03/10/2025

The costs of cancellation: Court of Appeal holds that clause 14 of the Norwegian Saleform 2012 covers loss of bargain damages

On 2 October 2025, the Court of Appeal handed down judgment in Great Asia Maritime Limited v Orion Shipping and Trading LLC (the “Lila Lisbon”) [2025] EWCA Civ 1210. The court held that clause 14 of the Norwegian Saleform 2012 (NSF 2012) allows buyers to recover loss of bargain damages in the event of “proven negligence” by the sellers, irrespective of any repudiatory breach of contract.

David Lewis KC, leading Eliza Bond, appeared on behalf of the appellant in the Court of Appeal.

The Court of Appeal’s decision overturns the first-instance decision of Dias J and restores the award of an LMAA tribunal comprising Ms Clare Ambrose, Mr Peter Jago and Mr Toh Sian King SC (the tribunal).

Background

Great Asia Maritime Limited (the buyers) and Orion Shipping and Trading LLC (ex Orion Shipping and Trading Ltd) (the sellers) entered into a memorandum of agreement dated 4 June 2021 on amended NSF 2012 wording (the MOA) in respect of the M/V Lila Lisbon (the vessel).

Clause 14 of the MOA was the standard NSF 2012 wording and provided as follows:

“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. … 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.
[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 20 August 2021. On 14 August 2021, the buyers agreed to extend the cancelling date to 15 October 2021 without prejudice to their right to claim damages under cl.14 on the grounds that the sellers’ proven negligence caused the failure to meet the original cancelling date.

On 19 August 2021, the sellers concluded a voyage charter with Vale for the carriage of a cargo of iron ore (the Vale charter). On 24 September 2021, the buyers obtained an order arresting the vessel at Zhanjiang, based on the missed 20 August deadline. In the event, the vessel was not delivered by the extended cancelling date of 15 October.

On 6 October 2021, the buyers commenced arbitration against the sellers seeking, amongst other things, damages as a result of the sellers’ failure to deliver by 15 October.

On 18 October 2021, the buyers rearrested the vessel as security. Correspondence ensued in which both parties purported to terminate the MOA on the basis of repudiatory breach.

The award

The tribunal held that the buyers were entitled to and did in fact cancel the MOA on around 18–22 October under cl.14[A]. Further, the sellers’ failure to be ready to deliver the vessel both by the original and extended cancelling dates was due to their “proven negligence”. Although the sellers had not renounced the MOA by their conduct between 23 September and 15 October, the buyers were entitled to US$1,850,000 under cl.14 based on the difference between the market price of the vessel as at 18–22 October, namely loss of bargain damages.

The sellers sought and obtained permission to appeal on the following point of law:

“If a Memorandum of Agreement on the SALEFORM 2012 form is lawfully cancelled by a buyer under clause 14 because the vessel is not delivered by the cancelling date as a result of the seller’s “proven negligence”, is that buyer entitled to recover loss of bargain damages absent an accepted repudiatory breach of contract?”

The High Court decision

At first instance, Dias J overturned the award and held, firstly, that there was no obligation at all on the sellers to tender notice of readiness, nor to be ready to validly complete a legal transfer by the cancelling date. Secondly, Dias J found that on a proper construction of cl.14, the buyers were only entitled to recover losses and expenses which had accrued prior to cancellation, not loss of bargain damages. The judge granted permission to appeal to the Court of Appeal on both grounds.

The Court of Appeal decision

The Court of Appeal unanimously overturned the first-instance decision, holding that where a seller is not ready by the cancelling date and the buyer cancels under cl.14[A], the buyer can recover damages for loss of bargain under cl.14[B] if they can prove that the seller’s lack of readiness was a result of “proven negligence”.

In particular:

• The language of the contract – in the references to “default”, to compensation for loss, and (in particular) to damages – points to the sellers being under some contractual obligation to be ready by the cancelling date ([44]–[47]).
• As to the nature of that obligation, by analogy with The Democritis [1976] 2 Lloyd’s Rep 149 in the context of time charters, cl.5 of the MOA (entitled “Time and place of delivery and notices”) imposed upon the sellers an implied obligation to exercise reasonable or due diligence to deliver the vessel by the cancelling date ([53]–[64]).
• Where 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 or due diligence and the buyer cancels, this is a situation of, or equivalent to, non-delivery ([92]–[104]). This supported construing cl.14[B] as covering loss of bargain damages.
• There was no oddity in the fact that cl.14[B] was not a condition. Where a seller’s delivery obligation is not an absolute one but merely one requiring reasonable or due diligence to deliver, it would make little sense to express this as a condition ([109]–[111]).
• The conclusion that cl.14[B] included loss of bargain damages was supported by authority, and specifically, The Solholt [1981] 2 Lloyd’s Rep 574.

David Lewis KC and Eliza Bond were instructed by MFB Solicitors.