Court Of Appeal Finds Loss Of Bargain Damages Were Available On Termination For Non-repudiatory Breach Of Contract Under Express Contractual Provision

The decision shows that the interpretation of an express contractual right to terminate and claim damages will turn on ordinary principles.

The Court of Appeal has held that a clause which entitled the innocent buyer of a vessel to compensation for its "loss" on exercising a contractual termination right did (contrary to the High Court's decision) include the right to recover "loss of bargain" damages, regardless of whether the failure which triggered the clause was a repudiatory breach of contract: Great Asia Maritime Ltd v Orion Shipping and Trading LLC [2025] EWCA Civ 1210.

In a case of termination for repudiatory breach, the innocent party is usually entitled to claim loss of bargain damages from the breaching party. This decision considers a slightly different question: if the innocent party terminates for a non-repudiatory breach under an express contractual termination right, can it still claim loss of bargain damages?

The Court of Appeal noted that, in general, a party exercising a contractual right of termination as a reaction to a breach is not entitled to damages for loss of bargain unless the breach was repudiatory. Interestingly, the court questions whether this principle necessarily applies to a contract for a single transaction, as opposed to a long-term contract, but that point had not been argued and so the court did not decide it. In any event, the principle can be overridden by an express contractual term, so the question comes down to the wording of the contract and clause in question, applying orthodox principles of contractual interpretation.

The decision states that the simplest way to confer a right to terminate the contract and claim loss of bargain damages on breach of a particular obligation will usually be to state expressly that the obligation is a strict condition. However, the decision indicates that the same outcome can also be achieved by drafting an express right to claim loss of bargain damages upon termination, or (as in this case) a right to claim "loss" which is construed as including loss of bargain damages. While the decision suggests that there is no need for particularly clear words to confer a right to loss of bargain damages where such a right would not otherwise exist, those drafting commercial contracts will wish to ensure that there is no room for doubt as to whether an express contractual entitlement to compensation for loss includes (or excludes) loss of bargain damages.

Background

The case relates to the sale of a vessel made on the Norwegian Saleform 2012 standard form contract between Orion (the Seller) and Great Asia (the Buyer) for US$15 million.

Under Clause 14 of the contract, if the Seller failed to give "Notice of Readiness" to the Buyer by the "Cancelling Date", the Buyer would be able to cancel the contract. If that failure was due to proven negligence, the Seller would be required to "make due compensation to the Buyers for their loss and for all expenses together with interest".

The Seller did not give Notice of Readiness by the specified date. The Buyer therefore terminated the contract and claimed its loss from the Seller under Clause 14.

The value of the ship at the date of cancellation was $1.85 million more than the contract price. A key issue was whether the Buyer could recover the $1.85 million as "loss of bargain" damages.

Arbitration

The dispute was first heard by a panel of three arbitrators. The Tribunal found that the Seller was not in repudiatory breach of the agreement, but that its failure to give Notice of Readiness was attributable to its proven negligence and the Buyer was entitled to cancel the agreement under Clause 14. The Tribunal also held that the Buyer was entitled to loss of bargain damages: on the ordinary meaning of Clause 14, the parties understood that compensation would extend to the consequences of cancelling the agreement, which would include the Buyer's loss of profit, ie $1.85 million.

Appeal to the High Court

Orion appealed the Tribunal's decision to the High Court on this point under s.69 of the Arbitration Act 1996. Dias J reversed the Tribunal's decision on the basis that:

• Clause 14 did not impose a positive obligation on the Seller to give Notice of Readiness by the Cancelling Date.
• On a proper construction of Clause 14, the breach for which damages were recoverable was the Seller's failure to give Notice of Readiness by the Cancelling Date – and it was only losses caused by that failure which could flow to the Buyer. This did not include losses, such as loss of bargain damages, which were caused by the Buyer's decision to cancel.

Great Asia appealed Dias J's decision to the Court of Appeal.

Decision

The Court of Appeal allowed the appeal and restored the Tribunal's decision. Nugee LJ gave the leading judgment, with which Phillips and Birss LJJ agreed.

On the obligation imposed by Clause 14, the court agreed with Dias J that the Seller did not promise to have the vessel ready by the Cancelling Date. It held, however, that the Seller did promise to use reasonable diligence to deliver the vessel by that date. If it did not comply with that duty – ie it did not use reasonable or due diligence – then it was in breach of Clause 14 and the Buyer could exercise a right to terminate the contract and could claim damages in respect of the loss arising.

On the more difficult question of whether Clause 14 required the Seller to pay loss of bargain damages, the Court of Appeal considered that it did. This was for a number of reasons, including the following:

• The natural and ordinary meaning of the term "loss", in the context of Clause 14, extended to the Buyer's loss of bargain. The Buyer did not get the ship it had contracted for. By the time of cancellation that ship was worth $16.85 million, but the Buyer was only due to pay $15 million for it. Having thus lost the benefit of the contract, its loss was the loss of that bargain.
• The Court of Appeal considered the corresponding right given to the Seller under Clause 13 to cancel the agreement and claim compensation for losses in the event of non-performance (ie non-payment) by the Buyer. In the earlier case of The Griffon [2013] EWCA Civ 1567, Tomlinson LJ considered that an almost identical clause in a similar standard form contract conferred an express contractual right on the seller to claim for the same losses as they would have been able to had they terminated for repudiatory breach (though ultimately the Court of Appeal did not have to decide the point in that case). In the present case, due to the structure of the agreement, one would expect Clause 13 and 14 to have a similar operation and to operate "even-handedly" as between sellers and buyers. It followed that the observations in The Griffon should apply to Clause 14.
• The Court of Appeal considered that where the Seller was in breach of its obligation to use reasonable diligence to deliver the vessel on time, and the Buyer cancelled the contract under Clause 14, that was essentially equivalent to a case of non-delivery, in which case the damages to which a buyer is entitled under the Sale of Goods Act 1979 include loss of bargain damages.

The Court of Appeal also considered and dismissed various arguments raised by the Seller on appeal, including the following:

• The Court of Appeal rejected the argument that there was a "fundamental oddity" in the Buyer's case, in that the Seller's obligation to deliver by the Cancelling Date had not been drafted as a strict condition, but on the Buyer's case Clause 14 had essentially the same effect. The court pointed out that contracts can be drafted in many different ways. While the simplest way to confer the right on an innocent party to terminate the contract and claim loss of bargain damages is usually to provide that the relevant obligation is a condition, the same result can be achieved by a clause allowing a party to terminate and claim damages in the event of a breach. In the present case, where the Seller's obligation was not to deliver by the Cancelling Date but to use reasonable diligence to do so, it would make less sense to express this as a condition. Whether or not there was a breach entitling the Buyer to terminate would depend on whether it could prove negligence, which might not be at all obvious at the time. It might be preferable for the Buyer to have an express contractual right to cancel without the need to prove breach, coupled with a right to claim damages if it could do so.
• The Court of Appeal rejected the argument that the Buyer's case cut across the well-recognised distinction between a contractual right of cancellation and termination for repudiatory breach. The court noted the principle that in general a party exercising a contractual right of termination as a reaction to a breach is not entitled to damages for loss of bargain unless the breach was repudiatory. The Court of Appeal observed that the cases in which this point had previously been considered all related to long-term contracts which are prematurely brought to an end by the exercise of the right to terminate. That was quite a different sort of contract to a one-off sale of goods contract, as was in issue in this case. As this point was not argued by the parties, the Court of Appeal did not consider it any further, beyond saying that there may be "room for argument" about the scope of the principle. It was in any event accepted that the principle could be overridden by express provision, as the court found there was in this case.
• The Court of Appeal also rejected the argument that clear words were required to confer on the Buyer a right to loss of bargain damages which it would not otherwise have. It agreed with the judge that there was no specific requirement for clear words before Clause 14 could be construed so as to confer a right to loss of bargain damages. It was an exercise in contractual construction to be carried out applying well established principles.

NOTE: The Seller has applied to the Supreme Court for permission to appeal this decision.

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