The Lila Lisbon: Supreme Court confirms loss of bargain damages under SALEFORM 2012

The decision

In a joint judgment of Lord Hamblen and Lord Burrows, the Supreme Court upheld the Court of Appeal's decision reinstating an arbitral tribunal's award in favour of buyers (see our article discussing the Court of Appeal decision here).

The Supreme Court confirmed that where sellers fail to be ready to deliver a vessel by the cancelling date as a result of their own proven negligence, buyers who exercise their contractual cancellation right under Clause 14 of Saleform 2012 are entitled to loss of bargain damages, measured as the difference between the contract price and the market price, even where sellers are not in repudiatory breach.

The decision reverses the first instance judgment of Dias J, who had held that no such entitlement arose (see our article on the first instance decision here). That decision had been met with some surprise across the shipping industry, and the Supreme Court's confirmation that loss of bargain damages are recoverable in these circumstances restores what many in the market had understood to be the established position.

The Financings principle

Since at least Financings Ltd v Baldock [1963] 2 QB 104, English law has drawn a clear distinction between termination under a contractual right and termination for repudiatory breach. Where a party exercises a contractual termination right, they are generally confined to damages that had accrued before termination and cannot recover loss of bargain – the rationale being that it is the innocent party's own decision to terminate, rather than the other side's default, that brings the contract to an end and causes the loss of future performance. Where, by contrast, termination is for repudiatory breach, the law attributes the loss of bargain to the breach itself, notwithstanding the innocent party's election to treat the contract as discharged (see Phones 4U Ltd v EE Ltd [2018] EWHC 49 (Comm)).

The Supreme Court’s view, consistent with the arbitration tribunal and the Court of Appeal, was that Saleform 2012 on its proper construction conferred a right to loss of bargain compensation in the relevant circumstances.

Although the Supreme Court was not invited to depart from Financings, their Lordships expressed scepticism about the causation analysis that has traditionally underpinned the Financings principle. As they observed, if it is truly the innocent party's choice to terminate that severs the causal link to the loss of bargain when exercising a contractual right, the same reasoning would seem to apply equally when terminating for repudiatory breach. This is an outcome the law has not previously accepted.

Accordingly, their Lordships’ comments open the door to future arguments that the Financings distinction should be abandoned, following the path taken by the Supreme Court of Canada in Keneric Tractor Sales Ltd v Langille [1987] 2 SCR 440, which departed from the Financings line of authority and treated the two modes of termination as equivalent for the purposes of loss of bargain damages.

Clear words? 

The Court also took the opportunity to disapprove obiter dicta of earlier cases suggesting that clear words are required before a contractual termination clause can confer rights to damages beyond those available at common law. Their Lordships did, however, affirm that express and clear language is necessary where a contract purports to entitle a party to compensation even in circumstances where no actual loss has been suffered.

Ed Mills-Webb, Ross Attfield and James Stephenson of Preston Turnbull LLP acted for the sellers, instructing John Russell KC and Jakob Reckhenrich of Quadrant Chambers.

The Supreme Court judgment can be accessed here: https://supremecourt.uk/uploads/uksc_2025_0178_judgment_0348b8fee4.pdf