Orion Shipping & Trading LLC v Great Asia Maritime Ltd. The Lila Lisbon
DMC/SandT/26/12
England
Orion Shipping & Trading LLC v Great Asia Maritime Ltd (The “Lila Lisbon”)
UK Supreme Court: Lords Briggs, Hamblen, Burrows, Stephens & Doherty SCJJ: [2025] UKSC 23: 22 July 2026
Judgment Available on BAILII @ https://www.bailii.org/uk/cases/UKSC/2026/23.html
John Russell KC and Jakob Reckhenrich (instructed by Preston Turnbull LLP) for Orion (Sellers)
David Lewis KC and Eliza Bond (instructed by MFB Solicitors) for Great Asia (Buyers)
SHIP SALE & PURCHASE UNDER MEMORANDUM OF AGREEMENT (“MOA”): NORWEGIAN SALEFORM (“NSF”) 2012: WHETHER BUYERS ENTITLED TO CLAIM LOSS OF BARGAIN DAMAGES, BEING THE DIFFERENCE BETWEEN THE SALE PRICE AND THE MARKET PRICE OF THE VESSEL, AS “DUE COMPENSATION” FOR SELLERS’ “PROVEN NEGLIGENCE” IN FAILING TO GIVE THE REQUIRED NOTICE OF READINESS FOR DELIVERY OR TO BE READY TO VALIDLY COMPLETE A LEGAL TRANSFER OF THE VESSEL BY THE CANCELLING DATE, WHERE BUYERS CANCELLED THE MOA UNDER CLAUSE 14: ARBITRATION ACT 1996 SECTION 69 APPEAL ON POINT OF LAW
Summary
The UK Supreme Court, in upholding the decision of the Court of Appeal, held that, where an MOA on the NSF 2012 form was lawfully cancelled by Buyers under clause 14 on the grounds that Sellers had failed - by the extended cancelling date under clause 5 - (a) to give notice of readiness to deliver the vessel and (b) to be ready validly to complete a legal transfer of the vessel, with such failure being due to Sellers’ “proven negligence”, Buyers were entitled to recover loss of bargain damages even in the absence of a repudiatory breach on Sellers’ part. In thus finding for Buyers, the UK Supreme Court upheld the USD1.85 million award of loss of bargain damages, which the arbitration tribunal had held to be due to Buyers.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and Deputy Editor of DMC’s CaseNotes
Background
The dispute arose from the sale of a Capesize bulk carrier, “Lila Lisbon”, on an MOA based on an amended NSF 2012 form, for USD15 million. The key MOA provisions relevant to the dispute were clauses 5, 13 and 14 (fns.1-3).
The MOA provided for the delivery of the vessel in mainland China by 20 August 2021, after her then current laden voyage from South Africa to Qingdao, People’s Republic of China.
In the weeks leading up to delivery, the vessel’s classification society imposed a recommendation, which led to a delay in the intended delivery. The parties agreed a new cancelling date of 15 October 2021.
However, when Sellers failed to deliver the vessel by this new cancellation date, Buyers arrested the vessel on 18 October 2021, seeking security for their claim for the difference between the contract price and the market price of the vessel. Buyers then cancelled the MOA; further, they alleged that Sellers’ failure to deliver the vessel on time was caused by their “proven negligence”, thus entitling the Buyers to claim damages at large under clause 14 (fn.3).
The experienced tribunal of maritime arbitrators found that Sellers’ negligence had indeed caused the failure to deliver on time and awarded Buyers damages, including compensation for the difference between the market price and the contract price of the vessel; namely, loss of bargain damages.
Sellers contested the tribunal’s decision to award loss of bargain damages, which led to an appeal to the High Court under section 69 of the Arbitration Act 1996. On hearing that appeal, the High Court (Dias J) held that loss of bargain damages were only claimable where Sellers had been in repudiatory breach of the MOA.
With the High Court’s permission, Buyers appealed that decision, to the Court of Appeal, which concluded that the High Court was wrong to decide that clause 14 only allowed Buyers to recover losses and expenses which had accrued prior to cancellation – thereby excluding any claim for damages for loss of bargain. The Sellers then sought and were granted permission to appeal to the UK Supreme Court, which unanimously dismissed the appeal for the reasons explained below.
Judgment
The unanimous judgment of the UK Supreme Court was delivered by Lords Hamblen and Burrows SCJJ. The Court first considered the interpretation of clause 14 as a matter of general principle before considering whether this was displaced by Sellers’ arguments on causation, with reference to Financings Ltd v Baldock (fn.4), and the need for clear words, with reference to Novasen SA v Alimenta SA (fn.5).
Interpretation of Clause 14
The Court concluded that the natural and ordinary meaning of “loss” in clause 14 included loss of bargain suffered by Buyers consequent on the cancellation of the MOA. That conclusion was supported by a number of wider contextual matters.
First, under clause 13, which addressed “Buyers’ default”, sellers are, in the event of lawful cancellation by sellers, entitled to claim compensation “for their losses and for all expenses”. That was materially the same wording as clause 14 (“for their loss and for all expenses”). The “Griffon” (fn.6) supported the view that sellers are entitled to claim the same losses under clause 13 as they would have been able to do if they had terminated for repudiatory breach. So, as a matter of contractual symmetry, it would be surprising if loss of bargain damages were claimable under clause 13 for “Buyers’ default” but not also for “Sellers’ default” under clause 14.
Second, buyers cancelling and claiming compensation under clause 14 is, or is akin to, a case of non-delivery of the goods under a sale of goods contract. In those circumstances, the normal measure of damages is loss of bargain damages, under section 51(3) of the Sale of Goods Act 1979. That is relevant legal context for what “loss” in clause 14 means, with loss of bargain being the normal loss suffered, in the event of cancellation and consequent non-delivery of the goods.
Third, past decisions of the courts in relation to the established meaning of clause 14 of the NSF standard form strongly supported the conclusion that loss of bargain damages are recoverable.
Fourth, the commercial consequences of the rival interpretations supported loss of bargain damages being recoverable under clause 14. Buyers would not always choose to cancel the contract on a rising market. However, if Buyers did choose to cancel, as they did in this case, then, on Sellers’ interpretation, Buyers would be out of pocket by USD1.85 million when buying an equivalent vessel, but would have no recourse for that loss. In other words, on Sellers’ case, they would gain from the cancellation, the reverse of what would be expected commercially.
Causation
The Court rejected the submission that where a party elects to cancel a contract under an express cancellation clause, rather than terminates at common law for repudiatory breach of the contract, loss of bargain damages cannot be recovered because the election to cancel the contract is the effective legal cause of the loss.
The Court was of the view that while the decision made in Financings is clear, the explanation for it is not. However, the Court did not need to decide the correctness of Financings to resolve the present case. So, the Court chose to leave the matter to be decided in a case where it was determinative of the dispute.
One difficulty with Sellers’ causation explanation was that it is no doubt clear law that a repudiatory breach has no effect on the contract unless and until that breach is accepted by the innocent party to terminate the contract. So, the repudiatory breach does not itself destroy the bargain; rather the election to accept it does.
Moreover, if the bargain is only lost if and when the innocent party chooses to accept a repudiatory breach to terminate the contract, then there is no distinction, as a matter of causation, between that situation and one where the innocent party chooses to cancel the contract under an express cancellation clause.
Further, where the event triggering the express right to terminate is, on the material facts, a breach by the other party (whether repudiatory or not), that breach is very likely to be an effective cause (i.e. a legal cause) of any resultant loss.
Finally, where the parties have gone beyond a bare express termination clause, to provide an express compensation clause, as they did with clause 14 here, it would defeat the purpose of that express compensation clause if one were to interpret it in line with the so-called Financings causation principle. That was also inconsistent with Sellers’ own case, which accepted that the wasted expenses could be recovered under clause 14, despite that loss flowing from the same election to cancel.
Clear Words
The Court rejected the submission that clear words were required to entitle Buyers to claim loss of bargain damages under clause 14. That was because the Court did not accept, in general, that similar principles apply as between taking away common law rights and remedies, on the one hand (to which the Gilbert-Ash (fn.7) ‘clear words’ principle applies), and conferring contractual rights and remedies, on the other hand.
There was, in Novasen, no need to rely on “clear words” to reach the decision. The same result would have been reached anyway by applying the ordinary principles of interpretation to the FOSFA default clause. The clause in that case was also a bare express option to cancel, unlike the present case.
The facts of that case were also distinguishable, because no recoverable loss had in fact been suffered, applying the common law compensatory principle. So, clear words, in that particular context, would have been required in order to override the fundamental compensatory principle. That was because it was inherently unlikely that the parties would have agreed to a clause conferring a right to compensation where the party claiming had in fact not suffered any loss.
By comparison, in the present case, in applying the compensatory principle, Buyers had undoubtedly in fact suffered a loss of bargain. Therefore, there was no question of the express compensation provision, at clause 14, overriding the compensatory principle to confer a right to claim damages where no loss had been suffered.
Conclusion
The Court held that its strong initial conclusion on the proper interpretation of clause 14 had not been displaced by Sellers’ submissions. Accordingly, the answer to the question of law upon which permission to appeal had been granted was:
“If a [MOA] on the [NSF] 2012 form is lawfully cancelled by a buyer under clause 14 because the vessel is not delivered by the cancelling date as a result of the seller's "proven negligence", the buyer is entitled to recover loss of bargain damages even though there has been no accepted repudiatory breach of contract.”
Comment
This judgment grapples with the difficulties that may arise when contract terms do not fully spell out the intended consequences of a lawful cancellation of contract if there is no actual repudiatory or renunciatory breach nor a breach of a condition related to the time by when an act must be done. Only if there is an acceptance of the breach, at common law, would this terminate the contract and, unlike a bare right to cancel, entitle the innocent party to claim damages at large, including loss of bargain.
The High Court had in part preferred to interpret clause 14 based on what would otherwise have been the position at common law, because of the lack of language spelling out what damages were claimable on cancellation, rather than to follow earlier judgments on different, and clearer, NSF form wordings. The Court of Appeal was not minded to follow the same route, ostensibly because, even if Buyers voluntarily cancelled, damages at large would flow from Buyers proving that Sellers were negligent, in failing to exercise due diligence to tender notice of readiness or to transfer legal title to the vessel to Buyers by the amended cancellation date.
The UK Supreme Court has concluded that the Court of Appeal were right to do so. That brings the effect of NSF 2012 in line with earlier versions of the form. It is worth noting that the drafters of the NSF form, in the latest 2025 version, have amended clauses 5 and 14 to seek to clarify that sellers (1) are under a positive obligation to tended a valid notice of readiness in time and (2) are liable to compensate buyers for loss of bargain damages if the sale contract is validly cancelled for negligence.
In view of the above, sellers may wish to make material amendments to whichever version of the NSF form they use, or to use a different form, if they wish to avoid being subjected to a potentially substantial liability to pay loss of bargain damages flowing from a negligent failure to deliver and transfer title to the vessel in time.
Footnote 1:
“5. Time and place of delivery and notices
(a) The Vessel shall be delivered and taken over safely afloat at a safe and accessible berth or anchorage at/in mainland China exclude Taiwan, Macao, Hong Kong in the Sellers' option.
Notice of Readiness shall not be tendered before: 20th July 2021
Cancelling Date (see Clauses 5(c), 6(a)(i), 6(a)(iii) and 14): 20th August 2021
However, the Vessel shall effect delivery to Buyers immediately after present laden voyage from South Africa to Qingdao China (ETA Qingdao on around 18th July 2021) and no more laden voyage allowed.
(b) The Sellers shall keep the Buyers well informed of the Vessel's itinerary and shall provide the Buyers with twenty (20), ten (10), five (5) and three (3) days' notice of the date the Sellers intend to tender Notice of Readiness and of the intended place of delivery.
(c) If the Sellers anticipate that, notwithstanding the exercise of due diligence by them, the Vessel will not be ready for delivery by the Cancelling Date they may notify the Buyers in writing stating the date when they anticipate that the Vessel will be ready for delivery and proposing a new Cancelling Date. Upon receipt of such notification the Buyers shall have the option of either cancelling this Agreement in accordance with Clause 14 (Sellers' Default) within three (3) running days of receipt of the notice or of accepting the new date as the new Cancelling Date. …
If this Agreement is maintained with the new Cancelling Date all other terms and conditions hereof including those contained in Clauses 5(b) and 5(d) shall remain unaltered and in full force and effect.
(d) Cancellation, failure to cancel or acceptance of the new Cancelling Date shall be entirely without prejudice to any claim for damages the Buyers may have under Clause 14 (Sellers' Default) for the Vessel not being ready by the original Cancelling Date. …”
Footnote 2:
“13. Buyers’ default
Should the Deposit not be lodged in accordance with Clause 2 (Deposit), the Sellers have the right to cancel this Agreement, and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest.
Should the Purchase Price not be paid in accordance with Clause 3 (Payment), the Sellers have the right to cancel this Agreement, in which case the Deposit together with interest earned, if any, shall be released to the Sellers. If the Deposit does not cover their loss, the Sellers shall be entitled to claim further compensation for their losses and for all expenses incurred together with interest.”
Footnote 3:
“14. Sellers’ default
Should the Sellers fail to give Notice of Readiness in accordance with Clause 5(b) or fail to be ready to validly complete a legal transfer by the Cancelling Date the Buyers shall have the option of cancelling this Agreement… In the event that the Buyers elect to cancel this Agreement, the Deposit together with interest earned, if any, shall be released to them immediately.
Should the Sellers fail to give Notice of Readiness by the Cancelling Date or fail to be ready to validly complete a legal transfer as aforesaid they shall make due compensation to the Buyers for their loss and for all expenses together with interest if their failure is due to proven negligence and whether or not the Buyers cancel this Agreement.”
Footnote 4:
[1963] 2 QB 104 – related to a hire-purchase contract where the financer terminated the contract and claimed for but was held not to be entitled to recover damages at common law for loss of bargain after the hirer missed two payment instalments, which was held to be insufficient to amount to a repudiatory breach.
Footnote 5:
[2013] EWHC 345 (Comm) – related to the interpretation and application of a FOSFA default clause and the relevance of subsequent events that arose to the assessment of damages in accordance with common law principles where the contract would have automatically come to an end in any event without liability.
Footnote 5:
[2013] EWCA Civ 1567 – related to a ship sale and purchase dispute on the NSF 1993 form concerning the remedy due to sellers in the event of non-payment of the deposit in time by buyers under the contract.
Footnote 6:
[2013] EWCA Civ 1567 – see judgment at https://www.bailii.org/ew/cases/EWCA/Civ/2013/1567.html
Footnote 7:
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 – related to whether a head-contractor had given up its common law right to set-off (i.e. to abate against the price otherwise payable) in respect of a breach of a building contract by the sub-contractor whose work was late or defective"
