Key takeaways
Court confirms buyers can claim loss of bargain damages
Defaulting sellers may face significant financial consequences.
MOA terms must be clear and enforceable
Precise drafting reduces risk of disputes and litigation.
Decision reinforces importance of contractual certainty
Parties should review agreements to protect commercial interests.
Orion Shipping and Trading LLC -v- Great Asia Maritime Ltd (Lila Lisbon) [2025] EWCA Civ 1210
The Court of Appeal has overturned the Commercial Court decision and held that, where the sellers under the Norwegian Saleform 2012 cannot meet the Cancelling Date because of a lack of due diligence, the buyers can cancel the MOA and claim damages for loss of bargain (and not just for wasted expenditure).
The background facts
The Sellers agreed to sell the Lila Lisbon (Vessel) to the Buyers on the terms of a memorandum of agreement (MOA) on the Norwegian Saleform 2012 (NSF 2012).
On 12 August 2021, the Sellers notified the Buyers that the Vessel would not be ready for delivery by the Cancelling Date of 20 August 2021. The Sellers proposed a new Cancelling Date of 15 October 2021 under clause 5(c) of the MOA, which the Buyers accepted. When the Sellers missed the extended Cancelling Date, the Buyers terminated the MOA on two grounds: cancellation under clause 14 of the MOA, and acceptance of the Sellers’ repudiatory breaches.
Clause 14 of the NSF 2012 was central to the case, and it reads as follows:
"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.”
The arbitration award
The Tribunal found that the Sellers had not repudiated the MOA, but it held that the Sellers’ failure to deliver the Vessel by the original Cancelling Date and the extended Cancelling Date was due to proven negligence on their part, giving rise to the Buyers’ rights under clause 14 of the NSF 2012. Accordingly, the Tribunal held that the Buyers were entitled to recover loss of bargain in the amount of US$1.85m, being the difference between the market price and the price under the MOA, at the time when the Buyers cancelled the MOA.
The Tribunal’s ruling on loss of bargain was appealed to the Commercial Court.
The Commercial Court decision
Our article on this decision can be found here.
The Court allowed the appeal. Dias J (Trial Judge) held that failure to tender Notice of Readiness under the NSF 2012 is not a breach and that, consequently, it does not give rise to damages as a matter of common law. The Judge then went on to find that, read on its own, clause 14 of the NSF 2012 limits the buyers to damages specifically flowing from failure to tender Notice of Readiness by the Cancelling Date (e.g. wasted expenditure for manning, inspections, legal costs in preparation of delivery) and does not allow compensation for loss of the entire contract.
The Buyers were granted leave to appeal to the Court of Appeal.
The Court of Appeal decision
The Court of Appeal allowed the appeal and restored the Tribunal’s award.
The Court of Appeal reversed the premise of the Trial Judge’s reasoning and found that clause 5 of the NSF 2012 imposed on the Sellers an implied obligation to exercise reasonable diligence to deliver the vessel by the Cancelling Date. Breach of that obligation gave rise to common law damages, including for loss of bargain. The Court of Appeal was reinforced in its finding by:
the word “default” in the heading of clause 14, which suggests that failure to tender Notice of Readiness can be a breach; and
the fact that clause 5(d) of the NSF 2012 (which establishes the sellers’ right to seek an extension of the Cancelling Date preserves “any claim for damages the Buyers may have under clause 14” (i.e. suggesting that missing the Cancelling Date is a breach of contract giving rise to damages).
Separately, contrary to the Trial Judge’s finding, the Court of Appeal held that the natural and ordinary meaning of the word “loss” in clause 14 of the NSF 2012 captured damages for loss of bargain. This reading was consistent with:
the fact that clause 14 referred to both “loss” and “expenses”, suggesting that the former went beyond wasted expenditure; and
the fact that clause 13 of the NSF 2012 (“Buyer’s default”), a clause materially identical to clause 14, was held by the Court of Appeal in The Griffon [2013] EWCA Civ 1567 to give sellers a claim for loss of bargain. In the Court of Appeal’s view, the structure of NSF 2012 leads one to expect that clauses 13 and 14 will operate similarly.
Comment
Guidance for practitioners The Norwegian Saleform is the most commonly used form of contract for the sale of second-hand tonnage. This appellate decision on what damages are recoverable in the case of the sellers’ default shows that amendments to the standard NSF wording are necessary in order to ensure a different outcome.
Anticipatory loss of bargain The Court of Appeal decision raises an interesting question under clause 5(c) of the NSF 2012. Clause 5(c) of the NSF 2012 allows the sellers to seek an extension of the Cancelling Date if the sellers anticipate that, notwithstanding the exercise of due diligence, they will not be ready for delivery by the Cancelling Date. Upon receipt of this request, the buyers can cancel the contract under clause 14. The Court of Appeal decision suggests that, for the buyers to claim loss of bargain under clause 14, they must prove that the buyers failed to meet the Cancelling Date as a result of lack of due diligence. Against this background, it could be argued that, buyers who cancel following an extension request under clause 5(c) can only claim loss of bargain damages where they can positively prove that the sellers would not meet the Cancelling Date due to their proven negligence – a position akin to anticipatory breach of contract. Practically speaking, this would be extremely difficult to prove if the clause 5(c) notice is given sufficiently in advance of the Cancelling Date. This fortifies the tactical importance of extension requests under clause 5(c) for the sellers; conversely, it indicates a potential point for amendment to the standard wording for savvy buyers.
A beast of its own(?) The Court of Appeal held that contracts for the sale of ships are sufficiently similar to time charterparties when it comes to the obligation to deliver the vessel into the new contract, but materially different in relation to the consequences of the right to cancel. In time charters (and other long-term contracts), exercising a contractual right to terminate (e.g. cancellation, withdrawal) is treated as the cause of the loss of the contract. The Court of Appeal held that, since a contract of sale is intended to be performed instantaneously (exchange of asset for money), the cases on cancellation clauses in long-term contracts are arguably distinguishable and the exercise of the right to cancel does not breach the chain of causation between the event that gave rise to the right to cancel (missing the Cancelling Date) and the loss of the contract. Commercial shipping parties are likely to be perplexed by the fact that some familiar principles applicable in charterparty issues can be transferred over to ship sales, and some not. The market will benefit from judicial clarity in the future.
Mitigation Prospective buyers in a rising market should be aware that English law favours pragmaticism. If, in a rising market, the buyers cancel for failure to tender Notice of Readiness in time but the sellers are prepared to complete the sale at the agreed price and compensate the buyers for their losses, the buyers are unlikely to recover loss of bargain.
Evolution of standard forms The Court of Appeal made an important note for those involved in the drafting of standard forms. Where a clause in a previous iteration is interpreted by the courts and the standard form is then revised, it will take clear words to ensure that previous case law is not to apply. The wealth of case law generated by English courts over the years when considering long-standing standard forms fortifies the position of English law as law of choice in commercial contracts.
