedbythedefenders thatthepursuerhasnodirectrightofactionagainstthethirdparty(and therefore that the third party has no liability to the pursuer), but at the sametimeitisaverredbythedefendersthatthedamageswouldnothave hadtobepaidortheexpensesincurredbutforthethirdparty'smaterial breachofcontract.Whatthedefendersareineffectseekingisindemnity orrelieffromthethirdparty. d. Decision:LordUistsaidIhavereachedtheconclusionthatthelosswhich thedefendersclaimfromthethirdpartycannotbecategorisedasaloss which was likely to arise from the breach of contract averred or as one whichwaswithinthereasonablecontemplationofthepartieswhenthey enteredintothecontract.Thewarrantygrantedbythethirdpartytothe defenders was dated 27 May 2004 and the accident is said to have occurredon27April2007.Iacceptthesubmissionforthethirdpartythat the natural loss here is the cost of remedying the failure to provide the correct surface, and not the damages which the defenders may have to paytothepursuerfortheinjurywhichshesustained.Idonotthinkthatit can be said that it was, at the time that the contract was entered into, within the reasonable contemplation of the parties that the third party wouldbeexposedtoliabilityforanaccidentcausedbygravelgettingonto the stairs in April 2007. The defenders accept that the pursuer has no directrightofactionagainstthethirdparty:thatbeingso,Ifinditdifficult toseehowitcanbesaidthatitwaswithinthereasonablecontemplation ofthepartiesatthetimeofthemakingofthecontractthatthethirdparty was exposing itself to liability for an accident such as that which occurred.

38

VIII. SUMMARY OF IMPACT OF ACHILLEAS ON SUBSEQUENT DECISIONS 1. The generally accepted effect of the decision (prior to the Sylvia Shipping case) was that it added an additional requirement to establishing "first limb" loss. FollowingTheAchilleas,arguablyaclaimanthadtodemonstrateboth(i)thatthe lossinquestionwasnotunlikelytohappenintheordinarycourseofthingsand wasthereforeinthereasonablecontemplationofthepartieswhentheyentered intotheirbargain,and(ii)thatthedefendantassumedtheriskofsuchloss. 2. ThedecisioninSlyviaShippinghelpfullyclarifiestheuncertaintycreatedbythe House of Lords' decision in The Achilleas. The application of The Achilleas decision is now restricted to cases where exceptional circumstances justify a requirementthatthepartyseeking"firstlimb"damages(whichareassumedto ariseintheordinarycourseofthings)alsodemonstratethatthepartyinbreach ofcontractassumedresponsibilityforthelossinquestion.Inthevastmajorityof cases, claimants will not have to demonstrate that the defendant accepted liabilityforthelosssuffered. 3. As previously, parties need to consider carefully the extent to which their contract excludes liability for certain types of loss. For example, it is common that parties will seek to exclude liability for loss of profit. However, it is a common drafting error that exclusion of liability clauses are ambiguous as to whetherliabilitybothfor(i)profitarisingintheordinarycauseofthings(i.e.,a "firstlimb"loss),and(ii)profitarisingbyreasonofspecialcircumstanceswithin the parties' knowledge (i.e., a "second limb" loss, commonly referred to as "consequentialloss")isexcluded.Bydefininglostprofitasa"consequentialloss," such clauses often only exclude liability for second limb lost profit. Lost profit, whicharisesintheordinarycourseofthings,isnotconstruedas"consequential loss"andisthereforegenerallynotexcludedbysuchlanguage. 4. Theeffectandtrueintentofsuchexclusionclausesandtheproperinterpretation of"consequentialloss"inthiscontextisanotherareaofthelawonremotenessof damagesthatrequiresfurtherconsiderationbytheSupremeCourt.Inanyevent, careshouldbetakenwhenincluding"boilerplate"exclusionofliabilityclauses whichmayhaveunintendedconsequencesifnotcarefullydrafted.

39 ABOUTME I am a student of law in University of Mumbai, India. I am an author and an investor. My first book, Subverting Capitalism and Democracy is available on Amazon. Basically, I am a Mechanical Engineering graduate with Masters in Management Studies, (i.e. MBA) from University of Mumbai. I have 10 years work experience across companies in various roles. In my last role, I was buy sideanalystfor$18billionhedgefundclient. Youcanemailmeatrahuldeodhar@gmail.comtoconnectwithmeorfollowmy blog rdlaw.blogspot.com. You can know more about me, my other blogs, alternateconnections,etc.onmywebsite,www.rahuldeodhar.com. DISCLAIMERS Ihavecompiledthefollowingebookwithanintentiontoaidresearchandcase law assessment on the topic. The matter contained therein does not constitute legal advice and should be used by experienced legal practitioners only. I have donemybesttotakemostissuesintoaccount,however,everycaseisbasedon uniquefactsandapplicationofjudgementscitedhereinmaydifferfromcaseto case. I shall not be liable for effects or results from use or misuse of the judgementsanddecisionscitedherein. FEEDBACK If you have any ideas to help improve this, please email me at rahuldeodhar@gmail.com. I follow many lawyers across the world on Google+ andwillwelcomeanyinteractionthere.