No fool’s bargain – Buyers recover all in MOA saga

The parties entered into an agreement for the sale and purchase of the M/V “LILA LISBON” (“the MOA”) on an amended Norwegian Saleform 2012 (“NSF 2012”). The cancelling date under the MOA was extended but the Sellers failed to deliver her by the new cancelling date.

The Tribunal found that the Sellers’ failure to give notice of readiness by the revised cancelling date was due to their proven negligence, that the Buyers purported to cancel/terminate the MOA when they arrested the vessel to secure their claim and that they were entitled to compensation under clause 14 of the NSF 2012 of US$1,850,000 based on the difference between the market price of the vessel as at 18–22 October 2021 (US$16,850,000) and the MOA price (US$15,000,000).

The Sellers appealed to the Commercial Court. Dias J allowed the appeal, holding that neither clause 5 (nor any other provision of the MOA) imposed any obligation to deliver, to give notice of readiness, nor to be ready to validly complete a legal transfer by the cancelling date and that the arbitrators were wrong to conclude that the Buyers were entitled to loss of bargain damages Steamship Mutual - MOA – is loss of bargain recoverable?.

The Buyers appealed to the Court of Appeal. The Court of Appeal disagreed with the Commercial Court judge and held that under the NSF 2012 the Sellers are under an obligation to exercise reasonable diligence to be ready by the cancelling date and that clause 14 entitles Buyers to recover loss of bargain damages Steamship Mutual - The LILA LISBON - CA allows loss of bargain recovery in MOA cancellation dispute.

The Sellers appealed to the Supreme Court, where the only issue in dispute was whether the Buyers were entitled to loss of bargain damages.

The Supreme Court decision

The Supreme Court dismissed the Sellers’ appeal and answered the original question of law as follows:

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”, the buyer is entitled to recover loss of bargain damages even though there has been no accepted repudiatory breach of contract.

Citing Lord Burrow’s conclusions in Providence Building Services v Hexagon Housing Association [2026] UKSC 1: [2026] 1 WLR 538, Lord Hamblen and Lord Burrow said that the current approach to contractual interpretation is to ascertain the meaning of the words used by applying an objective and contextual approach and that when interpreting an industry-wide standard form contract, regard should be had to court decisions on earlier versions of the form and the evolution of the form itself.

The Supreme Court approached the interpretation of clause 14 by considering the following.

1. The language of clause 14

   The Supreme Court agreed with the lower courts that “due compensation” means appropriate compensation using the common law principles of causation, remoteness and mitigation. Under the clause, the Buyers can recover “loss” and “all expenses” whether they cancel or not, the loss and expenses will likely be different in the two scenarios and to give content to the words there should be recoverable loss and expenses in both situations. As the word loss is general and unqualified, it is wide enough to cover loss in fact suffered and there is no justification for limiting what can be recovered. On the facts of this case, the Buyers suffered loss of bargain which was consequent on the cancellation.

2. Wider contextual matters

   Case law (“The Griffon” [2013] EWCA Civ 1567) supports the view that the sellers can recover loss of bargain under clause 13 (“Buyers’ default”) of the NSF 2012. If “losses” in clause 13 includes loss of bargain it would be very surprising if “loss” in clause 14 did not. This also made sense as a matter of contractual symmetry.

   The Supreme Court also agreed with the Court of Appeal that a claim under clause 14 was akin to a claim for non-delivery under a sale of goods contract and the normal measure of damages is loss of bargain damages (as per section 51(3) of the Sale of Goods Act 1979).

3. Past decisions, practice and established meaning

   In “The Solholt” [1981] 2 Lloyd’s Rep 574, it was held that loss of bargain damages were recoverable under clause 14 of the NSF 1996 form following cancellation by buyers. The clause in that form provided that where cancellation was due to default by sellers in delivery of the vessel that the sellers shall ….make due compensation for any loss caused to the Buyers by nonfulfilment of this contract. The sellers’ argument that compensation was only due if the default had amounted to a repudiatory breach was rejected

   In “The Al Tawfiq” [1984] 2 Lloyd’s Rep 598, Lloyd J expressed the view 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 obtain damages for the loss of their bargain as a matter of contractual entitlement.

   The Supreme Court considered it relevant that after the above decisions, no changes had been made to the NSF to remove the right to claim loss of bargain damages. It said: “In summary, (i) in all subsequent versions of the NSF the buyers are entitled to “due compensation”; (ii) in the 1983 and the 1987 NSF compensation was “for the losses caused” rather than “any loss caused”; (iii) in the 1993 NSF compensation was “for their loss and for all expenses” which was recoverable “whether or not the Buyers cancel this agreement”—the same wording as NSF 2012.”

   The Supreme Court also considered the leading textbooks and case notes and concluded that it is generally recognised that loss of bargain damages are recoverable under clause 14.

4. The commercial consequences

   The Supreme Court endorsed the Court of Appeal’s view that the Buyers’ interpretation of clause 14 made more commercial sense.

   48. In many cases where the market has risen since the date of the contract buyers will choose not to cancel in order to take advantage of the increase in the ship’s value. As this case illustrates, however, there will be cases in which the right to cancel is exercised, particularly perhaps where, as in this case, there has been repeated delay and default by sellers. In those circumstances, the question arises as to which of the parties is to benefit from the rise in value. For sellers to be allowed to reap the benefit of their negligence and default by keeping the vessel with its increased value is an uncommercial outcome. It would be far more commercial for innocent buyers to be compensated for the increase in value from which they would have benefited had there been compliance with the readiness obligation.

Finally, the Supreme Court rejected the Sellers’ two main arguments: 1) that the loss of bargain was not caused by the breach, but rather by the Buyers’ reliance on their contractual entitlement to terminate. In the Supreme Court’s view, the argument as developed ignored the fact that the NSF 2012 does not contain merely a bare entitlement to terminate, it also contains an express compensation provision; and 2) that clearer words were needed for clause 14 to confer on the Buyers rights not available at common law. In sum, the Supreme Court rejected that similar principles apply as between taking away rights and remedies and conferring rights and remedies and, in any event, it concluded that the facts of this case were distinguishable from the cases relied on by the Sellers in that a loss of bargain was suffered by the Buyers (as found by the Tribunal) so there was no question of the express compensation clause overriding the compensatory principle by conferring a right to damages where no loss has been suffered.

Comments

Given the considered judgment of the Court of Appeal in this case, it is perhaps unsurprising that the Supreme Court reached the same views on the proper interpretation of clause 14. Whilst the decision will be welcome by some, it has largely been pre-empted by the publication of the latest edition of the NSF, Saleform 2025, with an amended clause 14 which now contains a sentence clarifying that if the Buyers elect to terminate the agreement and the Sellers’ negligence in meeting their obligations is proven, then the Buyers are entitled to loss of bargain damages.