Orion Shipping and Trading LLC v Great Asia Maritime Ltd

This appeal concerns the quantum of damages recoverable by Buyers under a contract for the sale of a ship made on the Norwegian Saleform 2012. By Clause 14 of this form of contract, if Sellers fail to give Notice of Readiness by the Cancelling Date and the failure is due to proven negligence, Sellers are liable to make due compensation to Buyers for their loss whether or not Buyers cancel the agreement. The question raised by the appeal is whether, if Buyers do cancel the agreement, this clause entitles them to damages for loss of bargain.

In the present case Sellers were the Respondent, Orion Shipping and Trading LLC (then called Orion Shipping and Trading Ltd) (“Orion”) and Buyers were the Appellant, Great Asia Maritime Ltd (“Great Asia”). By a Memorandum of Agreement made on the Norwegian Saleform 2012 and dated 4 June 2021 Orion agreed to sell MV Lila Lisbon, a Capesize bulk carrier, to Great Asia for US$15m. (All references hereafter to $ are to US $). Great Asia cancelled the contract following Orion’s failure to give Notice of Readiness by the (extended) Cancelling Date, and commenced an arbitration. By its Partial Final Award dated 7 September 2023 (“the Award”) the Tribunal, among other things, answered the question Yes and awarded Great Asia $1.85m, being the difference between the market price of the vessel at the date of cancellation ($16.85m) and the contract price ($15m).

Orion appealed to the High Court under s. 69 of the Arbitration Act 1996. The appeal was heard by Dias J (“the Judge”). She handed down judgment on 9 August 2024 at [2024] EWHC 2075 (Comm) (“the Judgment”) in which she reversed the Tribunal, holding that Great Asia was not entitled to damages for loss of bargain.

Great Asia now appeals to this Court (with permission granted by the Judge). The appeal was ably argued on both sides, by Mr David Lewis KC(who appeared with Ms Eliza Bond) for Great Asia, and by Mr Alexander Wright KC (who appeared with Mr Robert Scrivener) for Orion. For the reasons that follow I prefer the submissions of Mr Lewis and would allow the appeal and restore the Award of the arbitral Tribunal.

By a Memorandum of Agreement dated 4 June 2021 and made between Orion as Sellers and Great Asia as Buyers (“the MoA”), Orion agreed to sell the Lila Lisbon to Great Asia. As noted on the front page, the MoA was made on the Norwegian Shipbrokers’ Association’s Memorandum of Agreement for sale and purchase of ships Saleform 2012, adopted by BIMCO in 1956 and revised in 1966, 1983, 1986/7, 1993 and 2012 (“Saleform 2012”). In The Griffon [2013] EWCA Civ 1567, [2014] 1 Ll Rep 471 Tomlinson LJ said at [1] that the Norwegian Saleform was the most commonly used form of contract for the sale and purchase of second-hand tonnage.

Clause 1 provided that the Purchase Price was $15m.

Clause 2 provided for Buyers to lodge a Deposit of 10% of the Purchase Price with the Deposit Holder within three Banking Days after the agreement had been signed by the parties and exchanged, and the Deposit Holder had confirmed that the account had been opened.

Clause 3 provided for release of the Deposit, and payment of the balance of the Purchase Price (and all other sums payable on delivery by Buyers), to Sellers on delivery of the Vessel, but not later than three Banking Days after the date that Notice of Readiness had been given in accordance with Clause 5.

Clause 4 provided that Buyers had reviewed an inspection report and had accepted the Vessel and that the sale was outright and definite.

Clause 5 provided as follows:

“75

5. Time and place of delivery and notices

76

(a) The Vessel shall be delivered and taken over safely afloat at a safe and accessible berth or [77] anchorage at/in mainland China exclude Taiwan, Macao, Hong Kong (state place/range) in the Sellers’ option.

78

Notice of Readiness shall not be tendered before: 20th July 2021 (date)

79

Cancelling Date (see Clauses 5(c), 6(a)(i), 6(a)(iii) and 14): 20th August 2021

However, the Vessel shall effect delivery to Buyers immediately after present laden voyage from South Africa to Qingdao China (ETA Qingdao on or around 18th July 2021) and no more laden voyage allowed.

80

(b) The Sellers shall keep the Buyers well informed of the Vessel’s itinerary and shall [81] provide the Buyers with twenty (20), ten (10), five (5) and three (3) days’ notice of the date the [82] Sellers intend to tender Notice of Readiness and of the intended place of delivery.

83

When the Vessel is at the place of delivery and physically ready for delivery in accordance with [84] this Agreement, the Sellers shall give the Buyers a written Notice of Readiness for delivery.

85

(c) If the Sellers anticipate that, notwithstanding the exercise of due diligence by them, the [86] Vessel will not be ready for delivery by the Cancelling Date they may notify the Buyers in writing [87] stating the date when they anticipate that the Vessel will be ready for delivery and proposing a [88] new Cancelling Date. Upon receipt of such notification the Buyers shall have the option of [89] either cancelling this Agreement in accordance with Clause 14 (Sellers’ Default) within three (3) [90] Banking Daysrunning days of receipt of the notice or of accepting the new date as the new Cancelling Date.

91

If the Buyers have not declared their option within three (3) running daysBanking Days of receipt of the [92] Sellers’ notification or if the Buyers accept the new date, the date proposed in the Sellers’ [93] notification shall be deemed to be the new Cancelling Date and shall be substituted for the [94] Cancelling Date stipulated in line 79.

95

If this Agreement is maintained with the new Cancelling Date all other terms and conditions [96] hereof including those contained in Clauses 5(b) and 5(d) shall remain unaltered and in full [97] force and effect.

98

(d) Cancellation, failure to cancel or acceptance of the new Cancelling Date shall be entirely [99] without prejudice to any claim for damages the Buyers may have under Clause 14 (Sellers’ [100] Default) for the Vessel not being ready by the original Cancelling Date.

101

(e) Should the Vessel become an actual, constructive or compromised total loss before delivery [102] the Deposit together with interest earned, if any, shall be released immediately to the Buyers [103] whereafter this Agreement shall be null and void.”

(The italics are in the original and evidently represent tailor-made additions or alterations to the standard form; the numbers in the margins or in square brackets represent line numbers in the original).

Clause 8, under the heading “Documentation”, provided for the place of closing to be Hill Dickinson’s Singapore office, and for Sellers to provide Buyers, in exchange for payment of the Purchase Price, all reasonable documentation enabling Buyers to register the Vessel in their nominated Flag State and transfer the ownership, to be listed together with Buyers’ delivery documents in an addendum to the Agreement.

Clause 13 provided as follows:

“328

13. Buyers’ default

329

Should the Deposit not be lodged in accordance with Clause 2 (Deposit), the Sellers have the [330] right to cancel this Agreement, and they shall be entitled to claim compensation for their losses [331] and for all expenses incurred together with interest.

332

Should the Purchase Price not be paid in accordance with Clause 3 (Payment), the Sellers [333] have the right to cancel this Agreement, in which case the Deposit together with interest [334] earned, if any, shall be released to the Sellers. If the Deposit does not cover their loss, the [335] Sellers shall be entitled to claim further compensation for their losses and for all expenses [336] incurred together with interest.”

Clause 14 provided as follows:

“337

14. Sellers’ default

338

Should the Sellers fail to give Notice of Readiness in accordance with Clause 5(b) or fail to be [339] ready to validly complete a legal transfer by the Cancelling Date the Buyers shall have the [340] option of cancelling this Agreement. If after Notice of Readiness has been given but before [341] the Buyers have taken delivery, the Vessel ceases to be physically ready for delivery and is not [342] made physically ready again by the Cancelling Date and new Notice of Readiness given, the [343] Buyers shall retain their option to cancel. In the event that the Buyers elect to cancel [344] this Agreement, the Deposit together with interest earned, if any, shall be released to them [345] immediately.

346

Should the Sellers fail to give Notice of Readiness by the Cancelling Date or fail to be ready to [347] validly complete a legal transfer as aforesaid they shall make due compensation to the Buyers [348] for their loss and for all expenses together with interest if their failure is due to proven [349] negligence and whether or not the Buyers cancel this Agreement.”

I will adopt the convenient terminology used by counsel and the Judge of referring to the two parts of Clause 14 as Clause 14(A) (lines 338 to 345) and Clause 14(B) (lines 346 to 349) respectively.

Clause 16 provided for the Agreement to be governed by English law, and for disputes to be referred to arbitration in accordance with the Arbitration Act 1996, the arbitration to be conducted in accordance with the London Maritime Arbitrators Association terms, and the reference to be to three arbitrators.

There were two Addenda to the Agreement. Addendum No 1, dated 25 June 2021 and signed on 28 June 2021, listed the documents to be provided by the parties as envisaged by Clause 8. Addendum No 2, dated 6 August 2021, resolved certain disputes that had arisen between the parties.

The facts as found by the arbitral Tribunal (Ms Clare Ambrose, Mr Peter Jago and Mr Toh Sian King SC) were as follows.

As recognised by the MoA (see the clause inserted after line 79, the “Laden Voyage clause”), the vessel was currently on a laden voyage from South Africa to Qingdao at the time of the MoA, with an expected arrival date of 18 July 2021. She arrived on 26 July 2021, and was due to berth on 31 July 2021. But a dispute arose as to payment of the balance of the purchase price in light of a class survey report and the berthing schedule of 31 July 2021 was cancelled. This dispute was resolved by Addendum No 2 (dated 6 August 2021) which recognised that the berthing schedule of 31 July 2021 had been cancelled by reason of the dispute. Addendum No 2 contemplated that delivery would now take place between 12 and 14 August 2021 (at Qingdao).

On 12 August 2021 Sellers wrote to Buyers indicating that it had not been possible to effect delivery at Qingdao, and that the Vessel would not be ready for delivery by the Cancelling Date (20 August 2021). They proposed a new Cancelling Date of 15 October 2021. On 14 August 2021 Buyers elected to accept the revised Cancelling Date pursuant to Clause 5(c) of the MoA, but without prejudice to their rights under Clauses 5(d) and 14 to claim damages for all loss and expense suffered.

Sellers then concluded a voyage charter for the carriage of iron ore from Malaysia to China. This voyage was completed at Zhanjiang on 4 October 2021.

Buyers obtained an order arresting the vessel at Zhanjiang; Sellers provided security and the vessel was released on 12 October 2021.

On 18 October 2021 Buyers applied to arrest the vessel again in Zhanjiang as security for further claims. Their application to the Court asserted that Sellers had failed to deliver the vessel although the Cancellation Date had expired, and that Buyers were entitled to withdraw the MoA and claim all losses incurred including the gap between the contract price and the market price. The order for arrest was granted. Sellers provided further security on 23 October 2021 and the vessel was released on 24 October 2021.

Meanwhile there had been correspondence between the parties. On 18 October 2021, Sellers’ solicitors wrote accepting Buyers’ cancellation as bringing the MoA to an end; and on 22 October Buyers’ solicitors sent a notice stating that they were cancelling or terminating the MoA on grounds of Sellers’ repudiatory breaches.

On these facts the Tribunal found as follows:

That then raised the question whether Buyers were entitled to loss of bargain damages under Clause 14. The Tribunal concluded that they were. Their reasoning included the following. Clause 14 expressly confers a right to cancel and a right to compensation where the failure was caused by proven negligence. On its ordinary meaning the parties would have understood such compensation to extend to the consequences of cancellation thereunder, including loss of profit. It would be inconsistent with the wording conferring the right to compensation to suggest that a cancelling buyer would not be entitled to compensation for losses caused by such cancellation including the loss of profit, and would instead have to establish an independent repudiatory breach. Accordingly the cause of Buyers’ loss of profits was Sellers’ failure to deliver, and this caused Buyers to bring the MoA to an end. Buyers were entitled to recover damages assessed as the difference between market and contract price as compensation for Sellers’ default under Clause 14.

The Tribunal then assessed such damages at $1.85m, being the difference between the market price as at 18-22 October 2021 ($16.85m) and the contract price ($15m). They therefore included in the Award an award of $1.85m together with compound interest at 5% per annum compounded quarterly from 23 October 2021. The Award also awarded other sums as to which there is no challenge.

By claim form issued on 5 October 2023 Orion sought permission to appeal to the Commercial Court pursuant to s. 69 of the Arbitration Act 1996 on the following question 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?”

On 20 March 2024 Bright J granted permission on the basis that the question was one of general public importance and the decision of the Tribunal was open to serious doubt.

The appeal was heard by the Judge in June 2024. She handed down the Judgment allowing the appeal on 9 August 2024.

I will have to look at the Judgment in more detail in due course, but for present purposes can summarise it quite briefly. Having set out the relevant contractual provisions and the background facts, the Judge first addressed an argument advanced by Great Asia to the effect that the time of delivery was of the essence and that their cancellation under Clause 14 was in substance a termination for breach of condition. This was a question which the Tribunal had not considered it necessary to address and on which they expressed no view. She rejected the argument: neither Clause 5 nor any other provision of the MoA imposed any positive obligation on Sellers to deliver, or give Notice of Readiness, by the Cancelling Date (at [15]). The question whether any such obligation was a condition or innominate term therefore did not arise (at [20]). Even if she had concluded that there was a positive obligation on Sellers to tender Notice of Readiness by the Cancelling Date, she would not have construed it as a condition (at [33]). In the current appeal Great Asia challenge her decision that the MoA did not impose any obligation; but do not dispute that any such obligation would not be a condition.

The Judge continued that Buyers’ ability to recover loss of bargain damages therefore turned solely on the construction of Clause 14. Her initial reaction was that loss of bargain damages were recoverable under Clause 14 for much the same reasons as given by the Tribunal. But on closer analysis, she was not persuaded that that was right (at [43]). The starting point had to be to identify the particular breach or trigger in respect of which damages are recoverable (at [52]); that was the failure to give Notice of Readiness by the Cancelling Date, and it was only losses caused by that specific failure which were recoverable under Clause 14. That was not equivalent to a case of non-delivery, and Buyers’ unilateral decision to terminate pursuant to a cancellation right could not transform the case into one of non-delivery (at [53]).

Having considered various authorities, she concluded that there was no binding authority contrary to her preferred construction of the clause (at [55]).

At [63] she said that the formulation of the question of law posed for the determination of the Court was inapt insofar as it addressed cancellation for failure to deliver by the Cancelling Date. It should be more accurately re-worded as follows:

“Where a Memorandum of Agreement on the SALEFORM 2012 form is lawfully cancelled by a buyer under clause 14 in circumstances where the seller has failed to give notice of readiness or failed to be ready to validly complete a legal transfer by the Cancelling Date and such failure is due to the seller’s “proven negligence”, is that buyer entitled to recover loss of bargain damages absent an accepted repudiatory breach of contract?”

She would answer that question No.

Effect was given to the Judgment by her Order dated 9 September 2024 which allowed the appeal and set aside the relevant parts of the Award.

She also granted Great Asia permission to appeal. Great Asia had sought permission on three grounds, the third of which was that she had been wrong to alter the question of law and/or to answer a question which the Tribunal had not been asked to determine (cf Sharp Corp Ltd v Viterra BV [2024] UKSC 14, [2024] 4 All ER 273 (“Sharp”) at [54]-[70] per Lord Hamblen JSC). The Judge granted permission on the other two grounds but refused permission on this third ground and we have heard no argument on it.

The two grounds on which Great Asia has permission to appeal are as follows:

Orion has served a Respondent’s notice in which it contends that the Judge’s Order should be upheld in the alternative on the following additional grounds:

Ground 1 is that the Judge was wrong to conclude that there was no obligation on Sellers to tender Notice of Readiness, nor to be ready to validly complete a legal transfer, by the Cancelling Date.

An appeal on a point of law under s. 69 of the Arbitration Act 1996 proceeds “on the basis of the findings of fact in the award”: see s. 69(3)(c), Sharp at [53] and [71] per Lord Hamblen. The following are therefore not now in dispute, to the extent they ever were:

It can be seen that despite the wide-ranging submissions we have heard, the actual question for decision is a very short one (as reflected in the wording of the question of law for which permission was given). It is whether, on the true construction of Clause 14, the “loss” for which Great Asia is entitled to be compensated includes the loss of its bargain.

As both counsel recognised, this means that success on Ground 1 is neither necessary nor sufficient for Mr Lewis’s purposes. It is not necessary because if Ground 2 is well founded, Mr Lewis does not need Ground 1; and it is not sufficient because even if he succeeds on Ground 1, he still has to win on Ground 2. Indeed Ground 1 is not part of the question of law for which permission was given; the real question on the appeal is that raised by Ground 2. But Mr Lewis submitted that success on Ground 1 would make his case on Ground 2 stronger, and he has permission to argue it, and I agree that it ought to be considered on its merits.

Mr Lewis relied first on various textual indications in the MoA. Clause 14(A) and (B) both apply “Should the Sellers fail to give Notice of Readiness … or fail to be ready to validly complete a legal transfer”. Mr Lewis submitted that the normal meaning of “fail” in a legal context is “neglect to perform a legal obligation”. I do not think this point takes him very far. I agree with Mr Wright that “fail” is one of those words that has different connotations in different contexts (see Coventry City Council v Vassell [2011] EWHC 1542 (Admin) at [54] per Hickinbottom J to the effect that “fail” is an ambiguous word that may or may not import the notion of fault); and, more significantly, that it is used in other places in Saleform 2012 where it plainly does not imply any contractual obligation. Thus Clause 5(d) refers (at line 98) to “failure to cancel” with reference to Buyers’ option to cancel when Sellers propose an extension. There is no question of Buyers being under any obligation to cancel, and in this context it must simply mean “if Buyers do not cancel”. Similarly Clause 4 of the standard form (at line 69) refers to “Should the Buyers fail to undertake the inspection …” and again there is no question of Buyers being under any contractual obligation to do so. It must simply mean “if Buyers do not undertake the inspection…”. It is equally quite straightforward to read Clause 14 as saying no more than “if Sellers do not give Notice of Readiness … or are not ready to validly complete a legal transfer”.

Mr Lewis also relied on the word “default” in the heading to Clause 14 (“Sellers’ default”). I think this is a rather better point. It is true that the word is only found in the heading, and that although the heading to a contractual clause is admissible to construe it (at any rate where, as here, the contract contains no provision to the contrary), such a heading is “not in any way conclusive” and cannot be used to override the wording of the clause, often being more of a label or signpost: see Lewison, The Interpretation of Contracts (8^th edn, 2023) §5.018, TheRadauti [1988] 2 Ll Rep 416 at 422 col 1 per Slade LJ, and Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102, [2019] 2 All ER (Comm) 592 at [39] per Males LJ. Nevertheless I think Mr Lewis is right that in ordinary usage “default” has a pejorative tone. It is to my mind a less neutral word than “fail”, and I accept that its natural and ordinary meaning in a legal context is “a failure to fulfil a legal requirement or obligation”. In ABC Electrification Ltd v National Rail Infrastructure Ltd [2020] EWCA Civ 1645, [2021] BLR 97, that was in fact common ground between the parties, but it was also accepted by at least a majority of this Court (see per Carr LJ at [31] and Males LJ at [58]).

Mr Wright said that in that case the relevant clause referred to “default on the part of the contractor in compliance with any of his obligations under the contract”. This is so, but I do not think it undermines the fact that the Court accepted that although “default” can mean different things depending on its context, its natural and ordinary meaning (namely, a failure to fulfil a legal requirement or obligation) represents “an obvious starting point” (per Males LJ at [58]). Mr Wright also said that contracts frequently refer to “Events of default” and the like which include matters which are not breaches of contract, such as a party’s insolvency. That I accept, but I do not think this is a good guide to the ordinary meaning of the word. I think all that such examples demonstrate is that there are contracts which, no doubt because it makes for more convenient drafting, include as “Events of default” matters such as insolvency which are not in truth defaults as ordinarily understood.

Overall therefore I agree that the reference to “Seller’s default” in the heading to Clause 14 is some indication, even regarding it as a mere label or signpost, that those who drafted Saleform 2012 considered that Sellers’ failure to give Notice of Readiness by the Cancelling Date could be characterised, at least in some circumstances, as a breach of obligation. That is reinforced by the fact that the corresponding Clause 13, which deals with “Buyers’ default”, is undoubtedly concerned with breaches of Buyers’ contractual obligations, namely to lodge the Deposit under Clause 2 and to pay the balance of the Purchase Price under Clause 3. Clauses 13 and 14 are closely parallel and confer rights of cancellation and compensation on Sellers and Buyers respectively, and I think that is some indication that one might expect “default” to mean the same thing in the headings to the two clauses.

Mr Lewis also relied on the fact that Clause 14(B) provides that Sellers shall make due compensation for Buyers’ loss. He submitted that a contract can impose an obligation either directly (A shall do X), or indirectly (if A does not do X, A shall pay compensation to B for his loss). The latter, he said, was no doubt less elegant, but its effect was the same. Mr Wright said that there was nothing objectionable in the idea that a contract may provide for A to become liable to pay B a sum of money without being in breach. I agree, but usually in such a case the amount to be paid can be determined from the contract, often by the application of some formula. Here the obligation is not to pay any calculable sum of money but a potentially open-ended obligation to pay due compensation for Buyers’ loss and expenses. I think there is some force in Mr Lewis’s point that there is little practical difference between A having a contractual obligation to do X (which carries with it a secondary obligation to pay damages to B in the event of breach), and a provision that if A does not do X, A will compensate B for any loss. (It might I suppose make a difference if the question were whether the Court could enforce the putative obligation by injunction or specific performance, but that is not a question which arises here.)

This is to my mind particularly so because Clause 5(d) (at line 99) refers to “any claim for damages the Buyers may have under Clause 14”. As a matter of the general law, there is a well-recognised distinction between a claim for damages (being an unliquidated claim for compensation for breach of a legal obligation) and a claim for payment of a sum due under a contract. Use of the term “damages” in Clause 5(d) to refer to Buyers’ claims to compensation under Clause 14 to my mind strongly suggests that those who drafted Saleform 2012 saw the claim under Clause 14(B) as a claim for compensation for breach of contract. Mr Wright said that the use of the word “damages” was simply shorthand for the sums payable under Clause 14; but if it was shorthand it was, on Mr Wright’s case, inaccurate.

So far therefore I think Mr Lewis has the better of the argument: just looking at the text of the contract, the references to default, to compensation for loss, and (in particular) to damages all seem to me to point to Sellers being under some contractual obligation to be ready before the Cancelling Date. Mr Lewis submitted that it was either an absolute obligation to deliver by the Cancelling Date (but with Clause 14 effectively excluding liability for breach save in the case of proven negligence), or that there was what he called a “duty of care” to deliver by the Cancelling Date. His submission was that there was little if any practical difference between the two.

Mr Wright’s central point in answer to all this is that Clause 14 does not itself impose any obligations on Sellers to be ready (this I accept – Clause 14 confers rights on Buyers if Sellers are not ready, and the only obligation it imposes is to pay compensation); and that Clause 5 does not, as it could so easily have done, impose any express obligation to deliver, or be ready to deliver, at any particular time either.

The analysis is complicated in the present case by the Laden Voyage clause. I have set it out above (see paragraph 10) but repeat it here for convenience:

“However, the Vessel shall effect delivery to Buyers immediately after present laden voyage from South Africa to Qingdao China (ETA Qingdao on or around 18th July 2021) and no more laden voyage allowed.”

(The reference to “the Vessel” effecting delivery is obviously a reference to Sellers delivering the Vessel). On its face this does impose a delivery obligation on Sellers, and since the present laden voyage was complete by 26 July 2021, it would appear that Sellers should have been ready to deliver “immediately” thereafter. “Immediately” no doubt has some flexibility built into it, but whenever “immediately after present laden voyage” was, one would have thought it to be well before the original Cancelling Date of 20 August 2021, let alone the extended Cancelling Date of 15 October 2021. The Judge however said (Judgment at [18]) that the Laden Voyage clause:

“merely makes clear that Sellers were not permitted to “squeeze in” another voyage and “immediately” in this context is to be read as simply a belt and braces emphasis of “no more laden voyage allowed”.”

That is not what it appears to say, and Mr Wright, as I understood him, accepted that the Laden Voyage clause did require Sellers to effect delivery, not just to refrain from any further laden voyages. He said however that while there may have been a breach of that clause, that did not affect the construction of Clauses 5 and 14.

I agree that whatever the effect of the Laden Voyage clause in this particular MoA we should not be distracted by it, and should concentrate on the effect of Clauses 5 and 14 in the standard form of Saleform 2012. The question of law for which permission was granted (both in its original formulation and as reformulated by the Judge) refers to “a Memorandum of Agreement on the SALEFORM 2012 form” (see paragraphs 26 and 32 above) rather than to the MoA. This is unsurprising since the basis on which permission was given under s. 69 of the Arbitration Act 1996 is that the question was one of general public importance, and the particular questions arising out of the bespoke provisions in the MoA such as the Laden Voyage clause are obviously not of general importance. I propose therefore in what follows to ignore the impact of the Laden Voyage clause.

Mr Wright pointed to the fact that whereas line 78 of Clause 5(a) contains mandatory words (“Notice of Readiness shall not be tendered before…”), line 79, which refers to the Cancelling Date, does not. It simply specifies a date.

That is true but one must of course read Clause 5 as a whole, and indeed read it together with the other provisions of the contract. The starting point is that Clause 5 is headed “Time and place of delivery and notices”. That leads one to expect that the clause will deal with both the place of delivery and the time of delivery. Clause 5(a) duly provides for the place of delivery, in the case of the MoA “mainland China exclude Taiwan, Macao and Hong Kong”. It may be noted that Clause 5(a) commences “The Vessel shall be delivered …” which on its face does appear to impose an obligation on Sellers to deliver. At one point in the Judgment, the Judge said (at [15]):

“There is thus no positive obligation to deliver or tender Notice of Readiness nor be ready to complete a legal transfer by 20 August 2021 or any other date…”

Mr Lewis said that if taken at face value, that would appear to suggest that Sellers were not under an obligation to deliver at all. But I agree with Mr Wright that that cannot be what the Judge meant. A contract under which a seller is under no obligation to deliver is (as Phillips LJ pointed out in argument) not a contract of sale but an option, and there is no doubt that Saleform 2012 is intended to be a binding contract for sale.

Mr Wright indeed accepted that Sellers were bound to deliver. But he said that there was no specific time by which they had to do so. Their obligation was only to deliver within a reasonable time, by analogy with The Democritos [1976] 2 Ll Rep 149.

The Democritos is to my mind instructive and worth considering in some detail. It was not a case of a contract for sale but a time charter on the New York Produce form. The charterparty provided that the vessel would be placed at the disposal of Charterers at Durban; that she should on her delivery be ready to receive cargo and be tight, staunch, strong and in every way fitted for ordinary cargo service; and as to the time of delivery provided as follows:

“That if required by Charterers, time not to commence before 1st December, 1969, and should vessel not have given written notice of readiness on or before 20th December, 1969, but not later than 4 p.m. Charterers or their agents to have the option of cancelling this charter any time not later than the best notice of readiness.”

The vessel arrived at Durban on 16 December 1969 but her ’tween deck in No 2 hold was found to be collapsed. She was nevertheless able to start loading on 18 December and complete a voyage to Portland (Oregon), but had to be repaired in Seattle. Charterers claimed that Owners were under an absolute obligation to deliver the vessel at Durban by the cancelling date (20 December 1969) in a fit condition; that Owners were in breach because the vessel was not in a fit state as the ’tween decks were broken; and that they were therefore entitled to damages for the loss incurred by her not being able to carry a full cargo, and also by the time occupied later in doing repairs at Seattle.

This claim was rejected by Kerr J (on a case stated by arbitrators) and an appeal to this Court was dismissed. Lord Denning MR said (at 152 col 1):

“Now there is nothing in this charter which binds the owners positively to deliver by Dec. 20, 1969. The only clue to any time of delivery is to be found in the cancelling clause. There is, of course, an implied term, that the owners will use reasonable diligence to deliver the ship in a fit condition by Dec. 20, 1969. But that is not an absolute obligation. So long as they have used reasonable diligence, they are not in breach. In this case, it is found that reasonable diligence was used, so there is no breach by them of that implied obligation.”

He supported that by reference to authority from England, Scotland and the United States, namely Smith v Dart & Son (1884) 14 QBD 105, Nelson & Sons v The Dundee East Coast Shipping Co Ltd (1907) 44 SLR 661 and United States Gypsum Transport Co v Dampskibs Aktiselskapet Karmoy (1930) 48 Fed Rep (2nd) 376, summarising them at 152 col 2 as follows:

“These authorities show that as long as the owner uses reasonable diligence, he is not in breach, but the charterer is entitled to cancel if the vessel is not delivered by the cancelling date.”

Bridge LJ agreed and delivered a short concurring judgment.

Mr Wright relied on The Democritos in support of his submission that there was an implied term that Sellers’ delivery obligation was simply to deliver within a reasonable time. But I do not think that quite captures what Lord Denning MR said. What he said is that there was no absolute obligation on Owners to deliver by the cancelling date, but that there was an implied term that “owners will use reasonable diligence to deliver the ship in a fit condition by Dec. 20, 1969”. In other words, Owners were under an obligation to deliver by the cancelling date but it was a qualified obligation, namely to use reasonable diligence in doing so, rather than an absolute obligation.

That is how the decision is treated in the textbooks we were shown. Carver on Charterparties (2^nd edn, 2018) says at §7-147:

“…there is no absolute obligation on the shipowner to deliver by the cancelling date. At most, it is under an obligation to exercise reasonable endeavours to do so.”

Time Charters (7^th edn, 2014) at §7.5 to §7.6 is more definite:

“7.5

Many charters, including the New York Produce form, do not contain a delivery date, but do contain a cancelling clause… The primary effect of such a clause is to give the charterers an option to cancel if the ship is not ready for delivery by the specified cancelling date: see chapter 24.

7.6

However, the clause also has another effect: it imposes on the owners an implied obligation to exercise reasonable diligence to deliver the ship by the relevant date.”

Mr Wright said that Lord Denning’s reasoning was thin, but Lord Denning did support his conclusion by reference to authority and it seems clear enough and we were not shown anything to suggest it had later been disapproved. I see no reason why the same principles should not apply to a contract of sale, such as Saleform 2012, that does not contain a specific delivery date but does contain a cancelling clause. In my judgement therefore Clause 5 does impose on Sellers an implied obligation to exercise reasonable diligence to deliver the vessel by the Cancelling Date.

I may add that that was the view that I had reached in any event, but I am heartened to see that in a case comment by Paul MacMahon on the Judge’s decision (Compensation after cancellation for Sellers’ negligent delay – The Lila Lisbon [2025] LMCLQ 29) he analysed the question in precisely the same way, as follows (at 33):

“Clause 5 certainly imposes no strict duty; in the absence of sellers’ proven negligence, the cancelling buyer receives only its deposit. But a strict duty is not the only kind of duty. Clause 14B conditions damages on sellers’ “proven negligence”, and negligence is the neglect of a duty. The contract therefore imposes a duty on sellers to take reasonable care to have the vessel ready for delivery in accordance with the MOA and to execute the legal transfer. In support of her interpretation, the judge analogised the case to cancellation for late delivery under a time charter’s laycan clause, but that analogy shows only that there is no strict duty. In the time charter context, there is “an implied term that the owners will use reasonable diligence” to deliver the ship by the agreed cancellation date [this is footnoted with a reference to The Democritos]. Here, the sellers failed in their duty to take care to deliver the Lila Lisbon by the cancelling date, and were thus in breach of contract.”

This analysis not only fits with the language of “default” and “damages”; it also fits with the reference to “proven negligence” in Clause 14(B). Mr Wright accepted that negligence in this context is to be equated with a lack of due diligence. That seems to me right, and to obtain support from the reference to “due diligence” in Clause 5(c) at line 85. I therefore in effect accept Mr Lewis’s alternative case that Sellers were under what he called a duty of care, although I prefer to refer to the duty as one to use reasonable or due diligence. This is partly because this is the language used both by Lord Denning MR in The Democritos and by Saleform 2012 in Clause 5(c); but is also because I think that “duty of care” is not entirely appropriate. “Duty of care” is of course the language used in the tort of negligence (and for parallel duties owed in contract, for example duties owed to their clients by professionals). But it is not suggested that Sellers owed any duty in tort to Buyers, and I do not think they were under any obligation to take reasonable care not to harm Buyers’ interests, which is what a duty of care would suggest. Rather, their duty is better expressed in my view, as I have already said, as one to use reasonable or due diligence to deliver the vessel by the Cancelling Date. But this is a largely semantic point and does not affect the substance of Mr Lewis’s submission, which I accept.

The contractual scheme that this gives rise to seems to me both logical and coherent, and is not I think difficult to understand. Sellers do not give any absolute promise that they will have the vessel ready by any particular date. If, therefore, despite the exercise of due diligence, they are unable to deliver by the Cancelling Date, they are not in breach of contract. But nevertheless failure to do so gives Buyers an option to cancel under Clause 14(A), exercise of the option not being dependent on breach. This is, in the absence of proven negligence, a species of termination without fault on either side, and consistently with this Buyers are entitled to return of the deposit but do not have any claim to damages.

But Sellers are for the reasons I have sought to express under an obligation to use reasonable or due diligence to deliver the vessel by the Cancelling Date. “Negligence” in Clause 14(B) means a failure by Sellers to comply with this obligation. So if Sellers are not ready to deliver by the Cancelling Date, and Buyers show that this is due to their failure to use due diligence, then not only do Buyers have the option to cancel under Clause 14(A), but they also have a right to damages in the shape of compensation for their loss under Clause 14(B). This right to damages subsists whether or not Buyers exercise their right to cancel (as Clause 14(B) says), and whether or not they accept a proposal by Sellers for a new Cancelling Date under Clause 5(c) (as Clause 5(d) says).

This analysis I think respects the language and structure of Saleform 2012; it produces a result consistent with that in The Democritos which I accept is a close analogy; and it seems to me to balance the interests of Sellers and Buyers in an even-handed way, and to make good commercial sense.

The Judge took a different view. But most of her analysis appears directed at the proposition that Sellers were under an absolute obligation to deliver by the Cancelling Date. Thus at [16] she said that the analogy with delivery into a time charter seemed to her to be apt, and that in that context it is well-established that failure to deliver by the cancelling date gives rise to a right to cancel which is independent of breach. As explained above, I do not disagree with that. And at [17] she said that further support could be found in Clause 5(d) which presupposes that a mere failure to tender Notice of Readiness by the Cancelling Date is not itself a breach of contract, and that any right to damages under Clause 14 depends on the express terms of that clause. Again I do not disagree, although on the view I take the right to damages under Clause 14(B) goes hand in hand with the implied obligation to use reasonable or due diligence to be ready by the Cancelling Date. Then, after considering the Laden Voyage clause, and dealing with an argument (not repeated before us) based on Bunge Corporation v Tradax Export SA [1981] 1 WLR 711, she concluded at [20] that:

“there was no positive obligation on Sellers to tender Notice of Readiness nor to be ready to deliver by the Cancelling Date which was capable of giving rise to a breach of contract.”

It can be seen that I agree with the Judge’s analysis insofar as it concludes that there is no absolute obligation on Sellers to be ready by the Cancelling Date. But it does not separately address the question whether there was an obligation to use due diligence to be ready by the Cancelling Date – no doubt because, as so often happens, the arguments presented in this Court appear to have been somewhat different from those advanced below. I have already given my reasons why I have concluded that there was such an obligation, and to that extent I differ from the Judge.

In those circumstances I would accept that Ground 1 is well-founded. But that, as already explained, is not sufficient by itself to justify the appeal being allowed.

Ground 2 is that the Judge was wrong to conclude that Clause 14 only allows Buyers to recover losses and expenses which have accrued prior to cancellation, and not loss of bargain damages.

I have set out Clause 14(B) above (see paragraph 13) but repeat it here for convenience:

“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.”

We are of course concerned with a question of contractual construction, namely what “loss” means in this clause. I think it is therefore helpful to start with a consideration of the language of the clause.

First there is the reference to “due compensation”. I consider it clear that this does not mean compensation that has already accrued due; it means proper or appropriate compensation. This was what the Judge said (Judgment at [45 i)], as follows:

“I agree with Buyers that “due compensation” means compensation which is appropriate using the common law principles of causation, remoteness and mitigation. I do not accept Sellers’ case that the phrase has the effect of limiting recovery to accrued damages which would otherwise be recoverable in any event. That, it seems to me, would be a very strained construction to put on the words.”

Orion takes issue with this in Ground 2 of its Respondent’s notice, but I think the Judge was entirely right. Mr Wright did not develop his argument on the point at any length and I can deal with it shortly. He submitted that Clause 14(B) merely preserves existing rights to damages; it does not confer any right to damages that Buyers would not otherwise have. Insofar as this point is based on a narrow linguistic argument that the word “due” means “already accrued due” rather than “proper” or “appropriate”, I have no hesitation in rejecting it for the same reason as the Judge, and cannot improve on the way she expresses it.

Insofar as it is based on some wider point, I confess I have not understood what it is. On its face, Clause 14(B) is not framed as merely preserving existing rights – one would expect a clause that was intended to do this to say something like “but without prejudice to Buyers’ existing rights to damages” or the like. Clause 14(B) by contrast is framed as conferring an express contractual obligation on Sellers to pay compensation (“they shall make due compensation…”). I see no reason not to give it that straightforward meaning. Those who drafted Saleform 2012 evidently did intend that Sellers should compensate Buyers for their loss (whatever that covers), and thought it better to confer an express contractual right to that effect. I can well understand why they thought that sensible as otherwise it might be suggested that Buyers who cancel cannot claim damages at all: see the discussion at paragraphs 114ff below of what I refer to as the Financings principle. And it is to be noted that Clause 5(d) refers to “any claim for damages the Buyers may have under Clause 14” which again suggests that the damages are payable under that clause, not just preserved by it. I would dismiss Ground 2 of the Respondent’s notice.

That leaves the question as to what is meant by “their loss”. The Tribunal (described by the Judge in the Judgment at [1] as “a highly experienced arbitration Tribunal”) did not seem to find this difficult. They said (Award at [162]):

“On [Clause 14’s] ordinary meaning the parties would have understood such compensation to extend to the consequences of cancellation thereunder, including loss of profit.”

It is noticeable that the Judge’s own initial reaction was the same, namely (Judgment at [43]) that:

“loss of bargain damages were recoverable under clause 14B for much the same reasons as given by the Tribunal.”

We were also shown two comments on the Judge’s Judgment which are to similar effect. In a short comment by Paul Herring(The Lila Lisbon, Commercial Court reverses industry understood practice on damages,UK Defence Club, 28 August 2024), he said:

“The industry has long considered that a buyer could recover damages at large in such a situation.”

And in Dr MacMahon’s longer case comment (see paragraph 60 above) he said this (at 29):

“Though the judge’s discussion of this “intractable” area of law is erudite and subtle, the denial of loss-of-bargain damages is questionable. Particularly in light of the Saleform’s history, a reasonable reader would likely assume that “due compensation … for loss and all expenses” includes loss-of-bargain damages. Moreover, it makes little commercial sense to deprive buyers of the benefit of the agreed contract price where the market has risen and the sellers are at fault for failure to deliver on time.”

I agree with his description of the Judgment as erudite and subtle, but I too consider that the natural and ordinary meaning of loss extends to Buyers’ loss of bargain.

I can explain why quite shortly. Great Asia did not get the ship it had contracted for. The ship was by the time the contract was cancelled worth $16.85m, but Great Asia was only due to pay $15m for it. Having thus lost the benefit of the contract, its loss was the loss of that bargain.

Nor, if one asks why it did not get the ship, is there any difficulty over factual causation. Great Asia did not get it because Orion was not ready to deliver it in the time allowed for that purpose by the MoA, that is by the (extended) Cancelling Date; Great Asia was therefore entitled to, and did, call the contract off; and Orion was not ready to deliver it because it had failed to exercise due diligence to get itself ready by the relevant date. The Tribunal said (Award at [160]) that:

“The failure to deliver on time is a breach of the MOA and the Seller is in default. The default causes the cancellation…”

And (Award at [165]):

“The cause of the Buyers’ loss of profits was Sellers’ failure to deliver, and this caused Buyers to bring the MOA to an end.”

Save that, strictly speaking, it was not Sellers’ 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, these factual conclusions seem to me incontrovertible (and in any event cannot be challenged on an appeal under s. 69). Great Asia did as a matter of fact lose the benefit of its contract and did as a matter of fact suffer a loss of bargain. In those circumstances I would regard the natural and ordinary meaning of the word “loss” in Clause 14(b) as including that loss of bargain unless there is some legal principle which prevents that.

Why then did the Judge reach a different conclusion? At [45 ii)-iii)] she said this:

“ii)

As a matter of construction, the provision for compensation “to the Buyers for their loss and for all expenses … if [the Sellers’] failure is due to proven negligence and whether or not the Buyers cancel this Agreement” can only refer to the failure identified in the opening words of clause 14B, namely the failure to give Notice of Readiness or to be ready to complete a legal transfer by the Cancelling Date.

iii)

It follows that the loss and expenses recoverable under clause 14B must be caused by that specific failure. Prima facie, therefore, this is a reference to accrued losses and expenses which have crystallised at the point of cancellation and not to prospective losses and expenses caused by the cancellation. This suggests that the losses and expenses ought to be the same where the Buyers cancel and where they do not. It is not immediately obvious that in circumstances where the right to terminate is at the option of the buyers, the clause creates a significantly enlarged right to claim loss of bargain damages in the event that they decide to cancel.”

I agree with what she says in [45 ii)], namely that the “failure” referred to in Clause 14(B) must be Sellers’ failure to give Notice of Readiness or be ready to validly complete a legal transfer. This seems to me simply another way of saying that the relevant failure is the failure of Sellers to be ready to complete the contract. In order to complete the contract Sellers need to transfer both physical possession and legal ownership to the Buyers. The scheme of Saleform 2012 is that by Clause 5(b) (at line 83) Sellers are to give Notice of Readiness “when the Vessel is at the place of delivery and physically ready for delivery”; by Clause 3 actual delivery is then to take place not later than three Banking Days afterwards against payment of the balance of the Purchase Price and any other sums due from Buyers to Sellers on delivery; and by Clause 8 (closing) Sellers are to provide the documents specified in exchange for payment of the Purchase Price (and for Buyers’ documents). So when Clause 14 refers to the failure of Sellers to give Notice of Readiness or be ready to validly complete a legal transfer, it simply means that Sellers are either physically or legally not ready to complete the sale. As the Judge points out at [46] this is confirmed by Clause 5(d) which refers to any claim for damages the Buyers may have under Clause 14 “for the Vessel not being ready by the original Cancelling Date”.

Where I have more difficulty is with [45 iii)]. I agree that the losses for which Buyers can claim are those caused by Sellers’ (negligent) failure to be ready; but I do not see why that means that they have to be crystallised at the point of cancellation. As a matter of fact the losses that Buyers suffer depends on what actually happens. If, for example, Sellers propose a new Cancelling Date under Clause 5(c) and Buyers accept the new date, they have obviously not lost the contract and cannot claim for loss of bargain; but they can (and in this case Great Asia duly did for Orion’s first default) claim for loss of profits for the period of delay. By contrast if Buyers refuse to accept the new Cancelling Date and opt to cancel the contract, they cannot claim loss of profits as the contract has come to an end. But if they 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.

It may be that the Judge was making a different point, which is that if Buyers cancel, the loss of the contract, although factually caused by Sellers’ lack of readiness, is not legally caused by it. That would be to regard Buyers’ decision to cancel as something that broke the chain of causation (a new intervening cause). I could understand such reasoning in principle; but that is not (or not explicitly, at any rate) the reasoning applied by the Judge. And if that were the basis for the Judge’s decision, one would have expected more discussion of the principles which apply when considering whether an innocent party’s reaction to a default by the other party does or does not count as a new intervening act.

Nor do I understand why the Judge says that the damages ought to be the same whether Buyers cancel or not. As I have sought to explain, the losses actually suffered by Buyers will depend on what happens, including whether they cancel or not. In general when assessing damages the Court (or arbitral tribunal) will take account of what has actually happened by the time of assessment; this is an aspect of the compensatory principle as explained by the House of Lords in the well-known case of The Golden Victory [2007] UKHL 12, [2007] 2 AC 353. Nor is it necessarily the case that damages for loss of bargain will be a “significantly enlarged right” as the Judge refers to at the end of [45 iii)]. In the present case for example the damages awarded under Clause 14(B) for loss of profits for Sellers’ first default were some $1.65m (see paragraph 23(1) above), whereas the damages for loss of bargain awarded for Sellers’ second default were not much more at $1.85m. And of course the market might not have risen by as much as it did. Suppose the market had remained flat and the market price as at October 2021 had been the same as the contract price at $15m. If Buyers had cancelled they could not have claimed for loss of bargain as they would have suffered none. In those circumstances the damages payable by Sellers would have been very much less if Buyers had cancelled than if they had kept the contract on foot and claimed for loss of profits for the period of delay.

At [46] the Judge says:

“It seems to me that this construction is confirmed by clause 5(d) which makes clear that the buyers’ potential claim for damages under clause 14 is “for the Vessel not being ready by the original Cancelling Date” (emphasis added), not for damages for loss of bargain. This makes sense in circumstances where cancellation does not automatically result from the mere fact that the vessel is not ready but depends on the buyers’ election.”

I agree that, as Clause 5(d) says, Buyers’ claim for damages is for the Vessel not being ready by the Cancelling Date. But I do not think that necessarily excludes damages for loss of bargain. As I have said above, one of the consequences of the Vessel not being ready by the Cancelling Date is that Buyers have a right to cancel, and if they exercise that right they do lose their bargain. The question is whether that loss comes within the clause. I do not think that can be answered simply by saying that the damages are for the vessel not being ready. Dr MacMahon puts the point well in his case comment (at 31):

“The judge’s construction is based on her answer to an unanswerable question: was the loss of bargain caused by the late delivery or by the cancellation?”

This is footnoted:

“If an answer to this question must be provided it would probably be “both”, given that the sellers were at fault.”

That seems to me right, especially given that the scheme of the contract is that Sellers are given a contractual window in which to get themselves ready, failing which Buyers are given a right to cancel. If they do cancel, I do not see why that was not caused by the failure to meet the window, at any rate where that failure was due to Sellers’ breach of contract: see the discussion of The Solholt [1983] 1 Ll Rep 605 at paragraph 147 below.

At [47] the Judge reaches her provisional conclusion:

“Thus far, therefore, my provisional view is that clause 14 does not on its natural and ordinary meaning give rise to a right to claim loss of bargain damages where cancellation takes place in accordance with the clause, absent an accepted repudiatory or renunciatory breach.”

At [48] she considers what damages Buyers would be able to recover on that view if they do cancel. This was a point that had troubled the Tribunal who said (Award at [163]):

“The starting point is that compensation will be recoverable where the contract has been cancelled (and also if the MOA is kept alive). If compensation is not recoverable for the consequences of cancellation (including loss of bargain) it would be unclear what compensation means. Sellers failed to put forward a satisfactory alternative explanation since it cannot have been intended to be limited solely to reliance losses.”

The Judge said that this seemed to her an illusory concern, saying:

“On the construction above, the recoverable damages under clause 14B include expenses incurred by the buyers in making arrangements to crew the vessel, carrying out inspections, legal costs and preparing for delivery generally. They will also encompass any loss of profits that could potentially have been made between the date when the vessel should have been delivered but for the sellers’ negligence and the date of cancellation.”

Mr Lewis submitted that this was not really an answer to the point. He pointed out that such expenses were themselves only a loss if Buyers cancelled the contract. That may not be entirely true as if delivery is delayed some expenses may have to be duplicated. But I agree that most expenses, such as the costs of inspections, or the legal costs of considering Sellers’ draft documents (and preparing Buyers’ documents), are only wasted if the contract is called off. So on the Judge’s view the losses recoverable under Clause 14 do include losses which only arise because of the cancellation. That might be thought to cast some doubt on whether it is really the case that they do not include the most obvious loss arising from the cancellation, namely the loss of bargain if the market has risen. Quite apart from that, Clause 14(b) expressly provides for compensation for “all expenses” in any event, so one would expect compensation for loss to have been intended to cover something else.

As to the suggestion that Buyers who cancel would be able to recover damages for loss of profits between the Cancelling Date and the actual cancellation, Mr Lewis submitted that they would be likely to be minimal, as Buyers who wished to cancel would be well advised to do so promptly to avoid any suggestion that they had lost their right to do so by waiver or affirmation. That seems to me a point well made. Mr Wright did not suggest Mr Lewis was wrong about it; he said that if that was so, it simply reflects the extent of losses suffered by Buyers. I agree but that does not seem to me to provide an answer. Those who drafted Saleform 2012 and expressly included a right to compensation for loss whether or not Buyers elected to cancel presumably envisaged that it would be a right of some significance rather than one that, in the case of cancellation, simply duplicated compensation for expenses and added a claim for what were likely to be only trivial amounts.

Overall therefore I agree with the Tribunal that it is not obvious what loss was intended to be compensated under Clause 14(B) (in the case of Buyers electing to cancel) if it did not include loss of bargain, and that this is a reason for doubting whether the clause was really intended not to extend to such loss.

At [49]-[50] the Judge considered the drafting history of Clause 14, but concluded at [51] that it would be unsafe to draw any conclusions from it, and that she would therefore proceed on the basis of the wording as it stood, as to which her provisional conclusion was as set out at [47]. At [52]-[53] she continued:

“52.

As it seemed to me, the most powerful argument against that provisional conclusion was Buyers’ argument that the situation contemplated by clause 14 is to be equated with non-delivery and that clause 14B therefore permits recovery of the normal market measure stipulated in section 51(3) of the Sale of Goods Act. It was not controversial that section 51(3) reflects the ordinary compensatory principle: see Sharp Corp Ltd v Viterra BV, [2024] UKSC 14 at [96]. Nonetheless, it should not be forgotten that while section 51(3) sets out a default rule, the overriding principle is that set out in section 51(2), namely that the measure of damages is “the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract”. In other words, the starting point must be to identify the particular breach or trigger in respect of which damages are recoverable.

53.

In my judgment, for the reasons already given, the relevant trigger is the failure to give Notice of Readiness by the Cancelling Date and it is only losses caused by that specific failure which are recoverable under clause 14B, not losses caused by the loss of the contract more generally. On that basis (and a fortiori if there was no positive obligation to give Notice of Readiness by the Cancelling Date) this is not equivalent to a case of non-delivery at all. It is simply a failure to tender Notice of Readiness by a particular date, which leaves open the possibility that notice may be given at a later date. I do not accept that Buyers’ unilateral decision to terminate pursuant to a cancellation right can transform the case as a matter of law into one of non-delivery.”

Mr Lewis took issue with this passage. He submitted that a negligent contractual failure to be ready by the Cancelling Date is in substance equivalent to non-delivery, and that if Buyers cancel as a result, there will always in fact be no delivery. The normal measure of damages for non-delivery (namely the difference between market price and contract price as set out in s. 51(3) of the Sale of Goods Act 1979) should therefore apply. Mr Wright submitted that the Judge was right. Missing a deadline is a case of delay in delivery not non-delivery. Being late does not by itself cause a loss of bargain.

This is I think a central point in the case, and I will say at once that I have not found it entirely straightforward.

I agree that the damages payable under Clause 14(B) are compensation for the loss caused by the failure of Sellers to be ready by the Cancelling Date. I agree that one cannot simply equate failure of Sellers to be ready in time with a case of non-delivery, as if Buyers choose not to cancel the contract it remains on foot and Sellers may be able to deliver later. The key question it seems to me is whether if Buyers do cancel, with the result as Mr Lewis says that there will never be delivery, this is to be equated with a case of non-delivery.

I do not think it matters that the “trigger”, to use the Judge’s word, is expressed to be Sellers’ failure to give Notice of Readiness or failure to be ready to complete a legal transfer. As I have said above (see paragraph 79), this is just another way of saying that the relevant failure is the failure of Sellers to be ready to complete the contract, either physically or legally. So I think the same questions would arise if Clause 14 had simply read “if Sellers are not ready to deliver by the Cancelling Date”. No doubt Clause 14 refers to Sellers not giving Notice of Readiness because there will usually be less room for argument over it than if one had to investigate whether they were in fact ready.

So the question can be expressed more simply as follows. Sellers are (as I have held under Ground 1) under an obligation to use reasonable or due diligence to deliver by the Cancelling Date. In breach of that obligation Sellers are not in a position to deliver by the Cancelling Date. If Buyers cancel, is that a case of non-delivery, or to be equated with a case of non-delivery?

In considering this question I think it is helpful to consider the corresponding right given to Sellers under Clause 13 to cancel the contract in the event of non-performance by Buyers. Buyers’ essential obligations are twofold: to lodge a deposit under Clause 2 (within three Banking Days after the Agreement has been signed and the Deposit Holder has confirmed that the account has been opened); and to pay the balance of the Purchase Price under Clause 3 (within three Banking Days after Sellers have given Notice of Readiness). Neither Clause 2 nor Clause 3 expressly makes time of the essence for these payments, but Clause 13 provides that if either payment is not made in accordance with Clause 2 or 3 (as the case may be), Sellers have the right to cancel the Agreement and claim compensation for their losses.

Does this include damages for loss of bargain? I think the answer to this is Yes. In The Griffon, this Court was concerned with Clause 13 of the 1993 revision of the Norwegian Saleform, which was in almost identical terms to Clause 13 in Saleform 2012 (there are some very minor and immaterial drafting differences). Buyers had failed to pay the deposit and Sellers had cancelled. The actual question was whether Sellers had an accrued right to payment of the deposit (to which the answer was Yes), but what is of interest for present purpose is what Tomlinson LJ (with whom McFarlane LJ and Sir Brian Leveson agreed) said at [10]:

“The right to cancel given by limb 1 of clause 13 is not dependent upon proof that failure to pay the deposit on time is repudiatory in nature. Indeed, until the decision of this court in Samarenko v Dawn Hill House Ltd [2013] Ch 36, it would not have been clear that a failure to pay the deposit on time is, without more, repudiatory of the buyers’ obligations. Limb 1 of clause 13 therefore confers upon sellers a valuable contractual remedy over and above the remedy which they already enjoy at common law, the availability of which latter remedy is however attended by uncertainty. That uncertainty was greater before the decision of this court in Samarenko, and thus at the time when limb 1 was introduced. Whatever the position now, a contractual remedy of termination which has no need to characterise the defaulting buyers’ conduct as repudiatory is a valuable addition to sellers’ armoury. The circumstances out of which buyers’ repudiation must be spelled are not always clear cut. A contractual right of termination exercisable upon the happening or non-happening of an event usually brooks of less argument. The express entitlement to compensation together with interest for losses and expenses is also at the least a valuable clarification of a right to which the sellers were in any event entitled at law, which is henceforth made available as an express term of the contract.”

This passage makes two points that are relevant. First, Tomlinson LJ saw Sellers’ right to cancel conferred by Clause 13 as acting in parallel with their common law right to terminate by accepting a repudiation by Buyers; it fulfils the same function, enabling Sellers to call the contract off if Buyers do not perform, but with the benefit of certainty and predictability in place of the uncertainty inherent in the common law position.

Second, it seems clear from the last sentence of the passage that Tomlinson LJ considered that Sellers would be entitled to claim for the same losses under Clause 13 as they would have been able to had they terminated for repudiatory breach (that is, including loss of bargain). The Court admittedly did not need to decide this as (i) it was accepted by Buyers, following Samarenko, that failure to pay the deposit was in fact repudiatory, so Sellers did not need to rely on the Clause 13 rights; and (ii) in any event Sellers’ losses calculated on the conventional measure of the difference between contract and market price were only $275,000, very much less than the amount of the deposit of over $2m (see the judgment of Teare J at first instance at [2] and [3], as set out by Tomlinson LJ in his judgment at [3]), and since the conclusion of the Court was that Sellers could claim the amount of the deposit, there was no question of loss of bargain damages being awarded as well. Nevertheless the significant point is that Tomlinson LJ evidently considered that Clause 13 conferred an express contractual right to claim the same sums. Given what he had just said about the advantage of Clause 13 being a valuable remedy because of its greater certainty than the common law one, it seems to me that he must have considered that Clause 13 conferred that right whether or not Buyers’ conduct would have fallen to be classified as repudiatory. Certainly there is no suggestion that it is only because non-payment of the deposit was in fact repudiatory that Clause 13 was to be understood as conferring an entitlement to compensation for losses including loss of bargain measured on the conventional basis.

Now of course it does not necessarily follow that the same is true of Clause 14(B). But I think the structure of Saleform 2012 leads one to expect that Clauses 13 and 14 will operate in a similar fashion. Clauses 13 and 14 are closely parallel. Delivery and payment are of course the basic duties of a seller and a buyer respectively under a contract for the sale of goods (see ss. 27 and 28 of the Sale of Goods Act 1979), and Clauses 13 and 14 deal with the consequences of non-payment and non-delivery accordingly. And I think one can assume that Saleform 2012 is not intended to be a one-sided form of contract favouring one party over the other, but to operate even-handedly as between Sellers and Buyers; it would not have commended itself to the industry otherwise. In the case of non-payment Clause 13, headed “Buyers’ default”, confers on Sellers, where it applies, both a right to cancel and a right to claim compensation for their losses and all expenses incurred; in the case of non-delivery Clause 14, headed “Sellers’ default”, similarly confers on Buyers, where it applies, a right to cancel and (provided Sellers are in breach of their due diligence obligations) a right to claim compensation for their loss and all expenses. Now they are admittedly not exactly parallel, as Clause 13 contains no equivalent to the requirement in Clause 14(B) that the default be due to proven negligence; but where there is proven negligence (and hence as I have held under Ground 1 a breach of contract by Sellers) the rights to compensation are expressed in similar terms. One would expect them therefore to have a similar operation.

If this is right, then what Tomlinson LJ says in The Griffon about Clause 13 should also apply to Clause 14. So just as with Clause 13, the benefit of Clause 14 to Buyers is that the ability to call the contract off because Sellers have not given Notice of Readiness by the Cancelling Date “brooks no argument”, unlike the need to characterise Sellers’ conduct as repudiatory, where “the circumstances out of which … repudiation must be spelled are not always clear cut”.

And just as Clause 13 confers on Sellers the right, if they cancel, to claim compensation for their loss including loss of bargain, so I think one would expect Clause 14(B) to confer on Buyers the right, if they cancel and can prove that the non-delivery was due to Sellers’ negligence or lack of due diligence, to claim compensation for their loss including loss of bargain.

Reverting to the question I posed at paragraph 96 above (where Sellers are 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 Buyers cancel, is that a case of non-delivery, or to be equated with a case of non-delivery?), these considerations strongly suggest to my mind that the answer is Yes.

I will have to consider below whether the further arguments raised on this appeal by Mr Wright lead to a different conclusion, but subject to those arguments, I think therefore the better view is that in a case where Sellers have, in breach of contract, failed to exercise due diligence to be ready to deliver by the Cancelling Date, and Buyers have as a result exercised their right to cancel, Buyers can recover compensation under Clause 14(B) for their loss including loss of bargain where the market has risen such the market price at the time of cancellation exceeds the contract price.

The remainder of the Judge’s Judgment is taken up with consideration of certain authorities, which she concludes do not affect her preferred analysis (at [54]-[55]); and with whether her analysis produces an uncommercial result (at [56]-[58]). I will come back to these points below.

Mr Wright deployed a number of arguments on appeal. His starting point was that Sellers’ failure to be ready to deliver by the Cancelling Date, even if a breach of contract at all, was not a repudiatory breach. This was the conclusion of the Judge and had not been appealed.

He made in effect four points on the basis of this:

So far as the “fundamental oddity” in Great Asia’s case is concerned, I do not accept that there is anything odd about it at all. It is true that the simplest way to confer on an innocent party both the right to terminate the contract and the right to claim damages for loss of bargain is usually to provide expressly for the relevant obligation to be a condition (as the Tribunal said in the Award at [157]). But contracts can be drafted in many different ways. A contract may provide for example that time is of the essence for the performance of some obligation, thereby making performance strictly on time a condition. Or it may provide, as for example contracts for the sale of land regularly do, that time is not initially of the essence but that in the case of failure to perform on time, the innocent party may serve notice making it of the essence. Or there may be a clause such as Clause 13 in Saleform 2012 which enables Sellers to cancel the contract and claim damages if Buyers do not make payment on time. As the discussion above of The Griffon shows, the practical effect of that would appear to be the same as if payment by Buyers on time were expressly made a condition, but one cannot find any express provision to that effect in Clauses 2 and 3.

I do not see why the same should not be true of Clause 14(B). The fact that those drafting Saleform 2012 have not expressly provided for Sellers’ delivery obligation to be a condition does not prevent them from having achieved a similar effect in a different way. Indeed it would I think have been much less convenient if Sellers’ obligation to deliver by the Cancelling Date had been expressly drafted as a condition. The usual advantage of expressly providing that a contractual obligation is a condition is that in the event of breach the innocent party can treat the breach as repudiatory without more, that is without having to show a breach that goes to the root of the contract or conduct that evinces an intention not to perform. The latter are often contentious and difficult to prove but failure to perform on a particular date is usually much easier to establish. If Sellers’ obligation to deliver by the Cancelling Date had been an absolute one, it would therefore no doubt have made good sense to draft it as a condition.

But where, as I have concluded on Ground 1, Sellers’ delivery obligation is not an absolute one but merely one to use reasonable or due diligence to deliver, it would make far less sense in practice to express this as a condition. Suppose this had been done, and that Sellers in a particular case were not ready by the Cancelling Date. Would this be a breach of condition entitling Buyers to accept a repudiation or not? That would depend on whether Buyers would be able to prove negligence, something that might not be at all obvious at the time. But if they did purport to terminate for repudiatory breach and in the event failed to prove negligence, they would run the risk of that being held to be a wrongful termination and hence a repudiation by themselves. If on the other hand they failed to terminate for repudiatory breach promptly, they might be held to have affirmed the contract and thus to have lost the right to terminate. So the certainty and practical advantages usually achieved by drafting a contractual obligation as a condition would be lost. I can see why in those circumstances those drafting Saleform 2012 might have thought it preferable to confer an express contractual right on Buyers to cancel without the need for them to prove breach by Sellers, coupled with a right to claim damages if they could. That is what Clause 14 does. I do not find that counter-intuitive; on the contrary it seems to me an eminently sensible and practical scheme.

So far as the supposedly draconian nature of the consequences are concerned, I do not find this argument at all persuasive. It is frequently possible to construct examples where contractual provisions can operate in a way that might seem disproportionate. One might equally say for example of Clause 13 that Buyers might miss making payment under Clauses 2 or 3 by a matter of hours but could both lose the contract and expose themselves to damages; or that under Clause 14(A) Buyers can cancel the contract if Sellers are not ready by the Cancelling Date even if Sellers are not at fault in any way, which might seem hard on them if the market has fallen significantly. Under Clause 14(B) by contrast Buyers cannot of course recover at all without taking on the burden of proving negligence by Sellers, something that is often easier to allege than to establish. If they do prove it, there does not seem to me any good reason why they should not be compensated for any loss they have suffered.

Mr Wright’s third point relies on the distinction between the exercise of a contractual right of termination and the termination of a contract by accepting a repudiatory breach. Such a distinction is well established. On the findings of the Tribunal, Great Asia here terminated the MoA by exercising its right to cancel under Clause 14(A) rather than by accepting any repudiatory breach.

The next step in Mr Wright’s argument is that there is a principle that in general a party exercising a contractual right of termination as a reaction to a breach is not entitled to damages for loss of bargain unless the breach was repudiatory. I will refer to this as the Financings principle (after Financings Ltd v Baldock [1963] 2 QB 104). This was recorded by the Judge as common ground below, as follows (Judgment at [35]):

“i)

Loss of bargain damages cannot be recovered on the exercise of a contractual right of termination unless the claimant can show a repudiatory breach and that it exercised its common law right to terminate for repudiation: see Phones 4U Ltd (in administration) v EE Ltd, [2018] EWHC 49 (Comm); [2018] Bus. L.R. 574; The Kos, [2012] UKSC 17; [2012] 2 AC 164; The Spar Capella (supra).

ii)

However, it is open to the parties to make express provision as to the consequences of cancellation pursuant to a contractual right. Thus, they may stipulate that a right of cancellation carries no additional rights, or carries equivalent rights to termination for repudiatory breach, or carries some different rights.”

Mr Lewis did not before us dispute the principle as set out at [35 i)] above. He was content to rely on the exception referred to in [35 ii)] as Saleform 2012 does make express provision as to the consequences of cancellation, namely that if Buyers prove negligence they are entitled to compensation for their loss.

That means we did not hear any argument as to the scope of the principle. That some such principle exists I do not doubt. The earliest case we were shown was the Financings case itself, a case of a hire-purchase contract where the hirer had been late in making payment of two instalments and the finance company had terminated the contract. Lord Denning MR at 113 expressed the principle like this:

“But if there is no repudiation, and simply, as here, a failure to pay one or two instalments (the failure not going to the root of the contract and only giving a right to terminate by virtue of an express stipulation in the contract), the owners can only recover the instalments in arrear, with interest, and nothing else: for there was no other breach in existence at the termination of the hiring… I would prefer to ask whether there is a repudiation of the obligation to pay future instalments.”

And Diplock LJ said at 120-1:

“[The hirer] had at the date on which the owners exercised their option to terminate the contract said nothing to indicate his unwillingness or his inability to pay either these or any future instalments. He was clearly in breach of his obligation to pay two instalments on the due dates but, in the absence of any express provision to the contrary in the contract, these breaches of a contract of hire expressed to be for a duration of 24 months would not of themselves go to the root of the contract or evince an intention on the part of the hirer no longer to be bound by the contract. The owners’ only remedy would have been to sue for the two instalments overdue and their measure of damages would have been the amount of these instalments, together with interest at the agreed rate of 10 per cent, per annum…

Whether [a clause conferring an option to terminate] does more than this and confers any other rights or remedies on either party on the termination of the contract, depends upon the true construction of the relevant provision. If it does not, then each party is left with such causes of action, if any, as had already accrued to him at the date that the contract came to an end.”

Similarly Lord Sumption JSC in The Kos said at [7] of a charterparty containing a clause entitling owners to withdraw the vessel on non-payment of hire:

“It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this… The second consequence is that any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel. This is because the non-payment does not itself destroy the bargain or occasion the expenses, unless in the circumstances it is a repudiation which owners have accepted as such.”

This all seems to me no more than good sense. It is the same with a lease. If the tenant is late paying rent and the landlord forfeits, it would be most surprising if the landlord could claim damages for the loss of rent over the remainder of the term. But what is noticeable is that all these contracts – a contract for hire-purchase, a charterparty, a lease – are long-term contracts that are due to last for a period and which are prematurely brought to an end by the exercise of the right to terminate. The same is true of the other cases referred to by the Judge in the Judgment at [35 i)]: Phones 4 U was a case of a contract governing the trading relationship between two companies in the mobile phone business which was entered into for a number of years; The Spar Capella was another charterparty.

It is not obvious to me that the same principles necessarily apply to a contract for a single transaction such as a sale. That seems to me a very different type of contract. Unlike a lease or charterparty or the like, the contract is not intended to govern the parties’ relationship for an extended period which is prematurely brought to an end by the exercise of a right to cancel. A contract for sale is intended to achieve a particular transaction – the exchange of an asset for money – and where the contract provides for a window in which to achieve that transaction, the exercise of a right to cancel if the window is not met does not seem to me a case of premature termination in the same way at all; it is a case where the transaction cannot be carried through as intended and so is called off. We were not referred to any case where the Financings principle has been applied to a contract of this type and I think there is a real question whether it does apply in the same way.

But we heard no real argument on the point because Mr Lewis, as already referred to, did not advance any submissions as to the scope of the principle, being content to rely on the proposition that contracting parties can make express provision as to the consequences of termination, in which case, as Diplock LJ says in Financings, the only question is the true construction of the relevant provision. Mr Wright did refer us to a statement in Carter’s Breach of Contract (3^rd edn, 2024) at §13-07 that the restriction on loss of bargain damages is “correct at a doctrinal level”. But Professor Carter’s discussion of the principle is in fact more nuanced, noting that it has attracted a good deal of discussion; that difficulties with it have not gone unnoticed; that it seems somewhat artificial to draw a contrast between what the common law permits by reference to commercial convenience and what the parties agree for the same reason; and that from that perspective there is undoubtedly something to be said in favour of allowing loss of bargain damages in all cases of discharge for breach, even where the termination right is conferred expressly.

Similarly Chitty on Contracts (35^th edn, 2023) at §26-063 expresses the position in less than definite terms, saying that:

“where a contracting party terminates the contract pursuant to a term of the contract, and the breach which caused it to exercise that power is not a repudiatory breach, the party exercising the right to terminate may only be entitled to recover damages in respect of the loss which it has suffered at the date of termination and not for loss of bargain damages.” (emphasis added)

(citing the Financings case). This statement is footnoted with reference to statements, among other things, that this separation of the right to terminate and the right to claim loss of bargain damages has been rejected by the Supreme Court of Canada, and subjected to academic criticism.

All of this suggests that there may be room for argument as to quite what the scope of the principle is. But I do not propose to consider that any further in the light of the fact it was not argued. I will proceed on the assumption that Mr Wright is right that in the absence of the express right to claim damages under Clause 14(B) Buyers would have no claim to damages for loss of bargain if they terminated under Clause 14 (even if they could establish a breach by Sellers of the obligation to use due diligence to be ready to deliver by the Cancelling Date).

Nevertheless, that does not seem to me to tell one anything very much about what damages are recoverable where Clause 14(B) does contain an express right to compensation for Buyers’ loss.

Mr Wright referred us to an article by Professor Peel, The Termination Paradox [2013] LMCLQ 519 at 523, in which he refers to two potential justifications for the Financings principle. The first is based on causation, that is that the bargain is lost not because of the breach but because of the innocent party’s decision to terminate. But as I have already said, where the innocent party terminates as a reaction to the other party’s breach, it does not seem wrong to regard both the breach and the termination as causes of the loss. Mr Lewis said that whatever might be the case where there was a bare termination clause unaccompanied by any right to damages (as in Financings itself, and Phones 4 U), that is not necessarily the case in a contract such as Saleform 2012. I agree. Under Clause 14(B) there is a right to compensation for loss. That no doubt means loss caused to Buyers as a result of Sellers not being ready, but that to my mind leaves open the question whether the loss flowing from the exercise of the cancellation right in Clause 14(A) is to be regarded as a result of that or not, which I think is a question to be resolved on the construction of the contract as a whole, not to be determined by decisions on other contracts in different form. A similar point arose in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27 (not cited to us but referred to extensively in Professor Peel’s article) and was dealt with at [36] per Moore-Bick LJ as follows:

“Mr Dunning sought to argue that Gearbulk had no right to recover damages for loss of bargain in this case because the effective cause of its loss was not the yard’s breach of contract but its own decision to exercise its contractual right of termination. I cannot accept that. Whatever may have been said in other cases about other contracts, I think it is clear that in this case the contract proceeds on the footing that if Gearbulk chose to exercise its right, the yard’s breach was to be viewed as the effective cause of the contract’s termination.”

Professor Peel’s second justification – which he described as the real basis for the decision in Financings – is that once a contract has been terminated there was no further opportunity for a repudiatory breach. I agree, in that if a contract is terminated it usually discharges both parties from further performance so that (subject to any express provision to the contrary) there cannot thereafter be any further breaches, repudiatory or otherwise. But I do not think this answers the question of construction of Clause 14(B) either. If “loss” includes loss flowing from the cancellation, then it does not matter that there will not be any further breaches.

For these reasons I think the Financings principle, whatever its precise scope, does not give us the answer to the question raised by Clause 14(B), namely whether “their loss” includes loss of bargain. This was the view taken by the Judge who said that Financings was irrelevant; here, by contrast with that case, there is an express provision in the form of Clause 14(B) which purports to confer an additional right and the only question is what it means (Judgment at [40]-[41]). For the reasons I have given I agree.

Mr Wright’s fourth point is that clear words are required to confer on Buyers a right which they do not have at common law. This was another point raised before the Judge which she did not accept, saying that it seemed to her an arid debate; the task of the Court was to construe the contract, which meant ascertaining the deemed intention of the parties in accordance with well-known principles (Judgment at [38]).

Mr Wright challenges this in Ground 1 of the Respondent’s notice. He relied on three authorities: Novasen SA v Alimenta SA [2013] EWHC 345 (Comm), [2013] 1 Ll Rep 648; Bunge SA v Nidera BV [2015] UKSC 43, [2015] 2 Ll Rep 469; and The Spar Capella [2015] EWHC 718 (Comm), [2015] 2 Ll Rep 407.

In Novasen a contract for the sale of groundnut oil contained a default clause which provided that where a seller defaulted the buyer could go into the market and buy against the default. The question was whether the clause had the effect of enabling the buyer to recover substantial damages where an export ban at the point of shipment meant that the contract would have come to an end in any event. Popplewell J (as he then was) said at [17]:

“If no remedy, in the form of an entitlement to damages, is conferred by law, clear words will be required to confer a contractual entitlement to such remedy. This is especially so where (a) the contractual term is a standard clause drafted and adopted by a trade body; and (b) the contractual term is to confer a right of recovery in circumstances where no loss has in fact been suffered… [T]he starting point, in commercial dealings as in the law, is that a party claiming damages for breach of contract should be entitled to recover no more than the loss occasioned by the breach.”

That seems reasonable enough. But Clause 14(B) does not seek to confer a right of recovery where no loss has in fact been suffered. In terms the right conferred on Buyers is to be compensated for their loss, and there is no dispute that that does not entitle them to recover more than the loss that they have actually suffered. The argument advanced by Mr Wright is a different one, namely that damages for loss of bargain would not have been recoverable in the absence of express provision (because of the Financings principle). I have accepted that that may be so. But here the parties undoubtedly have made express provision, and I do not think that what Popplewell J said in Novasen is really in point or helps resolve the ambit of the loss covered by Clause 14(B).

Nor do I think Bunge v Nidera takes matters any further. Lord Sumption JSC at [26] in fact expressly rejected the submission that there was a presumption that the parties intended a damages clause to produce the same measure of damages as the compensatory principle produced at common law. He accepted only a more moderate version of the suggested presumption, namely that:

“A damages clause may be assumed, in the absence of clear words, not to have been intended to operate arbitrarily, for example by producing a result unrelated to anything which the parties can reasonably have expected to approximate to the true loss.”

And at [35] he approved Popplewell J’s decision in Novasen, describing it as consistent with principle, and continuing:

“The alternative is to allow the clause to operate arbitrarily as a means of recovering what may be very substantial damages in circumstances where there has been no loss at all.”

But there is nothing arbitrary in this sense in Clause 14(B). It does not purport to provide for recovery of compensation where there has been no loss, or to produce a result unrelated to Buyers’ true loss.

That leaves The Spar Capella, also decided by Popplewell J. The question was whether prompt payment of hire in a time charter is a condition, a point on which there were conflicting authorities. Popplewell J concluded that it was not, declining to follow the decision of Flaux J in The Astra [2013] EWHC 865 (Comm), [2013] 2 Ll Rep 69, who had held that it was, and his judgment was later upheld by this Court: The Spar Capella [2016] EWCA Civ 982, [2017] 4 All ER 124. In the course of his judgment, which contains a wide-ranging and impressive survey of the law touching on many points, he said at [97] that parties may agree that in the event of breach the innocent party should have the right to terminate the contract but without intending that the defaulting party should be liable for any consequences of the termination; such provisions are concerned solely with providing the innocent party with an option to put an end to his performance obligations but not to confer a right to claim damages. At [98] he said:

“[I]f there has been no repudiatory breach or renunciation, the option to cancel does not confer a right to damages, in the absence of clear language to the contrary, but merely confers a right to put an end to future performance obligations.”

But again I do not see this as being in point. Clause 14(B) does contain clear words conferring a right to damages (or compensation), and there is therefore no doubt that where it applies the clause does do more than merely confer on Buyers a right to put an end to their future performance obligations. The dispute is over the extent of the right, not the existence of it, and I do not read what Popplewell J said in The Spar Capella as directed to that question. Nor is there anything in the judgment of Gross LJ, giving the decision of this Court on appeal, which considers this particular point.

I agree therefore with the Judge that there is no specific requirement for clear words before Clause 14(B) can be construed so as to confer a right to loss of bargain damages on Buyers; as she says, this is an exercise in contractual construction to be carried out applying well established principles. I would therefore dismiss Ground 2 of the Respondent’s notice.

I have now considered the principal arguments advanced by Mr Wright on this appeal. For the reasons I have given I am not persuaded by them, and have reached the conclusion that Mr Lewis’s submissions are to be preferred. Saleform 2012 provides a window for Sellers to get themselves ready. If they fail to be ready by the end of the window, Buyers can call the contract off because the window has not been met. If Buyers can also prove that Sellers’ failure to meet the window is due to their negligence (meaning lack of reasonable or due diligence), Buyers are entitled to be compensated for their loss; and that loss can include losses flowing from the calling off of the contract, including loss of bargain where the market has risen.

I have reached this conclusion on the basis of the arguments I have considered above. But it is supported by some subsidiary points relied on by Mr Lewis.

The first consists of previous authorities. It is accepted that none of them are directly in point. The most pertinent however is The Solholt [1981] 2 Ll Rep 574 in which Staughton J was concerned with a contract for the sale of a ship made on the Norwegian Saleform in May 1979 (and hence the 1966 revision). Clause 17 provided:

“17.

Vessel to be delivered at a safe port UK/Cont-Gibraltar-Bergen range in Sellers’ option with 31^st August 1979 cancelling in Buyers’ option. Sellers shall keep Buyers duly posted of vessel’s movements and give Buyers 3/2/1 weeks notice of estimated delivery date.”

As with Saleform 2012, Clauses 13 and 14 provided for the consequences of Buyers’ and Sellers’ defaults respectively, but in rather different terms from the 2012 version as follows:

“13.

Should the Purchase Money not be paid as aforesaid, the Sellers have the right to cancel the contract, in which case the amount deposited shall be forfeited to the Sellers. If the deposit does not cover the Sellers’ loss, they shall be entitled to claim further compensation for any loss and for all expenses together with interest at the rate of 5% per annum.

…

14.

If default is made by the Sellers in the execution of a legal transfer or in the delivery of the vessel with everything belonging to her in the manner and within the time herein specified, and the default shall have arisen from events for which the Sellers are responsible, the Buyers shall have the right to cancel this contract and the deposit in full shall be returned to the Buyers together with interest thereon at the rate of 5% per annum. The Sellers shall, in addition, make due compensation for any loss caused to the Buyers by non-fulfilment of this contract.”

Sellers took on a final voyage with cargo from the East coast of America to Seaforth near Liverpool which they expected to be completed in time to meet the deadline of 31 August, but in the event they missed that by a few days and Buyers cancelled. Staughton J held that Buyers were prima facie entitled to damages for loss of bargain (the market price on 31 August being $5½m as against a contract price of $5m) but that they had in fact failed to mitigate as they could still have bought the ship for $5m and the claim for damages therefore failed.

For present purposes what is of interest is Staughton J’s conclusion that Clause 14 entitled Buyers to loss of bargain damages. Three points were argued by Mr Pollock for Sellers. The first was that Clause 14 only entitled Buyers to damages if Sellers had committed a repudiatory breach. Staughton J rejected that: the plain wording of Clause 14 gave a right to cancel and claim compensation if the vessel were not delivered within the time specified (at 579 cols 1-2). Interestingly he also said (at 579 col 1):

“Clause 13, dealing with breach of contract by the buyers, is a severe clause. It provides for forfeiture of the deposit plus any additional loss plus 5 per cent. interest. It is not then surprising if cl. 14 is equally stringent in the case of default by the seller.”

That is similar to the point I have made above that one would expect Clauses 13 and 14 in Saleform 2012 to have a similar operation where they apply.

Mr Pollock’s second point was that the failure to deliver by 31 August did not arise from events for which Sellers were responsible; Staughton J held that it did. Mr Pollock’s third point was that Clause 14 only provided for loss arising from the default, namely compensation for the three days that Sellers were late, and not for the loss of bargain. That too was rejected by Staughton J who said (at 579 col 2):

“The clause itself contemplates that the buyers may cancel and therefore that the contract will be wholly unperformed, so far as its main object is concerned, that is to say, transfer of the property in the vessel. It is that loss which is, in my judgment, plainly provided for in the words, “loss caused to the Buyers by non-fulfilment of this contract”.”

The Buyers appealed on the mitigation point: The Solholt [1983] 1 Ll Rep 605. There was no cross-appeal on Staughton J’s conclusion that Clause 14 prima facie entitled Buyers to compensation for loss of bargain. So this question was not argued before this Court. But Sir John Donaldson MR, giving the judgment of the Court, did not suggest that there was any doubt about it. He recorded (at 607 col 2) the argument of Mr Sumption for Buyers that:

“The sellers were in breach of contract in failing to deliver the vessel by the due date… It is trite law that in deciding whether or not to exercise a right to cancel the contract in such circumstances, the buyer need have no regard to the fact that in the absence of cancellation he would suffer no loss. If he cancels, the loss will be attributable to the sellers’ breach of contract and not to the cancellation.”

That was accepted by Sir John Donaldson (at 608 col 1) as follows:

“As we have already accepted as trite law, the buyers had an unfettered right in the circumstances of this case to affirm the original contract of sale or to cancel it… They decided to cancel and in consequence they suffered a loss of U.S. $500,000. As a matter of causation, this loss, unless avoidable by some reasonable further action, was directly attributable to the sellers’ breach of contract.”

The Judge considered that this and other authorities did not affect her analysis. Of The Solholt she said this (at [54 i)]:

“The Solholt (supra): This was a decision on the NSF 1966 wording which, as set out in paragraph 49 above was very different. On this wording, it is unsurprising that Mr Justice Staughton held at 579R that: “The clause itself contemplates that the buyers may cancel and therefore that the contract will be wholly unperformed, so far as its main object is concerned, that is to say, transfer of the property in the vessel. It is that loss which is, in my judgment, plainly provided for in the words, ‘loss caused to the buyers by non-fulfilment of this contract.’” Moreover, as appears from the headnote, there was in that case a positive obligation on the sellers to deliver no later than 31 August. Accordingly, the Court of Appeal’s acceptance that the loss caused by the buyers’ cancellation was directly attributable to the sellers’ breach of contract was almost inevitable given the finding that the sellers were in breach of that obligation.”

She makes two points here to distinguish the 1966 revision of Saleform from the 2012 revision. The first is that the then wording of Clause 14 referred to “loss caused to the buyers by non-fulfilment of this contract”. I agree that this is plainly more explicit wording than Clause 14 in the 2012 revision which refers simply to “their loss”. But it still seems odd if Buyers could recover for their loss on the 1966 wording, but could not on the 2012 version because the latter uses what one would have thought were more general and less restrictive words than the former. If loss of bargain was in 1966 within the words “loss caused to the buyers by non-fulfilment of this contract”, one would expect that in 2012 it would be within the words “loss caused to the buyers” or “their loss” as “loss caused to buyers by X” is on the face of it a subset of “loss caused to buyers”.

A further point is made by Dr MacMahon in his article which is that Courts interpreting industry-standard contracts should see themselves as engaged in a dialogue with drafters, citing Lord Hoffmann in Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266 at 274D:

“It is also important to have regard to the course of earlier judicial authority and practice on the construction of similar contracts. The evolution of standard forms is often the result of interaction between the draftsmen and the courts and the efforts of the draftsman cannot be properly understood without reference to the meaning which the judges have given to the language used by his predecessors.”

Mr Wright countered with reference to The Rewa [2012] EWCA Civ 153, [2012] 1 Ll Rep 510 at [30] where Aikens LJ said:

“As already noted, Mr Kenny wished us to look at the previous version of the standard NSF terms and to look at the BIMCO drafting committee’s commentary as aids to construction. Whilst there may be occasions when this has to be done in order to assist in solving a problem of an ambiguous wording, I would generally discourage such exercises in “the archaeology of the forms”. In most cases it makes the task of interpretation of contractual wording unnecessarily over elaborate and it can add to the expense and time taken in litigating what should be short points of construction.”

This guidance points in a rather different direction from that given by Lord Hoffmann, but as can be seen it is not absolute. Nor do I think Aikens LJ had in mind a case, as Lord Hoffmann did, where a previous iteration of a standard form had been the subject of judicial decision. I think there is some force in the point that where the Courts have interpreted the 1966 revision of Clause 14 as conferring on Buyers a right to loss of bargain damages if they cancel, that is a relevant consideration when construing the 2012 revision (the wording of which appears from the Judgment to date in part from the 1987 revision and in part from that in 1993). Those drafting the successive revisions to the clause can be assumed to have been aware of the decision in The Solholt. If they had thought that the result was not what they wanted and that Buyers should not be able to claim loss of bargain damages under Clause 14, it is I think very surprising that they did not say so in terms, rather than leaving this to be teased out of the sort of considerations relied on by the Judge and advanced by Mr Wright. Of course it is always possible to say that an ambiguous clause could have been drafted more clearly, and such an argument usually carries little weight; but this is a more specific point that when a clause has been given a particular meaning by the Courts, and is being revised anyway, then one would expect a clear statement in the revised drafting if it was desired to move away from the construction placed on the existing wording by judicial decision. In those circumstances I think the point made by Dr MacMahon is a valid one, and does lend quite strong support to Mr Lewis’s construction.

The second distinction which the Judge made on The Solholt is that there Sellers were under a positive obligation to deliver by the cancelling date. I agree that the decision seems to have proceeded on that assumption, although so far as one can tell from the reports there does not seem to have been anything more definite in the contract than Clause 17 which referred to “Vessel to be delivered … with 31^st August 1979 cancelling in Buyers’ option” and Clause 14 which referred to “If default is made by the Sellers … in the delivery of the vessel … within the time herein specified”, which do not seem very different from Clauses 5 and 14 in the 2012 revision. Be that as it may, the Judge accepted that since there was a breach by Sellers, this Court’s acceptance that the loss caused by Buyers’ cancellation was directly attributable to Sellers’ breach of contract was “almost inevitable”. That I think does lend support to Mr Lewis’s submission that in the present case where Sellers were (as I have found under Ground 1) in breach of their obligation to use reasonable or due diligence to be ready by the Cancelling Date, the loss caused by Buyers’ cancellation is similarly to be attributed to Sellers’ breach of contract: see paragraph 84 above.

In summary, therefore, although The Solholt is a decision on an earlier version of the Norwegian Saleform which used different wording, I consider that it is indeed supportive of the construction which Mr Lewis advanced and which I have accepted.

The other cases do not take matters much further but they point in the same direction. The Al Tawfiq [1984] 2 Ll Rep 598 was another case of a sale of a ship on the Norwegian Saleform, this time made in 1983, and the wording of Clause 14 was similar to that considered in The Solholt. Lloyd J cited what the arbitrators had said which included the statement that “Clause 14 provides that if the delivery date is missed for reasons for which the Sellers are responsible then if the Buyers cancel they can claim damages for the loss of the bargain unless the delay was frustrating.” He upheld their decision and did not cast any doubt on what they had said, but that is unsurprising given the decision in The Solholt.

In Parbulk v Kristen Marine [2010] EWHC 900 (Comm), [2011] 1 Ll Rep 220 Burton J was concerned with contracts which contained a Clause 14 whose fourth sentence was the same as Clause 14(B) as in Saleform 2012. At [23] he said of this sentence:

“It is also necessary for the buyers to prove negligence by the sellers. If such negligence is proved, then a wider measure of damage can be recovered, eg loss of profit…”

But so far as one can tell it does not appear that there was any argument on the point.

Mr Lewis also referred to The Ile aux Moines [1974] 1 Ll Rep 263 and [1974] 2 Ll Rep 502, where Mocatta J assumed that damages for loss of bargain were recoverable for failure to deliver a ship, but the terms of the contract are not set out and I do not think any assistance can be derived from it.

Mr Lewis also submitted that the construction adopted by the Judge made for a commercially unbalanced agreement. The question only arises in a rising market, in which case if Buyers cancel, it is, on the Judge’s construction, negligent Sellers who will benefit from the rise in the market rather than innocent Buyers. That would mean that in a rising market Buyers would be foolish to cancel even if Sellers’ negligence were clear. The Judge indeed said (Judgment at [57]) that it was inherently unlikely that Buyers would cancel on a rising market unless Sellers were in repudiatory or renunciatory breach when loss of bargain damages would be available anyway.

But I agree with Mr Lewis that Buyers who, as in the present case, are faced with Sellers who have twice failed to meet the delivery deadline might well lose patience and wish to call the contract off rather than wait and see whether Sellers will finally perform. Clause 14(A) gives them the right to do that. But if they cannot then recover for loss of bargain even in a case where they can show Sellers’ negligence, the Clause 14 rights will be of little utility to Buyers. This would provide a perverse incentive to Sellers to delay completing in a rising market in the hope that Buyers would lose patience and cancel, leaving Sellers with a more valuable ship. That does not seem a very sensible result.

Moreover that can be contrasted with the position of Sellers facing non-performing Buyers. They can not only call the contract off under Clause 13 but recover damages for loss of bargain.

In those circumstances I think Mr Lewis is right that his interpretation does make for a more commercially balanced outcome, and that this too affords some support for his case.

For the reasons I have given, I consider Ground 2 of the appeal is well founded. Where Sellers are not ready by the Cancelling Date and Buyers cancel under Clause 14(A) they can in my judgement recover damages for loss of bargain under Clause 14(B) if they can prove that Sellers’ lack of readiness is due to their negligence.

I would therefore allow the appeal, answer the question of law Yes, and restore the Award of the Tribunal.

I agree.

I also agree.