Limited Damages under Clause 14 of the 2012 Norwegian Sale Form for Missing the Cancelling Date

In Orion Shipping and Trading Ltd v Great Asia Maritime Ltd (The Lila Lisbon), the High Court of England and Wales has held that clause 14 of the 2012 Norwegian Sale Form (NSF) memorandum of agreement (MOA) gives a buyer of a second-hand ship limited damages if the cancelling date is missed.

The Sellers failed to make the necessary arrangements to deliver the vessel by its cancelling date under clause 5 of the MOA.

The Buyers cancelled the MOA as per the right given to them by clause 14 and claimed damages under its provision requiring the Sellers to “make due compensation to the Buyers for their loss and for all expenses together with interest if their failure [to deliver by the cancelling date] is due to proven negligence”, which the Sellers were held to be guilty of. The Buyers claimed as loss of bargain damages the difference between the contract price and the market value.

But the High Court judge rejected the Buyers’ claim on the basis that:

1. The 2012 NSF does not impose an obligation on the seller to deliver by the cancelling date – it just gives the buyer the right to cancel the MOA if the cancelling date is missed.
2. And even if it does impose such an obligation, it is not a legal ‘condition’ of the MOA (i.e. a breach so serious as to entitle the innocent party to terminate the contract).
3. In the absence of an actual breach, the question is what specific compensation clause 14 gives the Buyers. In the Court’s view, it permits recovery of accrued (pre-cancelling date) losses/expenses but not a post-cancellation prospective loss of bargain. Clause 14 awards damages for missing the cancelling date (which is what the clause is concerned with), not for the cancellation/loss of the MOA.
4. So, clause 14 awards as damages those expenses incurred by the buyer in advance of the expected delivery that end up being wasted when delivery does not take place by the cancelling date, e.g. crewing expenses, inspections, and legal costs, as well loss of use profits for the late delivery period.
5. If the missing of the cancellation had involved a repudiatory or renunciatory breach (i.e. so serious as to deprive the Buyers of substantially the whole benefit of the MOA contract), the Buyers could have claimed a post-cancellation loss of bargain as damages. But it was not repudiatory or renunciatory.

This decision is important to the shipping market, demonstrating the limits of clause 14 of the 2012 NSF form. If a buyer of a second-hand ship wants loss of bargain damages under clause 14, they will need to include in their MOA an adequately-worded obligation to deliver the ship by the cancelling date.