CHARTER PARTY INFORMATION

ENGLISH HIGH COURT OF JUSTICE IN THE HAPPY DAYdecides point of law left open by the earlier decisions in the Mexico 1 and the Agamemnon, namely if no valid notice of readiness is tendered can laytime/time on demurrage begin to commence?

The English High Court in The Happy Day has held that in the situation where no valid NOR was given laytime did not automatically commence upon commencement of cargo operations. The High Court so held and set aside the decision of the arbitrators. Although the case did not concern a tanker, it nevertheless does have implications for tanker charters if owners do not follow carefully  the NOR provisions laid down in the charterparty. Please see article below for further details on this decision.

The English High Court of Justice recently handed down its judgment in the case Glencore Grain Ltd v. Flacker Shipping Ltd. (The Happy day), a decision of Langley J. At the very outset it should be noted that this was a dry cargo case with a charterparty whose terms were ones which are unlikely to be found in a tanker charter. Given that the court’s decision concerns a point of law left open by the well known decisions of The Mexico 1 and The Agamemnon our members will find this decision of interest though hopefully one which will not need to be applied in the case of a tanker charter. Furthermore this recent case again emphasises the importance for owners to fully comply with a charterparty’s NOR and laytime provisions.

The Happy Day was chartered on an amended Synacomex form; it was a berth charterparty as opposed to a port charter. This is an important point which should be borne in mind when considering this case. The charterparty’s provisions as regards Notice of Readiness (“NOR”) were as follows:

28. If by reason of congestion the vessel is unable to enter the loading/discharging ports, Master has the privilege to tender Notice of Readiness in accordance with the Charter Party by cable radio and laytime is to commence as per clause 6, 30, 31, whether in berth or not, whether in port or not,…

30. At first or sole discharging port notice to be given to receivers/agents during normal local office hours and laytime to start counting at 8am next working day whether in berth or not, whether in port or not…

The master gave NOR on September 25 when the vessel was waiting for the tide to enter the berth. No further NOR was given. The vessel berthed and started discharging on September 26 and discharge was completed on December 25. The arbitrators held that laytime commenced at 8 a.m. on 29 September, without any apparent rationale. The Charterers appealed to the Court and sought to set aside the decision of the arbitrators. Charterers argued that no valid NOR was given,  therefore laytime was not triggered and consequently owners’ claim for demurrage could not be maintained.

In The Mexico I the Court of Appeal held that an NOR will be invalid if the vessel was not ready to commence cargo operations at the time when the NOR was given. It was further held that the NOR would not take effect later when the statements in the NOR became true, unless it could be proved that charterers had waived their right to receive a valid NOR.

In The Agamemnon it was held that the same was true where an NOR had been given prematurely, i.e. before the vessel had arrived at her agreed destination.

In both these cases the charterers had agreed that time should commence when cargo operations commenced. So the point of law left open was: if no valid NOR was given would laytime or time on demurrage commence at all?

Owners’ submissions:

Owners in The Happy Day argued in essence that it was a commercial absurdity to conclude that laytime did not commence at all because the NOR was invalid when in fact cargo operations were carried out. The purpose of the NOR was to inform charterers or their agents that the vessel was ready to perform cargo operations and that purpose was fulfilled at the latest when cargo discharge operations actually commenced. This was supported by the statement of facts recording the “acceptance” of the NOR.

Charterers’ submissions:

Charterers submitted that there was clear authority that where a charterparty stipulates that a particular NOR is to be given in order to commence laytime there is no room for a construction which allows an NOR which had been given in the wrong manner or the wrong place subsequently to become effective or a construction which effectively dispenses with the requirement to tender a valid NOR once cargo operations have commenced.

The Court’s decision:

The Court held that the provisions of the charterparty were clear, laytime would start at 8 a.m. on the next working day after a valid NOR had been given. In this case no valid NOR had been given, therefore laytime never commenced to run at the discharge port and owners could not maintain their demurrage claim. Furthermore, owners had not shown that there had been any waiver, estoppel or other agreement with the effect that no valid NOR needed to have been tendered. The NOR that had been given was not “accepted” by the charterers in any sense on which reliance could be placed, the arbitrators had found that it was only “received”. If owners’ contentions were accepted this would in effect be contrary to the court’s clear ruling in The Mexico 1 which rejected the concept of an inchoate notice and would also re-write the parties’ contract in effect to delete the clear requirement for a particular notice. Owners had recognised that it was not open for them to contend that an oral NOR had been given, even if it had been, charterers would have contended that the charterparty called for a written NOR.

What conclusions can be drawn from this decision?

This case is an example of the application of the principle of English contract law that the court will not easily depart from or read into a charterparty additional words or imply additional terms. It is always open for the parties to specify in the contract what they require. In this case the charter did not provide wording to the effect that “in any event laytime to commence when discharge commences”. It might be thought that this decision is overly legalistic; however, it should be borne in mind that each case is decided upon its own facts and the findings of fact made by the tribunal. Furthermore, the charterparty at issue was a berth charterparty and the NOR provisions were specific and not ones that are likely to be found in a tanker charterparty, which usually provides for NOR to be given by any means and laytime is stated to commence upon the vessel’s arrival in berth or upon commencement of cargo operations if it has not commenced earlier. This case is a further example of a court’s decision not being in tune with commercial practice and again calls for masters to have clear guidance on the important issue of the tendering of an NOR, without which an owner’s claim for demurrage may be seriously prejudiced.

Our advice to members is that if there is any doubt whatsoever about the validity of an NOR, a further NOR must be tendered without prejudice to the earlier one(s). INTERTANKO has published Demurrage – A Practical Guide for Tanker Masters, which provides invaluable guidance to masters and shore staff alike about this and other demurrage issues.

To order a copy of this book, please click here to visit our online bookshop!

If you would like to comment on this case or receive a copy of Court’s judgment please contact john.fawcett-ellis@intertanko.com