Market Loss in "The Skyros": Remoteness, Mitigation and the Limits of Taxonomy

Chiranth Mukunda |

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I. Introduction: The "Market Rule"

The market rule for damages is well entrenched in the law of contractual remedies, particularly in cases involving the sale of goods and charterparties. Put simply, it requires the loss suffered by the non-breaching party to be assessed by reference to the difference between the contract price and the market price at the time when performance was due. For this reason, it is also commonly described as the “breach-date rule”. As Professor Katy Barnett has shown in a recent essay, this approach is reflected in several of the illustrations to Section 73 of the Indian Contract Act 1872.

However, the doctrinal foundation of the so-called “market rule” remains uncertain. Partly for this reason, and as discussed below, several exceptions have emerged. These include, on the one hand, consideration of post-breach developments such as ‘reasonable’ substitute transactions and supervening events that render performance of an executory contract impossible (as in The Golden Victory [2007] and Bunge v. Nidera  [2015]). On the other hand, courts have taken account of prior contractual arrangements, including sub-sales, when assessing the claimant’s actual loss (Bence Graphics [1998]). Such departures from the breach-date rule are said to give effect to the overriding compensatory principle in Robinson v Harman [1848], by reflecting, so far as the law permits, the claimant’s “actual loss” rather than “market loss”. This essay is primarily concerned with the latter category of cases.

Interestingly, the orthodox view, recently endorsed by the UK Supreme Court in Sharp Corp Ltd v Viterra BV [2024], treats the market rule as merely an aspect of the mitigation principle. This essay seeks to problematize that view. Another traditional approach, reflected in McGregor on Damages, treats mitigation as comprising three distinct rules.^[1] By contrast, Andrew Dyson and Adam Kramer argue that there is, in substance, a single underlying principle: damages are assessed on the assumption that the claimant acted reasonably, even where the claimant’s actual conduct was not. On this view, all reasonable responses to the breach are taken into account in assessing damages, whether they increase or reduce the claimant’s recoverable loss. Applied to the market rule, it is generally assumed that, where an available market exists, a reasonable claimant would enter that market to arrange a substitute transaction and avoid relevant loss. The market price then operates as the default price, with the difference between the market and contract prices constituting the claimant’s legally recoverable loss. Illustration (a) (among others) to Section 73 reflects this proposition.

(a)      A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered.

The Argument

Contrary to the orthodox view, this article contends that the market rule for damages is not an application of mitigation. Rather, it reflects remoteness principles and aligns with Lord Hoffmann’s ‘assumption of responsibility’ approach in Transfield Shipping Inc v Mercator Shipping [2009] (The Achilleas).

In summary, this article claims the following. Mitigation rules concern reasonable post-breach actions. It is the claimant conduct in response to the breach which is relevant. Consequently, they cannot assess sub-sales or other follow-on transactions concluded before the breach. As Michael Bridge notes in ‘Markets and damages in sale of goods cases’ [2016] LQR, when such prior transactions are relevant, “there is no constructive anticipatory mitigation…when damages are assessed further to the market rule, it is inexact to state that the doctrine of mitigation is in play.”

The assumption of responsibility approach aligns with the prima facie nature of the market measure (see Sections 50(3) & 51(3), Sale of Goods Act 1979 (UK)), which can be displaced by the parties’ objectively assumed responsibilities and contractual risk allocation. It also explains cases where the market rule is displaced, such as where there is no available market, goods are specific or special, or in string contracts – where the relevant measure can be the loss arising from sub-contract not market loss. More importantly, it accounts for scenarios like Hapag Lloyd v. Skyros [2025] (‘The Skyros') where disregarding prior contractual arrangements leaves no factual loss to mitigate, yet the market measure is still awarded, as the Court of Appeal held. Mitigation rules, too, have its role to play. Not so much as justifying the market measure itself, but as precluding the recovery of what would otherwise be a non-remote loss where there is an available market, and in heavily fact-dependent post-breach context. At best, they describe the market rule’s operation rather than explain its existence. In essence, this essay claims that the presumptive market measure is agreement-centred.

In this backdrop, Part II analyses Hapag-Lloyd AG v Skyros problem, demonstrating that market damages may be awarded even where no factual loss exists once prior transactions are disregarded. Resultantly,, in Part III, the conceptual basis of the market rule is argued to be the assumption of responsibility by the contracting parties for the market loss in ordinary circumstances, and not mitigating action by the claimant. Part IV analyses the consequences of this framing as to when the departures are permissible from the market rule in cases of sub-sales, string contracts or special manufacture etc. Part V evaluates the Indian position, which has largely followed English case law, where the market rule is traced both to mitigation and to Section 73 based remoteness principles. It argues that Indian case law, properly read, supports an agreement-centred understanding of the market measure located within section 73.

II. Hapag Lloyd v. Skyros (2025): The Problem Manifested

Recognizing that mitigation rules may be an “inexact” fit for the market rule, Bridge notes that clarifying its precise basis might be deferred in the confidential world of arbitration. One such opportunity arose in an arbitration appeal in The Skyros concerning the late delivery of two ships, The Skyros and The Agios Minas. The facts were straightforward: time-chartered vessels were redelivered late, but the owners had committed to sell a vessel and would have delivered it to the buyer immediately after the time charter ended. Thus, they would not have chartered the vessel even if it had been redelivered on time. The question was whether the owners could still recover substantial damages measured as the difference between the market rate and the charter rate i.e., the market measure during the period of delayed delivery.

The arbitral tribunal held that the owners were entitled to substantial damages measured by the market rate, a conclusion well supported, as the High Court noted, by leading maritime textbooks and a consistent line of case law treating the “normal measure” for late redelivery as the difference between the charter rate and the higher market rate during the overrun period. Remember, this “market expectations” and “understanding of shipping lawyers” was “significant” for Lord Hoffman in The Achilleas to come to the conclusion that the contract construed in its commercial setting did not extend to losses due to late delivery arising from the follow-on fixtures, and was limited to the market measure [10]. Lord Hoffman’s ‘assumption of responsibility’ approach to market measure is not limited to charterparty cases, and is equally applicable to sale of goods cases. However, this point will be dealt with later. The present takeaway is that ‘market measure’ reflects contractual parties' shared commercial understanding.

A) Bright J. in the High Court

Bright J. in the High Court rejected the award of substantial damages measured by the market loss. The reasoning focused on giving effect to the overriding ‘compensatory principle’, often invoked to displace the market measure (see, in a different context, The Golden Victory). As Lord Sumption described it in Bunge v. Nidera [2015], the ‘fundamental principle of common law damages’ is to place the injured party, as far as money can, in the same position as if the contract had been performed. This requires a counterfactual assessment between the breach position (late delivery) and the non-breach position (on-time redelivery). In The Skyros, the factual loss would be nil because the owners would not have re-chartered the vessel due to their commitment to sell it immediately. Bright J had held that the market measure could not be awarded because the claimant “precluded himself from the opportunity to contract at the market rate…by his own decision to contract on terms that made this impossible.” This conclusion requires a prior finding that the owners’ lost opportunity, due to their own previous contractual arrangement, is relevant to assessment of damages. Bright J. held it was indeed relevant, as the forward sale involving the same vessel (specific goods) was a sufficient reason, even though the sale contract was not within the parties’ contemplation.

Here, the rules of remoteness and the concept of res inter alios acta come into play.  If it was too remote or was a collateral matter to be disregarded as a matter of law, the owner's sale contract could not be validly considered to reduce the loss of charter hire. It was on this basis that the Court of Appeal’s recent judgment in The Skyros departed from that of Bright J.

Res inter alios acta and Remoteness

The “throwaway remark” which Lord Hoffman made in The Achilleas (as is well-known, concerned remoteness) has come back to haunt the law of damages. The Achilleas involved late delivery of a vessel, causing the owners to lose a substantial sum from a previously concluded forward charter. Lord Hoffmann noted that the charterers could not be said to have ‘assumed responsibility’ (even though it was reasonably foreseeable in the sense of being ‘not unlikely’) for losses arising from the uncertain forward charter, thus rendering them too remote, and damages were limited to the market measure. He described the forward charter as “res inter alios acta,” meaning ‘a thing done between others does not affect others’. Case law has referred to such transactions as “collateral” or merely “accidental”. The test for whether a transaction is collateral is whether it arose independently of the circumstances giving rise to the loss, as laid down in Swynson Ltd v Lowick Rose LLP [2017], [11]. These ‘peculiar’, ‘accidental’, or ‘collateral transactions’, including any resulting benefits, are disregarded when assessing the claimant’s actual financial position from the breach. Essentially, such collateral benefits are treated, as a legal fiction, as not making good the claimant’s loss or otherwise affecting claimant’s position under the contract. A classic example is an indemnity, such as insurance, under which the claimant receives benefits from a third party pursuant to consideration wholly independent of the legal relationship with the defendant. As Lord Reid in Parry v Cleaver [1970] explained, this principle is treated as resting on considerations of ‘justice, reasonableness, and public policy’.

The basis of remoteness is different. There is ongoing debate on whether remoteness rules are agreement-centred, resting on the parties’ contractual arrangements as properly construed, or whether they operate as an external rule imposed by law and grounded in policy (see, Andrew Burrows, ‘Lord Hoffmann and Remoteness in Contract’ [2015]). The agreement-centred approach is best articulated by Lord Hoffmann in The Achilleas through his assumption of responsibility test. This approach considers what the parties, in their context, circumstances, and market understanding, would have reasonably regarded as losses for which they assumed responsibility. Reasonable contemplation test is merely a starting-point. It is an objective standard, consistent with modern contractual construction, and depends on contractual allocation of risk. The alternative view, espoused by Andrew Burrows, sees remoteness and other “limiting” doctrines, such as mitigation, as policy-based mechanisms through which the law allocates the consequences of breach. On this account, it is fictional and misguided to infer parties’ intent once the contract has ‘run out’. Remoteness rules, and law on damages generally, are better explained by policy aims to avoid unreasonable burdens and ensure fair risk allocation. The contractual arrangement is not entirely displaced, but remains relevant to the assessment of what is unreasonable or fair.

If the ‘external rule’ proposition is correct, there is no distinction between res inter alios acta and remoteness, as both would be based on externally imposed policy. Losses deemed too remote would also be res inter alios acta and disregarded when assessing the claimant’s recoverable loss. This approach reflects how some early cases proceeded.

For example, Slater v Hoyle & Smith Ltd [1920] 2 KB 11, an important case for the discussion below, involved delivery of defective goods, which the buyer had successfully resold under a sub-sale concluded before the breach. The claimant-buyer asked for the market measure but the defendant asked for the sub-sale to be taken into account to reduce the loss. Scrutton LJ held that the sub-sale was not in the parties’ contemplation and that the claimant, having the option of using other goods for the sub-sale, meant it was res inter alios acta and should be disregarded. Another important case Rodocanachi v Milburn [1886] (‘Rodocanachi’) concerned late delivery of goods by a carrier. The court rejected this, awarding the market measure, holding that, barring special circumstances, the sub-sale was merely ‘accidental’ or ‘peculiar’ to the claimant, in other words, res inter alios acta. However, it is correctly stated that remoteness of damage was a relevant issue in these cases (Adam Kramer, The Law of Contract Damages [2022], 4-107).^[2]

This article proceeds on the premise that an agreement-centred approach to remoteness is preferable, for reasons outside the scope of this discussion (V Niranjan, ‘The Contract Remoteness Rule: Exclusion, Not Assumption of Responsibility’ in Defences in Contract [2017]). This means that res inter alios acta and remoteness do not share a similar justificatory basis, the former is policy-based, while the latter is agreement-centred. This distinction is crucial in The Skyros, where the Court of Appeal offered one possible explanation.

B. Court of Appeal's Decision

Treitel’s two-stage approach and the Court of Appeal

Drawing on Professor Treitel’s article Damages for Breach of Warranty of Quality [1997] LQR 188, the Court of Appeal noted that assessing damages for breach of contract involves two stages. The first stage determines what the claimant has lost, requiring the usual counterfactual assessment between the ‘breach position’ and the ‘non-breach position’, in line with the compensatory principle under Robinson v Harman. The second stage considers what portion, if any, of that loss can be recovered as damages. The res inter alios acta principle applies at the first stage, disregarding aspects of the claimant’s financial position, such as recoveries’ from insurance policies. Remoteness rules from Hadley v Baxendale [1854] operate only at the second stage, after the relevant actual loss has been identified.

Would awarding substantial damages, measured by the market rate, in The Skyros wrongly place the claimant in a ‘better position’ than if the contract had been performed, thereby violating the compensatory principle?^[3] Bright J in the High Court had answered this in the affirmative and sought to avoid that result. Males J in the Court of Appeal disagreed.

Males LJ held that the sale contracts for The Skyros and The Agios Minas were res inter alios acta for the purposes of Treitel’s first stage, as the owners’ future arrangements were entirely independent of the legal relationship and circumstances giving rise to the breach. Therefore, they had to be disregarded when assessing the claimant’s counterfactual positions. Once the sale contracts were set aside, the normal measure of damages was the market measure for lost charter hire during the overrun period, even though, as a matter of fact, the owners had not lost any market opportunity.

Males LJ reaffirmed the traditional view that the market rule promotes certainty and predictability in commercial dealings, provides an easy assessment, and reduces litigation costs that would otherwise arise from extensive evidence about parties’ other contractual arrangements. Critics of the market rule respond, as Lord Scott observed in The Golden Victory, that “certainty is a desideratum… it is not a principle and must give way to principle,” the overriding principle in damages being the compensatory principle. The strongest reply from proponents of the market rule is that the law of damages is not concerned with ‘exact indemnity’, as noted by Males LJ at [60], and that some degree of overcompensation or under-compensation is tolerable in the interest of certainty, as noted by Michel Bridge (supra).

C. The Basis of 'Market Measure" in The Skyros

Consider the following line of reasoning. Males LJ has held that the forward sale contract was res inter alios acta to be disregarded. How does this conclusion inevitably lead to the  ‘normal measure’ i.e. market rule, especially since claimant-owners’ factual loss as a consequence of breach is nil. Mitigation is said to be the basis of the market rule (Dyson and Kramer, ‘"There is No 'Breach Date Rule'" [2014] 130 LQR).^[4] But mitigation cannot explain the resort to market measure here. This cannot be so, because there is no determined loss that was avoided through reasonable post-breach conduct, nor any determined loss that was reasonably avoidable under the mitigation rules. In substance, the claimant was in a position where no factual loss of any kind could have been suffered.

The argument advanced here is that this gap in legally recoverable loss can be filled only by an assumption of responsibility based remoteness analysis of the kind advanced by Lord Hoffmann in The Achilleas. This is reinforced by the fact that the assumption of responsibility approach can have both ‘exclusionary’ and an ‘inclusionary’ effect, capable of reducing or increasing the scope of recoverable loss. As Lord Devlin stated in Biggin v Permanite Ltd [1951] 1 KB 422:

“It has often been held . . . that the profit actually made on a sub-sale which is outside the contemplation of the parties cannot be used to reduce the damages measured by a notional loss in market value. If, however, a sub-sale is within the contemplation of the parties, I think that the damages must be assessed by reference to it, whether the plaintiff likes it or not”

The point advanced here is that the market measure is the “normal measure” because it reflects the risk-allocation and responsibilities assumed by the contracting parties. This is consistent with The Achilleas and its application by Males LJ in The Skyros. In The Achilleas, in addition to Lord Hoffmann grounding the market measure in the parties’ ordinary and commercial understanding of the contract at [23], Lord Rodger also made clear that:

But the parties would also have contemplated that, if the owners lost a fixture, they would then be in a position to enter the market for a substitute fixture….. But the parties would reasonably contemplate that, for the most part, the availability of the market would protect the owners if they lost a fixture. That I understand to be the thinking which lies behind the dicta to the effect that the appropriate measure of damages for late redelivery of a vessel is the difference between the charter rate and the market rate if the market rate is higher than the charter rate for the period between the final terminal date and redelivery [55].

Reasonable contemplation test is associated with remoteness. Similar dicta is found in the sale of goods context. Kwei Tek Chao and ors v. British Traders and Shippers Ltd [1954] 2 QB 459 Lord Devlin stated that:

What is contemplated is that the merchant buys for re-sale, but if the goods are not delivered to him he will go out into the market and buy similar goods and honour his contract in that way. If the market has fallen he has suffered no damage; if the market has risen the measure of damage is the difference in the market price. There are, of course, cases where that prima facie measure of damage is not applicable because something different is contemplated [71].

Lord Devlin gave examples where something different is contemplated, including cases of special manufacture with no available market and ‘string contracts’ where the buyer would legally or otherwise be bound under the sub-contract to resell the very goods contracted for, and no others. These departures from the market measure are considered below. For present purposes, it is sufficient to note that (at least some) authoritative dicta explicitly affirms that the market measure rests on the parties’ assumed responsibilities and their contractual allocation of risk.

Even as a matter of principle, it makes little sense to speak of losses as consequences of breach unless the relevant ‘type’ or ‘kind’ of loss (to which the defendant has assumed responsibility) is first identified. As The Skyros illustrates, unless market loss is characterised as a responsibility assumed under the contract, there is no relevant loss, because the owners’ factual loss was nil. This is reinforced by V. Niranjan’s distinction between causal and non-causal rules in the law of damages. As V. Niranjan (supra) explains, causal rules are concerned about whether a particular loss is an outcome or consequences of the defendant's breach of contract. Non-causal rules, on the other hand, are concerned about whether a defendant should or should not be held liable for that particular loss. Mitigation is seen as an element of causation.^[5] If the claimant voluntarily does not act reasonably in response to the breach to avoid the loss, the outcome is seen not a consequence of defendant’s breach but the claimants voluntary choice or independent commercial decision (The New Flamenco [2017]). On the other hand, the rules of remoteness, particularly on an agreement-centred account, are concerned with non-causal qualifications on liability. Unless the relevant losses are first identified, questions of mitigation, which are concerned with the causal connection between the defendant’s breach and the loss, do not arise. As Lord Hoffman stated in South Australia Asset Management Corp v York Montague Ltd (SAAMCO) [1997]:

Before one can consider the principle on which one should calculate the damages to which a plaintiff is entitled as compensation for loss, it is necessary to decide for what kind of loss he is entitled to compensation. A correct description of the loss for which the valuer is liable must precede any consideration of the measure of damages [9].

The question then is how the relevant kind of loss, such as market loss, is to be identified. An agreement-centred approach looks to the parties’ contractual bargain in its commercial context. Hence, The Skyros reveals a conceptual gap in the mitigation-based account of the market rule. If the market measure were truly an application of mitigation, it would presuppose a relevant loss capable of being avoided or reduced by reasonable post-breach conduct. Where prior arrangements are disregarded as res inter alios acta, no factual loss remains to be mitigated. The market rule identifies a particular loss and is intelligible only as an expression of the parties’ assumed contractual responsibilities. The remainder of this essay proceeds on that basis.

III. Assumption of Responsibility and the Market Measure

The foregoing discussion raises fundamental questions about damages law and Treitel’s sequential two-stage approach endorsed in The Skyros. As noted earlier, the first stage is said to apply the compensatory principle by identifying the claimant’s factual loss through a counterfactual comparison between the breach position and the non-breach position. The second stage is then said to involve the application of doctrines capable of limiting recovery of that loss, such as remoteness, mitigation, scope of duty, and intervening cause. On this account, law on damages ‘limits’ the defendant’s liability rather than providing ‘exact indemnity’. This can justify instances of under-compensation through these limiting principles. However, as several cases demonstrate, the law also contains many instances of overcompensation.

For instance, take the well-known cases of Rodocanachi and Williams Bros v Ed T Agius Ltd [1914]. Recall that, in Rodocanachi, the buyer had contracted to sub-sell the goods under the head contract, but the carrier failed to deliver them. The market price exceeded the sub-sale price, and although the carrier sought to measure loss by reference to the lower sub-sale price, the court awarded the market measure. Williams Bros concerned non-delivery under a head contract of sale where the market price at the time of delivery was higher than the price under the disappointed sub-sale. The seller in breach argued that damages should be reduced by reference to the buyer’s sub-sale, but the court again awarded the market measure. In Slater v. Hoyle & Smith, as mentioned above, although the buyer resold defective goods without incurring liability under the sub-sale, the seller was still liable for the market measure, notwithstanding that the buyer suffered no factual loss, which he had passed along the sub-sale contract. 

Overcompensation and ‘compensation principle’ qualified

Scholars have tried various ways to explain the resort to the market measure even when the claimant has supposedly not suffered any factual loss. Robert Stevens argues that market measure provides a substitute for performance rather than simply compensation for “consequential losses”. It is a matter of substitute ‘right to expect performance of the contract’.^[6] Somewhat similarly, Nathan Tamblyn, expanding upon Treitel, argues that market measure represents the “difference in value” and is not concerned with the rule of remoteness.^[7] Suppose that A supplies defective goods to B, and B has contracted to sell those very goods to C. Treitel (supra) argues that if B was legally obliged, or ‘locked in’, and had no choice but to sell those very goods to C, then B has not “lost” the ‘difference in value’, because he was obliged to dispose of them in any event. On the other hand, if B retained a choice in dealing with the goods and could use other goods to satisfy the sub-contract, then B has indeed lost the ‘difference in value’ of the goods. These outcomes are said to be independent of the rules of remoteness.

But, is remoteness (in the sense of assumption of responsibility) irrelevant? The better question to ask would be whether it should be irrelevant? Why should B’s own availability of choices or his own ‘peculiar’ or ‘accidental’ circumstances  determine the allocation of liability between A and B.  The answer consistent with foundational contractual principles would be in the negative. If indeed B’s dealings with C ought to be relevant, the basis has to be found in the parties’ agreement and their contractually agreed allocation of risk. This is usually when sub-sale/sub-contract is within the reasonable contemplation of the parties, or on objective contractual construction, the parties can be said to have “defined their contractual bargain with reference to those sub-sale contracts”.^[8]

Therefore, contrary to the foregoing explanations of the market measure, it is here that the “assumption of responsibility” approach to remoteness offers the most convincing explanation, one that is consistent with the parties’ agreement. If the market measure, a “kind” or “type” of loss in Lord Hoffmann’s terminology, reflects the assumed responsibilities of the contracting parties, it follows that it is the prima facie measure of loss. If this is correct, then, contrary to Treitel, the rules of remoteness do not merely operate in cases where a claimant seeks to increase recoverable loss by reference to a forward contract or sub-sale instead of the market measure (Hall v. Pim [1928] All ER 763).

The assumption of responsibility approach equally covers the converse situation, namely where a forward sale or sub-contract is relied upon to reduce the claimant’s recoverable loss. Thus, in Euro-Asian Oil SA v Credit Suisse AG & Ors [2018], the Court of Appeal held that the claimant’s loss was measured by the lower value under the sub-sale (approximately US$16 million), rather than by the market value of the goods (approximately US$18 million). This was because “it was always contemplated” that Euro-Asian would nominate the same cargo to perform the sub-contract. The difference in value by reference to the sub-contract, and not the market value, was therefore “the measure of loss contemplated by the parties”. A similar conclusion was reached by Popplewell J in Molton Street Capital LLP v Shooters Hill Capital Partners LLP [2015]  where ‘loss [were] calculated by reference to its contemplated on sale, not a freestanding market value loss’.

This analysis is consistent with the ‘inclusionary’ and ‘exclusionary’ effects of the assumption of responsibility approach. As Lord Devlin’s above-quoted dicta in Biggin v Permanite Ltd makes clear, a non-remote sub-contract will be taken into account “whether the plaintiff likes it or not”. In an agreement-centred account of remoteness, the relevant inquiry is therefore, as Lord Hoffmann put it extra-judicially in relation to The Achilleas, “what obligation to make compensation for breach of contract would a reasonable observer understand the contracting party to have undertaken?” ^[9]  That inquiry is capable of both limiting and expanding liability.

In the context of The Skyros, the critical question is whether assumption of responsibility can supply a justification of the recoverable loss even where the claimant has suffered no factual loss. There is no principled reason why it cannot. If the obligation to pay compensatory damages is a secondary obligation imposed by law, it is nevertheless qualified by the parties’ agreed contractual undertaking (Niranjan (supra)).^[10] If this is correct, the objection that “questions of remoteness do not arise until after the actual loss has been identified” must be rejected. Contrary to Treitel’s account, remoteness does not operate solely in a negative sense to reduce the quantum of an already-identified factual loss. Understood as an assumption of responsibility, it can also operate positively to determine the kind of loss for which the claimant is entitled to compensation.

How does this tie into Treitel’s two-stage approach endorsed in The Skyros? Recall, the first stage applies the compensation principle, while the second stage applies limiting principles such as remoteness and mitigation. Lord Hoffmann in The Achilleas questioned whether the ‘starting point’ of damages analysis can be the compensation principle i.e. putting the innocent party in the position, as far as possible, as if the contract had been performed [14]. He noted that the majority ratio of SAAMCO is that “correct description of the loss for which the valuer [defendant] is liable must precede any consideration of the measure of damages [14].”  Then, logically for Lord Hoffman, the "kind" or "type" for which the contract-breaker ought fairly to be taken to have accepted responsibility precedes the counterfactual assessment under the compensation principle. Bright J in The Skyros noted this point and merely observed that Lord Hoffman did not intend to do away with the fundamental compensation principle.

So, is it required to resolve this controversy about the fundamental nature of the law on damages? I submit that it is not required to do so. Once we accept that the law on damages is not concerned about ‘exact indemnity’, and there can be overcompensation and under-compensation, the sequence does not matter. Treitel’s second stage can be remodelled not as ‘limitations’ (in its literal meaning) but rather as ‘qualifications’ to the law’s compensatory aim in achieving the goal of corrective justice (Niranjan (supra)). Treating it as purely ‘limitations’ can explain undercompensation, but cannot explain The Skyros (through assumption of responsibility) and other cases where there is overcompensation. In this way, the Treitel’s sequential two-stage model can be retained for conceptual clarity, but with a recognition that the first stage is qualified, both positively and negatively, by the second stage through parties’ agreement and allocation of risk.

IV. What Remains of the 'Market Rule'?

Burrows criticizes Slater v Hoyle Smith as undermining the compensatory aim because the claimant was awarded the market measure, exceeding his actual loss.^[11] Much critical commentary, however, focuses on Bence Graphics Int Ltd v Fasson UK Ltd [1998] QB 87, which distinguished Slater.

In Bence Graphics, the seller had successfully passed the defective goods to a sub-buyer without incurring liability. The buyer claimed the market measure, but the court refused, awarding the nominal sum by taking the sub-contract into account. The decision is criticized for taking the sub-contract into account supposedly on the guise to prevent windfall to the buyer, but had the unjust effect of allowing the seller to retain the full price of the defective goods supplied. However, the sub-contract was within the parties’ contemplation, as the seller knew the goods would be used to produce a product for resale. Slater was distinguished because the buyer there had no knowledge that the specific goods would be appropriated to a sub-contract. As Adam Kramer (supra) observes, authorities that ignored the sub-contract to reduce loss below the market measure (Rodocanachi, Williams Bros, Slater) can be reconciled with Bence Graphics. In the former cases, the sub-contract was outside the parties’ reasonable contemplation, and in Bence Graphics, the parties objectively allocated risk and assumed responsibility with reference to the sub-contract. Illustration (m) to Section 73, though a century apart, reflects Bence Graphics. This deviation from the market measure aligns with the assumption of responsibility approach. However, an additional layer of complexity arises.

Scrutton LJ in Slater disregarded the sub-sale contract for two reasons. The first being that it was outside parties’ reasonable contemplation. The second, importantly, was that it was not a case of string contract (which means that the claimant had the option, not being bound, to use those or other goods to fulfil the sub-contract). The first requirement falls within the assumption of responsibility test. However, what consequence does it have if there is an available market for goods, in the sense that it was not a string contract, or case of special manufacture to which there is no available market.

Recall, Treitel had argued that if the buyer was legally (or otherwise) bound to use the specific goods for the sub-contract (string contract), it was itself sufficient to displace the market measure. However, our discussion showed that it cannot be so unilaterally, and parties must have contracted on the assumed basis of the sub-contract. Our problem now is the converse situation. Even if there is knowledge of the sub-contract, and sub-contract is within the parties’ assumed responsibilities and risk-allocation, does the claimant having the option to deal with the goods freely change the outcome in taking the sub-contract into consideration. It is here that mitigation might come into consideration.

M. Bridge (supra) argues that knowledge is not sufficient, there must be no available market (either string contract, or case of specially manufactured goods and similar instances). Adam Kramer (supra) endorses a similar cumulative approach. In Euro Asian Oil discussed above, the sub-sale was  within parties assumed responsibility, but it was expressly recognized that the buyer could perform the delivery obligation under the sub-sale other than through the purchase. On the contrary, Louis Dreyfus Trading Ltd v Reliance Trading Ltd [2004] EWHC 525 is example where both requirements were fulfilled, and damages are to be assessed with regard to the sub-sale. Resultingly, there is no definite conclusion on this issue yet.

The better view, though need not be conclusively determined, is that assumption of responsibility is a necessary condition but not a sufficient one to depart from the market measure by taking into account the sub-sale. The reason being the operation of mitigation. If it was reasonable for the disappointed party, when there is an available market (i.e. when is not ‘string contract’ or special manufacture), to avail a substitute performance, the market measure might be appropriate notwithstanding that the sub-contract was within parties’ contemplation. This is consistent with causation-based analysis of mitigation (Niranjan (supra), Summers (supra)). In such a case, even if the sub-contract is not remote, the losses arising from it will not be the consequence of the defendant's breach if an innocent party has made a voluntary and commercially independent choice in not availing the market and suffering losses arising from the sub-contract. It would break the causal link between the defendant's breach and what would otherwise be recoverable losses from a non-remote sub-sale. However, this does not make mitigation as the basis for the market measure as discussed above. It, at best, offers a description of its operation.

V. The Indian Position

The treatment of the market measure of damages in Indian case law is confusing. Indian case law has largely followed the English precedents in this aspect. On one hand, market rule is treated as an aspect of mitigation rule relying upon British Westinghouse [1912] AC 673 , Privy Council decisions in Jamal v. Moolla Dawood, Sons & Co (1916) 1 AC 175 and Erroll Mackay v. Kameshwar Singh [1932]. On the other hand, it is also traced to Hadley v. Baxendale based remoteness rules. This confusion can largely be traced to the locus classicus on the subject: the Supreme Court’s decision on the market rule in Murlidhar Chiranjilal v. Harishchandra Dwarkadas [1961]. This further highlights the limits of taxonomy of the ‘market rule’. Murlidhar Chiranjilal was a case of seller’s non-delivery of goods at Kanpur. The buyer claimed market measure as damages. The bone of contention was identifying the correct market measure – whether it was the market price of the goods at Kanpur, the place of delivery or Calcutta, the latter being the place where the buyers intended to sell their goods. The court held that the difference between the contractual price and market price was the general measure of damages (para 9). Similarly, a five-judge bench decision in Union of India v. West Punjab Factories [1965] held that “it is well settled that it is the market price at the time the damage occurred which is the measure of damages to be awarded”.

Moreover, the court held that the relevant market value was the price of goods at Kanpur at the date of breach. Buyer’s claim for damages failed on the ground that they had not adduced evidence of the market price of the goods at Kanpur to prove their loss.  In reaching this conclusion, the court relied upon section 73 of the Indian Contracts Act – which is said to codify the Hadley v. Baxendale rule. It was held that “measure of damages has to be calculated as they would naturally arise in the usual course of things from such breach” – which was the market measure awarded (first limb of section 73). This was because, the court held, the parties had not contemplated at the time of entering into the contract that the buyer’s would put the goods for resale only at Calcutta (second limb of section 73). In absence of parties defining their contractual bargaining in relation to the re-sale at Calcutta, the reasonable measure of damages was the market price at Kanpur at the date of breach. Here, it is interesting to note that market measure is treated as a question of parties’ bargain, or the losses for which parties’ had assumed responsibility.

Following Murlidhar Chiranjilal, market measure has been applied by Indian courts to various factual instances including seller’s non-delivery of goods, buyer’s non-acceptance of goods, defective delivery of goods, and in shipping contexts. While most recent cases in which the market rule has been applied have arisen in the context of challenges to arbitral awards, where courts are barred from engaging in a merits review of the arbitral tribunal’s legal and factual determinations, it remains relevant to highlight the default rule considered applicable by Indian courts

In Thyssen Krupp v. SAIL [2017], the division bench of the Delhi HC considered that the general rule of market measure is displaced if the parties contemplated the sub-contract of re-sale between the buyer and a third party. Bence Graphics was cited for this proposition. In Union of India v. Commercial Metal Corpn.[1981] held that “this market price rule was laid down in 1854 in the most celebrated case in the field for contract damages namely Hadley v. Baxendale”. This could mean that the market measure of loss is based upon agreement-centred assumption of responsibility of the parties. On the contrary, Ismail Sait and Sons vs. Wilson [1918], Madras HC explicitly stated that market rule “may be regarded as an application of the principle embodied in the explanation [to section 73] that the buyer must take the necessary steps to minimize the damage”.  The former approach is in line with the argument made in this essay. This is because mitigation based justification for the market rule faces the Hapag Lloyd problem highlighted above when there is no factual loss suffered to mitigate. Market loss can be awarded only as a default assumed allocation of risk.

As shown above, reasoning in Murlidhar Chiranjilal is best understood as identifying the scope of responsibility assumed under the contract. This is consistent with the argument advanced in this essay that the market measure of loss is the default risk-allocation rule, which is displaced when parties define their contractual bargain by reference to specific transactions. While Indian law oscillates between two incompatible justifications for the market rule, the difficulties faced mirror the conceptual confusion surrounding the market rule exposed in The Skyros.

VI. Concluding Remarks: Moving Beyond Taxonomies?

The Skyros shows that the market rule cannot be justified by mitigation because there was no factual loss to mitigate. The above analysis shows that the foundation of market rule lies in the parties’ assumed allocation of market risk. Once this is recognised, departures from the market rule cease to be ad hoc exceptions and instead become questions of contractual responsibility and allocation of risk. The taxonomy of remoteness, mitigation and scope of duty may overlap, but the overriding principle for the market rule remains agreement centred assumption of responsibility.

Nevertheless, the limits of the taxonomy separating remoteness, causation, mitigation, and, following SAAMCO and The Achilleas, scope of duty are increasingly being acknowledged. URS Corporation Ltd v BDW Trading Ltd [2025] illustrates the point. The issue was whether voluntary expenditure incurred by a builder to remedy a consultant’s negligence, undertaken to avert future harm and reputational damage despite no existing liability to occupants, was recoverable. The classification of such voluntary payments, like the market rule itself, is difficult. As mentioned above, voluntary choice (in the sense of not being a ‘reasonable’ response to breach) is normally used to explain mitigation, and as breaking the causal link between the defendant's breach and the relevant loss. Recognising the difficulty of this multifaceted inquiry, it was suggested that taxonomy may yield to a single normative question of what constitutes a ‘fair and reasonable allocation of liability’. Lord Burrows, consistent with his broader position, endorsed this as the policy underlying these principles URS at [68]. Whether such an approach can truly displace the need for structured doctrinal analysis remains open.  If indeed The Skyros undergoes another round of appeal, these intricate issues come to fore. It will also be interesting to see how this jurisprudence unfolds in the Indian landscape.

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[1] McGregor on Damages (21st edn, Sweet & Maxwell 2021) paras 9.002–9.007.

[2] See also, Adrian W.L. Lee, The New Flamenco Appraised: A New Framework for Avoided Loss and Mitigation (2021) Lloyd’s Maritime and Commercial Law Quarterly.

[3] Katy Barnett, 'Contractual Expectations and Goods' (2014) 130 Law Quarterly Review.

[4] See also, Andy Summers, 'The Market Rule', in Mitigation in the Law of Damages (Oxford, 2024)

[5] Andy Summers, Mitigation in the Law of Damages (Oxford, 2024). See also, The Elena D’Amico) [1980] 1 Lloyd's Rep 75.

[6] Robert Stevens "Damages and the Right to Performance: A Golden Victory or Not" in J. Neyers, R. Bronagh, S. Pitel (eds), Exploring Contract Law (Oxford: Hart Publishing, 2009

[7] N Tamblyn, 'Damages under String Contracts for Sale of Goods' [2009] Journal of Business Law 1. 14

[8] Adrian W.L. Lee (n 2).

[9] Lord Hoffmann, ‘The Achilleas: Custom and Practice or Foreseeability?’ (2010) 14 Edinburgh Law Review. 58.

[10] See also, David Foxton, 'How Useful Is Lord Diplock's Distinction between Primary and. Secondary Obligations in Contract?' (2019) 135 LQR 249

[11] Andrew Burrows, Remedies for Torts and Breach of Contract, 4th ed (Oxford University Press, 2019) 194.