Due diligence or due compensation? Damages for loss of bargain for the sale of second-hand vessels

Summary 

In a decision handed down on 2 October 2025, the Court of Appeal found that Buyers are entitled to claim damages for loss of bargain, as well as wasted expenditure, under the Memorandum of Agreement (MoA) made on the Norwegian Saleform 2012 where Sellers do not meet the Cancelling Date due to a failure to use due diligence. This case proceeded from arbitration to the Commercial Court and eventually the Court of Appeal.

The ruling hinges on a failure of due diligence on the part of the Sellers from which the claim for loss of bargain follows. The implication is that in future claims for loss-of-bargain damages in similar circumstances, Buyers will be required to prove a lack of due diligence on the part of Sellers. 

Background 

Orion Shipping and Trading LLC (Orion) agreed to sell a vessel for US $15 million to Great Asia Maritime Ltd (Great Asia) on the terms of a MoA on the Norwegian Saleform 2012 dated 4 June 2021. 

Clause 5 of the agreement provided a Cancelling Date of 20 August 2021. On 12 August 2021, Orion proposed a revised Cancelling Date of 15 October 2021, which Great Asia accepted on 14 August 2021. Great Asia’s acceptance of the time extension was without prejudice to its rights under Clauses 5(d) and 14 to claim damages for all loss and expense suffered. 

Orion subsequently failed to give Notice of Readiness by 15 October 2021. Great Asia then cancelled the contract under Clause 14(A) and commenced arbitration. 

The main contractual provisions in issue were Clauses 5 and 14. Clause 5 is headed “Time and place of delivery and notices” and Clause 14 is headed “Sellers’ default” (see paragraphs 10 and 13 of the judgment for the respective clauses).

Arbitration and Commercial Court 

The Tribunal: 

1. found that Orion’s failure to deliver by the Cancelling Date was due to proven negligence on its part: Orion failed to comply with relevant regulations requiring it to arrange the necessary flights for its crew, which resulted in the berthing slot being lost; and 
2. awarded Great Asia US $1.85 million by a Partial Final Award dated 7 September 2023, representing the difference between the market price of the vessel at the date of cancellation (US $16.85 million) and the contract price (US $15 million). 

Orion appealed to the High Court under Section 69 of the Arbitration Act 1996. By a judgment on 9 August 2024, the High Court reversed the Tribunal’s decision and determined that Great Asia was not entitled to damages for loss of bargain, being US $1.85 million awarded by the Tribunal. 

Great Asia appealed.

Court of Appeal 

Key questions in the appeal

There were two grounds of appeal: 

1. Were the Sellers contractually obliged to tender Notice of Readiness or be ready to validly complete a legal transfer by the Cancelling Date (the extended Cancelling Date of 15 October 2021)?
2. Did Clause 14 entitle the Buyers to recover damages for loss of bargain under Clause 14(B)?

Court’s analysis and rationale

The Court applied the principles in The Democritos and concluded that Clause 5 imposed an implied obligation on Sellers to use due diligence to deliver the vessel by the Cancelling Date. Orion’s failure to make the necessary flight arrangements for its crew, due to a lack of due diligence, led to a breach of Clause 5. Such a breach constituted negligence (i.e. a failure by Sellers to comply with their obligation) under Clause 14(B): 

“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.”

The Court compared the extent of losses claimable under Clause 14 (“Sellers’ default”) with those under Clause 13 (“Buyers’ default”). The Court considered that Sellers would be entitled to damages for loss of bargain under Clause 13 if Buyers failed to comply with their contractual obligations. The Court held that Clauses 13 and 14 should “operate even-handedly as between Sellers and Buyers”. Great Asia was therefore entitled to loss of bargain under Clause 14.

Court’s Decision

The Court of Appeal allowed the appeal and restored the Tribunal’s Award of US $1.85 million.