Judgment handed down in arbitration appeal considering the recovery of loss of bargain damages under clause 14 of SALEFORM 2012

On 9 August 2024, the High Court handed down judgment in Orion Shipping and Trading Ltd v Great Asia Maritime Limited [2024] EWHC 2075. The dispute concerns the cancellation of a Memorandum of Agreement on the Norwegian Saleform 2012 form (the “MOA”) for the sale of a Capesize bulk carrier, the MV “Lila Lisbon” (the “Vessel”) by the Defendant Buyers (“Buyers”).

The MOA provided, inter alia, by Clause 14, that in the event the Sellers failed to provide Notice of Readiness (“NOR”) by the Cancelling Date specified in Clause 5, “…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.”

NOR was not tendered by either an initial or extended cancelling date and (as held by the Tribunal) on 18 October 2021 Buyers cancelled the MOA.  Buyers then brought arbitration proceedings against the Claimant Sellers (“Sellers”) claiming for among other things losses said to have been suffered as a result of that cancellation.

In the arbitration, the Tribunal had held that:

1. Sellers’ failure to tender NOR by the extended cancelling date entitled Buyers to cancel the MOA under Clause 14 of the MOA.
2. That failure was a result of Sellers’ proven negligence.
3. Sellers were not however in repudiatory breach of the MOA.
4. Notwithstanding that, Buyers were entitled to claim damages reflecting the difference between the marker price of the Vessel and the contract price as at the date of termination of the contract (the measure for non-delivery set out at section 51 of the Sale of Goods Act 1979 (“SOGA”)).

Sellers, represented by Alexander Wright KC who had not appeared below, appealed the Tribunal’s award under section 69 of the Arbitration Act 1996.  Sellers argued that damages under Clause 14 are only recoverable in respect of a repudiatory breach or breach of condition. Buyers argued that the Tribunal was correct in its assessment, or, alternatively, that if Sellers were correct the time of delivery was of the essence and their cancellation under Clause 14 was, in substance, a termination for breach of condition entitling them to damages on the basis awarded in any event.

Leave to appeal was granted by Bright J on 20 March 2024 on the basis that the question of law raised was one of general public importance on which the Tribunal’s decision was open to serious doubt.  The substantive appeal came before Mrs Justice Dias on 11 June 2024.

Mrs Justice Dias started her analysis by rejecting Buyers’ alternative argument, finding that:

1. Clause 14 does not impose primary obligations itself but is “effectively an adjectival clause providing for the consequences of particular conduct” [14]. Therefore, the correct question was whether time was of the essence in respect of the Cancelling Date in Clause 5.
2. Time was not of the essence as neither Clause 5, nor any other clause in the MOA, imposed an obligation to deliver the Vessel or give NOR by the Cancelling Date. The right to cancel was independent of any finding of breach [15]. This reasoning was supported by an analogy with a time charter (where this principle is well established) and, further, by reference to the regime for extending the Cancelling Date set out in the MOA, which prioritised flexibility [16].
3. Alternatively, even had Clause 5 imposed positive obligations to deliver the Vessel or give NOR by the Cancelling Date, those obligations would not be conditions [22].

On Sellers’ appeal, the Court also found that the Tribunal had erred in its finding that Buyers were entitled to loss of bargain damages under Clause 14 for failing to deliver the Vessel by the Cancelling Date:

1. On the natural wording of the clause, the provision for compensation to the Buyers in Clause 14 could only refer to the failure to give NOR as specified in the opening of the second paragraph of the clause. The second paragraph of Clause 14 therefore only covers losses and expenses caused by that specific failure (such as expenses incurred in making arrangements to crew the vessel or carry out inspections etc.) and does not encompass prospective losses (see [45] to [48])
2. Whilst section 51(3) of SOGA sets out a default rule for the recovery in non-delivery cases, it is subject to the overriding principle set out in section 51(2) which provides 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.” [52] The starting point, therefore, is to identify the particular breach or trigger in respect of which damages are recoverable. In the present case, this was the failure to give NOR by the Cancelling Date, and the damages flowing from that trigger were those specified in Clause 14 [53].
3. This construction of the clause was not uncommercial as Clause 14 permits recovery of damages in cases of negligence falling short of repudiation (a situation in which Buyers would otherwise recover nothing) [56].

This decision is an important one for both buyers and sellers of vessels on Saleform terms.  Unless the parties make express provision, the judgment establishes that a cancelling buyer will only be entitled to recover market damages where a seller is in repudiatory or renunciatory breach of contract.

Alexander Wright KC acted for the successful Sellers, instructed by Ed Mills-Webb, Ross Attfield and James Stephenson of Preston Turnbull LLP.

A copy of the full judgment can be found here.

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Alexander Wright KC

Call 2007 King's Counsel 2022

Related practice areas

Commercial Litigation
International Arbitration
Shipping