Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd

A party repudiates a contract where its communications and conduct objectively evince a clear intention not to be bound. An honest mistake about contractual rights does not excuse a repudiatory breach where the party has not identified a contractual power supporting its conduct. In assessing damages for premature termination of a charterparty, an available market must correspond materially with the original fixture, including its trading limits and duration. If no market exists at termination, a market emerging later does not ordinarily require the innocent party to re-enter that market. Earnings from alternative employment must be brought into account where they arise from, or are sufficiently closely connected with, the breach.

The claim arose from FMG’s termination, or purported suspension, of a five-year consecutive voyage charterparty for the vessel Kildare. Following a collapse in freight demand, FMG sought substantially reduced freight and indicated that it could not perform unless more favourable terms were agreed. It later asserted a right to suspend or delay performance and failed to load the vessel for a further voyage.

Zodiac accepted FMG’s communications and conduct as repudiation and claimed demurrage and damages for the remaining charter period. The issues were whether FMG had repudiated the charterparty and, if so, how damages should be assessed in the absence of an available market at the termination date.

1. Repudiation. The court preferred Zodiac’s evidence of the 2 December 2008 telephone conversation. Considered with the preceding demand for substantially more favourable terms, FMG’s assertion that it could not perform, its unexplained reliance on a supposed suspension right, and its failure to load the vessel, the communications and conduct objectively evinced a clear intention not to be bound. FMG was therefore in repudiatory breach.
2. Mistaken contractual belief. Woodar Investment Development Ltd v Wimpey Construction UK [1980] 1 WLR 277 did not assist FMG. The case was materially different because FMG identified no contractual right to terminate or suspend, gave no meaningful indication of the duration or conditions of suspension, and did not undertake to perform if its legal position proved wrong. An honest mistake about the contractual position would not excuse the breach: Federal Commerce and Navigation Co. Ltd v Molena Alpha [1978] QB 927; [1979] AC 757.
3. Available market. The court adopted the approach summarised in Shearson Lehman Hutton Inc. v Maclaine Watson & Co Ltd [1990] 1 Lloyds Rep. 441. The relevant market had to be for a substantially equivalent long-term fixture. The trading limits should broadly correspond with those in the original charterparty; a different route was not a market substitute: The Golden Victory [2007] 2 AC 353. There was no available market at termination because there was no sufficient demand for a fixture of the relevant duration and route.
4. Later market and mitigation. The later emergence of a term market did not require Zodiac to abandon spot employment and fix the vessel for the remaining period. The market-rate measure is assessed at the breach date, where available, and later market movements are removed from the calculation: The Elena d’Amico [1980] 1 Lloyd’s Rep. 75; Norden v Andre [2003] 1 Lloyd’s Rep. 287.
5. Alternative earnings and discount. Earnings under the Guofeng charter were sufficiently connected with the termination to be brought into account. The court applied the commonsense causal approach in The Fanis [1994] 1 Lloyd’s Rep. 633 and considered the renegotiation to have resulted from the breach. Damages were also subject to a discount for accelerated receipt and catastrophic contingencies. The parties were invited to agree the quantum, expected to be approximately US$80–85 million.