'Loss of bargain' damages recoverable without repudiatory breach, UK Supreme Court rules

The UK Supreme Court in Great Asia Maritime Ltd v Orion Shipping and Trading LLC [2026] has ruled that "loss of bargain" damages can be recovered when termination is effected under the terms of the contract, provided that the right to terminate is coupled with a compensation clause. 

The dispute concerned whether Great Asia Maritime Ltd could recover loss of bargain damages where it had terminated its Norwegian Saleform (NSF) contract with Orion Shipping and Trading LLC under its terms due to Orion's default, which, while negligent, did not amount to a repudiatory breach, or whether the damages were only recoverable following a repudiatory breach at common law. 

Memorandum of agreement

In June 2021, Orion agreed to sell a vessel, the Lila Lisbon, to Great Asia pursuant to a memorandum of agreement (MoA), drafted on amended NSF terms. Under the MoA, if Orion anticipated that the vessel would not be ready for delivery by the cancelling date, it had the right to notify Great Asia, propose a new anticipated date for the vessel to be ready for delivery and a new cancelling date. On receipt of the notification, Great Asia had the right either to cancel the MoA in accordance with clause 14 or accept the new cancelling date. 

Clause 14, headed "sellers' default", conferred on Great Asia the right to terminate if OST failed to give the required notice of readiness for delivery or to be ready to complete a legal transfer of the vessel by the cancelling date. The clause also obliged Orion to pay "due compensation" to Great Asia for its "loss" if Orion's failure was due to "proven negligence", whether or not Great Asia actually cancelled. The MoA also provided that cancellation, failure to cancel or acceptance of the new cancelling date was without prejudice to any claim for damages made under clause 14.

On notification by Orion of a delayed delivery date, Great Asia agreed to Orion's proposed new cancelling date. When the new cancelling date was also missed, it cancelled the MoA by arresting the vessel in a different port and sought to recover its losses from Orion.

A tale of three decisions

The proceedings that followed produced three separate rulings before the Supreme Court finally resolved the matter.

Arbitration ruling

The arbitration tribunal found that Orion's failure to give notice of readiness and be ready to deliver by either of the two cancelling dates was due to its "proven negligence", in respect of the first cancelling date, by failing to take reasonable care in arranging for the crew to disembark at Qingdao to then enable delivery, and in respect of the second cancelling date, by undertaking an extra charter voyage and not taking adequate steps to arrange delivery. The tribunal held that Orion's conduct had not been repudiatory, so there had been no termination under the common law for repudiatory breach. However, Great Asia was entitled to terminate for breach under clause 14 of the MoA.

Orion argued that loss of bargain damages were not available to Great Asia for termination under clause 14, citing various authorities, including Financings Ltd v Baldock [1963], that it said showed a universal rule that, where a party cancels a contract pursuant to a contractual right, it is not entitled to loss of bargain damages unless the other side has committed a repudiatory breach and has terminated the contract at common law. The arbitrators disagreed, finding that no such universal rule exists. Accordingly, in respect of the second cancelling date, Great Asia was entitled to damages assessed on the difference between market and contract price, that is, loss of bargain damages.

High Court

The High Court disagreed. It held that the MoA did not impose any express obligation to deliver, give notice of readiness, or be ready to validly complete a legal transfer by the cancelling date. It said that "due compensation" meant compensation that was appropriate, applying the usual common law principles of causation, remoteness and mitigation. 

Clause 14 only allowed termination for "failure", in a factual sense, the court held, to give notice of readiness or be ready to complete a legal transfer by the cancelling date, not for breach of any positive obligation. Therefore, damages had to be assessed on that basis by referring to accrued losses up to the date of termination and not to prospective losses for breach arising as a result of cancellation. This meant that loss of bargain damages were not available.

Court of Appeal 

The Court of Appeal restored the arbitrators' award, holding that there was an implied obligation to exercise reasonable due diligence to be ready to deliver by the cancelling date, that Orion had been negligent in complying with that implied obligation, and that "failure" in clause 14 referred to non-performance consequent on breach of that obligation. 

The natural and ordinary meaning of "loss" extended to Great Asia's loss of bargain since it did not get the ship it had contracted for and, by the time the contract was cancelled, the ship was worth US$1.85 million more than it was due to pay under the contract. The court said: "Having thus lost the benefit of the contract, its loss was the loss of that bargain."

Loss of bargain damages 

Before addressing Orion's arguments on appeal, the Supreme Court explained the meaning of loss of bargain damages. It said that, in a broader sense, loss of bargain damages is synonymous with "expectation" damages; that is, aiming to put the claimant into the position it would have been had the contract been performed. However, when used in a more limited sense, as in this case where the question concerned loss of bargain damages consequent on the termination of a contract, statements such as "one can only recover loss of bargain damages for a repudiatory breach" had to be understood in that light to avoid being misleading. 

Clause 14

By the time the matter reached the Supreme Court, it was common ground that Orion's failures did not amount to a repudiatory breach: the readiness obligation was an innominate term and its breach did not deprive Great Asia of substantially the whole benefit of the contract. Interpreting clause 14, the Supreme Court held that the word "loss" was general and unqualified, that loss of bargain is a type of loss, and that recovery was expressly conferred whether or not Great Asia cancelled. 

Given the general and unqualified nature of "loss", it had to be wide enough to cover cancellation, and loss of bargain was the most obvious type of loss that Great Asia would suffer in that situation. In fact, Orion could not identify any other type of meaningful loss. This finding was supported by various broader contextual points. 

Commercial consequences

The Supreme Court also noted that Orion's interpretation of clause 14 would produce an uncommercial outcome. It would get to retain the vessel, valued at US$16.85 million, despite its negligent failure to deliver, and Great Asia would be out of pocket by US$1.85 million when buying an equivalent vessel. The more commercially sensible outcome was that Great Asia be compensated for the increase in value in the vessel so that it could be put in the position it would have been in "but for" Orion's negligent failure to deliver. That way, it could purchase an alternative ship without losing money. 

Orion's arguments

Orion advanced two main arguments in support of its position: a causation principle derived from Financings  and the "clear words" principle. The Supreme Court rejected both.

The causation argument

In Financings, a creditor terminated a vehicle hire-purchase agreement under an express termination clause following the debtor's failure to pay instalments once the initial price had been paid and he had taken possession of the vehicle. The court held that the creditor was entitled only to damages for past breaches, not future losses (loss of bargain), because the loss was caused by the creditor's decision to terminate, not by the breach. Orion made the same case: where a contract is terminated under its terms and not because of a repudiatory breach, the innocent party is not deprived of the benefit of the contract by the breach, but by choosing to exercise its contractual right to terminate.

The Supreme Court noted that in the case of repudiatory breach for which loss of bargain damages are applied, the innocent party still has to make a choice and execute a decision; that is, to accept the breach and terminate or affirm the contract. The loss is still triggered by the innocent party making a choice, and Orion arguing that this element of choice distinguished contractual termination from termination for repudiatory breach did not work. In any event, where the occurrence that triggers an express right to terminate is a breach by the other party, whether repudiatory or not, that breach is very likely to be not only a factual cause, but a legal cause of the loss as well. Applying the usual principles of legal causation, choosing to terminate does not break the chain of causation between the breach and the loss of bargain. In fact, the arbitrators in this case had already found that the breach of failing to deliver had caused the loss.

Further, contrary to the decision in Financings, in which the parties had simply agreed a bare termination clause, in this case they had also agreed an express compensation clause in clause 14. Interpreting clause 14 solely in line with the Financings causation principle would therefore defeat the purpose of the clause. 

Clear words 

Orion also argued that clear words were required to confer a right on Great Asia to loss of bargain damages, which are not available at common law without a repudiatory breach, and that the words "due compensation" to Great Asia for its "loss" were not sufficiently clear.

The Supreme Court acknowledged the well-established principle that clear words are required if a clause is to be interpreted as taking away or excluding rights or remedies. However, this case involved the opposite situation: Great Asia was not asserting that a right had been taken away from Orion, but that additional rights, beyond those available at common law, had been conferred upon it. 

The Supreme Court held that taking away rights or remedies is significantly different from conferring additional ones. Orion's submission would mean that almost every contractual clause would be subject to a clear words principle since almost every contract confers rights that the parties would not otherwise have had. It was entirely plausible that the parties intended loss of bargain to be recoverable upon termination under an express termination clause, and there was nothing unfair in agreeing that.

Osborne Clarke comment

Based on the Supreme Court's findings, the availability of loss of bargain damages upon contractual termination turns on the distinction between a bare termination clause and a termination clause coupled with an express compensation provision. The Supreme Court acknowledged that Financings has been criticised, but left open the question of whether it should be reconsidered for "another more suitable case". It therefore remains good law, meaning that where the parties do no more than confer a right to cancel, the Financings causation principle may still operate to restrict recovery to losses flowing from past breaches, excluding loss of bargain. 

However, as the Supreme Court held, the Financings causation principle has no residual role to play once the parties have agreed a compensation for termination clause: the role of the principle is exhausted insofar as it is an express compensation clause that is being interpreted rather than a bare termination clause. 

The drafting lesson is simple: where it is envisaged that loss of bargain damages should not be available for termination under the terms of the contract, ensure that the termination clause does not also provide for compensation for loss. On the other hand, if the parties are agreed that loss of bargain damages should be available in that situation, include a compensation provision and consider expressly referring to loss of bargain damages.