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

Factual and Procedural Background

This opinion concerns a dispute arising from a forward freight swap agreement (FFA), a derivative contract used to hedge or speculate on freight market rates. The Plaintiff, a well-established Danish shipping company, entered into an FFA with the Defendant, a broker firm, in late 2000 to hedge exposure under a charter party for a Panamax bulk carrier. The contract covered 365 days from 1 January to 31 December 2001, with a fixed rate of US$10,675 per day and settlement monthly based on the floating freight rate of four specified routes.

In March 2001, the Defendant faced financial difficulties, publicly announcing restricted credit access and entering insolvency protection proceedings. The Plaintiff, concerned about the Defendant’s solvency and risk of non-payment, terminated the FFA on 19 March 2001, citing breach of continuing warranties of solvency. Subsequent attempts at renegotiation failed, and the Plaintiff initiated proceedings claiming damages for breach of contract.

The Defendant initially disputed the validity of the termination but later conceded liability, leaving the issue of damages to be determined by the court. The damages dispute centered on the appropriate measure and timing of compensation for the Plaintiff’s losses resulting from premature termination of the FFA.

Legal Issues Presented

1. Was there an available market in which the Plaintiff could have replaced its contract with the Defendant at or shortly after the termination date, and if so, at what price?
2. If a replacement market existed, is the Plaintiff’s loss prima facie to be measured by the difference between the fixed price under the original contract and the fixed price obtainable under a replacement contract or contracts (the price differential measure)?
3. If the price differential measure applies, are there particular reasons in this case to displace that measure?
4. At what date should the price differential measure, if appropriate, be applied?

Arguments of the Parties

Plaintiff's Arguments

• The Plaintiff sought to be placed in the financial position it would have been in had the contract been performed fully, claiming damages of approximately US$757,385.96.
• It argued that the Defendant breached warranties of solvency, justifying termination.
• The Plaintiff contended that replacing the contract was commercially imprudent due to uncertainty over the validity of termination and the Defendant’s ability to pay damages.
• It maintained that the normal measure of damages should apply but that the Plaintiff’s decision not to enter replacement contracts was reasonable given the circumstances.

Defendant's Arguments

• The Defendant argued that damages should be measured by the difference between the original fixed rate and the fixed rate at which the Plaintiff could have obtained replacement contracts after termination.
• It asserted that a replacement market existed at an average fixed price of around US$10,000 for the remaining contract period.
• As a fallback, the Defendant suggested using market rates as of the end of March 2001 for assessing damages.
• The Defendant initially denied that the Plaintiff was entitled to terminate but later conceded valid termination, limiting the dispute to damages.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by establishing the nature of the FFA and the factual background, including the Defendant’s insolvency and the Plaintiff’s termination of the contract due to breach of warranties.

Expert evidence was carefully considered regarding the existence and price of a replacement market for the contract period following termination. The court found the Defendant’s expert’s evidence more persuasive, concluding that a replacement market existed from 19 to 30 March 2001 with probable prices not lower than US$9,975 on 19 March and approximately US$9,500 by the end of March.

The court then examined whether the normal measure of damages—being the difference between the original contract price and the replacement market price—applied. It relied on authoritative precedents, including Elena D'Amico, to affirm that where a market exists to replace the contract, damages are typically assessed by the price differential at the date of breach.

The court acknowledged that this measure is prima facie and not absolute, allowing for exceptions if applying it would cause injustice. However, it found that the Plaintiff’s commercial reasons for not entering replacement contracts, including uncertainty about the validity of termination and the Defendant’s ability to pay damages, did not amount to exceptional circumstances warranting departure from the normal rule.

Regarding the appropriate date for assessing damages, the court concluded that the termination date (19 March 2001) was appropriate, as the Plaintiff was in a position to decide promptly whether to replace the contract, and the market was sufficiently liquid to permit replacement quickly.

Holding and Implications

The court held that the Plaintiff validly terminated the contract due to the Defendant’s breach of warranties and that damages should be assessed on the basis of the price differential measure at the date of termination.

The Plaintiff’s damages were assessed at US$192,500 excluding interest.

The decision places the Plaintiff in the financial position it would have occupied had the contract been performed, reflecting the cost of replacing the contract at prevailing market rates at termination. No new precedent was established; the ruling affirms established principles regarding damages for breach of contract where a substitute market exists and confirms the date of breach as the normal date for damages assessment unless injustice requires otherwise.