Orion Shipping and Trading Ltd -v- Great Asia Maritime Ltd (Lila Lisbon) [2024] EWHC 2075 (Comm)
The English Commercial Court has held that, where the buyers under a memorandum of agreement (MOA) on the Norwegian Saleform 2012 (NSF 2012) cancel the MOA due to the sellers' failure to meet the cancelling date, the buyers will ordinarily not be entitled to claim damages for loss of the entire MOA even if the sellers missed the cancelling date due to their own proven negligence.
The decision highlights the limited scope of damages recoverable under clause 14 of the NSF 2012.
The background facts
The Sellers agreed to sell the Vessel to the Buyers on the basis of a MOA on the Norwegian Saleform 2012 (NSF 2012). Among other things, the MOA provided as follows:
"14. Sellers' Default
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.
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."
The Sellers missed the cancelling date due to their proven negligence in having failed to take reasonable steps to arrange for delivery. The Buyers arrested the Vessel in China as security for a claim for the difference between the contract price and the market value of the Vessel, thereby bringing the MOA to an end.
The arbitration award
The matter first went to arbitration, where the Tribunal found that the Buyers had a right to terminate the MOA under clause 14 of the NSF 2012 and that the provision for "due compensation" in clause 14 allowed the Buyers to recover profits lost as a result of cancellation because the Sellers missed the cancelling date.
Pursuant to the award, the Buyers were awarded damages reflecting the usual measure of damages in sale of goods cases for non-delivery under section 51 of the Sale of Goods Act 1979 – the difference between the market price of the Vessel and the contract price as at the date of termination of the contract. The Sellers appealed under section 69 (point of law) of the Arbitration Act 1996. Permission to appeal was granted in respect of the following question of law:
"If a Memorandum of Agreement on the SALEFORM 2012 form 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", is that buyer entitled to recover loss of bargain damages absent an accepted repudiatory breach of contract?"
The Commercial Court decision
On appeal, the Court found as follows:
- Failure to tender NOR by the cancelling date is not a breach of a MOA on the NSF 2012. In its unamended form, NSF 2012 does not impose a positive obligation to deliver by a certain date. Similarly to charterparty laycan clauses, the buyers' right to cancel under clause 14 of the NSF 2012 arises independently of any breach by the sellers.
- The starting assumption is that parties to a MOA on NSF 2012 terms intend the cancelling buyers to have no entitlement to damages for loss of bargain (i.e. damages suffered because the vessel will not be sold after all) unless the buyers can show that the sellers repudiated or renounced the MOA (i.e. that the sellers breached a term, breach of which allows the buyers to terminate the MOA; or that the sellers showed an intention not to be bound by the MOA).
- Clause 14 allows the buyers to claim losses and expenses that (a) have been caused by the sellers' failure to tender NOR in time; and (b) have crystallised by the time that the buyers cancel the MOA (e.g. the cost of crewing arrangements, inspections, legal costs, general preparation for delivery, lost profits for the period between the date when the vessel should have been delivered and cancellation). However, clause 14 does not capture losses that crystallise after cancellation (such as the difference between the vessel's contract price and market value).
The Court, therefore, allowed the Sellers' appeal and set aside that part of the award that dealt with damages.
Comment
Buyers under a MOA may wish to provide expressly that sellers have a positive obligation to deliver the vessel by the cancelling date. This should give the buyers broader options if the sellers fail to meet the cancelling date. However, the buyers should make sure that any amendments to the proforma wording do not produce unforeseen knock-on effects.
The decision also contains a useful discussion of when a party may be entitled to terminate a contract for breach and reiterates the relevant principles for determining whether or not a term of a contract is to be regarded as a condition, breach of which gives rise to a right to terminate. Ultimately, if the parties intend that breach of a particular term should entitle the innocent party to terminate, it is best to state this expressly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.