The Orthodox Approach to Assessing Damages for Late Redelivery and Lost Opportunities
Charterers in time charterparty shall redeliver the vessel within the agreed charter period.
Article 178 of the Egyptian Trade Maritime Law No. 8 of 1990 provides that the charterer shall pay the owner the charter rate for the overrun period in case of late redelivery under time charterparties.
Therefore, by law and practice, if the charterers fail to redeliver within the charter period, they are obliged to pay the hire rate for the overrun period. However, this might not be sufficient to cover the damages arising from late redelivery in many cases.
If the market rate rises significantly during the overrun period, the vessel owner is entitled to be compensated for the profits lost.
The orthodox approach to assessing the damages for late redelivery is the difference between the charter rate and the market rate for the overrun period.
In deviation from the orthodox approach as set above, in Hapag-Lloyd AG v. Skyros Maritime Corporation and Agios Minas Shipping Company, the UK commercial court overturned the tribunal decision which awarded the vessels owners substantial damages, and ruled that the owners are entitled to nominal damages only.
Hapag-Lloyd chartered two vessels i.e., Skyros and Agios Minas, under two time charterparties. Separately, the owners entered into MOAs for the sale of the vessels to a third-party. The MOAs provided that the owners should not charter the vessels after redelivery by Hapag-Lloyd.
Following Hapag-Lloyd’s failure to redeliver the vessels on the due dates, the owners commenced arbitration proceedings against Hapag-Lloyd to claim damages, in the normal way, seeking the difference between the hire rate and the market rate which arose significantly in the overrun period. The owners were awarded substantial damages according to the orthodox approach.
The tribunal award was appealed as the English Arbitration Act 1996 allows for a challenge on a point of law. Hapag-Lloyd relied on the MOAs which prevent the owners from chartering the vessels after redelivery and advocated that the owners did not actually lose any opportunity to charter the vessels with the higher market rate during the overrun period.
The court ruled that the owners are entitled only to nominal damages calculated on the charter rate and denied any substantial damages. This judgment comes with a revolutionary change to the assessment of damages in claims arising from late redelivery of vessels and gives significant importance to the loss of opportunity factor which is associated with evidential burden on both parties, and in English Courts, particularly, the owners will be required by their charterers to prove the absence of any arrangements that might limit their opportunity to profit from the ship post-redelivery.
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Shamseddien Essam