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SHIP SALE – LOSING THE DEAL, LOSING THE DAMAGES? THE LILA LISBON CASE AND THE LIMITS OF MARKET LOSS RECOVERY

1. Summary and Facts:

The case The Lila Lisbon [2025] 1 Lloyd’s Rep 101, Orion Shipping and Trading Ltd (“OSAT”) agreed to sell the Capesize bulk carrier Lila Lisbon to Great Asia Maritime Ltd (“GAM”) under a Memorandum of Agreement (MOA) based on the Norwegian Saleform 2012. The delivery deadline was extended multiple times, but OSAT failed to deliver by the final deadline on 15.10.2021. GAM terminated the agreement and sought damages, claiming the difference between the contract price and the vessel’s market price at termination. The tribunal awarded GAM USD1.85 million in damages under Clause 14 of the MOA. OSAT appealed, arguing that such damages were only recoverable in a case of repudiatory breach.

2. Legal issues:

i. Whether a buyer, who lawfully cancels a sale contract under Clause 14 due to the seller’s “proven negligence” in failing to deliver by the cancellation date, is entitled to recover loss of bargain damages in the absence of a repudiatory breach?

3. Court Findings:

• The court ruled in favor of OSAT, setting aside the tribunal’s award of loss of bargain damages.
• There was no positive contractual obligation on OSAT to tender notice of readiness by the cancelling date, only a right for the buyer to cancel if delivery was not made.
• Clause 14B of the MOA did not automatically entitle the buyer to loss of bargain damages unless the seller was in repudiatory breach.
• The failure to deliver did not amount to non-delivery under Section 51 of the Sale of Goods Act 1979, as the cancellation right in Clause 14 was a discretionary buyer’s right rather than a seller’s obligation.
• The case was distinguishable from traditional sale of goods disputes where non-delivery gives rise to market loss damages.

4. Practical Implications:

• Buyers relying on a contract’s default clause to recover market loss damages must ensure the clause expressly provides for such a remedy.
• The judgment clarifies that cancellation under an MOA’s default clause does not necessarily equate to repudiatory breach or entitle a buyer to market damages.
• Sellers can benefit from contractual language that limits liability, while buyers should ensure that compensation clauses clearly cover market loss.
• In a rising market, buyers must assess whether waiting to establish a repudiatory breach is necessary before terminating, as a wrongful termination could have legal and financial repercussions.

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