Voyage Charters. Laycan. Cancelling Clause Last updated 22-May-2015

Next the cancelling clause. Its effect is that, although there may have been no breach by the owners nevertheless the charterers are, for their own protection, entitled to cancel if the vessel is not delivered in a proper condition by the cancelling date. That is the sole effect.
Per Lord Denning MR in Marbienes Compania Naviera S.A. v Ferrostaal A.G. (The Democritos) [1976] 2 Lloyd’s Rep.149 at p.152.

Express contractual right to cancel

Cancelling clause stipulates the date by which the shipowner should present his vessel in required state of readiness. The charterer has a right but not duty to exercise an option to cancel the charter should the vessel not be ready to load on nominated date and time. See below Gencon94 clause 9.

Gencon94 cl. 9 Cancelling Clause

The wording of Gencon94 clause 9 is notable because it gives to the owners a right to request from the charterers whether they will exercise their option to cancel in cases when the owners anticipate late arrival and that differ it from other similar clauses in standard forms.

The right to cancel conferred on charterers by express wording gives them a right to terminate the charterparty if the vessel is not ready even if an event has happened which frustrates the commercial adventure. Such right does not depend on whether such later arrival was or was not a result of the owners’ breach. As long as the owner uses reasonable diligence, he is not in breach, but the charterer nevertheless is entitled to cancel. The clause therefore imposes an absolute obligation to the owners’ to provide the vessel for the Charterers’ use by the cancelling date.

Cancelling Clause in Gencon form and similar clauses in other standard forms of voyage charters operates solely to protect the charterers from consequences of late arrival of the vessel and being a forfeiture clause it is not to be applied lightly, so that defects of no real significance in the adventure were to be used as a means of throwing up a charter at the last moment. Accordingly, it is for the charterers to establish that the right which they have sought to exercise under the cancelling clause has accrued. When owners’ failure to provide the vessel in time was a result of the Charterers’ own breach they, the charterers, may be deprived from reliance on cancelling clause.

The latest authority on this subject is decision of the Court of Appeal in Mansel Oil & VITOL S.A. v Troon Storage Tankers SA [2009] EWCA Civ 425, where in the beginning of his judgment Lord Justice Longmore said at para 1:

The purpose of a cancelling clause in a voyage or time charterparty is to fix a definite date by which, if the owners fail to deliver the vessel to the charterers, the charterers are entitled to wait no longer for the vessel to be delivered. In the absence of a cancelling clause an owner would be in breach of charter for failure to deliver on the contractual date but a charterer would not be able to treat the owner as being in repudiatory breach of contract until the delay was such as to frustrate the commercial purpose of the adventure. The length of that delay is notoriously difficult to agree or fix with any certainty and it is, therefore, not surprising that parties to a voyage or time charter are ready to agree a cancelling date in order to avoid all arguments about whether delay in delivery is such as to frustrate the adventure.

In Mansel Oil Ltd case the date of cancellation arose before the charterers gave nomination as to loading port, but at the same time it was evident that the vessel was never going to be able to meet her cancelling date. The court held that since the vessel was not in a deliverable state regardless of whether she was given orders to proceed to one or other of the places referred to in the charterparty or not, it was not necessary for the charterers to have made a nomination in order to be able to exercise a right of cancellation as it was futile to do so.

Summing up:

  • the owners under absolute obligation to provide the vessel by the cancelling date and time
  • the charterers have a right but not duty to terminate contract
  • invocation of the cancellation clause is a drastic measure in case of delayed ship’s arrival therefore not to be applied lightly
  • it terminates contract and leaves the shipowner liable for damages if he is in breach
  • in absence of cancellation provision charterers would have to wait until delay in arrival is so prolonged that it frustrates the contract, thus both sides will be in uncertain position over estimation of whether delay is of frustrating nature or not.
  • cancelling clause generally does not impose an absolute obligation on the owner that the vessel must be ready for loading by the stipulated date and furthermore any such duty may be expressly qualified by obligations to exercise due diligence to present the vessel in appropriate state of fitness.
  • if vessel is not an arrived ship she is not ready to load within the meaning of the cancelling clause of the charterparty, therefore in the case of a berth charter, the vessel must actually be in berth to satisfy requirements of clause.
  • 8. A cancelling clause in a consecutive voyage charter may have the effect (if the option given be exercised) of cancelling the whole charter and not merely one of the voyages under it.
  • 9. Obligation to nominate port is not a pre-condition of the right to cancel. The charterers are obliged to nominate port a) not so late as would mean that, because of the lateness of the nomination, the vessel could not make her cancelling date; b) early enough to ensure that the vessel suffered no delay resulting from the absence of nomination.

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