October, 2025 - The Lila Lisbon: Court of Appeal holds that loss of bargain damages are recoverable under Saleform 2012

In Orion Shipping and Trading LLC v Great Asia Maritime Ltd (Lila Lisbon) [2025] EWCA Civ 1210, the Court of Appeal, reversing the Commercial Court decision in August, 2024, held that a buyer can recover loss of bargain damages under clause 14 of the Saleform 2012 in the event of “proven negligence” by the seller.

Background

In June, 2021, the parties concluded an MOA for the sale of the ship based on an amended Saleform 2012 where the standard clause 14 wording provides:

“14. Sellers’ Default

[A] 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 […]

[B] 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.”

The original cancelling date under the MOA was 20th August, 2021, but following the seller’s indication that the ship would not be ready for delivery by that date, the parties agreed to an extension until 15th October, 2021.  The buyer’s agreement to the extension was without prejudice to its right to claim damages under clause 14 on the basis that the failure to meet the original cancelling date was due to the seller’s negligence.

However, the seller failed to deliver the ship by the extended cancelling date of 15th October and the buyer arrested the ship on 18th October, 2021. Both parties subsequently purported to terminate the MOA: the seller on the basis that the buyer’s conduct in arresting the ship and seeking security brought the MOA to an end; and the buyer on the basis that they were terminating the MOA on the grounds of the seller’s repudiatory breach.

Arbitration award

The arbitration tribunal decided that the seller’s failure to deliver by the extended cancelling date of 15th October, 2021 was attributable to its proven negligence. The buyer was entitled to bring the MOA to an end and validly terminated the MOA between 18th and 22nd October under clause 14[A].

The buyer was entitled to loss of profit damages as clause 14 contained both a right to cancel for the seller’s failure to deliver as well as a right to claim damages if the seller’s failure was due to proven negligence. There was no requirement for an innocent party to show it had exercised its common law right to terminate because the defaulting party was in repudiatory breach in order to claim damages for loss of bargain.  Accordingly, the buyer was entitled to recover damages for loss of bargain, assessed as the difference between the market and contract price of the ship.

The seller appealed the arbitration award in respect to the buyer’s entitlement to recover loss of bargain damages where the MOA has been cancelled by the buyer under clause 14 as a result of the seller’s “proven negligence”, but there has not been an accepted repudiatory breach of contract.  

Commercial court judgment

In allowing the seller’s appeal, Dias J considered that there was no positive obligation in the Saleform 2012 for the seller to deliver the ship or give Notice of Readiness (NOR) by the cancelling date.  The seller’s only obligation is to give a written NOR “when the Vessel is at the place of delivery and physically ready for delivery in accordance with this Agreement” in accordance with clause 5.

The Judge considered that the buyer’s ability to recover loss of bargain damages therefore turned solely on the construction of clause 14. The starting point was to identify the particular breach in respect of which damages ware recoverable, which was the failure to give NOR by the cancelling date. Therefore, it was only losses caused by that specific failure that  were recoverable under clause 14[B], being those that had crystallised prior to cancellation.

The buyer was granted permission to appeal. The Club’s article in respect of the Commercial Court judgment “The Lila Lisbon, Commercial Court reverses industry understood practice on damages” can be found here.

Court of Appeal decision

The Court of Appeal allowed the buyer’s appeal and unanimously overturned the Commercial Court decision. The Court held that where the seller is not ready by the cancelling date due to “proven negligence” and the buyer cancels the MOA under clause 14, the buyer can recover damages for loss of bargain.

In reaching its judgment, the Court of Appeal considered:

• It was not the seller’s failure to deliver on time but their failure to use reasonable diligence to be ready to deliver by the extended cancelling date that was a breach of the MOA.

• A key question was whether, if a buyer does cancel such that there will never be a delivery, is that to be equated with a case of non-delivery?  While acknowledging that the position is not straightforward, in the Court’s view, the answer to that question is yes: when a seller is not in a position to deliver by the cancelling date as a result of a breach of their obligation to use reasonable diligence and the buyer cancels the MOA, that is a situation equivalent to non-delivery.

• The natural and ordinary meaning of ‘loss’ under clause 14[B] extends to a buyer’s loss of bargain. It is not obvious what loss was intended to be compensated under clause 14 if it did not include loss of bargain, particularly as any loss between the cancelling date and actual cancellation of the MOA would likely be minimal. In reaching this conclusion, the Court was shown two articles opining on the industry view that a buyer can recover loss of bargain damages under clause 14, including the Club’s article as referred to above. 

• While the losses that the buyer can claim are those caused by the seller’s failure to be ready, the Court disagreed that they have to be crystallised at the point of cancellation, finding that, as a matter of fact, the losses that the buyer suffers depends upon what actually happens: “If [Buyers] have suffered a loss of bargain, it is not obvious to me why they cannot claim that that is a loss that they have suffered. It is still caused (certainly at any rate in a “but for” sense) by Sellers’ culpable failure to be ready in time: if Sellers had been ready, Buyers would not have been able to cancel” (Nugee LJ).

 

In reaching its decision, the Court of Appeal confirmed the long-held industry understanding that a buyer can recover loss of bargain damages under clause 14 of Saleform 2012.

 

If Members have any questions in relation to the above issues they are invited to contact the Club for further information.