Court of Appeal Clarifies Late Redelivery Damages Applicable to Ships under Sale Agreements

The Court of Appeal decision in Skyros Maritime Corporation Agios Minas Shipping Company v Hapag-Lloyd AG [2025] should be of significant interest to shipowners and charterers who may occasionally have to deal with the late redelivery of ships under time charters.

This case addresses the question of the correct measure of damages that should apply to the overrun period following a late redelivery in circumstances where the shipowners could not charter their ships further having sold them under Memoranda of Agreement (MOAs) which precluded them from doing so.  

Should the normal measure of damages that factors in higher charter rates in a rising market apply to the overrun period or should it be the nominal damages based on the contract rate, particularly as the ship was not going to be rechartered?

In this instance, the Court of Appeal ruled in favour of the normal measure of damages deeming the sale of the vessels a collateral event that should be disregarded in the calculation of damages. 

Facts

The owners of two container vessels, the “SKYROS” and the “AGIOS MINAS”, had chartered their ships under two long-term NYPE charterparties on materially identical terms. Under the terms of the agreements, the latest redelivery date for the vessels was 30 May 2021 (“SKYROS”) and 31 May 2021 (“AGIOS MINAS”). However, in breach of the charterparties, the vessels were redelivered late by about two (2) days for the “SKYROS” and about seven (7) days for the “AGIOS MINAS”.

Key to the dispute was the fact that during the course of the charterparties, owners had entered into MOAs agreeing to sell the vessels to third parties. Importantly, under the terms of the MOAs, the owners agreed not to enter into any further charter fixtures before delivering the ships to the buyers meaning that the current charters were to be the owners’ last ones.

Dispute

By the time the ships were redelivered late, in breach of the charterparties, the market rate had risen considerably above the contract rates. For the overrun periods, the charterers paid hire at the rates agreed in the charterparties, but the owners claimed substantial damages reflecting the difference between the market rate and the contract rate. Nevertheless, charterers maintained that the correct measure was nominal damages calculated on the basis of the contract rate. 

Arbitration

The matter went to arbitration. The charterers argued that an award of substantial damages would go against the fundamental compensatory principle whereby a party which suffers loss following a breach of contract should be placed in the same situation as if the contract had been performed.

It was common ground between the parties that after the conclusion of the current charters, the owners would not have chartered the ships further for additional hire as they sought to comply with the terms of the MOAs. Additionally, both parties acknowledged it would have been impossible to charter the vessels for the period of their respective overruns, which in both cases was only a few days.

Despite this, arbitrators held that the owners were entitled to a substantial award.

Compensatory principle - The basis for their decision was that there was an implied request by the charterers for services outside the scope of the charterparty with an implied agreement to pay for those services at the higher market rate. This was consistent with the compensatory principle.

User damages - Alternatively, owners were entitled to recover user damages (i.e. the difference between the contract and market rate) that would compensate them for the loss of their valuable right to use the ships during the overrun period.

Negotiation damages - Finally, as an alternative to their previous two points, arbitrators held that owners were entitled in principle to negotiate damages for the period of the overrun (i.e. the rate and terms that would have been agreed in a hypothetical negotiation).

High Court

On appeal by the charterers, the High Court found that the normal measure of damages was not applicable and that the owners were only entitled to nominal damages.

The judge rejected the grounds set forth by the arbitrators. In the judge’s view, the “implied request” reasoning did not hold because the services were provided pursuant to charterparties at a set charterparty rate. The claim for user damages was also denied as the judge found the late redelivery did not equate to an “invasion of property rights” and the claim for negotiation damages was also turned down because, on the facts, “timely redelivery was not of any economic value to the owners” since their commitment under the MOAs meant they could not conclude further fixtures. Owners challenged the decision. 

Court of Appeal

Disagreeing with the High Court decision, the Court of Appeal allowed the owners’ appeal and restored the arbitrators’ award, albeit for different reasons.

Compensatory principle

The Court reiterated the established principle concerning the normal measure of damages that applies for late redelivery. This states that, in the event of a late redelivery under a time charter, where the market rate has risen above the contract rate, the shipowner is entitled to recover damages for the overrun period equivalent to the difference between the higher market rate and the contract rate.

The Court held that late redelivery meant the owners had lost the opportunity to conclude a new fixture at the market rate. Whether they could or would have done so should be disregarded as a collateral matter for the purpose of assessing the damages.

The Court relied on the principle of res inter alios acta which draws a comparison between the claimant’s position had the contract been performed properly and their position where it has been breached, all the while ignoring any collateral matters which arise independently of the breach.

In the present case, the MOAs were an intervening event which arose independently of the circumstances of the breach and were to be ignored for assessing the amount of damages that the owners were able to recover. The Court held that charterers should not concern themselves with collateral matters so that owners were entitled to recover the normal measure of damages.

The Court highlighted that certainty in commercial matters was one of the guiding principles. It was important that a charterer should be able to understand and calculate how much they owed owners at the end of a fixture without having to investigate first what the owner had arranged for the future use of the vessel.

Acknowledging that in certain circumstances this principle might lead to a windfall for the shipowner, the Court quoted other judges’ responses to this particular point offered in the context of previous cases. One stated that “the rules of English law do not always give exact indemnity”¹ and, another, that it is “desirable that there should be a measure of damage which can be easily and definitely found"².

User damages

The Court of Appeal chose to address the point on user damages as an alternative reasoning for the recovery of substantial damages, however, they were of the opinion that this could not be applied to the late redelivery of a ship because, although late redelivery could be seen as wrongful use of property, it was nevertheless a use to which the owners had agreed.

Next steps

On 5 January 2026, an application for permission to appeal the Court of Appeal judgment to the Supreme Court was issued with the decision expected in early 2026. Even though the sums in dispute are not significant, the case raises a point of general interest which is being closely followed by many in the shipping industry and which we will continue to monitor. 

¹Lord Justice Scrutton in Slater v Hoyle & Smith Ltd [1920] 2 KB 11, 25

²Lord Justice Greer in The London Corporation [1935] P 70, 78