Loss of Profit (Lila Lisbon): MOA drafting and practical implications

This article considers the practical implications arising from Orion Trading LLC -v- Great Asia Maritime Ltd (Lila Lisbon) [2025] EWCA Civ 1210 and MOA drafting implications.

For a discussion of the litigation aspects of this dispute and an analysis of the Commercial Court and Court of Appeal decisions, please see these articles:

• No loss of bargain damages under NSF 2012 where sellers missed cancelling date | Hill Dickinson

• Buyers under MOA entitled to recover loss of bargain damages following sellers’ default | Hill Dickinson

An overview of the case

In this MOA dispute, Sellers agreed to sell LILA LISBON to Buyers under a memorandum of agreement on NSF 2012 terms (MOA). The original Cancelling Date was extended, but Sellers were found to have failed to deliver the vessel by both the original and the extended Cancelling Date due to their own negligence. As a result, Buyers cancelled the MOA and claimed damages under Clause 14 (Sellers’ Default) of the MOA for loss of bargain, being the difference between the MOA price and the market price of the Vessel.

In October 2025, the Court of Appeal reversed the Commercial Court’s earlier decision and held that: (a) not tendering a timely NOR was a breach of the MOA; and, in any event, (b) Clause 14 allows the cancelling buyer to recover damages for loss of bargain in cases of proven negligence, without the need to prove a separate repudiatory breach. Consequently, Buyers were entitled to claim damages for loss of bargain under Clause 14 of the MOA due to Sellers’ negligent failure to deliver the Vessel.

The decision clarifies the extent of recovery an innocent buyer can achieve under standard (NSF 2012) MOA forms and reinforces the importance of delivery obligations.

It is understood that Sellers have applied directly to the UK Supreme Court for permission to appeal. As at time of writing, the outcome of that application remains pending.

This article considers key drafting and practical implications of the Court of Appeal decision. That judgment serves as a useful example, from which commercial parties (not just buyers and sellers, but also shipbrokers actively involved in negotiating the MOA recap) can draw guidance for drafting points to tailor the MOA provisions to their interests – whichever they may be.

Damages for “loss of bargain”

As an initial matter for sellers’ consideration, awarding “loss of bargain damages” can place a considerable risk on sellers in a sale and purchase deal. Market volatility can lead to a quick and exponential increase in the difference between market price and contract price. In certain circumstances, such difference could be claimed against a seller in arbitration (where interest and costs might be added), if a buyer can show that the seller was negligent.

By way of example, if the market value of the vessel at the time of termination is higher than the contract price, buyers might be entitled to the difference, which reflects the profit buyers would have made if the contract (MOA) had been performed. An award of damages will also include interest at the contractual rate provided in the MOA, or alternatively statutory interest, as well as any additional expenses or losses expressly allowed under Clause 14. However, such a claim would need to evidence that sellers’ failure was due to proven negligence, even if there was no repudiatory breach.

This interpretation opens the door to future claims and increases the financial risk for sellers in cases where they cannot deliver the vessel in time. Sellers will want to limit their exposure against these types of claim and whilst a seller (and their lawyers) might be tempted to fall back to familiar “no consequential damages” clauses, those provisions will not assist as the “loss of bargain” is not considered a “consequential loss”.

To combat this risk, sellers should consider a clause which is sufficiently clear with various options available to them if notice requirements or delivery obligations cannot be met. The most appropriate solution will depend on commercial leverage, MOA recap terms and the level of legal and drafting input which can be taken at during MOA negotiations.

Sellers’ failure due to “proven negligence”

The issue of “proven negligence” affects another critical point commonly encountered in second-hand sales. Before a buyer can recover a loss of profit claim from a seller, the buyer must prove that the seller failed to show reasonable diligence in delivering the vessel in time. This issue can give rise to legal and factual debate.

This could include a seller failing to make arrangements for the vessel’s delivery (such as crew embarkation or visa formalities). Taking insufficient steps to complete necessary physical delivery preparations, or other failures by sellers which require them to exercise due diligence and planning. The question raised in such cases is “has there been a breach of duty” by the seller? A person who owes a duty to take care at common law will breach that duty if they fail to exercise reasonable care. In the context of a vessel’s delivery under a MOA, if a seller took all reasonable steps and care to be ready for delivery, buyers will find it difficult to prove negligence. For example, if the notice of readiness (NOR) is validly issued well in advance of the Cancelling Date it might evidence that all preparatory steps have been completed by sellers. However, it still raises a question of fact. Clear and properly defined terms and specific requirements would help to address such risks or any ambiguity which might otherwise arise.

A contractual obligation requiring the seller to keep the buyer informed and up to date on demand, for example, might assist a buyer in cases where the underlying factual position is unclear. Conversely, expressly stating any key steps which sellers must meet for physical delivery (supported by evidence that sellers have completed such tasks) would help prove that a seller has undertaken reasonable due diligence in its efforts to deliver the vessel to the buyer.

Extension of Cancelling Dates

One key issue concerns circumstances where either sellers or buyers wish to amend the original Cancelling Date under the MOA. It is common practice, following the execution of the MOA, for one party - whether sellers or buyers - to seek an extension of the Cancelling Date under Clause 5 for various reasons. The most practical and transparent approach is to formalise this change through an addendum to the MOA (rather than e-mail exchanges) by amending Clause 5(a) to (c) and making any corresponding adjustments to Clauses 13 or 14 of the MOA (as applicable). Those changes should clarify the change to the vessel’s Cancelling Date and, more importantly, the scope of any daily compensation and/or damages payable for the late delivery. Similarly, the consequences of any additional request for an extension might need to be addressed also.

To protect a seller, where sellers have requested the extension of the Cancelling Date, buyers could impose restrictions on the vessel’s future employment (by sellers) under clause 5(c) and/or the exercise of such right by sellers. It is often recommended for both buyers and sellers to specify whether further extensions are permitted and under what conditions – with reference to a “one-time extension only” or further extensions with “the additional amount of US$[X]” payable. A requirement to ensure that any extension request is agreed before the original Cancelling Date expires might also assist both parties to be better prepared.

Another point to consider is whether a buyer might seek to include an express provision in Clause 14 explicitly granting the right to claim damages for loss of profit. While this is theoretically possible, without a buyer having significant commercial leverage, it is unlikely that a seller would ever agree to such a term. Conversely, a seller might attempt to limit its exposure by restricting liability to specific categories of damages and/or cap liability for any future delay.

Lastly, an appropriately worded force majeure clause could protect both parties from the effects of an agreed list of causes which are beyond either party’s control.

Any amendments to the standard wording of the MOA will largely depend on the negotiating position and bargaining power of each party. However, the usefulness of the NSF 2012 is that it is concise enough to allow the parties to tailor it appropriately. Careful drafting can allow both parties to side-step existing case-law and can either limit or expand the buyer’s right to claim damages for loss of bargain.

SHIPSALE 22

It is important to note that other standard ship sale forms (such as SHIPSALE 22 or NIPPON saleform) will have differing provisions and interpretation. For example, in SHIPSALE 22, compensation for missing the cancelling date is now limited to “direct losses and expenses”, which narrows the scope and excludes indirect or consequential losses. However, it does not exclude damages for loss of bargain, which is a direct loss. Reference to sellers’ “proven” negligence in the same context has been removed, although arguably this might not have practical effect as negligence would have to be proven anyway. SHIPSALE 22 also introduces specific termination rights for both parties, with clearer conditions and remedies.

Final key points

Clause 14 in NSF 2012 (and identically worded provisions in other forms) have been given meaning by the English Courts. However, The Lila Lisbon interpreted the wording of NSF 2012 as it stood between the relevant sellers and buyers. Each party can word their MOA differently, in order to afford more or less generous rights to either party or include additional forms of compensation and/or tailored provisions in connection with the Cancelling Date.

In summary, if Clause 14 (or related provisions of NSF 2012) are expressly amended to exclude damages for loss of bargain or to include additional forms of compensation, with tailor-made provisions for the Cancelling Date extensions, those amendments will override the current interpretation given in The Lila Lisbon case – with courts preferring to enforce the terms agreed between the parties.

However, all amendments should be clear and unambiguous - without contradiction of mandatory laws, such as rules against fraud or illegality. To that effect, the precedent set by the Court of Appeal in The Lila Lisbon only applies if the MOA remains in standard NSF 2012 form or is materially similar. Once revised, the Court will interpret the contract to follow the parties’ agreed provisions.