Market‑Differential Damages on Buyer Cancellation under SALEFORM 2012: Court of Appeal Confirms Loss‑of‑Bargain Recovery and Implies a Due‑Diligence Delivery Duty

Market‑Differential Damages on Buyer Cancellation under SALEFORM 2012: Court of Appeal Confirms Loss‑of‑Bargain Recovery and Implies a Due‑Diligence Delivery Duty

Introduction

In Orion Shipping and Trading LLC v Great Asia Maritime Ltd [2025] EWCA Civ 1210, the England and Wales Court of Appeal (Civil Division) addressed, for the first time at appellate level, whether clause 14(B) of the Norwegian Saleform 2012 (SALEFORM 2012) permits a buyer to recover loss‑of‑bargain (market) damages when the buyer cancels because the seller failed to give Notice of Readiness (NOR) by the Cancelling Date due to proven negligence.

The case arose out of the sale of a Capesize bulk carrier, MV Lila Lisbon, under a SALEFORM 2012 memorandum of agreement (MoA). The buyer, Great Asia Maritime Ltd (Buyers), cancelled after the (extended) Cancelling Date passed without NOR and claimed both delay losses and loss‑of‑bargain. An arbitral tribunal awarded the Buyers the market‑price differential. The Commercial Court (Dias J) reversed that award, holding that clause 14(B) did not extend to loss‑of‑bargain on buyer cancellation absent an accepted repudiation. The Court of Appeal has now restored the tribunal’s award.

Two issues framed the appeal:

  • Ground 1: Whether the SALEFORM 2012 imposes an obligation on sellers to be ready (or to give NOR) by the Cancelling Date—if so, of what nature.
  • Ground 2 (the decisive point): Whether “due compensation to the Buyers for their loss … whether or not the Buyers cancel” in clause 14(B) encompasses loss‑of‑bargain where cancellation follows a failure that is due to sellers’ proven negligence.

The Court’s answer is of general importance to ship sale and purchase (S&P) practice and to the interpretation of standard‑form contractual remedies.

Summary of the Judgment

  • The Court of Appeal allowed the buyer’s appeal and restored the arbitral award of US$1.85m market damages (difference between the market price at cancellation and the contract price) together with interest (paras 24–25, 156–159).
  • Ground 1: SALEFORM 2012 implies a seller’s obligation to use reasonable or due diligence to have the vessel ready for delivery (and to give NOR) by the Cancelling Date (paras 59–66). There is no absolute duty to deliver by that date, but there is a duty of due diligence (the Democritos analogy).
  • Ground 2: Clause 14(B)’s “due compensation … for their loss … whether or not the Buyers cancel” includes loss‑of‑bargain where the buyer cancels and the seller’s failure to be ready by the Cancelling Date is due to proven negligence (paras 68–106, 156). “Due compensation” means appropriate compensatory damages applying ordinary principles (causation, remoteness, mitigation) (paras 71–73).
  • The Court rejected the High Court’s view that clause 14(B) only covers pre‑cancellation or “accrued” losses and not “prospective” loss of bargain (paras 78–90). The buyer’s election to cancel does not break causation; the loss still flows from the seller’s culpable failure to be ready (paras 80–85, 124).
  • Clause 13 (Buyers’ default) and clause 14 (Sellers’ default) operate in parallel; symmetry supports the availability of loss‑of‑bargain to buyers under clause 14(B) where negligence is proven, much as sellers can claim market damages for buyer non‑payment under clause 13 (paras 97–105).
  • The so‑called Financings principle (no loss‑of‑bargain on exercise of a contractual termination right unless repudiation is accepted) does not govern where the contract itself confers an express damages right; clause 14(B) must be construed on its own terms (paras 114–126).

Analysis

A. The Text and Structure of SALEFORM 2012

The key provisions are:

  • Clause 5: Time and place of delivery. Clause 5(b) ties NOR to physical readiness; 5(c) allows sellers to propose a new Cancelling Date if, despite due diligence, they will miss the original date; 5(d) preserves buyers’ damages “for the Vessel not being ready by the original Cancelling Date” (paras 10, 79).
  • Clause 13 (Buyers’ default): On buyer non‑payment, sellers may cancel and claim compensation for losses and expenses (paras 12, 97–105).
  • Clause 14 (Sellers’ default): 14(A) gives buyers a cancellation option and deposit return if sellers fail to give NOR or be ready to complete by the Cancelling Date; 14(B) obliges sellers to “make due compensation … for [buyers’] loss and for all expenses … if [the] failure is due to proven negligence and whether or not the Buyers cancel this Agreement” (paras 13, 69–73).

The drafting signals matter: “Sellers’ default” (a pejorative heading consistent with breach), repeated use of “damages” in clause 5(d), and an express obligation to “make due compensation” in clause 14(B) all point to liability in damages for breach where negligence is proven (paras 42–47, 71–73).

B. Ground 1 — The Implied Delivery‑by‑Cancelling‑Date Duty

The Court held that, although SALEFORM 2012 does not impose an absolute delivery deadline, clause 5 coupled with the Cancelling Date framework implies an obligation to exercise reasonable or due diligence to be ready for delivery (and to give NOR) by the Cancelling Date (paras 59–66).

  • The Court analogised with The Democritos [1976] 2 Lloyd’s Rep 149 (time charter laycan): no absolute duty to deliver by the cancelling date but an implied obligation of reasonable diligence to make the ship ready by then (paras 55–58).
  • “Proven negligence” in clause 14(B) is equated with lack of due diligence (paras 61–63). This dovetails with clause 5(c)’s “due diligence” language and explains why negligence is the threshold for compensatory liability.
  • The scheme is coherent and commercial: buyers get a clean cancellation right (clause 14(A)) whether or not there is breach; and, if they can prove negligent non‑readiness, they also get damages for their loss (clause 14(B)) (paras 62–64).

C. Ground 2 — “Due Compensation … for Their Loss” Includes Loss‑of‑Bargain

The central construction issue was whether “their loss” in clause 14(B) extends to market‑differential damages where the buyer cancels after negligent late readiness. The Court answered yes.

  • “Due compensation” means appropriate compensation by ordinary damages principles, not merely accrued, pre‑cancellation loss (paras 71–73).
  • Causation: the buyer’s loss of the contractual bargain (the right to the vessel at the agreed price) was caused by the seller’s negligent failure to be ready by the Cancelling Date; the buyer’s election to cancel does not break the chain of causation (paras 76–85, 124).
  • Clause 14(B) is an express damages grant. It does not merely preserve pre‑existing rights; its language (“they shall make due compensation”) creates a substantive right to damages “whether or not the Buyers cancel” (paras 71–74).
  • Commercial coherence: denying loss‑of‑bargain would leave clause 14(B) doing little more than reimburse expenses and trivial pre‑cancellation profits, making cancellation irrational for buyers in a rising market and perversely rewarding negligent sellers (paras 87–90, 152–155).

Symmetry with clause 13 strongly supports this reading. Under clause 13, sellers cancelling for buyer non‑payment may recover loss‑of‑bargain market damages (see The Griffon); clause 14, in parallel, should afford buyers equivalent relief for negligent non‑delivery (paras 97–105).

D. Precedents Cited and Their Influence

  • The Democritos [1976] 2 Lloyd’s Rep 149 (CA): Established the implied obligation of reasonable diligence to deliver by a cancelling date in the absence of an absolute delivery term. The Court applied this by analogy to ship sale contracts with cancelling clauses (paras 55–59).
  • The Griffon [2013] EWCA Civ 1567; [2014] 1 Lloyd’s Rep 471: On SALEFORM 1993 clause 13. Tomlinson LJ emphasised that contractual cancellation rights offer certainty over common law repudiation and contemplated sellers’ entitlement to compensation measured as loss‑of‑bargain. The Court used this symmetry to illuminate clause 14 for buyers (paras 98–105).
  • The Solholt [1981] 2 Lloyd’s Rep 574 (QB); [1983] 1 Lloyd’s Rep 605 (CA): Under SALEFORM 1966 clause 14, buyers cancelling for late delivery could recover loss‑of‑bargain, subject to mitigation. Although the wording differed (“non‑fulfilment of this contract”), the Court treated The Solholt as supportive of the same result on the 2012 wording (paras 137–148).
  • The Al Tawfiq [1984] 2 Lloyd’s Rep 598 (QB): Arbitrators’ approach (endorsed on review) was that missing the delivery date for reasons for which sellers were responsible exposed them to loss‑of‑bargain on cancellation under SALEFORM wording similar to The Solholt (para 149).
  • Parbulk v Kristen Marine [2011] 1 Lloyd’s Rep 220: On a form mirroring clause 14(B), Burton J stated that proving seller negligence allowed a “wider measure” such as loss of profit (para 150).
  • Financings v Baldock [1963] 2 QB 104; The Kos [2012] 2 AC 164; Phones 4U [2018] Bus LR 574: The “Financings principle” limits loss‑of‑bargain damages on exercise of a contractual termination right absent repudiation. The Court proceeded on the assumption that such a principle exists, but held it inapplicable where the contract itself expressly grants damages (clause 14(B)). The Court also doubted its ready transposition from long‑term to single‑transaction contracts (paras 114–126, 118–121).
  • Bunge v Nidera [2015] UKSC 43; Novasen [2013] 1 Lloyd’s Rep 648; The Spar Capella [2015] 2 Lloyd’s Rep 407: These authorities require clear drafting where parties seek arbitrary damages divorced from actual loss. Here, clause 14(B) awards “due compensation” for actual loss; the Court found no “clear words” hurdle barring loss‑of‑bargain (paras 127–134).
  • The Golden Victory [2007] 2 AC 353: Damages assessment reflects what actually happens; the Court invoked this compensatory principle when explaining why losses differ depending on whether buyers cancel or keep the contract alive (para 82).
  • Stocznia Gdynia v Gearbulk [2010] QB 27: Supports treating the default (here, negligent late readiness) as the effective cause of loss notwithstanding the exercise of a contractual termination right (para 124).

E. The Court’s Legal Reasoning

The Court’s reasoning is both textual and structural:

  • Textual pointers: “Sellers’ default” (heading), the express obligation to “make due compensation,” and clause 5(d)’s reference to “damages … under clause 14” all connote a breach‑based damages regime triggered by negligent non‑readiness (paras 42–47, 71–74).
  • Implied duty and negligence threshold: Clause 5 implies a due‑diligence duty to be ready by the Cancelling Date; “proven negligence” in clause 14(B) targets a lack of due diligence as the liability trigger (paras 59–63).
  • Meaning of “loss”: Ordinary meaning includes loss of the contractual bargain. If buyers cancel and the market is higher, the loss is the foregone market differential (paras 74–77).
  • Causation: The seller’s culpable late readiness is the effective cause of the buyer’s cancellation and resultant loss; the election to cancel does not sever causation (paras 80–85, 124).
  • Symmetry and commerciality: SALEFORM 2012 is designed to operate even‑handedly: clause 13 provides market damages to sellers on buyer default; clause 14 should mirror that for buyers, subject to the added negligence filter (paras 101–105, 152–155).
  • Drafting history and practice: While eschewing “archaeology” in general, the Court noted that The Solholt interpretation of earlier SALEFORM iterations was not repudiated in later revisions; had BIMCO intended to reverse loss‑of‑bargain recovery under clause 14, one would expect clear language to that effect (paras 143–148).

F. Impact and Significance

The decision sets two important precedents for SALEFORM 2012 ship S&P transactions:

  • Implied due‑diligence delivery duty: Sellers must use reasonable/due diligence to be ready and able to give NOR by the Cancelling Date. Failure due to negligence will sound in damages under clause 14(B), whether or not the buyer cancels (paras 59–66).
  • Loss‑of‑bargain recovery on buyer cancellation: Where negligent non‑readiness causes a buyer to cancel, clause 14(B) permits market‑differential damages (paras 68–106, 156–157).

Practical consequences include:

  • In a rising market, negligent sellers face exposure to market damages if buyers cancel; this removes incentives to “slow‑walk” delivery hoping buyers will cancel (paras 152–155).
  • Buyers gain remedial certainty: they need not prove repudiation to recover market damages—proving negligent non‑readiness suffices under clause 14(B).
  • Contract drafting may evolve. Parties wishing to avoid market damages on cancellation may now draft carve‑outs (e.g., limiting “loss” to pre‑cancellation delay loss and expenses, defining “proven negligence,” capping liability, or fixing a valuation date).
  • Arbitrations and transactional planning will pay closer attention to evidencing due diligence (crew changes, regulatory clearances, berth slots, documentation readiness) and to the timing of cancellations vis‑à‑vis affirmation risks (paras 23, 62–66, 88–90).

G. Valuation and Measure of Damages

The tribunal (and the Court by restoring its award) assessed the loss‑of‑bargain by reference to the market value at the time of cancellation (18–22 October 2021) against the contract price (paras 24–25). The Court did not lay down a rigid valuation rule, but this outcome is consistent with the compensatory aim and the structure whereby the bargain is lost on cancellation that follows negligent non‑readiness. By contrast, where the buyer elects to affirm (e.g., by accepting a new Cancelling Date under clause 5(c)), delay loss (loss of use) may be recoverable for the period of proven negligent delay (paras 23(1), 80–82).

H. Complex Concepts Simplified

  • Notice of Readiness (NOR): A formal notice given when the ship is at the agreed delivery place and physically ready to deliver; triggers payment timetable and closing (clause 5(b), paras 79, 83).
  • Cancelling Date: The last date by which sellers must be ready to complete (including giving NOR). If missed, buyers get a contractual option to cancel (clause 14(A)) and, if negligence is proven, damages under 14(B) (paras 10, 13, 62–64).
  • Due diligence / Proven negligence: Not an absolute guarantee of timely delivery; rather a duty to take reasonable steps to be ready by the Cancelling Date. “Proven negligence” means a failure to exercise that due diligence (paras 59–63).
  • Loss‑of‑bargain (market) damages: The market price at the relevant time minus the contract price, where the market has risen and the buyer is deprived of the benefit of the bargain (paras 24–25, 74–77).
  • Contractual cancellation vs repudiatory termination: A party may end a contract either (i) by exercising a contractual right (e.g., clause 14(A)), or (ii) by accepting a repudiatory breach. The general (Financings) rule restricting loss‑of‑bargain after contractual termination does not apply where the contract itself (clause 14(B)) grants damages for “their loss” (paras 114–126).
  • Symmetry (Clauses 13 and 14): SALEFORM balances remedies—sellers have cancellation and loss‑based damages on buyer default; buyers have cancellation and, if negligence is proven, loss‑based damages on seller default (paras 97–105).
  • Mitigation: Buyers must act reasonably to avoid or reduce loss; The Solholt shows that failure to mitigate can defeat a market‑damages claim (paras 138–141).
  • Affirmation and waiver: Buyers delaying cancellation risk being taken to affirm the contract. Prompt, clear elections matter (paras 82, 89).

I. Practical Guidance for Market Participants

  • For sellers:
    • Document due diligence comprehensively: crew logistics, regulatory permissions (e.g., crew change rules), berth scheduling, class and registration documents, financing releases.
    • Use clause 5(c) early and transparently if at risk of missing the Cancelling Date; buyers’ acceptance preserves your position on loss‑of‑bargain for that default (but not for later negligence).
    • Consider drafting options: clarify “proven negligence,” cap “due compensation,” specify valuation date (e.g., Cancelling Date), or limit recoverable “loss” if commercially agreed.
  • For buyers:
    • Preserve evidence linking seller negligence to non‑readiness (e.g., lost berth slots due to preventable failures).
    • When markets rise, evaluate promptly: accept a new Cancelling Date (and claim delay loss) or cancel (and claim market damages) depending on commercial preference and proof of negligence.
    • Frame cancellations under clause 14(A) explicitly; maintain a record of market values at cancellation to substantiate the differential.
  • Valuation and interest:
    • Although not definitively ruled upon, this case supports using the cancellation date for market valuation under clause 14(B) in loss‑of‑bargain claims.
    • Interest awards may be compounded, reflecting market practice and tribunal discretion (paras 25).

Conclusion

The Court of Appeal’s decision sets a clear and commercially coherent rule for SALEFORM 2012 transactions:

  • Sellers are under an implied obligation to use reasonable/due diligence to be ready (and to give NOR) by the Cancelling Date.
  • If, due to proven negligence, sellers fail to be ready by that date and the buyer cancels under clause 14(A), clause 14(B) entitles the buyer to “due compensation” which includes loss‑of‑bargain (market‑differential) damages.

This restores symmetry between buyer and seller remedies (clauses 14 and 13), aligns with established compensatory principles (including causation and commercial common sense), and harmonises modern SALEFORM wording with the trajectory of earlier authorities such as The Solholt. Practically, it removes a perverse incentive for negligent delay in rising markets and enhances remedial certainty for buyers without forcing them into the uncertain terrain of repudiation.

In short, Orion v Great Asia fortifies the remedial architecture of SALEFORM 2012: negligent late readiness can cost sellers the market rise if the buyer elects to cancel, and buyers gain a reliable pathway to market damages without having to prove repudiation—provided they can prove negligence.

Case Details

Year: 2025
Court: England and Wales Court of Appeal (Civil Division)

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