Prof. William Tetley, Q.C.

CHAPTER 13
MEASURE OF DAMAGES
INDEX
I.

Restitutio in Integrum

II

The Common Law Hadley v. Baxendale

1)
2)

The two rules of Hadley v. Baxendale

Damages the new evolving tripartite theory

III.

The Civil Law

IV.

Arrived Sound Market Value (A.S.M.V.)

1)
2)
3)
4)
5)
6)
7)
8)
9)

V.

Invoice Value & C.I.F. Clauses etc.

1)
2)

VI.

Rule of thumb
As the day cargo arrived or should have arrived
Calculating A.S.M.V.
Profits and expenses
Quick calculations for settlement
Less normal deterioration (freinte de route)
Customs duties
Measure when responsibility divided
Actual loss COGSA

Relieve or lessen
Per package and restitutio in integrum

Delay and Consequential Damages

1)

Introduction
a)
Economic loss tort and delict
b)
Consequential loss contract

2)

3)
4)
5)
VII.

Consequential loss
a)
A.S.M.V. includes profit
b)
A.S.M.V. plus consequential loss
c)
A.S.M.V. plus consequential loss Hague Rules
d)
Consequential loss and COGSA
e)
A.S.M.V. plus consequential loss Visby Rules
f)
Cargo delay and deterioration
g)
Delay and loss of market
h)
Delay and loss of business and reputation
i)
Delay and Hamburg Rules
j)
Delay
Australia
k)
Delay
China
l)
Delay
Nordic countries
Recapitulation
Consequential damages must be actual damages
Cargo on the carrying ship

Punitive or Exemplary Damages

1)
2)
3)
4)
5)
6)
7)

Introduction
Punitive damages prohibited by law
Punitive damages prohibited by law
Punitive damages the U.K.
Punitive damages Canada
Punitive damages the U.S.
Punitive damages civil law

VIII. The Visby Rules Measure of Damages

IX.

Damages From Deviation Fundamental Breach

X.

Inflation

XI.

Interest as damages
1)
2)
3)
4)
5)
6)
7)

Introduction
Interest common law/civil law
Rate of interest Admiralty Court U.K.
Rate of interest Commercial Court U.K.
Conflict of currencies conflict of interest rates
Pre-judgment interest Canada
From what date Canada
a) Cargo damage interest runs from delivery

8)
9)
10)
11)
12)
13)
14)
15)
16)
XII.

b) Cargo short delivered interest runs from when cargo

should have been delivered
c) Cargo totally lost interest runs from the date of the loss
At what rate Canada
Post-judgment interest - Canada
Interest against the Crown Canada
Pre-judgment interest United States
As from what date United States
At what rate United States
Cargo damage claims against vessels owned by the United States
interest
Post-judgment interest United States
Underwriters and interest

Foreign Currency and the Rate of Exchange

1)
Introduction
2)
The common law
3)
Canada
4)
United States
5)
Civil law

XIII. Court Costs

XIV. Mitigation of Damages and Legitimate Expenses
XV.

Surveyors Fees

XVI. Conclusion

CHAPTER 13
MEASURE OF DAMAGES
I.

Restitutio in integrum

Once a claimant has proven the physical damage to cargo or the delay in bringing
cargo to destination,1 he must then prove:2
a) that the resulting losses, including incidental expenses, are direct and
foreseeable;
b) the value of those losses in monetary terms.
The fixing of the direct and foreseeable loss and the transposing of its value into
money is called the measure of damages3. Measure of damages has also been defined as
the basis for calculating damages to be awarded to someone who has suffered an injury.4
The purpose of awarding damages, of course, is to put the offended party into the
same position as he would have been had the contract been performed.5 This is restitutio
in integrum.
The restitutio in integrum principle is perhaps best encapsulated in that seminal
document of international commercial law, the UNIDROIT Principles of International
Commercial Contracts 19946 an internationally respected restatement of basic and
1

See Chap. 12, Loss or Damage to Cargo, supra.

See Chap. 6, The Burden and Order of Proof, supra, particularly at sect. III, The Order of Proof in a
Marine Cargo Claim and its Defence.
3
See Halsburys Laws, 4 Ed., Vol. 12(1) Reissue, Butterworths, London, 1998 at para. 804, refers to
measure of damage(s) as being concerned with the legal principles governing recoverability, as opposed
to quantum of damages, which concerns the amount of damages to be awarded.
4
Blacks Law Dictionary, 7 Ed., (B.A. Garner, ed.-in-chief), West Group, St. Paul, Minn., 1999 at p. 995.
5
See the classic statement to this effect in Robinson v. Harman (1848) 1 Exch. 850 at p. 855: The rule in
the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as
money can do it, to be placed in the same situation with respect to damages as if the contract had been
performed. See also Sally Wertheim v. Chicoutimi Pulp Co. [1911] A.C. 301 at p. 307 (P.C.); British
Westinghouse Electric and Manufacturing Co. Ltd. v. Underground Electric Railway Co. of London Ltd.
[1912] A.C. 673 at pp. 688-689 (H.L.); Johnson v. Agnew [1980] A.C. 367 at p. 400 (H.L.); Ruxley
Electronics & Construction Ltd. v. Forsyth [1996] A.C. 344 at pp. 355 and 365-366 (H.L.). For a maritime
decision, referring expressly to the restitutio in integrum principle, see The Unique Mariner (No. 2) [1979]
1 Lloyds Rep. 37 at p. 54. See also Halsburys Laws, supra, at para. 941. For the U.S., see the oft-cited
decision of Holmes, J. in Chicago, Milwaukee & St. Paul Railway. V. McCaull-Dinsmore Co 253 U.S. 97
at p. 100 (1920), as well as many more recent decisions, such as Garshman Co, Ltd. v. General Electric
Co. 176 F.3d 1 at p. 5 (1 Cir. 1999). For Canada, see Haack v. Martin [1927] S.C.R. 413 at p. 416;
Asamera Oil Corp. v. Sea Oil & General Corp. [1979] 1 S.C.R. 633 at p. 645.
6
For the English text with commentary, see J.M Perillo, "UNIDROIT Principles of International
Commercial Contracts: The Black Letter Text and a Review" (1994) 63 Fordham L. Rev. 281. For an
incisive study of the Principles and their effects in practice, see Michael J. Bonell, "The UNIDROIT
2

generally accepted norms governing transnational business in the modern world (the
modern lex mercatoria), which was prepared over a fourteen-year period by eminent
scholars of the civilian, common law and Socialist legal traditions, and adopted in 1994
by the International Institute for the Unification of Private Law,7 based in Rome. Art.
7.4.2(1) of the UNIDROIT Principles provides:
(1) The aggrieved party is entitled to full compensation for harm
sustained as a result of the non-performance. Such harm includes both any
loss which it suffered and any gain of which it was deprived, taking into
account any gain to the aggrieved party resulting from its avoidance of
cost or harm.8
Not all damages, however, are recoverable in breach of contract cases; unless
there has been a special agreement, only those damages which are direct and foreseeable
will be awarded.9
It is noteworthy that carriage of goods decisions have often set the standard for
the measure of damages in other types of breach of contract claims.10
II.

The Common Law Hadley v. Baxendale

1)

The two rules of Hadley v. Baxendale

In 1854, two basic common law rules for the measure of damages in all breach of
contract claims were enunciated in the landmark decision of Hadley v. Baxendale:11
Principles in Practice: The Experience of the First Two Years" 1997-2 Unif. L. Rev. 34. See also W.
Tetley, Uniformity of International Private Maritime law The Pros, Cons, and Alternatives to
International Conventions How to Adopt an International Convention (2000) 24 Tul. Mar. L.J. 775-856
at pp. 793-795 and http://tetley.law.mcgill.ca/maritime/uniformarlaw.htm.
7
For the text of the UNIDROIT Principles and related material, see the UNIDROIT website,
http://www.unidroit.org/.
8
The Principles of European Contract Law 1998, prepared and revised by the Commission on European
Contract Law chaired by Prof. Ole Lando, similarly provides at art. 9:502: The general measure of
damages is such sum as will put the aggrieved party as nearly as possible into the position in which it
would have been if the contract had been duly performed. Such damages cover the loss which the
aggrieved party has suffered and the gain of which it has been deprived. For the text of the Principles of
European Contract Law, see http://www.ufsia.ac.be/~estorme/PECL2en.html
.
9
Modern common law decisions such as Wagon Mound (No. 1) [1961] A.C. 388, [1961] 1 Lloyds Rep. 1
(H.L.), in reference to tort, stipulate that foreseeability is the criterion and that the damage need not be
direct. Moreover, since the third edition of this work, a stronger emphasis has been given in tort law to
two other factors; viz., proximity and reasonableness. In The Nicholas H. [1996] A.C. 211, [1995] 2
Lloyds Rep. 299 (H.L.), for example, the House of Lords held that in determining liability for negligence,
in both physical damage and economic loss cases, the court must consider, not only foreseeability and
proximity, but also whether it is "fair, just and reasonable" to impose a duty of care on the defendant. These
same considerations can affect the measure of damages awarded by courts in tort cases. See also the
Principles of European Contract Law 1998 at art. 9:503.
10
See, for example, Bacardi v. THP [2002] 2 Lloyds Rep. 379 (C.A.), where various maritime decisions
were cited in a judgment relating to liability in contract and tort and the measure of damages in a case
involving the manufacture and recall of a contaminated beverage.

(i)
Where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in respect of
such breach of contract should be such as may fairly and reasonably be
considered either arising naturally, i.e. according to the usual course of
things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties, at the time
they made the contract, as the probable result of the breach of it.
(ii)
Now, if the special circumstances under which the contract was
actually made were communicated by the plaintiffs to the defendants, and
thus known to both parties, the damages resulting from the breach of such
a contract, which they would reasonably contemplate, would be the
amount of injury which would ordinarily follow from a breach of contract
under these special circumstances so known and communicated. But, on
the other hand, if those special circumstances were wholly unknown to the
party breaking the contract, he, at the most, could only be supposed to
have had in his contemplation the amount of injury which would arise
generally, and in the great multitude of cases not affected by any special
circumstances, from such a breach of contract.
The two rules of Hadley v. Baxendale have been followed by the courts of many
nations12 and may be summarized that damages for breach of a contract of carriage are as
follows:
11

(1854) 9 Ex. C. 341 at pp. 354-5, 156 E.R. 145 at p. 151. See also The Heron II (Koufos v. C.
Czarnikow) [1969] 1 A.C. 350 (H.L.). See Lord Reid in particular, at pp. 389-390, who examines Hadley
v. Baxendale and, according to many commentators, proposes a more restrictive rule of foreseeability for
contract law as opposed to tort law. It is interesting therefore that to practitioners, The Heron II stood for,
and still stands for, an enlarging of contractual damages and, in particular, the award of damages for loss of
market due to delay. On the Hadley and subsequent landmark decisions on measure of damages in English
common law of contract, see H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell, London,
1997 at paras. 247-281.
12
Among many other English authorities, see: Gee v. The Lancashire and Yorkshire R.R. Co. (1860) 6 H.
& N. 211 at pp. 217-220, 158 E.R. 87 at pp. 90-91 (Exch.); British Columbia Saw-Mill Co. v. Nettleship
(1868) L.R. 3 C.P. 499; London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893]
A.C. 429 (H.L.); R. & H. Hall, Ltd. v. W.H. Pim, Junr., & Co., Ltd. (1928) 30 Ll. L. Rep. 159 (H.L.);
Monarch Steamship Co., Ltd. v. A/B Karlshamns Oljefabriker [1949] A.C. 196 (H.L.); Victoria Laundry
(Windsor) Ltd. v. Newman Industries Ltd. [1949] 2 K.B.528 (C.A.); The Heron II (Koufos v. C. Czarnikow)
[1969] 1 A.C. 350 (H.L.); Wadsworth v. Lydall [1981] 1 W.L.R. 598 (C.A.); La Pintada [1985] 1 A.C. 104,
[1984] 2 Lloyds Rep. 9 (H.L.); The Lips [1988] A.C. 395, [1987] 2 Lloyds Rep. 311 (H.L.). American
decisions considering or applying Hadley v. Baxendale include, inter alia: Santiago v. Sea-Land Services
Inc. 366 F. Supp. 1309 at p. 1319, 1974 AMC 673 at p. 687 (D.P.R. 1973); B.F. McKernin & Co. Inc. v.
U.S. Lines 416 F. Supp. 1068 at p. 1072, 1976 AMC 1527 at p. 1531 (S.D. N.Y. 1976); East River
Steamship Corp. v. Transamerica Delaval Inc. 476 U.S. 858 at p. 874, 1986 AMC 2027 at p. 2040
(1986);Affiliated Foods v. Puerto Rico Marine Management, Inc. 645 F. Supp. 838 at pp. 840-844 (D. P.R.
1986) and numerous other U.S. authorities cited there; Anyangwe v. Nedlloyd Lines 909 F. Supp. 315 at p.
323, 1996 AMC 1083 at p. 1092 (D. Md. 1995); Coastal Power Intl Ltd. v. Transcontinental Capital
Corp. 10 F.Supp.2d 345 at p. 364 (S.D.N.Y. 1998); Project Hope v. M/V Ibn Sina 2002 AMC 371 at p. 373
(S.D. N.Y. 2001). For Canada, see, inter alia, Mondor v. Willits [1923] S.C.R. 433 at p. 440; B.D.C. Ltd. v.
Hofstrand Farms Ltd. [1986] 1 S.C.R. 228 at pp. 244-246; Keneric Tractor Sales Ltd. v. Langille [1987] 2
S.C.R. 440 at pp. 456-457; Vorvis v. Insurance Corp. of British Columbia [1989] 1 S.C.R. 1085 at pp.

(i)
damages which arise naturally i.e., damages which arise naturally
from the breach and which the carrier therefore must or ought to have
foreseen as its likely consequence.
(i)
damages which arise from special circumstances i.e., damages
which arise from special circumstances communicated to the carrier at the
time of making the contract, which damages the carrier, so informed,
could reasonably be expected to have foreseen as probable consequences
of the breach.13
Hadley v. Baxendale is often regarded today, not as two rules, but as a single rule
or principle,14 with two limbs or branches. It has also been said that: the test in
Hadley v. Baxendale under both branches of the rule,.. is that recovery is dependent upon
foreseeability, tested objectively under the first branch and subjectively under the second
branch in the sense that it deals with actual knowledge.15
An example of damages under the first rule (or first branch), is the cost of
repairing cargo found to be damaged upon arrival. An example under the second rule (or
second branch) would be the cost of closing a factory for five days, the salaries of
employees, etc., and the loss of profits, when a mill shaft was delivered five days late and
yet the carrier had been informed at the time of the contract that delay would result in the
closing of the factory.16 Courts must often apply both Hadley rules in the same
judgment.17
1116, 1118-1119, 1121 and 1122-1123; Bank of America Canada v. Mutual Trust Co. (2002) 211
D.L.R.(4th) 385 at pp. 399-400 (Supr. Ct. Can.).
13
The English courts have required a higher degree of probability of loss or damage in breach of contract
than in tort cases. See The Heron II (Koufos v. C. Czarnikow) [1969] 1 A.C. 350 at p. 388, where Lord
Reid referred to a very substantial degree of probability, while Lords Pearce and Uphohn preferred a
real danger (p. 415) or a serious possibility (p. 425). The latter two terms were repeated by the House of
Lords in its decision in Bank of Nova Scotia v. Hellenic Mutual Ltd. [1992] 1 A.C. 233 at p. 267 (H.L.).
14
In Satef-Huttenes v. Paloma Tercera Shipping [1981] 1 Lloyds Rep. 175 at pp. 182-183, Goff J.
commented that the principle in Hadley v. Baxendale is no longer stated in terms of two rules, but rather
in terms of a single principlethough it is recognized that the application of the principle may depend on
the degree of relevant knowledge held by the defendant at the time of the contract in the particular
casethe test appears to be: have the facts in a question come to the defendants knowledge in such
circumstances that a reasonable person in the shoes of the defendant would, if he had considered the matter
at the time of making the contract, have contemplated that, in the event of a breach by him, such facts were
to be taken into account when considering his responsibility for loss suffered by the plaintiff as a result of
such breach. See also Scrutton, 20 Ed., 1996 at art. 192, p. 386.
15
Fraser Shipyard v. Expedient (1999) 170 F.T.R. 1 at p. 40, 2000 AMC 543 at p. 585 (Fed. C. Can. per
Hargrave, P.), varied on other grounds, (1999) 170 F.T.R. 57, 2000 AMC 28 (Fed. C. Can. per Rouleau, J.),
See, however, the conclusion of the Federal Court as to the imputed (objective) knowledge of the carrier,
who must have been aware of the effect of excessive delay on the need to obtain a replacement cargo, ibid.,
(1999) 170 F.T.R. at p. 41, 2000 AMC at p. 586.
16
It would seem that in the case of Hadley v. Baxendale, supra, 9 Ex. C. at pp. 341 and 344, E.R. at pp. 145
and 147, some notice was given but strangely was not considered sufficient: The plaintiffs servant told
the clerk that the mill was stopped, and that the shaft must be sent immediately Alderson B., on the
contrary, declared, supra, 9 Ex C. at p. 355, E.R. at p. 511: Now, in the present case, if we are to apply the
principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the

In the United States, the Restatement (Second) of the Law of Contracts18

expresses the Hadley principle as follows at sect. 351(1) and (2):
351(1) Damages are not recoverable for loss that the party in breach did
not have reason to foresee as a probable result of the breach when the
contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it
follows from the breach
(a)
in the ordinary course of events, or
(b)
as a result of special circumstances, beyond the ordinary course of
events, that the party in breach had reason to know.
2) Damages the new evolving tripartite theory
If the two rules of Hadley v. Baxendale19 are generally relied upon by the courts,
an analysis of contract damages as falling into three kinds has become almost universally
accepted in the law schools of common law jurisdictions.
The three theoretical types of loss
At common law, the primary remedy for breach of contract is a money award. In
an action for damages, an injured party may claim compensation for three types of
losses:20
defendants at the time the contract was made, were, that the article to be carried was the broken shaft of a
mill, and that the plaintiffs were the millers of that mill. In any event, Alderson B. sent the case back to
the trial court where the true facts would come before the jury and justice was presumably done according
to the two rules as enunciated and the facts as fully proven.
17
In Anyangwe v. Nedlloyd Lines, 909 F. Supp. 315, 1996 AMC 1083 (D. Md. 1995), for example, because
of a carriers failure to deliver supplies in time for a wedding, the plaintiff claimed against both the carrier
and the freight forwarder for emotional distress and the premature birth of her baby. The claim failed as
against the carrier, which had no special knowledge of the circumstances making it reasonable to
contemplate that such harm would result, and as against the freight forwarder, which, although knowing
that the goods were for a wedding, could not be held liable for damages such as the plaintiffs emotional
pain and premature delivery, which were not natural and foreseeable consequences of its failure to secure
the timely delivery of the goods.
18
Adopted by the American Law Institute at Washington, D.C., May 17, 1979, American law Institute
Publishers, St. Paul., Minn., 1981 (hereinafter cited as the Restatement (Second) of the Law of Contracts).
For an application of these provisions in a Carmack Amendment case, see Project Hope v. M/V Ibn Sina
2002 AMC 371 at p. 372 (S.D. N.Y. 2001).
19
Supra note 8.
20
Fuller and Perdue, The Reliance Interest in Contract Damages (1936) 46 Yale L.J. 52 and 373. For the
U.S., see also S.J. Burton, Principles of Contract Law, 2 Ed., West Group, St. Paul, Minn., 2001 at p. 286,
who considers losses resulting from breach to be harms to the interests protected by the law of contracts,
which consist of expectation, reliance and restitution interests. See also Williston on Contracts (R.A. Lord,
ed.), 4 Ed., vol. 24, West Group, St. Paul., Minn., 2002 at para. 64.2. For the U.K., see Sir G.H. Treitel, The
Law of Contract, 10 Ed., Sweet & Maxwell, London, 1999 at pp. 873-879. For Canada, see S.M.
Waddams, The Law of Contracts, 4 Ed., Canada Law Book Inc., Toronto, 1999 at paras. 711-727 at pp.
526-535. For judicial recognition of these distinctions, see The Alecos M [1990] 1 Lloyds Rep. 82 at p. 84,
revd on other grounds, [1991] 1 Lloyds Rep. 120 (C.A.), where with respect to the sale of a vessel, it was

a)
Expectation loss: Here, the plaintiff is compensated for the loss of his
bargain. The object is to put the plaintiff in the same position he would have
occupied had the contract been fully performed.21 The compensation ordinarily
includes the value of the promised performance of which the plaintiff has been
deprived, as well as any related loss of profits.22 Writers also refer to this type of
loss as performance loss.23
b)
Reliance loss: Here, the plaintiff is compensated for expenses incurred
(losses covered) or opportunities lost (gains prevented) in reliance on the
contract.24 The object is to put the plaintiff in the same position he would have
occupied had the contract never been made, i.e. to prevent his unjust
impoverishment.
c)
Restitution: Here, the plaintiff has conferred a benefit on the defendant,
which, in view of the defendants failure to perform, it would be unfair to allow
him to retain.25 Accordingly, the defendant is deprived of the benefit. The object
is to put both parties in the same position they would have occupied had the
contract never been made. The effect is the prevention of the plaintiffs unjust
impoverishment and the defendants unjust enrichment.
The reliance and restitution claims are normally co-extensive, except in those
cases where the plaintiff has incurred expenses in reliance on the contract without thereby
enriching the defendant.
The foregoing tripartite division of damages is still evolving and restitution in
particular as a concept has not been accepted by all courts. On the one hand, these
damages may overlap. Thus it has been remarked that restitution often forms a

held that [i]n relation to recovery of damages the law recognizes various interests, viz. expectation,
reliance and restitution.
21
See Robinson v. Harman (1848) Exch. 848 at p. 855; Lord Atkinson in Sally Wertheim v. Chicoutimi
Pulp Co. [1911] A.C. 301 at p. 307 (P.C.). Compensation for expectation losses requires a clear
determination of exactly what the bargain was which the defendant breached (i.e. the scope of the
contractual duty). See Banque Bruxelles Lambert S.A. v. Eagle Star Ins. Co. Ltd. [1997] A.C. 191 (H.L.);
Bank of America Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at p. 393 (Supr. Ct. Can.). See
generally S.M. Waddams, The Law of Damages, 3 Ed., Canada Law Book Co., Aurora, Ontario, 1997 at p.
267.
22
The damages for loss of profits must not be too remote, however. See Treitel, supra, at p. 875. See
UNIDROIT Principles of International Commercial Contracts 1994 at art. 7.4.2; Principles of European
Contract Law 1998, art. 9:502.
23
J. Beatson, Ansons Law of Contract, 27 Ed., Oxford University Press, Oxford and New York, 1998 at p.
564.
24
Anglia Television Ltd. v. Reed [1972] 1 Q.B. 60 is the authority for saying that pre-contract expenditure
may be recoverable if it is incurred in reliance on a contract.
25
See generally S.M. Waddams, The Law of Damages, 3 Ed., Canada Law Book Co., Aurora, Ontario,
1997 at p. 474. See also Bank of America Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at p. 394
(Supr. Ct. Can.). See also UNIDROIT Principles of International Commercial Contracts 1994, at art. 7.3.6;
Principles of European Contract Law 1998 at arts. 9:307-9:309.

10

component of reliance or expectation damages for breach of contract.26 On the other

hand, certain damages fall into none of the foregoing categories. For example, Treitel
has treated incidental and consequential loss as an additional category.27 The statutes
as well, particularly COGSA28 and the Visby Rules,29 seem to exclude recovery of certain
types of damages, especially restitution.
For this reason, the above tripartite division of damages, although deemed useful
as a means of analysis, is not used in this chapter as the basis for explaining the measure
of damages for breaches of contract in the carriage of goods by sea.
III.

The Civil Law

The civil law of contractual damages is not really different from the two rules in
Hadley v. Baxendale; in fact both parties in Hadley v. Baxendale cited the civil law as
laid down in France.30
The rule in respect of damages for breach of contract is found at art. 1150 c.c.
(France):31
(translation) The debtor is liable only for the damages and interests which have
been foreseen or might have been foreseen at the time of the contract, when his
fraud was not the cause of the failure to perform his obligation.
Damages in cases of delict or fraud or bad faith need only be direct and
immediate; foreseeability is no longer necessary. Thus art. 1151 c.c. France reads:32
26

Beatson, supra, at p. 599 notes that the remedies of damages for breach of contract under the common
law overlaps with various restitutionary remedies.
27
Treitel, supra note 19, at p. 879. Treitel defines incidental loss as expenses incurred after the breach
has come to the notice of the non-breaching party (e.g. the administrative costs a buyer incurs of sending
back defective goods to the seller). By consequential loss, he means further harm arising following the
breach, such as personal injury or damage to property sustained as a result of the breach. He admits,
however, that consequential loss is also used to refer to: a) loss of profits in breach of contract cases,
which is an element of expectation loss, or to b) reliance losses (e.g. expenses wasted by a seller in
delivering goods which the buyer wrongfully refuses to accept).
28
46 U.S. Code at sect. 1304 (5), third paragraph, last sentence, reads: In no event shall the carrier be
liable for more than the amount of damages actually sustained (Emphasis added). See Caterpillar
Overseas v. Farrell Lines 1988 AMC 2894 (E.D. Va. 1988) and P & E Boat Rentals, 872 F.2d 642, 1989
AMC 2447 (5 Cir. 1989), where lost profits were not recoverable in respect of a vessel that had become a
total loss. In Valerina Fashions 897 F. Supp. 138, 1996 AMC 1201 (S.D. N.Y. 1995), however, lost profits
were held recoverable in certain circumstances.
29
See Visby, new art. 4(5)(b), which reads: The total amount recoverable shall be calculated by
reference (Emphasis added). It should be noted that the limitation provisions of this paragraph apply to
damages not arising from fundamental breach.
30
(1854) 9 Ex. C. 341 at pp. 345-6, 156 E.R. 145 at p. 147.
31
The Civil Code was adopted in 1804 under the aegis of Napoleon Bonaparte. See also art. 1613 c.c.
(Qubec, 1994) (adopted in 1991) and art. 1996 c.c. (Louisiana). This latter provision came into effect on
January 1, 1985. See also art. 1225 c.c. (Italy) and art. 1107 c.c. (Spain) and the UNIDROIT Principles of
International Commercial Contracts 1994, art. 7.4.4.

11

(translation) In the case where failure to perform the agreement results

from the fraud of the debtor, the damages and interests must only
comprise, in respect to the loss suffered by the creditor and to the profit of
which he was deprived, that which is an immediate and direct
consequence of the failure to perform the agreement.
The Principles of European Contract Law 1998 similarly provide at art. 9:503:
The non-performing party is liable only for loss which it foresaw or could
reasonably have foreseen at the time of conclusion of the contract as a
likely result of its non-performance, unless the non-performance was
intentional or grossly negligent.
This rule can also be applied to the circumstances where damages arise from
fundamental breach of the contract of carriage.
III.

Arrived Sound Market Value (A.S.M.V.)

1)

Rule of thumb

The parties to a contract of carriage know, and are expected to know, that, if the
cargo is damaged or lost, the claimant should be recompensed for the value of the
damaged or lost cargo at the time and place of its delivery or when it should have been
delivered.33

32

Arts. 1607 and 1613 c.c. (Qubec, 1994) and art. 1997 c.c. (Louisiana) are to the same effect. See also
art. 1225 c.c. (Italy) and art. 1107 c.c. (Spain). For an interesting comparison between the civil law and the
common law in respect to foreseeability, see Baudouin, Droit civil de la Province de Qubec, 1953 at pp.
581-583. Art. 1151 c.c. (France) is drawn from Pothier, Trait des Obligations, Part I, c. 2, s. 159:
Damages and interests are the loss which a person has sustained or the gain which he has been deprived.
Thus, according to Pothier, in the case of a house rented to a tradesman for a shop or to an inn keeper for an
inn, the tenants damages for eviction will not be confined to the expense of removal and rents paid in
advance: The loss of custom, if he cannot meet with any other suitable house in the neighbourhood, ought
also in some degree to be taken in the account; for, having let my house for the purpose of a shop or an inn,
this kind of damage is one whereof the risk is foreseen, and to which I am considered as having tacitly
submitted. This passage was cited in British Columbia Saw-Mill v. Nettleship (1868) L.R. 3 C.P. 499 at p.
503.
33
Seguros Banvenez S.A. v. Oliver Drescher 761 F.2d 855 at pp. 860-61, 1985 AMC 2168 at p. 2175 (2
Cir. N.Y. 1985): The correct measure of damages, however, is the amount necessary to put the injured
parties in the exact position they would have been in had there been no breach. In loss of cargo cases, this
generally means the market value of the goods at the time and place they were to have been delivered. In
Cour dAppel de Rennes, February 17, 1960, DMF 1961, 281 arrived sound market value was calculated as
of the actual day of arrival rather than the expected day of arrival. On arrived sound market value generally
in English carriage of goods by sea law, see H. McGregor, McGregor on Damages, 16 Ed., Sweet &
Maxwell, London, 1997 at para. 1160 and decisions cited there.

12

The above rule is known as Arrived Sound Market Value (A.S.M.V.) less Arrived
Damaged Market Value (A.D.M.V.)34 and such restitutio in integrum requires no
special circumstances, being obviously in the reasonable contemplation of the parties
at the time of contracting.
A.S.M.V. less A.D.M.V. is only a rule of thumb,35 however, and is subject to
many exceptions in order to bring it within the basic principle of restitutio in integrum.
One obvious exception is where the cargo, on arrival, has suffered no loss of market
value despite the damage it has sustained.36 Another obvious exception is where the cargo
is never delivered (e.g. where it is totally lost or destroyed at sea) and therefore has no
A.D.M.V., but only a notional A.S.M.V. (i.e. the market value the goods would have had
at the time and place of delivery had the contract been performed).37 Another exception
may arise where the claimant prefers to recondition or replace the goods lost or damaged
and retain them for inventory, rather than to seek a buyer immediately after delivery.

34

In ETS Gustave Brunet, S.A. v. M.V. Nedlloyd Rosario 929 F. Supp. 694 at p. 710, 1997 AMC 803 at p.
828 (S.D. N.Y. 1996), it was affirmed that: "[g]enerally, the measure of damages is the difference between
the fair market value of the goods at their destination in the condition in which they should have arrived
and the fair market value in the condition in which they actually did arrive." See also Empresa Central
Mercantil v. Brasileiro 147 F. Supp. 778 at p. 780, 1957 AMC 218 at p. 220 (S.D. N.Y. 1957), affd 257
F.2d 747, 1958 AMC 1809 (2 Cir. 1958). See an important pre-COGSA case: The Ansaldo San Giorgio I
v. Rheinstrom Co. 294 U.S. 494, 55 S. Ct. 483, 1935 AMC 419 (1935). See also R.T. Jones Lumber Co. v.
Roen SS. Co. 270 F.2d 456, 1960 AMC 46 (2 Cir. 1959); Encyclopaedia Britannica, Inc. v. S.S. Hong Kong
Producer 422 F.2d 7 at p. 18, 1969 AMC 1741 at p. 1757 (2 Cir. 1969), cert. denied, 397 U.S. 964, 1971
AMC 813 (1970); Kanematsu-Gosho Ltd. v. M/T Messiniaki Aigli 814 F.2d 115 at p. 118, 1987 AMC 1427
at p. 1431 (2 Cir. 1987); Texport Oil Co. v. M/V Amolyntos 11 F.3d 361 at p. 365, 1994 AMC 815 at p. 819
(2 Cir. 1993); Tribunal de Commerce de Rouen, February 23, 1962, DMF 1962, 294; Tribunal de
Commerce de Marseille, March 17, 1950, DMF 1950, 598; Hof van Beroep te Antwerpen, June 15, 1967.
35
. In Illinois Central R.R. Co. v. Crail 281 U.S. 57 at pp. 64-65 (1930), the U.S. Supreme Court held that:
The test of market value is at best but a convenient means of getting at the loss suffered. It may be
discarded and other more accurate means resorted to, if, for special reasons, it is not exact or otherwise not
applicable. See also Texport Oil Co. v. M/V Amolyntos 11 F.3d 361 at p. 365, 1994 AMC 815 at p. 819 (2
Cir. 1993); Dessert Service, Inc. v. M/V MSC Jamie/Rafaela 219 F.Supp.2d 504 at p. 507, 2002 AMC 2358
at p. 2361 (S.D. N.Y. 2002).
36
For example, in Kanematsu-Gosho v. M/T Messiniaki Aigli 814 F.2d 115 at p. 118, 1987 AMC 1427 at p.
1431 (2 Cir. 1987), the seawater contamination of a cargo of jet fuel was found to have caused no
diminution of its arrived sound market value, and the claim for the cost of restoring the cargo was therefore
disallowed.
37
See The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at p. 475 (C.A per Leggatt, L.J.), application for
leave to appeal to House of Lords refused: In circumstances such as these the Court approaches the
assessment of damages for non-delivery in accordance with the first rule in Hadley v. Baxendale Thus
the measure of damages for non-delivery of a cargo under a bill of lading contract is the estimated loss
directly and naturally resulting, in the ordinary course of events, from the non-delivery. The market
value is to be taken at the time and place of due delivery. In Goldco Imports Ltd. v. The Meitoku Maru
[1966] Ex. C. R. 498 at pp. 503-504, it was found that: a) the market value could be the appropriate
measure of loss, in the event of non-delivery of goods that had been destroyed; b) where goods were
delivered after the contract date, the measure of damages might, at least in some cases, be the difference
between the market value of the goods on the day they should have been delivered and their value on the
date of their actual delivery; and c) in cases of delivery of goods in a damaged state, the recoverable
damages were the difference between the net amount which could be realized if the goods were sound and
the net amount which could in fact be realized in the open market.

13

Damages in such cases tend to be based on the costs of reconditioning, together with
related handling expenses, rather than on the A.S.M.V. minus A.D.M.V. rule of thumb38
The Swedish Maritime Code 199439 codifies the A.S.M.V. minus A.D.M.V.
principle.40 The Chinese Maritime Code 199341 seemingly rejects A.S.M.V. minus
A.D.M.V., however, because, although it provides for indemnification for lost goods on
the basis of their actual value, and for damage to goods on the basis of the difference
between their values before and after the damage, it defines actual value as the value
of the goods at the time of shipment plus insurance and freight, rather than by reference
to their sound or damaged market values at the place of destination.42 The Code also
specifies that compensation for damage to the goods may also be calculated on the
basis of the expenses for the repair.43
Setting aside exceptions, however, Lord Wright, in The Liesbosch v. The Edison44
(a collision case) also cited in A/B Karlshamns Oljefabriker v. Monarch S.S. Co.45 (a
carriage of goods case) stated the basic principle clearly:
38

In Redpath v. Cisco [1994] 2 F.C. 279, 1994 AMC 1484 (Fed. C.A.), leave to appeal dismissed without
reasons, October 13, 1994, [1994] S.C.C.A. No. 80 (Supr. Ct. of Can.), the claimant never contemplated
selling the cargo of raw sugar that had been wetted in transit, but preferred to keep it for its own use after
delivery. Accordingly, the Arrived Damaged Market Value was not a suitable mode of damage
computation. Instead of A.S.M.V. minus A.D.M.V., the Court therefore awarded only the extra costs
incurred by the claimant in refining the wet sugar and blending it with undamaged sugar until it became
sound again, plus the extra costs of discharging it from the ship. In Caltex Refining v. BHP Transport
[1994] 1 Lloyds Rep. 335 (N.S.W. S.C.), the cost of reprocessing a contaminated cargo of automotive
diesel oil was considered to be the appropriate measure of damages. In Texport v. Amolyntos 11 F. 3d 361,
1994 AMC 815 (2 Cir. 1993), where the Court declared that the fair market value test was not a hard and
fast rule and could yield to other criteria. In this case, the incidental damages resulting from the costs of
reconditioning contaminated gasoline by blending it with clean gasoline, were found to provide the most
accurate measure of damages, instead of the usual rule of thumb. Nonetheless, in Derby Resources v. Blue
Corinth (The Athenian Harmony) [1998] 2 Lloyds Rep. 410, the reduction in the A.S.M.V. of
contaminated jet kerosene was the appropriate measure, where reconditioning would have been
inconvenient, and establishing the measure of damages on the basis of reinstatement costs would have been
unrealistic under the circumstances.
39
The Nordic countries (Denmark, Norway, Finland and Sweden) adopted a common maritime code,
which came into force on October 1, 1994. The numbering of the Swedish and Finnish versions differs,
however, from that of the Danish and Norwegian versions. References to the Code in this chapter are to the
Swedish version, being the Swedish Maritime Code, 2 Ed., Stockholm, 2001. This Code is referred to here
as the Swedish Maritime Code 1994.
40
Swedish Maritime Code 1994, ch. 13, sect. 29, first para.
41
The Maritime Code of the Peoples Republic of China was adopted at the 28th Meeting of the Standing
Committee of the Seventh National Peoples Congress of the Peoples Republic of China on November 7,
1992 and was promulgated and entered into force as of July 1, 1993, by virtue of Order No. 64 of the
President of the Peoples Republic of China. The Code is referred to hereafter as the Chinese Maritime
Code 1993.
42
Chinese Maritime Code 1993, art. 55, first and second paras.
43
Chinese Maritime Code 1993, art. 55, first para.
44
[1933] A.C. 449 at p. 463, (1933) 45 Ll. L. Rep. 123 at p. 130 (H.L.).
45
(1949) 82 Ll. L. Rep. 137 at p. 154 (H.L.). Lord Sumner in The Chekiang [1926] A.C. 637 at p. 643,
(1926) 25 Ll. L. Rep. 173 at p. 175 (H.L.), referred to as a rule of thumb and added: The measures of
damages ought never to be governed by mere rules of practice, nor can such rules override the principles of
the law on this subject.

14

...the dominant rule of law is the principle of restitutio in integrum, and

subsidiary rules can only be justified if they give effect to that rule.
Canadian judges as well have held that: The principle of restitutio in integrum
should be given its full effect.46
In American law too, the A.S.M.V. minus A.D.M.V. rule of thumb ordinarily
yields an appropriate measure of the actual loss sustained by the cargo claimant (and
therefore complies with the restitutio in integrum principle), particularly as it affords the
claimant compensation for loss of expected profit.47 But where the market value on which
the rule of thumb is based is not exact or not otherwise available, U.S. courts have held
that some other measure of damages may be applied, such as replacement cost. The onus
is on the carrier to show that special reasons exist which render the market value rule
unjust as a measure of the plaintiffs loss .48
2)

As of the day arrived or should have arrived

Arrived sound market value is calculated as of the day the cargo arrived,49 and in
case of non-delivery, when it should have arrived.50 In J.M. Rodriquez & Co. v. MooreMcCormack Lines,51 a vessel was held in port and was unable to discharge a cargo of
cloves for 57 days because of a strike. When the vessel finally discharged, the cloves
were missing. The value of the cargo was $19,980 on the date of arrival and $41,070 at
the end of the strike and the New York State Appellate Division (4-1) ordered $41,070 in
damages.

46
Redpath Industries Ltd. v. The Cisco [1994] 2 F.C. 279 at p 294, 1994 AMC 1484 at p. 1491 (Fed. C.A.),
leave to appeal dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No. 80 (Supr. Ct. Can.). See
also Redpath Industries Ltd. v. Fednav Ltd. (1993) 63 F.T.R. 131 at p. 140 (Fed. C. Can.), citing with
approval the third edition of this book.
47
See Dessert Service, Inc. v. M/V MSC Jamie/Rafaela 219 F.Supp.2d 504 at p. 507, 2002 AMC 2358 at p.
2361 (S.D. N.Y. 2002), citing Polaroid Corp. v. Schusters Express, Inc. 484 F.2d 349 at p. 351 (1 Cir.
1973).
48
Dessert Service, Inc., ibid.; Eastman Kodak Co. v. Westway Motor Freight, Inc. 949 F.2d 317 at p. 319
(10 Cir. 1991). Such special reasons have been found to exist where the shipper can replace the shipment
at cost and suffers no loss of profit. See Philips Consumer Elecs. Co. v. Arrow Carrier Corp. 785 F. Supp.
436 at p. 441 (S.D. N.Y. 1992).
49
In Canastrand Industries v. The Lara S [1993] 2 F.C. 553 at p. 616, (1993) 60 F.T.R. 1 at p. 43 (Fed. C.
Can.), subsequent changes in market value several years after discharge were not deemed relevant for
calculating A.S.M.V. See also Minerais U.S. Inc. v. M/V Moslavina 46 F.3d 501 at p. 502, 1995 AMC 1209
at p. 1211 (5 Cir. 1995); BP N. Amer. v. Solar 250 F.3d 307 at p. 312, 2001 AMC 1844 at 1848 (5 Cir.
2001), where the market value rule was found to be settled law in the Fifth Circuit, requiring that
damages be calculated based on market values at the time the cargo was discharged.
50
This principle adopted by Hague Rules jurisprudence has been codified into the Visby Rules at art.
4(5)(b) para one. On non-delivery of cargo generally in English law, see H. McGregor, McGregor on
Damages, 16 Ed., Sweet & Maxwell, London, 1997 at paras. 1161-1167.
51
38 A.D. 2d 341 at p. 343, 329 N.Y. Supp. 2d 388 at p. 390, 1972 AMC 965 at p. 967 (N.Y. App. Div.,
1972).

15

In order to complete its contract, by effecting delivery, the carrier was

required to discharge its cargo to a fit and safe place on a pier or wharf,
furnish notice to the consignee of its availability and afford the consignee
a reasonable opportunity to take the goods away.
Since the plaintiffs cause of action accrued, and the period of limitation
began to run from the date the goods should have been delivered the
measure of damages must also be applied as of that date...
3)

Calculating A.S.M.V.

Arrived sound market value is difficult to calculate unless there is a market with
published listings at the place of discharge, as is sometimes the case with widely traded
commodities such as grain, rubber and sugar.52 In Levatino v. American President
Lines,53 it was held in respect to a shipment of chestnuts that:
Under the long established law the applicable values are those which
prevail on the dates of the ships arrival...
As there were no sales published in the New York Daily Report for that
day, the nearest sales dates govern.
In The Arpad Greer L.J. held:54
If there is a market at the time when the goods should be delivered in
which goods of a kind fit to implement the contract made by the owner of
the bill of landing at the time of breach can be bought or sold, the measure
of damage is the value of the goods ascertained by the market price of
identically similar goods. When there is no such market, the value must
be otherwise ascertained, and the price at which the holder of the bill of
landing has in fact sold them five months before is not very satisfactory
evidence of their value at the time of the breach. 55

52

See, for example, Minerais U.S. Inc. v. M/V Moslavina 46 F.3d 501 at p. 503, 1995 AMC 1209 at p.
1211 (5 Cir. 1995): Published market quotations of bulk commodities provide simple proof of market
value and damages so as to support application of the market-value rule. See also the Hague/Visby Rules,
art. 4(5)(b), second para., which similarly provides that the value of the goods shall be fixed according to
the commodity exchange price. Only if there is no such price, is the value determined by the current
market price or, in the absence of both those prices, by the normal value of goods of the same kind and
quality.
53
1965 AMC 2386 at p. 2393 (S.D.N.Y. 1965). Consumer Distributing v. Dart Container Line (1980) 31
N.R. 181 (Can. Fed. C.A.); The Juno [1986] 1 Lloyds Rep. 190 at p. 194.
54
(1934) 49 Ll. L. Rep. 313 at p. 320. The Visby Rules at new art. 4(5)(b) give in effect the same rule. See
The Kefalonia Wind [1986] 1 Lloyds Rep. 273 at pp. 289-90. See also the decision in Neptune Orient
Lines, Ltd. v. Burlington Northern R.R. Co. 213 F.3d 1118, 2000 AMC 1785 (9 Cir. 2000), affirming the
market value of goods at destination as the proper criterion.
55
The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at pp. 488-489 (C.A.), upheld [1994] 1 Lloyds Rep.
473 (H.L.).

16

In The Texaco Melbourne, the House of Lords reiterated the point.56

It has long been established that, in claims by a goods owner against a
carrier for non-delivery of the goods, the damages recoverable by the
goods owner are such as will put him into the position he would have been
in if the goods had been duly delivered, and are therefore the value of the
goods at the time when, and the place where, they should have been
delivered. The question arises: how is that value to be ascertained? This
depends on whether there is an available market for the goods in question.
If there is an available market for the goods, the prima facie rule is that the
value is assessed by reference to the market price on the date when the
goods should have been delivered. If there is no available market, then the
value of the goods at the relevant time and place has to be ascertained as
best it can on the available evidence;
Courts have sometimes made the calculation of A.S.M.V. less A.D.M.V. by
deciding by what percentage representative samples of the cargo have depreciated and
then applying that percentage to the arrived sound market value.57 If the shipment is a
large shipment, the arrived sound market value of the shipment must be taken as a single
unit, and the closest practical measure of this value is wholesale value.58
In Esso Nederland v. Trade Fortitude,59 it was held that the measure of damages
should not be based on the price of the cargo sold to an affiliate but should be based on
prices established in arms length agreements.60 Similarly, the value at which goods were
56

[1994] 1 Lloyds Rep. 473 at p. 479 (H.L.).

The S.S. Sweepstakes 87 F. Supp. 913 at p. 915, 1950 AMC 209 at p. 211 (W.D. Wash. 1949). See also
U.S. v. Central Gulf Lines 575 F. Supp. 1430, 1985 AMC 595 (E.D. La 1983). In Trade Arbed v. Swallow
688 F. Supp. 1095, 1989 AMC 2218 (E.D. La. 1988), the court awarded a lodestar factor of 10% for
rusted steel. This additional 10% was added to the amount of the discounts of the invoice value of the
damaged steel negotiated by the parties in respect of particular bills of lading, in order to reflect the
likelihood that other cargo in addition to the damaged sample surveyed might have been damaged by sea
water as well. See also Redpath Industries Ltd. v. Fednav Ltd. (1993) 63 F.T.R. 131 at pp. 142-143 (Fed. C.
Can.), where the depreciation in the A.S.M.V. of a cargo of raw sugar which had been wetted in transit was
calculated according to the degree of its reduced polarity (i.e. the diminution of its sucrose content)
below the generally recognized norm of 96% established by the Rules of the London Sugar Association. A
similar method of assessing the true damages in this situation was endorsed in Redpath Industries Ltd. v.
The Cisco [1994] 2 F.C. 279 at pp. 307-308, 1994 AMC 1484 at pp. 1502-1504 (Fed. C.A.), leave to appeal
dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No. 80.
58
The Trade Wind v. David McNair & Co. [1956] Ex. C.R. 228 at p. 234, affirmed [1954] Ex. C.R. 450
that the claimant was entitled to recover from the carrier the difference between the sound wholesale
market value of the cargo and the damaged wholesale market value at the place and date of the breach. See
also Neptune Orient Lines, Ltd. v. Burlington Northern R.R. Co. 213 F.3d 1118, 2000 AMC 1785 (9 Cir.
2000), where the market value at destination of a lost container of shoes was held to be the wholesale price
of the shoes, rather than the price paid to their manufacturer. The wholesale value was found to be the
appropriate measure of damages, particularly as the shoes could not be replaced, so that replacement value
could not be used to mitigate the loss. In Minerais U.S. Inc. v. M/V Moslavina 46 F.3d 501, 1995 AMC
1209 (5 Cir. 1995), however, the wholesale price was not seen as appropriate.
59
1977 AMC 2144 (S.D. N.Y. 1977).
60
See also Cour de Cassation, November 28, 1995, DMF 565, 1025; the Belgian Cour de Cassation;
January 17, 1992, [1992] ETL 456, where market value itself might at times be a distortion.
57

17

pre-sold (i.e. resold by the buyer before their actual or expected delivery to him) has
not been considered a reliable indicator of their A.S.M.V. at the time and place of
delivery.61
If the goods never arrive, the measure of damages should be arrived sound market
value less freight,62 if (of course) freight is unpaid and due. Alternatively, the cost to the
buyer of the undelivered goods of replacing them with goods of the same kind and
quality is sometimes taken as the proper measure of their notional arrived sound market
value. 63 The measure of damages is then computed by deducting from that replacement
cost the sum of: a) any residual value of the goods at the place of loading; b) the amount
of the freight; and c) the amount of the insurance on them.64
The essence of the foregoing principles of calculating A.S.M.V. has been codified
in the Visby Rules at art. 4(5)(b), para. two. That provision requires the value of the
goods to be fixed according to: a) the commodity exchange price, or absent such price,
b) the current market price, or, where neither of such prices exists, c) the normal value
of goods of the same kind and quality.65
4)

Profits and expenses

Reconstructing arrived sound market value is difficult. Although C.I.F. (costinsurance-freight) value is easier to calculate, it is not a true measure of damages, because
arrived sound market value will include not only cost, insurance and freight, but also
customs duties (which may be refunded, however), administrative expenses (for
arranging the purchase and shipment) and a fair margin of profit.
61

See The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at p. 488 (C.A.), upheld [1994] 1 Lloyds Rep.
473 (H.L.) If there is evidence of a market price, the price at which goods have been pre-sold is
irrelevant. See also Rodocanachi v. Milburn (1887) 18 Q.B.D. 67 at p. 76 (C.A.). In Neptune Orient Lines,
Ltd. v. Burlington Northern R.R. Co. 213 F.3d 1118, 2000 AMC 1785 (9 Cir. 2000), however, the
wholesale price of shoes in a lost container, based on pre-sale figures for such shoes, was the basic
evidence relied upon as to the market value of the shoes at destination, in awarding damages to the plaintiff
carrier in its indemnity action against the railway responsible for the loss.
62
Goltzman v. Rougeot 122 F. Supp. 700, 1955 AMC 361 (W.D. La. 1954).; Rodocanachi v. Milburn
(1886) 10 Q.B.D. 67 at p. 76 (C.A.), cited with approval in the Texaco Melbourne [1993] 1 Lloyds Rep.
471 at p.475 (C.A.), upheld [1994] 1 Lloyds Rep. 473 (H.L.). See also Scrutton, 20 Ed., 1996, art. 195 at
pp. 397-398. Where the carrier breaches the contract by loading and delivering only part of the cargo, the
shipper, if he can charter space on a substitute vessel, may claim the difference between the market rate
of freight (the freight payable for carrying that remaining cargo aboard the substitute ship) and the
contract rate (the freight that would have been payable for carrying it under the original contract of
carriage). See Scrutton, 20 Ed., 1996, art. 194 at p. 396.
63
See Williams Brothers v. E.T. Agius Ltd. [1914] A.C. 510 at pp. 530-531 (H.L.). There is, however, no
obligation on the buyer to replace the undelivered cargo. Nor may be measure of damages necessarily be
determined by reference to the replacement cost of the goods in any market other than the market of their
original destination. See The Texaco Melbourne [1993] 1 Lloyds Rep. 471 at pp. 475 and 489 (C.A.),
upheld [1994] 1 Lloyds Rep. 473 (H.L.).
64
The Kriti Rex [1996] 2 Lloyds Rep. 171 at pp. 193 and 194.
65
The Belgian Cour de Cassation, January 17, 1992, [1992] ETL 456, in calculating the normal value of
goods of the same kind and quality, refused to take account of the purchase price of the goods concerned,
which it held was artificially inflated by EEC subsidies. See also the Swedish Maritime Code 1994, ch. 13,
sect. 29, second para., which repeats the Hague/Visby provision almost verbatim.

18

Compensating profit losses is generally accepted in marine cargo claims, under

the restitutio in integrum principle.66 Calculating a fair margin of profit to add to costs is
difficult, however. There is no rule of thumb and the facts of each case must be weighed
and conclusions drawn individually. The plaintiff must adduce sufficient evidence to
establish a) that it has been deprived of expected profits as a result of the causative fault
or negligence of the defendant; and b) the quantum of that loss.67 Contracts for the resale
of the lost or damaged merchandise may prove lost profits, but evidence of similar sales
of equivalent goods in the relevant time period has also been held sufficient in some
cases.68
15% profit was added to C.I.F. value in Crelinsten Fruit Co. v. The
Mormacsaga.69 In Dixie Plywoood Co. v. S.S. Federal Lakes,70 15% profit was awarded.
The civil law is specific about profits:
1149 c.c (France). Les dommages et intrts dus aus crancier sont, en
gnral, de la perte faite et du gain dont il a t priv, sauf les exceptions
et modifications ci-aprs.
(translation). Damages due to a creditor are in general the loss which he
has sustained and of the profit of which he has been deprived, subject to
the following exceptions and modifications.
Equivalent articles of the civil codes of Quebec,71 Louisiana72 and other civil law
jurisdictions73 are to the same effect.
66
See, for example, Vallerina Fashions, Inc. v. Hellman International Forwarders, Inc. 879 F. Supp. 138
at p. 140, 1996 AMC 1201 at p. 1205 (S.D. N.Y. 1995): if Plaintiff can offer sufficient evidence
tending to prove its loss, lost profits are indeed recoverable. COGSA was not meant to abrogate common
law contract remedies. Quite the contrary, in keeping with the common law, the primary object in awarding
damages under COGSA is to indemnify the plaintiff for the loss sustained by reason of the carriers fault.
See also Standard Commercial Tobacco Co., Inc. v. M/V Recife 827 F. Supp. 990 at p. 1003, 1994 AMC
1208 (sum.) (S.D. N.Y. 1983).
67
In Goldenberg v. World Wide Shippers & Movers, Inc. 236 F.2d 198 at p. 202 (7 Cir. 1956), it was held:
The breach of contract having prevented such profits from being made, conclusive proof is impossible.
The injured party is permitted to introduce evidence tending to establish the damage and no greater degree
of certainty of proof is required than for any other fact essential to be established in a civil action..
68
See Vallerina Fashions, Inc. v. Hellman International Forwarders, Inc., supra, where the plaintiff
succeeded in proving loss of profits by showing sales figures for two types of jeans comparable to those
damaged or lost in the shipment concerned, but failed to prove lost profits on a third type of jeans included
in the same shipment which the plaintiff had never before marketed or sold and for which it therefore had
no comparable sales figures.
69
[1968] 2 Lloyds Rep. 184 at p. 192, 1969 AMC 202 at p. 206 (Ex. C. Can.).
70
404 F. Supp. 461, 1976 AMC 439 (S.D. Ga. 1975), affd without opinion, 525 F.2d 691 (5 Cir. 1975),
cert. denied, 425 U.S. 974, 1976 AMC 1498 (1976).
71
Art. 1611 c.c. (Quebec, 1994).
72
1995 c.c. (Louisiana). Damages are measured by the loss sustained by the obligee and the profit of
which he has been deprived. See also Tribunal de Commerce de Rouen, February 23, 1962, DMF 1962,
294 at p. 297:
(translation)

19

Claims for lost profits are not always allowed in practice, however. For example,
if the shipper whose cargo has been destroyed or harmed at or before loading purchases,
or could easily purchase, replacement goods (i.e. goods of the equivalent kind and
quality) in the place of shipment, he may be able to realize the equivalent profit on their
resale in the place of destination to the profit he would have made had the original goods
been shipped there undamaged. In this case, courts will often restrict the claimants
award to the replacement cost of such substituted goods, plus related administrative
expenses, less any salvage value realized on the damaged goods.74 The claimant will not
be indemnified for profits lost on the original shipment, unless such loss could not have
been averted by reasonable measures.75
The Chinese Maritime Code 1993 also appears to rule out loss of profits, by
rigidly limiting the actual value of the goods lost or damaged to the value of the goods
at the time of shipment plus insurance and freight (i.e. CIF value), less deductions for
expenses reduced or avoided as a result of the casualty.76
5)

Quick calculations for settlements

The practice of taking invoice value or C.I.F. value and then deducting salvage,
although giving an immediate figure unjustifiably favours the carrier, because C.I.F. is
not arrived sound market value,77 while salvage is arrived damaged market value. It
would be fairer to deduct from C.I.F. value the salvage value at the place of shipment. (It
is, of course, unlikely that such a salvage figure is obtainable).
Claimants usually claim insured value in any event, which is C.I.F. or invoice
value plus 10%, 15% or 20%, etc.78 Although insured value is often close to arrived
sound market value, it is not evidence of true value. One practical compromise is to settle
the carrier is responsible for all the damage suffered by the consignee, such damage
including both the loss suffered and the profit lost, those two elements together being the
value of the merchandise at destination on the day of discharge
73
Art. 1223 c.c. Italy and art. 1106 c.c. (Spain).
74
See, for example, Caterpillar Overseas, S.A. v. Farrell Lines, Inc. 1988 AMC 2894 at pp. 2904-2905
(E.D. Va. 1988), where a tractor, damaged prior to loading, was sold for its salvage value. Because the
plaintiff shipper could have procured another similar tractor, shipped it and realized an equivalent profit on
its resale in the country of destination, there was held to be no actual loss justifying an award of damages
for loss of profits. The shipper was therefore compensated only for the replacement cost of a similar tractor,
less the salvage value realized on the damaged one, plus expenses incurred in transporting the damaged
tractor to be surveyed and costs of the salvage sale.
75
See also Vallerina Fashions, Inc. v. Hellman International Forwarders, Inc. 897 F. Supp. 138 at p. 140,
1996 AMC 1201 at p. 1204 (S.D. N.Y. 1995): Accordingly, courts award anticipated profits where the
plaintiff satisfactorily shows that profits [were] in fact lost and [were] not realizable by substitution of
other goods. See also other authorities cited there. In that case, lost profits were awarded, because there
were no comparable goods available in the market which could have been substituted for the damaged ones
so as to mitigate the loss, and because the quantum of the loss of profits claimed was sufficiently proven.
76
Chinese Maritime Code, art. 55, second and third paras.
77
See Yeramex International v. S.S. Tendo 1977 AMC 1807 at p. 1837 (E.D. Va. 1977).
78
Cour dAppel dAix, March 6, 1980, DMF 1980, 652, where the insured value was awarded rather than
the invoice value.

20

for a sum halfway between C.I.F. value and insured value, but this compromise is
valuable only for settlements out of court. In court, the measure is arrived sound market
value, less arrived damaged market value where this can be ascertained.79
If, of course, damaged goods sell for the same sum as undamaged goods, then
there is no claim. In Instituto Cubano v. Star Line,80 however, where the damaged cargo
was transported to destination for storage and not for sale in the foreseeable future, the
measure of damages was held to be the purchase price at embarkation plus freight and
custom duties.
C.I.F. value is sometimes awarded, rather than market value, where owing to
special circumstances, it is better able to compensate the claimant for his full loss.81
6)

Less normal deterioration (freinte de route)

Certain cargoes normally shrink, evaporate or deteriorate with time and such loss
is expected no matter how careful the carrier has been. This in transit deterioration or
freinte de route cannot be included in the claim.82 Where, however, there is complete
non-delivery, the freinte de route is not normally taken into consideration. There has been
confusion over what is to be attributed to freinte de route as opposed to imprecise
measurements of some goods83.
Under the Hague and Hague/Visby Rules and U.S. COGSA 1936, the carrier and
the ship benefit from the freinte de route defence, because they are exempt from

79

In Swallow, the court took invoice value in a soft market as fair market value.
1958 AMC 166 (Arb. N.Y. 1957).
81
See, for example, Roco Carriers v. Nurnberg Express 1991 AMC 398 (S.D. N.Y. 1990), where cigarette
lighters were stolen while in the custody of a warehouseman prior to loading for Germany. The plaintiff
shipper, after repaying the German consignee/buyer the C.I.F. value of the stolen lighters, sued the
warehouseman in an indemnity action. Because the C.I.F. value of the lighters was higher than their market
value at the time and place of the conversion (the normal measure of damages for conversion under the
applicable New York state law), C.I.F. value was awarded, so as to fully indemnify the shipper for what it
had paid the buyer.
82
See Chap. 12, Loss or Damage to Cargo. See Sun Oil Co. v. Carisle 771 F.2d 805, 1986 AMC 305 (3
Cir. 1985). See also Instituto Cubano v. Star Line 1958 AMC 166 (Arb. N.Y. 1957) ibid., where the
damages awarded by arbitrators for the loss to molasses were based on the short delivery less 1%
customary innage. See also Thyssen v. Fortune Star F.2d 57, 1986 AMC 1318 (2 Cir. 1985), where
compensatory damages based on a depreciation allowance was allowed even in the absence of proof that
this depreciation was in fact reflected in the sale price received from the consignees customers.
83
There has been much contention over the measurement of liquids, especially oil: Kerr McGee Refining
Corp. v. La Libertad [1988] ETL 325 (S.D.N.Y. 1981); Sun Oil Co. v. Mercedes Maria [1988] ETL 336
(S.D.N.Y. 1982); Sun Oil Co. v. Carisle Ore Transport [1988] ETL 345 (S.D.N.Y. 1985); Palmco Inc. v.
American President Lines 1978 AMC 1715 (D. Oreg. 1978); Amoco Oil Co. v. Parpada Shipping [1988]
ETL 361 (Q.B. 1986); Indian Oil Corp. v. Greenstone [1988] ETL 373 (Q.B. 1987); Rechtbank van
Koophandel te Antwerpen, September 8, 1987, [1988] ETL 299; Ins. Cy North America v. S.S. Globe Nova,
May 19, 1986, [1987] ETL 391 (S.D.N.Y. 1987); Sentenza Arbitrale, March 20, 1987, [1987] ETL 703;
Cour dAppel de Paris, January 16, 1985, [1988] ETL 283; Rechtbank van Koophandel te Antwerpen,
April 7, 1982, [1988] ETL 289.
80

21

liability for cargo loss or damage caused by wastage in bulk or weight (freinte en
volume ou en poids).84
7)

Customs duties

Customs duties, where not refunded or refundable, are a valid constituent of

arrived sound market value.85
8)

Measure when responsibility divided

Where the damage is caused in part by an act or fault for which the carrier is
responsible and in part by an act or fault for which the carrier is not responsible, the
carrier must be able to make proof sufficient to separate the damage resulting from one
cause from the damage resulting from the other, or in the alternative be held responsible
for the whole claim. This is known as the Vallescura Rule.86
The earliest application of this rule by a court of high authority to a case involving
the Hague Rules was in 1928 in Gosse Millerd Ltd. v. Canadian Government Merchant
Marine.87 The rule was restated by Hobhouse J. in The Torenia.88
More recently, Judge Diamond, relying on both Gosse Millerd and The Torenia,
repeated the principle very clearly in The Fiona:89

84

Hague and Hague/Visby Rules, art. 4(2)(m) and U.S. COGSA 1936, 46 U.S.C. Appx. 1304(m). See, for
example, National Distillers Products Corp. v. Companhia Nacional de Navegacao and Reading Co. 1952
AMC 1613 (E. D. Pa. 1952) (2% normal shrinkage of port wine); Schroeder Bros, Inc. v. M/V Saturnia
1958 AMC 1785 (S.D. N.Y. 1958) (normal shrinkage of 2% of unrefrigerated chestnuts); Shui Fa Oil Mill
Co., Ltd. v. M/S Norma 1976 AMC 936 (S.D. N.Y. 1976) (natural shrinkage of 1.73% in a soybean
cargo); Amoco Oil Co. v. M/V Lorenzo Halcoussi 1984 AMC 1608 at p. 1616 (E.D. La. 1983) (0.225%
held to be normal industry-recognized los allowance resulting from evaporation and clinging to ships
cargo hold of Saharan mlange crude oil carried from Algeria to Louisiana). See also Gatoil International
Inc. v. Tradax Petroleum Ltd. [1985] 1 Lloyds Rep. 350; Shell International Petroleum Co. v. Seabridge
Shipping Ltd. [1977] 2 Lloyds Rep. 436; Spencer Kellogg v. S.S. Mormacsea 703 F.2d 44 at p. 45, note 2,
1983 AMC 1524 at p. 1526 (2 Cir. 1983) (0.5% normal trade allowance for oil).
85
Variety Textile Manufacturers v. The City of Columbo [1977] 2 F.C. 127, 1977 AMC 1148 (Fed. C.
Can.), upheld in appeal (1978) 83 D.L.R. (3d), [1978] 2 F.C. 551 (Fed. C.A). See also The Ocean Dynamic
[1982] 2 Lloyds Rep. 88 at p. 93; Club Coffee Co. Ltd. v. Moore McCormack Lines [1968] 2 Ex. C.R. 365,
1968 AMC 1749, [1968] 2 Lloyds Rep. 103.
86
Vallescura (Schnell v. Vallescura) 293 U.S. 296 at p 306, 1934 AMC 1573 at pp. 1577-1578 (1934);
Vana Tradg. Co. v. S.S. Mette Skou 556 F.2d 100, 1977 AMC 702 (2 Cir. 1977); Commonwealth v. Burns
Philip & Co. Ltd. (1946) 46 S.R. (N.S.W.) 307; 63 W.N. 211 (N.S.W. Sup. Ct.); Trade Arbed v. Lagada
Bay 1985 AMC 1766 (S.D. Ga. 1982); C. Itol & Co. (America) Inc. v. M/V Hans Leonhardt 719 F. Supp.
479 at p. 502, 1990 AMC 733 at p. 740 (E.D. La. 1989) (a Harter Act case); Thyssen, Inc. v. S/S Eurounity
1994 AMC 393 at p. 399 (S.D. N.Y. 1993), affd 21 F.3d 533, 1994 ASMC 1638 (2 Cir. 1994) (see in
particular Chap. 12, Loss or Damage to Cargo, supra).
87
(1928) 32 Ll. L. Rep. 91 at p.98, [1929] A.C. 223 at p. 241 (H.L.). This dictum was said to be obiter
dictum in Government of Ceylon v. Chandris [1965] 2 Lloyds Rep. 204 at p. 216 but was followed
nevertheless.
88
[1983] 2 Lloyds Rep. 210 at p. 218.
89
[1993] 1 Lloyds Rep. 257 at p. 288.

22

It has long been held in construing exceptions clauses in contracts for the
carriage of goods by sea, both at common law and in the context of the
Hague and Hague-Visby Rules, that where the facts disclose that the loss
was caused by the concurrent causative effects of an excepted and a nonexcepted peril, the carrier remains liable. He only escapes liability to the
extent that he can prove that the loss or damage was caused by the
excepted peril alone;
Thus, for example, if a peril of the sea (as understood in art. 4(2)(c) of the Hague
or Hague/Visby Rules) and failure to care for the cargo (contrary to art. 3(2) of the same
Rules) are determined to be concurrent causes of the damage, the carrier is responsible
for the entire loss unless he shows what portion of the damages was due to the peril.
The evidence required of the carrier to distinguish the two types of damage need
not be overwhelming but reasonable proof or even a rough and ready estimate.90
The rule has been codified at art. 5(7) of the Hamburg Rules.91 Art. 5(7) provides:
Where fault or neglect on the part of the carrier, his servants or agents
combines with another cause to produce loss, damage or delay in delivery
the carrier is liable only to the extent that the loss, damage or delay in
delivery is attributable to such fault or neglect, provided that the carrier
proves the amount of the loss, damage or delay in delivery not attributable
thereto.
The Chinese Maritime Code 1993 also contains a codification of the Vallescura
Rule,92 as does the Swedish Maritime Code 1994.93
France has taken a slightly different approach to the problem of mixed causation
of cargo loss or damage. Where one of the causes of the loss or damage is the fault of the
carrier, and the other is one of the excepted perils under the Rules that is within the
sphere of diligence94 of the shipper (e.g. defective packing, inherent defect of the
goods, fault of the shipper or owner of the goods), French courts have held the carrier
only partially responsible.95 In cases where the carriers fault is combined with another
90

Silver v. Ocean S.S. Co. (1929) 35 Lloyds Rep. 47 at p. 54. See also The Aliakmon [1983] 1 Lloyds
Rep. 203 at p. 210.
United Nations Convention on the Carriage of Goods by Sea, 1978, in force November 1, 1992.
92
Chinese Maritime Code 1993, art. 54, which makes the Vallescura principle applicable to the carriers
liability for delay in delivery, as well as his liability for loss or damage to the goods. The carriers excepted
perils under the Code (art. 51) are generally similar to those of the Hague and Hague/Visby Rules, art. 4(2).
93
Swedish Maritime Code 1994, ch. 13, sect. 25, third para.
94
The term sphere of diligence and the related theory of mixed causation derive from the writings of
Alain Sriaux in his work, La faute du transporteur, 2 Ed., Economica, Paris, 1998 at paras. 209 et seq. See
generally W. Tetley, International Maritime and Admiralty Law, 2002 at p. 100.
95
See Cour de Cassation, March 5, 1996 (The Diego and the Aquitania), DMF 1996, 507, commentary by
P. Bonassies, DMF Hors srie no. 1, 1997, no. 71 at p. 56; Cour de Cassation, November 26, 1996 (The
World Navigator), DMF 1997, 798, note R. Achard; Cour de Cassation, January 20, 1998 (The Red-SeaElbe), DMF 1998, 578, note P. Delebecque.
91

23

contributory causes falling outside the shippers sphere of diligence, however (e.g. peril
of the seas or restraint of princes), the carrier has been held liable for the whole of the
damage, provided that the carriers fault is found to have constituted a continuing,
proximate cause of the loss when it was sustained (i.e. that but for that fault, the loss or
damage would not have occurred).96
9)

Actual loss COGSA

COGSA contains an additional sentence at sect. 1304(5), third para., as follows:
In no event shall the carrier be liable for more than the amount of damage
actually sustained.

The provision probably excludes only punitive damages and in any event sect.
1305 would permit any damages, even punitive damages, by agreement in the bill of
lading. Nevertheless sect. 1304(5), third para., last sentence, has influenced U.S.
decisions.
In Internatio v. Taimyr,97 the cargo owner admitted that, if the whole shipment of
coffee had been delivered intact, it would have resulted in a price of $0.91 per lb., rather
than the price of $2.01 per lb. realized for the smaller undamaged portion of the
shipment. The Court properly fixed A.S.M.V. at $0.91 per lb. and sect. 1304(5), third
para., was specifically referred to.98 The peculiar decision in A.L. Holden v. S.S. Kendall
Fish99, however, is an example of misinterpreting sect. 1304(5) third. para., last sentence,
and ignoring sect. 1305.
The principle of damage actually sustained is part of the philosophy of
American courts, which are more concerned with equities than technicalities.100 Thus
U.S. courts have ruled that, as long as damage has actually been incurred, it is immaterial
whether it was sustained by the shipper or the consignee or some other interested party.
In this spirit, the U.S. Court of Appeals, in Salzman Tobacco v. Mormacwind,101 rejected
96

Chambre Arbitrale Maritime de Paris, Sentence no. 971, October 24, 1997, DMF 1998, 706,
commentary by P. Bonassies, DMF Hors srie o. 2, 1998, no. 111 at p. 72; Cour de Cassation, July 7, 1998
(The Atlantic Island), DMF 1998, 826, note P. Bonassies.
97
602 F.2d 49, 1979 AMC 2249 (2 Cir. 1979). See Trade Arbed v. Lagada Bay 1985 AMC 1766.
98
Ibid., 602 F.2d at p. 50, 1979 AMC at p. 2250. See also Fireman's Fund v. Vigsnes 1986 AMC 1899
(N.D. Fla. 1985).
99
362 F. Supp. 862, 1967 AMC 327 (E.D. La. 1966); 395 F.2d 910, 1968 AMC 200 (5 Circ. 1968). See
discussion re invoice clauses infra.
100
See also U.S. Carmack Amendment, 49 U.S.C. sect. 11706(a) whereby damages are to be measured by
the actual loss or injury to the property. See also Holden v. S.S. Kendall Fish 395 F.2d 910 at p. 913,
1968 AMC 2080 at p. 2083 (5 Cir. 1968), where, in upholding the district courts decision that the proper
measure of damages was the market value at the port of destination of the damaged goods, rather than their
(higher) invoice value, the Fifth Circuit held: We, therefore, find that the district court exercised its
abundance of discretion in consonance with the conscience of equity. (Emphasis added).
101
371 F.2d at p. 540, 1967 AMC 277 at p. 281 (2 Cir. 1967). See also Kukje American v. Sanko Maple
1986 AMC 2901 (5 Cir. 1986), where, although the cargo owner had been able to sell the damaged pipe
without reconditioning for 100% of its insured market value, the Court permitted the cargo owner to

24

the shipowner's argument that the consignee should not be permitted to recover for cargo
damage because the 5% loss in market value was not suffered by him but was passed
along to the shipper with whom the consignee had a close business relationship. The
Court explained:
'amount of damage actually sustained' refers to the actual reduction in
the value of the cargo, and that section 4(5) was not intended to alter the
long-established rule that an owner or consignee may recover for damage
to cargo, and that, being protected against double recovery, the carrier has
no concern with any equities between the owner or consignee and others.
In Dixie Plywood Co. v. S.S. Federal Lakes et al.,102 it was held that:
market value is only one method of ascertaining the loss to the shipper.
the measure of recovery for breach of a contract of affreightment is
the actual damage sustained.
The court awarded invoice price plus costs of transportation, import duties, and
profit of 5% less salvage. The shipper had sold at only 5% profit despite the fact that at
the time of discharge there was a wholesale mark-up of 15% plus a retail markup of 25%.
As the shipper did not have to buy at retail to comply with his commitments, he was
therefore awarded only 5% profit.
The damages actually sustained restriction has been used in various ways,
depending on the facts of each case, for example, to preclude compensation for lost
profits where they had not yet actually been lost,103 and sometimes to limit damages to
market value at destination, thus ruling out even higher sums sought by the plaintiff for
repairs of the damage sustained.104
IV.

Invoice Value & C.I.F. Clauses etc.

1)

Relieve or lessen

recover additional damages based on a depreciation allowance, because it was proved that ultimate buyers
often demand rebates as long as five years after the shipment of pipe has been received at the warehouse.
102
404 F. Supp. 461 at pp. 465 & 466, 1976 AMC 439 at pp. 444 & 445 (S.D. Ga 1975); see also
Samincorp. v. Rivadeluna, 276 F. Supp. 251, 1968 AMC 1062 (D. Del 1967).
103
In Caterpillar Overseas v. Farrell Lines 1988 AMC 2894 at pp. 2904-2905 (E.D. Va. 1988), loss of
profits was refused where there had been no actual loss, because a replacement machine could have been
purchased by the plaintiff shipper in the port of loading and the profits lost on the damaged machine made
up on subsequent resale of the substituted machine in the country of destination.
104
In ETS Gustave Brunet, S.A. v. M.V. Nedlloyd Rosario 929 F. Supp. 694 at pp. 710-711, 1997 AMC 804
at pp. 827-829 (S.D. N.Y. 1996), the loss of fair market value on three damaged lace-making machines was
awarded, rather than the sum sought by the plaintiff to cover the costs of their complete repair,
reconditioning and parts replacement, which sum amounted to over six times the original purchase price of
the machines.

25

Art. 3(8) of the Hague Rules invalidates clauses relieving the carrier from
liability or lessening such liability otherwise than as provided in the Rules (emphasis
added). The Hague Rules do not define what measure of damages should apply in
quantifying liability, but one must conclude that restitutio in integrum governs. The
Visby Rules at art. 4(5) have fixed the value as Arrived Sound Market Value (A.S.M.V.).
The courts have held that invoice value clauses in bills of lading105 are null and
void under the Hague Rules and the Harter Act, the leading decision being Nabob Foods
Ltd. v. The Cape Corso,106 where Sidney Smith J. cut clearly through old decisions under
the Harter Act (sect. 1 of which refers only to being relieved from liability) and
concluded that any clause which relieved or lessened liability for arrived sound market
value was invalid. Many other decisions are to the same effect,107 although certain
judgments have upheld this kind of provision in specific cases.108
In Club Coffee Co. Ltd. v. Moore McCormack Lines,109 a C.I.F. value clause
would have been held invalid under COGSA had it applied. The shipment was from
Brazil (which has not adopted the Hague Rules) to Canada (whose law only applies
outward) so that no Hague Rules legislation was applicable of its own force.
Art. 4(5) of Visby is such that an invoice value clause or any other clause
imposing liability of less than Arrived Sound Market Value would be void.110 Courts
tend, at any rate, to construe such clauses narrowly.111
105

The following is an example of an invoice value clause: Any claim for which the Carrier may be
responsible shall be adjusted and settled on the basis of the Merchant's net invoice cost plus freight and
insurance premium, if paid, and in no event shall the Carrier be responsible for any loss of profit or
consequential loss.
106
[1954] Ex. C.R. 335, [1954] 2 Lloyds Rep. 40 (Ex. C. Can.).
107
The Steel Inventor 35 F. Supp. 986, 1941 AMC (D. Md. 1940). Pan-Am Trade & Credit Corp. v. The
Campfire 1946 AMC 644 at p. 652 (S.D.N.Y. 1945), aff'd 156 F.2d 603 at p.606 (2 Cir 1946): The Harry
Culbreath 1952 AMC 1170 (S.D.N.Y. 1951); Otis McAllister v. Skibs 260 F.2d 181, 1958 AMC 2432 (9
Cir. 1958); Holden v. S.S. Kendall Fish 262 F. Supp. 862 at pp. 864-865, 1967 AMC 327 at p. 329 (E.D.
La. 1966), affd 395 F.2d 910, 1968 AMC 2080 (5 Cir. 1968); Tribunal de Commerce de Marseille, March
17, 1950, DMF 1950, 598; Foy & Gibson v. Holyman & Sons (1946) 79 Ll. L. Rep. 339.
108
See, for example, Plywood Panels Inc. v. M/V Sun Valley 804 F. Supp. 804 at p. 812, 1993 AMC 516 at
p. 527 (E.D. Va. 1992), affd without discussion of this point, 4 F.3d 986, 1994 AMC 304 (4 Cir. 1993),
enforcing a CIF value (settlement of claim) clause, particularly where the parties concerned had
consistently accepted CIF value as the measure of damages in previous marine cargo claims over a course
of dealing of some fourteen years. See also New York Marine & General Ins. Co. v. S/S Ming Prosperity
1996 AMC 1161 at p. 1171 (S.D. N.Y. 1996), where a similar clause was upheld under New York law,
which the Court deemed applicable, rather than COGSA.
109
[1968] 2 Ex. C.R. 365, 1968 AMC 1749, [1968] 2 Lloyd's Rep. 103. See also Variety Textile
Manufacturers Ltd. v. The City of Colombo [1977] 2 F.C. 127, 1977 AMC 1148 (Fed. C. Can.), where,
however, the defendants had already settled the claim on the basis of the invoice value without raising any
question as to the market value, the real dispute relating rather to the refund of the customs duties paid on
the lost cargo.
110
See N. Gaskell, R. Asariotis & Y. Baatz, Bills of Lading: Law and Contracts, LLP Professional
Publishing, London,, 2000 at para. 16.3, note 4, with reference to the clause of the P. & O. Nedlloyd Bill of
Lading, cl. 7, which purports to limit the carriers liability for loss or delay to the sound value of the goods,
defined as the FOB/FCA invoice value plus freight and insurance if paid. See also ibid., at para. 16.20,
citing the third edition of this book on this point.

26

A clause limiting damages to Arrived Sound Market Value (A.S.M.V.) less

Arrived Damaged Value (A.D.M.V.) would be valid under the Hague/Visby Rules
because consequential damages are excluded under the Hague/Visby Rules at art. 4(5)(b).
An A.S.M.V. less A.D.M.V. clause, however, would be invalid under the Hague Rules
and the Hamburg Rules at art. 5(2) and art. 6(1)(b) respectively, which provisions
specifically permit damages for delay.112
Other said to be clauses and reservations on the bill of lading can at times also
be seen to be invalid in their implementation.113
2)

Per package and restitutio in integrum

Of course the carrier is not ordinarily responsible for more than the package
limitation, even if application of the restitutio in integrum principle would produce a
higher recovery.114 In Shackman v. Cunard White Star,115 the bill of lading contained both
a paramount clause invoking COGSA and a clause providing that, in the event of short
delivery, the value of the goods should be market price at the port of destination. The
market value of two packages was $18,707, but the Court held that the liability was only
$500 per package, because the carrier, by including the paramount clause in the bill of
lading, had intended to benefit from the COGSA limitation.
A bill of lading clause specifically permitting the value of the claim to be in
excess of restitutio in integrum or A.S.M.V. less A.D.M.V. would be valid under art.
4(5)(g) of the Hague/Visby Rules or under art. 6(4) of the Hamburg Rules. Such a clause,
however, would have to be properly drafted to overcome the per package limitation
specified under the Rules (Hague at art. 4(5), or Visby at art. 4(5)(a) or Hamburg at art.
6(1)).

111

See The Ines [1995] 2 Lloyds Rep. 144 at p. 158, where Clarke, J. found that a bill of lading clause
limiting the carriers liability for loss or damage to the goods to the lesser of: a) the net invoice cost of
the goods and disbursements, plus freight and insurance, or b) the certified market price at the port of
discharge on the day of the vessel's reporting at the Custom House, less all charges saved, was limited to
cases of physical loss of or damage to the goods, and therefore did not apply to liability for their
misdelivery to a third party without presentation of an original bill of lading.
112
Even though art. 6(1)(b) specifies that the carrier's liability for delay is limited to two and a half times
the freight payable for the goods delayed (as long as that amount does not exceed the total freight payable
under the contract of carriage), and even though art. 6(1)(c) specifies that the carrier's liability in any case
cannot exceed the amount described in art. 6(1)(a), the parties can by agreement fix the limit of liability at a
higher amount (art. 6(4)).
113
Cour de Cassation de France, February 22, 1983, ETL 1988, 277; Rechtbank van Koophandel te
Antwerpen, April 7, 1982, [1988] ETL 1988; Rechtbank van Koophandel te Antwerpen, September 8, 1987,
[1988] ETL 299; Hof van Beroep te Antwerpen, January 20, 1988, [1988] ETL 305. Some reservation
clauses qualifying the apparent good order and condition of the goods have been upheld, however. See The
GF Company v. Pan Ocean Shipping Company23 F.3d 1498, 1994 AMC 1739 (9 Cir. 1994), revg 795 F.
Supp. 1001, 1992 AMC 2298 (C.D. Cal. 1992), Rechtbank van Koophandel te Antwerpen, February 16,
1993, [1993] ETL 903.
114
See Chap. 41, Package or Kilo Limitation , infra.
115
31 F. Supp. 948, 1940 AMC 971 (S.D.N.Y. 1940).

27

A.L. Holden v. S.S. Kendall Fish116 raised an interesting question. The arrived
sound market value of a shipment from North Africa to New Orleans was $7,656.84 and
the bill of lading to which COGSA applied contained an invoice value clause. The
invoice value of the loss was $20,027.13, but the district court and the Fifth Circuit
limited the recovery to only $7,656.84 because the carrier was held not liable for more
than the amount of damage actually sustained, as per 46 U.S. Code sect. 1304(5) (sect.
4(5) para. 2 of COGSA). Ignored by the Fifth Circuit and not properly considered by the
trial court was the wording of sect. 1305 (art. 5 of the Hague Rules) that A carrier shall
be at liberty to surrenderany of his rights and immunities or to increase any of his
responsibilities and liabilities under this Act, provided such surrender or increase shall be
embodied in the bill of lading issued to the shipper. The invoice value clause in the bill
of lading, which surrendered rights and increased the liability of the carrier, should have
been held to be valid under sect. 1305 (See also arts. 6(4) and 23(2) of the Hamburg
Rules).
V.

Delay and Consequential Damages

1)

Introduction
a)

Economic loss -- tort and delict

One of the modern problems faced by the common law, the civil law and
maritime law is whether a claimant should be awarded economic loss apart from his
physical damages. Economic loss is a term generally used in respect to claims in tort to
describe the loss of profits and other financial damages claimant suffers apart from the
reparation of the physical damages. Originally recovery was not granted for pure
economic loss, unless there was also physical damage to the plaintiff's property or some
injury to his person, and that traditional parasitic rule, although loosened somewhat in
the 1970s, has been reaffirmed, subject to but a few exceptions, since the 1990s, in the
United States and the United Kingdom.117 Courts in other common law jurisdictions,
including Canada, however, have been and remain more receptive to the possibility of
compensating pure economic loss in tort.118
116

262 F. Supp. 862, 1967 AMC 327 (E.D. La. 1966); aff'd 395 F.2d 910, 1968 AMC 2080 (5 Cir. 1968).
In the United States, Robins Dry Dock & Repair Co. v. Flint 275 U.S. 303, 1928 AMC 61 (1927);
Barber Lines A/S, et al., v. M/V Donau Maru 1985 AMC 2600 (1 Cir. 1985); State of Louisiana v. M/V
Testbank 752 F.2d 1019, 1985 AMC 1521 (5 Cir. 1985), cert. denied 477 U.S. 903, 1986 AMC 2704
(1986); East River Steamship Corp. v. Transamerica Delaval 476 U.S. 858, 1986 AMC 2027 (1986);
American River Transp. v. Kavo Kaliakra 897 F. Supp. 297, 1997 AMC 1457 (E.D. La. 1995), affd 2000
AMC 965 (5 Cir. 2000). In England, Anns v. Merton [1978] A.C. 728 (H.L.), overturned, however, by
Murphy v. Brentwood District Council [1991] 1 A.C. 398, [1990] 2 Lloyds Rep 467 (H.L.); Department of
the Environment v. Thomas Bates & Son. (New Towns Commission) [1991] 1 A.C. 499 (H.L.); McFarland
v. Tayside Health Board [2000] 2 A.C. 59 (H.L. (Sc.)).
118
See CNR v. Norsk Pacific Steamship Co. (The Jervis Crown) [1992] 1 S.C.R. 1021, 1992 AMC 1910
(S.C.C.); Valleyfield Bridge 1994 AMC 1592 (Que. C.A); Winnipeg Condominium Corp. No. 36 v. Bird
Construction Co. [1995] 1 S.C.R. 85; Bow Valley Husky (Bermuda) v. St. John Shipbuilding Co. [1997] 3
S.C.R. 1210, 1999 AMC 108; Martel Building Ltd. v. Canada [2000] 2 S.C.R. 860. Australia and New
Zealand have also distanced themselves from the strict parasitic rule of England in respect of economic
117

28

b)

Consequential loss contract

Claims for damage or loss to cargo are usually asserted in actions for breach of
contract. For the purposes of the present study, economic loss is left to tort and delict,
while consequential loss is defined as non-physical damage, such as loss of future
business and loss of reputation, arising from a breach of contract.
2)

Consequential Loss
a)

A.S.M.V. includes profit

We have already seen that arrived sound market value (A.S.M.V.) usually
includes a fair margin of profit.119 It is not this profit with which we are concerned here.
b)

A. S. M. V. plus consequential loss

Suppose cargo is damaged, has the claimant the right to A.S.M.V. less A.D.M.V.,
plus his loss of future business, loss of reputation, etc.? The courts have been reluctant to
grant such additional damages, because they do not arise naturally nor does the carrier
know of them in advance or is he expected to know of them as per the first rule in Hadley
v. Baxendale.120 Furthermore, only rarely are special circumstances communicated in
advance in accordance with the second rule in Hadley v. Baxendale.
The exclusion of liability for indirect or consequential loss is also a feature of
many standard-form bills of lading.121
c)

A.S.M. V. plus consequential loss Hague Rules

In the right circumstances, consequential damages are recoverable under the

Hague Rules, because the Hague Rules do not contain a prohibition against consequential
loss in tort. See Bryan v. Maloney (1995) 69 A.L.J.R. 375 (Aust. High C.); Perre v. Apand Pty Ltd. (1999)
198 C.L.R. 180 (Aust. High C.); Invercargill City Council v. Hamlin [1996] A.C. 624, [1996] 1 N.Z.L.R.
513 (P.C.). See generally W. Tetley, International Conflict of Laws, 1994 at pp. 723-727; W. Tetley,
International Maritime and Admiralty Law, 2002 at pp. 23-24 and the many authorities cited there.
119
Supra.
120
(1854) 9 Ex. C. 341, 156 E.R. 145. The Court held that the carrier could not be expected to have known
that his failure to deliver a crank shaft would result in the plaintiff 's mill being shut down and profits being
lost. See Horne v. Midland Railway (1873) L.R. 8 C.P. 131. See also Katherine Swinton, Foreseeability:
Where Should the Award of Contract Damages Cease? in Studies in Contract Law (Reiter & Swan
Eds.), Toronto, 1980 at pp. 69-74. Swinton argues that, even in cases where the carrier has knowledge of
the cargo owner's business and of the importance of the particular cargo, the carrier might not be made
liable for consequential losses because of the disparity between the carrier's potential liability and the
consideration he has received (i.e. the freight rate is often fixed at a certain maximum by regulatory
bodies). To make the carrier liable for consequential losses would undermine the present scheme of
allocating risk.
121
See, for example, the Mitsui OSK Lines Combined Transport Bill 1993, cl. 6(3) of which excludes the
carriers liability for delay or for any indirect or special or consequential loss or damage incurred by
the Merchant.

29

damages. It would seem, however, that recoverable consequential damages are only those
that would fall under the second rule (or limb) of Hadley v. Baxendale, and not those
falling under the first limb.122
d)

Consequential loss and COGSA

COGSA contains an additional, ambiguous limitation on recoverable damages

which is not found in the Hague Rules. Sect. 1304(5) para. three, last sentence reads:123
In no event shall the carrier be liable for more than the amount of damage
actually sustained.
The meaning of this provision is not clear but certainly amount of damage is
not qualified by reference to physical damage or direct and immediate damage or
foreseeable damage. Thus a claimant may strongly argue that consequential damages
are damages that have been actually sustained. It would seem that the purpose of the
provision is to permit the parties to agree to a sum higher than the $500.00 per package
limitation but not to agree to recovery of double damages or punitive damages. Certainly
a special agreement by the parties for consequential loss, as per the second rule of Hadley
v. Baxendale, would be permitted and this is confirmed by sect. 5 of COGSA (art. 5 of
the Hague Rules) which permits the carrier to surrender his rights and immunities by a
declaration in the bill of lading.
Yet the decided cases have generally held that consequential damages are not
recoverable by the shipper or cargo owner against the carrier. In B.F. McKernin & Co. v.
United States Lines,124 the claimant was unable to recover consequential damages for
loss of goodwill, future business and business reputation, because he did not prove that
the carrier was aware at the time of the contract that the goods had to be delivered in time
for Christmas sales. In Gluck v. Isbrandtsen Co.,125 the consignee was not permitted to
recover the amount paid to settle his customer's claim for late delivery, because the
carrier, though responsible for the delay, could not be said to have had notice of the

122

See N. Gaskell, R. Asariotis & Y. Baatz, Bills of Lading: Law and Contracts, supra, para. 16.4, note 6,
citing Saint Line Ltd. v. Richardsons Westgarth & Co. Ltd. [1940] 2 K.B. 99 at p. 104 (C.A.), a case
relating to the supply of ships engines, where it was held that the contractual exclusion of liability for
indirect or consequential loss did not rule out liability for damages which were the direct and natural
result of the breaches complained of. See also BHP v. British Steel [1999] 2 Lloyds Rep. 583 at p. 598,
noting that the line between direct and indirect or consequential losses is drawn along the boundary
between the first and second limbs of Hadley v. Baxendale, and citing other U.K. decisions to that effect.
123
46 U.S. Code Appx. 1304(5), para. three. The Memorandum of the U.S. Department of State of June 5,
1937 and the Statement of the U.S. Department of State in reply to the Note of March 29, 1938 of the
Italian Ambassador shed no light on the meaning of the addition. See Appendix C of Marine Cargo
Claims, 2 Ed., 1978.
124
416 F. Supp. 1068, 1976 AMC 1527 (S.D. N.Y. 1976).
125
1961 AMC 1549 (N.Y. City Ct. 1960); see also Santiago v. Sea-Land Service 366 F. Supp. 1309, 1974
AMC 673 (D. P.R. 1973), where a shipper was not allowed to recover damages for having lost the
opportunity to use the car which the carrier had failed to deliver.

30

consignee's contract with his customer. In Texas Instruments v. Branch Motor Express,126
the consignee of a precision drilling machine damaged in transit could not recover the
cost of wages he was forced to pay out while waiting for a new machine to arrive.
In Ohoud Establishment for Trade and Contracts v. Tri-State Contracting &
Trading Corp.,127 brokers who had arranged the shipment of soda pop to Saudi Arabia
were denied damages for loss of business reputation and loss of future profits when the
soda arrived damaged and they feared a resulting loss of future business in that country.
These anticipated losses were held to be too remote, speculative and unforeseeable to be
recoverable. Citing the second rule of Hadley v. Baxendale, as codified in New Jersey,
however, the Court suggested that such losses might have qualified for compensation had
it been proven that the defendants were notified when the contract of carriage was
concluded of a particular requirement for the soda pop in Saudi Arabia during the
Moslem season of Ramadan.128
Consequential damages have been awarded only in certain specific situations. In
Consolo v. Federal Maritime Commission,129 where a carrier illegally refused to provide a
shipper with space, thereby violating provisions of the Shipping Act,130 the U.S. Supreme
Court awarded damages to the shipper for the loss of expected profits, in accordance with
46 U.S. Code sect. 821(a) which states that a complainant may receive full reparation...
for the injury caused by such violation of the Shipping Act. In L.E. Whitlock Truck
Service v. Regal Drilling,131 a drilling rig was damaged while being transported by a
common carrier. It was proved that the carrier was specialized in the hauling of such
equipment and that he understood the importance of time in the oil drilling business. The
carrier, furthermore, knew that the plaintiff had only one oil rig. Since the carrier was
aware of the special circumstances in this case, consequential damages were awarded
against the carrier.
In Mahmood Aljassim v. S.S. South Star,132 where a shipowner withdrew a ship
from its time charterer in Aden during a voyage from the U.S. to Kuwait, a Kuwaiti
consignee of air conditioners carried on that voyage was awarded damages in tort for the
proven loss of business reputation and goodwill which he sustained as a result of the twomonth delay in transshipment and delivery of the air conditioners. This award was based
on the tortious inference by the shipowner with the booking note contract between the
time charterer and the cargo owner.133 The quantum of the award reflected the estimated
126
308 F. Supp. 1228 (D. Mass. 1970); see Stainless Steel & Metal Mfg. v. Sacal V.I. Inc. 452 F. Supp.
1073 (D.P.R. 1978), where the shipper of a crane which was damaged while being unloaded from the
carrier's ship was not permitted to recover the penalties which he had to pay as a result of his being unable
to commence contract work on time, nor the cost of renting another crane, nor damages for loss of business
reputation; see also Salzman Tobacco v. The S.S. Mormacwind 371 F.2d 537, 1967 AMC 277 (2 Cir. 1967);
The Nichiyo Maru 89 F.2d 539 (4 Cir. 1937).
127
523 F. Supp. 249, 1982 AMC 1645 (D. N.J. 1981).
128
Ibid., F. Supp. at p. 257, AMC at p. 1655.
129
383 U. S. 607, 1966 AMC 831 (1966).
130
46 U.S. Code sects. 801 et seq., as amended.
131
333 F.2d 488 (10 Cir. 1964).
132
323 F.Supp. 918, 1971 AMC 1703 (S.D. N.Y. 1971).
133
It is interesting that the award for loss of business reputation and of goodwill was based on the tort of

31

loss of profits which would have been realized on sales of the air conditioners in Kuwait
had they been delivered on time, based on previous sales figures.
Even where consequential losses are not recoverable per se, however,
considerations such as potential loss of future business are sometimes taken into account
in determining whether measures taken by the plaintiff to mitigate its loss were
reasonable. In Proctor & Gamble Co. v. M/T Fort Fraser,134 for example, where a cargo
of vegetable oil was contaminated in transit through the carriers fault, the Court denied
the cargo claim for damages for loss of business reputation, but granted damages for the
costs the plaintiff incurred in reconditioning the oil, recognizing that such expenditures
were mitigation measures reasonably incurred to protect against potential future losses
which might otherwise have resulted from the claimants tarnished commercial
reputation.
e)

A.S.M.V. plus consequential loss Visby Rules

The Visby Rules135 at art. 4(5)(b) attempt to define arrived sound market value:
The total amount recoverable shall be calculated by reference to the value
of such goods at the place and time at which the goods are discharged
from the ship in accordance with the contract or should have been so
discharged.
The value of the goods shall be fixed according to the commodity
exchange price, or, if there be no such price, according to current market
price, or, if there be no commodity exchange price or current market price,
by reference to the normal value of goods of the same kind and quality.136
Clearly consequential loss is excluded by art. 4(5)(b),137 and art. 4(5)(g) permits
by agreement only an increase in the per package limitation set out in art. 4(5)(a) with
reference to arrived sound market value defined in art. 4(5)(b).

interference with the booking note contract, and that additional damages were assessed for lost profits and
depreciation, as well as transhipment expenses, based on breach of the bill of lading contract.
134
1992 AMC 1575 at p. 1582 (E.D. La. 1991).
135
Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to
Bills of Lading, signed at Brussels, February 23, 1968, entered into force June 23, 1977, as modified by the
amending protocol of Dec. 21, 1979, entered into force February 14, 1984.
136
See the somewhat similar definition of current price in the UNIDROIT Principles of International
Commercial Contracts 1994, art. 7.4.6: (2) Current price is the price generally charged for goods delivered
or services rendered in comparable circumstances at the place where the contract should have been
performed or, if there is no current price at that place, the current price at such other place that appears
reasonable to take as a reference.
137
See generally N. Gaskell, R. Asariotis & Y. Baatz, Bills of Lading: Law and Contracts, LLP
Professional Publishing, London, 2000 at para. 10.58, who take the view that there is uncertainty as to
whether the Visby Rules permit damages for delay. See also N. Gaskell, Damages, Delay and Limitation
of Liability under the Hague, Hague-Visby and Hamburg Rules in The Hamburg Rules: A Choice for the
EEC, European Institute of Maritime Law, Antwerp, 1994 at p. 144 et seq.

32

Art. 5 of the Hague/Visby Rules, however, permits the carrier to surrender any of
his rights and immunities, and to increase any of his responsibilities and obligations,
provided such surrender or increase is embodied in the bill of lading. This would then
comply with the second rule of Hadley v. Baxendale.
f)

Cargo delay and deterioration

Where cargo is delayed and the only loss suffered by claimant is deterioration to
that cargo, 138 the law seems clear enough: the carrier is responsible for A.S.M.V. less
A.D.M.V.
g)

Delay and loss of market

Where the only loss resulting from delayed cargo is loss of market, without any
physical damage to the goods, then the loss of market would be recoverable only if the
carrier knew or was expected to know 139 of the circumstances at the time of contracting
as per the first rule in Hadley v. Baxendale or if special circumstances were
communicated to the carrier as per the second rule.140
Cargo delay is often excused by a specific clause of the bill of lading. Such
clauses are generally upheld.141 Nor is delay in delivery in itself a fundamental breach (or,
as it is known in the United States, an unreasonable deviation) depriving the carrier of
the applicable monetary limitations of liability.142
138

See, however, Cour dAppel de Rouen, June 27, 1985, DMF 1986, 41, where the shipper was precluded
from recovering for deterioration of the cargo caused by delay because the shipper should have enquired
about the vessel's itinerary and foreseen port congestion. See also the interesting note by R. Achard at p. 44.
139
The leading case in respect of the knowledge which can reasonably be expected of a carrier as to the
effect of delay on the market value of the cargo is The Heron II (Koufos v. C. Czarnikow Ltd.) [1969] 1
A.C. 350 at pp. 388, 406, 410, 414-415, and 425 (H.L.). In Canadian jurisprudence, the Federal Court
inferred from Hadley v. Baxendale a presumption that an established marine carrier should know the effect
likely to arise from extraordinary delay. See Fraser Shipyard v. Expedient (1999) 170 F.T.R. 1 at p. 41,
2000 AMC 543 at p. 586 (Fed. C. Can. 1999).
140
See, for example, Mojica v. Autoridad de Las Navieras de Puerto Rico 1994 AMC 1316 at p. 1319 (D.
P.R. 1993). For English law on delayed delivery, see H. McGregor, McGregor on Damages, 16 Ed., Sweet
& Maxwell, London, 1997 at paras. 1181 and. 1184-1187.
141
See, for example, Pioko Fashions, Inc. v. American President Lines, Ltd. 1993 AMC 2615 (W.D. Wash.
1993). See also Quesoro v. Lykes Bros. Steamship Co., Inc. 1995 AMC 2054 at p. 2056 (S.D. N.Y. 1995),
where the bill of lading provided: the Carrier shall in no circumstances be liable for any direct, indirect
consequential loss or damage caused by delay; and Maersk, Inc. v. American Midwest Commodities
Export Companies, Inc. 1999 AMC 268 at p. 275, note 6 (S.D. N.Y. 1998), where the bill of lading
provided: the Carrier shall in no circumstances be liable for any direct, indirect consequential loss or
damage caused by delay; Wesvics Clothing and Shoe Brokers, Inc. v. United Arab Shipping Co. 2001
AMC 100 at p. 104 (S.D. Ga. 2000), where the bill of lading provided: [The Carrier] does not undertake
that the good[s] will arrive at the port of discharge or place of delivery at or by any particular date or time
and the Carrier shall not be liable for any direct, indirect or consequential loss or damage caused by delay.
See also Fratelli v. S/S Torm Brigitte 2001 AMC 1171 (S.D. N.Y. 2000).
142
Sedco, Inc. v. S.S. Strathewe 1986 AMC 2801 at p. 2808, 800 F.2d 27 at p. 32, note 2 (2 Cir. 1986);
Maersk, Inc. v. American Midwest Commodities Export Companies, Inc. 1999 AMC 268 at p. 275, note 6
(S.D.N.Y. 1998) (four-week delay); Parnass International Trade & Oil Corp. v. Sea-Land Service, Inc.
595 F. Supp. 153 at p. 156, 1985 AMC 485 at p. 489 (S.D.N.Y. 1984) (eighteen-day delay).

33

h)

Delay and loss of business and reputation

If the delay in the arrival of cargo causes only loss of future business and
reputation, the two rules in Hadley v. Baxendale in respect to loss of market above would
apply to claims for loss of future business and expectation if the circumstances permit.
i)

Delay and Hamburg Rules

The Hamburg Rules143 deal with only a certain kind of consequential loss the
loss arising from delay, which is referred to specifically in arts. 5 and 6. Art. 5(1) makes
the carrier liable for delay caused by any occurrence while the goods were in his charge,
unless he proves that he, his servants or agents took all measures that could reasonably be
required to avoid the occurrence and its consequence. Art. 5(2) specifies that delay in
delivery occurs when the goods have not been delivered at the contractually agreed port
of discharge within the time expressly agreed upon, or absent such agreement, within the
time which it would be reasonable to require of a diligent carrier, having regard to the
circumstances. Recovery of such consequential loss from delay may not exceed two and
a half times the freight payable for the goods delayed (art. 6(1)(b)). A claim for delay,
under art. 5(3) of the Hamburg Rules, may be taken 60 days after the date the goods
should have been delivered.
Where, however, cargo arrives damaged, the Hamburg Rules are silent as to
whether consequential loss of profits and expenses and reputation could be claimed. One
gathers that those damages could be claimed if the circumstances were such as to fulfill
either of the two rules in Hadley v. Baxendale.
Art. 6(4) of the Hamburg rules permits by agreement higher package or kilo
limits of liability than are stipulated in art. 6(l). More importantly, art. 23(2) of Hamburg
permits the carrier to increase his responsibilities and obligations under the Rules. In
contrast to the Hague/ Visby requirement, the increase need not be stipulated in the bill of
lading.
Art. 8 of the Hamburg Rules permits the breaking of the carriers package/kilo
limitation of liability under certain conditions, not only in respect of loss or damage to the
goods, but also for delay in their delivery. The carrier loses the benefit of the 835
S.D.R.s per package and the 2.5 S.D.R.s per kilo limitations of Hamburg (art. 6(1)(a)),
where the delay in delivery results from an act or omission of the carrier done with intent
to cause the delay, or recklessly and with knowledge that such delay would probably
result (art. 8(1)). Servants and agents of the carrier are similarly deprived of those
limitations where the delay results from their acts or omissions committed with the same
intent or conscious recklessness (art. 8(2)).
j)
143

Delay Australia

United Nations Convention on the Carriage of Goods by Sea, signed at Hamburg, March 31, 1978, and
in force November 1, 1992.

34

In its Carriage of Goods by Sea Regulations, 1998,144 amending its Carriage of

Goods by Sea Act 1991,145 Australia has implemented the Hamburg Rules provision
granting damages for delay146 equal to two and one-half times freight (or the actual
amount of the loss, if lesser), not exceeding the total amount payable as sea freight for
all the goods shipped under the contract of carriage.147 Australia has gone further than the
Hamburg Rules, however, in specifying that the carriers liability for delay includes loss
(including but not limited to, pure economic loss, loss of markets or deterioration)
caused by the delay.148 The carrier may only escape such liability by proving, on a
balance of probabilities, that the delay was excusable and that he (or his servants or
agents under whose control the goods were at the time of the delay),149 took all measures
that were reasonably required to avoid the delay and its consequences.150 The Regulations
define when a delay is excusable.151 The carrier and shipper may agree on higher
package/kilo limitations than those of Hague/Visby, and the carrier may surrender any of
his rights and immunities and voluntarily increase any of his responsibilities and
obligations, as Hague/Visby permits.152
k)

Delay - China

The Chinese Maritime Code 1993 provides for compensation for delay in
delivery, including economic losses resulting from such delay, even if not accompanied

144
Statutory Instrument 174 of 1998, in force July 1, 1998, adopted pursuant to Australias Carriage of
Goods by Sea Amendment Act 1997, No. 123 of 1997 (Cth.), in force September 15, 1997.
145
No. 160 of 1991 (Cth.). The Carriage of Goods by Sea Regulations, 1998, supra, at sect. 7, added
Schedule 1A to Australias Carriage of Goods by Sea Act 1991 as amended by the 1997 statute, supra.
146
Delay is defined in a manner similar to the Hamburg Rules definition: non-delivery at the port of
discharge within the time allowed in the contract of carriage or, where such time is not specified, within a
reasonable time for delivery at that port of similar goods carried by a diligent carrier, having regard to any
particular circumstances of the case and the intentions of the shipper and the carrier (see Schedule 1A, art.
4, para. 2).
147
See the Carriage of Goods by Sea Act 1991, as amended by the Carriage of Goods by Sea Regulations,
1998, at Schedule 1A, art. 4A, para. 6(a), (b) and (c).
148
Ibid., Schedule 1A, art. 4A, para. 1.
149
Note that by the Carriage of Goods by Sea Regulations, 1998, Schedule 1A, art. 1, para. 2, the period of
custody of the carrier is from port to port, as under the Hamburg Rules, rather than tackle to tackle as
under the Hague and Hague/Visby Rules.
150
Ibid., Schedule 1A, art. 4A, para. 1(a) and (b).
151
By Schedule 1A, art. 4A, para. 3(a) to (h), a delay is excusable only if: a) it is caused by a deviation
authorised by the shipper, or by a term in the contract of carriage; b) it is caused by circumstances beyond
the reasonable control of the carrier or its servants or agents; c) it is reasonably necessary to comply with an
express or implied warranty; d) it is reasonably necessary for the safety of the ship or its cargo; e) it is for
the purposes of saving human life or aiding a ship in distress; f) it is reasonably necessary for the purpose
of obtaining medical or surgical aid for a person on board; g) it is caused by barratrous conduct of the
master or crew; or h) para. 4 of art. 4A applies. The latter paragraph excuses the carrier from liability for
delays caused by industrial action, if such delays were not substantially caused, or substantially contributed
to, by unreasonable conduct of the carrier. Conduct is not taken to be conduct of the carrier if it is engaged
in by the servants or agents of the carrier without the latters express or implied authority (art. 4A, para. 5).
152
See Schedule 1A, arts. 4(5)(a), (g) and 5 of the Carriage of Goods by Sea Regulations, 1998,
reproducing the corresponding provisions of the Hague/Visby Rules.

35

by any physical loss or damage.153 These economic losses, however, are limited to the
freight payable on the goods delayed, rather than to 2 times the freight payable as
under Hamburg. If loss or damage has occurred concurrently with delay in delivery,
however, the carrier benefits from the usual Hague/Visby package/kilo limitations of
liability.154 Delay is defined as non-delivery at the designated port of discharge within the
time expressly agreed upon.155 Non-delivery of the goods by the carrier for sixty days
from the expiry of the time for delivery permits the claimant to treat the goods as lost,156
as under the Hamburg Rules. Also as under Hamburg, proof of the carriers intent to
cause the delay, or or his recklessness with knowledge that the delay would probably
occur, breaks the limitation.157
l)

Delay the Nordic countries

The Nordic countries also permit recovery for delayed delivery in their common
maritime code of 1994, but do not award 2 times freight as under the Hamburg Rules,
but only the regular compensation allowed for cargo loss or damage.158 Delay is defined
as failure to deliver at the port of discharge within the time agreed in the contract of
carriage, or, if no such time has been agreed, within the period of carriage which on
account of the circumstances may reasonably be required of a conscientious
carrier.159 The consignee may recover compensation for loss of the goods if they remain
undelivered sixty days after the date they should have been delivered.160 The usual
Hague/Visby package and kilo limitations apply,161 unless there is proof that the carrier
caused the loss or damage intentionally or by gross negligence and with awareness that
such loss or damage would probably arise.162 The carrier is entitled to assume greater
liabilities than those of the statute.163
153

Chinese Maritime Code 1993, art. 50, third para.

Ibid., art. 57, referring to art. 56, firt para. of the Code, which establishes the package limitation of
666.67 S.D.R. and the kilo limitation of 2 S.D.R.s. Art. 56 also permits the carrier and shipper to agree to
higher limitations.
155
Ibid., art. 50, first para. There is no reference to delivery in a reasonable time where no delivery date has
been expressly stipulated.
156
Ibid., art. 50, fourth para.
157
ibid., art. 59, first para. The same principle applies to claims against the carriers servants and agents, by
virtue of art. 59, second para.
158
See the Swedish Maritime Code 1994, ch. 13, sect. 28, first para, which makes the carrier liable for loss
resulting from delay in delivery according to sections 25-27. Those latter provisions essentially render
the carrier liable for damage to the goods in his custody, unless he can show that neither his fault or neglect
nor the fault or neglect of any one for whom he is responsible has caused or contributed to the loss (sect.
25, first para.), as well as for damage caused by the failure to exercise due care in making the ship
seaworthy before the beginning of the voyage (sect. 26, second para.). Specific exemptions from liability
are also provided for: 1) damages caused by measures to save persons or reasonable measures to salvage
vessels or other property at sea (sect. 25, second para.); 2) fault or neglect in the navigation or management
of the ship (sect. 26, first para., sub-para. 1); and 3) fire not caused by the carriers personal fault or neglect
(sect. 26, first para., sub-para. 2), as well as for the loss of or injury to live animals (sect. 27). The carriers
period of liability is from port to port (sect. 24).
159
Ibid., sect. 28, second para.
160
Ibid., sect. 28, third para.
161
Ibid., sect. 30.
162
Ibid., sect. 33.
163
Ibid., sect. 36, second para., which specifies, however, that where the carrier has undertaken liability
154

36

3)

Recapitulation

(i)

The basic rule is A.S.M.V. less A.D.M.V. - which applies under the Hague, Visby
and Hamburg Rules.
A.S.M.V. includes a reasonable margin of profit - this is true under the Hague,
Visby and Hamburg Rules.
COGSA, sect. 1304(5) para. three, includes an additional reference to actual
damage which would seem to exclude only punitive damages.
A.S.M.V. for physical damage plus consequential damage for loss of business,
reputation etc., would be included in a claim under the Hague Rules. The
claimant's case is strengthened if a reference to consequential damages is included
in the bill of lading governed by art. 5 of the Hague Rules or art. 6(4) of the
Hamburg Rules. Under art. 5 of the Visby Rules, consequential damages may
only be claimed by agreement in the bill of lading.
Under art. 5 of the Hague Rules damages for delay are recoverable if special
circumstances have been communicated to the carrier or if the bill of lading so
provides. Delay under Visby is only by agreement in the bill of lading under art.
5. Under Hamburg, delay may be claimed up to 2 1/2 times the freight on the
goods delayed provided that this does not exceed the total freight charge for the
shipment. Nevertheless art. 6(4) of Hamburg permits a special agreement (not
necessarily in the bill of lading) to increase the above limits.
Particular national statutes and codes on the carriage of goods by sea, in some
cases, afford compensation for delay in delivery, but not all of them provide
recovery of 2 times freight. Most of these statutes do, however, permit the
carrier to agree to higher limits or otherwise to assume increased liabilities.

(ii)
(iii)
(iv)

(v)

(vi)

4)

Consequential damages must be actual damages

Consequential damages like any other damages must have been suffered in order
to be claimed. Thus in B.F. McKernin & Co. Inc. v. U. S. Lines,164 delay arose due to the
carrier's negligence, but no loss was recognized because the goods were sold for the same
price they would have received if they had arrived on time.
In Francis Chi v. Barber SS. Lines,165 a shipment of Christmas catalogues arrived
damaged in New York from Hong Kong. They cost $2,896 plus freight of $164.59. To
replace them quickly and in time in New York would have cost $10,000; it was
impossible to replace them from Hong Kong. The Court held that, had the catalogues
been replaced in New York, ... plaintiff might well have been entitled to recovery of the
larger sum. Having failed to do this, his recovery was limited to $3,060.59, with interest
from the date of arrival of the vessel in New York.

beyond what follows from this chapter (i.e. chap. 13 of the Code on Carriage of General Cargo), the
subcarrier is bound only if he has agreed in writing.
164
416 F. Supp, 1068, 1976 AMC 1527 (S.D.N.Y. 1976).
165
347 NYS 2d 225,1974 AMC 1870 (N.Y.C. Civ. Ct. 1973).

37

A leading U.S. decision is Santiago v. Sea-Land Service,166 where the two rules in
Hadley v. Baxendale were outlined in detail and where it was concluded that the loss of
use and mental and spiritual anguish resulting from the non-delivery of an automobile is
not recoverable in a cargo damage suit against a carrier even, as in this case, by a plaintiff
who was deeply attached to his automobile. Probably the mental anguish was not
foreseeable, but the loss of use should have been known to the carrier.
In Copiapo,167 neither the daily subsistence of an agent waiting at Panama for a
lost shipment to arrive nor his airplane transportation costs expended to locate the
merchandise were allowed. One wonders whether the expenses to locate the lost
merchandise did not arise naturally from a contract of carriage. The daily subsistence of
the agent, on the other hand, could not have been known naturally to the carrier.
5)

Cargo on the carrying ship

When two ships collide, cargo owners whose cargo is physically damaged on the
carrying ship may claim from the colliding ship for that damage. If the cargo is not
damaged but the cargo owner is obliged to transship at its own expense, because of a
freight earned bill of lading, then this damage is economic loss. An American court168
has held that the cargo claimant may claim transshipment and on-carriage expenses from
the colliding ship because the carrying ship was damaged and there was a common
venture relationship between the ship and the cargo owner.169
It is unlikely that a similar decision would have been rendered in the United
Kingdom in the light of The Mineral Transporter (Candlewood Navigation Co. Ltd. v.
Mitsui OSK Lines),170 where a time charterer of one vessel could not recover economic
loss from the colliding vessel.
VII.

Punitive or Exemplary Damages

1)

Introduction

Punitive or exemplary damages are penalties imposed by society but awarded in

the form of additional damages to a complainant in a civil court because of the heinous
actions of the defendant. Under New York law, punitive damages would seem to require
166

366 F. Supp. 1309, 1974 AMC 673 (D. P.R. 1973). See also Soto v. Caribe 2000 AMC 226 at p. 231
(P.R. Supr. Ct. 1996) where, adhering to Hadley v. Baxendale rules, three dissident judges of an equally
divided court held that consequential damages for mental anguish for loss of cargo were unrecoverable
because the carrier had not been notified at the time of contracting of any circumstances that could warrant
award of such damages. In this case, reference was made (at pp. 229-230) to the 3rd edition of this book at
pp. 319-321.
167
41 N.Y.S. 2d 70, 1943 AMC 412 (N.Y. City Ct. 1943).
168
Amoco Transport v. S/S Mason Lykes 768 F.2d 659, 1986 AMC 563 (5 Cir. 1985).
169
Thus the principle enunciated in Robins Dry Dock & Repair Co. v. Flint 275 U.S. 303, 1928 AMC 61
(1927) was circumvented. It was also noted that if there had been no freight earned clause, the carrying
vessel could have recovered the transshipment charges from the colliding vessel.
170
[1985] 2 Lloyd's Rep. 303 (P.C.).

38

a criminal indifference to civil obligations, or gross disregard of plaintiffs rights or

imply a criminal indifference to civil obligations or be morally culpable, or ...
activated by evil and reprehensible motives.171
Punitive damages are not really part of the law of contract or tort (delict) but are
more closely connected to criminal law.172 Since they are intended to punish rather than
recompense, punitive damages would be better paid to some public body or charity rather
than to a party who has not suffered.173 A non-criminal court, however, is unlikely to
have such authority. At best punitive damages should be awarded by a civil court for
intentional or reckless tort174 or when one party to a contract has so violated the contract
as to have committed a subsequent tort.175 Punitive damages in such circumstances are a
compensation for the additional tort and resulting damages suffered by the innocent
party.
Occasionally ordinary damages are awarded very generously almost as punitive
damage. 176 This would seem to be a reasonable solution.
171

B.F. McKernin & Co. v. U.S. Lines 416 F. Supp. 1068 at p. 1073, 1976 AMC 1527 at p. 1533 (S.D.
N.Y. 1976). See also In re Marine Sulphur Queen 460 F.2d 89 at p. 105 (2 Cir. 1972). See also New York
University v. Contl Ins. Co. 87 N.Y.2d 308 at p. 316, 662 N.E.2d 763 at p. 767, 639 N.Y.S.2d 283 at p 287
(1995), holding that under New York Law, punitive damages in a breach of contract claim must be of an
egregious nature. In addition, the defendants conduct must be actionable as an independent tort; the
egregious conduct must be directed to the plaintiff and it must be part of a pattern directed at the public
generally. See this definition cited in N.Y. Marine & General Ins. Co. v. Tradeline 266 F.3d 112 at p. 130,
2002 AMC 149 at p. 170 (2 Cir. 2001) (a marine insurance decision).
172
See The Amiable Nancy16 U.S. (3 Wheat.) 546 at p. 558 (1818). To recover punitive damages, the
claimant must show deliberate wrongdoing willful, wanton, grossly negligent, or unconscionable
conduct so as to show a callous disregard for the rights of others the equivalent of mens rea in criminal
law. The theory of a punitive damage award is that the defendant has committed the civil equivalent of a
crime. See also Leathers Best Intl, Inc. v. M/V Lloyd Sergipe 760 F. Supp. 301 at pp. 313-314, 1991
AMC 1929 at p. 1945 (S.D. N.Y. 1991), holding that punitive damages are awarded only when the
defendants conduct is so morally reprehensible that it implies a criminal indifference to civil
obligations.; BP Exploration Oil, Inc. v. Moran Mid-Atlantic Corp. 147 F. Supp.2d 333 at pp. 344-345,
2001 AMC 2438 at pp. 2451-2452. (D. N.J. 2001).
173
See the proposal in this regard made by T. Rousseau-Houle, Les dommages exemplaires pour
violations du contrat: la situation en droit qubcois (1985) 11 Can. Bus. L.J. 291 at p. 302.
174
The First Circuit in the United States has held that: Although rarely imposed, punitive damages have
long been recognized as an available remedy in general maritime actions where defendants intentional or
wanton and reckless conduct amounted to a conscious disregard of the rights of others. See CEH, Inc. v.
F.V. Seafarer 70 F.3d 694 at p. 699, 1996 AMC 467 at p. 472 (1 Cir. 1995). See also Muratore v. M/S
Scotia Prince 845 F.2d 347 at p. 354, 1993 AMC 2933 at p. 2943 (1 Cir. 1988); Miles v. Melrose 882 F.2d
976 at p. 989, 1990 AMC 57 at p. 74 (5 Cir. 1989); Churchill v. F/V Fjord 892 F.2d 763 at p. 772, 1990
AMC 2085 at p. 2096 (9 Cir. 1988), cert. denied, 497 U.S. 1025, 1990 AMC 2700 (1990); and Complaint
of Merry Shipping, Inc. 650 F.2d 622 at p. 625, 1981 AMC 2839 at p. 2843 (5 Cir. 1981), referring to
willfully and with gross disregard for the plaintiffs rights). In the Fourth Circuit, see also Jurgensen v.
Albin Marine, Inc. 214 F. Supp.2d 504 at p. 509, 2002 AMC 2533 at p. 2538 (D. Md. 2002).
175
Thyssen, Inc. v. S.S. Fortune Star 777 F.2d 57 at p. 63, 1986 AMC 1318 at p. 1325 (2 Cir. 1985):
Punitive damages are generally not appropriate to actions based on breach of contract unless the breach of
contract is also a tort for which punitive damages are recoverable. See also Norwalk Cove Marina, Inc. v.
S/V Odysseus 90 F. Supp. 2d 190 at p. 193, 2001 AMC 665 at p. 667 (D. Conn. 2000).
176
Tribunal de Commerce de Rouen, February 23, 1962, DMF 1962, 294 and Cour d'Appel de Paris,
November 24, 1976, DMF 1977, 162 where the appeal court noted that the stevedore who was clearly at
fault for damaging cargo was obliged to pay damages which were somewhat exaggerated because of the

39

2)

Punitive damages prohibited by law

Punitive damages are probably excluded by the additional sentence found in

COGSA art. 1304(5) which reads: In no event shall the carrier be liable for more than
the amount of damage actually sustained.177
Punitive damages are clearly excluded by art. 4(5)(b) of the Visby Rules but are
not excluded by the Hamburg Rules.
Of course, punitive damages usually result from a fundamental breach of the
contract and in such a case, punitive damages would be permitted because the defences of
the Hague Rules are lost to the carrier. Both art. 5 of the Hague and Visby Rules and art.
6(4) of Hamburg would permit punitive damages by agreement, but this is unlikely to
occur.
3)

Punitive damages U.K.

Punitive or exemplary damages in the United Kingdom. are intended to punish

and deter a defendant178 or to vindicate the strength of the law.179 Punitive damages may
not be awarded for breach of contract in the United Kingdom180 and are only awarded in
tort in three very particular cases:181
(i)
(ii)

(iii)

where there has been oppressive, arbitrary or unconstitutional action by servants

of the government;
where the defendant's conduct has been calculated by him to make a profit for
himself which may well exceed the compensation payable to plaintiff. (This
incidentally is very close to the House of Lords acknowledging the principle of
unjust enrichment);
where exemplary damages are expressly authorized by statute.

Before granting exemplary damages, U.K. courts must be satisfied that the
plaintiff has been the victim of punishable behaviour and that he would not be
sufficiently indemnified by compensatory damages alone. The means of both parties must
stevedore's abusive contestation of a claim in which his employees were grossly negligent. Complaint of
Merry Shipping, Inc. [1981] AMC 2839 (5 Cir 1981);
Seguros Banvenez v. Olicer Drescher 761 F.2d 855, 1985 AMC 2168 (2 Cir. 1985): The Court refused
punitive damages in this COGSA case not on the ground of sect. 1304(5) additional sentence, but lack of
gross negligence or actual malice or criminal negligence. See also Thyssen v. Fortune Star 777 F.2d 57,
1986 AMC 1318 (2 Cir. 1985); Miles v. Melrose 882 F.2d 976 at p. 989, 1990 AMC 57 at p. 74 (5 Cir.
1989).
178
Rookes v. Barnard [1964] A.C. 1129 at p. 1221 (H.L.), a case of intimidation by a trades union causing
dismissal of a member of the union.
179
Cassell & Co. v. Broome [1972] A.C. 1027 at p. 1077 (H.L.). This was a case of libel.
180
Addis v. Gramophone Co. [1909] A.C. 488 (H.L.) Perera v. Vandiyar [1953] 1 All E.R. 1109 (C.A.).
181
Rookes v. Barnard [1964] A.C. 1129 at pp 1226-27 (H.L.); see also Cassell & Co. v. Broome [1972]
A.C. 1027 at p. 1077 (H.L.); A.B. v. South West Water Service Ltd. [1993] Q.B. 507 (C.A.); Kuddus v.
Chief Constable of Leicestershire Constabulary [2002] 2 A.C. 122 (H.L.).
177

40

also be taken into account in determining the award and its quantum.182 The narrow
opening to exemplary damages has been criticized by scholars, law reformers and
judges.183
4)

Punitive damages - Canada

Canada has not followed the United Kingdoms restrictive approach to punitive
damages at common law.184 Rather, the categories of case in which such damages may be
imposed are not closed. Canadian courts exercise discretion to award exemplary damages
where, on a balance of probabilities, it is proven that the defendants fault has been so
malicious, oppressive and high-handed that it offends the courts sense of
decency,185 and that an award of compensatory, even if combined with aggravated,186
damages would not suffice to achieve the goals of punishment and deterrence. Canadian
punitive damage awards are modest in quantum, but are permitted as sanctions for a wide
variety of torts, as well as for breach of contract,187 although they are relatively rare in
contractual cases.188 In Canada, it has also been held that exemplary damages may be
awarded for breach of contract even where the breach does not constitute an
independent tort, provided that it does amount to an actionable wrong.189
182

See generally Halsburys Laws of England, 4 Ed. Reissue, vol. 12(1), Butterworths, London, 1998,
paras. 1115-1117 at pp. 518-522; H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell,
London, 1997 at paras. 445-460.
183
See, for example, the U.K. Law Commission Report No. 247, Aggravated, Exemplary and
Restitutionary Damages H.M.S.O., London, 1997, at para. 1.2, stating that the limitations on exemplary
damages comport neither with sound principle nor with sound policy, and calling for reform in this
area of the law. See also A. v. Bottrill [2002] U.K.P.C. 44 (P.C.), where Lord Nicholls referred to England
as .. still toiling in the chains of Rookes v. Barnard. But see also H. McGregor, McGregor on
Damages, 16 Ed., 1997, supra at para. 435, opposing the reintroduction of exemplary damages into the
common law as proposed by the Law Commission.
184
On punitive damages in Canadian common law, see generally B. Chapman and M. Trebilcock, Punitive
Damages: Divergence in Search of a Rationale (1989) 40 Alta. L. Rev. 741; A.M. Linden, Canadian Tort
Law, 7 Ed., Butterworths, Toronto, 2001 at pp. 60-65; G.H.L. Fridman, The Law of Contract in Canada, 3
Ed., Carswell, Toronto, 1994 at pp. 747-751. Indeed, punitive damages were recognized in Canada soon
after Confederation. See Collette v. Lasnier (1886) 13 S.C.R. 563.
185
Hill v. Church of Scientology of Toronto [1995] 2 S.C.R. 1130 at p. 1208 (per Cory, J.); Whiten v. Pilot
Insurance Co. (2002) 209 D.L.R.(4th) 257 at p. 274 (Supr. Ct. Can. per Binnie, J.) See also Vorvis v.
Insurance Corporation of British Columbia [1989] 1 S.C.R. 1085 at pp. 1107-1108, where McIntyre, J.
characterized tortious behaviour meriting exemplary damages as harsh, vindictive, reprehensible and
malicious conduct. [I]n any case where such an award is made, the conduct must be extreme in its nature
and such that by any reasonable standard it is deserving of full condemnation and punishment. See also
Whiten v. Pilot Insurance Co. (2002) 209 D.L.R.(4th) 257 at p. 290 (Supr. Ct. Can. Per Binnie, J.):
shockingly harsh, vindictive, reprehensible or malicious nature.
186
Aggravated damages are additional compensatory damages which a court may impose on a defendant
whose malicious behaviour has caused the plaintiff increased mental distress and humiliation or indignity.
Although somewhat resembling exemplary damages, aggravated damages have a compensatory, rather than
a punitive, purpose.
187
See, for example, Vorvis v. Insurance Corporation of British Columbia [1989] 1 S.C.R. 1085 at p. 1105;
Royal Bank of Canada v. W. Got & Associates Electric Ltd. [1999] 3 S.C.4. 408.
188
Linden, supra, at pp. 62-63, notes that exemplary damages in Canada are usually granted to sanction
intentional torts (e.g. battery, rape, trespass, defamation, conversion, fraud, etc.), but are also available in
Charter of Rights violations and in cases involving fiduciary relationships, as well as for breach of contract.
189
See Whiten v. Pilot Insurance Co. (2002) 209 D.L.R.(4th) 257 at pp. 290-291 (Supr. Ct. Can.).

41

Australia and New Zealand have also expanded the types of case in which
exemplary damages are granted, beyond the three rigid British categories.190
5)

Punitive damages U.S.

Punitive damages in contract are only awarded in the United States where the
breach itself is so extraordinary as to be an independent tort.191
The Restatement (Second) of Contracts192 at sect. 355 (1979) reads:
Punitive damages are not recoverable for a breach of contract unless the
conduct constituting the breach is also a tort for which damages are
recoverable.193
It is not sufficient that there be a fundamental breach or deviation or quasideviation. Thus unauthorized on-deck carriage despite clean bills of lading, was not
deemed to be sufficient to merit punitive damages.194 Where the defendants conduct is
very gravely tortious, however, punitive damages have sometimes been awarded.195
Some American courts have been extraordinarily generous to plaintiffs in quantifying
punitive damages, leading the U.S. Supreme Court to set forth certain guidelines in the
making of such awards.196
190
See Uren v. John Fairfax & Sons Pty. Ltd. (1966) 17 C.L.R. 118 (High C. of Aust.), upheld Australian
Consolidated Press v. Uren [1969] 1 A.C. 590 (P.C.); Taylor v. Beere [1982] 1 N.Z.L.R. 81 (N.Z. C.A.); A.
v. Bottrill [2002] U.K.P.C. 44 (P.C.). See generally, M. Graham, Exemplary and Punitive Damages in
Contract and Tort [2002] LMCLQ 453.
191
Williston on Contracts (R.A. Lord, ed.), 4 Ed., vol. 24, West Group, St. Paul, Minn., 2002, sect. 65.2 at
pp. 241-248; 5 Corbin on Contracts, sect. 1077 at pp. 438-439 (1964).
192
Adopted by the American Law Institute at Washington, D.C., May 17, 1979, and published by West
Publishing Co., St. Paul, Minn., 1981.
193
This principle was reaffirmed eloquently in Grynberg v. Citation Oil & Gas Corp. 573 N.W.2d 493 at p.
500 (S. Dakota 1997): Nonetheless, the majority of [U.S.] jurisdictions allow punitive damages in breach
of contract cases under certain circumstances, including: conversion; forgery; breach of fiduciary duty;
tortious interference with business expectancy; intentional breaches accompanied by willful acts of
violence, malice or oppressive conduct; fraud; and, breach of covenant of good faith and fair dealing.
Punitive damages may arise in these situations when the complaining party can prove an independent tort
that is separate and distinct from the breach of contract.
194
Seguros Banvenez S.A. v. Oliver Drescher 761 F.2d 855 at p. 861, 1985 AMC 2168 at p. 2176 (2 Cir.
1985); Thyssen Inc. v. Fortune Star 777 F.2d 57, 1986 AMC 1318 (2 Cir. 1985). Deviation is sufficiently
punished by the loss to the carrier of the defences under the contract and law. See also Leathers Best Intl,
Inc. v. M/V Lloyd Sergipe 760 F. Supp. 301 at p. 314, 1991 AMC 1929 at p. 1946 (S.D. N.Y. 1991), where
even the fraudulent backdating of bills of lading did not rise to the level of moral turpitude necessary to
support an award of punitive damages.
195
See, for example, Octania Trading-Stinnes Interoil 1988 AMC 832 (Arb. N.Y. 1987), arbitrators, under
the U.S. Arbitration Act, 9 U.S.C. 1 et seq., awarded $100,000 in punitive damages, in addition to
$140,000. in damages for cargo loss, against a tanker owner who had made an ongoing practice of diverting
oil cargoes into its vessels bunkers.
196
See BMW of North America, Inc. v. Gore 517 U.S. 559 (1996), where the U.S. Supreme Court
established three guideposts for the awarding of punitive damages: 1) the degree of reprehensibility of the
defendants conduct; 2) the ratio between the plaintiffs award of compensatory damages and the amount of

42

Contrary to the practice in most other countries, attorneys fees are not included in
court costs in the United States, and they are not ordinarily imposed on the losing party in
the lawsuit, unless a statute or contract otherwise provides.197 Nevertheless, court costs
together with attorneys fees may be awarded, on equitable grounds, against a losing
party, who has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. 198
The losing party may be either plaintiff or defendant.
6)

Punitive damages - civil law

Civil law jurisdictions do not normally recognize punitive damages in contract,

because traditionally the civil law has seen compensation, rather than punishment, as the
proper remedy for contractual breach.199 The Civil Code of Qubec 1994, however,
provides for limited punitive damages200. Consumer protection acts and human rights
statutes as well are more likely to award punitive damages than carriage of goods by sea
conventions.201 The Louisiana Civil Code also authorizes exemplary damages to sanction
certain extremely reprehensible delicts.202
the punitive damages; and 3) the difference between the civil or criminal sanctions that could be imposed
for similar conduct. The case involved the liability of a car dealer for minor repainting of blemishes on a
new car without notice to the car buyer. An Alabama jury had assessed compensatory damages of only
$4,000 U.S., coupled with an award of $4 million U.S. in punitive damages, which the Alabama Supreme
Court had reduced to $2 million. The U.S. Supreme Court determined that even this reduced award was
still grossly excessive and violative of due process. On remand, the Alabama Supreme Court cut the
exemplary award to $50,000 U.S. See BMW of North America, Inc. v. Gore 709 So. 2d 507 (1997).
197
See generally W. Tetley, Maritime Liens and Claims, 2 Ed., 1998, at pp. 232-235, and authorities cited
there, concerning the American Rule, which requires litigants to pay their own attorneys fees, absent a
statute or enforceable contract to the contrary, and outlining the various exceptions to that Rule in the U.S.
198
Kanematsu-Gosho v. Messiniaki Aigli 1986 AMC 946 at p. 952 (S.D. N.Y. 1986), citing Newman v.
Piggie Park Enterprises, Inc., 390 U.S. 400, note 2 (1968); Alyeska Pipeline Service Co. v. Wilderness
Society 421 U.S. 240 at pp. 258-260 (1975); Stolberg v. Board of Trustees 472 F.2d 485 at p. 490 (2 Cir.
1983). On the bad faith exception to the American Rule generally, see Vaughan v. Atkinson 369 U.S. 527
at pp. 530-531, 1962 AMC 1131 at p. 1134 (1962); Chambers v. NASCO, Inc. 501 U.S. 32 at pp. 45-46
(1991); W. Tetley, Maritime Liens & Claims, 2 Ed., 1998 at pp. 236-239 and authorities cited there.
199
See, for example, Qubec authorities such as Chaput v. Romain [1955] S.C.R. 834; Snyder v. Montreal
Gazette [1988] 1 S.C.R. 494 at pp. 507-508. For France, see H., L. & J. Mazeaud & F. Chabas, Leons de
droit civil, tome II, premier volume, Les Obligations, thorie gnrale, 8 Ed., Montchrestien, Paris, 1991
para. 623; P. Malaurie & L. Ayns, Cours de droit civil, tome VI, Les Obligations, 6 Ed., ditions Cujas,
Paris, 1995, para. 240. Nevertheless, French judges in fact take account of the gravity of the defendants
proven fault in quantifying the compensatory damages they grant.
200
Article 1621 c.c. (Quebec, 1994) states:
Where the awarding of punitive damages is provided for by law, the amount of such damages may
not exceed what is sufficient to fulfil their preventive purpose.
Punitive damages are assessed in the light of all the appropriate circumstances, in particular the
gravity of the debtor's fault, his patrimonial situation, the extent of the reparation for which he is already
liable to the creditor and, where such is the case, the fact that the payment of the damages is wholly or
partly assumed by a third person.
201
E.g. the Qubec Consumer Protection Act, R.S.Q., c. P-40.1, art. 272; the Qubec Charter of Human
Rights and Freedoms, R.S.Q., c. C-12, art. 49; the Act respecting the Rgie du logement, R.S.Q., c. R-8.1,
art. 54.10. See J.-L. Baudouin & P.-G. Jobin, Les Obligations, 5 Ed., Les ditions Yvon Blais, Inc.,
Montreal, 1998, paras. 818-821 at pp. 651-653, paras. 832-836 at pp. 662-667 and para. 855 at pp. 684-685.
202
See art. 2315.4 of the Louisiana Civil Code (first enacted in 1984 as art. 2315.1), providing for

43

VIII. The Visby Rules Measure of Damages

The Visby Rules (The Brussels Protocol of 1968) subparas. (b) and (d) of art. 4(5)
now read as follows:
(b) The total amount recoverable shall be calculated by reference to the
value of such goods at the place and time at which the goods are
discharged from the ship in accordance with the contract or should have
been so discharged.
The value of the goods shall be fixed according to the commodity
exchange price, or, if there be no such price, according to the current
market price, or, if there be no commodity exchange price or current
market price, by reference to the normal value of goods of the same kind
and quality.
(d) A franc means a unit consisting of 65.5 milligrammes of gold of
millesimal fineness 900'. The date of conversion of the sum awarded into
national currencies shall be governed by the law of the Court seized of the
case.
In consequence under the Visby Rules
1)
Market value at destination is the measure of damages in virtue of art.
4(5)(b). (This confirms the measure already settled under Hague Rules jurisprudence.)
2)
Invoice value and other such valuation clauses are invalid by art. 4(5)(b)
and art. 4(5)(g) and art. 3(8) taken together.
3)
The total amount recoverable is limited by art. 4(5)(b), which fixes the
value at the place and time of discharge as the commodity exchange price ... Thus
damages for delay, other foreseeable damages, and punitive damages are probably ruled
out.203
For example, if an essential piece of machinery worth $1000 arrived a month late
and its market value was still $1000 upon arrival, then claimant could not recover loss of
income for a month, even though the carrier knew that the delay would cause such a loss.
exemplary damages in addition to general and special damages where injuries are caused by a wanton or
reckless disregard for the rights and safety of others by a defendant whose intoxication while operating a
motor vehicle was a cause in fact of the resulting injuries. See also art. 2315.7 (enacted in 1993),
permitting, in very similar wording, the grant of exemplary damages in respect of criminal sexual activity
involving a victim aged seventeen years or younger.
203
See Buchanan v. Babco [1977] 1 Lloyd's Rep. 234, which dealt with the very similar wording of art. 23
of the C.M.R. and an article by R. Wijffels C.M.R. -Continental Case Law, [1977] LMCLQ 30 at p. 32:
Loss of earnings, and other commercial losses, cannot be claimed.

44

Another example is the case of an automobile which arrived a month late for
holiday use or for the shipper's employment. Although another automobile had to be
rented during the month, no claim could be made.204
It can be argued, however, that damages for delay, other foreseeable damages and
punitive damages are not excluded, because The total amount recoverable is only to be
calculated by reference to the value. The words calculated by reference to the value, the
argument would go, only provide a starting point from which to assess the total amount
recoverable, and damages for delay, etc. could be added afterwards.
It is incontestable that art. 4(5)(b) is ambiguous, but it is submitted that on balance
the first view is probably a better interpretation of the text, i.e. that damages for delay,
etc. are excluded.
4)
One presumes that interest from the date of discharge is not ruled out by
art. 4(5)(b). This is particularly so, because interest is normally subject to the law of the
forum, being procedural rather than substantive.
5)
By art. 4(5)(d) the date of conversion of currencies is also governed by
national law.
IX.

Damages From Deviation Fundamental Breach

A deviation or fundamental breach205 of the contract deprives the carrier of certain

rights he had under the contract (usually the package limitation). The rule is more
explicitly defined under the Visby Rules and the Hamburg Rules.
Under the civil law, delict and fraud result in damages206 that need only be direct
not foreseeable. Similarly under the common law, damages in tort need only be direct and
immediate. In consequence, a deviation could result in damages being awarded for delay
even when those damages do not arise naturally from the breach of the contract or do not
result from circumstances communicated to the carrier at the time of contracting.
Thus in C. Czarnikow Ltd. v. Koufos (The Heron II),207 damages arising from lost
markets and a drop of price were awarded because of delay in delivery due to a deviation.
See also Heskell v. Continental Express.208

204

The Atlantic Project, 1984 F.C.J. No. 923 (Fed. C. Can., October 12, 1984, per Dub J., unreported.
See Chap. 5: Fundamental Breach, Quasi-Deviation, Rupture of the Contract, supra.
206
Arts. 1150 and 1151 c.c. (France), art. 1613 c.c. (Quebec, 1994), art. 1997 c.c. (Louisiana); art. 1225 c.c.
(Italy); art. 1107 c.c. (Spain).
207
[1969] 1 A.C. 350, [1967] 2 Lloyd's Rep. 457.
208
(1950) 83 LI. L. Rep. 438.
205

45

The delay must result in actual loss to the shipper. It is not enough that there was
an unreasonable deviation which caused delay in the delivery of cargo if no loss is
suffered by cargo owner as a result of the deviation.209
In Page Com. Eng. Inc. v. Hellenic Lines Ltd.,210 the Court awarded $23,230
damages after the shipper established that the short shipment resulted in a 30% loss of
efficiency at the construction site. This was really an award in tort, because the carrier did
not advise until too late that the container of cargo had never been loaded on board.
Damages in tort are usually more generous than in breach of contract because the
foreseeable rule is not applied in tort, where it suffices that the damages be direct.211
In Aljassim v. S.S. South Star,212 a shipowner repossessed its vessel from a time
charterer in Aden during a voyage from the U.S. to Kuwait, without notifying the shipper
of a cargo of air conditioners carried aboard under a booking note and a bill of lading. As
a result of this deviation for repossession, the air conditioners had to be discharged,
stored and then transhipped in Aden, reaching their Kuwaiti consignee some two months
late. The Court held that, by so repossessing the ship, the shipowner had breached the
contract of carriage. The consignee was therefore awarded various damages, including
profits on sales lost as a result of the delayed delivery, plus 10% depreciation on the air
conditioners that, owing to the delay, had to be held over in inventory for sale the
following year.213 Without so stating expressly, the Court appears to have treated the
deviation and repossession of the vessel without due notice to cargo, as unreasonable.214
X.

Inflation

In countries where there is reasonable and mild inflation (5% to 10% per annum),
the market interest rate reflects the inflation so that depositors can expect to earn the
inflation rate plus the price of lending their savings to banks and other institutions. Thus
where the annual inflation rate is 8% per annum, bank interest to depositors will be 11%
to 13% and where the annual inflation rate is 10%, bank interest will be 13% to 15%.
Inflation is therefore included in the interest awarded by a court in its judgment. As the
Seventh Circuit Court of Appeals declared in its decision in Amoco Cadiz Lim. Procs.:215
209

International Drilling Co. v. M/V Doriefs 291 F. Supp. 479, 1969 AMC 119 (S.D. Tex. 1968); Redpath
v. Fednav [1993] 63 FTR 131 (Fed. Ct.) ; Cisco v. Redpath 1994 AMC 1484 (Fed. C.A.)
210
356 F. Supp. 456, 1973 AMC 1761 (D.C. 1973).
211
Hof van Beroep te Antwerpen, January 2, 1996, [1996] ETL 667.
212
323 F. Supp. 918, 1971 AMC 1703 (S.D. N.Y. 1971).
213
Ibid., F. Supp. at pp. 923-924, AMC at p. 1708.
214
Additional damages were assessed in tort in respect of the loss of goodwill and injury to the business
reputation of the Kuwaiti consignee, caused by the shipowners interference with the booking note contract
between the shipper and the time charterer. See ibid., F. Supp. at p. 928, AMC at p. 1716.
215
954 F.2d 1279 at p. 1333, 1992 AMC 913 at p. 982 (7 Cir. 1992), relating to the massive oil spill from
the tanker AMCO CADIZ which grounded off Brittany in 1978. The Court, in this decision, overturned the
lower courts determination that prejudgment interest should be at the rate of 7.22%, without taking
account of inflation. Instead, taking account of the period of over thirteen years (1978 to 1991) between the
grounding of the ship concerned and the decision, during which market interest rates ranged from above
20% in some periods to under 10% in others, the Seventh Circuit awarded the French plaintiffs pre-

46

The district courts remark that inflation is irrelevant to the choice of a

rate of interest reflects a misunderstanding of the relation between
inflation and interest rates. The market rate includes a prediction of
inflation which is why it is necessary to use the rates in force during the
case and not whatever rate prevails at the end.
Where, however, inflation is out of hand (50% or 100% or more per annum), then
judgments must take this inflation into account in order to comply with the foreseeability
and the restitutio in integrum rules. Many nations have statutes which do adjust contracts
and agreements annually to inflation.
In order to comply with the principle of restitutio in integrum, an award for
inflation (like interest) should begin to run from the date the cargo arrived damaged or
should have arrived if late. Inflation (like interest) is known to a carrier and arises
naturally from contract under the first rule in Hadley v. Baxendale (supra).
XI.

Interest as Damages

1)

Introduction

Interest constitutes part of the foreseeable damages which arise naturally from the
breach and are in the reasonable contemplation of the parties when they make the
contract.216
Pre-judgment interest is awarded because the defendant has kept money owed to
the plaintiff and has had the use of that money for himself.217 Thus the defendant should,
in accordance with the principle of restitutio in integrum, compensate the plaintiff.218
judgment interest at the average prime rate of 11.9% which prevailed during the 1980s and granted another
plaintiff pre-judgment interest at the average prime rate of 12.31%, based on the slightly longer reference
period when that average rate was even higher. See ibid., F. 2d at p. 1335, AMC at p. 986.
216
The Northumbria (1869) L.R. 3 A. & E. 6 at p. 10.
217
See Zim Israel Navigation Co. v. 3-D Imports, Inc. 29 F. Supp. 2d 186 at p. 193, 1999 AMC 1145 at p.
1153 (S.D. N.Y. 1998): The allowance of [pre-judgment] interest is not punitive but instead is
compensation for the use of money that the prevailing party is entitled to but which its adversary had use of
prior to judgment. See also V.K. Mason Construction Ltd. v. Bank of Nova Scotia [1985] 1 S.C.R. 271 at
p. 273: Interest is the Court's way of compensating Mason [the plaintiff] for the loss of the opportunity to
invest the money; Harbutts Plasticine Ltd. v. Wayne Tank & Pump Co. [1970] 1 Lloyd's Rep. 15 at p. 26
(C.A.): the basis of an award of interest is that the defendant has kept the plaintiff out of his money; and
the defendant has had the use of it himself.
218
The Mecca [1968] 2 Lloyds Rep. 17; Harbutts Plasticine Ltd. v. Wayne Tank & Pump Co. [1970] 1
Lloyd's Rep. 15 at p. 26 (C.A.); Jefford and Jefford v. Gee [1970] 1 Lloyd's Rep. 105 at p. 112-113 (C.A.);
Helmsing v. Malta Drydocks [1977] 2 Lloyd's Rep. 444 at p. 448; West Virginia v. United States 479 U.S.
305 at p. 310 (1987); Gorenstein Enterprises, Inc. v. Quality Care USA, Inc. 874 F.2d 431 at pp. 436-437
(7 Cir. 1989); Amoco Cadiz Lim. Procs 954 F. 2d 1279 at p. 1331, 1992 AMC 913 at p. 979 (7 Cir. 1992);
Davie Shipbuilding Ltd. v. The Queen [1984] 1 F.C. 461 at p. 484 (Fed. C.A); Carling OKeefe Breweries
of Canada Ltd. v. CN Marine Inc. [1990] 1 F.C. 483 at p. 505, 1990 AMC 997 at p. 1018 (Fed. C.A.); .See
also W. Tetley, International Conflict of Laws, 1994 at p. 750 and other authorities cited there.

47

The court, in awarding interest, has a wide discretion in respect to pre-judgment

interest.219 There is no correct interest rate which is applicable to all cases and
therefore, in special circumstances or when the conduct of one of the parties warrants it,
the court will adopt different criteria to determine the appropriate rate.220
2)

Interest - common law/civil law

At common law, interest was not recoverable on a debt or on damages in the

absence of an express agreement or when implied by some usage of trade.221 This
common law rule, however, was modified in the U.K. by the Law Reform (Miscellaneous
Provisions) Act 1934,222 so that the party who had wrongfully withheld the money of the
other party was made liable for interest on the amount withheld.
In Admiralty, the civil law, not the common law, prevailed.223 Under the civil law,
interest was awarded on damages whenever the nonpayment was due to the wrongful
219

The Dona Mari [1973] 2 Lloyd's Rep. 366 at p. 376; Davie Shipbuilding Ltd. v. The Queen [1984] 1 F.
C. 461 at p. 468 et seq. (Fed. C.A.); Carling OKeefe Breweries of Canada Ltd. v. CN Marine Inc. [1990] 1
F.C. 483 at p. 505, 1990 AMC 997 at p. 1015 (Fed. C.A.). See also Holt v. Van Dooselare (2000) 16
C.B.R.(4th) 188 at p. 201, 2000 AMC 1124 at p. 1134 (Fed. C. Can. 2000), where MacKay, J. declared that
the Federal Court of Canada, in its admiralty jurisdiction, has discretion to award pre-and post-judgment
interest at a rate which in the view of the Court is most appropriate given the circumstances of the claim
and the positions of the claimants.
220
The Funabashi [1972] 1 Lloyd's Rep. 371 at p. 374. See also Ingersoll Milling Machine Co. M/V
Bodena 829 F.2d 293 at p. 311, 1988 AMC 223 at p. 250 (2 Cir. 1987), cert. denied sub nom. J.E. Bernard
& Co. v. Ingersoll Milling Machine Co. 484 U.S. 1042, 1988 AMC 2300 (1988); P & E Boat Rentals 872
F.2d 642, 1989 AMC 2447 (5 Cir. 1989); Mentor Ins. Co. v. Brannkasse 996 F.2d 506 at p. 520, 1996
AMC 1278 at p. 1300 (2 Cir. 1993); Project Hope v. M/V Ibn Sina 2000 AMC 1287 at p. 1303 (S.D. N.Y.
2000).
221
Jefford and Jefford v. Gee [1970] 1 Lloyd's Rep. 105 at p. 112 (C.A.) and generally H. McGregor,
McGregor on Damages, 16 Ed., Sweet & Maxwell, London, 1997 at para. 622. See also Bank of America
Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at p. 395 (Supr. Ct. Can.), indicating that the first
opening to pre-judgment interest in the common law dates from the Civil Procedure Act, 1833, (also known
as Lord Tenterdens Act), 3 & 4 Will. 4, c. 42, sect. 28, which permitted such interest, but only on debts
and sums certain. In Canada, the first statutory authorization of judgment interest came in 1837, with the
adoption, in the then Province of Upper Canada, of the Act for the further amendment of the Law and the
better advancement of Justice, 7 William 4, c. 3 (U.C.).
222
(1934) 24 and 25 Geo. 5, c. 41, sect. 3, which put into statutory form the principle enunciated by Lord
Herschell, L.C. in London, Chatham and Dover Railway Co. v. South Eastern Railway [1983] A.C. 429 at
p. 437 (H.L.). See The La Pintada [1985] A.C. 104, [1984] 2 Lloyds Rep. 9 (H.L.)
223
The Northumbria (1869) L.R. 3 A. & E. 6 at p. 10 where Sir Robert Phillimore declared:
... the Admiralty, in the exercise of an equitable jurisdiction, has proceeded upon another
and a different principle from that on which the common law authorities appear to be
founded. The principle adopted by the Admiralty Court has been that of the civil law, that
interest was always due to the obligee when payment was not made, ex mor of the
obligor; and that, whether the obligation arose ex contractu or ex delicto.
See generally H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell, London, 1997 at paras.
638-639 and other authorities cited there. For Canada, see Carling OKeefe Breweries of Canada Ltd. v.
CN Marine Inc. [1990] 1 F.C. 483 at p. 505, 1990 AMC 997 at p. 1015 (Fed. C.A. per Stone, J.A.): The
[Federal] Court under its admiralty jurisdiction has the power to award pre-judgment interest as an integral
part of the damages suffered in respect of rights either ex contractu or ex delicto. The rule is rooted in civil
law.

48

delay of the defendant.224 In fact the practice of the English Admiralty Court predated
the 1934 reform of the common law which permitted the awarding of interest when the
defendant had wrongfully withheld payment. In other words, the 1934 reform only gave
statutory force to the civil law rule that had for a long time been applied by the Admiralty
Court.225
The Law Reform (Miscellaneous Provisions) Act 1934 has been replaced226 by
sect. 35A of the Supreme Court Act 1981, which defines the power of the High Court
(including the Admiralty Court) to award simple interest on debts and damages.227 In
England, compound interest may only be granted according to the rules of equity (as
opposed to those of the common law) in cases of fraud or where persons in a fiduciary
position have made profits improperly.228
Nevertheless, the U.K. Arbitration Act 1996,229 at sect. 49(3), empowers the
arbitral tribunal (unless the parties otherwise agree) to award simple or compound interest
on their awards for any period up to the date of the award (i.e. pre-award interest), from
such dates, at such rates and with such rests as it considers meets the justice of the case.
Sect. 49(4) further authorizes the tribunal to grant post-award interest, either simple or
compound, from the date of the award (or any later date) until payment, at such rates
and with such rests as it considers meets the justice of the case, on the outstanding
amount of any award (including any award of interest under subsection (3) and any award
as to costs).
3)

Rate of interest Admiralty Court U.K.

For over a century the interest rate fixed by the Admiralty Court on limitation
funds was 4% per annum from the date on which the cause of action arose to the date of
payment into court. In the late 1960s, judges increased the rate in order to be more

224

Jefford and Jefford v. Gee [1970] 1 Lloyd's Rep. 105 at p. 113 (C.A.). Under the Qubec Civil Code
1994, art. 1618 c.c., interest on damages other than those resulting from delay run from the date of default
or from any other later date which the court considers appropriate, having regard to the nature of the injury
and the circumstances. By art. 1617 c.c., damages for delay in the payment of a sum of money consist of
interest at the agreed, or (absent an agreement) the legal, rate, from the date of default. See also the
Principles of European Contract Law 1998 at art. 9:508(1), providing for interest on delayed payments at
the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual
currency of payment at the place where payment is due. See the similar provisions of the UNIDROIT
Principles of International Commercial Contracts 1994 at art. 7.4.9(1) and (2).
225
The Berwickshire [1950] P. 204 at p. 205. See also the UNIDROIT Principles of International
Commercial Contracts 1994 at art. 7.4.10.
226
By virtue of sect. 15 of the Administration of Justice Act 1982, U.K. 1982, c. 53.
227
Sect. 35A was inserted into the Supreme Court Act 1981 by the Administration of Justice Act 1982,
(1982) U.K. c. 53, sect. 15(l), Sch. 1. See Edmunds v. Lloyds Italico S.p.A. [1986] 1 W.L.R. 492 (C.A.).
228
Kleinwort Benson v. South Tyneside Metropolitan Borough Council [1994] 4 All E.R. 972;
Westdeutsche Landesbank Girozentrale v. Islington Borough Council [1996] A.C. 669 (H.L.).
229
U.K. 1996, c. 23. See H. McGregor, McGregor on Damages, 16 Ed., Sweet & Maxwell, London, 1997
at para. 670.

49

consistent with the current rates of commercial interest.230 The interest rate now fluctuates
in response to the economy generally.231
In Jefford v. Gee,232 which involved interest on damages for personal injury, Lord
Denning M.R. in the Court of Appeal, suggested that a better guide for a court in
determining the appropriate rate of interest was to consider the rate payable on money in
court which had been placed on a short term investment account.233 This rate is fixed from
time to time by the Lord Chancellor. Thus it was suggested the Admiralty Court, in its
discretion, should award interest generally at the average rate of return on a short term
investment account over the period from the date of the cause of action to the date of
judgment.234
Lord Dennings proposal was not followed. In Polish S.S. Co. v Atlantic Maritime
Co,235 Lord Justice Kerr said that an award at base rate plus 1 per cent was in accordance
with the practice of the Commercial Court and, by that date, of the Admiralty Court as
well.236 The Court of Appeals holding on the point was reiterated by the Commercial
Court in Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd (No 2).237.
4)

Rate of interest Commercial Court U.K.

Many cargo damage claims are taken before the Commercial Court rather than the
Admiralty Court. The approach adopted by the Commercial Court has been to award
interest at the rate at which the successful party would have had to borrow the amount
recovered, over the period for which interest is being awarded.238 Thus the Commercial
Court has often relied on the average bank rate (or the Bank of Englands minimum
lending rate) over the period in question and then added a percentage to cover the actual
cost of borrowing.239 Because the Commercial Court has tended to take into consideration
the real cost of borrowing money at commercial rates, the interest rate awarded by that
Court has historically been higher than the rate awarded by the Admiralty Court.
230

The Abadesa [1968] 1 Lloyd's Rep. 493; The Mecca [1968] 2 Lloyd's Rep. 17.
By the 1973, the rate of 7.5% began to be common, and after the oil crisis of that year, rates increased
again, reaching as high as 16% by 1980. See McGregor on Damages, 16 Ed., 1997, supra, at para. 673 and
decisions such as Cremer v. General Carriers S.A. [1974] 1 W.L.R. 341 at p. 358.
232
[1970] 1 Lloyd's Rep. 105 at p. 116.
233
Such investments are made by virtue of the Administration of Justice Act, 1965, U.K. c. 2, sects. 6 and 7,
and the Supreme Court Funds Rules (rr. 73 to 80).
234
The Funabashi [1972] 1 Lloyd's Rep. 371 at p. 374. See sect. 35A(l) of the Supreme Court Act 1981
inserted by the Administration of Justice Act 1982, (1982) U.K. c. 53, sect. 15(l), Sch. 1.
235
[1985] 1 Q.B. 41 at p. 67, [1984] 2 Lloyd's Rep 39 at p. 51 (C.A.).
236
Kerr, L.J., ibid., added: In my view there is good reason for equating the rates of interest awarded in
both these courts, since both deal with commercial disputes, and much of the litigation in the Commercial
Court is also concerned with shipping.
237
[1990] 3 All E.R. 723 at p. 733 [1990] 1 Lloyd's Rep 441 at p. 452.
238
The Dona Mari [1973] 2 Lloyd's Rep. 366 at p. 376.
239
In F.M. C. (Meat) Ltd. v. Fairfield Cold Stores [1971] 2 Lloyd's Rep. 221, Donaldson J. stated at p. 227
that his practice was to award 1% over the average bank rate calculated over the period in question. See
also Miliangos v. George Franck (Textiles) (No. 2) [1977] Q.B. 489 at p. 496; B.P. Exploration Co. (Libya)
v. Hunt (No. 2.) [1979] 1 W.L.R. 783 at p. 849; Polish S.S. Co. v. Atlantic Maritime Co. (The Garden City)
[1985] Q.B. 41 at p. 67, [1984] 2 Lloyds Rep. 39 at p. 51 (C.A.).
231

50

The Commercial Court's practice of relying on the average bank rate plus 1% has
led to problems,240 but the established practice continues except where unusual
circumstances exist.241
The usual practice is to award pre-judgment interest from the date of the loss,
unless there are special reasons for a contrary ruling.242
5)

Conflict of currencies conflict of interest rates

As mentioned above, the interest awarded to the plaintiff for having been denied
the use of his money should be at the rate that the plaintiff would have had to pay to
borrow the equivalent sum of money. Thus, when an action involves parties from
different countries, the country, where the plaintiff does business or where he would have
had to borrow the money should be considered in determining which interest rate should
apply. Suppose the contract was entered into one country and the plaintiff, who is from
another country, could only have had borrowed the money in his own country. The
interest on the amount claimed by the plaintiff could be made payable in the currency of
the country where the contract was entered into, but the rate of interest would have to be
determined by relying on the prevailing commercial borrowing rates of the plaintiff's
country, i.e. where he had to borrow.243
The lex fori should not necessarily be relied on to determine the appropriate rate
of interest or even the plaintiff's right to interest, since that law is often fortuitous and
dependent upon where it was convenient to institute proceedings.244
6)

Pre-judgment interest Canada

Most provincial courts in Canada now have jurisdiction to grant pre-judgment

interest in their decisions,245 but subject to a few exceptions.246 Judicial discretion is also
240

For example, the traditional bank rate has been replaced by the Bank of Englands Minimum Lending
Rate.
241
See The Mosconici [2001] Lloyds Rep. 313 at p. 316, where it was observed that it is a well
established practice in the Commercial Court to award interest at base rate plus 1 per cent. Only in unusual
circumstances will that practice be departed from. See also East West Corp. v. DKBS 1912 [2002] 2
Lloyds Rep. 222 at p. 223.
242
The Mosconici, ibid. at pp. 316-317, citing Kuwait Airways v. Kuwait Insurance [2000] 1 All E.R.
(Comm.) 912 at p. 986.
243
Helmsing v. Malta Drydocks [1977] 2 Lloyd's Rep. 444 at p. 448-449, explaining a misleading dictum
by Bristow J. in Miliangos v. George Frank (Textiles) Ltd. (No. 2) [1976] 2 Lloyd's Rep. 434. Yet Bingham
J., in The Kefalonia Wind [1986] 1 Lloyd's Rep. 292, stated that when judgment is given in a foreign
currency, the interest should be taken at the rate at which the currency could be borrowed in the country in
which the debt should have been paid. See Lord Wilberforce's explanation of the plaintiff's currency in
The Despina R. and Folias [19791 1 Lloyd's Rep. 1 at pp. 4-6 (H.L.).
244
Helmsing v. Malta Drydocks [1977] 2 Lloyd's Rep. 444 et p. 449-450.
245
See, for example, Ontarios Courts of Justice Act, R.S.O., 1990, c. C.43, sect. 128(1): A person who is
entitled to an order for the payment of money is entitled to claim and have included in the order an award
of interest thereon at the prejudgment interest rate, calculated from the date the cause of action arose to the
date of the order.

51

provided for, permitting pre-judgment interest to be denied or varied upwards or

downwards,247 after taking certain factors into account.248
The Federal Court of Canada, in the exercise of its Admiralty jurisdiction,249 has
the power to award pre-judgment interest as an integral part of the damages incurred by
the plaintiff,250 whether those damages have arisen in tort (delict) or in contract.251 As is
the case in the Admiralty Court in the United Kingdom, civil law principles as to interest
prevail, rather than common law principles. The successful party is therefore entitled to
interest because the other party has wrongfully delayed paying him.252 This is merely an

246

See Ontarios Courts of Justice Act, ibid., sect. 128(4), which provides that no pre-judgment interest
shall be awarded (a) on exemplary or punitive damages; (b) on interest accruing under this section [i.e. sect.
128]; (c) on an award of costs in the proceeding; (d) on that part of the order that represents pecuniary loss
arising after the date of the order and that is identified by a finding of the court; (e) with respect to the
amount of any advance payment that has been made towards settlement of the claim, for the period after the
advance payment has been made; (f) where the order is made on consent, except by consent of the debtor;
or (g) where interest is payable by a right other than under this section. There are also particular rules on
the rate of pre-judgment interest on damages for non-pecuniary losses in actions for physical injury and on
the calculation of interest on special damages for past pecuniary losses. See ibid., sect. 128(2) and (3).
247
See ibid., at sect. 130(1), authorizing the court, where it considers it just to do so, to disallow prejudgment as well as post-judgment interest, to increase or decrease its rate or to alter the period in respect
of which it is granted, in respect of the whole or any part of the amount on which interest is payable.
248
By sect. 130(2), the court, for the purposes of sect. 130(1), shall take into account: (a) changes in
market interest rates; (b) the circumstances of the case; (c) the fact that an advance payment was made; (d)
the circumstances of medical disclosure by the plaintiff; (e) the amount claimed and the amount recovered
in the proceeding; (f) the conduct of any party that tended to shorten or to lengthen unnecessarily the
duration of the proceeding; and (g) any other relevant consideration.
249
Granted under the Federal Court Act, R.S.C. 1985, c. F-7, sect. 22.
250
Canadian General Electric v. Pickford & Black [1972] S.C.R. 52 at p. 57; Canadian Brine Ltd. v. The
Scott Misener [1962] Ex. C.R. 441 at p. 452; Drew Brown Ltd. v. The Orient Trader [1974] S.C.R. 1286 at
p. 1335; Bell Telephone Co. of Canada v. The Mar-Tirenno [1974] 1 F.C. 294 at p. 311 (Fed. C. Can.),
upheld [1976] 1 F.C. 539 (Fed. C.A.); Davie Shipbuilding Ltd. v. The Queen [1984] 1 F.C. 461 (Fed. C.A.);
Carling OKeefe Breweries of Canada Ltd. v. CN Marine Inc. [1990] 1 F.C. 483 at pp. 505-507, 1990
AMC 997 at pp. 1015-1016 (Fed. C.A.); Canastrand Industries Ltd. v. The Lara S. [1993] 2 F.C. 553 at p.
618, (1993) 60 F.T.R. 1 at p. 44 (Fed. C. Can.), upheld without discussion, [1994] 176 N.R. 31 (Fed. C.A.);
Ontario Bus Industries Inc. v. The Federal Calumet [1992] 1 F.C. 245 at p. 259 (Fed. C. Can.), upheld
(1993) 150 N.R. 149 at p. 150 (Fed. C.A.); Mackay v. Scott Packing and Warehousing Co. (1999) 164
F.T.R. 6 at p. 16. See also W. Tetley, International Conflict of Laws, 1994 at pp. 749-750 and authorities
cited there.
251
The Pacifico v. Winslow Marine Railway and Shipbuilding Co. [1925] 2 D.L.R. 162 at p. 167, [1925]
Ex. C.R. 32 at pp. 37-38, relying on The Northumbria (1869) L.R. 3 A. & E. 6. See also Bell Telephone Co.
v. The Mar-Tirenno [1974] 1 F.C. 294 at p. 311 (Fed. C. Can.) and [1976] 1 F.C. 539 (Fed. C.A.) and
Circle Sales & Import Ltd. v. The Tarantel [1978] 1 F.C. 269 at p. 297 (Fed. C. Can.); Sears Ltd. v. Arctic
Steamship Lines [1985] ETL 420 at p. 429 (Fed. C. Can.); Carling OKeefe Breweries of Canada Ltd. v.
CN Marine Inc. [1990] 1 F.C. 483 at p. 505, 1990 AMC 997 at p. 1015 (Fed. C.A.); Jesionowski v. The Wa
Yas [1993] 1 F.C. 36 at pp. 55-56, (1993) 55 F.T.R. 1 at p. 26. (Fed. C. Can.).
252
See, for example, art. 1153 c.c. (France), art. 1108 c.c. (Spain), art. 1224 c.c. (Italy),, art. 1617 c.c.
(Qubec 1994) and art. 2000 c.c. (Louisiana), concerning the payment of interest as damages where the
defendant has delayed in performing an obligation to pay a sum of money. See also Scrutton, 20 Ed., 1996,
art. 192, note 22, stating: In some cases interest on money is itself the measure of damages, e.g. citing
British Columbia Co. v. Nettleship (1868) L.R. 3 C.P. 499 and Red R SS. Co. v. Allatini (1908) 14 Com.
Cas. 82 at p. 92.

52

application of the principle of restitutio in integrum.253 The principle has been codified in
Canadas Federal Court Act, with reference to claims under Canadian maritime law.254
It has been held that the Federal Court's discretion in admiralty to award or not to
award interest does not depend on whether the defendant was grossly negligent.255 Interest
is not awarded as a form of punitive damages.256
Nor is there a rule in Admiralty that only a claim for damages sustained by the
plaintiff can give rise to both damages and interest, while a claim for damages sustained
by plaintiff's goods cannot give rise to interest.257
A decree of an Admiralty court need not contain a direction as to interest.258
Nevertheless it is advisable to claim interest, rather than to merely assume that it will be
included in the damages awarded.259 It is also preferable to claim interest at a certain rate
from a specific date.
7)

From what date Canada

Many provincial courts in Canada now have authority to grant pre-judgment

interest from the date when the cause of action arose,260 while also having a limited
discretion to vary that period.261
The Federal Court, sitting in admiralty, has a wide discretion to determine from
what date pre-judgment interest should be awarded. In Bell Telephone Co. v. The Mar-

253

See M.A. Waldron, The Law of Interest in Canada, Carswell, Toronto, 1992 at p. 161.
R.S.C. 1985, c. F-7, sect. 36(7), providing that sect. 36 (which enacts various provisions on prejudgment interest closely resembling those found in provincial statutes) does not apply where a claim for
relief is made or a remedy is sought under or by virtue of Canadian maritime law. The rate and starting-date
of pre-judgment interest in Canadian admiralty law is thus an issue left purely to judicial discretion. See
Waldron, ibid.
255
Bell Telephone Co. v. The Mar-Tirenno [1974] 1 F.C. 294 at p. 312 (Fed. C. Can.) and in appeal [1976]
1 F.C. 539 (Fed. C.A.). See also Waldron, ibid. at pp. 127-128.
256
Ibid.
257
Canadian General Electric v. Pickford & Black [1972] S.C.R. 52 at p. 60 and The Baron Aberdare
(1888) 13 P.D. 105 at p. 108.
258
The Khedive (1882) 7 App. Cas. 795 at p. 803, (1881-85) All E.R. 342 at p. 346; Canadian General
Electric v. Pickford & Black [1972] S.C.R. 52 at p. 59; Canadian Brine Ltd. v. The Scott Misener [1962]
Ex. C.R. 441. In Kenney v. The Cape York (1989) 25 F.T.R. 139 at p. 151 (Fed. C. Can.), it was held that
the Federal Court has jurisdiction to award pre-judgment interest in a maritime case, even if it not claimed
expressly.
259
When no evidence was adduced as to prevailing interest rates, the Court applied the rate of 5%
prescribed in the Interest Act, R.S.C. 1970, c. 1-18 in awarding pre-judgment interest: Iron Mac Towing
(1974) Ltd. v. The North Arm Highlander (1979) 28 N.R. 348 at pp. 359-360 (Fed. C.A.). See also
Verreault Navigation v. Cooprative de transport maritime et arien [1969] 2 Ex. C.R. 257.
260
See, for example, Ontarios Courts of Justice Act, R.S.O. 1990, c. C.43, sect. 128(1). The discretion
must be exercised taking account of the considerations enumerated at sect. 130(2) of the same Act.
261
Ibid., sect. 130(1)(c).
254

53

Tirenno,262 the Court granted interest from the date of the service of the writ as the
plaintiff had asked, although the Court would have been prepared to grant it from an
earlier date. In Circle Sales & Import Ltd. v. Wilhelmsen,263 the cause of the action had
arisen in Quebec and the action itself had been framed in delict (tort). The Federal Court,
while noting that art. 1056c of the then Quebec Civil Code264 allowed interest only from
the date when the action was instituted, nevertheless awarded interest from the date of the
loss.
The general principle in Canadian maritime law, however, is that pre-judgment
interest runs, as an integral part of damages, from the date of the loss or damage.265
a)

Cargo damage interest runs from delivery

In cargo damage cases, interest should run from the date of delivery of the
damaged goods providing they are on time;266 otherwise, interest should run in the case of
late goods or late damaged goods from the date when they should have arrived.267
b)
Cargo short delivered interest runs from when cargo should have been
delivered
When cargo is short delivered, interest runs from the date it should have been
delivered.268
c)
loss.269

262

Cargo totally lost interest runs from the date of the loss

Where cargo is totally lost, pre-judgment interest is awarded from the date of the

[1974] 1 F.C. 294 at pp. 312-313 (Fed. C. Can.). See also M. S. Walther Herwig v. M. S. Zambezi [1977]
ETL 838, where the Federal Court of Canada awarded 8.25% interest from the filing of the statement of
claim in a salvage action in favour of the German Federal Republic.
263
[1978] 1 F.C. 269 at pp. 297-298. (Fed. C. Can.).
264
The Civil Code of Lower Canada of 1866, which was replaced by the Civil Code of Qubec, enacted
by S.Q. 1991, c. 64 and which came into force on January 1, 1994.
265
Carling OKeefe Breweries of Canada Ltd. v. CN Marine Inc. [1990] 1 F.C. 483 at p. 508, 1990 AMC
997 at p. 1018 (Fed. C.A. per Stone, J.A.): I can find nothing therein which would justify a departure from
the normal rule for an award of pre-judgment interest in cases of total loss and, accordingly, would allow
the shipper interest from the date the loss occurred. To do less would not amount, as should ordinarily be
the case, to restitutio in integrum under the applicable principle.
266
Goldco Importers Ltd. v. Meitoku Maru [1966] Ex. C.R. 498 at p. 505; In Young Glover & Co. Ltd. v.
Red Sea Development Corpn. [1968] 2 Lloyd's Rep. 489 at p. 490, goods were discharged June 8, 1966,
and interest was granted at 7% from June 13, 1966, Mr. Justice Megaw holding that to allow interest to run
from the date of discharge was a little bit premature.
267
Canadian General Electric v. Pickford & Black [1972] S.C.R. 52 at p. 60; The Masashima Maru
(Stelwyre v. Kawasaki Kisen KK) [1974] 2 Lloyd's Rep. 394 at p. 398 (Ont. Supr. Ct. 1974)
268
Grace Plastics Ltd. v. The Bernd Wesch II [1971] 1 F.C. 273: interest of 5% (the legal rate) was
awarded from September 1, 1968, when lost and damaged cargo should have been delivered.
269
Carling OKeefe Breweries of Canada Ltd. v. CN Marine Inc. [1990] 1 F.C. 483 at p. 508, 1990 AMC
997 at p. 1018 (Fed. C.A.).

54

8)

At what rate Canada

In accordance with the principle of restitutio in integrum, the rate of interest

awarded should reflect the cost of borrowing an amount of money equivalent to that
which has been wrongfully withheld by the defendant. Thus the courts rely on the actual
commercial rates prevailing at the time.270 The prime bank lending rate at the time the
right to interest arose has been considered to be a useful guide in maritime litigation in
the Federal Court,271 and also constitutes the norm in some provincial legislation.272
In Davie Shipbuilding v. Canada,273 however, the Federal Court of Appeal held
that the most sensible method of ascertaining the rate of prejudgment interest was to refer
to the rate payable on moneys paid into court.
It is also noteworthy that in Canada, unlike the U.K., the courts have discretion in
admiralty to award compound (and not merely simple) pre-judgment interest. In Ontario
Bus Lines v. The Federal Calumet, Marceau, J.A. held:274
As to the question of interest, while most admiralty cases have awarded
prejudgment interest at simple rates (The ''La Pintada'' (1984), 2 Lloyd's L.
Rep. 9 (H.L.).), unlike British law, there is no express prohibition in our
law on granting it at compound rates. It is well-established that
prejudgment interest in admiralty cases is considered to be an integral part
of damages and stems from the principle of restitutio in integrum or the
right to full compensation as of the date of the tort or breach of the
contract. On this basis, especially in a case as this one, where an
important limitation of liability is opposed against the victim, we see no
reason to preclude the award of compound interest where these returns are
regularly available from our financial institutions. In any event, this was a
matter within the judge's discretion with which we would have no reason
to interfere.

270

Bell Telephone Co. v. The Mar-Tirenno [1974] 1 F.C. 294 at p. 314; Circle Sales & Import Ltd. v. The
Tarantel [1978] 1 F.C. 269 at p. 298; Shibamoto & Co. v. Western Fish Producers Inc. (1991) 48 F.T.R.
176 (Fed. C. Can.).
271
Ibid. See also The Walther Herwig v. The Zambezi [1977] ETL 838, Mortensen & Lange v. Neptune
International Shipping [1981] 2 F.C. 232.
272
See, for example, Ontarios Courts of Justice Act, R.S.O. 1990, c. C.43, sect. 128(1), providing for prejudgment interest to be at the prejudgment interest rate, defined at sect. 127(1) as: the bank rate at the
end of the first day of the last month of the quarter preceding the quarter in which the proceeding was
commenced, rounded to the nearest tenth of a percentage point; The term bank rate under sect. 127(1)
means: the bank rate established by the Bank of Canada as the minimum rate at which the Bank of Canada
makes short-term advances to banks listed in Schedule I to the Bank Act (Canada).
273
Davie Shipbuilding Ltd. v. The Queen [1984] 1 F.C. 461 at p. 473, (1984) 53 N.R. 50 at pp. 57-58, 4
D.L.R. (4th) 546 at pp. 555-556.
274
(1992) 150 N.R. 149 at p. 150 (Fed. C.A.). See also Canastrand Industries Ltd. v. The Lara S [1993] 2
F.C. 553 at p. 618, (1993) 60 F.T.R. 1 at p. 44 (Fed. C. Can.), upheld without discussion, (1994) 176 N.R.
31 (Fed. C.A.), where Reed, J. held that The awarding of compound interest is a matter within the
discretion of the [Federal] Court and is quite in keeping with ordinary commercial practice.

55

The Supreme Court of Canada has reaffirmed the jurisdiction of Canadian courts
generally, both at common law and in equity, to exercise discretion to award both
compound pre-judgment and compound post-judgment interest.275
Of course, judicial discretion is not always exercised in favour of the granting of
compound pre-judgment interest, but only where the court is satisfied, on a balance of
probabilities, that the restitutio principle makes it proper to do so.276
9)

Post-judgment interest - Canada

Post-judgment interest (sometimes simply called judgment interest) is normally

awarded on judgments rendered by provincial courts across Canada,277 subject always to
the discretion of those courts to increase, decrease or deny such awards, having regard to
certain statutory criteria.278
In the Federal Court of Canada, after judgment has been handed down, postjudgment interest on the damages and the pre-judgment interest is ordinarily awarded at
the rate prescribed under the law of the province where the cause of action arose, or
(where the action arose in more than one province or outside any province) at such rate as
the Federal Court considers reasonable in the circumstances, calculated from the time of
the giving of the judgment.279
Supreme Court of Canada judgments also bear interest from the date and at the
rate applicable to the judgment in the same matter of the court of original jurisdiction or

275
See Bank of America Canada v. Mutual Trust Co. (2002) 211 D.L.R.(4th) 385 at pp. 400-401 (Supr. Ct.
Can.).
276
See, for example, Alcan Aluminum Ltd. v. Unican International S.A. (1996) 113 F.T.R. 81 at p. 117
(Fed. C. Can.), where compound pre-judgment interest was refused.
277
See, for example, Ontarios Courts of Justice Act, R.S.O. 1990, c. C.43, sect. 129(1): Money owing
under an order, including costs to be assessed or costs fixed by the court, bears interest at the postjudgment
interest rate, calculated from the date of the order. By sect. 127(1), postjudgment interest rate is defined
as the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which
the date of the order falls, rounded to the next higher whole number where the bank rate includes a fraction,
plus 1 per cent.
278
Under Ontarios Courts of Justice Act, R.S.O. 1990, c. C.43, sect. 130(1), for example, both
prejudgment and postjudgment interest may be disallowed, increased, decreased or allowed for periods
other than those specified in sects. 128 or 129, after the court takes into account: (a) changes in market
interest rates; (b) the circumstances of the case; (c) the fact that an advance payment was made; (d) the
circumstances of medical disclosure by the plaintiff; (e) the amount claimed and the amount recovered in
the proceeding; (f) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration
of the proceeding; and (g) any other relevant consideration. (sect. 130(2)). Under the Qubec Civil Code
1994, art. 1619 c.c., an indemnity may be added to the amount of damages awarded for any reason, by
applying to the amount of the damages, from either the date of default or any other later date which the
court considers appropriate, a percentage equal to the excess of the rate of interest fixed for claims of the
State (i.e. the Qubec Government) under sect. 28 of the Act respecting the Ministre du Revenu, R.S.Q, c.
M-31, over the rate of interest agreed by the parties, or, in the absence of agreement, over the legal rate.
279
Federal Court Act, R.S.C. 1985, c. F-7, as amended in 1990, at sects. 37(1) and (2).

56

which would have been applicable if that judgment had included a monetary award.280
The Court may, however, exercise its discretion to order otherwise.281
10)

Interest against the Crown Canada

Under the Crown Liability and Proceedings Act,282 pre-judgment interest against
the Crown in Canada is governed by the law of the province in which the cause of action
arose.283 If the cause of action arose outside any province or in more than one province,
pre-judgment interest is awarded against the Crown at a rate which the court deems
reasonable in the circumstances, from the date the cause of action arose (in the case of a
liquidated claim) or from the date on which the person entitled gave notice in writing of
the claim to the Crown (in the case of unliquidated claims).284
11)

Pre-judgment interest United States

As in the other jurisdictions, the goal of awarding interest in America is to make

the injured party whole.285 There is no absolute right to either pre-judgment or postjudgment interest286 and the courts are said to have a wide discretion287 in determining
whether or not interest should be awarded, its date of accrual288 and its rate.289
280

Supreme Court Act, R.S.C. 1985, c. S-26, sect. 50.

See, for example, Gauthier v. Beaumont [1998] 2 S.C.R. 3 at p. 70, a Qubec Charter of Rights case,
where the Court held that sect. 50 of the Supreme Court Act could not prevent the awarding of damages for
delay, together with the additional indemnity provided for by the then Qubec Civil Code, from the date of
service of the action.
282
R.S.C. 1985, c. C-50.
283
Ibid. at sect. 31(1).
284
Ibid., at sect. 31(2). Note that these provisions resemble those of the Federal Court Act, R.S.C. 1985, c.
F-7, sect. 37(1) and (2).
285
Miller v. Robertson, 266 U.S. 243 at pp. 257-258 (1924); Mitsui & Co., Ltd. v. American Export Lines,
Inc. 636 F.2d 807 at p. 824 (2 Cir. 1981); Complaint of Rio Grande Transport, Inc. 770 F.2d 262 at p. 264,
1986 AMC 326 at p. 329 (2 Cir. 1985); City of Milwaukee v. Cement Div., National Gypsum Co. 515 U.S.
189 at p. 196, 1995 AMC 1882 at p. 1887 (1995); N.Y. Marine & General Ins. Co. v. Tradeline 2002 AMC
149 at p. 170 (2 Cir. 2001).
286
Gardner v. The Calvert 253 F.2d 395 at pp. 402-403, 1958 AMC 800 at pp. 809-810. (3 Cir. 1958), cert.
denied, 356 U.S. 960, 1958 ASMC 1263 (1959); Complaint of Bankers Trust Co. 658 F.2d 103 at pp. 108
and 112, 1982 AMC 1098 at pp. 1104 and 1110 (3 Cir. 1982), cert. denied 456 U.S. 961, 1982 AMC 2107
(1982); City of Milwaukee v. Cement Div., National Gypsum Co. 515 U.S. 189 at p. 196, 1995 AMC 1882
and p. 1887 (1995); U.S. v. Schooner Windspirit 1997 AMC 278 at p. 286 (D. Virgin Islands 1995).
287
The Snetind 276 F. 139 at p. 144 (D. Me. 1921); Lekas & Drivas Inc. v. The Goulandris 306 F.2d 426 at
p. 429, 1962 AMC 2366 (2 Cir. 1962); Nat G. Harrison Overseas Corp. v. American Tug Titan 516 F.2d
89 at p. 97, 1975 AMC 2257 at p. 2267 (5 Cir. 1975).
288
United States S.S. Co. v. Haskins 181 F. 962 at 965 (9 Cir. 1910); Independent Bulk Transport, Inc. v.
Morania Abaco 676 F.2d 23 ast p. 25, 1982 AMC 1535 at pp. 1536-1537 (2 Cir. 1982); Port Ship Service,
Inc. v. MT Warrant B 2001 AMC 1266 at p. 1271 (E.D. La. 2000).
289
The Guanancita 69 F. Supp. 928 at p. 931, 1947 AMC 1749 at p. 1750 (S.D. Fla. 1947); New
Hampshire Insurance Co. v. S.S. Castillo Manzanares 1968 AMC 2317 at p. 2324 (D. Del. 1967); Ingersoll
Milling Machine Co. v. M/V Bodena 829 F.2d 293 at p. 311, 1988 AMC 223 at p. 250 (2 Cir. 1987), cert.
denied sub nom. J.E. Bernard & Co. v. Ingersoll Milling Machine Co. 484 U.S. 1042, 1988 AMC 2399
(1988); Randolph v. Laeisz 896 F.2d 964 at p. 969, 1990 AMC 2378 at p. 2383 (5 Cir. 1990); Transatlantic
Marine Claims Agency, Inc. v. M/V OOCL Inspiration 137 F.3d 94 at p. 104, 1998 AMC 1327 at p. 1339 (2
281

57

As a general rule, however, American courts award pre-judgment interest in

admiralty, disallowing it, in their discretion, only in particular (i.e. exceptional or
peculiar) circumstances.290 Exaggeration by the plaintiff of the damages he had suffered
did not preclude the court from awarding pre-judgment interest.291 If, however, by
asserting an exorbitant claim, the plaintiff discouraged settlement, then he would not be
entitled to interest for the period of delay occasioned by him.292 In some decisions, it has
been held that no pre-judgment interest should be awarded where the prevailing party
has: 1) caused undue delay, (2) claimed damages greater than actual loss and suffered no
deprivation of use, or (3) made a bad faith claim.293 Another judgment held that the
denial of pre-judgment interest is warranted where there is as genuine dispute over a good
faith claim in a mutual fault setting, improper delaying tactics, laches or estoppel.294
12)

As from what date United States

In the case of damage to cargo, the general rule prevailing in Admiralty is that
interest will be awarded by the courts as from the date of the loss.295 In Iligan
Cir. 1998); American Home Assurance Co. v. M/V Tabuk 170 F. Supp. 2d 431 at p. 2002 AMC 184 at p.
189 (S.D. N.Y. 2001); Steel Coils, Inc. v. M/V Lake Marion 2002 AMC 1680 at p. 1701 (E.D. La. 2001).
290
The President Madison 91 F.2d 835 at p. 847, 1937 AMC 1375 at pp. 1392-1393 and 1395 (9 Cir.
1937); Ingersoll Milling v. Bodena 829 F.2d 293 at p. 310, 1988 AMC 223 at p. 250 (2 Cir. 1987), cert.
denied sub nom. J.E. Bernard & Co. v. Ingersoll Milling Machine Co. 484 U.S. 1042, 1988 AMC 2399
(1988); In re P. & E. Boat Rentals, Inc. 872 F.2d 642 at pp. 654-655, 1989 AMC 2447 at pp. 2465-2466 (5
Cir. 1989); Mentor Ins. Co. v. Brannkasse 996 F.2d 506 at p. 520, 1996 AMC 1278 at p. 1300 (2 Cir.1993);
Central Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A. 56 F.3d 359 at p. 372, 1996 AMC 163
at p. 179 (2 Cir.1995); Probo II London v. M/V Isla Santay 92 F.3d 361 at p. 363, note 2, 1997 AMC 657 at
p. 659, note 2 (5 Cir. 1996); Jones v. Spentonbush-Red Star Co. 155 F.3d 587 at p. 593, 1999 AMC 324 at
p. 331 (2 Cir. 1998); Project Hope v. M/V Ibn Sina 2002 AMC 1287 at p. 1303 (S.D. N.Y. 2000).
291
Interstate Steel Corp. v. The Crystal Gem 317 F. Supp. 112 at p. 123, 1970 AMC 629 at p. 632 (S.D.
N.Y. 1970), relying on Schroeder v. Tug Montauk 358 F.2d 485 at p. 488, 1966 AMC 881 at p. 885 (2 Cir.
1966).
292
Robert C. Herd & Co. v. Krawill Machinery Corp. 256 F.2d 946 at p. 954, 1958 AMC 1265 at p. 1276
(4 Cir. 1958); Edgar M. Queeny-Corinthos, Lim. Procs. 658 F.2d 103 at p. 109, 1982 AMC 1098 at p. 1107
(3 Cir. 1981).
293
Phillips Petroleum Co. v. Stokes Oil Co. 863 F.2d 1250 at p. 1258 (6 Cir. 1988), citing Alkmeon
Naviera, S.A. v. M/V Marina L 633 F.2d 789 at pp. 797-798, 1982 AMC 153 at p. 164 (9 Cir. 1980). See
also Green v. SCNO Barge 1993 AMC 279 at p. 290 (W.D. Tenn. 1992).
294
Noritake Co. v. M/V Hellenic Champion 627 F.2d 724 at pp. 728-729 (5 Cir. 1980); Anderson v.
Whittaker Corp.894 F.2d 804 at p. 808, 1990 AMC 2308 at p. 2312 (6 Cir. 1990). See also Reeled Tubing,
Inc. v. M/V Chad "G" 794 F.2d 1026 at p. 1028, 1987 AMC 2112 [DRO] (5 Cir. 1986): Peculiar
circumstances may be found where plaintiff improperly delayed resolution of the action, where a genuine
dispute over a good faith claim exists in a mutual fault setting, where some equitable doctrine cautions
against the award, or where the damages award was substantially less than the amount claimed by
plaintiff. Pre-judgment interest has also been denied in the U.S. where the parties have expressly agreed
on the sum payable in damages. See Grace Line, Inc. v. Todd Shipyards Corp. 500 F.2d 361 at p. 366, 1974
AMC 1136 at p. 1142 (9 Cir. 1974). See also W. Tetley, International Conflict of Laws, 1994 at p. 751 and
many other decisions cited there on the awarding and refusal of pre-judgment interest in the United States.
295
Alcoa Steamship Co. v. Charles Ferran & Co. 443 F.2d 250 at p. 256, 1971 AMC 1116 at p. 1125 (5
Cir. 1971), cert. denied, sub nom. Underwriters at Lloyds London v. Alcoa Steamship Co. 404 U.S. 854,
1972 AMC 565 (1971). See also Steel Coils v. M/V Lake Marion 2002 AMC 1680 at p. 1701 (E.D. La.
2001), where it was held that [p]re-judgment interest from the date of the loss is the rule rather than the

58

International Corp. v. S.S. John Weyerhaeuser,296 the date of loss was held to be the date
when the vessel arrived with its damaged cargo at the port of destination; accordingly
interest was awarded from that date.297 In the case of late goods or late damaged goods,
interest should run from the date when they should have arrived.298
When the cargo is destroyed or never arrives, the date from which interest should
accrue is the presumptive date of delivery of the cargo.299
13)

At what rate United States

As mentioned above, the court has a wide discretion in determining the

appropriate interest rate.300 Thus in The Guanancita,301 the Court decided to award prejudgment interest below the statutory rate prescribed under state law because the plaintiff
had been in part responsible for the delay in bringing the suit to final hearing; postjudgment interest, however, was awarded at the statutory rate.
In general, pre-judgment interest in the U.S. is measured by interest on shortterm, risk-free obligations.302 In practice, this frequently results in pre-judgment interest
at the average rate paid on United States Treasury bills over either a six or twelve-month
period.303 Sometimes, the statutory rate applied to post-judgment interest is used in
computing pre-judgment interest as well.304 Where the litigation has been particularly
exception in admiralty.; Todd Shipyards Corp. v. Turbine Services, Inc. 674 F.2d 401 at p. 415, 1982
AMC 1976 at pp. 1994-1995 (5 Cir. 1982), cert. denied, 459 U.S. 1036, 1983 AMC 2111 (1982); In re
M/V Vulcan 553 F.2d 489 at p. 490 (5 Cir. 1977), cert. denied 434 U.S. 855 (1977). In the case of an
assignment of claim, however, interest ran from the date of assignment in Nissho-Iwai v. Stolt Lion 1986
AMC 269 at p. 273 (S.D. N.Y. 1984).
296
372 F. Supp. 859 at p.869, 1974 AMC 1719 at p. 1732 (S.D.N.Y. 1974), affd 507 F.2d 68, 1975 AMC
33 (2 Cirl 1974), cert. denied, 4212 U.S. 965, 1975 AMC 2158 (1975).
297
See also Marubeni America v. Fedtrade 1983 AMC 774 at p. 784 (S.D. Tex. 1981).
298
See ETS Gustave Brunet, S.A. v. M.V. Nedlloyd Rosario 929 F. Supp. 694 at p. 714, 1997 AMC 803 at
p. 833 (S.D. N.Y. 1996); Mitsui & Co. v. American Export Lines, Inc. 636 F. 2d 807 at p. 824, 1981 AMC
331at p. p.355 (2 Cir. 1981).
299
Mitsui & Co. v. American Export 636 F.2d 807, 1981 AMC 331 (2 Cir. 1981); Westway Coffee v.
Netuno 528 F. Supp. 113, 1982 AMC 505 (S.D. N.Y. 1981), affd 675 F.2d 30, 1982 AMC 1640 (2 Cir.
1982); Kansas Packing Co., Inc. v. Atlantic Mutual Ins. Co. 1984 AMC 277 at p. 289 (S.D. N.Y. 1983).
300
See generally D.G. Douglas, the Current Status of the Availability of Prejudgment Interest in
Admiralty (1993) 17 Tul. Mar. L.J. 283-299.
301
69 F. Supp. 928 at p. 931, 1947 AMC 1749 at p. 1750 (S.D. Fla. 1947); see also Shinko Boeki Co. v. The
Pioneer Moon 378 F. Supp. 418, 1974 AMC 567 (S.D.N.Y. 1974), rev'd 507 F.2d 342, 1975 AMC 49 (2
Cir. 1974); Modern Welding Co. v. S.S. Arcadia Forest [1986] ETL 87 (S.D. N.Y. 1985).
302
Independent Bulk Transp, Inc. v. Morania Abaco 676 F.2d 23 at p. 27, 1982 AMC 1535 at p. 1540 (2
Cir. 1982); Transatlantic Marine Claims Agency, Inc. v. M/V OOCL Inspiration 137 F.3d 94 at p. 104,
1998 AMC 1327 at p. 1339 (2 Cir. 1998); Hygrade Operators, Inc. v. Clifford 2000 AMC 1732 at p.1738
(S.D. N.Y. 2000).
303
China Union Lines, Ltd. v. American Marine Underwriters, Inc. 755 F.2d 26 at pp. 30-31, 1985 AMC
1643 at p. 1649 (2 Cir. 1985); McCrann v. United States Lines, Inc. 803 F.2d 771 at p. 774, 1987 AMC 502
at p. 506 (2 Cir. 1986); Zim Israel Navigation Co. v. 3-D Imports, Inc. 29 F. Supp.2d 186 at pp. 193-194,
1999 AMC 1145 at p. 1153 (S.D. N.Y. 1998); J.C.B. Sales Ltd. v. M/V Seijin 921 F. Supp. 1168 at p. 1174,
1996 AMC 1507 at p. 1516 (S.D. N.Y. 1996); Project Hope v. M/V Ibn Sina 2000 AMC 1287 at pp. 13031304 (S.D. N.Y. 2000).
304
GF Co. v. Pan Ocean Shipping Co. 795 F. Supp. 1001 at pp. 1008-1009, 1992 AMC 2298 at pp. 2309-

59

protracted, the average prime bank rate for the pre-judgment period or periods concerned
may be applied.305 The general principle is that admiralty courts, in determining prejudgment interest rates, may use any reasonable guidepost which provides a fair level
of compensation, including state law.306 A similarly broad discretion prevails in
deciding the date from which such interest should run.307
The judicial discretion extends to deciding whether to grant compound, or only
simple, pre-judgment interest,308 although some U.S. courts (notably in the Seventh
Circuit) now take the position that compound pre-judgment interest is the norm in
federal litigation.309
14)

Post-judgment interest United States

Post-judgment interest in the United States federal law is governed by a U.S.

statute (28 U.S. Code 1961(a)) and accrues from the date of the judgment at a at a
rate equal to the weekly average 1-year constant maturity Treasury yield, as published by
the Board of Governors of the Federal Reserve System, for the calendar week preceding
the date of the judgment.310 That statutory rate is customarily awarded in admiralty
litigation, unless the equities of the case demand a different rate.311
2310 (C.D. Cal 1992), revd on other grounds, 23 F.3d 1498, 1994 AMC 1739 (9 Cir. 1994).
See, for example, Amoco Cadiz Lim. Procs. 954 F.2d 1279 at pp. 1332 and 1335, 1992 AMC 913 at pp.
982 and 986 (7 Cir. 1992), where the Seventh Circuit based pre-judgment interest on the average prime
rates charged by banks for short-term unsecured loans to creditworthy customers over two relevant prejudgment reference periods. See also In I.N.A. v. S.S. Globe Nova 683 F. Supp. 1413 at p. 1425, 1987 AMC
1499 at p. 1516 (S.D.N.Y. 1987), revd on other grounds, 820 F. 2d 546, 1987 AMC 2328 (2 Cir. 1987),
cert. denied, 484 U.s. 965, 1988 AMC 2399 (1987).
306
See Randolph v. Laeisz 896 F.2d 964 at p. 969, 1990 AMC 2378 at p. 2383 (5 Cir. 1990); Marine
Overseas Services Inc. v. CrossOcean Shipping Co. 791 F.2d 1227 at p. 1236 (5 Cir. 1986). See, for
example, Steel Coils v. Lake Marion 2002 AMC 1680 (E.D La. 2001), where prejudgment interest was
awarded at the rate established by La. Civil Code art. 2924(B). Reliance on statutory post-judgment interest
rates for calculating pre-judgment interest was strongly criticized, however, in Amoco Cadiz Lim. Procs.
954 F.2d 1279 at pp.1331 and 1332, 1992 AMC 813 at pp. 979, 981 and 986 (7 Cir. 1992), as was the use
of any rates other than market rates.
307
Platoro Ltd. Inc. v. Unidentified Remains 695 F.2d 893 at pp. 906-907, 1984 AMC 2288 at pp. 23052306 (5 Cir. 1983), cert. denied 464 U.S. 818, 1984 AMC 2404 (1983); W. Tetley, International Conflict of
Laws, 1994 at pp. 754-755 and decisions cited there.
308
See, for example, Todd Shipyards v. Auto Transportation, S.A. 763 F.2d 745 at p. 753, 1987 AMC 1831
at p. 1843 (5 Cir. 1985), where compound pre-judgment interest was awarded. On the other hand, in Amoco
Cadiz Lim. Procs, 954 F.2d 1279 at pp. 1336 and 1337, 1992 AMC 913 at pp. 987 and 989, the prejudgment interest was compounded in the case of the French oil pollution plaintiffs, but only simple prejudgment interest was awarded to the cargo claimants whose charterparty was subject to English law,
which authorizes only simple pre-judgment interest.
309
Amoco Cadiz Lim. Procs. 1992 AMC 913 at p. 981, 954 F.2d 1279 at p. 1332 (7 Cir. 1992); Cement
Div., National Gypsum Co. v. City of Milwaukee 950 F. Supp. 904 at p. 911, 1997 AMC 1231 at p. 1240
(E.D. Wis. 1996), affd 144 F.3d 1111 at pp. 1116-1117, 1999 AMC 606 (sum.) (7 Cir. 1998). Other
Circuits also granting compound pre-judgment interest more frequently, in their discretion, when the
restitutio principle warrants doing so. See, for example, BP Exploration & Oil, Inc. v. Moran Mid-Atlantic
Corp. 147 F. Supp. 2d 333 at p. 347, 2001 AMC 2438 at p. 2455 (D. N.J. 2001); American Home
Assurance Co. v. M/V Tabuk 170 F. Supp.2d 431 at p. 435, 2002 AMC 184 at p. 189 (S.D. N.Y. 2001),
affd 45 Fed. Appx. 12 (2 Cir. 2002).
310
28 U.S.C. 1961(a), as amended by Act of December 21, 2000, Public Law no. 106-554, sect. 1(a)(7)
305

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15)

Cargo damage claims against vessels owned by the United States interest

When the cargo damage claim involves a vessel owned, possessed or operated by
the United States or by a corporation owned by the United States, no interest will be
allowed on the claim prior to the institution of the suit, unless the contract expressly
stipulates that such interest will be payable: 46 U.S. Code Appx. sect. 745.312 Postjudgment interest (at 4% per annum) is dealt with at 46 U.S. Code Appx. sect. 743.313
16)

Underwriters and interest

Underwriters usually pay their assured and then take suit in their assured's name
or in their own name. It would seem reasonable that where the underwriter is subrogated
in the rights of the claimant and takes suit on its own behalf alone, interest should only be
granted from the date when payment was made by underwriters to the assured.314 To do
otherwise would be to grant the underwriter more than its loss.
On the other hand, by indemnifying the assured, the underwriter has been kept out
of his money and should therefore be compensated. Thus in an ordinary commercial case,
the usual practice is to award interest until the date upon which judgment is given and not
to cut it off on the date when the assured was indemnified.315
XI.

Foreign Currency and the Rate of Exchange

1)

Introduction

Contracts sometimes specify that damages will be calculated in a foreign

currency and this can raise a number of questions. May damages be awarded in a foreign
(Title III, sect. 307(d)(1)), 114 Stat 2763A-636.
See Western Pacific Fisheries, Inc. v. S.S. President Grant 730 F.2d 1280 at p. 1289 (9 Cir. 1984);
Moore v. The Sally J. 1998 AMC 1707 at p. 1716 (W.D. Wash. 1998); Bartholomew v. Crowley Marine
Service, Inc. 2002 AMC 1541 at p. 1553 (W.D. Wash. 2002). Where equities do so demand, the court may
choose a local (i.e. state) rate of interest if it provides fair compensation. See Columbia Brick Works, Inc.
v. Royal Ins. Co. 768 F.2d 1066 at p. 1071, 1986 AMC 1676 at p. 1683 (9 Cir. 1985).
312
Suits in Admiralty Act, of March 9, 1920, c. 95, sect. 5; 41 Stat. 526, 46 U.S.C. Appx. 745 as
subsequently amended. If the claim involves a public vessel of the United States and is made under the
Public Vessels Act, no prejudgment interest is allowed unless the contract expressly stipulated the payment
of interest: Public Vessels Act, of March 3, 1925, c. 428, sect. 2; 43 Stat. 1112, 46 U.S.C. Appx. 782.
313
Suits in Admiralty Act, of March 9, 1920, c. 95, sect. 3; 41 Stat. 526, 46 U.S.C. Appx. 743.
314
Sprague & Rhodes Corp. v. S.S. Toronto 1977 AMC 758 at p. 770, note 1 (S.D. N.Y. 1977). Allstate v.
Intl. Shipping Corp. 1982 AMC 1763 at p. 1769 (S.D. Fla. 1981). See also I.N.A. v. S/S Cape Charles 1995
AMC 894 at 898 (S.D. N.Y. 1994), affd without discussion of the point, 122 F.3d 1056, 1995 AMC 2996
(2 Cir. 1995), holding that in an action by the cargo insurer against the carrier, prejudgment interest should
run from the date insurer suffers a loss by paying the claim of its insured. See, however, Mitsui & Co. v.
American Export 636 F.2d 807, 1981 AMC 331 (2 Cir. 1981), where interests were awarded the insurer
from the date delivery should have been made rather than the date the insurer paid the insured. See also
Harbutt's Plasticine Ltd. v. Wayne Tank and Pump Co. Ltd. [1970] 1 Lloyd's Rep. 15 at p. 26 (C.A.).
315
The Kefalonia Wind [1986] 1 Lloyd's Rep. 292 at p. 293.
311

61

currency? If the sum calculated in a foreign currency is to be converted to local currency,

what is the rate and date of exchange?
2)

The common law

Originally the common law courts refused to order payment in a foreign currency,
this being specific performance, known only to courts of equity. In Miliangos v. Frank
(Textiles),316 however, the House of Lords permitted the award of sums in a foreign
currency, in respect of foreign money obligations. They thereby overruled their previous
decision In re United Railways of Havana and Regla Warehouses Ltd.,317 in accordance
with their declaration on stare decisis of 1966.318 Even before Miliangos, arbitral awards
had been made in foreign currency in admiralty cases.319
Ordering payment in a foreign currency conforms more closely with the principle
of restitutio in integrum and this approach was applied to damages for tort and for breach
of contract in The Despina R and Folias, where Lord Russell of Killowen stated: 320
The true loss of the respondent was a loss of U.S. dollars, and in pursuit
of the remedy of restitutio in integrum or full and proper compensation, I
conclude that the claim and judgment should be for the U.S. dollars lost.
Accordingly, English courts today, in cases where the parties have not agreed on a
currency of account and payment, regularly render judgments in the foreign currency in
which the loss was felt, in an effort to respect the restitutio principle.321 Where it
becomes necessary to enforce such foreign currency judgments, the conversion of the
foreign currency into pounds sterling was formerly effected at the exchange rate in force
on the date of the breach of contract or the tort (the breach date rule), but is now

316

[1976] A.C. 443, 1 Lloyds Rep. 201 (H.L.).

[1961] A.C. 1007 (H.L.).
318
See the Practice Statement Judicial Precedent) made by the House of Lords on July 26, 1966 reported at
[1966] 1 W.L.R. 1234.
319
See Jugoslavenska Oceanska Plovidba v. Castle Investmrnt Co. [1974] Q.B. 292, [1973] 2 Lloyds Rep.
1 (C.A.).
320
[1979] 1 Lloyd's Rep. 1 at p. 10 (H.L.). See also Mitsui OSK Lines Ltd. v. The Mineral Transporter
[1983] 2 N.S.W.L.R. 564. See also The Lucky Wave [1985] 1 Lloyd's Rep. 80 at p. 86, where Shear J.
ordered payment in Rands in a cargo case. See also Socit Franaise Bunge S.A. v. Belcan N. V. (The
Federal Huron) [1985] 2 Lloyd's Rep. 189, [1986] ETL 66; The Kefalonia Wind, [1986] 1 Lloyd's Rep. 273
at p. 291.
321
In The Texaco Melbourne [1994] 1 Lloyds Rep 473 (H.L), though not resulting in restitutio in
integrum, Lord Goff declared that the principle underlying the decision of the House of Lords in The Folias
([1979] A.C. 685, [1979] 1 Lloyds Rep. 1) was to discover in what currency the loss was felt. He held in
The Texaco Melbourne that Ghanian Cedis was the proper currency under that test. In The Inowroclaw
[1989] 1 Lloyds Rep. 498, the true loss was felt in Deutschmarks, the currency in which the plaintiff
conducted its business. Similarly in The Mosconici [2001] Lloyds Rep. 313 at p. 315 , a cargo case, the U.
S. dollar was found to be the currency most justly expressing the loss, as it was in The Lash Atlantico
[1987] 2 Lloyds Rep. 114 at pp. 118 and 121 (C.A.) ( a collision case). See also W. Tetley, International
Conflict of Laws, 1994 at pp. 731-733.
317

62

increasingly effected as at the date when the court authorizes enforcement of the
judgment in terms of sterling.322
It is also noteworthy that the UNIDROIT Principles of International Commercial
Contracts 1994323 provides for damages to be assessed either in the currency in which the
monetary obligation was expressed or in the currency in which the harm was suffered,
whichever is more appropriate. The Principles of European Contract Law 1998324 provide
for damages to be measured in the currency which most appropriately reflects the
aggrieved partys loss.
3)

Canada

In Canada, by comparison, rendering judgments in foreign currency has proven

difficult in view of the Currency Act,325 sect. 12 of which requires monetary values in
legal proceedings to be stated in the currency of Canada. Nevertheless, arbitral awards
made in Canada have been expressed in the foreign currency closely connected with the
contract.326
Freight, being a sum due under a contract,327 should be exchanged at the rate
prevailing on the date the freight is payable. Demurrage poses a different problem.
Demurrage is liquidated damages or a prearranged rate of damages due to the shipper
when the voyage charterer exceeds the time allowed for loading or discharging the cargo.
Restitutio in integrum in a demurrage claim would entail payment at a rate of exchange as
of the date when the demurrage became due.328 When the contract (the charterparty) does
not specify when the demurrage is due, the rate of exchange is the rate prevailing on the
date of payment, not on the bill of lading date, nor on the date when demurrage was
incurred, nor on the date when the calculations were completed.329
Apart from any specific agreement, ordinary unliquidated damages would be due
at the time when the responsible party (in this case when the carrier) was in default.
Default in the United States in a carriage of goods case occurs when damaged goods are
delivered, or, if they are lost or delayed, when they should have been delivered.330
322

See Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443, [1976] 1 Lloyds Rep. 201 (H.L.). The
payment date exchange rate is proper for ensuring restitutio in integrum, provided that interest is awarded
at the average prime bank rate of the jurisdiction of the foreign currency; and that the pre- and postjudgment interest is compounded until payment. See Tetley, ibid. at p. 731.
323
UNIDROIT Principles of International Commercial Contracts 1994, art. 7.4.12.
324
Principles of European Contract Law 1998, art. 9:510.
325
R.S.C. 1985, c. C-52.
326
ACLI Ltd. v. Cominco Ltd. (1985) 61 B.C.L.R. 177 at pp. 185-186 (B.C. C.A.), leave to appeal
dismissed, (1985) 62 B.C.L.R. xli (Supr. Ct. Can.).
327
The Bellami [1979] 1 Lloyd's Rep. 123 at p. 125 (C.A.). The bill of lading called for payment as of its
date at the rate of exchange prevailing at that date.
328
In President of India v. Lips Maritime Corporation (The Lips) [1987] 2 Lloyds Rep 311(H.L.): the
exchange loss suffered because of demurrage was under the 2nd rule of Hadley v. Baxendale.
329
Ibid., at p. 125.
330
Nissho-Iwai Co. Ltd. v. Stolt Lion 1986 AMC 269 (S.D. N.Y. 1984). Where a U.S. Court is however
deciding the case under foreign law then the conversion takes place at the rate on the final decree. Jamaica

63

The date of the default, however, is not the date relied on in the United Kingdom
to determine the applicable rate of exchange. The appropriate rate in England is the one
prevailing on the date of payment or settlement331 i.e. the date when the court
authorizes the enforcement of the judgment.332
Regarding claims against a vessel fund, it has been held that the conversion of the
claims expressed in foreign currency should be at the rate of exchange effective on the
date of breach, when the account was due, and if that date is not available at the
exchange rate prevailing at the date of sale of the vessel.333
4)

United States

It was formerly thought that the U.S. Coinage Act of 1792334 precluded American
judges from rendering judgments ordering payment in foreign currency.335 The repeal of
the statute in 1982,336 however, cleared the way for a different rule. In Amoco Cadiz Lim.
Procs.,337 a U.S. court, possibly for the first time, awarded damages for polluton n foreign
currency, citing the repeal of sect. 20 of the Coinage Act, as well as other more recent
authorities supporting the awarding of judgment in foreign money.338 In the pursuit of
restitutio in integrum, American courts tend to effect conversion of foreign currency into
U.S. dollars using the breach date rule, where the foreign currency concerned has
depreciated in relation to the dollar between the date of the tort or the breach of contract
and the judgment, and the judgment date rule, where the foreign money, in the same
period, has appreciated vis--vis the dollar.339
5)

Civil law

Nutrition Holdings, Ltd. v. United States Co. 643 F.2d 376 at pp. 380-81, 1981 AMC 2883 at p. 2888;
Nissho-Iwai Co. Ltd., ibid., 1986 AMC at p. 274.
331
The Lips [1987] 2 Lloyds Rep 311(H.L.), was from the date of settlement.
332
Miliangos v. Frank (Textiles) [1976] 1 Lloyd's Rep. 201 at p. 210 where Lord Wilberforce points out
that relying on the date of payment gets nearest to securing to the creditor exactly what he bargained for.
See also The Bellami [1979] 1 Lloyd's Rep. 123 at p. 125. A U.S. decision to the same effect is Black Sea v.
Hellenic Destiny, 1984 AMC 1055 (S.D.N.Y 1983). The Federal Huron Socit Franaise Bunge S.A. v.
Belcan N. V. [1985] 2 Lloyd's Rep. 189.
333
Holt v. Van Dooselare (2000) 16 C.B.R.(4th) 188 at p. 201, 2000 AMC 1124 at p. 1136 (Fed. C. Can.)
334
Act of April 2, 1792, ch. 16, sect. 20, 1 Stat. 250, 31 U.S.C. 371, which provides at sect. 20 that: the
money of account of the United States shall be expressed in dollars or units, dimes or tenths, cents or
hundredths, and all proceedings in the courts shall be kept and had in conformity to this regulation.
335
The leading decision on the point was Shaw, Saville, Albion & Co. Ltd. 189 F.2d 198, 1951 AMC 1273
(2 Cir. 1951).
336
Act of September 13, 1982, Public Law no. 97-258, 96 Stat. 980, 31 U.S.C. 5101.
337
954 F.2d 1279 at pp. 1327-1329, 1992 AMC 913 at pp. 973-976 (7 Cir. 1992).
338
See the Restatement Third of Foreign Relations Law, adopted by the American Law Institute at
Washington, D.C., May 14, 1986, at sect. 823, comment (b); the Uniform Foreign-Money Claims Act,
adopted by the National Conference of Commissioners on Uniform State Laws, July 28-August 4, 1989, at
sect. 7(b); and the Uniform Commercial Code, first adopted in 1952 by the American Law Institute, in
conjunction with the National Conference of Commissioners on Uniform States Laws, as amended, at sect.
3-107(2). See generally W. Tetley, International Conflict of Laws, 1994 at pp. 737-739.
339
See Tetley, ibid. at pp. 739-740 and authorities cited there.

64

Civil law jurisdictions have always admitted specific performance 340 and would
follow the above rules, provided that the principle of restitutio in integrum was
preserved. Nevertheless, French judges usually gave judgment in French money,
although sometimes made awards in foreign currency, while retaining complete
discretion as to the date of conversion.341 Now that most countries of the European Union
share a common currency, however, the problem occurs less frequently.
XII.

Court Costs

Claimants who make unjustified claims and carriers who defend suits when they
are clearly responsible are normally penalized when judgment is rendered by being
obliged to pay court costs.342 Court costs are all the disbursements related to the
pleadings, the disbursements at trial and the cost of factums in appeal of both parties.
Included as well are daily honoraria for attorneys fixed by tariff for drafting the
pleadings, for preparing for trial, and for the time spent at trial. The court has the
discretion to order the losing party to pay the costs of both sides and this is a deterrent to
unjustified suits or unjustified defences. The rule that costs follow the event exists in
Canada,343 Great Britain,344 the United States345 and most countries of the world.346
In the United States, unlike most other jurisdictions, by virtue of the American
Rule,347 attorneys fees have traditionally been excluded from court costs, so that the
losing party in a court case is not normally ordered to pay the legal fees and
disbursements of his successful opponent, in the absence of a statute or a contractual
agreement between the parties.348 Nevertheless, the court has discretionary power in
340

Arts. 1142, 1143 & 1144 c.c. (France); arts. 1590, 1601 & 1603 c.c. (Qubec, 1994); art. 2007 c.c. et
seq. (Louisiana); arts. 1096, 1098 and 1099 c.c. (Spain). Hof van Beroep te Antwerpen, April 25, 1995,
[1995] ETL 503.
341
See Tetley, op. cit. at p. 742 and French decisions cited there.
342
See, for example, Firemans Fund Ins. Co. v. Tropical Shipping and Construction co., Ltd. 254 F.3d 987
at p. 1012, 2001 AMC 2474 at p. 2504 (11 Cir. 2001).
343
See the Federal Court Rules 1998, SOR 98/106, at Rule 400 et seq.
344
See the U.K.s Civil Procedure Rules 1998, Rule 44.
345
See the Federal Rules of Civil Procedure, 28 U.S.C. Appx. 54(d)(1), which provides: (1) Costs Other
than Attorneys' Fees. Except when express provision therefor is made either in a statute of the United States
or in these rules, costs other than attorneys' fees shall be allowed as of course to the prevailing party unless
the court otherwise directs; but costs against the United States, its officers, and agencies shall be imposed
only to the extent permitted by law.
346
Being awarded costs does not reimburse the successful party fully for his expenses; thus the principle of
restitutio in integrum is not fully applied: see Smith v. Buller (1875) L.R. 19 Eq. 473 at p. 475.
347
The American Rule, one of the legacies of the American Revolution, excludes attorneys fees from
court costs. See generally W. Tetley, Maritime Liens and Claims, 2 Ed., 1998 at pp. 232-235; W. Tetley,
A Canadian Looks at American Conflict of Law Theory and Practice, Especially in the Light of the
American Legal and Social Systems (Corrective vs. Distributive Justice) (1999) 38 Col. J. Transnatl L.
299-373 at pp. 338-340. See also D.W. Robertson, Court-Awarded Attorneys Fees in Maritime Cases:
The American Rule in Admiralty (1996) 27 JMLC 507.
348
Fleischmann Distilling Corp. v. Maier Brewing Co. 386 U.S. 714 at. p. 717 (1967); Hall v. Cole 412
U.S. 1 (1973); Alyeska Pipeline Service Co. v. Wilderness Society 421 U.S. 240 at p. 257 (1975);. Demsey
& Associates v. Sea Star 500 F.2d 409 at p. 411, 1974 AMC 834 at p. 836 (2 Cir. 1974). There is clearly

65

exceptional cases to award court costs349 where a party acted in in bad faith, vexatiously,
wantonly, or for oppressive reasons.350
XIV. Mitigation of Damages and Legitimate Expenses
The claimant must be in good faith and must arrive in court with clean hands.351
He must therefore have done everything reasonably possible to avoid or to lessen the
loss, or in other words, to mitigate the damages. 352 The principle was clearly stated by
Viscount Haldane, L.C. in British Westinghouse Electric and Manufacturing Co. Ltd. v
Underground Electric Railways Co of London Ltd.:353

no statute requiring or authorizing the payment of legal fees and disbursements in this type of proceeding in
admiralty. It is also clear that in the absence of statute or contractual authorization, attorney's fees are not
generally recoverable either as part of costs or of damages. See also Boland Marine & Mfg. Co. v. Rihner
41 F.3d 997 at p. 1004 (5 Cir. 1995) Under the well-established American Rule used in the federal courts,
absent statute or enforceable contract, litigants pay their own attorney's fees. Note, however, that more
and more federal and state statutes in the U.S. are permitting courts to award attorneys fees. For examples,
see W. Tetley, Maritime Liens and Claims, 2 Ed., 1998 at p. 234.
349
Sprague v. Ticonic National Bank 307 U.S. 161 at p. 167 (1939); Grace v. Ludwig 484 F.2d 1262 at p.
1267 (2 Cir. 1973), cert. denied 416 U.S. 905 (1974); Nordstern v. The Lauriergracht 1981 AMC 981 at p.
984 (S.D. N.Y. 1980); Modern Welding Co. v. S.S. Arcadia Forest, Eurogulf Lines [1986] ETL 87 (S.D.
N.Y. 1985).
350
Vaughan v. Atkinson 369 U.S. 527 at pp. 530-531, 1962 AMC 1131 at pp. 1133-1134 (1962); Newman
v. Piggie Park Enterprises, Inc. 390 U.S. 400 at p. 402 n. 4 (1968); F.D. Rich Co. v. U.S. ex rel. Industrial
Lumber Co. 417 U.S. 116 at p. 129 (1974); Demsey & Assoc. v. Sea Star 1974 AMC 838 at p. 840 (S.D.
N.Y. 1973): Awards of attorneys' fees have been extended to maritime cases involving property damage
where a blameless indemnitee has been forced to sustain the cost of defending a suit arising from acts or
omissions of an indemnitor, ... . Affirmed 500 F.2d 409 at p. 411, 1974 AMC 834 at p. 836 (2 Cir. 1974);
Gradmann & Holler GmbH v. Continental Lines 679 F.2d 272 at pp. 273-274 (1 Cir. 1982); Seguros
Banvenez v. Oliver Drescher 761 F.2d 855 at p. 861, 1985 AMC 2168 at p. 2180 (2 Cir. 1985). See also
Kukie American v. Sanko Maple 1986 AMC 2901 at p. 2904 (5 Cir. 1986); Kanematsu-Gosho v. M/T
Messiniaki Aigli 1987 AMC 1427 (2 Cir. 1987); Guevara v. Maritime Overseas Corp. 59 F.3d 1496 at p.
1502, 1995 AMC 2409 at p. 2416 (5 Cir. 1995 en banc), cert. denied, 516 U.S. 1046, 1996 AMC 2999
(1996); Norwalk Cove Marina, Inc. v. S/V Odysseus 90 F. Supp. 2d 190 at p. 193, 2001 AMC 665 at p. 667
(D. Conn. 2000).
351
This is a principle common to all legal systems even though it is usually unstated. It is spelled out at art.
2003 c.c. (Louisiana) (the obligee may not recover damages when his own bad faith has caused the
obligors failure to perform or when he has concealed facts he knew or should have known would cause a
failure). The same principle is implied in the good faith obligation imposed by arts .6, 7 and 1375 c.c.
(Qubec 1994). See also Redpath Industries Ltd. v. The Cisco [1994] 2 F.C. 279 at p. 290, 1994 AMC 1484
at p. 1488 (Fed. C.A.), leave to appeal dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No.
80 (Supr. Ct. Can.)), citing the third edition of this book (pp. 355-356) on the point. See also Scrutton, 20,
!996, art. 192 at pp. 388-392.
352
See art. 2002 c.c. (Louisiana); Red Deer College v. Michaels [1976] 2 S.C.R. 324 at p. 330; Asamera
Oil Corp. Ltd. v. Sea Oil & General Corp. [1979] 1 S.C.R. 633 at p. 647. See also Redpath v. Fednav
(1993) 63 F.T.R. 131 at p. 141 (Can. F.C.) where the court, citing the third edition of this book, held that
there was a requirement by the injured party to mitigate the damages; See also Steel Coils, Inc. v. M/V Lake
Marion 2002 AMC 1680 at p. 1700 (E.D. La., 2001), where the court acknowledged the duty to mitigate
damages.
353
[1912] A.C. 673 at p. 689 (H.L.).

66

The fundamental basis is thus compensation for pecuniary loss naturally

flowing from the breach; but this first principle is qualified by a second,
which imposes on the plaintiff the duty of taking all reasonable steps to
mitigate the loss consequent on the breach, and debars him from claiming
any part of the damage which is due to his neglect to take such steps.
Mitigation in effect consists of three interrelated rules:354 1) the plaintiff must take
all reasonable steps to mitigate the loss consequent on the defendants wrong and may not
recover damages for any avoidable loss (i.e. any loss he could have averted by taking
reasonable steps); 2) where the plaintiff takes reasonable steps to mitigate the loss
consequent upon the defendants wrong, he may recover for losses incurred by so doing,
even although the resulting damage is greater than it would have been had the mitigating
steps not been taken; and 3) where the plaintiff takes steps to mitigate the loss consequent
upon the defendants wrong and those steps are successful, the defendant is entitled to the
benefit accruing from the plaintiffs action and is liable only for the loss as lessened (i.e.
the plantiff cannot recover for avoided losses).355
Although it is customary to speak of a duty to mitigate, the plaintiff in fact owes
no such duty to the defendant the breach of which would constitute an actionable wrong.
Rather, the duty to mitigate merely refers to the fact that the plaintiffs entitlement to
damages resulting from the loss he sustains in consequence of the defendants breach of
contract or tort may be reduced if the plaintiff fails to take reasonable steps to minimize
that loss.356 The defendant has the onus of proving that the plaintiff failed to mitigate.357
In Steel Coils, Inc. v. M/V Lake Marion,358 the plaintiff was found to have acted
reasonably in selling on the salvage market steel coils that had been damaged by the
ingress of sea water, at the best price obtainable. The plaintiff had also been reasonable in
slitting the damaged coils (i.e cutting them into smaller pieces) before they were
inspected by surveyors, although doing so decreased their market value, because the
slitting was done in order to conform the coils to customers specifications.359

354

These three aspects of mitigation are taken from H. McGregor, McGregor on Damages, 16 Ed., Sweet
& Maxwell, London, 1997, pasras. 285-287 at pp. 185-186.
355
These three rules, as found in McGregor on Damages, 13 Ed., 1972, para. 205 at p. 145, were cited with
approval in The Elena DAmico [1980] 1 Lloyds Rep. 75 at p. 88, which citation was reproduced more
recently in Standard Chartered Bank v. Pakistan National Shipping Corp. (No. 3) [1999] 1 Lloyds Rep.
747 at pp. 758-759, upheld [2001] EWCA 55 (C.A.). See also the UNIDROIT Principles of International
Commercial Contracts 1994 at art. 7.4.8(1) and (2); Principles of European Contract Law 1998 at art.
9:505(1) and (2).
356
Darbishire v. Warran [1963] 1 W.L.R. 1067 (C.A.); The Soholt [1983] 1 Lloyds Rep. 605 at p. 608
(C.A.); McGregor on Damages, 16 Ed., 1997, para. 298 at pp. 189-190.
357
Garnac Grain Co. v. Faure & Fairclough [1968] A.C. 1130 (H.L.); Metelman & Co. v. N.B.R. (London)
[1984] 1 Lloyds Rep. 614 at p. 6312 (C.A.); Emmco Ins. Co. v. Wallenius Caribbean Line, S.A. 492 F.2d
508 at p. 514, 1974 AMC 2052 at p. 2060 (5 Cir. 1974); C. Itoh & Co. (America) v. M/V Hans Leonhardt
719 F. Supp. 479 at p. 510, 1990 AMC 733 at p. 752 (E. D. La. 1989); Sogem-Afrimet, Inc. v. M/V Ikan
Selayang 1998 AMC 1366 at p. 1387 (S.D. N.Y. 1996).
358
2002 AMC 1680 (E.D. La. 2001).
359
Ibid. at p. 1700.

67

The failure of the claimant to sell the damaged goods at salvage can be a failure to
mitigate that reduces his damage award. In Dessert Service, Inc. v. M/V MSC
Jamie/Rafaela,360 for example, where an importer destroyed frozen desserts that had
thawed, rather than putting them on the salvage market, the defendant carrier succeeded
in establishing a lack of mitigation, by showing that the desserts, although damaged,
nevertheless retained a certain salvage value and that they could have been repackaged
for resale so as to remove the importers brand name, thus protecting its business
reputation.
On the other hand, in Redpath Industries Ltd. v. The Cisco,361 where part of a raw
sugar cargo was damaged by sea water, it was held that the claimant was not obliged to
find a buyer for the damaged sugar immediately, but had acted reasonably in blending the
damaged sugar with sound sugar and subsequently refining it for eventual resale at some
future time.
One may conclude that the reasonableness of mitigation is a question of fact
which borders on common sense,362 and therefore depends on the circumstances of
each case.
The question of what expenses are legitimate in reasonably mitigating a loss is
also largely one of fact, dependent on the circumstances. In Hato La Vergarena C.A. v.
SS. Susaa,363 for example, it was held that, because of the consignee's negligent
procrastination in taking corrective measures to halt progressive salt water corrosion to
machinery at destination, the Court was justified in limiting recoverable damages to the
date when the plaintiff should have taken corrective measures.
In Consolidated Cork v. Jugoslavenska Linijska,364 it was held that, where the
consignee knew that cork bales had become wet before shipping them to its inland
customer, the consignee could not recover from the ocean carrier the transportation and
other costs incurred because the customer rejected the bales.
In M. Golodetz Export Corp. v. S/S Lake Anja,365 a cargo of liquid tallow was
damaged by overheating during the voyage due to the fault of the carrier, as well as
during a period while the carrying ship was undergoing repairs following a collision at
sea, resulting in the rejection of the cargo by the consignee when it was subsequently
delivered. Because the shipper then waited (unjustifiably) some 18 months after the
rejection before reselling the tallow for salvage, however, it could not recover the full
difference between the contract sale price and the salvage sale price, but only the
360

2002 AMC 2358 (S.D. N.Y. 2002). See also Ind. Farm Bur. v. Sovereign Faylenne 1978 AMC 1514
(S.D. N.Y. 1977), where the claimant was criticized by the Court for failing to recondition and repackage
caked fertilizer before resale.
361
[1994] 2 F.C. 279, 1994 AMC 1484 (Fed. C.A.), leave to appeal dismissed without reasons, October 13,
1994, [1994] S.C.C.A. No. 80 (Supr. Ct. Can.).
362
Ibid., F.C. at p. 312, AMC at p. 1507.
363
1973 AMC 195 (S.D. N.Y. 1972).
364
318 F. Supp. 1209, 1971 AMC 1195 (S.D. N.Y. 1970).
365
751 F.2d 1103, 1985 AMC 891 (2 Cir. 1985), cert. denied, 471 U.S. 1117, 1985 AMC 2398 (1985).

68

difference between the contract sale price and the arrived damaged market value at the
time the cargo was first rejected.
On the other hand, legitimate expenses of the claimant resulting from efforts to
lessen or avoid the loss are recoverable from the carrier.366 Such expenses are added to
arrived sound market value less salvage as a valid damage expense. Substantial
expenditures generally need not be incurred, however.367
Although mitigation may be required particularly in cases of continuing loss
(i.e. to lessen or prevent future or additional damages likely to result from the aggravation
of an existing loss), the duty has been held to apply to all damages flowing from the
breach of a contract, including both the original and future losses.368
XV.

Surveyor's Fees

If surveyors are employed by the consignee to calculate the extent of the loss and
to suggest ways to keep the loss at a minimum, then their fees should be the
responsibility of the carrier.369 Normally, however, surveyors are employed to settle
claims between the consignee and the underwriters. The expense of these services of the
surveyor cannot be charged against the carrier.
In Nissho-Iwai v. Star Bulk Shipping,370 the Court held that, in order for survey
fees to be awarded against a party, notice of the survey must be given to the party as well
as an opportunity to attend.
In Nissan Auto v. The Continental Shipper,371 the Federal Court of Canada in
appeal held that survey fees should not be allowed because that expense did not result
366

Bruzzone Consol. v. Blue Eagle 713 F. Supp. 146, 1989 AMC 2225 (D. Md. 1989), affd without
opinion, 900 F.2d 250, 1990 AMC 1216 (4 Cir. 1990) (mitigation of damages did not require surveying);
Redpath Industries Inc. v. The Cisco [1994] 2 F.C. 279, 1994 AMC 1484 (Fed. C.A.), leave to appeal
dismissed without reasons, October 13, 1994, [1994] S.C.C.A. No. 80 (Supr. Ct. Can.) (costs of blending
damaged sugar, as well as certain related handling and reprocessing costs, were legitimate mitigation
expenses).
367
Yang Ming Marine Transport Corp. v. Oceanbridge Shipping International, Inc. 259 F.3d 1086 at p.
1095, 2001 AMC 2529 at p. 2539 (9 Cir. 2001).
368
See, for example, Hussey v. Eels [1990] 1 All. E.R. 449 at pp. 452-453 (C.A.); Redpath Industries Ltd.
v. The Cisco [1994] 2 F.C. 279 at pp. 309-311, 1994 AMC 1484 at pp. 1504-1506 (Fed. C.A.).
369
The Rechtbank van Koophandel te Gent, September 11, 1973, [1973] ETL 736, held that the costs of a
private expert's report may be charged to the account of the carrier as they constitute part of the damage.
See also Rechtbank van Koophandel van Antwerpen, June 11, 1976, [1977] ETL 394. Also in Project Hope
v. IBN Sina 2000 AMC 1287 (S.D. N.Y. 2000) the court found the surveying fees and expenses, among
other incidental charges, as fair and reasonable. A similar view was taken by the Court in Steel Coils, Inc.
v. Lake Marion, 2002 AMC 1680 (E.D. La. 2001) at p. 1700 (E.D. La. 2001), awarding the injured party
the recovery of survey fees and other reasonable expenses incurred in determining the nature and extent of
the damage, and in Orduna S.A. v. Zen-Noh Grain Corp. 913 F.2d 1149 at p. 1154, 1991 AMC 246 at p.
351 (5 Cir. 1990); Thyssen, Inc. v. S.S. Fortune Star 777 F.2d 57 at p. 59. 1986 AMC 1318 at p. 1335 (2
Cir. 1985).
370
503 F.2d 596 at p. 598, 1975 AMC 671 at p. 673 (9 Cir. 1974).

Formatted: Bullets and Numbering

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directly from the damage to, the automobiles surveyed but rather from the prior decision
of the underwriters in Japan to have unpacked automobiles inspected on arrival for a
specified fee per unit, regardless of the actual existence of damage or the extent of that
damage.
The foregoing decision is questionable. It would seem more reasonable that, once
there is damage for which a carrier is responsible, the carrier should pay for the cost of
surveying that damage if the claimant can prove the amount apart from the cost of
surveying for inevitable damage as a result of the fact that the automobiles were shipped
without protective packing.372
Survey reports are privileged documents in litigation, if prepared for that
litigation;373 otherwise they must be produced in court, in which case their cost is a
legitimate part of the claim for loss and damage to cargo. Where they are sufficiently
specific as to the damage and its causation, they can form an important part of the cargo
claimants evidence of damage or short delivery at outturn.374
XIV. Conclusion
The key to the measure of damages in marine cargo claims, in both common law
and civil law jurisdictions, remains the venerable principle of restitutio in integrum,
ordinarily applied in practice by use of the formula Arrived Sound Market Value
(A.S.M.V.) less Arrived Damaged Market Value (A.D.M.V.). Full compensation under
the formula also requires the awarding of lost profits, while such additional consequential
losses such as loss of goodwill or of anticipated future business may also be taken into
account in particular cases, depending on the circumstances. The quantum awarded may
be reduced slightly, for certain cargoes especially subject to deterioration in transit
(freinte de route).
Delay is normally not compensated under the Hague Rules and would seem to be
ruled out by the Visby Rules and by U.S. COGSA, unless provided for contractually or if
such compensation can be considered special damages resulting from facts
communicated by the plaintiff to the defendant, within the second limb of the rule in
Hadley v. Baxendale. The Hamburg Rules and some national laws, however, provide
limited recovery for delay.
371

[1976] 2 Lloyd's Rep. 234 at p. 237; in first instance, [1974] Lloyd's Rep. 482 at p. 487.
Consumers Distributing v. Dart Container Line (1980) 31 N.R. 181 (Fed. C.A.).
373
The Aegis Blaze [1986] 1 Lloyd's Rep. 203 (C.A.).
374
See, for example, U.S. v. Ocean Bulk Ships, Inc. 248 F.2d 331, 2001 AMC 1487 (5 Cir. 2001), cert.
denied, 534 U.S. 1065 (2001). In U.S. v. Central Gulf Lines 974 F.2d 621 at pp. 624-628, 1993 AMC 2622
at pp. 2625-2628 (5 Cir. 1992), cert. denied, 507 U.S. 917 (1993), the Fifth Circuit laid down some basic
rules as to the admissibility in evidence of survey reports; notably that the person making the report must
have observed the matters firsthand; that the report must be prepared pursuant to a duty imposed by law;
and that the documents and surrounding circumstances must indicate trustworthiness (see ibid., F. 2d at p.
626, AMC at p. 2627). See also Philip Bros. v. Sabogal 490 F. Supp. 975, 1981 AMC 70 (S.D. N.Y. 1980);
U. S. v. Farrell Lines 1982 AMC 1904 (D. Md. 1980), aff'd 679 F.2d 889, 1982 AMC 1923 (4 Cir. 1982);
The Juno [1986] 1 Lloyd's Rep. 190 at 194.
372

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Punitive damages, although severely restricted in the U.K., are permitted more
liberally in other Commonwealth countries and are very prevalent in American law. In
cargo claims, however, they are not a regular feature of compensation, barring extremely
egregious conduct by the carrier, and indeed would seem to be prohibited by the Visby
Rules and American COGSA in particular, although not by Hamburg.
Maritime law, with its civilian origins, and contrary to traditional common law,
usually accords post-judgment interest on the total damages, as an integral part of those
damages, from the date of the loss or damage to the date of the judgment, subject,
however, to a wide judicial discretion to deny such interest, or to vary its starting date
and/or rate, as well as to award it as simple interest or compounded, all in accordance
with the equities of the case at bar. Post-judgment interest is normally awarded at such
rate as applies pursuant to the statute law of the forum court at the relevant date. Court
costs and survey fees form another important component of restitutio.
By enforcing the duty to mitigate, all jurisdictions preclude claimants from
claiming for losses or damages which, by reasonable efforts on their part, could have
been avoided, while also permitting them to recover for the costs associated with such
reasonable measures of mitigation.
Increasingly, courts in various jurisdictions are rendering judgments in the
currency in which the loss is felt, which may well be foreign money, rather than the
money of the forum. Even in countries where national legislation still prohibit judges
from giving judgments in foreign currency, arbitrators frequently do so where foreign
money best expresses the plaintiffs true loss, and thus is the more appropriate vehicle for
making the claimant whole.

Prof. William Tetley, Q.C.

Faculty of Law
McGill University
Montreal, Quebec, Canada
E-mail: william.tetley@mcgill.ca
Website : http://tetley.law.mcgill.ca/