My loss is my gain – market losses and the “LILA LISBON”

The Supreme Court has recently upheld the Court of Appeal’s decision that clause 14 of the Norwegian Saleform 2012 (“NSF 2012”) entitles buyers to wider “loss of bargain” damages if they exercise their right to cancel due to the seller’s proven negligence.
 

Background

The dispute arose out of a memorandum of agreement (the "MOA") based on the NSF 2012 for the sale of the “LILA LISBON” a Capesize bulk carrier (the "Vessel").

Clause 14 of the MOA stated:

“14. Sellers’ default […]

[B] 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.”

Buyers agreed to extend the cancelling date without prejudice to their right to claim damages under clause 14 of the MOA. Sellers failed to give notice of readiness (“NOR”) by the extended cancelling date, so Buyers cancelled the MOA and commenced arbitration in London, claiming $1.85 million as the difference between the contract price and the market price of the Vessel (i.e. loss of bargain damages).
 

The Award

The Tribunal held that Sellers' failure to be ready in time was due to their "proven negligence" in failing to arrange for the timely disembarkation of the crew, and clause 14(B) therefore applied. The Tribunal also held that Buyers were entitled to loss of bargain damages, even though Sellers were not in repudiatory breach of the MOA.
 

The High Court decision

Ruling on Sellers’ appeal to the High Court, Mrs Justice Dias held that no provision in the MOA imposed any positive obligation on Sellers to deliver the Vessel, or give NOR, by the cancelling date. Further, even if she had concluded that Sellers were under a positive obligation to tender NOR by the cancelling date, she would not have construed it as a condition giving a right to loss of bargain damages.
 

The Court of Appeal decision

The Court of Appeal overturned the High Court’s decision, holding that that Sellers were required to exercise reasonable or due diligence to tender NOR by the cancelling date, and the reference to “due compensation” for Buyers’ loss in clause 14(B) included loss of bargain damages, even though Sellers had not been in repudiatory breach of the MOA. The Court of Appeal also rejected the High Court’s finding that only losses which had accrued prior to Buyers’ cancellation were recoverable.
 

The Supreme Court decision

The Supreme Court dismissed Sellers’ appeal and upheld the Court of Appeal’s judgment that, if a memorandum of agreement based on the NSF 2012 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 if there is no repudiatory breach of contract.

They held that: (i) the word ‘loss’ in clause 14(B) is general and unqualified, and therefore includes loss of bargain; (ii) Buyers can recover ‘loss’ and ‘all expenses’ whether or not they cancel, notwithstanding the fact that the loss and expense recoverable is likely to be different depending on whether the MOA has been cancelled; and (iii) Buyers did in fact suffer loss of bargain as a consequence of Sellers’ default. Loss of bargain was the most obvious type of loss that Buyers would suffer if they cancelled; indeed, if the ‘loss’ in clause 14(B) did not include loss of bargain then it was difficult to see what other type of loss it would cover.

The Supreme Court agreed with the Court of Appeal that the virtually parallel nature of clauses 13 and 14 of the MOA indicated that they were intended to operate in a similar fashion. Clause 13 gave corresponding cancellation and compensation rights to Sellers in the event of Buyers’ non-performance, which both Courts held included loss of bargain damages, following The Griffon [2013] EWCA Civ 1567. The Supreme Court also agreed that Buyers’ rights under clause 14 were akin to rights relating to non-delivery under a sale of goods contract, i.e. loss of bargain damages.

These findings were supported by decisions on previous iterations of the Norwegian Saleform, particularly The Solholt [1981] 2 Ll. Rep 574 in which the Court said that the equivalent clause in the NSF 1966 entitled the buyers to loss of bargain damages. In addition, commentary from leading textbooks and legal commentators confirmed that the industry has long understood that buyers could recover loss of bargain damages under clause 14(B).

Finally, the Supreme Court rejected the submission made on behalf of Sellers that clear words were needed for clause 14(B) to be interpreted as conferring compensation for a loss of bargain. While it is well established that clear words are needed for taking away a party’s rights and remedies, there is no converse presumption that clear words are required to confer a right, in this case to loss of bargain damages under clause 14(B).
 

Comment

That the Supreme Court has now sided with the Court of Appeal is unsurprising to both the legal and commercial communities, who had long understood, supported by legal precedent, that loss of bargain, or “market”, losses could be recovered under clause 14 for a seller’s proven negligence.

The Supreme Court was at pains to make this as clear as it could, although it declined to resolve the related, wider, question of whether loss of bargain damages are generally not available where a party terminates under an express clause, as was arguably the case here.

Be that as it may, the Supreme Court reached the only conclusion it sensibly could in the circumstances, noting that “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”.

Our comment in October 2025 following the Court of Appeal’s decision stands: if a seller wants to avoid the risk of “loss of bargain” damages in a rising market they will need an express clause restricting “loss of bargain” damages to situations where the seller is in clear repudiatory breach.