Paul Bugden, Bugden + Co., London
Ref: Orion Shipping and Trading Ltd v Great Asia Maritime Ltd [2024] EWHC 2075 (Comm) Dias J.
This was an appeal under section 69 of the Arbitration Act 1996 from a Partial Final Award of an LMAA Tribunal. The underlying dispute concerned the cancellation by the Buyers of a Memorandum of Agreement dated 4 June 2021 for the sale of a Capesize bulk carrier, the MV “LILA LISBON”.
Pursuant to the Award the Buyers were awarded, inter alia, the sum of US$1,850,000 by way of damages pursuant to clause 14 of the MOA following their cancellation of the contract as a result of the “proven negligence” of the Sellers in having failed to give notice of readiness by the agreed cancelling date or to be ready to complete transfer of the Vessel. The damages so awarded reflected the usual measure of damages in sale of goods cases for non-delivery under section 51 of the Sale of Goods Act 1979, namely the difference between the market price of the Vessel and the contract price as at the date of termination of the contract.
The Sellers’ appeal under sect 69 raised a number of interesting and important general issues on breach of contract and damages therefor which deserve close consideration.
“Where a Memorandum of Agreement on the SALEFORM 2012 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
The MOA contained the following material terms.
- Time and place of delivery and notices
(a) The Vessel shall be delivered and taken over safely afloat at a safe and accessible berth or anchorage at/in mainland China exclude Taiwan, Macao, Hong Kong in the Sellers’ option.
Notice of Readiness shall not be tendered before: 20th July 2021
Cancelling Date (see Clauses 5(c), 6(a)(i), 6(a)(iii) and 14): 20th August 2021
However, the Vessel shall effect delivery to Buyers immediately after present laden voyage from South Africa to Qingdao China (ETA Qingdao on around 18th July 2021) and no more laden voyage allowed.
(b) The Sellers shall keep the Buyers well informed of the Vessel’s itinerary and shall provide the Buyers with twenty (20), ten (10), five (5) and three (3) days’ notice of the date the Sellers intend to tender Notice of Readiness and of the intended place of delivery.
(c) If the Sellers anticipate that, notwithstanding the exercise of due diligence by them, the Vessel will not be ready for delivery by the Cancelling Date they may notify the Buyers in writing stating the date when they anticipate that the Vessel will be ready for delivery and proposing a new Cancelling Date. Upon receipt of such notification the Buyers shall have the option of either cancelling this Agreement in accordance with Clause 14 (Sellers’ Default) within three (3) running days of receipt of the notice or of accepting the new date as the new Cancelling Date.
…
If this Agreement is maintained with the new Cancelling Date all other terms and conditions hereof including those contained in Clauses 5(b) and 5(d) shall remain unaltered and in full force and effect.
(d) Cancellation, failure to cancel or acceptance of the new Cancelling Date shall be entirely without prejudice to any claim for damages the Buyers may have under Clause 14 (Sellers’ Default) for the Vessel not being ready by the original Cancelling Date.
…
- Buyers’ Default
Should the Deposit not be lodged in accordance with Clause 2 (Deposit), the Sellers have the right to cancel this Agreement, and they shall be entitled to claim compensation for their losses and for all expenses incurred together with interest.
Should the Purchase Price not be paid in accordance with Clause 3 (Payment), the Sellers shall have the right to cancel this Agreement, in which case the Deposit together with interest earned, if any, shall be released to the Sellers. If the Deposit does not cover their loss, the Sellers shall be entitled to claim further compensation for their losses and for all expenses incurred together with interest.
- Sellers’ Default
Should the Sellers fail to give Notice of Readiness in accordance with Clause 5(b) or fail to be ready to validly complete a legal transfer by the Cancelling Date the Buyers shall have the option of cancelling this Agreement… In the event that the Buyers elect to cancel this Agreement, the Deposit together with interest earned, if any, shall be released to them immediately.
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 judge held that clause 5 of the MOA set out Sellers’ obligations relating to time of delivery. Clause 14 was, as the judge held, merely an adjectival clause providing for the consequences of particular conduct but did not actually contain any primary obligations itself.
The only obligation imposed by clause 5 was to give a written Notice of Readiness “when the Vessel is at the place of delivery and physically ready for delivery in accordance with this Agreement.” There is thus no positive obligation to deliver or tender Notice of Readiness nor be ready to complete a legal transfer by 20 August 2021 or any other date,[1]merely a permissive provision in clause 14 which allows Buyers to cancel if in fact no Notice of Readiness has been given by the stipulated Cancelling Date. The well-known case of Bunge v Tradax was distinguished on the basis that there was no right of cancellation in that case which meant that unless the buyers’ obligation to serve notice of readiness was construed as a condition allowing the sellers to terminate, performance of the contract would have had to continue which would have been practically impossible since the sellers could not nominate a load port until after service of the buyers’ notice of readiness.
The analogy with delivery into a time charter seemed to the judge to be apt here. In that context, it is well-established that failure to deliver by the cancelling date gives rise to a right to cancel which is wholly independent of breach.
On a natural and ordinary reading of the MOA, there was simply a contractual right to cancel the contract if, for whatever reason, Notice of Readiness, to which clause 14 attached certain specific consequences, was not tendered by the Cancelling Date,
For these reasons the judge concluded that 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. The question of whether any tender of delivery on the vessel by the Sellers was a condition or an innominate term so as to give rise to a right on the part of the Buyers to treat the contract as at an end then or thereafter did not as such it appears arise on the facts and pleadings and it seems no such case was advanced by the Buyers.
Furthermore, the judge observed that even if clause 14B contained primary obligations on the part of the Sellers only the Buyers’ losses occasioned by a specific breach of that clause are recoverable for breach of that clause and not losses caused by the loss of the contract more generally. On that basis (and a fortiori if as the judge held there was no positive obligation to give Notice of Readiness by the Cancelling Date) this is not equivalent to a case of damages for non-delivery at all.
Rather it was simply a case of failure to tender Notice of Readiness by a particular date, which leaves open the possibility that notice may be given at a later date. As such the Buyers’ unilateral decision to terminate pursuant to a cancellation right could not without more transform the case as a matter of law into a claim for damages for non-delivery.
[1] Sed quaere or any other date; an implied term would no doubt be engaged here.