England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		30th January 2003

Mr Justice TOULSON :

Introduction

1. A forward freight swap agreement (FFA) is a form of derivative. Essentially it is a bet whether the market freight rate for a certain type of voyage or a certain period of time over a designated route or combination of routes will be higher or lower than the price struck as the basis of the bet. There is therefore a fixed price and a floating price, the former determined by agreement and the latter by an agreed mechanism based on the market. The winning party receives the difference between the rate of the fixed price and the rate of the floating price for the relevant voyage or contract period multiplied by the agreed contract quantity. The party who bets on the market rising is termed the buyer and the party who bets on it falling is termed the seller. It will be appreciated that these are terms of convenience and do not reflect the legal nature of the agreement.
2. The market in FFA's began about 10 years ago. In recent years it has expanded rapidly, but it is still small compared with other derivative markets. Whereas the oil forward and futures market is several times the size of the physical market, the FFA market is about a tenth of the size of the physical market. In March 2001 there were four major brokers in the market.
3. Like other derivatives, FFA's may be used for various purposes – pure speculation, arbitrage or hedging.
4. The claimant, Norden, is an old and highly respected Danish shipping company. In recent times it has controlled a fleet numbering usually between 50 and 60 bulk carriers (which it mainly charters in) and about 15 tankers (which it mainly owns).
5. Norden's use of FFA's was explained by Mr Carsten Mortensen, who is a senior vice-president of the company with overall responsibility for all its dry cargo business, physical or derivative. Since 1997, when he joined the company, it has participated in the freight derivatives market, but never as a pure form of speculation. On occasions it has engaged in arbitraging, but its primary use of FFA's has been either as a hedge against loss on a particular physical fixture or more generally (and more often) as a means of adjusting and controlling its risks on its overall portfolio. At any given time Norden will have chartered in vessels for X days and secured fixtures for Y days. X is likely to be greater than Y, but it could be less. Suppose that X is 1,000 days and Y is 500 days. Norden's "cargo cover" is therefore 50%. Depending on how Norden perceives that the market is likely to move, it might want to use the forward freight market to "sell" freight. If it sold 365 days, this would give it a cargo cover of 86.5%.
6. In 2000 Norden was involved in operating Cape Size bulk carriers and Handymax bulk carriers, but it had not been involved in the market for Panamax bulk carriers. Mr Mortensen wanted Norden to become involved in the Panamax sector, because he thought that in the long run it would be profitable, although he expected Norden to suffer a loss in the short term. In October 2000 the opportunity came of chartering in a Panamax bulk carrier called the "Talisman" for a minimum period of 16 months at a net rate of US$11,100 per day. Mr Mortensen decided to do so if he could limit Norden's potential loss by a suitable FFA for 12 months from 1 January 2001. This he arranged through brokers, Clarksons, with the defendant, Andre. With the FFA in place, he concluded the fixture of the "Talisman". The FFA was therefore specifically intended by Mr Mortensen to be a hedge against Norden's exposure under the "Talisman" charter party.
7. The contract contained the following material terms:-

1) The contract route was to be the average of four routes (Transatlantic Round Timecharter, Continent to US Gulf to Fareast Timecharter, Transpacific Round Timecharter and Fareast to Nopac to Continent Timecharter) of the Baltic Panamax Index (BPI), known for short as the 4 BPI TC routes.

2) The fixed rate was to be US$10,675 per day.

3) The contract quantity was to be 365 days.

4) The contract period was to be from 1 January to 31 December 2001.

5) Settlement dates were to be the last day of each month.

6) The floating rate was to be determined monthly as the average of the rates for the 4 BPI TC routes published by the Baltic exchange during each month (with further provisions for determining the floating rate if for any reason the Baltic exchange could not provide any rate required).

7) The settlement sum was to be the difference between the fixed rate and the floating rate multiplied by the contract quantity. If the settlement rate was greater than the fixed rate, the seller was to pay the buyer the settlement sum; and vice versa if the settlement rate was less than the fixed rate.

8) Payment of the settlement sum was to be made within 5 days after the settlement date.

9) Each party gave a continuing warranty to the other that it was solvent and in good standing.

Andre's breach and the ensuing litigation

8. At the time when the FFA was concluded Andre was a well-regarded company.
9. In January and February 2001 the floating rate was higher than the fixed rate, and at the end of each month Norden duly paid the difference to Andre.
10. On 9 March 2001 Andre published a press release, stating that it no longer had normal access to credit lines because of action taken by its bankers and that its usual trading activities were paralysed. On the same day it applied to the Tribunal d'Arrondissement in Lausanne for court protection against its creditors pursuant to the court's insolvency jurisdiction. The court appointed a chartered accountant as Andre's legal administrator for an initial period of two months.
11. This news travelled quickly round the market. On 16 March 2001 Mr Mortensen sent an email to a contact at Andre, Mr Alberto Molaschi, saying:

"We have learned from press reports that, much to our concern, Andre have filed Chapter 11 proceedings before the Courts in Switzerland, are shutting many of their operations, and that 43 banks have stopped all credit lines to your organisation. Given our present commercial relationship, we would much appreciate it if you could urgently advise by return whether the above mentioned information is correct or not."

12. The email was not answered, but Norden's P&I Association obtained confirmation from Andre by telephone that the press reports were correct. Mr Mortensen decided to terminate the FFA. He explained his reasoning in his witness statement as follows:

"I could not be certain of what the market would do over 2001, but I knew that in all likelihood a payment would be due to Andre for March 2001. This raised the risk that whilst we paid when required to do so under the terms of the FFA, they would not do likewise. This danger was compounded by the fact that, as I have explained, the FFA was designed to hedge the market risk in respect of the "Talisman" fixture. If we continued to make payments to Andre under the FFA, it would be similar to paying premiums to an insolvent insurer. In addition to Norden's losses under the "Talisman" charter resulting from a decline of the market, we would also have to bear the cost of the one-sided performance of the FFA."

13. On 19 March 2001 Norden gave notice to Andre that it treated the contract as terminated by reason of Andre being in breach of its warranties that it was solvent and in good standing.
14. Subsequently, on a date which is not precisely clear, Mr Molaschi of Andre talked to somebody on behalf of Norden (either Norden's lawyers or its P&I Association) about a possible compromise agreement.
15. Mr Giorgio Martini is a director of a firm of brokers, Ifchor, and is responsible for its FFA division. Ifchor, among others, used to act for Andre. On 29 March 2001 Mr Martini received a message from Mr Molaschi that he believed that the administrator would be willing to treat all the monthly settlements under the FFA for the remainder of the year as inter-linked and would therefore be willing to have one settlement at the end of the year. Mr Molaschi suggested that if Norden found this idea acceptable it should approach Andre with a view to drawing up an addendum to the FFA for approval by the administrator.
16. Mr Martini passed the message to Clarksons, who passed it to Mr Mortensen.
17. Mr Mortensen consulted Mr Jeremy Miles of Norden's P&I Association, telling him that "we are in money on the deal altogether and so would like to maintain the deal without being out of pocket". The reference to being "in money on the deal" is explained by the fact that the FFA market for the rest of the year had fallen below the fixed price of the Norden / Andre FFA.
18. On 30 March 2001 Mr Miles on behalf of Norden told Mr Molaschi that Norden was prepared to renegotiate the contract on the basis suggested by Mr Molaschi, if the administrator would address the question of security to guarantee Andre's performance. On the same day Mr Molaschi told Mr Miles that the Swiss court was not prepared to sanction the renegotiation of the agreement on the basis proposed by Mr Molaschi and that Andre would be sending an invoice to Norden for the March settlement figure. Mr Miles replied that Norden's position remained that the contract had been cancelled.
19. Clarksons continued to issue monthly settlement advices for March, April and May 2001. These showed sums due from Norden to Andre, but the market was falling, and the settlement advice for June showed a sum due from Andre to Norden. Andre thereupon changed its stance. On 30 July 2001 it wrote to Norden's lawyers taking the position that the FFA had been terminated by Norden on 19 March 2001 and nothing was subsequently due under it.
20. On 2 November 2001 Norden issued proceedings against Andre claiming damages for breach of contract. In its original defence Andre admitted that from 9 March 2001 it was not in good standing and not solvent, and that it was therefore in breach of the FFA; but it denied that the breach entitled Norden to treat the contract as terminated, and it asserted that Norden's treatment of the agreement as terminated by its letter of 19 March 2001 was a wrongful repudiation of the contract by Norden, which Andre accepted as terminating it. However, by an amendment made a few weeks before the trial Andre withdrew its defence on liability and conceded that the agreement had been validly terminated by Norden on 19 March 2001, leaving only the amount of damages to be decided.

Damages: the issues

21. Norden claims that it should be put in the same financial position as if its contract with Andre had not ended prematurely but had been properly performed. On that basis, damages are agreed at US$757,385.96 excluding interest.
22. Andre contends that Norden's loss should be measured by the difference between the fixed rate under the contract ($10,675) and the fixed rate at which Norden could have obtained a replacement FFA contract or contracts after the termination of the original contract on 19 March 2001. It is Andre's case that on and around that date Norden could have entered into a contract or contracts for the 9 months from April to December 2001 at an average fixed price of $10,000. On that basis Andre argues that Norden's loss should be assessed at $185,625 (being $10,675 - $10,000 x 275 days). As a fall back position, Andre argues that Norden's loss should be measured by reference to the state of the market at the end of March 2001. (The last working day was 30 March.)
23. Accordingly the following issues arise:

1) Was there an available market in which Norden could have replaced its contract with Andre, and, if so, at what price, at the time of its termination and/or at the end of March 2001?

2) If there was an available market in which the contract could have been replaced on or within a reasonable time after its termination, is Norden's loss prima facie to be measured by reference to 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 answers to questions 1 and 2 are yes, is there good reason in the present case not to adopt the price differential measure?

4) At what date should the price differential measure, if appropriate, be applied?

Was there an available market at 19 and / or 30 March 2001?

24. Expert witnesses were called on both sides. The expert for Norden was Mr Philippe Van Den Abeele, Clarksons' managing director. The expert for Andre was Mr Martini, to whom I have already referred. Both experts had previously acted for their respective clients, but it was sensibly agreed between the parties' solicitors that, in view of the small number of broking firms actively involved in the relevant field, neither party would object to the other's choice of expert. The two experts were well known to one another and each was well qualified to give evidence. Ifchor (Mr Martini's firm) had a smaller share of the market than Clarksons, but it was nevertheless one of a small number of brokers with significant involvement in the FFA market.
25. Mr Van Den Abeele helpfully exhibited to his first report a set of Clarksons' market reports for March and April 2001. These reports were produced each working day in order to keep clients up to date on market developments. The reports included daily bid and offer prices for the average of the 4 BPI TC routes for the rest of the year and individually for each quarter. These figures did not represent actual trades, but Clarksons would telephone clients each day to find out the prices at which they would be interested in buying or selling, and the bid and offer prices shown in the daily reports were based on the indications which they received. The difference between the quoted bid price (buying price) and offer price (selling price) reflected the fact that the buyer stood to gain if the settlement rate was higher than the fixed rate and to lose if it were lower.
26. Clarksons' reports from 15 to 30 March gave the following figures for bid and offer rates for the 4 BPI TC routes for the 9 months from April to December 2001:

	BID	OFFER
	$	$
15March	10,100	10,400
16 March	10,100	10,450
19 March	10,100	10,450
20 March	10,100	10,450
21 March	10,100	10,450
22 March	10,100	10,450
23 March	10,100	10,450
26 March	10,000	10,400
27 March	10,000	10,400
28 March	9,500	10,000
29 March	9,500	10,000
30 March	9,600	10,000

 

27. Clarkson's daily reports also showed the current BPI rates for various routes, based on the opinion of a panel of brokers, and the arithmetical average of the figures for the 4 TC routes.
28. The experts agreed that it would have been easier in March 2001 to arrange separate FFA's for, say, April to June and July to December than a single FFA for April to December, because 3 months and 6 months were more usual periods for FFA's than 9 months, but in giving their opinions as to the appropriate rate they both took the overall period of 9 months.
29. Mr Martini in his initial report, dated 6 June 2002, expressed the view that in the aftermath of the termination of the contract Norden could have replaced it (either in one shot or through separate contracts) at a rate (or average rate) probably not lower than $10,000. He relied upon Clarksons' reports and on the fact that on 13 March he himself concluded two contracts for 3 months and for 6 months, spanning the period from April to December, at an average price of $10,300. He said that the market at this time was "under slow but regular erosion, without any particular blips".
30. Mr Van Den Abeele in his initial report, dated 28 June 2002, disagreed to some extent with Mr Martini's description of the market. He said that the market in March 2001 was quiet until the BPI fell sharply at the end of the month, primarily due to a lack of buyers, and Andre's failure made a quiet market still quieter. Clarksons did not broker any Panamax FFA's between 19 and 28 March. He concluded as follows:

"Although it is not impossible that Norden would have been able to find a suitable counterparty ready to buy freight under a nine month FFA, or, more likely, a series of three month FFA's on 19^th March 2001, I cannot say that they could have done so.

If Norden had been able to find a suitable counterparty ready to buy freight under a nine month FFA, or series of quarterly FFA's, the rate would probably have been about US$10,000."

31. After a telephone discussion, the experts agreed on a joint statement. In it they said:

"Although the market felt the Andre default, there was no substantial disruption of trades and if Norden had wanted to cover its position he could have done so, albeit possibly at a discounted price."

32. Mr Van Den Abeele subsequently revised his opinion about the joint statement, parts of which he felt were inappropriate. In his revised opinion Mr Van Dan Abeele re-phrased, but only slightly, the words quoted. His revised version read:

"The Andre default caused the market to hesitate but not to the extent Norden would not have been able to trade, albeit at a discounted price."

33. In cross-examination Mr Van Den Abeele said that if Norden had wished to replace the Andre FFA at the time of its termination $10,000 would have been an optimistic figure and $9,500 would have been more realistic. This was a significant departure from the view expressed in his initial report (which he had verified at the beginning of his evidence) that, if Norden had been able to find a suitable counterparty ready to buy freight under a 9 month FFA or series of FFA's, the rate would probably have been about $10,000. Mr Van Den Abeele acknowledged the change but sought to explain it by reference to the market disturbance caused by Andre's failure.
34. Mr Martini in his oral evidence said that until the last few days of March the market was stable in that neither sellers nor buyers were pushing. When some traders expect that the market will go up, and others that it will go down, there will be plenty of trades. That was not the situation. There was a general feeling of uncertainty, and this explained why there were few people seeking trades. He had agreed to the sentence in the joint report "Although the market felt the Andre default, there was no substantial disruption of trades and if Norden had wanted to cover its position he could have done so, albeit possibly at a discounted price" as a compromise. He personally felt that Andre's failure was not the main cause of the absence of trades. The trades which he negotiated on 13 March were prompted by Andre's default, which led another party to replace its contract with Andre. The fall in the market at the end of the month was caused by a sharp fall in the BPI.
35. To illustrate his view of the market on and around 19 March, Mr Martini sketched an imaginary negotiation in which a broker on behalf of Norden went to a buyer who had given an indication of a bid price of $10,100 with an offer to trade at $10,200. He could imagine the buyer counter-proposing $9,900 and the broker going back with a compromise figure. He could imagine the final figure being $9,975 – ie marginally, but only so, below the figure given in his initial report.
36. I found Mr Martini's evidence on this issue more compelling than that of Mr Van Den Abeele for several reasons. First, he was more consistent in his views; and I did not find satisfying Mr Van Den Abeele's explanation for his departure from his original view that if Norden had been able to find a suitable counterparty to enter into a replacement contract or contracts the rate would probably have been about $10,000. Second, Mr Martini's evidence was supported by his experience of arranging consecutive FFA's for 9 months at an average figure of $10,300 on 13 March 2001. Mr Van Den Abeele suggested that this might have been negotiated before the news of Andre's failure reached the market, but that was a speculative suggestion and was contrary to the evidence of Mr Martini (who said that he negotiated the replacement FFA's on 13 March after the news of Andre's failure had broken and that he did not think that it took him more than about one hour to do so). Third, although the fact that somebody in the market was prepared on 19 March and succeeding days to indicate a bid price of $10,100 does not mean they would necessarily have been prepared to strike a deal at that exact figure, it does suggest a willingness to do business at a figure in that region. It is hard to see why someone should indicate interest in a bid price of $10,100 if $9,500 was the highest that they would have been prepared to pay.
37. For the end of the month Mr Van Den Abeele did not suggest a precise figure, but he said that the best indication of the price at which a deal could have been done was to be found in Clarksons' daily reports. Mr Martini said that he would have expected to trade at more than $9,500, and that a figure of $9,400 would be a "prudent conservative" approach.
38. I conclude that there was an available market in which Norden could have replaced its contract with Andre throughout the period from 19 to 30 March. I accept Mr Martini's evidence that at 19 March the probable price would have been not lower than $9,975. At the end of the month the price would probably have been in the region of $9,500, if not higher.

If there was an available market at or within a reasonable time after the date of termination of the contract, is Norden's loss prima facie to be measured by reference to the price differential?

39. At the end of the trial both parties agreed that the answer to this question is yes. However, it is necessary to consider the reasons in order to pave the way for consideration of the next question.
40. The principles can conveniently be considered by referring to the decision of Robert Goff J in the Elena D'Amico [1980] 1 Lloyd's Rep 75 and the authorities which he cited. The case involved the premature wrongful repudiation of a time charter by the owners. The judge held that if there was at the time of termination an available market for chartering in a substitute vessel, damages would normally be assessed on the basis of the difference between the contract rate for the balance of the charter period and the market rate for a substitute charter. He arrived at this result by analogy with cases of sale of goods or shares in which either the seller failed to deliver or the buyer failed to accept delivery: Jamal v Moolla Dawood Sons & Co [1916] 1 AC 175 and Campbell Mostyn (Provisions) Limited v Barnett Trading Co [1954] 1 Lloyd's Rep 65.
41. The broad principle deducible from the Elena D'Amico and the authorities there considered is that where a contract is discharged by reason of one party's breach, and that party's unperformed obligation is of a kind for which there exists an available market in which the innocent party could obtain a substitute contract, the innocent party's loss will ordinarily be measured by the extent to which his financial position would be worse under the substitute contract than under the original contract.
42. The rationale is that in such a situation that measure represents the loss which may fairly and reasonably be considered as arising naturally, i.e. according to the usual course of things, from the breach of contract (Hadley v Baxendale (1854) 9 Exch 341, 354). It is fair and reasonable because it reflects the wrong for which the guilty party has been responsible and the resulting financial disadvantage to the innocent party at the time of the breach. The guilty party has been responsible for depriving the innocent party of the benefit of performance under the original contract (and the innocent party is simultaneously released from his own unperformed obligations). The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction. Whether the innocent party thereafter in fact enters into a substitute contract is a separate matter. He has, in effect, a second choice whether to enter the market – similar to the choice which first existed at the time of the original contract, but at the new prevailing rate instead of the contract rate (the difference being the basis of the normal measure of damages). The option to stay out of the market arises from the breach, but it does not follow that there is a causal nexus between the breach and a decision by the innocent party to stay out of the market, so as to make the guilty party responsible for that decision and its consequences. The guilty party is not liable to the innocent party for the effect of market changes occurring after the innocent party has had a free choice whether to re-enter the market, nor is the innocent party required to give credit to the guilty party for any subsequent market movement in favour of the innocent party.
43. Part of this process of reasoning, emphasised in the judgment of Lord Wrenbury in Jamal v Moolla Dawood Sons & Co, at p 179, is that damages for breach of contract such as a contract of sale are normally to be assessed as at the date of the breach.
44. However, as was recognised by Lord Wilberforce in Johnson v Agnew [1980] AC 367, 400-401, this is not an absolute rule: if to follow it will give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.
45. Robert Goff J similarly stressed in the Elena D'Amico that the normal rule as to measure of damages applied by him in that case was (as in sale of goods cases under s.50 (3) and s.51 (3) of the Sale of Goods Act 1979) only a prima facie rule.
46. Mr Gruder QC for Norden accepted (rightly in my view) that he could not distinguish the present case from the Elena D'Amico by reference to the nature of the contract. But he submitted that there were particular reasons on the facts of this case which would make it unjust to apply the normal measure of damages which I have been considering.

Are there particular reasons in the present case not to adopt the price differential measure?

47. Although the normal rule is only a prima facie rule, it is not sufficient in order to displace it merely to show that it was reasonable from the innocent party's view point not to enter into a replacement contract; for that would be contrary to authority and to the reasoning which underlies the rule. (If it were otherwise, I would accept that Norden's decision not to enter a replacement contract was reasonable.)
48. In Campbell Mostyn (Provisions) Limited v Barnett Trading Company, at p 70-71, Romer LJ considered the proposition that "if there was a market, the measure of damages is only prima facie to be ascertained by the difference between contract price and market price; and that if it was reasonable for the sellers to hold off from the market and sell at a later date, and that is what they in fact did, then the actual price which the goods fetched becomes the test". He rejected this as irreconcilable with the decision of the Privy Council in Jamal v Moolla Dawood. It had there been held that where a buyer of shares wrongly failed to complete the contract and the seller retained the shares after the breach, the speculation as to the way the market would subsequently go was the speculation of the seller, and its consequences were irrelevant in determining the amount of the loss caused by the buyer's default.
49. Similarly, in the Elena D'Amico the arbitrator found as a fact that if one considered only the interest of the charterers (who, incidentally, had no obligation to consider anybody's interest other than their own) their decision not to charter in a substitute vessel was reasonable, but the argument that the charterers' loss should therefore be calculated by reference to how events turned out was rejected.
50. In that case Robert Goff J recognised that the normal measure of damages was subject to the governing principle associated with Hadley v Baxendale (and applied in the law of sale of goods by s 50(2) and s 51(2) of the 1979 Act), and therefore that a plaintiff might recover damages beyond the normal measure if those damages fell within the governing principle. He gave as an example a case where the damages might be enhanced by the known impecuniosity of the plaintiff.
51. Accordingly, in order to displace the normal rule, the innocent party must show that to limit the damages to those recoverable under the normal measure would contravene the governing principle and so work injustice.
52. Mr Mortensen set out in his witness statement a number of commercial reasons for not entering into a replacement FFA. First, there was the possibility that Andre or its administrator might sue Norden successfully under the original contract. Norden's exposure to possible loss would be increased if it had in the meantime entered into a replacement FFA. Second, there was serious doubt whether Andre would be able to pay any damages which might be awarded against it. Third, the Panamax market in the first quarter of 2001 had held up quite well. Under a replacement contract Norden might have to make payments to the counterparty (without any guarantee of recovery from Andre) and, if the market continued to hold up, there would be no need to hedge the "Talisman" charter party.
53. In cross-examination Mr Mortensen denied that the last factor, ie that the market had held up, was any part of his thinking.
54. He was cross-examined about the level of Panamax cover which he maintained in March 2001 and the following months. The point was put to him that he was content to see a fall in Norden's level of cover because of the view which he took of the market. Mr Mortensen rejected this suggestion and pointed out that he had increased the cover on the Handymax part of Norden's fleet. This increase, he said, was partly to cover its Panamax position. It was suggested to him that he would not normally balance one with the other, but his answer (which I accept) was that when he considered Norden's portfolio he had to look at the overall portfolio. In re-examination he reaffirmed that he viewed the Handymax cover as affecting the whole portfolio risk.
55. Mr Gruder submitted that the normal measure of damages should not be applied because of the combined effect on Norden of uncertainty as to (1) the validity of its termination of the original contract and (2) the ability of Andre to pay any award of damages.
56. Neither factor was exceptional. As to the first, Mr Mortensen said in his witness statement that he was confident that Norden was entitled to terminate the contract, but mindful of the risk that a court might find otherwise. I would have thought that the likelihood of Andre suing Norden was very remote, as was the likelihood that it would have succeeded, but I accept that it was a possibility in the mind of Mr Mortensen, although not one which I believe would have caused him serious concern. If he was concerned for Norden to have a hedge against the "Talisman" charter, the fact that it no longer did so would have been a much more serious matter. I recognise that there may be circumstances in which a dispute over the validity of the termination of a contract may affect the availability of an alternative market. For example, there might be a bona fide issue as to the ownership of goods the subject of the contract, which might hamper the innocent party's freedom to enter a substitute contract. But that is not the present case. I do not see in this case why, as a matter of logic or justice, once Norden took the decision to terminate the contract, its perception of the risk that it was not entitled to have done so should affect the measure of damages for its loss.
57. As to the second factor, the possible inability of the guilty party to pay damages would have been a neutral factor in a logical consideration by Norden whether to replace the contract. I have concluded that the cost to Norden of a replacement contract at 19 March, compared with the original contract, would have been $700 per day ($10,675 - $9,975), amounting over 275 days to $192,500. If the normal measure of damages applies, Norden had an entitlement to recover that sum from Andre, which was not conditional on it entering into a substitute contract. Whether it chose to enter into a replacement contract would depend critically on its judgment of the commercial merits, which would be no greater or less according to whether or not Norden could enforce its right to damages against Andre.
58. Mr Gruder emphasised that Norden's uncertainty regarding the status of the contract and Andre's ability to pay damages were not to be looked at in isolation from each other, and that it was important to consider their joint effect. By the same token those two factors were only two among others. Overall Norden was faced with a commercial decision to make having regard to the state of the market and Norden's exposure to potential loss. It was not a one ship company and, as Mr Mortensen made plain, he kept Norden's entire portfolio of risk under regular review.
59. On the evidence I conclude as a matter of fact that, while Mr Mortensen welcomed the idea of attempting to re-negotiate the Andre contract (unsurprisingly since Norden was "in money" on it by the difference between the contract rate and the market rate at the time of its termination), he did not consider it commercially expedient to replace it because, without a replacement contract, he was content with Norden's overall level of coverage. If he had considered that the termination of the Andre contract left Norden's portfolio over-exposed as a matter of commercial judgment, I have no doubt that he would have taken appropriate steps to increase Norden's cover, and that he would not have been deterred from doing so either by the unlikely risk of being Norden sued successfully by Andre or by doubts about the enforceability of any damages awarded against Andre.
60. However, whether or not that conclusion is factually sound, I am not persuaded as a matter of law that the application of the normal measure of damages in this case would contravene the governing principle on which it is based.

At what date should the price differential measure be applied?

61. Mr Gruder submitted that the date should be 30 March because Norden was entitled to a reasonable time after the termination on 19 March in which to consider its position and explore the market, and also because until 30 March there was a possibility of the contract being renegotiated.
62. When Norden terminated the contract on 19 March, Mr Mortensen had to decide whether to replace it. In his witness statement he set out the considerations which led him not to do so. His witness statement contained no suggestion that he decided to defer the question until he had seen whether the contract could be renegotiated. Indeed, his witness statement made no reference to the subject of renegotiation. Mr Mortensen referred to the subject in his oral evidence, and this led to some additional disclosure of documents, the effect of which I have summarised in setting out the history of events. Although the evidence is imprecise, it does not appear that Mr Mortensen was involved in any talk about renegotiating the contract until on or shortly before 29 March. At that stage the suggestion of the possibility of a renegotiation appears to have come from Andre's side, although without the authority of the court appointed administrator.
63. I see no reason why Norden was not in a position to decide whether it wanted to replace the contract at the time of its termination or within a day or so thereafter. On the evidence of Mr Martini, it would not have taken long to arrange a substitute contract. In those circumstances, I conclude that the damages should be assessed at the date of termination.

Conclusion

64. In the result, I assess Norden's damages excluding interest at $192,500.