[2024] EWHC 2075 (Comm) | High Court (Commercial Court), Mrs Justice Dias | 9 August 2024

The decision in Orion Shipping and Trading Ltd v Great Asia Maritime Ltd (The «Lila Lisbon») brings clarity to the damages available when cancellation rights are exercised under clause 14 of the Norwegian Saleform 2012 (NSF 2012) due to the seller’s failure to tender a notice of readiness.

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⚓ Background of the Case

The dispute arose from the sale of the Capesize bulk carrier Lila Lisbon under a Memorandum of Agreement (MOA) dated 4 June 2021, based on the NSF 2012. The seller, Orion Shipping and Trading Ltd, agreed to deliver the vessel to Great Asia Maritime Ltd. The original delivery date of 2 August 2021 was extended to 15 October 2021.

However, the sellers failed to tender a Notice of Readiness (NOR) by the cancelling date. The buyers terminated the contract shortly thereafter and arrested the vessel in Zhianjiang, seeking security for a loss of bargain claim—specifically, damages representing the difference between the contract price and the prevailing market value of the vessel at the time of termination.

At the heart of the dispute was clause 14 of the MOA, which stipulates that if the seller fails to tender the NOR by the cancelling date, the buyer is entitled to cancel the agreement and claim «due compensation» for losses and expenses, including interest, if such failure results from «proven negligence.»

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⚖️ The Arbitration Award and Grounds for Appeal

An arbitration tribunal found in favour of the buyers. It held that the sellers had negligently failed to tender NOR and awarded damages calculated on the “market measure” basis under section 51 (3) of the Sale of Goods Act 1979—the difference between the contract price and the market value of the vessel.

The sellers challenged the award under section 69 of the Arbitration Act 1996 (appeal on a point of law), arguing that clause 14 did not entitle the buyers to loss of bargain damages unless there had been a repudiatory breach or a breach of condition.

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🧭 The Legal Issue

The central question before the Court was whether the buyers, having exercised their contractual right of cancellation, could claim loss of bargain damages under clause 14, or whether such damages were only available where the breach constituted a repudiation or breach of condition.

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🧾 The Court’s Reasoning

Mrs Justice Dias allowed the sellers’ appeal, setting aside the tribunal’s award for market-based damages. Her judgment turned on a careful construction of clause 14 of the MOA, and she laid out the following key points:

(1) No Positive Obligation to Tender NOR

Clause 14 does not impose a positive obligation on the seller to deliver or to tender NOR by the cancelling date. Instead, it grants the buyer a right to cancel the contract if NOR is not tendered—whatever the reason. Therefore, a failure to give NOR by itself does not amount to a breach of contract.

(2) Failure to Tender NOR Is Not a Breach of Condition

Even assuming the sellers were under a positive duty to tender notice of readiness by the cancelling date, that obligation did not amount to a condition of the contract.

(3) No Automatic Entitlement to Loss of Bargain Damages

Since the obligation was not a condition, it must be understood that the parties did not intend for the mere right to cancel the contract to entitle the buyer to loss of bargain damages, unless there was a repudiatory breach.

A repudiatory breach occurs when one party demonstrates a clear intention not to perform, or actually fails to perform, a fundamental obligation under the contract — in a way that deprives the other party of substantially the whole benefit of the agreement.

However, in The Lila Lisbon, there was no such repudiatory conduct. The sellers’ failure to tender the Notice of Readiness (NOR) by the cancelling date was not, in itself, a refusal to deliver the vessel. Rather, it merely triggered the buyers’ right to cancel the agreement under Clause 14 of the Norwegian Saleform 2012. The clause functioned as a contractual escape route rather than a punitive or compensatory mechanism.

In summary, the right to cancel under Clause 14 gave the buyers a clean exit, but not the right to recover market-based damages under section 51 of the Sale of Goods Act 1979, unless a repudiatory breach could be established. This reflects the balance the law strikes between freedom of contract and the seriousness required to claim substantial compensatory damages.

(4) Clause 14’s Scope Is Narrow

The court found that clause 14, on its natural reading, does not cover loss of bargain damages. Instead, it limits the buyer’s recovery to losses and expenses directly caused by the seller’s failure to tender NOR due to proven negligence—such as wasted costs or specific losses, but not market value differentials.

(5) Section 51 of the Sale of Goods Act Was Inapplicable

The buyer’s reliance on section 51(3)—which provides the standard market value measure of damages for non-delivery—was rejected. Since the case did not involve a breach of an obligation to deliver, section 51 did not apply.