The Effect of Market Conditions on Repudiation and Damages: Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2010] EWHC 903 (COMM)

• Author: Joel Meehan
• Position: Student editor, A&NZMLJ 2010
• Pages: 144-147

THE EFFECT OF MARKET CONDITIONS ON REPUDIATION AND DAMAGES:

ZODIAC MARITIME AGENCIES LTD V FORTESCUE METALS GROUP LTD

[2010] EWHC 903 (COMM)

Joe l Me eha n∗

Fortescue Metals Group Ltd (FMG) entered into a consecutive voyage charterparty (CVC) with Zodiac

Maritime Agencies Ltd (Zodiac) for the carriage of bulk cargos of iron ore on the vessel Kildare. The charter

was dated 5 December 2007 and was to be for a period of five years. FMG purported to suspend its contractual

obligations as a consequence of unfavourable market conditions. Zodiac claimed that FMG repudiated the

contract through a series of communications and conduct between 23 November 2008 and 2 January 2009. At

that stage the charter had almost four and a half years left to run. FMG in turn claimed t hat Zodiac’s purported

acceptance was itself repudiatory. FMG initially asserted the defences of frustration and force majeure, but

abandoned them shortly before trial. Justice David Steel of the Commercial Court presided over the matter.

The Fac ts

On 20 November 2008 Mr Saxon, chartering manager of FMG, informed Zodiac th at under the ‘current

circumstances’, it would be unable to honour its freight commitments as of 1 December 2008. FMG restated a

request it made in an earlier meeting that the freight rate be reduced from US$16 pmt to US$6 pmt, and that the

charterparty be extended from five to 10 years. Zodiac told FMG that the 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’.1

Mr Andrew Forrest, CEO of FMG, telephoned Captain Rami Zingher, Managing Director of Zodiac, on 2

December. The parties dispute the contents of that conversation. Zodiac claimed that Mr Forrest was advising

Zodiac that it was ter minating the CVC beca use they were no lo nger in a financial pos ition to honour their

obligations under it. FMG argued that Mr Andrew Forrest merely said that FMG had to ‘temporarily suspend or

delay the CVC’. On 4 December, Mr Forrest sent a fax to Zodiac stating that due to ‘events beyond the control

of [FMG], including but not limited to complete re fusal by our customers… to continue CFR ship ments’, it

would be exercising its right to suspend or delay performance of its contractual obligations. Mr Forrest sought to

rely on clause 32 of the charterparty, which he contended excused FMG from loss, damage, delay or failure to

perform its contractual obligations as a result of unforeseen circumstances. Zodiac argued that the clause applied

for the purposes of laytime and demurrage onl y, and that FMG had no right t o suspend or delay its contr actual

performance.2

FMG followed this with an announcement to the Australian Sto ck Exchange on 5 December 2008, stating that it

would be suspending ‘all its lo ng term CFR shippi ng Contracts of Affr eightment and Co nsecutive Voyage

Contracts on the basis of unforseen circumstances’.3

Zodiac’s Australian solicitors requested clarification from FMG on 10 December 2008. It asked how long FMG

intended to suspend its contractual performance, the precise cause for doing so and whether it was as a result of

any particular event or market development. FMG replied on 15 December 2008, stating that it was unable to

load the vessel, and that through no fault of its own, performance had become radically different to that

originally contemplated in the contract. It also informed Zodiac that it was assessing whether the market

conditions had frustrated performance of the contract.

While the vessel was bound for Port Hedland to receive her next cargo, FMG’s port agents Sea Corporation Pty

Ltd informed Zodiac that the vessel would not be loading cargo at FMG’s terminal at Port Hedland. Zodiac

requested clarification on the matter on 27 December 2008, asking whether FMG intende d to load at a different

berth, and if not, when it would resume loading at Port Hedland. FMG’s London solicitors did not respond until

2 January 2009, and then simply restated its position, reservi ng its right to rely on clause 32 with regard to

demurrage. By this sta ge, the vessel had arrived at Port Hedland and tendered notice of readiness. Based on a

∗ Student editor, A&NZMLJ 2010.

1 Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2010] EWHC 903 (Comm), [ 10].

2 Ibid, [15].

3 Fortescue Metals Group Ltd, Announcement to the Au stralian Stock Exchange, 5 December 2008.

(2010) 24 A&NZ Mar LJ

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