IN The Skyros, Bright J. decided a pure question of law of “significance and intellectual interest”: Hapag-Lloyd A.G. v Skyros Maritime Corpn [2024] EWHC 3139 (Comm), at [137]. An arbitral tribunal had resolved a preliminary issue, on assumed facts, in favour of shipowners. The charterers successfully appealed against the award to Bright J. in the High Court under the Arbitration Act 1996, s. 69.

On the assumed facts, the charterers (Hapag-Lloyd) were late in redelivering two ships at the end of time charterparties (i.e. the Skyros, two days late, and the Agios Minas, seven days late). During these “overrun” periods, the charterers continued to pay daily hire at the agreed charter rate. But the shipowners additionally claimed compensation for the charterers’ breach of their duty of prompt redelivery. The market price for hire of ships having risen, the owners claimed as damages the additional hire they could have charged (i.e. in excess of the charterparty rates) during the overrun period.

However, during the currency of the charterparties, the owners had agreed to sell both vessels to other companies, undertaking not to charter the ships again following the end of the present charterparties with Hapag-Lloyd. Therefore, even had Skyros and Agios Minas been timeously redelivered, they would not (indeed could not) have been chartered to anyone else, consistent with the sales agreements. Hence, the charterers argued successfully before Bright J., the owners were not entitled to be compensated for “loss” of an opportunity that they could never have realised (the ships’ re-chartering).

This seems clearly correct. How could the analysis be otherwise? The owners’ strongest submissions were founded on the “market damages rule”. Namely that in sales (where the rule is codified by statute) and contracts generally, damages should “prima facie” (Sale of Goods Act 1979, s. 53(3)) reflect the difference in market value of the performance that should have been, and actually was, rendered.

This “prima facie” approach has sometimes been carried to considerable lengths. Perhaps most famously, or notoriously, in Slater v Hoyle & Smith Ltd. [1920] 2 K.B. 11, which required extensive analysis by Bright J. In outline, the plaintiff buyer in Slater v Hoyle claimed the difference in market value between the defective goods delivered and contract-compliant goods. The defendant seller sought to argue (unsuccessfully) that the admittedly defective goods had caused no loss, because the buyer had managed to sell them on to sub-buyers without complaint, at favourable prices. But Warrington L.J. held (at p. 18) that the buyer

Scrutton L.J. reasoned similarly (p. 23) that other transactions, such as the plaintiff buyer’s sub-sale, were “res inter alios acta: ‘circumstances peculiar to the plaintiff’, which cannot affect his claim one way or the other”. By parity of reasoning, could the owners’ agreement to sell the Skyros and Agios Minas be seen as res inter alios acta, viz. “circumstances peculiar to the owners” which should be ignored, leaving the usual market-value approach to compensation undisturbed?

No: the prima facie “rule” had been rebutted by the circumstances of the case. In Slater v Hoyle, while the buyer had successfully re-sold the defective goods, he had not been obliged to use those particular goods to fulfil the sub-sale contracts. Whereas in The Skyros, the owners had agreed to sell the two vessels specifically (for ships are not fungible commodities). It followed, Bright J. held at [116], that the claimant “has precluded himself from the opportunity to contract at the market rate [i.e. re-chartering the vessels]. The opportunity to do so was not lost by reason of the [charterers’] breach, but by reason of his own decision to contract on terms that made this impossible”. That causal proposition was the end of the owners’ claim for substantial damages. At [69]–[70], Bright J. rejected the owners’ and arbitrators’ reliance on Lord Hoffmann’s reference to “res inter alios acta” in The Achilleas [2008] UKHL 48, [2009] 1 A.C. 61 at [23]: merely a “throwaway remark” which was not part of the ratio. The Achilleas was after all a remoteness case, namely about “constraints and limits” on damages, and could not be used as authority to extend liability (“create a right to recover damages that would not otherwise be recoverable because there had not in fact been any loss suffered”) (at [128]). Were a claimant attempting to claim loss of some valuable consequential opportunity, they would need to show that the parties had had it in contemplation, to avoid it being too remote. But it did not follow that the owners’ disposal of the Skyros and Agios Minas also had to be “contemplated” by, or known to, the charterers, before this would exclude the market price rule. Scrutton L.J.’s belief that the situations were effectively mirror-images (“cannot affect [the] claim one way of the other” (emphasis added)) was rejected at [118] as a “false equivalence”.

The Skyros raises deep questions about the nature of contract remedies. Bright J. referred at [76] to possible “intellectual and economic justification[s]” for the market price approach. One further possibility, not discussed in the judgment, is that market price damages compensate the invaded contractual right itself rather than any species of “consequential” economic loss. Some theorists have advanced this idea under the label of “substitutive” or “substitutionary” damages (e.g. S.A. Smith in C.E.F. Rickett (ed.), Justifying Private Law Remedies (Oxford 2008)). A leading example is Professor Stevens’s essay “A Golden Victory or Not?” (in J.W. Neyers et al. (eds.), Exploring Contract Law (Oxford 2009)). Stevens contends that Slater v Hoyle was correct to award market-value damages representing the value of performance, irrespective of whether the plaintiff sustained any “consequential” loss (which on the facts, he suggests, the plaintiff buyer did not).

Stevens therefore dismisses the view that the market price approach is merely a “straightforward and predictable” quantification method (mentioned by Bright J. at [76] as a “pragmatic” justification). Predictability (a “second-order” matter) cannot prevail over principle. Hence Stevens disapproves the dissenting minority’s reasoning in The Golden Victory [2007] UKHL 12, [2007] 2 A.C. 353 (which was, by contrast, commended for its superior predictability by J. Morgan [2007] C.L.J. 263). Stevens has persuaded even F.M.B. Reynolds (see “The Golden Victory: A Misguided Decision” (2008) 38 H.K.L.J. 333). Professor Reynolds declares (ibid., at 341) that Stevens’s “abstract method” of assessing damages “is not only a matter of commercial certainty but also one of justice”.

It would seem to follow, for such theorists, that Bright J.’s award of “only nominal damages” (at [131]) was incorrect – a category error, the product of reasoning about loss rather than awarding a remedy “substitutive” of a violated contractual right. Of course though, that premise is highly controversial. Space precludes analysis of the substitutive theory as sketched above. Its unorthodoxy has been criticised. For example, Adam Kramer rejects the “substitution theory” precisely because it is inconsistent with the rules of mitigation, causation and remoteness used to quantify loss (Law of Contract Damages, 3rd ed. (Oxford 2022), § 1-44). Many cases seem inconsistent with the “substitutive” thesis. The Golden Victory majority offers a prominent example of courts championing “the compensation principle” (e.g. Lord Carswell at [63] on the “importance” of awarding “damages based on the loss actually incurred”). Even more controversially there is Bence Graphics v Fasson Ltd. [1998] Q.B. 87 (Bright J. declined counsel’s invitation to declare it “definitely … wrong” at [72]; Kramer, Law of Contract Damages, § 4-71 describes Bence Graphics as “controversial but correct”).

Furthermore, under the Sale of Goods Act the specific “prima facie” market damages rule (s. 53(3)) follows a more general proposition in section 53(2): “The measure of damages … is the estimated loss directly and naturally resulting … from the breach”. In Hirtenstein v Hill Dickinson LLP [2014] EWHC 2711 (Comm) [115], Leggatt J. (as he then was) thought it “apparent” that

Considerable authority supports this view. The so-called market price “rule” reflects the truth that in most cases (but not all cases), the disappointed promisee can mitigate their loss by purchasing substitute performance on the market (with any difference in price constituting their loss). The Skyros recognises another situation where the rule of thumb is not appropriate: when the claimant’s own contractual arrangements have made it impossible to enter the market.

Bright J. lamented (at [133]–[137]) that much of the one-day hearing in the Commercial Court had been consumed in reviewing the arbitrators’ “makeweight” points on quantum meruit and user/negotiating damages (at [130]; discussed nonetheless at [26]–[46]). His Lordship hoped that should the case proceed further, a wider range of academic argument and judicial authority would be considered. In the scope of this note, it has only been possible to mention one alternative theoretical approach. The Skyros may yet provide an opportunity for the courts to test the abstract “justice” of “substitutionary” awards against the well-established rules governing compensation for loss.