Orion Shipping & Trading LLC v Great Asia Maritime Ltd (The “Lila Lisbon”)
DMC/SandT/25/14
England
Orion Shipping & Trading LLC v Great Asia Maritime Ltd (The “Lila Lisbon”)
English Court of Appeal: Phillips, Nugee & Birss LJJ: [2025] EWCA 1210 (Comm): 2 October 2025
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2025/1210.html
Alexander Wright KC and Robert Scrivener (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 2012: WHETHER BUYERS ENTITLED TO CLAIM LOSS OF BARGAIN DAMAGES, BEING THE DIFFERENCE BETWEEN THE SALE PRICE AND THE MARKET PRICE OF THE VESSEL, FOR SELLERS’ NEGLIGENCE WHERE BUYERS CANCELLED THE MOA UNDER CLAUSE 14: SECTION 69 APPEAL ON A POINT OF LAW UNDER THE ARBITRATION ACT 1996
(N.B. the Court of Appeal declined permission to appeal but permission has since been sought by Sellers directly from the UK Supreme Court and any further appeal, if heard and decided, will be reported in due course.)
Summary
The Court of Appeal, in reversing the decision of the High Court, held that, where an MOA on the NOWEGIAN SALEFORM 2012 was lawfully cancelled by Buyers under clause 14 on the grounds that Sellers had failed by the extended cancelling date (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 Court of Appeal upheld the USD1,850,000 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 NORWEGIAN SALEFORM 2012. 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. Buyers appealed that decision, with the High Court’s permission, to the Court of Appeal, before which the two questions to resolve were:
(1) whether the High Court was wrong to conclude that there was, in law, no obligation on Sellers to tender notice of readiness nor to be ready to validly complete a legal transfer by the cancelling date; and
(2) whether the High Court was wrong to conclude 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.
Judgment
The unanimous judgment of the Court of Appeal was delivered by Nugee LJ.
Ground 1: were Sellers contractually obliged to tender notice of readiness by the cancelling date?
The Court noted that only the second ground would, ultimately, determine the outcome of the appeal. However, because Buyers viewed this first ground to be relevant to consideration of the second ground, and having hearing the parties’ submissions, the Court concluded there was an obligation on Sellers in relation to the tendering of notice of readiness or being ready validly to complete a legal transfer of the vessel by the cancelling date.
Having considered clauses 5, 13 and 14 of the MOA (fns.1-3), the Court was of the view that Sellers did not give an absolute promise that they would have the vessel ready by any particular date (in agreement with the High Court).
Therefore, if Sellers – despite the exercise of due diligence – were unable to deliver by the cancelling date, they would not be in breach. Nevertheless, failure to deliver in time gave Buyers a contractual option to cancel under clause 14(A). In the absence of proven negligence, that was a type of termination without fault on either side and, consistent with it, Buyers were entitled to the return of the deposit if they cancelled, but they did not also have a claim to damages.
However, Sellers were under an obligation to use reasonable or due diligence to deliver the vessel by the cancelling date and “negligence” in clause 14(B) meant a failure by Sellers to comply with that obligation. So, if Sellers were not ready to deliver by the cancelling date, and Buyers showed that Sellers had failed to exercise due diligence, then not only would Buyers have the option to cancel under clause 14(A), but they would also have a right to claim damages for their loss under clause 14(B). That right to damages subsisted whether or not Buyers cancelled (as per clause 14(B)) and whether or not they accepted a proposal by Sellers for a new cancelling date under clause 5(c) (as per clause 5(d)).
In those circumstances, the Court considered the first ground to be well founded, but that alone was not sufficient to justify the appeal being allowed.
Ground 2: can Buyers recover loss of bargain damages under clause 14(B)?
Sellers argued against Buyers having a right to recover loss of bargain damages under clause 14(B) based on four grounds:
(1) it created a fundamental oddity by achieving through two clauses (5 and 14) what could have been done by making the delivery obligation a condition;
(2) it produced draconian consequences for potentially trivial negligence;
(3) it conflicted with the established distinction between contractual cancellation rights and termination for repudiatory breach; and
(4) clear words were required to confer rights not available at common law.
On (1), the Court rejected the "fundamental oddity" argument, because contracts can be drafted in various ways to achieve similar outcomes. The Court found it sensible that SALEFORM 2012 granted Buyers an express contractual right to cancel without proving breach, coupled with a right to claim damages if they could prove Sellers’ negligence. That avoided practical difficulties that would arise if the delivery obligation were drafted as a condition, since Sellers' obligation was only to use reasonable or due diligence, rather than being an absolute obligation.
On (2), the Court also dismissed concerns about draconian consequences, noting that contractual provisions often operate in a way that may appear to be disproportionate. Buyers bore the burden of proving negligence, which is often easier to allege than to establish. The Court noted that clause 13 already imposed severe consequences on Buyers if they failed to pay on time, and clause 14(A) allowed Buyers to cancel even without Sellers’ fault if, for example, the market had fallen significantly. There was no apparent good reason why Buyers should not be compensated for loss they suffered if they could prove Sellers’ negligence.
On (3), the issue concerned the Financings principle (fn.4), that exercising a contractual cancellation right generally does not entitle a party to claim loss of bargain damages unless there had been also a repudiatory breach that the innocent party had accepted as terminating the contract. The Court questioned whether that principle applied to single-transaction contracts, like ship sales, in the same way as it did apply to long-term contracts like leases, time charters and hire-purchase agreements.
Unlike long-term contracts, where a termination prematurely ends the on-going relationship, a ship sale aimed to achieve a specific transaction within a time-window. So, cancellation when that window was not met represented the transaction being called off rather than prematurely terminated. The Court, having noted the lack of authority in which the Financings principle had been applied to a single-transaction contract, concluded that, even assuming the principle would have prevented the recovery of the loss of bargain, clause 14(B) contained an express provision to compensate Buyers’ loss, the only question being what damages were recoverable, namely whether “their loss” included loss of bargain.
On (4), the Court rejected the argument that clear words were required to confer rights on a party that were not available at common law. The Court considered the principle inapplicable where the clause expressly provided for compensation tied to actual loss suffered.
The Court supported its interpretation by reference to The “Solholt” (fn.5), which held that the wording in the Norwegian Saleform 1966 (“loss caused by non-fulfilment”) entitled buyers to loss of bargain damages. Because subsequent revisions used, in the Court’s view, even broader language ("their loss"), and the drafters were presumed to be aware of this earlier judicial interpretation when amending the form, the Court considered it to be significant that clearer exclusionary language had not been adopted if a loss of bargain was not intended to be recoverable as a result of Sellers’ negligence.
Finally, the Court considered that its interpretation created a more commercially balanced outcome. On the High Court's narrower construction, negligent sellers would benefit from market rises while innocent buyers who cancelled would not, creating perverse incentives for sellers to cause delay in rising markets in the hope that buyers would lose patience. This also contrasted unfavourably with clause 13, which allowed sellers, if buyers did not perform their payment obligations in time, both to cancel and to recover loss of bargain damages.
In those circumstances, the Court considered the second ground of the appeal to be well founded, and accordingly held that Buyers cancelling under clause 14(A) when Sellers had failed to be ready due to their own negligence were entitled to recover loss of bargain damages under clause 14(B).
Comment
This judgment grapples with the difficulties that may arise when contract terms do not spell out the intended consequences of a lawful cancellation of contract if there is also no actual repudiatory or renunciatory breach nor a breach of a condition related to the time by when something must be done. Only if there is an acceptance of the latter, at common law, would this terminate the contract and, unlike cancellation alone, 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, saleform wordings. The Court of Appeal was not minded to follow the same route, ostensibly because – given the outcome on the first ground – damages at large would flow from Buyers proving that Sellers were negligent, on failing to exercise due diligence to tender notice of readiness or to transfer legal title to the vessel to Buyers by the date agreed.
The outcome on the first ground makes good sense, because there must be some form on obligation on Sellers to tender a notice of readiness or to make a legal transfer of title to the vessel by the agreed date. Requiring the exercise of reasonable or due diligence is the logical obligation, because the language used in SALEFORM 2012 was inconsistent with such an obligation being absolute and the failure to exercise reasonable or due diligence is equivalent to negligence.
The outcome on the second ground remains more debatable, although there is some logic in equating a failure to exercise due diligence to deliver or to transfer in time under clause 5 with a right on the part of the Buyers, on cancelling, to claim damages at large under clause 14, as a result of proven negligence. While the Court of Appeal declined permission to appeal, Sellers have already applied for permission to appeal directly from the UK Supreme Court (fn.6). The outcome, if permission to appeal were granted, would by no means be certain on this decisive ground.
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. [14A]
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. [14B]”
Footnote 4:
Financings Ltd v Baldock [1963] 2 QB 104 – related to a hire-purchase contract where the financer terminated after the hirer missed two payment instalments
Footnote 5:
[1983] 1 Lloyd’s Rep 605
Footnote 6:
