The Lila Lisbon: Supreme Court confirms industry understood practice on damages under SALEFORM 2012

The Supreme Court has confirmed that a buyer who cancels a ship sale contract under clause 14 of SALEFORM 2012 may recover loss of bargain damages where the seller’s failure to be ready by the cancelling date results from ‘proven negligence’, and that it is not necessary to prove that the seller committed a repudiatory breach.

In Great Asia Maritime Ltd v Orion Shipping and Trading LLC (The Lila Lisbon) [2026] UKSC 23, the Supreme Court unanimously dismissed the seller’s appeal. The practical message is straightforward: clause 14 contains an express right to compensation, and that right is not confined by the rules which apply to a bare contractual right to terminate.

Route to the Supreme Court

For full details of the factual background, Members should refer to the Club’s articles on the decisions of the Commercial Court and the Court of Appeal.

In summary, the dispute arose under an MOA on amended SALEFORM 2012 where the buyer cancelled under clause 14 after the seller failed to deliver the ship by the cancelling date. The buyer claimed US$1.85 million in loss of bargain damages (representing the difference between the contract price and the ship’s increased market value) on the basis of the seller’s ‘proven negligence’.

The arbitral tribunal allowed the buyer’s claim. The Commercial Court subsequently reversed that decision, but the Court of Appeal restored the award and the seller appealed.

Supreme Court judgment

The Supreme Court held that the general and unqualified word “loss” in clause 14 includes loss of bargain following cancellation.

Loss of bargain damages had been recognised in previous judgments under earlier versions of the Norwegian Saleform, and later revisions of the form had not displaced that understanding.

As in the Court of Appeal judgment, the Supreme Court also cited an extract from the Club’s article on the Commercial Court decision as evidence of the industry’s longstanding understanding in its judgment:

“That it is generally recognised that loss of bargain damages are recoverable under clause 14 of the NSF is borne out by the leading textbooks on the sale of ships.[…] This is further borne out by Paul Herring's note on Dias J's decision (UK Defence Club, 28 August 2024), entitled "The Lila Lisbon, Commercial Court reverses industry understood practice on damages", in which he said: "The industry has long considered that a buyer could recover damages at large in such a situation."”

The commercial consequences pointed in the same direction. On the seller’s construction, a seller in a rising market could have an incentive to delay delivery in the hope that the buyer cancels, leaving the seller with the more valuable ship. A buyer might correspondingly delay cancellation in the hope that the seller’s conduct becomes repudiatory, but in doing so risk losing the contractual cancellation right through waiver or termination. The court regarded that as an unsatisfactory commercial outcome.

Commentary

The judgment provides welcome certainty for parties contracting on SALEFORM 2012.

A buyer who cancels under clause 14 because the seller’s failure results from proven negligence may recover loss of bargain damages without separately establishing a repudiatory breach. Cancellation must still be lawful, proven negligence must be established, and any claimed loss will remain subject to the usual rules on causation, remoteness and mitigation.

The result nevertheless turns on the wording and established meaning of clauses 13 and 14 of SALEFORM 2012. Different wording, including amendments to the standard form, may produce a different outcome. More generally, a bare right to terminate and a right to terminate accompanied by an express compensation provision may have very different financial consequences.

Parties amending an established industry standard form should therefore say clearly if they intend to change its recognised allocation of rights and remedies. For Members, the practical point is to consider not only whether a right to cancel has arisen, but also what the contract says about the financial consequences of exercising it.

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