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Interpretation of the Court's Decision

(1) Concurrent opinion of Lord Hoffman and Lord Hopes is that the reviewed appropriate test method was designed not merely to define whether the loss in question was indeed likely to have taken place or not.

(2) First and foremost, it was reasonable to find out the extent, the type, and the scope of the loss for which the plaintiff could have reasonably accepted responsibility. The opinion of his Excellence Lord Hoffman was that it was both logical and natural to seek and to find liability for damages ensued from the intention of parties. This was primarily due to the fact that the full scope of the contractual liability has been voluntarily and unreservedly assumed. Moreover, it is reasonable to assume that it is wrong to consider the contracting party liable for having assumed the responsibility, which this party did not intend to assume when the party entered the contract. As far as the present case is concerned, the transfer of the vessel was not occasional in nature, however Transfeld still has not assumed responsibility for losses, which resulted from violation of contractual privity. While delivering his judgment, Lord Hoffman claimed that although the case in question falls within the scope of the Hadley v. Baxendale, substantive issues of the dispute are still far from legal peculiarities of that case, the risk cannot be considered as accepted in that context.

Both, Lord Hoffman and Lord Hope cited several major grounds for their unanimous decision.

(1) Tranfiled was able to enter into negotiations with contractual agent and the grant of the discount of the liability was highly possible. The intent of the party to assume the liability could have easily been manifested by Transfield. In particular, terms of the contract are always determined by the way parties assume risks and liabilities connected with the contract conclusion and its implementation. It is natural and logical that any contracting party that enters the privity always requires something excessively valuable in return, and there is nothing unusual in this transaction. On the other hand, the legal principle, which imposes liability over the party for risk, which was allegedly eradicated from the contractual privity grants nothing in return for the second contracting party.

(2) Neither claimants nor the respondent had the slightest idea that the amendments are going to be incorporated into terms of the charter of the defendant.

(3) Mercator did not take any action to repel Transfelds orders to obtain the final charter. Naturally, the ultimate structure of the charter provided that utilization of the vessel was legitimate. Prolonged and delayed fulfilment of the contractual obligation was caused by the reasons that were beyond control of the parties of present contractual relationships.

(4) Contemporary legal practice and theory indicates that the delay in delivery is a common situation for charter agreements.

(5) It is a common contemporary and traditional legal practice that contracting subjects of charter agreements have a concurrent opinion that the damages must be calculated in a strict accordance with the following formula: market rate of the goods is taken as a basis and the charter rate is deducted from it. The obtained number is the amount of damages inflicted to the party.

The opinion of Lord Hoofman is the following.

Utilization of the term as a matter of interpretation of the agreement in its purely business meaning and utilization of confinements of damages do seem to be integrally connected with similar techniques and methods of construction and interpretation. Both examples of case law precisely indicate that the adjudicating body ( i.e. the court) was obliged to resolve which contracting subject assumed responsibility and whether the assumption of responsibility could have been reasonably expected. The assumption that parties could have expressed their intention in a considerably more explicit way cannot be disregarded by the court. My standpoint is that business nature of the presently regarded contractual privity is more than enough to consider parties of the contract as those, who have reasonably assumed the risk of the loss of profits connected with the charter agreement. Therefore, my opinion is that the appeal must be undoubtedly granted for the claimant and to the respondent respectively.

To be more exact, the decision whether Mercator can reasonably collect damages for the alleged loss of profit on the charter in question is nothing but a legal dilemma, according to the opinion of Lord Hoffman.

The approach, which has been taken by Lord Hoffman purports that the contract is construed as a whole. In particular, the intention of parties are to be resolved separately and it must be found out whether parties intended to accept the scope of responsibility in question. In other words , this approach is nothing but an extension of test of distance elaborated by judges in Hadley v. Baxendale due to the following reasons:

1). It is based on the concept that liability for losses incurred is merely an issue of finding out initial intentions of the parties. This opinion was formulated by Czarnikov v Koufos.

2).  The main objective of the law of remoteness is  not merely to protect the contract of parties, but also to impose reasonable limits on contractual rights and liabilities of the parties.

Unanimous opinion of Lord Rodger and Baroness Hale is that the appeal should have been allowed, whereas the grounds for the appeal are considerably more sensitive. Lord Rodger speculated that the owner of the ship could have collected damages for the alleged deprivation of profit on the following charter. Those circumstances are considerably changeable in their extra pressure exercised on the owner, and he usually doubts whether a lower rate of return is to be accepted by him. The approach advocated by Lord Rodger is similar to the one, which is taken in the Victoria Laundry Ltd v Newman Industries Ltd. In this case the plaintiff was not allowed to receive the loss of profit damages, but indemnification granted by the court amounted for the "actual loss", which  was suffered by the company. Besides, Lord Rodger has adjudicated that position of the court might have been different provided that attention of the parties was confined to the existence of other parties to the other charter, which was available for the freight at that time.

Consequently, that reasoning was fully consonant with governing guidelines outlined in the landmark case Hadley v Baxendale. Under the legal doctrine stipulated by this precedent, the parties should have focused their attention on the fact that they should have accentuated substantive issues of the dispute rather than whether they in fact accentuated them. Issues of the assumption directly depend on wide range of various factors and opinions.

In his turn, Lord Walker gave his preference to the following test. The essence of the test is determination of what parties should have had in their mind before they entered into the transaction. Besides, the scholar noted that the case of Hadley v Baxendale is applicable only provided that the defendant possesses initial knowledge about the course of business. That is why, considering the importance of the above decision, Lord Walker “highly esteeming the opinions of his scholar colleagues  Hoffman, Hope and Rodger” decided to allow the appeal.