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

Ground 2 is that the Judge was wrong to conclude that Clause 14 only allows Buyers to recover losses and expenses which have accrued prior to cancellation, and not loss of bargain damages.

I have set out Clause 14(B) above (see paragraph 13) but repeat it here for convenience:

“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.”

We are of course concerned with a question of contractual construction, namely what “loss” means in this clause. I think it is therefore helpful to start with a consideration of the language of the clause.

First there is the reference to “due compensation”. I consider it clear that this does not mean compensation that has already accrued due; it means proper or appropriate compensation. This was what the Judge said (Judgment at [45 i)], as follows:

“I agree with Buyers that “due compensation” means compensation which is appropriate using the common law principles of causation, remoteness and mitigation. I do not accept Sellers’ case that the phrase has the effect of limiting recovery to accrued damages which would otherwise be recoverable in any event. That, it seems to me, would be a very strained construction to put on the words.”

Orion takes issue with this in Ground 2 of its Respondent’s notice, but I think the Judge was entirely right. Mr Wright did not develop his argument on the point at any length and I can deal with it shortly. He submitted that Clause 14(B) merely preserves existing rights to damages; it does not confer any right to damages that Buyers would not otherwise have. Insofar as this point is based on a narrow linguistic argument that the word “due” means “already accrued due” rather than “proper” or “appropriate”, I have no hesitation in rejecting it for the same reason as the Judge, and cannot improve on the way she expresses it.

Insofar as it is based on some wider point, I confess I have not understood what it is. On its face, Clause 14(B) is not framed as merely preserving existing rights – one would expect a clause that was intended to do this to say something like “but without prejudice to Buyers’ existing rights to damages” or the like. Clause 14(B) by contrast is framed as conferring an express contractual obligation on Sellers to pay compensation (“they shall make due compensation…”). I see no reason not to give it that straightforward meaning. Those who drafted Saleform 2012 evidently did intend that Sellers should compensate Buyers for their loss (whatever that covers), and thought it better to confer an express contractual right to that effect. I can well understand why they thought that sensible as otherwise it might be suggested that Buyers who cancel cannot claim damages at all: see the discussion at paragraphs 114ff below of what I refer to as the Financings principle. And it is to be noted that Clause 5(d) refers to “any claim for damages the Buyers may have under Clause 14” which again suggests that the damages are payable under that clause, not just preserved by it. I would dismiss Ground 2 of the Respondent’s notice.

That leaves the question as to what is meant by “their loss”. The Tribunal (described by the Judge in the Judgment at [1] as “a highly experienced arbitration Tribunal”) did not seem to find this difficult. They said (Award at [162]):

“On [Clause 14’s] ordinary meaning the parties would have understood such compensation to extend to the consequences of cancellation thereunder, including loss of profit.”

It is noticeable that the Judge’s own initial reaction was the same, namely (Judgment at [43]) that:

“loss of bargain damages were recoverable under clause 14B for much the same reasons as given by the Tribunal.”

We were also shown two comments on the Judge’s Judgment which are to similar effect. In a short comment by Paul Herring(The Lila Lisbon, Commercial Court reverses industry understood practice on damages,UK Defence Club, 28 August 2024), he said:

“The industry has long considered that a buyer could recover damages at large in such a situation.”

And in Dr MacMahon’s longer case comment (see paragraph 60 above) he said this (at 29):

“Though the judge’s discussion of this “intractable” area of law is erudite and subtle, the denial of loss-of-bargain damages is questionable. Particularly in light of the Saleform’s history, a reasonable reader would likely assume that “due compensation … for loss and all expenses” includes loss-of-bargain damages. Moreover, it makes little commercial sense to deprive buyers of the benefit of the agreed contract price where the market has risen and the sellers are at fault for failure to deliver on time.”

I agree with his description of the Judgment as erudite and subtle, but I too consider that the natural and ordinary meaning of loss extends to Buyers’ loss of bargain.

I can explain why quite shortly. Great Asia did not get the ship it had contracted for. The ship was by the time the contract was cancelled worth $16.85m, but Great Asia was only due to pay $15m for it. Having thus lost the benefit of the contract, its loss was the loss of that bargain.

Nor, if one asks why it did not get the ship, is there any difficulty over factual causation. Great Asia did not get it because Orion was not ready to deliver it in the time allowed for that purpose by the MoA, that is by the (extended) Cancelling Date; Great Asia was therefore entitled to, and did, call the contract off; and Orion was not ready to deliver it because it had failed to exercise due diligence to get itself ready by the relevant date. The Tribunal said (Award at [160]) that:

“The failure to deliver on time is a breach of the MOA and the Seller is in default. The default causes the cancellation…”

And (Award at [165]):

“The cause of the Buyers’ loss of profits was Sellers’ failure to deliver, and this caused Buyers to bring the MOA to an end.”

Save that, strictly speaking, it was not Sellers’ failure to deliver on time, but their failure to use reasonable diligence to be ready to deliver by the extended Cancelling Date that was a breach of the MoA, these factual conclusions seem to me incontrovertible (and in any event cannot be challenged on an appeal under s. 69). Great Asia did as a matter of fact lose the benefit of its contract and did as a matter of fact suffer a loss of bargain. In those circumstances I would regard the natural and ordinary meaning of the word “loss” in Clause 14(b) as including that loss of bargain unless there is some legal principle which prevents that.