Cancellation clauses, the danger of unexpected consequences when charterparties are not on back-to-back terms: The “ALPHA HARMONY”

In voyage charterparties, a notice of readiness (“NOR”) is most obviously associated with laytime and demurrage.  It does, though, have other roles which can be overlooked, and in particular in relation to a right to cancel the charterparty.  English law has long been reluctant to find that an NOR could be valid for one of those purposes but not for another.

The “ALPHA HARMONY” is a stark illustration of why it is important to be aware of all the roles of an NOR.  This concerned a short voyage charterparty chain.  The owner, Oldendorff, voyage chartered out to ADM, who in turn sub-chartered to Bilgent.

The head-charter, between Oldendorff and ADM was on a Norgrain form.  The sub-charter, between ADM and Bilgent, on the Baltimore Form C.  The laycan period in both charterparties was on similar terms.  It narrowed to a requirement that notice must be given no later than 10th May which was a Sunday.  The ship tendered NOR at 0704 on that day.

Both charterparties were silent as to delivery of an NOR on a Sunday.  The express requirements were that it be served between 0800 and 1700 on weekdays and between 0800 and 1100 on a Saturday.  Both the head-charterer and the sub-charterer cancelled.  As the judge, Mr Justice Teare frames it:

“The question is whether the cancellations were lawful in circumstances where, although notice of readiness has been tendered before the relevant time on the cancelling date, it had not been tendered during the permitted hours.”

The cancellation provisions in the charterparties were on different terms.  Under the sub-charter the right to cancel arose if the NOR was not delivered “as per clause 14”.  Clause 14 contained the office hours requirements set out above.  The judge, contrary to the earlier views of an arbitration tribunal, ruled that the cancellation under this charterparty was valid.  He found that the provisions were consistent with each other such that, when read together, they produced one simple and clear meaning.  NOR had to be delivered within office hours by a certain date.  Failing that the right to cancel arose.  It had, of course been argued that this produced an uncommercial result.  For the judge, though, he felt that “a failure to give …(the)…words their ordinary and natural meaning risks causing uncertainty where the parties had endeavoured to create certainty.”

It had, of course been argued that this produced an uncommercial result.  For the judge, though, he felt that:

 “a failure to give… (the) …words their ordinary and natural meaning risks causing uncertainty where the parties had endeavoured to create certainty.

The cancellation provisions in the head-charterparty read:

“Should the vessel’s notice of readiness not be tendered and accepted as per Clause 17 before…the Charterers…shall…have the option of cancelling the charterparty.”

Clause 17 itself dealt with the mechanics of delivering the NOR but it did not, in its own wording, restrict this to office hours.  Instead it contained the words “see also Clause 70”.  Clause 70 did contain the office hours requirements and was silent as to the position on a Sunday. The head-charterer argued that this must mean that the office hours requirements were incorporated into the cancellation provisions by reason of the “see also” wording thus allowing them, just as the sub-charterer had done, to cancel.

Teare J felt not.  For the purposes of cancellation, he again felt the position clear.  The parties had not intended to go any further than reading the cancellation clause 4 together with the notice requirements in clause 17.  It was not necessary, as a matter of construction, to bring in the clause 70 office hour provisions which, he said, dealt with laytime and not cancellation.

Notice under the head-charter had, therefore, been given in time.  The head-charterer had no right to cancel.

This may seem a very uncommercial result.  It is, however, extremely difficult to fault the judge’s objective analysis of the different contractual regimes.  It is, therefore, a warning as to how important it is to achieve back-to-back terms where the rights to cancel are of such key importance in a charterparty chain.

The question is whether the cancellations were lawful in circumstances where, although notice of readiness has been tendered before the relevant time on the cancelling date, it had not been tendered during the permitted hours.

Mr Justice Teare

Bilgent Shipping Pte Ltd and ADM International SARL v Oldendorff Carriers (The “ALPHA HARMONY”) [2019] EWHC 2522 (Comm)

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