What Ever Happened to The Achilleas?

Remoteness - Damages

Jeremy Lightfoot

This article by Jeremy Lightfoot first appeared in Lloyd's List on 1 June 2011.

The Achilleas [2008] UKHL 48 provoked considerable controversy and debate when it was decided in 2008. Views were polarised: some thought that it heralded a new era for the test of remoteness in contract; some thought that nothing had changed. As we approach the third anniversary of the House of Lords’ decision, what has been the lasting effect of The Achilleas?

The original decision

The facts of The Achilleas have been widely reported and are well known. In outline, it became clear that the vessel was going to be re-delivered late by the Charterers. The Owners had a lucrative follow-on fixture which they faced losing and were forced to renegotiate the hire downwards. In due course, the Owners sought their losses from the Charterers. The key was how the losses should be calculated. The Owners considered that they should recover in respect of the reduced hire for the whole of the follow-on fixture; the Charterers said that the loss was the difference between contract and market for the few days of overrun.

The Owners were successful at arbitration and all the way up to the Court of Appeal. The Charterers however succeeded in the House of Lords and the Owners’ recovery was limited to the difference between contract and market for the period of overrun. The basis of this decision has been the source of continuing controversy. The reason for this is that the orthodox approach to remoteness is to ask what is a “not unlikely result of the breach”. It was clear to everyone in the industry that suffering loss by losing a follow-on fixture was a “not unlikely result” of re-delivering late. However, there was a competing consideration: it was found that the industry expected damages to be assessed on the contract versus market tariff.

It was not entirely clear from the differing speeches the basis on which the decision as a whole was reached. Some commentators suggested that, in particular relying on Lord Hoffmann’s speech, there was a new test for remoteness: the test was not just to ask what was a “not unlikely result of the breach” but rather you had to ask whether a party had assumed responsibility for a certain loss. On the facts, given the market understanding, the Charterers had not assumed responsibility for the loss of profit on the follow-on fixture and hence they were not liable. Other commentators, looking in particular at Lord Roger’s speech, argued that the decision was merely an application of orthodox remoteness principles with the loss not being foreseeable.

Following their lordships’ decision in July 2008, there were a plethora of talks and articles, with many different and persuasive explanations being advanced. There was however one point on which there was widespread agreement: the true effect of The Achilleas would have to be assessed in the future.

The impact of the decision 3 years on

With 3 years of decisions to work with, we are now in a position to start understanding whether The Achilleas has had any lasting impact.

Shortly after the original decision, the initial indications were that The Achilleas would be of limited significance. Flaux J in The Amer Energy [2009] 1 Lloyd’s Rep 293 doubted that The Achilleas was intended to lay down a completely new test as to the recoverability of damages in contract and remoteness. The suggestion at that stage was that the orthodox approach would prevail.

Subsequently, The Achilleas has been considered relatively widely, albeit in fewer reported cases than many expected. It does now however appear that The Achilleas has had a lasting impact. Two decisions in particular point the way forwards.

The first is the construction case of Supershield Ltd v Siemens Building Technology FE Ltd [2010] EWCA 7. This concerned the damage from a flood at Slaughter & May’s new office building. The flood was caused by the defective installation of a valve which caused a sprinkler tank to fill perpetually, much like a faulty ball-cock in a toilet. Overflow drains (which were designed with this eventuality in mind) were blocked and the result was a flood causing substantial damage. Many of the claims were settled at mediation leaving Siemens pursuing Supershield to recover it losses.

There was an argument as to whether the loss was too remote. The Court found that it was not and in doing so shed light on the fate of The Achilleas. Toulson LJ explained that the orthodox approach to remoteness from Hadley v Baxendale remained the standard rule, but that this orthodox approach had been rationalised on the basis that it reflects the imputed intention of the parties in the ordinary case. This, he explained, allowed the Court to depart from the standard approach where it found that having considered the contract and the commercial background, this standard rule did not truly reflect this imputed intention.

Hence Toulson LJ found that, in accordance with the principle in The Achilleas, where the circumstances required it, a party may not be liable for a loss even though the loss was a “not unlikely” consequence of the breach. Interestingly, Toulson LJ also went on to say that as a matter of logic the same principle may render a party liable for a loss which he has assumed responsibility for, even if the loss is an unlikely consequence of the breach. Supershield therefore suggested that The Achilleas recognised a new aspect of the remoteness test which is available in certain circumstances.

This brings us on to the second case of particular note, Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd [2010] EWHC 542. This concerned the Charterers losing a sub-charter as a result of the Owners’ negligence in maintaining the vessel’s holds. The Charterers sought their losses on the sub-charter, losses which were clearly foreseeable in the traditional sense. The Owners sought to argue that they had not assumed responsibility for these losses and relied upon The Achilleas.

The Charterers were successful. Hamblen J distinguished The Achilleas, noting in particular that The Achilleas was an unusual case, that there was no finding in The Syliva of a particular market understanding and that the sub-charter was for a finite and predictable period as it was within the four corners of the charter. At first blush therefore, The Syliva suggests a desire to limit the impact of The Achilleas.

However, Hamblen J confirmed the understanding of The Achilleas which was explained in Supershield. It was explained that there were now two approaches to remoteness. The first was the ‘orthodox approach’ of long-standing application arising from Hadley v Baxendale which ‘remains the general test of remoteness applicable in the great majority of cases’.

The second, described as the ‘broader approach’ was to be applied in ‘unusual’ cases where ‘context, surrounding circumstances or general understanding in the relevant market’ require it. In these circumstances, it was appropriate for the Court to ask whether a party had assumed responsibility for a loss. Hamblen J did however stress that this was not a ‘new generally applicable legal test of remoteness in damages’.

Conclusion

It now appears clear that The Achilleas will have a lasting impact. Although the principle is likely to be the subject of further refinement in the future, assumption of responsibility now has an acknowledged role to play in remoteness of damage. Its application is presently confined to unusual cases but whether it remains within these confines once the principle has become more familiar remains to be seen.

Lord Hoffman, whose speech in The Achilleas was the catalyst for the latest developments, expressed his hopes writing in the Edinburgh Law Review last year, saying:

‘If the effect of the Achilleas is, as I hope, to free the common law from the need to explain its decisions on contractual remoteness of damage by the single criterion of probability and to enable it to recognise that liability for damages may be influenced by commonsense distinctions between different commercial relationships, it will be the result of a combination between judicial decision-making and academic writing.’ [The Edinburgh Law Review, Vol 14 Issue 1, January 2010]

The present indications are that Lord Hoffman’s hopes will be, at least partly, realised. The impact of The Achilleas is likely to be long-lasting, albeit not entirely in the terms many predicted. Going forwards we may increasingly have to enter the uncertain world of asking not just what losses are likely to result from a breach, but also what losses a party was expected to be liable for.