Partner London
"Appeals from arbitration awards can be further appealed up to the Court of Appeal only if the first instance judge gives permission."
The Commercial Court heard The Lila Lisbon case on appeal against a London arbitration award on a point of law.³ Appeals from arbitration awards can be further appealed up to the Court of Appeal only if the first instance judge gives permission. The judge will only do so if the question is of general importance or there is some other special reason to do so.⁴ In this case, the judge did give permission, no doubt recognising that her decision related to the printed words of Saleform 2012, a BIMCO form widely used in the shipping market.
The Court of Appeal (the “CA”) has now allowed the seller’s appeal in a judgment handed down on 2 October 2025.⁵ In this follow up briefing note, we consider the CA’s findings and its implications for buyers and sellers of ships.
Background
It is worth emphasising that a buyer of a second-hand ship would not ordinarily elect to cancel the MOA if its seller misses the agreed cancelling date unless: (i) the market has fallen and (ii) the MOA price has become ‘out of the money’. In such circumstances, one can fully understand why a buyer may prefer to cancel the MOA than to take delivery of a ship that has become overpriced. However, if the market has risen, one would ordinarily expect an MOA buyer not to cancel an ‘in the money’ MOA but rather to agree to extend the cancelling date. Unless, that is, the buyer believes that its seller has no serious intention of completing the sale, whether at all or at least within any sensible time frame.
Yet this is exactly what happened in The Lila Lisbon, where the buyer cancelled the MOA, having agreed to extend the original Cancelling Date once (after the seller had lost its berthing slot, having negligently failed to book flights for its departing crew to fly out of China within the time allowed after disembarkation), rather than to extend the Cancelling Date twice (after its seller negligently missed it again). In the arbitration, it was accepted that the seller’s failure, whilst negligent, fell short of a ‘repudiatory’ or ‘renunciatory’ breach of the MOA at common law. In other words, this was not a case where the seller was clearly not going to deliver the ship at all or where the seller’s delay in delivery of the ship was so serious as to deprive the buyer of substantially the whole benefit of the MOA.
So why did the buyer cancel the MOA, that was, by the time of its cancellation, in-the-money to the buyer to the tune of US$1.85m? The judgment says nothing about the buyer’s motivations, but it can be surmised that, whilst the buyer could not make good before the arbitration tribunal a repudiation by its seller, the buyer cancelled the MOA after losing patience with the seller’s continuing delays. Whatever The Lila Lisbon buyer’s motivations, it remains the case that, if the market rises, a buyer will usually agree to extend the MOA cancelling date, enabling it to realise the benefit of the market increase, rather than to cancel the MOA and then to claim its bargain loss from its seller. Certainly, the judge considered it “inherently unlikely” that a buyer would cancel an MOA in a rising market.⁶
"Whilst the buyer could not make good before the arbitration tribunal a repudiation by its seller, the buyer cancelled the MOA after losing patience with the seller’s continuing delays."
What follows, therefore, is a discussion of the principles that led the CA to overturn the judgment, that must be read without forgetting the inherent unlikelihood of any buyer cancelling an MOA in a rising market and claiming the market difference from its seller instead of agreeing to extend the cancelling date.
The practical background against which market fluctuations may assume such significance in sale and purchase transactions is as follows. Ships are typically not delivered to their buyers until several weeks or months after the price is agreed and MOA signed. Saleform 2012 envisages the opening of an escrow account (that may take 2-3 weeks) and payment of a deposit before there follows a time window or ‘laycan’, usually of 1-3 months (but sometimes longer), that begins with an agreed ‘not before’ date (before which the seller may not tender NOR) and ends with a backstop date (the ‘Cancelling Date’, by when the seller must tender NOR or face a buyer cancellation). This gives buyers time to raise the cash or finance to complete the purchase and sellers time to complete whatever repairs may be needed to put the ship into a deliverable condition, to see a time charter period through to its end or to deploy the ship on whatever voyage cycle may conveniently reposition it into the agreed MOA delivery range.
If the seller is trading the ship profitably, it will wish to maximise the ship’s earnings by trading it for as long as possible until delivery. However, if delays, such as bad weather, breakdowns or port congestion intervene, the seller may find it can no longer deliver the ship by the Cancelling Date. In such event, a seller can give notice to its buyer (under Clause 5(c)) to elect within three Banking Days whether (i) to agree to such extension to the Cancelling Date the seller may propose or (ii) to cancel the MOA. If the market has dropped, the buyer may wish to cancel the MOA. In practice, the giving of a Clause 5(c) notice in a falling market will likely prompt a price renegotiation, that may be driven not only by market considerations but also by the ship’s physical condition, especially if the buyer has placed representatives onboard who have made it aware of defects or deficiencies not picked up in its pre-MOA inspection. The closer to the Cancelling Date that a seller fixes its ship’s last voyage, therefore, the greater the risk it will assume of a buyer cancellation in a falling market. Delays can also happen because a breakdown occurs or a condition of Class is imposed, not least bearing in mind that ships are often sold shortly before their 10- or 15-year class special surveys fall due, so are particularly susceptible to defects or deficiencies occurring before delivery.
Where the seller could have avoided the delay by exercising due diligence, Saleform 2012 provides that the buyer’s agreement to extend the Cancelling Date will be “entirely without prejudice to any claim for damages” that it may have (Clause 5(d)). So, a buyer may, for example, claim damages for lost earnings in the overrun period if it agreed to extend the Cancelling Date where the delay was caused by its seller’s failure to exercise due diligence. Overruns beyond MOA Cancelling Dates are therefore not uncommon occurrences which a seller may or may not be able to excuse by the exercise of due diligence. Clause 14B (Seller’s Default) of Saleform 2012 further provides that if the seller’s delay beyond the Cancelling Date is shown to have been caused by its “proven negligence”, the seller:
“…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 words quoted above from Clause 14B (Seller’s default) of Saleform 2012 were closely scrutinised by the CA in its judgment. The first instance judge had held the reference in Clause 14B to ‘loss and expenses’ to refer to accrued losses and expenses which have crystallised at the point of cancellation and not to prospective losses and expenses caused by the buyer’s cancellation. The words ‘whether or not’ the buyers cancel the MOA at the end of the words quoted above fortified the judge in her view that the losses and expenses should be the same where the buyers cancel an MOA (in which event they may suffer a loss of bargain) and where they do not (in which event their bargain would not be lost).
"The CA rejected the judge’s interpretation of Clause 14B on several grounds."
The CA’s judgment
The CA rejected the judge’s interpretation of Clause 14B on several grounds.
First, whilst the CA agreed that the buyer’s loss flowed from the seller’s failure to be ready by the cancelling date, it did not follow from this that the buyer’s loss crystallised at the point of its cancellation.⁷ The CA wondered whether the judge had in mind that a buyer’s loss, should a buyer decide to cancel an MOA, arises from its own decision to do so rather than from its seller’s breach, thereby breaking the chain of causation between the seller’s breach and the buyer’s loss. However, the CA observed that this was not the reasoning applied by the judge, at least not explicitly and had it been her reasoning, one would have expected more discussion of the applicable principles.⁸
Next, the CA rejected the Judge’s explanation of the word ‘loss’ in Clause 14B to refer only to expenditure that would be wasted only if a buyer cancels an MOA (such as wasted legal fees, inspection costs and lost profits between the Cancelling Date and the later date of the buyer’s actual cancellation). First, Clause 14B expressly entitles a buyer to claim also for ‘all expenses’, indicating that ‘loss’ cannot just refer to wasted expenditure. Secondly, if a buyer can claim losses that only accrue if it cancels an MOA, why would the most obvious such loss, namely loss of bargain, be excluded from ‘loss’?⁹ Finally, any lost profits between the Cancelling Date and actual cancellation would likely be minimal so can hardly have been intended.¹⁰
The CA then rejected the Judge’s finding that Saleform 2012 does not actually impose any obligation on an MOA seller to tender NOR by the Cancelling Date and held an MOA seller to be under an obligation to use reasonable or due diligence to deliver by the Cancelling Date. The CA held that one would expect Clauses 13 and 14 of Saleform 2012 “to operate even-handedly as between Sellers and Buyers”¹¹ and therefore, for the consequences of a seller’s breach in failing to deliver the ship to correspond to a buyer’s breach in failing to pay the deposit. In this regard, a buyer’s failure to pay the deposit entitles its seller to claim loss of bargain damages under Clause 13 (Buyer’s Default) of Saleform 2012 that expressly entitles the seller to claim ‘compensation for its losses’, as held in the earlier case of The Griffon [2013] EWCA Civ 1567, in which the CA had also held¹² such right not to depend on whether the buyer’s breach was repudiatory.¹³
"By contrast, Clause 14B did give the seller the right to claim for its ‘loss’."
The CA also held there was nothing odd in the MOA not having expressed the seller’s obligation to tender NOR by the Cancelling Date as a ‘condition of the contract’ or for ‘time to be of the essence’ for the seller’s performance, as they could have done to render any breach of it repudiatory. The CA considered it to be an “an eminently sensible and practical scheme” for Clause 14B to provide a contractual right to cancel an MOA and to claim damages only in the event of a sellers’ “proven negligence”, that may not be obvious at the time of cancellation, thereby avoiding any risk of a wrongful termination for repudiatory breach, or arguments as to affirmation of such a breach if not promptly accepted by the buyer.¹⁴
The CA went on to distinguish this case from a series of cases which stand as authority for the general principle that a party exercising a contractual right of termination in reaction to a breach is not entitled to damages for loss of bargain unless the breach is repudiatory.¹⁵ The CA observed that all such authorities related to long-term contracts, such as leases, brought to an early end by one party terminating, and doubted their application to contracts for a single transaction such as a sale.¹⁶ Further, the CA (whilst noting that buyers had not argued the point) considered that nothing in these authorities indicated that parties could not override this general principle by expressly providing in their contract for loss of bargain damages to be recoverable, as they had in Clause 14B.
The CA also held that nothing in this case conflicts with the authority in the time charterparty case of The Spar Capella,¹⁷ in which the CA had held that a charterer’s duty promptly to pay hire in a time charter is a not a ‘condition’ of the contract, such that loss of bargain damages would not be available to a shipowner who terminates a time charter for non-payment of hire unless the charterer’s breach were repudiatory. But, as the CA explained, in The Spar Capella, the clause under scrutiny contained no remedy and merely gave the owner the right to terminate. By contrast, Clause 14B did give the seller the right to claim for its ‘loss’.
The CA disagreed with the Judge that earlier authorities¹⁸ that considered different wording in earlier versions of Saleform, in which a positive obligation had been imposed on sellers to deliver the ship by the cancelling date, were not relevant, given the CA’s finding that sellers under Saleform 2012 were under a duty to exercise due diligence to tender NOR by the Cancelling Date. Further, the CA observed that it would be surprising if the drafters of Saleform 2012, who were presumably aware of these authorities, would, had they intended a different outcome, not have said so in terms.¹⁹
Finally, the CA turned to the judge’s observation that it was ‘inherently unlikely’ that a buyer would cancel in a rising market unless the seller were in repudiatory or renunciatory breach of the MOA. The CA observed that, if this were correct, a seller who negligently missed the Cancelling Date would benefit from the market rise, rather than the innocent buyer and, indeed, would have a “perverse incentive”²⁰ to delay completing in the hope that its buyer would cancel, leaving the seller with a more valuable ship. If that were correct, it would not produce a very commercially sensible result.
Lessons learned
"The CA’s judgment provides welcome clarity on this issue, but has it changed anything greatly for practitioners?"
The CA’s judgment provides welcome clarity on this issue, but has it changed anything greatly for practitioners? After all, the first instance judge’s observation that it is inherently unlikely that an MOA buyer would cancel an MOA in a rising market remains as true as it ever was.
Indeed, even though an MOA buyer may now claim from its seller loss of bargain damages (i.e. the difference between the MOA price and higher market value of the ship on cancellation), if it cancels an MOA on Saleform 2012, why would a buyer prefer to take its chances to claim this difference from its seller by cancelling the MOA rather than to realise this upside itself by completing the sale? Quite apart from anything else, the seller may not be good for the money and even if it is, to bring and enforce such a claim is surely to prefer a bird in the bush to a bird in the hand.
Further, as the CA observed, a buyer may well not know by the time that it cancels whether the relevant delay has been caused by its seller’s proven negligence. If it does not know this, therefore, to entrust its fortunes of recovering for such loss to being able to prove this will be speculative. So, probably the CA’s judgment will not alter ship sale and purchase practice much, if at all. Sellers concerned about the possibility of their buyers cancelling and claiming loss of bargain damages in a rising market may wish to include express words in Saleform 2012 to provide that loss of bargain damages are only payable to buyers in the event of a buyer cancellation for repudiatory breach. It would of course be open to a buyer to resist such a change to the standard Saleform 2012 wording and in practice, substantive changes are not regularly proposed to Saleform 2012, especially ones that may jeopardise the deal. That aside, a buyer which cancels an in-the-money MOA and seeks to reclaim its loss of bargain from its seller must take reasonable steps to reduce or to ‘mitigate’ its loss, even if this involves treating with that seller.²¹
Finally, this story may not be quite over because, if the CA gives permission, the seller may then appeal the CA’s judgment up to the Supreme Court.
[1] [2024] EWHC 2075 (Comm)
[2] A loss realised by the buyer only upon cancelling the MOA
[3] Under s. 69 Arbitration Act 1996
[4] s. 69(8) Arbitration Act 1996
[5] Reported as Orion Shipping And Trading LLC v Great Asia Maritime Limited [2025] EWCA Civ 1210
[6] At paragraph [57]
[7] At paragraph [80]
[8] At paragraph [81]
[9] At paragraph [88]
[10] At paragraph [89]
[11] At paragraph [101]
[12] Obiter dicta, the seller in that case having suffered no loss over and above the deposit and it being accepted that the buyer’s failure to pay the deposit was repudiatory
[13] Per Tomlinson LJ at [10], quoted in The Lila Lisbon at [98]
[14] At paragraph [111]
[15]These cases include Financings Ltd v Baldock [1963] 2 QB 104 and Phones 4U Ltd (in administration) v EE Ltd. [2018] EWHC 49 (Comm)
[16] At paragraph [119]
[17] [2016] EWCA Civ 982
[18] Including, most importantly, The Solholt [1981] 2 Loyd’s Rep. 574, that concerned Saleform 1966
[19] At paragraph [146]
[20] At paragraph [153]
[21] As held in The Solholt [1983] 1 Lloyd’s Rep. 605, in which the court held that the MOA buyers could have avoided the loss they were claiming in this way
