Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)

In Transfield Shipping Inc v Mercator Shipping Inc, the House of Lords addressed the issue of damages recoverable for delay in redelivery of a chartered vessel. The shipowners, Mercator, had chartered their vessel to Transfield for a fixed period, and then sub-chartered the vessel for a subsequent period at a higher rate. When Transfield delayed the redelivery, Mercator lost the sub-charter at the higher rate, and claimed damages for the difference between the charter rates. Transfield argued that the measure of damages should be the loss of profit from the sub-charter, as the loss was foreseeable. The House of Lords held that the measure of damages should be the difference between the charter rate and the market rate for the period of delay. The Lords found that the loss from the sub-charter was not of a type which the charterers could have been expected to have assumed responsibility for, as it depended on unpredictable factors such as market volatility and the terms of the sub-charter. The House emphasised that damages should be limited to losses which were within the contemplation of the parties at the time the contract was made, and which could be said to flow naturally from the breach of contract. The decision reinforces the principle that a party is not liable for unforeseeable or exceptional losses arising from a breach of contract, unless the contract specifically provides otherwise.