Notes from the Bar – NOR and cancellation of voyage charterparties

Notes from the Bar – NOR and cancellation of voyage charterparties

Provisions in charterparties for tendering of NOR, commencement of laytime and cancellation of charterparties are all well known and often negotiated provisions.  Very often, parties focus their negotiations on the dates for the laycan without considering the wordings of the various clauses and the interplay between these clauses.  The recent decision of Bilgent Shipping Pte Ltd v. ADM international SARL [2019] EWHC 2522 is a timely reminder to all operators and traders that different wordings used in these clauses can result in completely different outcomes.

Facts of the case

Oldendorff (“Owner”) entered into a charterparty with ADM (“Head Charterer”) for two voyages (the “Head Charter”) on an amended Norgrain 1973 form.

The Head Charterer entered into a sub-charter with Bilgent (“Sub-Charterer”) for a single voyage on an amended Baltimore Form C Berth Grain form (the “Sub-Charter”).

Both charterparties provide for laycan to end on 31 May 2015.  The laycan spread for both charterparties were subsequently narrowed down to 10 May 2015.  10 May 2015 was a Sunday.

The vessel arrived on 10 May 2015 at 0250hrs and tendered NOR at 0704hrs via email.

Both charterparties provide for NOR to be delivered between 0800hrs and 1700hrs on a weekday and between 0800hrs and 1100hrs on a Saturday.  There were no provisions for delivery of NOR on Sundays.  Both charterparties further provide for laytime to commence at 0800hrs on the next working day after a valid NOR was tendered.

Although NOR was tendered on 10 May 2015 at 0704hrs, both the Sub-Charterer and Head Charterer cancelled the respective charterparties on the basis that NOR was not presented during the permitted hours.

The Sub-Charter

The relevant provisions in the Sub-Charter are clauses 14 and 16.

Clause 14 reads as follows;

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.

Clause 16 reads as follows;

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.

(emphasis ours)

The Sub-Charterer’s argument was based on the wordings of clause 16, if a valid NOR was not tendered by 12 noon on 10 May 2015 (10 May 2015 being the last day of the narrowed laycan spread), the Sub-Charterer had the right to cancel the Sub-Charter.

Even though NOR was tendered at 0704hrs on 10 May 2015, it was argued that the NOR was invalid as it had to be delivered “as per Clause 14”.  In this case, it was submitted that clause 14 requires that the NOR be delivered during office hours, and that the laytime provisions provides for laytime to commence at 0800 on the next working day.

Therefore, it was submitted that the Sub-Charterer had the right to cancel notwithstanding the fact that NOR was tendered before noon on 10 May 2015 as it was not tendered within office hours.

The Head Charterer on the other hand argued that there was a tension between clauses 14 and 16.  It was further argued that as a result of this tension, the office hours requirement in clause 14 should not be incorporated into clause 16.  The effect of this argument would be to ignore the words “as per Clause 14” in clause 16, and that the right to cancel only arises if no NOR was tendered before noon on 10 May 2015.

Court’s holding on the Sub-Charter

The Court held that the issue in question is really a question of construction of the terms of the charterparties.

In construing the terms of the charterparty in question, it was not a

“…literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of the drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning…”.

The Court found that there was no tension between clauses 14 and 16, and that there is no reason to cut down the words “as per clause 14”.  It held that the right to cancel would arise under clause 16 if a NOR that was in accordance with clause 14 was not tendered before noon on 10 May 2015.

And in construing the terms of clauses 14 and 16, the Court noted that a valid NOR has two effect.  The first effect is to identify when laytime commenced.  The second effect was to identify when an option to cancel arose.

The Court was of the view that it would promote uncertainty if, notwithstanding the words “as per clause 14”, a NOR would be valid for one purpose but invalid for the other purpose.  Therefore, if the words “as per clause 14” was cut down and not given their plain and natural meaning, it would risk causing uncertainty in the interpretation of the clause.

As an aside, one of the arguments raised by the Head Charterer was that with current technology, it can be expected that the Sub-Charterer would have read the NOR that was sent by email at 0704 on 10 May 2015.  It was argued that it would be uncommercial for the Sub-Charterers to be entitled to cancel the charterparty simply because the NOR was not tendered during office hours.

The Court noted that although there is some force in this argument, unfortunately the custom by which NORs are to be provided within office hours is a longstanding practice.  And even though this practice may now be out-dated, that is not a good reason to ignore the provision that NOR must be submitted during office hours.

It was therefore held that the cancellation of the Sub-Charter was valid.

The Head Charter

The relevant provisions in the Head Charter are clauses 4, 17 and 70.

Clause 4 reads 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 days spread latest 30 days prior first Layday …… “

Clause 17 reads 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. ………” (emphasis ours)

Clause 70 reads 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 Owners argued that the critical difference between the Head Charter and the Sub Charter was the fact that clauses 4 and 17 of the Norgrain Form were amended in the Head Charter.

The amendment to clause 4 was the amendment that if the NOR was not tendered before 2359, the Head Charterer would have the option to cancel the Head Charter.

The amendment to clause 17 was the deletion of the requirement that NOR must be tendered during office hours.

It was argued that the deletion of the requirement at clause 17 for tendering of NOR during office hours must mean what was deleted showed what the parties did not want in their agreement.

The Owners further argued that the words “See also Clause 70” were not words of incorporation.  These words merely showed the reader that there was another clause that they should take notice of.

Court’s holding on the Head Charter

The Court accepted that the deletion of the office hours requirement at clause 17 from the standard form was compelling evidence showing that the parties did not intend the office hours requirement to apply to clause 17.

Further, the amendment of clause 4 where the option to cancel arises if there was no NOR tendered by 2359 was also regarded as showing the parties did not intend the office hours requirement to apply to the right to cancel.

The Court thus regarded that the combined effect of clauses 4 and 17 showed an objective intention between the Owners and Head Charterer that there was no requirement that the NOR must be delivered during office hours for the purposes of the cancelling clause.

In relation to the words “See also Clause 70”, the Court did not regard them as incorporating the office hours requirement into the cancelling clause.  It was held that these words were to make clear that for the purposes of cancellation, the NOR did not have to be delivered within office hours but for the purposes of laytime calculation, the NOR had to be delivered within office hours.

The end result is that for the Head Charter, the NOR was valid for one purpose (namely in relation to the option to cancel) but not valid for another purpose (the commencement of laytime).

It was held therefore that the NOR tendered at 0704 on 10 May 2015 was valid for the purposes of avoiding the cancellation clause, and that the Head Charterer was not entitled to cancel the Head Charter.

The outcome for the Head Charter and the Sub-Charter were thus completely different.

The Court explained that for the Head Charter, the objective reading of the clauses showed that the parties intended to create a different NOR regime to apply to the cancellation clause and for the purpose of commencement of laytime.  Whereas for the Sub-Charter, there was no evidence showing that the parties intended to create a different regime to apply to the NOR.

It was further explained that the difference in the outcome was simply because the parties had chosen different forms and words to apply.  The charterparties were not on back-to-back terms.

Our comments

It may seem odd at first blush that the outcome for both charterparties were completely different.  However, as explained by the Court, this was simply because the clauses in both charterparties were different.

One important lesson to be learnt from this case is that when using standard forms, the deletion of some of the words in the standard form will have a very important bearing on how the contract is to be construed, and may have as much weight in interpreting the contract as words that are expressly written into the contract.

It is also a timely reminder that NOR serves two functions; namely for the purpose of ascertaining the commencement of laytime, as well as the determination of whether the cancellation clause is triggered, and that it is possible to separate these two functions by phrasing the charterparty accordingly.

Finally, although the requirement for NOR to be tendered during office hours may be out-dated in view of the current technology, it is still a practice that is widely followed.  If you want to depart from this practice, it would be wise to state it expressly in your charterparty.

If you have any queries on the above, please feel free to contact us.

Disclaimer : This article is for general information only and not intended to constitute legal advice.  We shall not be liable for any errors or omissions, nor shall we be liable for reliance on the contents of this article.

Photo by Hubert Neufeld on Unsplash

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