In Great Asia Maritime Limited v Orion Shipping and Trading LLC (The Lila Lisbon), the UK Supreme Court held that buyers may recover loss-of-bargain damages under clause 14 of the Norwegian Saleform 2012 if proven negligence delays delivery past the cancelling date.
Background to the dispute
The dispute arose from the sale of the M/V LILA LISBON (the “Vessel”). The parties entered into a memorandum of agreement on amended 2012 Norwegian Saleform terms (the “MOA”) for a purchase price of USD 15 million.
The cancelling date was originally agreed as 20 August 2021. Later, the buyers accepted 15 October 2021 as the revised cancelling date, but without prejudice to their rights under the MOA.
The vessel was not ready for delivery by the revised cancelling date and the buyers applied to arrest the Vessel in Zhanjiang and subsequently initiated arbitration against the sellers.
The key legal issue
Clause 14 of the 2012 Norwegian Saleform terms, as incorporated into the parties’ MOA, has the following wording:
“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.”
Thus, the clause gives the buyer a right to cancel if the seller fails to give notice of readiness or is not ready to complete a legal transfer by the cancelling date. The clause also requires the seller to pay due compensation for the buyers’ loss and expenses if that failure is due to proven negligence.
The sellers argued that the buyers could not recover loss of bargain damages because they had cancelled under an express contractual right. According to the sellers, such damages required a repudiatory breach.
The case was initially referred to LMAA arbitration, where the buyers were awarded compensation of USD 1.85 million in loss of bargain damages for the sellers’ failure to meet the revised cancelling date. The loss of bargain was calculated by reference to the difference between the market value as at 18 to 22 October 2021 and the original contract price.
The arbitration was granted appeal to the Commercial Court, where the court held that the buyers were not entitled to loss of bargain damages under clause 14. The Court of Appeal later reversed that decision and restored the arbitral award. The Supreme Court of the United Kingdom then granted permission to appeal.
The Supreme Court’s decision
The Supreme Court held that clause 14 gives buyers a right to cancel and, where the seller’s relevant failure results from proven negligence, a right to compensation even though there has been no accepted repudiatory breach.
The Supreme Court held that “due compensation” means appropriate compensation assessed under the ordinary principles of causation, remoteness and mitigation. It also held that the word “loss” is broad enough to include the bargain the buyers lost when they cancelled the contract.
The Supreme Court further held that, where there is an available market, loss of bargain damages will normally be measured by the difference between the contract price and the market price at the date of cancellation.
On this basis, the Supreme Court upheld the Court of Appeal’s decision.
Our comments
The judgment gives important guidance on available remedies when ship sale contracts subject to the 2012 Norwegian Saleform are terminated. Although the decision was rendered in an English-law context, its reasoning may be relevant by analogy when assessing compensation after termination under Danish law.
For buyers, the decision confirms a route to market-difference damages where a seller’s proven negligence causes late delivery and the buyer cancels. Evidence of market value at the cancellation date will therefore be central to any claim.
For sellers, the judgment underlines the importance of delivery planning and contemporaneous evidence. A seller who misses the cancelling date because of proven negligence may face a claim for the buyer’s lost bargain in a rising market.
The decision does not mean that every missed cancelling date gives rise to loss of bargain damages. The buyer must still prove the seller’s negligence. The claim also remains subject to causation, remoteness and mitigation.
Parties who want a different allocation of risk should address that expressly in their sale contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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