Opinion
Ships in the night? Loss of bargain damages and repudiatory breach
Questions about damages always seem to be far more difficult to answer than they ought to be. Here the court, overturning an arbitration tribunal on a point of law, found that a contractual right to terminate an agreement to sell a vessel did not give rise to loss of bargain damages (i.e. the difference between the market price of the vessel and the contract price, as at the date of termination of the contract).
Vessel not ready
Orion Shipping agreed to sell a vessel to Great Asia Maritime. Orion was not ready to deliver the vessel on time. This gave rise to an express right to terminate. The tribunal found (and this was not challenged) that that the failure to be ready was attributable to Orion’s “proven negligence”. Accordingly, under the contract, Orion had to “make due compensation to [Great Asia] for their loss and for all expenses together with interest". However, while negligent, Orion’s conduct was not sufficient to be repudiatory. The question for the court was whether Great Asia was entitled to the loss of bargain damages that the tribunal had awarded.
Termination and damages
When it comes to terminating a contract, parties can do so based on an express right or a common law right.
Since Orion's conduct had been found not to be repudiatory by the tribunal, to recover loss of bargain damages, Great Asia had to show either that:
- there was a breach of a condition; or
- the parties had made express provision that they may recover loss of bargain damages
Provision not a condition
The court held that there was no positive obligation to deliver the vessel or tender notice of readiness or be ready to complete a legal transfer by a given date. Rather there was a permissive provision which allowed Great Asia to terminate if in fact no notice of readiness had been given by the stipulated date.
Even if there were such a positive obligation, it was not a condition. There was no clear wording to this effect, and there would be a range of culpability and consequences from the trivial to the grave for any breach.
Provision didn't include loss of bargain damages
The court held that the relevant provision did not have clear wording which put the matter of loss of bargain damages beyond doubt. Ultimately it concluded that the clause did not encompass them because, on its natural meaning, it only covered those losses and expenses caused by the specific failure to give notice of readiness, for example making arrangements to crew the vessel.
Neither could the situation be equated with non-delivery. This would have meant Great Asia could recover the normal market measure akin to that under the Sale of Goods Act (market price less contract price at time of failure to deliver). The relevant trigger in respect of which damages were recoverable was failure to give notice of readiness (not non-delivery).
Accordingly, if you want to be able to recover loss of bargain damages for a non-repudiatory breach which gives rise to an express right to terminate then it may be worth spelling this out either by saying so in terms or by expressly making the relevant provision a condition.
Judgment: Orion Shipping v Great Asia Maritime
Related capabilities
Related people
