The Court of Appeal recently released its decision in the “Lila Lisbon” case overturning the previous Commercial Court decision made back in August 2024. Those interested can access the judgment here.
To put it at its simplest, the question in this case was – could the Buyer of the “Lila Lisbon”, having exercised their right to cancel due to the Sellers failure to give a Notice of Readiness by the cancelling date, recover damages for their loss of bargain under clause 14 of the 2012 NSF (Norwegian Saleform)? The NSF 2012 is a very common sale contract (or MOA as it is more commonly known) used in the majority of sale and purchase transactions. The matter was referred to London arbitration. The Tribunal held that the Buyer could recover loss of bargain damages, which it assessed at US$1.85M that being the increased market value of the vessel between the date of the contract and the date by which a notice of readiness should have been given (market was rising). The Sellers appealed on the basis that the Buyers should not be awarded damages for their loss of bargain. Dias J agreed. The Buyers appealed to the Court of Appeal.
The Tribunal had already held, on the facts, that the Sellers’ failure to deliver by the cancelling date was due to its proven negligence. The common understanding in the market was that, in such circumstances, a Buyer can claim damages under clause 14 and the only issue was whether this would extend to loss of bargain as opposed to other damages that had crystallised at that point. Dias J approached the position from what, some might say, was a nuanced point of view. Her starting point was that there was no positive obligation in the NSF 2012 for the seller to deliver the ship or give Notice of Readiness (NOR) by the cancelling date and that the only obligation arose under clause 5 which referred to giving written NOR when the vessel was at the place of delivery and physically ready. It seemed therefore that the positive obligation was, at best, to deliver the ship within a reasonable period of time. Having said that, she accepted that clause 14 could not be ignored and in circumstances where the contract was cancelled, the judge held that clause 14 on its proper construction limited the loss to loss that had crystallised by that point i.e. costs associated with the aborted sale but not loss of bargain.
The Court of Appeal unanimously disagreed by finding that the natural and ordinary meaning of “loss” under clause 14(b) extends to a Buyer’s loss of bargain (assuming this can be proved). They also said that they were not sure what clause 14(b) would cover if not damages for loss of bargain.
It remains to be seen if the Sellers will appeal to the Supreme Court. One of the areas of interest in the case is the “causation” angle which was not really developed before the Court of Appeal. Nugee LJ felt (at para 81 of the judgment) that Dias J may have had that in mind when she reached her decision to limit the loss and expense recoverable from a failed sale caused by the Buyers’ decision to exercise their option to cancel. One might also ask why the Buyers chose to cancel in a rising market. They could have taken the ship and taken advantage of the increased value. Those arguments may be developed if the case progresses but they face some difficulties if the failure to tender NOR by the cancelling date was in fact a breach it having been held in other cases (such as Stocznia Gdynia v Gearbulk [2010] QB 27 and also The Solholt [1983] 1 LR 605) that choosing to exercise a right consequent on a breach means that the breach is to be regarded as the effective cause of the contract’s termination.
It follows that, for the time being, the Court of Appeal has confirmed the established understanding (and now provided binding authority) that a Buyer can recover loss of bargain damages under clause 14 of NSF 2012 even where those loss of bargain damages flow from the contractual exercise of their option to cancel (para 106 of the judgment).
Nick Burgess
Partner
