In the recent decision of Orion Shipping and Trading Ltd v Great Asia Maritime Ltd [2024] EWHC 2075, the Commercial Court held that compensation under Clause 14 of the Norwegian Saleform 2012 is limited to recovery of accrued losses and wasted expenses and does not include loss of bargain arising out of the lawful exercise of the right to cancel.
Background
The parties entered into a Memorandum of Agreement (MOA) on an amended Norwegian Saleform 2012 form for the sale of the bulk carrier MV "LILA LISBON". The MOA contained, inter alia, the following provisions:
"5. Time and place of delivery and notices
The Vessel shall be delivered and taken over safely afloat at ….
Notice of Readiness shall not be tendered before: 20th July 2021
Cancelling Date (see Clauses 5(c), 6(a)(i), 6(a)(iii) and 14): 20th August 2021
…..
The Sellers shall keep the Buyers well informed of the Vessel's itinerary and shall provide the Buyers with twenty (20), ten (10), five (5) and three (3) days' notice of the date the Sellers intend to tender Notice of Readiness and of the intended place of delivery.
If the Sellers anticipate that…the Vessel will not be ready for delivery by the Cancelling Date they may notify the Buyers in writing stating the date when they anticipate that the Vessel will be ready for delivery and proposing a new Cancelling Date. Upon receipt of such notification the Buyers shall have the option of either cancelling this Agreement in accordance with Clause 14 (Sellers' Default) within three (3) running days of receipt of the notice or of accepting the new date as the new Cancelling Date.
…Cancellation, failure to cancel or acceptance of the new Cancelling Date shall be entirely without prejudice to any claim for damages the Buyers may have under Clause 14 (Sellers' Default) for the Vessel not being ready by the original Cancelling Date.
14. Sellers' Default
Should the Sellers fail to give Notice of Readiness in accordance with Clause 5(b) or fail to be ready to validly complete a legal transfer by the Cancelling Date the Buyers shall have the option of cancelling this Agreement… In the event that the Buyers elect to cancel this Agreement, the Deposit together with interest earned, if any, shall be released to them immediately.
Should the Sellers fail to give Notice of Readiness by the Cancelling Date or fail to be ready to validly complete a legal transfer as aforesaid they shall make due compensation to the Buyers for their loss and for all expenses together with interest if their failure is due to proven negligence and whether or not the Buyers cancel this Agreement.
The Sellers had intended to deliver the Vessel on 2 August, but later an addendum was entered into to the effect that delivery would take place on 12-14 August. The Sellers were unable to deliver her on those dates and requested an extension of the cancelling date from 20 August 2021 to 15 October 2021. The Buyers agreed without prejudice to their right to claim damages under Clause 14. In the event, the Sellers were also unable to deliver the Vessel by 15 October and the Buyers arrested the vessel to obtain security for their claim for damages for the difference between the contract price and market price of the Vessel.
The Tribunal’s Award
A claim for damages was in due course made, with the Tribunal deciding:
The Sellers' failure to deliver the Vessel by the original cancelling date of 20 August 2021 was due to their "proven negligence" (in having failed to take reasonable care in making arrangements for the disembarkation of the crew).
The Sellers’ failure to deliver the Vessel was not repudiatory.
And awarding:
Damages for loss of use of the Vessel between 20 August 2021 and 15 October 2021. This finding was not appealed.
Loss of profit as compensation for the Sellers’ default under Clause 14 because the clause provided for compensation extending to the consequences of cancellation, including loss of profit, and there was no need to establish a separate repudiatory breach. The Sellers appealed the award on this point.
The Court’s decision
The question that the English court was asked to consider was (as amended by Mrs Justice Dias):
"Where a Memorandum of Agreement on the SALEFORM 2012 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?"
Before addressing the above question, the Court dealt with an alternative argument brought by the Buyers to the effect that time of delivery was of the essence and that their cancellation under Clause 14 was in substance a termination for breach of condition, which under English law entitles the innocent party to terminate the contract and claim damages. The judge rejected this. In her view, Clause 14 itself does not impose any obligation and one had to look at Clause 5. That clause, in turn, she said, does not impose a positive obligation to deliver/give notice of readiness by the cancelling date. The only obligation is to give notice ‘when the vessel is at the place of delivery and physically ready for delivery…’ If there was no positive obligation to deliver by the cancelling date, the question of whether any such obligation was a condition did not arise.
It was common ground that:
Clause 14A stipulated a right of cancellation which was independent of breach or negligence and entitled the buyers in all cases to recover the deposit; and
Clause 14B stipulated a right to compensation (the nature and extent of which was in dispute) but only where negligence was proved.
The judge said that it was a matter of common sense that, where the parties had not made the delivery of the vessel or the tender of notice of readiness by the cancelling date a condition (as found by the judge), the court had to be satisfied that the parties nonetheless intended to provide for equivalent consequences (i.e. the right to damages for loss of bargain) by means of Clause 14B.
In the judge’s view, the ordinary meaning of the words in Clause 14B led to the interpretation that the loss and all expenses referred to in that clause must be caused by the specific failure to give notice of readiness or to be ready to validly complete a legal transfer by the cancelling date. 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. The allowed losses would include, ‘expenses incurred by the buyers in making arrangements to crew the vessel, carrying out inspections, legal costs and preparing for delivery generally’ and ‘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’.
One of the arguments raised by the Buyers was that the situation contemplated by Clause 14 is to be equated with non-delivery and that Clause 14B therefore allows recovery of the normal market measure stipulated in section 51(3) of the Sale of Goods Act for non-delivery. Whilst recognising that section 51(3) reflects the ordinary compensatory principle (Sharp Corp Ltd v Viterra BV, [2024] UKSC 14 at [96]), Mrs Justice Dias emphasised that 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".
The starting point therefore is to identify the particular breach or trigger in respect of which damages are recoverable. The relevant trigger in this case was the failure to give notice of readiness by the cancelling date and it is only losses caused by that specific failure which were recoverable under Clause 14B, not losses caused by the loss of the contract more generally. As there was no positive obligation to deliver by the cancelling date:
This was not a case of non-delivery; and
The Buyers' decision to terminate pursuant to a cancellation right could not as a matter of law transform the case into one of non-delivery.
The question put to the Court was therefore answered in the negative and the relevant sections of the Award stipulating damages for loss of bargain were set aside.
