Remoteness in contract, The Achilleas and The Sylvia: what does it all mean?

Has the decision of the House of Lords in The Achilleas radically altered the test for remoteness of damages in contract? Is there now a broader ‘assumption of responsibility’ requirement? The recent judgment of the Commercial Court in Sylvia Shipping Co Ltd v Progress Bulk Carriers Ltd (‘The Sylvia’) [2010] EWHC 542 (Comm) answers both questions in the negative. It explains that The Achilleas lays down no new generally applicable test. The usual remoteness test will continue to apply to the vast majority of cases; and ‘assumption of responsibility’ will be relevant only in unusual cases.

Chirag Karia and David Semark, Barristers, Quadrant Chambers

Introduction

Until 9 July 2008 commercial lawyers thought they understood the English law on the remoteness of damages in contract. The test was easy to state and relatively unproblematic to apply: was the loss caused by the breach of contract a kind of loss which, at the time the contract was concluded, the parties would reasonably have contemplated as not unlikely to result from the breach? That was the result of Hadley v Baxendale (1854) 9 Exch 341, as explained and refined in C Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350, particularly in Lord Reid’s speech at 382G–383B. Further, provided that the parties reasonably contemplated the kind or type of loss as a not unlikely result, it did not matter that the extent of the loss was greater than they could reasonably have foreseen: the innocent party was entitled to recover its full loss, even if unforeseeably large. See Jackson v Royal Bank of Scotland [2005] 1 Lloyd’s Rep 366.