CA-2024-002194 - [2025] EWCA Civ 1210

Ground 1 is that the Judge was wrong to conclude that there was no obligation on Sellers to tender Notice of Readiness, nor to be ready to validly complete a legal transfer, by the Cancelling Date.

An appeal on a point of law under s. 69 of the Arbitration Act 1996 proceeds “on the basis of the findings of fact in the award”: see s. 69(3)(c), Sharp at [53] and [71] per Lord Hamblen. The following are therefore not now in dispute, to the extent they ever were:

It can be seen that despite the wide-ranging submissions we have heard, the actual question for decision is a very short one (as reflected in the wording of the question of law for which permission was given). It is whether, on the true construction of Clause 14, the “loss” for which Great Asia is entitled to be compensated includes the loss of its bargain.

As both counsel recognised, this means that success on Ground 1 is neither necessary nor sufficient for Mr Lewis’s purposes. It is not necessary because if Ground 2 is well founded, Mr Lewis does not need Ground 1; and it is not sufficient because even if he succeeds on Ground 1, he still has to win on Ground 2. Indeed Ground 1 is not part of the question of law for which permission was given; the real question on the appeal is that raised by Ground 2. But Mr Lewis submitted that success on Ground 1 would make his case on Ground 2 stronger, and he has permission to argue it, and I agree that it ought to be considered on its merits.

Mr Lewis relied first on various textual indications in the MoA. Clause 14(A) and (B) both apply “Should the Sellers fail to give Notice of Readiness … or fail to be ready to validly complete a legal transfer”. Mr Lewis submitted that the normal meaning of “fail” in a legal context is “neglect to perform a legal obligation”. I do not think this point takes him very far. I agree with Mr Wright that “fail” is one of those words that has different connotations in different contexts (see Coventry City Council v Vassell [2011] EWHC 1542 (Admin) at [54] per Hickinbottom J to the effect that “fail” is an ambiguous word that may or may not import the notion of fault); and, more significantly, that it is used in other places in Saleform 2012 where it plainly does not imply any contractual obligation. Thus Clause 5(d) refers (at line 98) to “failure to cancel” with reference to Buyers’ option to cancel when Sellers propose an extension. There is no question of Buyers being under any obligation to cancel, and in this context it must simply mean “if Buyers do not cancel”. Similarly Clause 4 of the standard form (at line 69) refers to “Should the Buyers fail to undertake the inspection …” and again there is no question of Buyers being under any contractual obligation to do so. It must simply mean “if Buyers do not undertake the inspection…”. It is equally quite straightforward to read Clause 14 as saying no more than “if Sellers do not give Notice of Readiness … or are not ready to validly complete a legal transfer”.

Mr Lewis also relied on the word “default” in the heading to Clause 14 (“Sellers’ default”). I think this is a rather better point. It is true that the word is only found in the heading, and that although the heading to a contractual clause is admissible to construe it (at any rate where, as here, the contract contains no provision to the contrary), such a heading is “not in any way conclusive” and cannot be used to override the wording of the clause, often being more of a label or signpost: see Lewison, The Interpretation of Contracts (8^th edn, 2023) §5.018, TheRadauti [1988] 2 Ll Rep 416 at 422 col 1 per Slade LJ, and Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102, [2019] 2 All ER (Comm) 592 at [39] per Males LJ. Nevertheless I think Mr Lewis is right that in ordinary usage “default” has a pejorative tone. It is to my mind a less neutral word than “fail”, and I accept that its natural and ordinary meaning in a legal context is “a failure to fulfil a legal requirement or obligation”. In ABC Electrification Ltd v National Rail Infrastructure Ltd [2020] EWCA Civ 1645, [2021] BLR 97, that was in fact common ground between the parties, but it was also accepted by at least a majority of this Court (see per Carr LJ at [31] and Males LJ at [58]).

Mr Wright said that in that case the relevant clause referred to “default on the part of the contractor in compliance with any of his obligations under the contract”. This is so, but I do not think it undermines the fact that the Court accepted that although “default” can mean different things depending on its context, its natural and ordinary meaning (namely, a failure to fulfil a legal requirement or obligation) represents “an obvious starting point” (per Males LJ at [58]). Mr Wright also said that contracts frequently refer to “Events of default” and the like which include matters which are not breaches of contract, such as a party’s insolvency. That I accept, but I do not think this is a good guide to the ordinary meaning of the word. I think all that such examples demonstrate is that there are contracts which, no doubt because it makes for more convenient drafting, include as “Events of default” matters such as insolvency which are not in truth defaults as ordinarily understood.

Overall therefore I agree that the reference to “Seller’s default” in the heading to Clause 14 is some indication, even regarding it as a mere label or signpost, that those who drafted Saleform 2012 considered that Sellers’ failure to give Notice of Readiness by the Cancelling Date could be characterised, at least in some circumstances, as a breach of obligation. That is reinforced by the fact that the corresponding Clause 13, which deals with “Buyers’ default”, is undoubtedly concerned with breaches of Buyers’ contractual obligations, namely to lodge the Deposit under Clause 2 and to pay the balance of the Purchase Price under Clause 3. Clauses 13 and 14 are closely parallel and confer rights of cancellation and compensation on Sellers and Buyers respectively, and I think that is some indication that one might expect “default” to mean the same thing in the headings to the two clauses.

Mr Lewis also relied on the fact that Clause 14(B) provides that Sellers shall make due compensation for Buyers’ loss. He submitted that a contract can impose an obligation either directly (A shall do X), or indirectly (if A does not do X, A shall pay compensation to B for his loss). The latter, he said, was no doubt less elegant, but its effect was the same. Mr Wright said that there was nothing objectionable in the idea that a contract may provide for A to become liable to pay B a sum of money without being in breach. I agree, but usually in such a case the amount to be paid can be determined from the contract, often by the application of some formula. Here the obligation is not to pay any calculable sum of money but a potentially open-ended obligation to pay due compensation for Buyers’ loss and expenses. I think there is some force in Mr Lewis’s point that there is little practical difference between A having a contractual obligation to do X (which carries with it a secondary obligation to pay damages to B in the event of breach), and a provision that if A does not do X, A will compensate B for any loss. (It might I suppose make a difference if the question were whether the Court could enforce the putative obligation by injunction or specific performance, but that is not a question which arises here.)

This is to my mind particularly so because Clause 5(d) (at line 99) refers to “any claim for damages the Buyers may have under Clause 14”. As a matter of the general law, there is a well-recognised distinction between a claim for damages (being an unliquidated claim for compensation for breach of a legal obligation) and a claim for payment of a sum due under a contract. Use of the term “damages” in Clause 5(d) to refer to Buyers’ claims to compensation under Clause 14 to my mind strongly suggests that those who drafted Saleform 2012 saw the claim under Clause 14(B) as a claim for compensation for breach of contract. Mr Wright said that the use of the word “damages” was simply shorthand for the sums payable under Clause 14; but if it was shorthand it was, on Mr Wright’s case, inaccurate.

So far therefore I think Mr Lewis has the better of the argument: just looking at the text of the contract, the references to default, to compensation for loss, and (in particular) to damages all seem to me to point to Sellers being under some contractual obligation to be ready before the Cancelling Date. Mr Lewis submitted that it was either an absolute obligation to deliver by the Cancelling Date (but with Clause 14 effectively excluding liability for breach save in the case of proven negligence), or that there was what he called a “duty of care” to deliver by the Cancelling Date. His submission was that there was little if any practical difference between the two.

Mr Wright’s central point in answer to all this is that Clause 14 does not itself impose any obligations on Sellers to be ready (this I accept – Clause 14 confers rights on Buyers if Sellers are not ready, and the only obligation it imposes is to pay compensation); and that Clause 5 does not, as it could so easily have done, impose any express obligation to deliver, or be ready to deliver, at any particular time either.

The analysis is complicated in the present case by the Laden Voyage clause. I have set it out above (see paragraph 10) but repeat it here for convenience:

“However, the Vessel shall effect delivery to Buyers immediately after present laden voyage from South Africa to Qingdao China (ETA Qingdao on or around 18th July 2021) and no more laden voyage allowed.”

(The reference to “the Vessel” effecting delivery is obviously a reference to Sellers delivering the Vessel). On its face this does impose a delivery obligation on Sellers, and since the present laden voyage was complete by 26 July 2021, it would appear that Sellers should have been ready to deliver “immediately” thereafter. “Immediately” no doubt has some flexibility built into it, but whenever “immediately after present laden voyage” was, one would have thought it to be well before the original Cancelling Date of 20 August 2021, let alone the extended Cancelling Date of 15 October 2021. The Judge however said (Judgment at [18]) that the Laden Voyage clause:

“merely makes clear that Sellers were not permitted to “squeeze in” another voyage and “immediately” in this context is to be read as simply a belt and braces emphasis of “no more laden voyage allowed”.”

That is not what it appears to say, and Mr Wright, as I understood him, accepted that the Laden Voyage clause did require Sellers to effect delivery, not just to refrain from any further laden voyages. He said however that while there may have been a breach of that clause, that did not affect the construction of Clauses 5 and 14.

I agree that whatever the effect of the Laden Voyage clause in this particular MoA we should not be distracted by it, and should concentrate on the effect of Clauses 5 and 14 in the standard form of Saleform 2012. The question of law for which permission was granted (both in its original formulation and as reformulated by the Judge) refers to “a Memorandum of Agreement on the SALEFORM 2012 form” (see paragraphs 26 and 32 above) rather than to the MoA. This is unsurprising since the basis on which permission was given under s. 69 of the Arbitration Act 1996 is that the question was one of general public importance, and the particular questions arising out of the bespoke provisions in the MoA such as the Laden Voyage clause are obviously not of general importance. I propose therefore in what follows to ignore the impact of the Laden Voyage clause.

Mr Wright pointed to the fact that whereas line 78 of Clause 5(a) contains mandatory words (“Notice of Readiness shall not be tendered before…”), line 79, which refers to the Cancelling Date, does not. It simply specifies a date.

That is true but one must of course read Clause 5 as a whole, and indeed read it together with the other provisions of the contract. The starting point is that Clause 5 is headed “Time and place of delivery and notices”. That leads one to expect that the clause will deal with both the place of delivery and the time of delivery. Clause 5(a) duly provides for the place of delivery, in the case of the MoA “mainland China exclude Taiwan, Macao and Hong Kong”. It may be noted that Clause 5(a) commences “The Vessel shall be delivered …” which on its face does appear to impose an obligation on Sellers to deliver. At one point in the Judgment, the Judge said (at [15]):

“There is thus no positive obligation to deliver or tender Notice of Readiness nor be ready to complete a legal transfer by 20 August 2021 or any other date…”

Mr Lewis said that if taken at face value, that would appear to suggest that Sellers were not under an obligation to deliver at all. But I agree with Mr Wright that that cannot be what the Judge meant. A contract under which a seller is under no obligation to deliver is (as Phillips LJ pointed out in argument) not a contract of sale but an option, and there is no doubt that Saleform 2012 is intended to be a binding contract for sale.

Mr Wright indeed accepted that Sellers were bound to deliver. But he said that there was no specific time by which they had to do so. Their obligation was only to deliver within a reasonable time, by analogy with The Democritos [1976] 2 Ll Rep 149.

The Democritos is to my mind instructive and worth considering in some detail. It was not a case of a contract for sale but a time charter on the New York Produce form. The charterparty provided that the vessel would be placed at the disposal of Charterers at Durban; that she should on her delivery be ready to receive cargo and be tight, staunch, strong and in every way fitted for ordinary cargo service; and as to the time of delivery provided as follows:

“That if required by Charterers, time not to commence before 1st December, 1969, and should vessel not have given written notice of readiness on or before 20th December, 1969, but not later than 4 p.m. Charterers or their agents to have the option of cancelling this charter any time not later than the best notice of readiness.”

The vessel arrived at Durban on 16 December 1969 but her ’tween deck in No 2 hold was found to be collapsed. She was nevertheless able to start loading on 18 December and complete a voyage to Portland (Oregon), but had to be repaired in Seattle. Charterers claimed that Owners were under an absolute obligation to deliver the vessel at Durban by the cancelling date (20 December 1969) in a fit condition; that Owners were in breach because the vessel was not in a fit state as the ’tween decks were broken; and that they were therefore entitled to damages for the loss incurred by her not being able to carry a full cargo, and also by the time occupied later in doing repairs at Seattle.

This claim was rejected by Kerr J (on a case stated by arbitrators) and an appeal to this Court was dismissed. Lord Denning MR said (at 152 col 1):

“Now there is nothing in this charter which binds the owners positively to deliver by Dec. 20, 1969. The only clue to any time of delivery is to be found in the cancelling clause. There is, of course, an implied term, that the owners will use reasonable diligence to deliver the ship in a fit condition by Dec. 20, 1969. But that is not an absolute obligation. So long as they have used reasonable diligence, they are not in breach. In this case, it is found that reasonable diligence was used, so there is no breach by them of that implied obligation.”

He supported that by reference to authority from England, Scotland and the United States, namely Smith v Dart & Son (1884) 14 QBD 105, Nelson & Sons v The Dundee East Coast Shipping Co Ltd (1907) 44 SLR 661 and United States Gypsum Transport Co v Dampskibs Aktiselskapet Karmoy (1930) 48 Fed Rep (2nd) 376, summarising them at 152 col 2 as follows:

“These authorities show that as long as the owner uses reasonable diligence, he is not in breach, but the charterer is entitled to cancel if the vessel is not delivered by the cancelling date.”

Bridge LJ agreed and delivered a short concurring judgment.

Mr Wright relied on The Democritos in support of his submission that there was an implied term that Sellers’ delivery obligation was simply to deliver within a reasonable time. But I do not think that quite captures what Lord Denning MR said. What he said is that there was no absolute obligation on Owners to deliver by the cancelling date, but that there was an implied term that “owners will use reasonable diligence to deliver the ship in a fit condition by Dec. 20, 1969”. In other words, Owners were under an obligation to deliver by the cancelling date but it was a qualified obligation, namely to use reasonable diligence in doing so, rather than an absolute obligation.

That is how the decision is treated in the textbooks we were shown. Carver on Charterparties (2^nd edn, 2018) says at §7-147:

“…there is no absolute obligation on the shipowner to deliver by the cancelling date. At most, it is under an obligation to exercise reasonable endeavours to do so.”

Time Charters (7^th edn, 2014) at §7.5 to §7.6 is more definite:

“7.5

Many charters, including the New York Produce form, do not contain a delivery date, but do contain a cancelling clause… The primary effect of such a clause is to give the charterers an option to cancel if the ship is not ready for delivery by the specified cancelling date: see chapter 24.

7.6

However, the clause also has another effect: it imposes on the owners an implied obligation to exercise reasonable diligence to deliver the ship by the relevant date.”

Mr Wright said that Lord Denning’s reasoning was thin, but Lord Denning did support his conclusion by reference to authority and it seems clear enough and we were not shown anything to suggest it had later been disapproved. I see no reason why the same principles should not apply to a contract of sale, such as Saleform 2012, that does not contain a specific delivery date but does contain a cancelling clause. In my judgement therefore Clause 5 does impose on Sellers an implied obligation to exercise reasonable diligence to deliver the vessel by the Cancelling Date.

I may add that that was the view that I had reached in any event, but I am heartened to see that in a case comment by Paul MacMahon on the Judge’s decision (Compensation after cancellation for Sellers’ negligent delay – The Lila Lisbon [2025] LMCLQ 29) he analysed the question in precisely the same way, as follows (at 33):

“Clause 5 certainly imposes no strict duty; in the absence of sellers’ proven negligence, the cancelling buyer receives only its deposit. But a strict duty is not the only kind of duty. Clause 14B conditions damages on sellers’ “proven negligence”, and negligence is the neglect of a duty. The contract therefore imposes a duty on sellers to take reasonable care to have the vessel ready for delivery in accordance with the MOA and to execute the legal transfer. In support of her interpretation, the judge analogised the case to cancellation for late delivery under a time charter’s laycan clause, but that analogy shows only that there is no strict duty. In the time charter context, there is “an implied term that the owners will use reasonable diligence” to deliver the ship by the agreed cancellation date [this is footnoted with a reference to The Democritos]. Here, the sellers failed in their duty to take care to deliver the Lila Lisbon by the cancelling date, and were thus in breach of contract.”

This analysis not only fits with the language of “default” and “damages”; it also fits with the reference to “proven negligence” in Clause 14(B). Mr Wright accepted that negligence in this context is to be equated with a lack of due diligence. That seems to me right, and to obtain support from the reference to “due diligence” in Clause 5(c) at line 85. I therefore in effect accept Mr Lewis’s alternative case that Sellers were under what he called a duty of care, although I prefer to refer to the duty as one to use reasonable or due diligence. This is partly because this is the language used both by Lord Denning MR in The Democritos and by Saleform 2012 in Clause 5(c); but is also because I think that “duty of care” is not entirely appropriate. “Duty of care” is of course the language used in the tort of negligence (and for parallel duties owed in contract, for example duties owed to their clients by professionals). But it is not suggested that Sellers owed any duty in tort to Buyers, and I do not think they were under any obligation to take reasonable care not to harm Buyers’ interests, which is what a duty of care would suggest. Rather, their duty is better expressed in my view, as I have already said, as one to use reasonable or due diligence to deliver the vessel by the Cancelling Date. But this is a largely semantic point and does not affect the substance of Mr Lewis’s submission, which I accept.

The contractual scheme that this gives rise to seems to me both logical and coherent, and is not I think difficult to understand. Sellers do not give any absolute promise that they will have the vessel ready by any particular date. If, therefore, despite the exercise of due diligence, they are unable to deliver by the Cancelling Date, they are not in breach of contract. But nevertheless failure to do so gives Buyers an option to cancel under Clause 14(A), exercise of the option not being dependent on breach. This is, in the absence of proven negligence, a species of termination without fault on either side, and consistently with this Buyers are entitled to return of the deposit but do not have any claim to damages.

But Sellers are for the reasons I have sought to express under an obligation to use reasonable or due diligence to deliver the vessel by the Cancelling Date. “Negligence” in Clause 14(B) means a failure by Sellers to comply with this obligation. So if Sellers are not ready to deliver by the Cancelling Date, and Buyers show that this is due to their failure to use due diligence, then not only do Buyers have the option to cancel under Clause 14(A), but they also have a right to damages in the shape of compensation for their loss under Clause 14(B). This right to damages subsists whether or not Buyers exercise their right to cancel (as Clause 14(B) says), and whether or not they accept a proposal by Sellers for a new Cancelling Date under Clause 5(c) (as Clause 5(d) says).

This analysis I think respects the language and structure of Saleform 2012; it produces a result consistent with that in The Democritos which I accept is a close analogy; and it seems to me to balance the interests of Sellers and Buyers in an even-handed way, and to make good commercial sense.

The Judge took a different view. But most of her analysis appears directed at the proposition that Sellers were under an absolute obligation to deliver by the Cancelling Date. Thus at [16] she said that the analogy with delivery into a time charter seemed to her to be apt, and that in that context it is well-established that failure to deliver by the cancelling date gives rise to a right to cancel which is independent of breach. As explained above, I do not disagree with that. And at [17] she said that further support could be found in Clause 5(d) which presupposes that a mere failure to tender Notice of Readiness by the Cancelling Date is not itself a breach of contract, and that any right to damages under Clause 14 depends on the express terms of that clause. Again I do not disagree, although on the view I take the right to damages under Clause 14(B) goes hand in hand with the implied obligation to use reasonable or due diligence to be ready by the Cancelling Date. Then, after considering the Laden Voyage clause, and dealing with an argument (not repeated before us) based on Bunge Corporation v Tradax Export SA [1981] 1 WLR 711, she concluded at [20] that:

“there was no positive obligation on Sellers to tender Notice of Readiness nor to be ready to deliver by the Cancelling Date which was capable of giving rise to a breach of contract.”

It can be seen that I agree with the Judge’s analysis insofar as it concludes that there is no absolute obligation on Sellers to be ready by the Cancelling Date. But it does not separately address the question whether there was an obligation to use due diligence to be ready by the Cancelling Date – no doubt because, as so often happens, the arguments presented in this Court appear to have been somewhat different from those advanced below. I have already given my reasons why I have concluded that there was such an obligation, and to that extent I differ from the Judge.

In those circumstances I would accept that Ground 1 is well-founded. But that, as already explained, is not sufficient by itself to justify the appeal being allowed.