Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID STEEL,Mr Justice David Steel |
| Judgment Date | 28 April 2010 |
| Neutral Citation | [2010] EWHC 903 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2009 FOLIO 59 |
| Date | 28 April 2010 |
[2010] EWHC 903 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice David Steel
Case No: 2009 FOLIO 59
Andrew Baker QC & Malcolm Jarvis (instructed by Ince & Co.) for the Claimant
David Allen QC & Michael Collett (instructed by Clyde & Co.) for the Defendant
Hearing dates: 23 rd, 24 th and 25 th March 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice David Steel :
The dispute before the Court arises out of the termination of a Consecutive Voyage Charterparty dated 5 December 2007 (“the CVC”) between the Claimant (“Zodiac”) as owners and the Defendant (“FMG”) as charterers.
FMG is an Australian iron ore producer established in 2003. Its mines are in the Pilbara region of north west Australia and it ships the ore from its terminal (Herb Elliott Port) at Port Hedland, Australia.
Zodiac manages a large fleet of Capesize and other vessels.
The CVC was a contract for 5 years for Western Australia/China consecutive voyages on mv “Kildare” (“the vessel”), a Capesize bulk carrier of 211,321 mt deadweight (on 18.32 m SSW). The contractual cargo was iron ore concentrates in bulk to be loaded at Port Hedland for carriage to China, although FMG had an option to load coal or iron ore for other discharge ports within India/Japan range.
It is common ground that the CVC came to an end in January 2009. The only remaining issue between the parties on liability is whether FMG repudiated the CVC by its communications and conduct between 23 November 2008 and 2 January 2009. This is because FMG very close to trial abandoned its primary defences of frustration and force majeure. If FMG did not repudiate the CVC as contended, Zodiac accepts that its purported acceptance of a repudiation on 9 January 2009 was itself repudiatory, being accepted as such by FMG on 12 and/or 13 January 2009.
In January 2009 the CVC had almost 4 1/2 years to run. By its Amended Particulars of Claim, Zodiac claims demurrage of US$749,137.50 (to which there is now no defence) and damages of up to US$105 million. FMG contends that the quantum of Zodiac's damages claim is substantially overstated.
Repudiation—the facts
The Vessel tendered NOR for the first consecutive voyage under the CVC on 24 May 2008 and completed five consecutive voyages thereafter.
Prior to completion of loading a cargo for the sixth voyage, and following a meeting between Mr. Saxon, chartering manager of FMG and Mr. Shirreff, of Zodiac's Shanghai office, on 20 November 2008, Mr. Saxon (together with his colleague Mr Hodgins, head of shipping) sent an e-mail to Mr Shirreff advising him that under the “current circumstances” FMG would not be able to honour their freight commitments to Zodiac under the Charterparty from 1 December 2008.
In that e-mail, FMG stated that this was due to their customers' cancellation of all of their freight agreements with FMG. It repeated a request made at the meeting that Zodiac agree a reduction in the Charterparty freight rate (from US$16 pmt to US$6 pmt) with effect from 1 December 2008 together with its extension from 5 to 10 years. Mr. Saxon concluded that e-mail:
“It is unfortunate that we find ourselves in this position, however as discussed, we are effectively fighting for our survival.
We obviously hope for an imminent return to a more viable freight market and realistic outlook from China and to this end can assure Zodiac of our support on any additional opportunities going forward.
We would greatly appreciate your support, understanding and urgent assistance.”
On 25 November 2008, Zodiac's legal department responded to FMG's e-mail of 23 November 2008 stating that FMG's proposals were “totally unacceptable” and that “a change in market conditions is not a permissible excuse for failing to perform a contractual obligation under English law”.
The Vessel completed loading FMG's cargo for the sixth consecutive voyage to China on 26 November 2008 and sailed from Port Hedland on the same day.
On 2 December 2008, Mr Andrew Forrest, the Chief Executive Officer of FMG, telephoned Capt Rami Zingher, the Managing Director of Zodiac. There is a dispute as to what was said in the course of that call. Zodiac says that Mr Forrest advised that FMG was terminating the CVC because FMG was no longer in a financial position to honour its obligations under the CVC. It is FMG's case that Mr Forrest only said that, due to unforeseen circumstances, FMG had no choice but to temporarily suspend or delay the CVC.
The following day Captain Zingher sent an e-mail to Mr Forrest in which he stated:
“We refer to our telephone conversation of 2 December 2008 in which you stated that due to their financial position FMG are terminating the contract and would not be performing any future obligations under the contract.
We are considering our position, including the right to treat your advices to us as a repudiation of the contract. We do require certainty and finality in this matter and call upon you to provide an immediate and unequivocal response confirming your position in writing.”
On 4 December 2008, Mr. Forrest sent a fax to Zodiac stating as follows :
“We refer to the FMG Charter Party (2007) Contract between Zodiac … and [FMG] dated 5 December 2007.
Due to events beyond the control of [FMG], including but not limited to complete refusal by our customers at the direction of their authorities to continue CFR shipments, [FMG] hereby gives Zodiac … notice that at this time, it must exercise its right to suspend or delay the performance of its obligations under the Contract from the date of this letter.
Pursuant to clause 32 of part II of the Contract, neither Zodiac … nor [FMG] is responsible for any loss, damage, delay or failure to continue to perform under the Contract as a result of these unforeseen circumstances. However, we invite you to discuss the situation with us with the object of minimising losses.”
Capt Michael, of Zodiac's legal department, responded to that fax by e-mail to Mr. Forrest on 5 December 2008 stating, inter alia, that FMG had no right to terminate or “suspend or delay” performance of the Charterparty and that clause 32 applied only for the purposes of laytime and demurrage. In that e-mail, Capt Michael asked FMG to specify the clause upon which it relied and whether FMG required the Vessel to proceed to Australia upon completion of discharge in China.
On 5 December 2008, FMG made an announcement to the Australian Securities Exchange that it had:
“…exercised suspension of all of its long term CFR shipping Contracts of Affreightment and Consecutive Voyage Contracts on the basis of unforeseen circumstances.
The changed arrangements as a result of these suspensions, should not affect [FMG's] marketing program in regards to volumes of product shipped, just the split between CFR and FOB sales terms. To date approximately 2/3rd of [FMG's] sales have been on CFR terms but this is likely to reduce to around 1/3rd of sales. CFR sales are where [FMG] supplies the produce on a landed basis into China whereas FOB sales are where the customer arranges its own freight from Port Hedland to China.
The changed arrangements are in direct response to market conditions demanding greater FOB sales.”
By letter dated 10 December 2008, HWL Ebsworth (Zodiac's Australian lawyers) wrote to FMG on behalf of Zodiac requesting FMG to state, inter alia, the period for which FMG intended to suspend its performance of the Charterparty, the precise cause for the suspension, when that cause would abate and whether the suspension was tied to any particular event or market development.
FMG replied by faxes of 15 December 2008 stating:
“As we have already informed you, we are not presently in a position to load the M/V Kildare due to circumstances beyond our control. Our position has not changed since our previous communications to you.
In the event that circumstances change we will endeavour to load cargoes in accordance with our contractual obligations. …”
and
“You will be aware from our open correspondence to you that we are not presently in a position to load cargoes on the M/V Kildare or indeed on any vessels you present.
The global economic meltdown has had a potentially catastrophic effect on our business to the extent that our customers are unable to perform their original contractual obligations.
This situation has arisen wholly without fault on our part and despite our due diligence. The performance of our contracts is now a radically different obligation to that which we contracted to perform. It is more than a mere economic alteration and significantly changes the nature of our rights and obligations.
Presently, we are merely delaying performance pursuant to our contractual rights but we are also now investigating, as a matter of urgency, whether the contracts are truly frustrated.”
Capt. Michael of Zodiac replied by e-mail on 17 December 2008 asking FMG to specify the grounds upon which FMG considered it had a right to suspend or delay shipment and the “circumstances” relied upon said to be beyond FMG's control. Zodiac also pointed out that FMG had no right to refuse to load the Vessel under the Charterparty. By a further e-mail of the same date, Capt Michael informed Mr. Forrest that the Vessel was proceeding back to Australia to load the next cargo under the Charterparty and that her ETA at Port Hedland was 1 January 2009.
On 17 December 2008 the Vessel completed discharge of its cargo of iron ore...
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