Facts: The plaintiff (P) leased a vessel to the defendant (D) with a specified date for return (first contract). In anticipation of the ship’s return on this date, P organised another charterer to subsequently hire the vessel (second contract), commencing almost immediately after the return by D. At the time of making this second contract, hire rates were high, almost doubled. However, the vessel was delayed and not returned to P on time. During that time, hire rates had fallen and P was forced to re-negotiate and had to accept a reduced rate for the second contract. P claimed damages from D for the difference between the original rate of hire and the reduced rate P had to accept for the second contract.
Held: The Court held that general damages for this loss were not recoverable. Neither party could have reasonably contemplated the loss suffered by P caused by the volatile market rates; it was not damage ‘arising naturally’, particularly because the relevant risk was unquantifiable and beyond the knowledge of D. In other words, loss arising from extremely volatile market hire rates was too remote and would impose liability for something over which parties had no control. This affirmed the first limb of Hadley v Baxendale. Re the second limb, per Lord Hoffman [68], ‘The loss must be of a kind for which the contract-breaker ought fairly to be taken to have accepted responsibility’. In this case, D would not have assumed responsibility for the kind of loss.
Question: Was the loss of the kind or type for which the D ought to have assumed responsibility under the second limb?
No, the loss was not of the ‘kind’ or ‘type’ that D ought to have assumed responsibility. The type of loss (due to extremely volatile market hire rates) was too remote. To have made D liable, P had to make D knowledgeable of the type of loss and this must be accepted by D (responsibility can be accepted by express or implied duties; D would need to put in an exclusion clause to reject liability for the type of loss).
There is an exception which is if the risk of loss outweighs cost of performance i.e. if contract price is out of proportion with risk implied by the knowledge obtained: Stuart v Condor Commercial Insulation (2006)