By Kian Mellett
If you cancel a contract because the other side has let you down, can you still claim compensation for what you’ve lost? Even if their failure wasn’t catastrophic enough to destroy the entire deal?
Most people would assume the answer is no. After all, you made the choice to walk away. Surely that’s on you?
The UK Supreme Court has now said: think again.
What Happened
The case, Great Asia Maritime Ltd v Orion Shipping and Trading LLC [2026] UKSC 23, involved the sale of a ship called the Lila Lisbon for US$15 million. The seller, Orion, was supposed to have the vessel ready for delivery by an agreed date. It didn’t, twice, because it negligently failed to make proper arrangements. By the time the buyer, Great Asia, cancelled the contract, the ship had risen in value to US$16.85 million.
Great Asia wanted the US$1.85 million difference, the profit it had lost by not getting the ship it had contracted for. Orion said no: you chose to cancel, so you can’t claim for what you would have gained had the deal gone ahead. That argument relied on a long-standing legal principle from 1963 (Financings Ltd v Baldock) which said that when you exercise a contractual right to terminate, you can only recover losses that have already occurred. Not future gains.
What the Supreme Court Decided
The Supreme Court unanimously rejected the seller’s arguments. The reason? The contract didn’t just give Great Asia a right to cancel. It also included a compensation clause requiring Orion to pay “due compensation” for Great Asia’s “loss.” The court held that “loss” is a broad, unqualified word and the most obvious loss when a buyer cancels because a seller won’t deliver is the loss of the bargain itself.
The court also made a common-sense observation: Orion’s interpretation would produce an ‘uncommercial outcome’. The negligent seller would keep the ship (now worth significantly more), while the buyer would be left out of pocket when purchasing an equivalent vessel. That can’t be what the parties intended.
Why This Matters For You
Here’s the key takeaway: your termination clause might already be worth more than you think.
The Supreme Court drew a crucial distinction. If your contract contains only a bare right to terminate and nothing else, then the old rule still applies: your recovery may be limited to losses that had accrued before you cancelled. But if your termination clause is paired with a compensation provision that refers to “loss,” “damages,” or similar broad language, you may now be entitled to the full value of your lost bargain. Even where the other side’s breach wasn’t serious enough to fundamentally undermine the contract such as to qualify as a repudiatory breach.
Many commercial agreements contain exactly this kind of paired language without the parties having given much thought to its implications.
What You Should Do
If you have existing contracts:
- Review your termination clauses. Do they include associated compensation language covering “loss” or “damages”? If so, you may have a stronger position than you realised in the event of the other party’s breach.
- When terminating, clearly identify the specific breach that triggered your right. The causal link between the breach, your right to terminate, and the loss you’ve suffered needs to be clear.
If you’re negotiating new contracts:
- If you want loss of bargain to be recoverable on termination, include a compensation clause alongside your termination right and use broad language.
- If you don’t want the other side to have that right against you, ensure the termination clause does not also provide for compensation for “loss” or expressly limit what can be recovered.
Looking Ahead
The Supreme Court hasn’t formally overturned the 1963 rule, but it has openly questioned its logic and carved a significant path around it. The old principle is now confined to bare termination clauses with no compensation language, an increasingly narrow space.
The message is clear: the words in your termination provisions carry real financial weight. Now is a good time to check exactly what yours say.
Kian Mellett is a Solicitors Qualifying Examination (SQE) student who earned his LL.B. Law, with honors, from University of Leeds in 2024. While completing his studies, Kian works as a paralegal/trainee at Duane Morris in London.