Same, same… different: Charterparty terms considered in “The Alpha Harmony”

The Commercial Court heard two appeals from arbitration concerning the purported cancellation of two, seemingly, back to back voyage charterparties on the grounds that Notices of Readiness (NOR) were not provided in time. On the face of things, the NOR requirements and the cancellation entitlements were back to back so that if the sub-charterer validly cancelled, the charterer could do the same up the line.  However subtle differences in the charters found by the Commercial Court meant that the middle charterer did not have the safety of a back to back situation that they thought they had.

Background

The head charter was between Oldendorff (Owners) and ADM (Charterers) pursuant to an amended Norgrain 1973 form. The sub-charter was between ADM / Charterers and Bilgent (Sub-charterers), pursuant to an amended Baltimore Form C Berth Grain Form.

The relevant clauses of the Head Charter and the Sub charter relating to the tendering of the NOR and the right to cancel are set out below:

As can be seen, both charters provided that the NOR was to be delivered between 0800 – 1700 Monday to Friday, and 0800 – 1100 on a Saturday. In this case, the NOR was delivered at 0704 on Sunday 10 May. Accordingly, on the basis that the NOR had been tendered outside of the hours referred to in clause 14 (in the sub-charter) and clause 70 (in the head charter), the Sub-Charterer and the Charterer cancelled. However, the arbitration tribunals had held that both cancellations were unlawful.

Sub-Charter appeal

The Sub-Charterers’ position was that the charterparty terms were straightforward - if the NOR was not tendered in accordance with clause 14 (ie. within the office hours) before noon on 10 May 2015, there was an option to cancel.

The Charterers argued however that there was a “tension” between clause 14 and clause 16. The office hours’ requirement in clause 14 provided hours within which the NOR could be tendered but clause 16 nevertheless set a deadline of noon on 10 May 2015 (which was outside those office hours). They argued therefore that only those parts which were “sensible” to include should be incorporated into clause 16 and that did not include the office hours’ requirements. Therefore whilst the NOR might have been tendered out of hours pursuant to clause 14, it did not give rise to an entitlement to cancel in clause 16.

The Court overturned the Tribunal’s finding and held that the Sub-Charterer was entitled to cancel.  The Court accepted the Sub-Charterers’ submission that “as per Clause 14” (as found in clause 16) meant that clause 16 would operate if the requirements of clause 14 were met. The Court disagreed with the Charterers’ submission that there was any inconsistency between clauses 14 and 16; clause 14 set out the requirement for the tender of the NOR (in particular that it be tendered within the stated hours) and clause 16 set out when the right to cancel arises (noon on 10 May 2015, if the NOR has not been validly tendered). 

Head Charter appeal

The Charterers effectively adopted the Sub-Charterers’ position in their appeal against the Owners – namely that clause 4 entitled the Charterers to cancel if the NOR was not tendered “as per Clause 17”, which stipulated the time when the NOR should be tendered by reference to clause 70. On the face of things, their position was back to back with the Sub-Charterers and one might expect the same outcome. 

The Court, however, found in favour of the Owners and held that the Charterers’ cancellation was unlawful. 

The Owners’ position was that the entitlement to cancel arose from clause 4 – an entitlement to cancel if the NOR was tendered in accordance with clause 17. Clause 17 made no reference to the hours within which the NOR should be tendered. Accordingly, for the purposes of the cancellation entitlement, and notwithstanding clause 70 (which was not referred to in clause 4), the NOR could be tendered at any time before 2359 on 10 May before any entitlement to cancel arose.

The Court considered that the deletion of the office hours’ requirement to the standard clause 17 of the Norgrain head charter (which clause 4 did make reference to) was “striking”.

So what of the statement in clause 17: “See also Clause 70” (which did stipulate hours for tender)? These were not words of incorporation (see The Lipa [2001]) – “They were simply words which notified the reader that there were laytime provisions in clause 70”.

Accordingly, when construing the objective of the parties, the Court found that “It is likely that the purpose was to make clear that for cancellation purposes, the subject of clause 4, notice of readiness did not have to be delivered within office hours but that for laytime purposes, the subject matter of clause 70, a notice of readiness had to be delivered within the stated office hours.”

Comment

Notwithstanding cancellation terms which, at first glance, many would consider to be back to back, it was held that there was a small enough difference to give rise to the Sub-Charterers’ entitlement to cancel but not to give any entitlement to the Charterers. 

This case highlights the importance of ensuring, insofar as possible, that terms are identical if a charterer wishes to be an entirely middle party. A subtle difference in The Alpha Harmony gave rise to a result that those negotiating the charters are unlikely to have expected.

Related items:

• Construction and scope of jurisdiction agreements and the court’s jurisdiction to restrain proceedings in breach
• Lessons for owners relying on letters of indemnity