Rewriting the rules on remoteness?
SYLVIA SHIPPING CO v PROGRESS BULK CARRIERS [2010]
This case looks at the potentially differing rules on assessing remoteness of damages that can be claimed for breach of contract. An appeal from an arbitration award was dismissed and damages associated with the delay in readiness of a vessel, which resulted in the cancellation of a sub-charter, were held to be foreseeable and hence could be claimed. In the Transfield v Mercator [2008] case, however, a broader approach based on an assumption of responsibility test was applied.
issues:
The generally accepted test for remoteness has traditionally been whether the loss claimed was of a kind or type which would have been within the reasonable contemplation of the parties at the time that the contract was made as being likely to result (the first limb of Hadley v Baxendale [1854]). However, the outcome of Transfield called into question whether that remained the primary test. In that case, the Court said it was necessary to consider whether the loss was a type of loss for which a party can reasonably be expected to have ‘assumed responsibility’ and concluded that it was not. That having been said, there was clearly some confusion as to whether the Judges in Transfield had intended to change the law.
decision:
- In the Judge's view, the key authorities suggest a combination of the two approaches. The orthodox approach remains the general test of remoteness applicable in the great majority of situations. However, there may be unusual cases in which the context, surrounding circumstances or general understanding in the relevant market make it necessary to consider whether there has been an assumption of responsibility (the broader approach). This is most likely to be in those relatively rare circumstances where the application of the general test leads or may lead to an unquantifiable liability or where there is clear evidence that such a liability would be contrary to expectations in the particular specialised field or market in question.
- In most cases, it will not be necessary specifically to address the issue of assumption of responsibility. Usually the fact that the type of loss arises in the ordinary course of things or out of the knowledge of special circumstances will carry with it the necessary assumption of responsibility.
- The Transfield decision was interestingly mentioned by the Judge only once and then just in passing. It was seemingly regarded as being an example of an exceptional case where the orthodox approach would not “reflect the expectation or intention reasonably to be imputed to the parties”.
points to note:
- It is perhaps reassuring to have some clarity that the orthodox approach in Hadley remains the ‘standard rule’. It is only in relatively few situations that the test of ‘assumption of responsibility’ will be relevant or lead to a different result. The Judge said it was important that it be made clear that “there is no new generally applicable legal test of remoteness in damages”. It appeared that, in a number of cases, this was being argued and decisions were being challenged for failing to recognise or apply the assumption of responsibility test, leading to confusion and uncertainty.
- Nevertheless, this reversion to the more orthodox approach does have some worrying consequences for those who might have hoped that damages claims under the new test might be more restricted. A party cannot be expected to assume responsibility for something he cannot control and cannot quantify, because he does not know anything about it. This will often apply, for example, in cases involving problems with the implementation of computer systems where the extent of any resulting damage to the business may be very difficult, if not impossible, for the supplier to quantify in advance and will vary enormously from customer to customer. A supplier in that scenario is not likely to have ‘assumed responsibility’ but may very well be liable if the test is simply one of ‘reasonable foreseeability’.