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

Mr Wright deployed a number of arguments on appeal. His starting point was that Sellers’ failure to be ready to deliver by the Cancelling Date, even if a breach of contract at all, was not a repudiatory breach. This was the conclusion of the Judge and had not been appealed.

He made in effect four points on the basis of this:

So far as the “fundamental oddity” in Great Asia’s case is concerned, I do not accept that there is anything odd about it at all. It is true that the simplest way to confer on an innocent party both the right to terminate the contract and the right to claim damages for loss of bargain is usually to provide expressly for the relevant obligation to be a condition (as the Tribunal said in the Award at [157]). But contracts can be drafted in many different ways. A contract may provide for example that time is of the essence for the performance of some obligation, thereby making performance strictly on time a condition. Or it may provide, as for example contracts for the sale of land regularly do, that time is not initially of the essence but that in the case of failure to perform on time, the innocent party may serve notice making it of the essence. Or there may be a clause such as Clause 13 in Saleform 2012 which enables Sellers to cancel the contract and claim damages if Buyers do not make payment on time. As the discussion above of The Griffon shows, the practical effect of that would appear to be the same as if payment by Buyers on time were expressly made a condition, but one cannot find any express provision to that effect in Clauses 2 and 3.

I do not see why the same should not be true of Clause 14(B). The fact that those drafting Saleform 2012 have not expressly provided for Sellers’ delivery obligation to be a condition does not prevent them from having achieved a similar effect in a different way. Indeed it would I think have been much less convenient if Sellers’ obligation to deliver by the Cancelling Date had been expressly drafted as a condition. The usual advantage of expressly providing that a contractual obligation is a condition is that in the event of breach the innocent party can treat the breach as repudiatory without more, that is without having to show a breach that goes to the root of the contract or conduct that evinces an intention not to perform. The latter are often contentious and difficult to prove but failure to perform on a particular date is usually much easier to establish. If Sellers’ obligation to deliver by the Cancelling Date had been an absolute one, it would therefore no doubt have made good sense to draft it as a condition.

But where, as I have concluded on Ground 1, Sellers’ delivery obligation is not an absolute one but merely one to use reasonable or due diligence to deliver, it would make far less sense in practice to express this as a condition. Suppose this had been done, and that Sellers in a particular case were not ready by the Cancelling Date. Would this be a breach of condition entitling Buyers to accept a repudiation or not? That would depend on whether Buyers would be able to prove negligence, something that might not be at all obvious at the time. But if they did purport to terminate for repudiatory breach and in the event failed to prove negligence, they would run the risk of that being held to be a wrongful termination and hence a repudiation by themselves. If on the other hand they failed to terminate for repudiatory breach promptly, they might be held to have affirmed the contract and thus to have lost the right to terminate. So the certainty and practical advantages usually achieved by drafting a contractual obligation as a condition would be lost. I can see why in those circumstances those drafting Saleform 2012 might have thought it preferable to confer an express contractual right on Buyers to cancel without the need for them to prove breach by Sellers, coupled with a right to claim damages if they could. That is what Clause 14 does. I do not find that counter-intuitive; on the contrary it seems to me an eminently sensible and practical scheme.

So far as the supposedly draconian nature of the consequences are concerned, I do not find this argument at all persuasive. It is frequently possible to construct examples where contractual provisions can operate in a way that might seem disproportionate. One might equally say for example of Clause 13 that Buyers might miss making payment under Clauses 2 or 3 by a matter of hours but could both lose the contract and expose themselves to damages; or that under Clause 14(A) Buyers can cancel the contract if Sellers are not ready by the Cancelling Date even if Sellers are not at fault in any way, which might seem hard on them if the market has fallen significantly. Under Clause 14(B) by contrast Buyers cannot of course recover at all without taking on the burden of proving negligence by Sellers, something that is often easier to allege than to establish. If they do prove it, there does not seem to me any good reason why they should not be compensated for any loss they have suffered.

Mr Wright’s third point relies on the distinction between the exercise of a contractual right of termination and the termination of a contract by accepting a repudiatory breach. Such a distinction is well established. On the findings of the Tribunal, Great Asia here terminated the MoA by exercising its right to cancel under Clause 14(A) rather than by accepting any repudiatory breach.

The next step in Mr Wright’s argument is that there is a 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. I will refer to this as the Financings principle (after Financings Ltd v Baldock [1963] 2 QB 104). This was recorded by the Judge as common ground below, as follows (Judgment at [35]):

“i)

Loss of bargain damages cannot be recovered on the exercise of a contractual right of termination unless the claimant can show a repudiatory breach and that it exercised its common law right to terminate for repudiation: see Phones 4U Ltd (in administration) v EE Ltd, [2018] EWHC 49 (Comm); [2018] Bus. L.R. 574; The Kos, [2012] UKSC 17; [2012] 2 AC 164; The Spar Capella (supra).

ii)

However, it is open to the parties to make express provision as to the consequences of cancellation pursuant to a contractual right. Thus, they may stipulate that a right of cancellation carries no additional rights, or carries equivalent rights to termination for repudiatory breach, or carries some different rights.”

Mr Lewis did not before us dispute the principle as set out at [35 i)] above. He was content to rely on the exception referred to in [35 ii)] as Saleform 2012 does make express provision as to the consequences of cancellation, namely that if Buyers prove negligence they are entitled to compensation for their loss.

That means we did not hear any argument as to the scope of the principle. That some such principle exists I do not doubt. The earliest case we were shown was the Financings case itself, a case of a hire-purchase contract where the hirer had been late in making payment of two instalments and the finance company had terminated the contract. Lord Denning MR at 113 expressed the principle like this:

“But if there is no repudiation, and simply, as here, a failure to pay one or two instalments (the failure not going to the root of the contract and only giving a right to terminate by virtue of an express stipulation in the contract), the owners can only recover the instalments in arrear, with interest, and nothing else: for there was no other breach in existence at the termination of the hiring… I would prefer to ask whether there is a repudiation of the obligation to pay future instalments.”

And Diplock LJ said at 120-1:

“[The hirer] had at the date on which the owners exercised their option to terminate the contract said nothing to indicate his unwillingness or his inability to pay either these or any future instalments. He was clearly in breach of his obligation to pay two instalments on the due dates but, in the absence of any express provision to the contrary in the contract, these breaches of a contract of hire expressed to be for a duration of 24 months would not of themselves go to the root of the contract or evince an intention on the part of the hirer no longer to be bound by the contract. The owners’ only remedy would have been to sue for the two instalments overdue and their measure of damages would have been the amount of these instalments, together with interest at the agreed rate of 10 per cent, per annum…

Whether [a clause conferring an option to terminate] does more than this and confers any other rights or remedies on either party on the termination of the contract, depends upon the true construction of the relevant provision. If it does not, then each party is left with such causes of action, if any, as had already accrued to him at the date that the contract came to an end.”

Similarly Lord Sumption JSC in The Kos said at [7] of a charterparty containing a clause entitling owners to withdraw the vessel on non-payment of hire:

“It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this… The second consequence is that any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel. This is because the non-payment does not itself destroy the bargain or occasion the expenses, unless in the circumstances it is a repudiation which owners have accepted as such.”

This all seems to me no more than good sense. It is the same with a lease. If the tenant is late paying rent and the landlord forfeits, it would be most surprising if the landlord could claim damages for the loss of rent over the remainder of the term. But what is noticeable is that all these contracts – a contract for hire-purchase, a charterparty, a lease – are long-term contracts that are due to last for a period and which are prematurely brought to an end by the exercise of the right to terminate. The same is true of the other cases referred to by the Judge in the Judgment at [35 i)]: Phones 4 U was a case of a contract governing the trading relationship between two companies in the mobile phone business which was entered into for a number of years; The Spar Capella was another charterparty.

It is not obvious to me that the same principles necessarily apply to a contract for a single transaction such as a sale. That seems to me a very different type of contract. Unlike a lease or charterparty or the like, the contract is not intended to govern the parties’ relationship for an extended period which is prematurely brought to an end by the exercise of a right to cancel. A contract for sale is intended to achieve a particular transaction – the exchange of an asset for money – and where the contract provides for a window in which to achieve that transaction, the exercise of a right to cancel if the window is not met does not seem to me a case of premature termination in the same way at all; it is a case where the transaction cannot be carried through as intended and so is called off. We were not referred to any case where the Financings principle has been applied to a contract of this type and I think there is a real question whether it does apply in the same way.

But we heard no real argument on the point because Mr Lewis, as already referred to, did not advance any submissions as to the scope of the principle, being content to rely on the proposition that contracting parties can make express provision as to the consequences of termination, in which case, as Diplock LJ says in Financings, the only question is the true construction of the relevant provision. Mr Wright did refer us to a statement in Carter’s Breach of Contract (3^rd edn, 2024) at §13-07 that the restriction on loss of bargain damages is “correct at a doctrinal level”. But Professor Carter’s discussion of the principle is in fact more nuanced, noting that it has attracted a good deal of discussion; that difficulties with it have not gone unnoticed; that it seems somewhat artificial to draw a contrast between what the common law permits by reference to commercial convenience and what the parties agree for the same reason; and that from that perspective there is undoubtedly something to be said in favour of allowing loss of bargain damages in all cases of discharge for breach, even where the termination right is conferred expressly.

Similarly Chitty on Contracts (35^th edn, 2023) at §26-063 expresses the position in less than definite terms, saying that:

“where a contracting party terminates the contract pursuant to a term of the contract, and the breach which caused it to exercise that power is not a repudiatory breach, the party exercising the right to terminate may only be entitled to recover damages in respect of the loss which it has suffered at the date of termination and not for loss of bargain damages.” (emphasis added)

(citing the Financings case). This statement is footnoted with reference to statements, among other things, that this separation of the right to terminate and the right to claim loss of bargain damages has been rejected by the Supreme Court of Canada, and subjected to academic criticism.

All of this suggests that there may be room for argument as to quite what the scope of the principle is. But I do not propose to consider that any further in the light of the fact it was not argued. I will proceed on the assumption that Mr Wright is right that in the absence of the express right to claim damages under Clause 14(B) Buyers would have no claim to damages for loss of bargain if they terminated under Clause 14 (even if they could establish a breach by Sellers of the obligation to use due diligence to be ready to deliver by the Cancelling Date).

Nevertheless, that does not seem to me to tell one anything very much about what damages are recoverable where Clause 14(B) does contain an express right to compensation for Buyers’ loss.

Mr Wright referred us to an article by Professor Peel, The Termination Paradox [2013] LMCLQ 519 at 523, in which he refers to two potential justifications for the Financings principle. The first is based on causation, that is that the bargain is lost not because of the breach but because of the innocent party’s decision to terminate. But as I have already said, where the innocent party terminates as a reaction to the other party’s breach, it does not seem wrong to regard both the breach and the termination as causes of the loss. Mr Lewis said that whatever might be the case where there was a bare termination clause unaccompanied by any right to damages (as in Financings itself, and Phones 4 U), that is not necessarily the case in a contract such as Saleform 2012. I agree. Under Clause 14(B) there is a right to compensation for loss. That no doubt means loss caused to Buyers as a result of Sellers not being ready, but that to my mind leaves open the question whether the loss flowing from the exercise of the cancellation right in Clause 14(A) is to be regarded as a result of that or not, which I think is a question to be resolved on the construction of the contract as a whole, not to be determined by decisions on other contracts in different form. A similar point arose in Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75, [2010] QB 27 (not cited to us but referred to extensively in Professor Peel’s article) and was dealt with at [36] per Moore-Bick LJ as follows:

“Mr Dunning sought to argue that Gearbulk had no right to recover damages for loss of bargain in this case because the effective cause of its loss was not the yard’s breach of contract but its own decision to exercise its contractual right of termination. I cannot accept that. Whatever may have been said in other cases about other contracts, I think it is clear that in this case the contract proceeds on the footing that if Gearbulk chose to exercise its right, the yard’s breach was to be viewed as the effective cause of the contract’s termination.”

Professor Peel’s second justification – which he described as the real basis for the decision in Financings – is that once a contract has been terminated there was no further opportunity for a repudiatory breach. I agree, in that if a contract is terminated it usually discharges both parties from further performance so that (subject to any express provision to the contrary) there cannot thereafter be any further breaches, repudiatory or otherwise. But I do not think this answers the question of construction of Clause 14(B) either. If “loss” includes loss flowing from the cancellation, then it does not matter that there will not be any further breaches.

For these reasons I think the Financings principle, whatever its precise scope, does not give us the answer to the question raised by Clause 14(B), namely whether “their loss” includes loss of bargain. This was the view taken by the Judge who said that Financings was irrelevant; here, by contrast with that case, there is an express provision in the form of Clause 14(B) which purports to confer an additional right and the only question is what it means (Judgment at [40]-[41]). For the reasons I have given I agree.

Mr Wright’s fourth point is that clear words are required to confer on Buyers a right which they do not have at common law. This was another point raised before the Judge which she did not accept, saying that it seemed to her an arid debate; the task of the Court was to construe the contract, which meant ascertaining the deemed intention of the parties in accordance with well-known principles (Judgment at [38]).

Mr Wright challenges this in Ground 1 of the Respondent’s notice. He relied on three authorities: Novasen SA v Alimenta SA [2013] EWHC 345 (Comm), [2013] 1 Ll Rep 648; Bunge SA v Nidera BV [2015] UKSC 43, [2015] 2 Ll Rep 469; and The Spar Capella [2015] EWHC 718 (Comm), [2015] 2 Ll Rep 407.

In Novasen a contract for the sale of groundnut oil contained a default clause which provided that where a seller defaulted the buyer could go into the market and buy against the default. The question was whether the clause had the effect of enabling the buyer to recover substantial damages where an export ban at the point of shipment meant that the contract would have come to an end in any event. Popplewell J (as he then was) said at [17]:

“If no remedy, in the form of an entitlement to damages, is conferred by law, clear words will be required to confer a contractual entitlement to such remedy. This is especially so where (a) the contractual term is a standard clause drafted and adopted by a trade body; and (b) the contractual term is to confer a right of recovery in circumstances where no loss has in fact been suffered… [T]he starting point, in commercial dealings as in the law, is that a party claiming damages for breach of contract should be entitled to recover no more than the loss occasioned by the breach.”

That seems reasonable enough. But Clause 14(B) does not seek to confer a right of recovery where no loss has in fact been suffered. In terms the right conferred on Buyers is to be compensated for their loss, and there is no dispute that that does not entitle them to recover more than the loss that they have actually suffered. The argument advanced by Mr Wright is a different one, namely that damages for loss of bargain would not have been recoverable in the absence of express provision (because of the Financings principle). I have accepted that that may be so. But here the parties undoubtedly have made express provision, and I do not think that what Popplewell J said in Novasen is really in point or helps resolve the ambit of the loss covered by Clause 14(B).

Nor do I think Bunge v Nidera takes matters any further. Lord Sumption JSC at [26] in fact expressly rejected the submission that there was a presumption that the parties intended a damages clause to produce the same measure of damages as the compensatory principle produced at common law. He accepted only a more moderate version of the suggested presumption, namely that:

“A damages clause may be assumed, in the absence of clear words, not to have been intended to operate arbitrarily, for example by producing a result unrelated to anything which the parties can reasonably have expected to approximate to the true loss.”

And at [35] he approved Popplewell J’s decision in Novasen, describing it as consistent with principle, and continuing:

“The alternative is to allow the clause to operate arbitrarily as a means of recovering what may be very substantial damages in circumstances where there has been no loss at all.”

But there is nothing arbitrary in this sense in Clause 14(B). It does not purport to provide for recovery of compensation where there has been no loss, or to produce a result unrelated to Buyers’ true loss.

That leaves The Spar Capella, also decided by Popplewell J. The question was whether prompt payment of hire in a time charter is a condition, a point on which there were conflicting authorities. Popplewell J concluded that it was not, declining to follow the decision of Flaux J in The Astra [2013] EWHC 865 (Comm), [2013] 2 Ll Rep 69, who had held that it was, and his judgment was later upheld by this Court: The Spar Capella [2016] EWCA Civ 982, [2017] 4 All ER 124. In the course of his judgment, which contains a wide-ranging and impressive survey of the law touching on many points, he said at [97] that parties may agree that in the event of breach the innocent party should have the right to terminate the contract but without intending that the defaulting party should be liable for any consequences of the termination; such provisions are concerned solely with providing the innocent party with an option to put an end to his performance obligations but not to confer a right to claim damages. At [98] he said:

“[I]f there has been no repudiatory breach or renunciation, the option to cancel does not confer a right to damages, in the absence of clear language to the contrary, but merely confers a right to put an end to future performance obligations.”

But again I do not see this as being in point. Clause 14(B) does contain clear words conferring a right to damages (or compensation), and there is therefore no doubt that where it applies the clause does do more than merely confer on Buyers a right to put an end to their future performance obligations. The dispute is over the extent of the right, not the existence of it, and I do not read what Popplewell J said in The Spar Capella as directed to that question. Nor is there anything in the judgment of Gross LJ, giving the decision of this Court on appeal, which considers this particular point.

I agree therefore with the Judge that there is no specific requirement for clear words before Clause 14(B) can be construed so as to confer a right to loss of bargain damages on Buyers; as she says, this is an exercise in contractual construction to be carried out applying well established principles. I would therefore dismiss Ground 2 of the Respondent’s notice.

I have now considered the principal arguments advanced by Mr Wright on this appeal. For the reasons I have given I am not persuaded by them, and have reached the conclusion that Mr Lewis’s submissions are to be preferred. Saleform 2012 provides a window for Sellers to get themselves ready. If they fail to be ready by the end of the window, Buyers can call the contract off because the window has not been met. If Buyers can also prove that Sellers’ failure to meet the window is due to their negligence (meaning lack of reasonable or due diligence), Buyers are entitled to be compensated for their loss; and that loss can include losses flowing from the calling off of the contract, including loss of bargain where the market has risen.