Key takeaway

A contractual right to terminate may be worth more than the right to walk away. In Great Asia Maritime Limited v Orion Shipping and Trading LLC [2026] UKSC 23, the Supreme Court held that an express compensation clause referring broadly to “loss” entitled a buyer to recover loss of bargain damages even though the seller’s breach was not repudiatory. The decision means businesses should read termination rights together with any accompanying compensation provisions: the wording surrounding the termination clause may materially increase, or limit, the damages available.

Ending a contract and recovering its value are different things. When a supplier, buyer or partner fails to perform, the right to terminate may be clear enough. What that termination is worth in damages is often far less certain.

Terminate for a breach serious enough to go to the root of the deal, and you can claim the full value of the bargain you have lost. Terminate under a contractual right because the other side slipped, but not catastrophically, and you may be left with only the losses that had built up by the day you walked away.

For a broader explanation of when a breach justifies termination and what remedies may follow, see our article on breach of contract claims, types of breach and remedies.

In July, a unanimous Supreme Court held that the second outcome is not inevitable. Its judgment in Great Asia Maritime Limited v Orion Shipping and Trading LLC [2026] UKSC 23, known to shipping lawyers as The Lila Lisbon, looks like a niche ship sale dispute. Its significance is much wider: it matters to any party whose contract contains a termination clause.

What happened in Great Asia Maritime v Orion Shipping?

In June 2021, Orion agreed to sell a Capesize bulk carrier, the Lila Lisbon, to Great Asia for US$15 million. The contract was on the Norwegian Saleform 2012, the industry’s standard form for second-hand ship sales.

Orion had to use reasonable diligence to be ready to deliver by an agreed cancelling date. It missed that date because it had not properly arranged for the crew to disembark. The buyer agreed an extension to October 2021, and Orion missed that too, having taken on an intervening voyage charter. The arbitrators found both failures were due to Orion’s “proven negligence”. By the time Great Asia cancelled, the ship was worth US$16.85 million.

Great Asia claimed the US$1.85 million difference.

Crucially, it was common ground that Orion’s failure was not a repudiatory breach: Orion was late and at fault, but it had not renounced the contract. Great Asia’s claim rested instead on clause 14, which gave it a right to cancel and, if Orion’s failure was due to proven negligence, obliged Orion to pay “due compensation to the Buyers for their loss and for all expenses together with interest”, whether or not the buyer cancelled.

The arbitrators found for the buyer. The Commercial Court overturned them, to the surprise of much of the shipping market. The Court of Appeal reversed that decision and restored the award. On 22 July 2026, the Supreme Court dismissed Orion’s appeal.

Can a contractual termination clause allow recovery of loss of bargain damages?

Lord Hamblen and Lord Burrows, giving the judgment of a unanimous court, began with the language of the clause.

“Loss” is general and unqualified. It must mean something different from “expenses”, which the clause covers separately. And when a buyer cancels because the seller will not deliver, the most obvious loss is the bargain itself. If “loss” did not include that, it was hard to see what it covered at all.

“Due compensation” means compensation assessed on ordinary common law principles of causation, remoteness and mitigation, so the usual limits on recovery still apply.

The context pointed the same way. The mirror-image clause protecting sellers had previously been read to include loss of bargain. The result matched the ordinary measure of damages for non-delivery under section 51(3) of the Sale of Goods Act 1979. And courts, textbooks and the market had read the clause and its predecessors this way for more than four decades, a settled understanding the Court was reluctant to disturb.

The Court then considered the commercial consequences of each reading. On Orion’s reading, the negligent seller would keep a ship now worth more, while the innocent buyer paid more to replace it. The Court called that “an uncommercial outcome”. In effect, the defaulting party would benefit from its own breach.

For more on the risks surrounding contractual exit rights, see our article on terminating a contract: what businesses need to know.

Does Financings v Baldock still limit damages after contractual termination?

Orion relied principally on Financings Ltd v Baldock [1963] 2 QB 104, the case behind the rule that, absent a repudiatory breach, a party who terminates under a contractual right cannot recover loss of bargain.

The rule is often explained on the basis that the terminating party’s own election to terminate, rather than the breach, is the cause of the loss.

The Court did not overrule Financings; it was neither necessary nor appropriate to do so. But it confined it.

Financings may explain why damages stop at termination under a bare termination clause. It says nothing about a contract that also contains an express compensation clause, which must be read on its own terms. Notably, Orion’s argument would also have ruled out wasted expenses, which Orion itself accepted were recoverable.

The Court was also openly sceptical of the causation logic. If choosing to terminate breaks the chain of causation, the Justices observed, the same should be true when a party terminates for a repudiatory breach. That is plainly not the law.

The question has been left for another day, but the Court expressly left open whether Financings should be reconsidered in a future case.

For more on the distinction between contractual termination and termination for a sufficiently serious breach, see our article on repudiatory breach of contract and what it means for contract drafting.

Do termination clauses need “clear words” to grant additional damages?

Orion also argued that clear words were needed before a clause could grant more than the common law would.

The Court disagreed.

Clear words are generally required where parties intend to take away rights that would otherwise exist, so that those rights are not surrendered unknowingly. The same principle does not apply merely because a contract confers an additional right.

The Court therefore rejected the argument that unusually explicit wording was required before clause 14 could permit recovery of loss of bargain damages. It distinguished that question from provisions purporting to provide compensation where no loss had actually been suffered.

What does The Lila Lisbon mean for existing termination clauses?

The key distinction is this.

A bare right to terminate, with nothing more, still leaves you with Financings and losses accrued to the date of termination.

A termination right paired with compensation language referring to “loss” may carry the full value of your lost bargain, even where the breach fell short of repudiatory.

That is not automatic: the Supreme Court interpreted one particular clause in light of its wording, its mirror-image clause and decades of market practice. But many commercial agreements contain a similar pairing, often without anyone having thought hard about it.

If you have existing contracts

First, read your termination clauses alongside whatever sits next to them. Is there a compensation provision? Does it refer to “loss” separately from “expenses”? If so, your position may be stronger than you realised, or your exposure larger.

Second, if you do terminate, identify precisely which breach triggered your right. The chain from breach, to termination right, to loss needs to be clear on the face of your notice. Where compensation depends on fault, as it did here, keep evidence of the other side’s fault.

Third, before you walk away, check that the other side can actually pay. A judgment that cannot be enforced has little practical value.

How should businesses draft termination and compensation clauses after The Lila Lisbon?

If you want loss of bargain to be recoverable on termination, say so. Broad language worked here, but express words remove the argument altogether.

If you do not want to give the other side that right, do not rely on silence. Limit the compensation clause expressly: cap the recoverable amount, restrict it to wilful default rather than mere negligence, or exclude loss of bargain outright.

And remember the symmetry point: a generous clause you write for yourself may influence how the reciprocal clause protecting your counterparty is read.

The Lila Lisbon has attracted relatively little attention outside the legal and shipping press. But it is relevant to any business that relies on termination rights, and it is a reminder worth taking seriously.

The words sitting next to your termination clause may significantly increase, or reduce, the value of a claim.

Barnes Law’s Commercial Law team advises businesses on commercial contracts, termination rights, breach of contract and contractual damages. For more information, please contact our Commercial Law team to discuss how we can support you.

Written by Barnes Law Managing Partner Yulia Barnes.