The UK Supreme Court judgment in the LILA LISBON case (Great Asia Maritime Limited v Orion Shipping and Trading LLC [2026] UKSC23) was published on 22 July 2026.
The case concerned a ship sale dispute under an MOA based on Saleform 2012. The seller had failed to be ready to deliver the ship by the cancelling date. This failure was the result of the seller’s negligence. Under clause 14 of the MOA the buyer exercised an express right to terminate. The point in issue was whether the buyer was entitled to recover loss of bargain damages, calculated as the difference between the sale price under the MOA and the market value of the ship on the termination date, even though the seller was not in repudiatory breach of the MOA.
The seller relied on a principle of English law known as the Financings principle (derived from the Court of Appeal decision in Financings Limited v Baldock [1963] 2QB 104). This principle is understood to mean that where a party exercises a contractual right to terminate, it will be entitled to damages that have accrued up to the point of termination. But the terminating party will not be entitled to loss of bargain damages resulting from the termination because the effective cause of the loss of bargain is the injured party’s decision to exercise the right to terminate rather than the breach that triggered the termination. In contrast, if a party terminates at common law for a repudiatory breach of the contract by its counterparty, the loss of bargain will be attributed to the repudiatory breach rather than to the decision of the injured party to terminate for such a breach, with the result that the injured party will be entitled to loss of bargain damages subject to the common law rules governing the recovery of contractual damages.
When the LILA LISBON dispute went to arbitration, the tribunal’s award was in favour of the buyer. On appeal, the High Court found for the seller and denied the buyer’s claim for loss of bargain damages. The buyer appealed to the Court of Appeal which unanimously allowed the appeal and restored the arbitrators’ award. The seller appealed to the Supreme Court which unanimously denied the appeal and confirmed that the buyer was entitled to recover loss of bargain damages.
Despite questioning the causation analysis underpinning the Financings principle, the Supreme Court did not overturn the principle because it was not necessary or appropriate for it to do so. Instead, the Court held that the proper interpretation of the clause 14 compensation wording – that the negligent seller must make due compensation to the buyer for its loss – is that “due compensation” means appropriate compensation under common law principles and includes loss of bargain damages where a buyer validly exercises its express right under clause 14 to terminate the MOA.
This conclusion was supported by the normal measure of damages for non-delivery under the Sale of Goods Act 1979, earlier court decisions on clauses 13 and 14 of other editions of Saleform, and past industry practice, which in combination showed there to be an established understanding that loss of bargain damages would be recoverable under clause 14.
The Court also observed that the differing commercial consequences of the parties’ competing interpretations of clause 14 supported the conclusion that the buyer should be entitled to recover loss of bargain damages; it would be an uncommercial outcome for the seller to benefit from termination of the MOA consequent on its negligent default by keeping a ship with an increased market value and for the buyer to lose from such a termination.
Before the seller was granted leave to appeal to the Supreme Court, and in recognition that the High Court decision in the LILA LISBON case was out of step with the consensus in the shipping industry about the meaning of the compensation wording in clause 14 of Saleform 2012, two related changes were made when Saleform 2025 was published.
The first change appears in clause 5(a) of Saleform 2025 which provides:
“If the Sellers have not given a valid Notice of Readiness by the Cancelling Date, the Sellers shall be in breach of this Agreement and the provisions of Clause 14 of this Agreement shall apply”.
This change expressly obliges the seller to give NOR at latest by the cancelling date (there is no express obligation for the seller to do so under the corresponding provisions of Saleform 2012) and provides that the seller’s failure to do so will be a breach of the MOA and will entitle the buyer to terminate the MOA with the consequences set out in clause 14.
The second change appears in clause 14(e) of Saleform 2025 which provides:
“Where the Sellers’ failure to (i) give Notice of Readiness or (ii) be ready to validly complete a legal transfer in accordance with clause 5(b) by the Cancelling Date, is due to proven negligence, the Sellers shall make due compensation to the Buyers for their losses and for all expenses together with interest whether or not the Buyers terminate this Agreement. If the Buyers elect to terminate this Agreement, pursuant to this subclause (e), such compensation shall include loss of bargain.”
Clause 14 of Saleform 2025 therefore expressly provides that if the buyer terminates the MOA under subclause (e), the compensation to which the buyer is entitled will include loss of bargain damages.
The Supreme Court judgment in the LILA LISBON realigned the English law interpretation of clause 14 in Saleform 2012 with earlier court decisions, the Sale of Goods Act and market expectations. The related changes introduced in Saleform 2025 (when it was published about five months before the Supreme Court handed down judgment) effected that realignment in contractual form. Both paths end at the same destination for parties who choose to document their sale agreement on the standard terms of Saleform 2012 or Saleform 2025.
Matt Hannaford and Paul Turner are the co-authors of Ship Sale and Purchase, currently in its 7th edition.
The 8th edition, which contains analysis and commentary on Saleform 2025 (and comparative commentary on Saleform 2012), is scheduled for release in January 2027.