“328 13. Buyers’ default 329 Should the Deposit not be lodged in accordance with Clause 2 (Deposit), the Sellers have the [330] right to cancel this Agreement, and they shall be entitled to claim compensation for their losses [331] and for all expenses incurred together with interest. 332 Should the Purchase Price not be paid in accordance with Clause 3 (Payment), the Sellers [333] have the right to cancel this Agreement, in which case the Deposit together with interest [334] earned, if any, shall be released to the Sellers. If the Deposit does not cover their loss, the [335] Sellers shall be entitled to claim further compensation for their losses and for all expenses [336] incurred together with interest.”
“337 14. Sellers’ default 338 Should the Sellers fail to give Notice of Readiness in accordance with Clause 5(b) or fail to be [339] ready to validly complete a legal transfer by the Cancelling Date the Buyers shall have the [340] option of cancelling this Agreement. If after Notice of Readiness has been given but before [341] the Buyers have taken delivery, the Vessel ceases to be physically ready for delivery and is not [342] made physically ready again by the Cancelling Date and new Notice of Readiness given, the [343] Buyers shall retain their option to cancel. In the event that the Buyers elect to cancel [344] this Agreement, the Deposit together with interest earned, if any, shall be released to them [345] immediately. 346 Should the Sellers fail to give Notice of Readiness by the Cancelling Date or fail to be ready to [347] validly complete a legal transfer as aforesaid they shall make due compensation to the Buyers [348] for their loss and for all expenses together with interest if their failure is due to proven [349] negligence and whether or not the Buyers cancel this Agreement.”
“If a Memorandum of Agreement on the SALEFORM 2012 form is lawfully cancelled by a buyer under clause 14 because the vessel is not delivered by the cancelling date as a result of the seller’s “proven negligence”, is that buyer entitled to recover loss of bargain damages absent an accepted repudiatory breach of contract?”
“Where a Memorandum of Agreement on the SALEFORM 2012 form is lawfully cancelled by a buyer under clause 14 in circumstances where the seller has failed to give notice of readiness or failed to be ready to validly complete a legal transfer by the Cancelling Date and such failure is due to the seller’s “proven negligence”, is that buyer entitled to recover loss of bargain damages absent an accepted repudiatory breach of contract?”
“However, the Vessel shall effect delivery to Buyers immediately after present laden voyage from South Africa to Qingdao China (ETA Qingdao on or around18th July 2021 ) and no more laden voyage allowed.” (The reference to “the Vessel” effecting delivery is obviously a reference to Sellers delivering the Vessel). On its face this does impose a delivery obligation on Sellers, and since the present laden voyage was complete by26 July 2021 , it would appear that Sellers should have been ready to deliver “immediately” thereafter. “Immediately” no doubt has some flexibility built into it, but whenever “immediately after present laden voyage” was, one would have thought it to be well before the original Cancelling Date of20 August 2021 , let alone the extended Cancelling Date of15 October 2021 . The Judge however said (Judgment at [18]) that the Laden Voyage clause: “merely makes clear that Sellers were not permitted to “squeeze in” another voyage and “immediately” in this context is to be read as simply a belt and braces emphasis of “no more laden voyage allowed”.”
“There is thus no positive obligation to deliver or tender Notice of Readiness nor be ready to complete a legal transfer by20 August 2021 or any other date…”
“That if required by Charterers, time not to commence before 1st December, 1969, and should vessel not have given written notice of readiness on or before 20th December, 1969, but not later than 4 p.m. Charterers or their agents to have the option of cancelling this charter any time not later than the best notice of readiness.”
“Now there is nothing in this charter which binds the owners positively to deliver by Dec. 20, 1969. The only clue to any time of delivery is to be found in the cancelling clause. There is, of course, an implied term, that the owners will use reasonable diligence to deliver the ship in a fit condition by Dec. 20, 1969. But that is not an absolute obligation. So long as they have used reasonable diligence, they are not in breach. In this case, it is found that reasonable diligence was used, so there is no breach by them of that implied obligation.”
“These authorities show that as long as the owner uses reasonable diligence, he is not in breach, but the charterer is entitled to cancel if the vessel is not delivered by the cancelling date.”
“…there is no absolute obligation on the shipowner to deliver by the cancelling date. At most, it is under an obligation to exercise reasonable endeavours to do so.”
“7.5 Many charters, including the New York Produce form, do not contain a delivery date, but do contain a cancelling clause… The primary effect of such a clause is to give the charterers an option to cancel if the ship is not ready for delivery by the specified cancelling date: see chapter 24. 7.6 However, the clause also has another effect: it imposes on the owners an implied obligation to exercise reasonable diligence to deliver the ship by the relevant date.”
“Clause 5 certainly imposes no strict duty; in the absence of sellers’ proven negligence, the cancelling buyer receives only its deposit. But a strict duty is not the only kind of duty. Clause 14B conditions damages on sellers’ “proven negligence”, and negligence is the neglect of a duty. The contract therefore imposes a duty on sellers to take reasonable care to have the vessel ready for delivery in accordance with the MOA and to execute the legal transfer. In support of her interpretation, the judge analogised the case to cancellation for late delivery under a time charter’s laycan clause, but that analogy shows only that there is no strict duty. In the time charter context, there is “an implied term that the owners will use reasonable diligence” to deliver the ship by the agreed cancellation date [this is footnoted with a reference to The Democritos]. Here, the sellers failed in their duty to take care to deliver the Lila Lisbon by the cancelling date, and were thus in breach of contract.”
“there was no positive obligation on Sellers to tender Notice of Readiness nor to be ready to deliver by the Cancelling Date which was capable of giving rise to a breach of contract.”
“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.”
“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.”
“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.”
“loss of bargain damages were recoverable under clause 14B for much the same reasons as given by the Tribunal.”
“The industry has long considered that a buyer could recover damages at large in such a situation.”
“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.”
“The failure to deliver on time is a breach of the MOA and the Seller is in default. The default causes the cancellation…”
“The cause of the Buyers’ loss of profits was Sellers’ failure to deliver, and this caused Buyers to bring the MOA to an end.”
“ii) As a matter of construction, the provision for compensation “to the Buyers for their loss and for all expenses … if [the Sellers’] failure is due to proven negligence and whether or not the Buyers cancel this Agreement” can only refer to the failure identified in the opening words of clause 14B, namely the failure to give Notice of Readiness or to be ready to complete a legal transfer by the Cancelling Date. iii) It follows that the loss and expenses recoverable under clause 14B must be caused by that specific failure. Prima facie, therefore, this is a reference to accrued losses and expenses which have crystallised at the point of cancellation and not to prospective losses and expenses caused by the cancellation. This suggests that the losses and expenses ought to be the same where the Buyers cancel and where they do not. It is not immediately obvious that in circumstances where the right to terminate is at the option of the buyers, the clause creates a significantly enlarged right to claim loss of bargain damages in the event that they decide to cancel.”
“It seems to me that this construction is confirmed by clause 5(d) which makes clear that the buyers’ potential claim for damages under clause 14 is “for the Vessel not being ready by the original Cancelling Date”
“The judge’s construction is based on her answer to an unanswerable question: was the loss of bargain caused by the late delivery or by the cancellation?”
“If an answer to this question must be provided it would probably be “both”, given that the sellers were at fault.”
“Thus far, therefore, my provisional view is that clause 14 does not on its natural and ordinary meaning give rise to a right to claim loss of bargain damages where cancellation takes place in accordance with the clause, absent an accepted repudiatory or renunciatory breach.”
“The starting point is that compensation will be recoverable where the contract has been cancelled (and also if the MOA is kept alive). If compensation is not recoverable for the consequences of cancellation (including loss of bargain) it would be unclear what compensation means. Sellers failed to put forward a satisfactory alternative explanation since it cannot have been intended to be limited solely to reliance losses.”
“On the construction above, the recoverable damages under clause 14B include expenses incurred by the buyers in making arrangements to crew the vessel, carrying out inspections, legal costs and preparing for delivery generally. They will also encompass any loss of profits that could potentially have been made between the date when the vessel should have been delivered but for the sellers’ negligence and the date of cancellation.”
“52. As it seemed to me, the most powerful argument against that provisional conclusion was Buyers’ argument that the situation contemplated by clause 14 is to be equated with non-delivery and that clause 14B therefore permits recovery of the normal market measure stipulated in section 51(3) of the Sale of Goods Act. It was not controversial that section 51(3) reflects the ordinary compensatory principle: see Sharp Corp Ltd v Viterra BV,[2024] UKSC 14 at [96]. Nonetheless, it should not be forgotten that while section 51(3) sets out a default rule, the overriding principle is that set out in section 51(2), namely that the measure of damages is “the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract”
“The right to cancel given by limb 1 of clause 13 is not dependent upon proof that failure to pay the deposit on time is repudiatory in nature. Indeed, until the decision of this court in Samarenko v Dawn Hill House Ltd[2013] Ch 36 , it would not have been clear that a failure to pay the deposit on time is, without more, repudiatory of the buyers’ obligations. Limb 1 of clause 13 therefore confers upon sellers a valuable contractual remedy over and above the remedy which they already enjoy at common law, the availability of which latter remedy is however attended by uncertainty. That uncertainty was greater before the decision of this court in Samarenko, and thus at the time when limb 1 was introduced. Whatever the position now, a contractual remedy of termination which has no need to characterise the defaulting buyers’ conduct as repudiatory is a valuable addition to sellers’ armoury. The circumstances out of which buyers’ repudiation must be spelled are not always clear cut. A contractual right of termination exercisable upon the happening or non-happening of an event usually brooks of less argument. The express entitlement to compensation together with interest for losses and expenses is also at the least a valuable clarification of a right to which the sellers were in any event entitled at law, which is henceforth made available as an express term of the contract.”
“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.”
“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.”
“[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.”
“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.”
“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.”
“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.”
“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.”
“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.”
“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.”
“[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.”
“17. Vessel to be delivered at a safe port UK/Cont-Gibraltar-Bergen range in Sellers’ option with31st August 1979 cancelling in Buyers’ option. Sellers shall keep Buyers duly posted of vessel’s movements and give Buyers 3/2/1 weeks notice of estimated delivery date.”
“13. Should the Purchase Money not be paid as aforesaid, the Sellers have the right to cancel the contract, in which case the amount deposited shall be forfeited to the Sellers. If the deposit does not cover the Sellers’ loss, they shall be entitled to claim further compensation for any loss and for all expenses together with interest at the rate of 5% per annum. … 14. If default is made by the Sellers in the execution of a legal transfer or in the delivery of the vessel with everything belonging to her in the manner and within the time herein specified, and the default shall have arisen from events for which the Sellers are responsible, the Buyers shall have the right to cancel this contract and the deposit in full shall be returned to the Buyers together with interest thereon at the rate of 5% per annum. The Sellers shall, in addition, make due compensation for any loss caused to the Buyers by non-fulfilment of this contract.”
“Clause 13, dealing with breach of contract by the buyers, is a severe clause. It provides for forfeiture of the deposit plus any additional loss plus 5 per cent. interest. It is not then surprising if cl. 14 is equally stringent in the case of default by the seller.”
“The clause itself contemplates that the buyers may cancel and therefore that the contract will be wholly unperformed, so far as its main object is concerned, that is to say, transfer of the property in the vessel. It is that loss which is, in my judgment, plainly provided for in the words, “loss caused to the Buyers by non-fulfilment of this contract”.”
“The sellers were in breach of contract in failing to deliver the vessel by the due date… It is trite law that in deciding whether or not to exercise a right to cancel the contract in such circumstances, the buyer need have no regard to the fact that in the absence of cancellation he would suffer no loss. If he cancels, the loss will be attributable to the sellers’ breach of contract and not to the cancellation.”
“As we have already accepted as trite law, the buyers had an unfettered right in the circumstances of this case to affirm the original contract of sale or to cancel it… They decided to cancel and in consequence they suffered a loss of U.S.$500,000 . As a matter of causation, this loss, unless avoidable by some reasonable further action, was directly attributable to the sellers’ breach of contract.”
“The Solholt (supra): This was a decision on the NSF 1966 wording which, as set out in paragraph 49 above was very different. On this wording, it is unsurprising that Mr Justice Staughton held at 579R that: “The clause itself contemplates that the buyers may cancel and therefore that the contract will be wholly unperformed, so far as its main object is concerned, that is to say, transfer of the property in the vessel. It is that loss which is, in my judgment, plainly provided for in the words, ‘loss caused to the buyers by non-fulfilment of this contract.’”
“It is also important to have regard to the course of earlier judicial authority and practice on the construction of similar contracts. The evolution of standard forms is often the result of interaction between the draftsmen and the courts and the efforts of the draftsman cannot be properly understood without reference to the meaning which the judges have given to the language used by his predecessors.”
“As already noted, Mr Kenny wished us to look at the previous version of the standard NSF terms and to look at the BIMCO drafting committee’s commentary as aids to construction. Whilst there may be occasions when this has to be done in order to assist in solving a problem of an ambiguous wording, I would generally discourage such exercises in “the archaeology of the forms”
“It is also necessary for the buyers to prove negligence by the sellers. If such negligence is proved, then a wider measure of damage can be recovered, eg loss of profit…”