Charterers held to have lost right to cancel where revised loadport orders given

by Reed Smith
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ST Shipping & Transport Inc v Kriti Filoxenia Shipping Co SA [2015] EWHC 997 (Comm)

Charter terms

The charter, on BPVOY3 form, provided that subject to the provisions of clause 24, the vessel would proceed to “1/2 safe port(s) Black Sea excl Bulgaria, Romania, Turkey”.

Clause 17 provided for a laycan period of 1 to 3 April 2003. Clause 24 provided inter alia as follows regarding revised orders:

“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 …”

Facts

Charterers nominated Tuapse as the first loadport, then three days later gave a revised nomination of Batumi. The vessel’s estimated time of arrival at Batumi was after the cancelling date, and on that basis Charterers purported to cancel the charter. Owners accepted that cancellation as a repudiatory breach and claimed damages.

Arbitrators’ findings

Owners’ claim succeeded. The Tribunal found that after a revised order had been given under clause 24, the cancellation provisions of clause 17 ceased to apply. Specifically, they did not apply to the revised loadport of Batumi. Even if the right to cancel had survived, Charterers could not cancel where the re-nominated loadport was one which the vessel, at the time of the re-nomination, could not have reached by the cancelling date (as was the case here).

Charterers appealed on two issues: (i) whether the clause 17 right to cancel survived a re-nomination of the first loadport under clause 24; and (ii) if so, whether they were in any event not entitled to cancel where at the time of re-nomination, the vessel’s ETA for the re-nominated port was after the cancelling date.

Findings on appeal

Charterers’ appeal was dismissed.

On the first issue, whilst Charterers had a strong argument based on the commercial value of the cancelling clause, Owners’ position was stronger. Owners cited the commercial undesirability of losing the certainty of an irrevocable nomination while remaining exposed to cancellation rights. The parties could, if they had wished, have drafted an express clause which allowed the cancellation rights to survive, but they had not.

The Court also found an inconsistency in Charterers’ case. They accepted that an initial loadport nomination could not be given so late that it would cause the vessel to miss the cancelling date, however they contended that a re-nomination under clause 24 was not fettered in this way. This undermined Charterers’ contention that clause 24 was intended to equate a re-nominated first loadport with an originally nominated first loadport, and to confer on them in respect of the former all of the entitlements conferred on them under the charter in respect of the latter.

As regards the second issue, the Court considered whether, once the original nomination was made, the vessel was obliged to proceed both to that original port and as if any other port within the charter range might be substituted. It determined that this approach would be both uncommercial and unsatisfactory. When the original nomination was made, that port became the contractual loadport and Owners were entitled to proceed on that basis unless and until a re-nomination was made. The parties had a duty of cooperation, which meant that where the vessel proceeded in accordance with the charter, Charterers could not cancel if they made a substitute nomination for a port which the vessel would not be able to reach until after the cancelling date.

Comment

This case exemplifies the importance of carefully considering the charter terms before taking drastic steps such as cancellation. It is essential to consider the charter as a whole, and whether the default position under one clause is affected by the operation of another in certain circumstances.

The reciprocal, commercial relationship between the parties appears to have been key to the Court’s decision in this case, with a focus on both the fact that the parties could have agreed an express clause to cover this factual scenario if they had wished to, and on the duty of the parties to cooperate under the charter terms which were agreed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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