Voyage Charters. Laycan:Cancelling date achievability. Last updated 26-May-2015

[Contingency conditions] are states of affairs which, if they do not exist at a designated time, either automatically bring the contract to an end or suspend the obligations thereunder.
Total Gas Marketing Ltd v Arco British Ltd & Ors [1997] EWCA Civ 3016 per Gibson LJ.

Conditional agreement

Cancelling clause is a kind of conditional agreement, i.e. its operation depends on an event which is not certain to occur, namely, charterers have an option to cancel which they can exercise in event of late arrival of the vessel. Such conditional agreements by implication impose an obligation not to prevent the occurrence of the condition.

Guiding principle of this duty has been explained by Lord Blackburn in Mackay v Dick [1881] 6 App Cas 251 at page 263:

I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances.

The Kriti Filoxenia

In St Shipping & Transport Inc v Kriti Filoxenia Shipping Co SA (Kriti Filoxenia) [2015] EWHC 997 (Comm) owners let their vessel to the charterers under amended BEEPEEVOY 3 form, which provided in clause 17 that the vessel is entitled to give notice of readiness to load at 0600 hours on the first day of laycan period and if the vessel is not ready to load by 1600 hours on the cancelling date then charterers have the option of cancelling the charterparty. Clause 17.2 moreover provided that:

If it appears to Charterers that the Vessel will be delayed beyond the Cancelling Date Charterers may require Owners to notify Charterers of the date on which they expect the Vessel to be ready to load whereupon Charterers shall have the option to cancel this Charter and such option shall then be declared by Charterers within 96 hours, Sundays and holidays excepted, of the receipt of the said notification from Owners.

Clause 24 gave charterers a liberty to vary any load or discharge port or place, after any such port or place has been nominated. In that event excess time (i.e. any period by which the time taken to reach the alternative port or place exceeds the time which should have been taken had the vessel proceeded thither directly) is to count as laytime or demurrage.

Orders for Discharge Ports or Places
24.1 If, at any time after the Vessel has completed loading the cargo or part cargo, as the case may be, Charterers instruct the Vessel to await their orders at one or more locations, then all time spent by the Vessel awaiting orders as aforesaid shall count as laytime or, if the Vessel is on demurrage, as demurrage.

Revised Orders
24.2 If after any loading or discharge port or place has been nominated Charterers desire to vary such port or place, Owners shall issue such revised instructions as are necessary at any time to give effect to Charterers' revised orders and any period by which the steaming time taken to reach the alternative port or place exceeds the time which should have been taken had the Vessel proceeded thither directly shall count as laytime or, if the Vessel is on demurrage, as demurrage. Charterers shall pay Owners for additional bunkers consumed during such excess time at the replacement price as paid by Owners substantiated by copies of such documents as Charterers may require.

Initially charterers nominated Tuapse as the first (and probably the only) loading port and the vessel sailed there from the previous discharging port of Santa Panagia on 30 March at 19:00 hours with an ETA Tuapse on 3 April at 14:00 hours. On 31 March at 11:13, charterers requested ETAs for Tuapse and two other ports. These were given at 15:04 hours on the same day, for Tuapse (12:00 on 3 April), Sevastopol (03:00 on 3 April) and Batumi (03:00 on 4 April). At 16:04 on 31 March, charterers exercised their option under clause 24 and gave a revised order nominating Batumi as the first loading port. At 21:02 on 31 March Owners instructed vessel accordingly and confirmed their ETA for Batumi 03:00 on 4 April. Next day at 11:20 GMT+1, while the vessel was on her way to her first load port, charterers cancelled the charterparty invoking their option under clause 17.2, "as ETA advised by owners is outside laycan".

Owners denied that charterers had a right to cancel and accepted the cancellation as a repudiatory breach of contract for which they claimed damages. Charterers denied liability. The tribunal found that owners' claim succeeded in the amount of USD 737,393.

On appeal in the High Court the charterers contended that once a first load port is renominated upon evocation of cl.24, then it follows automatically that all charterparty provisions, cancelling clause 17 including, applicable to the originally nominated first load port cease to be applicable to that port and become applicable to the re-nominated first load port. That would mean, in the owners’ view, that in case of renomination one of several relatively distant from each other ports, within the range stipulated in charterparty, an owner should speed at maximum speed to the first (nominated port), and arrive there as earlier as possible before the laycan (thus suffering considerable financial loss) just in case a charterer chose later to renominate the most distant port away in the load port range.

The judge agreed with the owners that initial cancellation date cannot survive re-nomination on the footing that liberty given to vary the first load port is too wide to carry with it any continued ability to rely on the cancelling date. The court asserted the charterers’ option to re-nominate as commercial decision which includes evaluation of pros and contras:

As it seems to me, whether the re-nomination occurs five minutes after the original nomination or five days after the original nomination, on the tribunal’s approach charterers have a commercial judgment to make. It is a commercial judgment about the value of the laycan provision in the particular circumstances which have led charterers to want to vary the first load port. Charterers can be expected to be in a position, on the assumption that re-nomination entails losing the laycan provision, to take a view either that the balance of risk is strongly in favour of re-nomination, or that it is strongly against, or that the position is less clear. What to do in the light of that assessment will be a matter for them.

The High Court also affirmed the tribunal criticism of the charterers’ argument that first nominated port written into the charterparty in pencil only as a provisional nomination. The tribunal considered it as un-commercial and unsatisfactory if, following the original nomination of Tuapse, the vessel was obliged not only to proceed there but also to proceed as if any other port within the charterparty range might be substituted by a revised order. In the tribunal’s view, there cannot be different kinds of contractual loading port but once the loading port is nominated (or the alternative port, if a revised order is given) it is the contractual loading port without any intermediate status. The fact that a charterer has the right to revise his orders does not, until that right is exercised, make the original nomination any less the contractual loading port.

Some voyage charter forms give to the charterers an option to re-nominate (i.e. nominate new port), after initial nomination of loading and/or discharging port or ports. For example EMV 2005 clause 9(B), below. It should be said that it has more balanced provision than that amended BPVOY3 discussed above. It stipulates that such option to nominate new port(s) or place(s)   shall lapse on Vessel tendering Notice of Readiness at a nominated new port or place (loading and discharging). Moreover charterers compensate owners for any bunker consumed in case of increase of steaming time to that new destination.

Similarly BPVOY4 standard form cl.22.2.1 (REVISED CHARTERERS' VOYAGE ORDERS FOR LOADING OR DISCHARGE PORTS) provides for extension of laycan in case if original laycan cannot be maintained:

If solely by reason of Owners' compliance with such revised Charterers' Voyage Orders, the Vessel suffers delay causing her to arrive at the nominated port after the Cancelling Date stated in Section G of' PART 1 or any new cancelling date determined under Clause 16.1, then the Cancelling Date or the new cancelling date, as the case may be, shall be extended by the period of such delay.

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