If a seller fails to deliver a ship by an agreed deadline due to negligence, can the buyer claim damages for lost profits from their lost future deals involving the ship?
Orion Shipping and Trading LLC v Great Asia Maritime Ltd [2025] EWCA Civ 1210 involved a contract for the sale of a bulk carrier, The Lila Lisbon, for $15m between Orion Shipping (Seller) and Great Asia Maritime (Buyer), governed by the construction of Clause 14 of the standard Norwegian Saleform 2012 (NSF 2012) used globally for buying and selling second-hand ships. The Seller negligently failed to deliver the ship by the “Cancelling Date” of 15 October 15 2021. This failure occurred during a period when the shipping market boomed - making the vessel worth significantly more than the $15m contract price. Since the vessel was late, the Buyer cancelled the contract and claimed damages for the “loss of bargain” (approx. $1.85m - profits they missed out on). The relevant clause was:
“14. Sellers’ default
[A] 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.
[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.”
Nugee LJ accepted the Arbitrators’ finding that the seller’s failure to deliver was due to “proven negligence” which did not constitute a repudiatory breach. His Lordship held that clause 14(B) treated a cancellation resulting from “proven negligence” as equivalent to a non-delivery. This entitled the buyer to the “loss of bargain” damages, even though the breach was non-repudiatory. Thus, the Court of Appeal permitted the Buyers’ recovery.
Repudiatory breach
It’s trite law that if a breach is so serious that it “deprives the innocent party of substantially the whole benefit of the contract”, then the Buyer can accept the repudiatory/anticipatory breach and thereby terminate the contract. The Buyer has the right to claim “loss of bargain” damages compensating their lost benefit of the future value in the overall performance of the contract.
However, if the breach is not repudiatory (i.e. a breach of a warranty or a non-serious breach of an innominate term), or if the Seller affirms the contract, the contract continues. Under these circumstances, the Buyer is normally limited to claim the actual losses flowing directly from that specific breach, while still being bound by the rest of the contract. There can be no “loss of bargain” damages as the contract is still alive.
Thus, Great Asia, the Buyer, needed to show that the Seller’s failure to deliver the vessel, by the “Cancelling Date”, was a breach of a term which entitled them to terminate the contract, and, as such, claim the “loss of bargain” damages.
The nature of the obligation to deliver by the “Cancelling Date” - The Democritos
One of the interesting complications here was the case of The Democritos. It set a precedent that the deadline (the “Cancelling Date”) is not a guaranteed promise from the Seller.
The Democritos entailed a vessel to be delivered ready and fit for cargo service by the “Cancelling Date”. Although the vessel arrived early, a last-minute structural failure meant that she was not in a fit condition upon delivery. The Charterers claimed that the Owners were in breach of an absolute obligation to deliver the vessel in a fit condition by the “Cancelling Date”. The courts ruled that the Owners did not have an absolute obligation to deliver the vessel in a fit condition by the “Cancelling Date”. Instead, there was only an implied term that the Owners would use “reasonable diligence.”
Mr Alexander Wright, 4 Pump Court, argued (at [57]) that “there was an implied term that Sellers’ delivery obligation was simply to deliver within a reasonable time.” This was a strained interpretation. The question of reasonableness, it seems to me, was focused on the Seller’s efforts (i.e. trying their best, even if they were late) as opposed to the end result (i.e. final delivery time being acceptable).
Nugee LJ clarified (at [59]) that it was “an implied obligation to exercise reasonable diligence to deliver the vessel by the Cancelling Date”.
The key takeaway here is that the Buyer can only get damages if they can prove the Seller was negligent. The right to cancel the deal (for non-delivery) is separate from the right to claim damages for lost profits. One can get damages by proving breach through negligence.
The chain of causation for damages - whether the Buyers’ choice to cancel the contract caused their loss
In the High Court, Dias J (Orion Shipping and Trading Ltd v Great Asia Maritime Ltd [2024] EWHC 2075 (Comm)) appeared to have argued that the Buyer’s own election to cancel was an intervening act and the legal cause of the loss of the entire bargain - and not the Seller’s initial and less severe breach.
Her Ladyship argued (at [45]) that the exact nature of “the breach for which damages are recoverable is Sellers’ failure to … be ready to complete a legal transfer by that date … [and] only those losses and expenses caused by that specific failure.” Hence, the breach is the delay, and damages only coverable for losses resulting from that delay itself.
Moreover, Her Ladyship implicitly argued (at [47]) that the Seller should not be liable for the loss of bargain as the Buyers’ election was an intervening act:
“In circumstances where Buyers would otherwise recover no damages at all, I see no great injustice in limiting recovery to accrued losses and wasted expenses. On the contrary, it is difficult to see why, in circumstances where Sellers are not in breach of condition, they should nonetheless be liable for the loss of the entire bargain when Buyers have a choice whether to cancel or not.” (Emphasis added)
It is interesting that Nugee LJ appeared to have rebuked Dias J for reaching a conclusion about the extent of the “loss of bargain” damages on the basis of an intervening act without, as it seems to me, properly explaining her rationale:
“It may be that the Judge was making a different point, which is that if Buyers cancel, the loss of the contract, although factually caused by Sellers’ lack of readiness, is not legally caused by it. That would be to regard Buyers’ decision to cancel as something that broke the chain of causation (a new intervening cause). I could understand such reasoning in principle; but that is not (or not explicitly, at any rate) the reasoning applied by the Judge. And if that were the basis for the Judge’s decision, one would have expected more discussion of the principles which apply when considering whether an innocent party’s reaction to a default by the other party does or does not count as a new intervening act.” (Emphasis added)
Speaking for myself, I had trouble piecing together aspects of her judgment to identify her assertions on legal causation.
Nugee LJ’s view (at [84]) on causation was that: “given that the scheme of the contract is that Sellers are given a contractual window in which to get themselves ready, failing which Buyers are given a right to cancel. If they do cancel, I do not see why that was not caused by the failure to meet the window…”.
In the end, I think Nugee LJ’s view has to be the correct and sensible answer. It seems ridiculous to me to argue that the Buyer’s decision to cancel was some unforeseeable and independent event. As Nugee LJ appears to argue, it was the very “scheme of the contract” – it was a direct and entirely predictable consequence of the Seller’s own breach (i.e. failure to be ready).
The extent of the right to the “loss of bargain” damages - the Baldock principle
Dias J’s ruling (at [45(iii)]) relied on the common law Baldock principle (from Financings Ltd v Baldock [1963] 2 Q.B. 104). This principle holds that if a party terminates a contract via a specific contractual right for a non-repudiatory breach, they are generally entitled to accrued losses up until the moment of cancellation. This was another basis on which Her Ladyship held that the Buyers were not entitled to loss of bargain damages.
Nugee LJ rejected the Baldock principle’s application to this case. He argued (at [118-119]) the Baldock principle generally applies to long-term contracts (e.g. leases or hire purchase agreements) which are intended to span a period of time and generate future income. His Lordship contrasted this with single-transaction contracts (like buying a ship) which were concluded at a given time. I find this logic very persuasive. The Baldock protection is surely designed to protect the breaching tenant against an unscrupulous landlord seeking future rents.
His Lordship also argued that the contractual remedies regime of the contract, agreed between the parties, displaced the default common law restrictions, like the Baldock rule. Furthermore, relying on The Solholt [1981] (at [139-141]), Nugee LJ argued that the shipping industry had a long-held understanding that this type of clause in the Saleform granted the Buyer full compensation.
All-in-all, a persuasive argument by Nugee LJ on why the Baldock principle has no relevance in this case.
