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"...a buyer is unlikely to cancel an MOA in a rising market, when the MOA is ‘in-the-money’ to it and where the buyer still expects the seller to deliver the ship, albeit late."
On 22 July 2026, the Supreme Court handed down judgment in The Lila Lisbon [2026] UKSC 23, bringing to an end a long running dispute that was originally heard by the High Court on appeal from an arbitration award before being further appealed up to the Court of Appeal. The Supreme Court unanimously upheld the Court of Appeal judgment that we discussed in detail in a previous article.
Rather than to go through the legal arguments again in what was, at its heart, a judgment confirming the Court of Appeal’s reasoning, this article shall focus only on the key takeaways for shipowners, particularly for buyers and sellers of secondhand ships under MOAs entered into on BIMCO’s Saleform 2012 wording.
In ship sale and purchase, it is not uncommon for sellers not to be ready to deliver the ship by the ‘Cancelling Date’, being an agreed contractual deadline after which the buyer may cancel the MOA and recover its deposit. In many cases, the seller’s delay will be caused by matters beyond its control, such as port congestion, bad weather, a casualty or a breakdown which, in each case, the seller did not reasonably anticipate. But in other cases the delay may have been avoided by the seller exercising due diligence. A not uncommon scenario is where the seller fixes the ship for a final voyage that the seller does not reasonably estimate can be completed in time to be ready by the Cancelling Date (at the agreed place of delivery or within the agreed delivery range). Shipowners obviously prefer to sell ships at the top of the market, for a price that reflects a peak sale and purchase (“S&P”) market value. At such times, the charter earnings the ship can command will usually also be at peak levels. It is therefore hardly surprising that sellers will usually wish to maximise profits by squeezing in as much employment for the ship before completing the sale as little time before the Cancelling Date as they can.
This strategy carries the risk for the seller that, if the S&P market falls in the period between entering into the MOA and completing the sale, the seller will, if it overruns the Cancelling Date, give its buyer the opportunity to cancel the MOA (or otherwise to threaten to do so unless the seller reduces the price). This risk is well known to sellers. But sellers may be much less aware that if the S&P market rises in this period, the buyer may also cancel the MOA and claim this market increase as part of its loss. That is undoubtedly because a buyer is unlikely to cancel an MOA in a rising market, when the MOA is ‘in-the-money’ to it and where the buyer still expects the seller to deliver the ship, albeit late.
If the consequences of a buyer cancellation in a rising market are not widely appreciated, that is undoubtedly because a buyer is unlikely to cancel an MOA in a rising market, when the MOA is ‘in-the-money’ to it and where the seller is still expected to deliver the ship, albeit late. Indeed the judge at first instance found it to be “inherently unlikely” that a buyer would elect to cancel an MOA in a rising market “since it would make no commercial sense to do so” (para 57, The Lila Lisbon [2024] EWHC 2075 (Comm)). The Supreme Court, whilst recognising that “in many cases” a buyer would not cancel an MOA in a rising market, observed that a buyer might wish to do so where “there has been repeated delay and default by sellers” (para 48). The Supreme Court was undoubtedly highlighting with this comment that in many cases the seller’s delay may not be so serious to amount to a clear repudiatory breach on which the buyer may confidently rely but could come very close. In such event, the seller ought not to be allowed to “reap the benefit” of its breach “by keeping the vessel with its increased value” upon the buyer’s cancellation.
The second paragraph of Clause 14 (Sellers’ default) of Saleform 2012 provides:
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 seller will be at risk of a market loss claim should its buyer elect to cancel in a rising market."
Saleform 2012 therefore entitles the buyer to cancel the MOA and to claim its “loss and all expenses” where the seller’s failure to be ready is due to its proven negligence. In The Lila Lisbon, it was accepted that the seller’s proven negligence had caused the seller’s failure to be ready. What was not accepted, however, was that the seller was in ‘repudiatory breach’ of the MOA at common law. In other words, whilst the seller was to blame for its delay, the seller was not unwilling or unable to perform the MOA, so as to deprive the buyer of substantially the whole benefit of the MOA. From the buyer’s perspective, the buyer elected to cancel the MOA under Clause 14 when it could have chosen to wait, in circumstances where there was no good reason to suppose that the seller would not have delivered the ship, albeit late.
In such circumstances, the issue in The Lila Lisbon was whether the buyer could claim not only the return of its deposit and wasted expenses but also ‘loss of bargain damages’ representing the increase in the ship’s market value above the MOA price. Under English law, where a party elects to terminate a contract for a breach that does not amount to a ‘repudiatory breach’ or ‘breach of condition’, that party will usually only be able to claim for its losses up to the date of its termination, and not for losses arising thereafter. This is because the law regards post-contractual losses to have been caused by the innocent party’s decision to terminate, rather than by the guilty party’s breach. This principle was enunciated over 60 years ago in Financings Ltd v Baldock [1963] 2 QB 104. In the shipping context, this principle has been applied to time charters where owners terminate and withdraw the ship from service for non-payment of hire. Non-payment of hire under a time charter is not a breach of condition, with the result that if the owner elects to rely on its contractual right to terminate the charter on this ground, the owner will only be able to claim the hire due up to the date of its termination, and not for the loss of future hires that would otherwise have fallen due (The Spar Capella [2016] EWCA Civ 982). Unless, that is, the charterer was also in repudiatory breach of the charter.
However, unlike the time charter on NYPE 1993 form considered by the court in The Spar Capella case, which contains a ‘bare’ express termination clause, Clause 14 of Saleform 2012 makes express provision as to the consequences of a buyer cancellation by providing that buyers may claim for “due compensation…for their loss and all expenses” in such event. The real issue, therefore, before the court in The Lila Lisbon was whether the word “loss” was clear enough to include loss of bargain damages.
First the Court of Appeal (overturning the first instance judgment) and now the Supreme Court have held the word “loss” to be clear enough to do so. The Supreme Court homed in on the fact that, if “loss” did not include loss of bargain damages, it was unclear what it would cover, given that a seller’s only other loss would be wasted expenditure, that the words “all expenses” already covered. Although a buyer could also claim for lost earnings in the period between the Cancelling Date and the later date of its cancellation, in practice, this interval would likely be very short because, in practice, most buyers will cancel promptly after the Cancelling Date (see para 24).
So where does this judgment leave buyers and sellers of secondhand tonnage?
The answer is that it highlights the risks sellers run if they are not ready by the Cancelling Date where their delay is due to their proven negligence or put another way, to their failure to exercise due diligence to be ready. In such event, the seller will be at risk of a market loss claim should its buyer elect to cancel in a rising market.
How can a seller protect itself against such a risk? First, it can recirculate the ship for sale in the market immediately, with a view to capturing on such a sale the market increase that it will be liable to account to the original buyer. By testing the market in this way, the seller will also determine the ship’s true market value at the date of the buyer’s cancellation, that may provide it with valuable evidence to defend a claim for an inflated market difference. Secondly, assuming the seller only just missed the Cancelling Date and is in a position to deliver the ship quickly following the buyer’s cancellation, a protective offer with prompt delivery may insulate the seller from a claim for lost earnings suffered by the buyer in the period it takes the buyer to complete a purchase of a substitute ship (which the buyer could have avoided by accepting the seller’s offer in mitigation of such a loss).
"It is worth observing that the trend in BIMCO standard forms is to move away from bare termination clauses and to provide expressly for loss of bargain damages to be claimable in the event of counterparty default."
From the buyer’s perspective, The Lila Lisbon decision shows that buyers may claim loss of bargain damages from an MOA seller if they choose to cancel an MOA in a rising market. That said, a buyer would be wise to consider whether, should it cancel, its seller would be ‘good enough for the money’ to satisfy a loss of bargain damages claim. The seller will, of course, remain the owner of the ship post-cancellation, but the ship may be heavily mortgaged or encumbered with maritime debt. Even if it is not encumbered, it may not be easy for the buyer to obtain security for its claim by way of a ship arrest. Claims under MOAs are not maritime claims under the 1952 Arrest Convention, but only under the 1999 Arrest Convention and in a small number of countries that includes South Africa, India and China. In many cases, the buyer’s best option may be to agree a new Cancelling Date and to accept late delivery, rather than to cancel the MOA and to leave itself with a loss of bargain damages claim it may have difficulty to recover.
Where does this leave the market more generally? As a final comment, it is worth observing that the trend in BIMCO standard forms is to move away from bare termination clauses and to provide expressly for loss of bargain damages to be claimable in the event of counterparty default. To give three examples: BARECON 2017 expressly so provides in Clause 31 (in the event of termination by owners for charterers’ default), NYPE 2015 entitles owners in Clause 11(c) “to damages, if they withdraw the Vessel, for the loss of the remainder of the Charter Party” if they withdraw the ship for non-payment of hire and SHIPSALE 22 expressly so provides in Clause 19(b), that entitles buyers to claim their “direct losses” on a termination for sellers’ default. Although the meaning of Saleform 2012 has now been clarified by the Supreme Court, the wider issue of the damages claimable on a contractual termination has been on BIMCO’s radar screen for some years. Saleform 2012 may well confirm the position elsewhere.
