A party who terminates a contract in response to a repudiatory breach1 is typically entitled to damages for “loss of bargain”, ie to compensation for losing the performance she will never receive.2 One who terminates under an express cancellation clause is presumptively not entitled to that form of compensation.3 But the parties can provide for whatever consequences of cancellation they see fit,4 including loss-of-bargain damages.

The issue in The Lila Lisbon 5 is whether loss-of-bargain damages are available to buyers under Norwegian Saleform 2012 who cancel after sellers have negligently failed to deliver the ship on time. The contract allows buyers to cancel and recover their deposit if sellers do not transfer the ship by the agreed cancelling date. Additionally, sellers guilty of “proven negligence” must make “due compensation” to buyers “for their loss and for all expenses”. The arbitrators in The Lila Lisbon found that “due compensation” included loss-of-bargain damages for cancelling buyers, calculated in this instance as the difference between the contract price and ship’s market value. But Dias J disagreed. On the judge’s view, the cancelling buyers under Saleform 2012 are entitled to loss-of-bargain damages only if sellers commit what the general law regards as a repudiatory breach, and there was no such breach in this case.

Though the judge’s discussion of this “intractable”6 area of law is erudite and subtle, the denial of loss-of-bargain damages is questionable. Particularly in light of the Saleform’s history, a reasonable reader would likely assume that “due compensation … for loss and all expenses” includes loss-of-bargain damages. Moreover, it makes little commercial sense to deprive buyers of the benefit of the agreed contract price where the market has risen and the sellers are at fault for failure to deliver on time.