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Court considers validity of notices of readiness in charterparty chain

05.11.2019 Maritime

Antonia Jackson

Antonia Jackson Partner

Bilgent Shipping PTE Ltd v. ADM International Sarl and ADM International Sarl v. Oldendorff Carriers GmbH & Co KG (Alpha Harmony) [2019] EWHC 2522 (Comm)

In an appeal from two arbitration awards, the Court construed two charterparties that were not back-to-back. It concluded that the notice of readiness (NOR) given under the head charterparty was valid, but that the NOR under the sub-charterparty was not. The dispute highlights the need for the party in the middle of a charterparty chain to always properly consider their position, particularly when the charterparties are not on identical terms.

The background facts

The Owners of the Vessel had entered into an amended Norwegian 1973 charterparty form with the Charterers, who had in turn sub-chartered the Vessel on an amended Baltimore Form C Berth Grain form. The subject voyage was from Brazil to China and the laycan period was narrowed under both charters to 1-10 May 2015. The Vessel tendered NOR by email at 07:04 on 10 May 2015, which was a Sunday.

Under both charters a clause provided for NOR to be delivered between 08:00 and 17:00 on a weekday and between 08:00 and 11:00 on a Saturday. There was no express provision made for delivery of a NOR on a Sunday. Laytime was to commence at 08:00 on the next working day after a valid NOR had been tendered.

The Sub-Charterer cancelled the sub-charter at 20:47 on Sunday 10 May 2015 and the Charterers cancelled the head charter at 05:55 on Monday 11 May 2015. The issue was whether the cancellations were lawful in circumstances where, although the NORs had been tendered before the relevant time on the cancelling date, they had not been tendered during the permitted hours. The Tribunal in both arbitrations held that the cancellations were not valid. Both the Charterers and Sub-Charterers appealed.

The Commercial Court decision

The sub-charterparty

The Court disagreed with the Tribunal and found that the Sub-Charterers had been entitled to cancel.

The relevant clauses were as follows:

Clause 14:

“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 hours on Saturday, [...] Laytime is to commence 0800 hours the next working day...”

Clause 16:

“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 […] have the option of cancelling this Charter Party...” (however, as noted above, the laycan period was narrowed to 1-10 May 2015)

The Court agreed with the Sub-Charterers that the words in Clause 16, "as per clause 14", were clear and simple and meant that the NOR had to be in accordance with the requirements of clause 14, i.e. that the NOR had to be tendered within certain hours on a weekday or on a Saturday. A failure to give those words their ordinary and natural meaning risked causing uncertainty where the parties had endeavoured to create certainty.

The Court did not accept the argument that there was a tension between clause 16, which provided that if a NOR had not been delivered by noon on a Sunday there was an entitlement to cancel, and clause 14, which stipulated that NOR could not be delivered after 11 am on a Saturday. Rather, there was no inconsistency between the two clauses as clause 16 did not specify the requirements of a NOR, something that was done in clause 14. A NOR had two purposes, it identified: (i) the commencement of laytime; and (ii) when an option to cancel arises. In the Court’s view, a NOR could not be valid in respect of one and invalid in respect of the other unless the parties had expressly stated this in their contract, which they had not done in this sub-charter.

The head charterparty

The Court upheld the Tribunal’s finding that the cancellation was invalid.

The relevant clauses were as follows:

Clause 4:

“…Should the vessel's notice of readiness not be tendered and accepted as per Clause 17 before 23:59 on the 30th/31st day of April/May of 2015, the Charterers or their Agents shall […], have the option of cancelling …”

Clause 17:

“…Notice of vessel's readiness […], shall be delivered in writing or by cable/telex/email to Charterers/Receivers (or their Agents). See also Clause 70…”

Clause 70:

“…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 Charterers argued that the words in clause 17, "See also Clause 70", were sufficient to incorporate into clause 17, and hence into clause 4, the office hours requirement for the delivery of a NOR. As the NOR relied on by the Owners was tendered out of office hours, the right to cancel arose at 23:59 on Sunday 10 May (the laycan having been narrowed).

The Owners, however, argued that clause 4 provided for an option to cancel where no NOR had been tendered and accepted “as per clause 17 before 23:59” on 10 May, which was out of office hours. Clause 17 in the Norgrain standard form included an office hours requirement, but this had been deleted by the parties. The words "See also Clause 70" did not incorporate into clause 17 the office hours requirement; clause 70 was principally concerned with laytime and not with the option to cancel. Therefore, as the Owners had tendered NOR at 07:04 on 10 May, the Charterers had no right to cancel.

The Court agreed with the Owners and the Tribunal that the combined effect of the amendments to the standard wording of clauses 4 and 17 was that, for the purposes of the cancelling clauses, there was no requirement that the NOR be delivered within office hours.

Comment

Where parties to a charterparty chain require the charters to be back-to-back either wholly or in part, they should either use the same charterparty form down the line or alternatively check the terms of the charters used to ensure that there is no discrepancy in what is agreed. Either way, given the potentially significant consequences of getting it wrong, a party in the middle of the chain should not simply assume that, because the sub-charter has been cancelled, they can likewise automatically cancel the head charter.

The article was co-authored by Joanna Katsaouni, Trainee Solicitor, London.

Article authors:

Antonia Jackson