Background

The cancelling date, as provided in the laycan/cancelling clause of a voyage charterparty, is the date beyond which, the charterer is entitled to cancel the charter if a valid Notice of Readiness (NOR) is not served in time. Whereas, the date on which NOR may be tendered is defined in the laytime clause, normally within the office hours. Disputes may arise if the two contractual dates contradict with each other, and such disputes were addressed in a recent case.

The Facts

The Commercial Court has heard two appeals from related arbitrations, pursuant to section 69 of the Arbitration Act 1996. There was a head-charter, which was made between the owner (Oldendorff) and ADM on an amended Norgrain 1973 form on 13 November 2014, and a sub-charter, which was made between ADM and Bilgent on an amended Baltimore Form C Berth Grain form on 5 November 2014 for a voyage from Brazil to China.

On 2 April 2015, the laycan period that was supposed to end on 31 May 2015 was revised to end on 10 May 2015 by Bilgent and by ADM under the head charter.

At 07.04 on Sunday 10 May 2015, NOR was tendered by the vessel via email.

At 20.47 on the same day, Bilgent cancelled the sub-charter.

At 05.55 on Monday 11 May 2015, ADM cancelled the head-charter.

The question is, with the NOR tendered before the relevant time on the cancelling date but not during the permitted hours, whether the cancellations were lawful? Apparently, it was a no to the arbitrators. Bilgent and ADM then appealed to the Court. Now, let’s look at the results under the sub-charter and the head-charter separately as they were not on back-to-back terms.

The Sub-charter

The relevant terms of the sub-charter were:

Clause 14 dealt with notice of readiness in these terms:

“Notification of the vessel’s readiness to load at the loading port must be delivered by mail/fax at the office of Charterers or their agents, between 0800 hours and 1700 hours from Monday to Friday, between 0800 hours and 1100 hour on Saturday, Vessel also having been entered at the Custom House. Laytime is to commence 0800 hours the next working day, also see Clauses 43,44,74.”

Clauses 43 and 44 concerned the discharge port. Clause 74 repeated the provisions concerning notice of readiness at both the loading and discharge port.

Clause 16 dealt with the cancelling date in these terms:

“Should the Notice of Readiness at loading port not be delivered as per Clause 14 by twelve o’clock noon on the 31st day of May 2015, the Charterers or their Agents shall at said hour and at any time thereafter, but not later than the presentation of Notice of Readiness together with the required certificates at said office, have the option of cancelling this Charter Party. Charterers to narrow into “10” days spread latest in 40 days advance prior to first layday.”

Bilgent submitted that clause 16 of the sub-charter identified that Bilgent had an option to cancel if NOR was not delivered as per clause 14 by 12.00 on 10 May 2015. Clause 14 required the NOR to be delivered within certain hours on a weekday or on a Saturday. The NOR had not been delivered within those hours, but on Sunday 10 May at 07.04. According to the principle outlined in The Petr Schmidt, NOR tendered out of office hours becomes effective the next day, and hence the NOR here should had become effective since 08.00 on Monday 11 May. A not effectively delivered NOR indicates that the vessel is not presented before the last layday and the charterer is entitled to reject her (The Madeleine).

ADM submitted that when construing the words “as per clause 14” in clause 16, only those parts of clause 14 as were not in conflict with clause 16 should be read into clause 16. There was a tension between “an entitlement to cancel if the notice of readiness has not been delivered by noon on a Sunday” and the “stipulation that notice of readiness cannot be delivered after 11 am on a Saturday”, which was supported by the arbitrators. The disponent owner further submitted that the office hours requirement should not therefore be incorporated into clause 16. The right to cancel in clause 16 arose if no NOR had been delivered before noon on Sunday 10 May. A NOR had been delivered by noon on Sunday 10 May; for it had been delivered at 07.04 on that Sunday. On Bilgent’s construction a NOR delivered at 1059 on a Saturday would not give rise to a right to cancel after midday on the Sunday but that a notice of readiness delivered at 1101 on a Saturday would give rise to a right to cancel after midday on the Sunday, which would be uncommercial. Similarly, it was unattractive and uncommercial for the charterer to be entitled to cancel a charterparty when there had in fact been a notice of readiness delivered by email before 12 noon on the Sunday. The charterer can be expected to check his emails before he exercises his option to cancel.

The court ruled that Bilgent were entitled to cancel the sub-charter based on the following reasons:

1.      Clause 16 provides the charterers with the option to cancel, the wording of which refers the reader back to clause 14 and in clause 14 are the requirements for the NOR to be properly tendered. The Judge agreed that the words “as per clause 14” mean that the NOR must be in accordance with the requirements of clause 14. The suggested inconsistency or tension was not accepted as there’s nothing in clause 16 which defines the requirements of a NOR. It’s thus inappropriate to cut down the words “as per clause 14”.

2.      The court did not agree with the arbitrators who found Bilgent’s interpretation on clause 16 “lacking in clarity and simplicity” and “commercially and legally unattractive solution”. The words “as per clause 14” are clear and simple. They refer the reader back to clause 14 for the requirements of a valid NOR. As to the second part, restricting the time within which NOR may be validly given there will be such consequences, which does not render the construction uncommercial.

3.      ADM had a point when submitting that the charterer can be expected to check his emails before he exercises his option to cancel. With the advent of email and the ability of charterers to check whether they have received an email at any time of day or night the office hours requirement may well be outdated. However, it was used by the parties to this sub-charterparty and cannot be ignored.

4.      Identifying what is a valid NOR has a commercial purpose. It would promote uncertainty if, on ADM’s construction, a NOR could be invalid for one purpose (the running of laytime) but valid for another (the option to cancel).

The Head-charter

The relevant terms of the sub-charter were:

Clause 4 concerned Laydays and Cancelling. It provided as follows:

“Laytime for loading, if required by Charterers, not to commence before 0001 on 01st day of April/May 2015. Should the vessel’s notice of readiness not be tendered and accepted as per Clause 17 before 2359 on the 30th/31st day of April/May of 2015, the Charterers or their Agents shall at any time thereafter, but not later than one hour after the notice of readiness is tendered, have the option of cancelling this Charterparty. Charterers to narrow Laycan into a 10-day’s spread latest 30 days prior first Layday …”

Clause 17 concerned Time Counting and provided as follows:

“(a) Notice of readiness and Commencement of Laytime See also Clause 70

Notice of vessel’s readiness to load and/or discharge at the first or sole loading and/or discharging port, shall be delivered in writing or by cable/telex/email to Charterers/Receivers (or their Agents). See also Clause 70. Such notice of readiness shall be delivered when vessel is in the loading or discharging port and is in all respects ready to load/discharge in case loading/discharging berth is occupied vessel to be allowed to tender Notice of readiness whether in port or not, whether in berth or not, whether customs cleared to not, whether in free pratique or not.

Following receipt of notice of readiness to load or discharge as above, laytime will commence at 0800 on the next working day, after the valid Notice of readiness has been tendered and hold passed, laytime to commence to restart at 0800 hours on Monday or the day following a public holiday…”

Clause 70, which dealt with Notice of Readiness and Layime and to which the reader of clause 17 was directed to see, provided as follows:

“Loading port: If loading at East Coast South America, the Notice of readiness to be tendered within office hours 0800-1700 hours Monday to Friday and 0800-1100 hours Saturday. Layime to commence at 0800 hours the next working day after valid Notice of Readiness being tendered…”

The key is, whilst the head-charter was made on the standard form of the Norgrain charterparty, the office hour requirements in clause 4 and 17 were deleted.

Oldendorff first accepted that under the unamended Norgrain form, a NOR which had not been delivered within the hour stated in clause 17 was invalid for the purposes of assessing whether there was a right to cancel. It further submitted that (1) the amendment to clause 4 by providing for the relevant time on the cancelling date to be 23.59 rather than 12.00 and the deletion of the office hours requirement in clause 17 have rendered the NOR delivered at 07.02 on Sunday valid. Reference was made to Punjab National Bank v De Boinville [1992] 1 WLR 1138 that what had been deleted assisted in showing what the parties did not want in their agreement. (2) The words “See also Clause 70” were not words of incorporation, but simply words which notified the reader that there were laytime provisions in clause 70 (The Lipa). (3) Clause 4 uses the language of tendering and accepting NOR whereas clause 17 requires delivery of the NOR, which were not suggested as material in the present dispute.

ADM submitted that clause 4 had to be construed in the context of the charterparty as a whole, which included both clause 17 and clause 70. Clause 70 stipulated the times at which a NOR must be tendered in order to be effective. He noted that clause 4 required the NOR to be tendered and accepted before 23.59 and suggested that it was very difficult to see how a NOR could coherently be treated as accepted outside office hours. If so then a NOR tendered out of office hours could not prevent the right to cancel from arising because it could not be both tendered and accepted out of office hours. There was therefore nothing in the “see” rather than the “as per” point. It was uncommercial to construe the charterparty in such a way as involved permitting the notice of readiness to be tendered out of office hours for cancellation purposes but required it to be tendered during office hours for laytime purposes.

Eventually, on the following grounds the court supported the tribunal by ruling that ADM has no right to cancel:

1.      The aim of the court in construing the charterparty is to identify “the objective meaning of the language which the parties have chosen to express their agreement.” The combined effect of clauses 4 and 17 as amended manifests, objectively, an intention that, for the purposes of the cancelling clause, there was no requirement that the NOR be delivered within office hours. Thus, as long as the NOR is delivered before 23.59 on the cancelling date, there is no option to cancel.

2.      ADM’s interpretation that the words in clause 17, “See also Clause 70”, are sufficient to incorporate in clause 17, and hence in clause 4 is not the objective meaning of the charterparty. First, there must have been a purpose in deleting the office hours requirement from clause 17 and then including an office hours requirement in clause 70 (though in slightly different terms). It is likely that the purpose was to make clear that for cancellation purposes, the subject of clause 4, notice of readiness did not have to be delivered within office hours but that for laytime purposes, the subject matter of clause 70, a NOR had to be delivered within the stated office hours. Second, the specially agreed time of 23.59 in clause 4 would be an odd time to select for the purposes of the option to cancel if a NOR for that purpose had to be delivered within office hours. Third, clause 4 referred to a NOR “as per clause 17”, not to a NOR “as per clause 70”.

3.      ADM pointed to the difficulty of a charterer “accepting” a notice of readiness outside office hours and suggested that it followed that a notice could not be tendered out of office hours. However, the Judge was not persuaded as deleting the office hour requirements has suggested that acceptance was contemplated out of office hours on a Saturday or a Sunday.

Conclusions

Different decisions were reached simply based on the way to construe the different wordings of the two contracts, and accordingly, it is advisable for parties in a charter chain to exercise caution on the following aspects.

1.      Be prudent when amending standard form charterparties. All terms and language in standard forms are carefully pondered and logically consistent throughout the whole contract. Although amending the standard form charter with a rider clause incorporated has become a common practice, there might be discrepancy in what is agreed and potentially significant consequences if the amended contract is not carefully examined for consistency, preciseness and clarity.

2.      Fix as far as possible back-to-back. The party in the middle may be left unprotected if the charters are not on identical terms and should always properly consider their position, as highlighted by the disputes in the Alpha Harmony.

3.      Consider whether the NOR has to be delivered within office hours. As construed by the court, NOR can be valid for both laytime purpose and cancellation purpose. NOR delivered out of office hours is not necessarily invalid but considered delivered when office hours next open (The Petr Schmidt).

4.      Consider whether the charter has an option to cancel when NOR delivery is not related to cancellation of the contract in other standard form charter, as provided in clause 10 of GENCON “Should the vessel not be ready to load (whether in berth or not) on or before the date indicated in Box 19, Charterers have the option of cancelling this contract”. Relied upon the decision in The Gevalia, charterers cannot cancel the contract simply because NOR is not delivered before the cancelling date, which by no means encourages any attempt not to deliver NOR properly.

For more information, please contact CPI FD&D team.