Dampskibsselskabet "Norden" A/S v Andre & CIE. S.A

Where a contract is discharged by breach and an available substitute market exists, damages will ordinarily be assessed by comparing the original contract price with the market replacement price at the date of breach. The innocent party’s failure to enter a substitute contract, even if commercially reasonable, does not by itself justify a different measure. The prima facie rule may be displaced only where applying it would conflict with the governing principle of contractual damages and cause injustice. A later market movement is generally irrelevant once the innocent party has had the opportunity to re-enter the market. The appropriate date may be varied where justice requires, but ordinarily remains the date of termination.

The claimant had entered into a forward freight swap agreement to hedge its exposure under a charterparty. After the defendant became insolvent and breached continuing warranties of solvency and good standing, the claimant terminated the agreement. The defendant ultimately accepted that termination was valid.

The remaining dispute concerned damages. The claimant sought the financial equivalent of performance for the balance of the contract. The defendant argued that loss should be measured by the difference between the contract rate and the rate available for a replacement forward freight swap. The court had to determine whether an available market existed, whether the market-difference measure applied, whether there were special reasons to depart from it, and the relevant valuation date.

1. Available market. The court found that an available market existed between 19 and 30 March 2001. The probable replacement rate on 19 March was $9,975 per day, producing a difference of $700 per day against the contractual rate of $10,675.
2. Normal measure. Applying the principle discussed in The Elena D’Amico [1980] 1 Lloyd’s Rep 75, where an available substitute market exists for the unperformed obligation, loss will ordinarily be measured by the financial disadvantage under the substitute contract. This reflects the loss arising naturally from the breach and gives finality to the transaction.
3. The fact that the innocent party reasonably decided not to enter a replacement transaction is insufficient to displace that measure. The subsequent course of the market is ordinarily the innocent party’s commercial risk. The court applied the reasoning in Campbell Mostyn (Provisions) Limited v Barnett Trading Company [1954] 1 Lloyd’s Rep 65 and Jamal v Moolla Dawood Sons & Co [1916] 1 AC 175.
4. The ordinary date of assessment is the date of breach, although it is not absolute. The court recognised the qualification identified in Johnson v Agnew [1980] AC 367: another date may be selected where applying the ordinary rule would cause injustice. No such circumstances existed. The claimant could decide whether to replace the contract at termination or shortly afterwards, and the possibility of renegotiation did not justify postponing valuation.
5. The claimant’s concerns about the validity of termination and the defendant’s ability to pay damages did not make application of the normal measure unjust. Damages were therefore assessed at the termination date at $192,500, excluding interest.

Not stated in the judgment.