The Lila Lisbon case: UK Supreme Court confirms buyer’s right to loss of bargain damages under Norewgian Saleform 2012

The UK Supreme Court confirms that clause 14 of the Norwegian Saleform 2012 entitles the buyer to cancel the contract and claim loss of bargain damages if the seller negligently fails to deliver the vessel by the contract’s cancelling date.

The Lila Lisbon case concerns the interpretation of a memorandum of agreement regarding the sale and purchase of the bulk carrier Lila Lisbon. The contract was based on the 2012 version of the widely used Norwegian Saleform. The parties entered into the contract on 4 June 2021 and subsequently agreed to amend the contract’s cancelling date to 15 October 2021. The seller did not deliver the vessel by the amended cancelling date. The buyer consequently cancelled the contract and claimed damages for the losses and expenses it had suffered. This included loss of bargain damages, consisting of the increase in the vessel’s value between June and October 2021 of which the buyer was deprived following the cancellation.

The buyer relied on clause 14 of the Norwegian Saleform 2012 to claim loss of bargain damages. The clause provides that, if the seller fails to deliver the vessel by the contract’s cancelling date due to «proven negligence», the buyer is entitled to cancel the contract and claim «due compensation» for the buyer’s «loss and for all expenses».

It was not contested that the seller had failed to deliver the vessel by the cancelling date due to negligence. The seller, however, argued that the buyer could not claim loss of bargain damages. According to the seller, such damages were conditional upon the seller’s breach being a repudiatory breach, i.e. a breach that is so serious that it entitles the buyer to terminate the contract at common law.

The dispute was referred to arbitration, and the arbitral panel found in favour of the buyer. The seller was granted permission to appeal to the High Court. The seller succeeded in reversing the arbitral panel’s decision on the loss of bargain issue, but the High Court’s decision was overturned by the Court of Appeal. The seller then appealed to the UK Supreme Court. The UK Supreme Court dismissed the seller’s appeal and held that clause 14 of the Norwegian Saleform 2012 entitles the buyer to cancel the contract and claim loss of bargain damages if the seller negligently fails to deliver the vessel by the cancelling date. The claim is not conditional on a repudiatory breach.

In summary, the Supreme Court reasoned as follows:

• The natural and ordinary meaning of clause 14 is that the buyer’s right to claim compensation for «loss» includes the loss of bargain suffered by the buyer as a consequence of the cancellation of the contract.
• Case law regarding previous versions of the Norwegian Saleform and leading legal textbooks suggest that the established interpretation of clause 14 is that the buyer is entitled to claim loss of bargain damages.
• Case law suggests that the seller is entitled to claim loss of bargain damages under clause 13 of the Norwegian Saleform upon default by the buyer. It is therefore a natural and balanced solution to understand the similarly worded clause 14 as allowing the buyer to claim loss of bargain damages upon default of the seller.
• Loss of bargain damages are available for non-delivery of goods under the Sale of Goods Act 1979.
• The seller should not be able to benefit from its negligent failure to deliver the vessel on time.
• Contrary to the seller’s assertions, case law did not suggest that the buyer’s loss of bargain damages claim was conditional on the seller’s breach being a repudiatory breach.

The UK Supreme Court’s decision is well reasoned. The result is in accordance with a plain reading of the wording, is commercially sound, and is consistent with the established understanding of the clause.

Here it is worth noting that the most recent version of the Norwegian Saleform, published earlier this year, expressly recognises the buyer’s right to cancel the contract and claim loss of bargain damages upon the seller’s negligent failure to deliver the vessel on time, see clause 14 (e) of the Norwegian Saleform 2025. The clause now expressly states that the buyer’s claim «shall include loss of bargain».

Read the UK Supreme Court’s judgment here.

Key Contacts

Karl Even Rygh

Partner

Ignazio Azzari Støen

Managing Associate