Cancelling Charterparty

If the ship has not arrived at the first loading port, or is not ready to load at the first loading port, by the cancelling date and time, most charters give the charterer the absolute right to cancel the agreement. The sting in the tail is when the charterer is obliged to advise the owner that the ship is cancelled. Unsurprisingly this detail is not at the top of the list of priorities for the broker when negotiating a fixture. Ask yourself, who wants to dwell on the cancellation of a contract whilst it is being negotiated?

Under English law a charterer is not obliged to declare whether or not a ship will be cancelled until the ship arrives at the load port or is ready to load, unless expressly stated in the charterparty. ln the unamended Gencon form the charterer is not obliged to declare their option to cancel until at least 48 hours before the ship’s expected arrival. So what happens if the ship is one month late? Obviously she will be cancelled – but what if the market has risen significantly and perhaps the charterers’ next cargo will be suitable for when the ship arrives. They will be able to take the late ship at a lower than market rate. The point is that the owner cannot make any sweeping assumptions that because the ship is late she will be cancelled.

If an owner knows 10 days before the cancelling date that the ship will not be able to arrive prior to the cancelling date but the charterer is not cooperative then the ship may have to ballast toward the load port in order to avoid a claim for breach of contract from the charterers. The cancelling clause gives the charterer an express contractual right to terminate the charterparty if the ship is not ready to load by a particular named date. Some authorities argue that there is no contractual right to cancel under the cancelling clause unless and until the date specified in that clause has been reached (Madeleine (1967) – Roskill J).

A more reasonable approach, adopted in many charters, is that within a certain time after the owner advises that the ship will be late and expects to arrive on (say 48 hours) the charterer will declare whether or not they will cancel the ship. Ask the question: does the ship have to be ready to load or should the ship’s NOR (Notice of Readiness) be tendered by the cancelling date/time? In practice it is better that both parties, owner and charterer, know as soon as is practicable whether the ship will be cancelled.

 

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Cancelling Clause 2002 (Code Name: CANCELCON 2002)

CANCELCON 2002 is a standardized cancellation clause for charter parties, developed and published by BIMCO (The Baltic and International Maritime Council). BIMCO is the largest international shipping association, and its standardized contracts and clauses are widely used in the maritime industry.

CANCELCON 2002 is designed to be a fair and balanced clause that can be used in a variety of charter parties. It outlines the process and requirements for cancelling a charter party due to a failure to meet the cancelling date, which is the date by which the ship must be ready to start its charter.

Key provisions of CANCELCON 2002 typically include:

1. Notice Requirement: The cancelling party must provide a written notice to the other party, typically not less than 96 hours (4 days) before the cancelling date if they intend to cancel the charter party.
2. Cancellation: If the ship is not ready to commence the charter by the cancelling date, and notice has been given as required, the charterer has the right to cancel the charter party.
3. Proof of Readiness: If the shipowner claims that the ship is ready before the cancelling date, they must provide evidence of this readiness.
4. Bunkers: If the charter party is cancelled, the charterer typically has to pay for any bunkers (fuel) they ordered but will not use.
5. Dispute Resolution: The clause may also include provisions for resolving disputes, such as arbitration or mediation.

6. Indemnification: In the event that a charterparty is cancelled, there might be an indemnification clause within CANCELCON 2002 that could protect either party from potential losses or damages. This could be related to costs incurred in preparing the ship for charter, such as costs associated with crew, provisions, or port fees.
7. No Show: If the charterer fails to load the cargo and the ship is ready for the charter, the shipowner may have the right to cancel the charterparty after giving due notice.
8. Force Majeure: CANCELCON 2002 may contain a force majeure clause, which allows for cancellation without penalty if certain unforeseen events occur that are beyond the control of either party. This can include things like war, natural disasters, or other “Acts of God”.
9. Other Breaches: There could also be provisions for cancellation in the case of other breaches of contract, not specifically related to the cancelling date. This could include failure to pay hire, failure to maintain the ship, or insolvency of either party.

These are potential components of the CANCELCON 2002 clause, and the specifics can vary based on the individual contract. It is always important to thoroughly review your specific contract and seek professional legal advice if you have any questions or concerns.

CANCELCON 2002 is designed to provide a clear, fair and balanced approach to the cancellation of charterparties, but it’s also flexible enough to be adapted to the specific needs of the parties involved. It’s an example of BIMCO’s ongoing work to provide standard contracts and clauses that meet the evolving needs of the international shipping industry.

Where can I find CANCELCON 2002?

We kindly suggest that you visit the web page of BIMCO (Baltic and International Maritime Council) to obtain the original Charter Party forms and CANCELCON 2002. www.bimco.org 

 

Cancellation of a Ship Under a Voyage Charter

Amended Gencon Form – Clause 10

A principled individual charters a majestic ship for a splendid voyage, guided by an amended Gencon document. Clause 10 of this esteemed contract stipulates that if the ship fails to be prepared for loading by a predetermined date, as mutually agreed upon by the involved parties, the charterers possess the prerogative to exercise their option to rescind the agreement. Prior to the cancellation deadline, it becomes abundantly clear that the ship is incapable of reaching the designated port in a timely manner. The principled individual, burdened with obligations to fulfill under their sub-contracts, is compelled to transport the cargo by a specific date and seeks guidance from the esteemed Club regarding the possibility of invoking the cancellation clause.

The Assured can exercise their option to cancel only upon receiving a formal request from the owners. This request prompts the Assured to declare their intention to either proceed with the cancellation or uphold the agreement, as the owners possess the explicit entitlement to make such a demand in accordance with the charterparty. In the absence of such a demand, the Assured is not legally permitted to cancel before the designated date of cancellation, although there would be no hindrance should the Assured engage in negotiations with the owners, mutually agreeing to terminate the charterparty before the stipulated date. It is important to note that there is no provision for anticipatory cancellation.

Ultimately, the Assured is compelled to secure an alternative ship capable of timely cargo lifting. In doing so, the Assured fulfills their contractual obligations towards the shippers. Since no demand has been received from the owners, the Assured proceeds with the cancellation once the cancellation date has elapsed.

 

 

Cancelling Clauses

Cancellation clauses are designed to favor the charterers, providing them with the privilege to terminate the Charter Party if the ship fails to reach the designated destination within the agreed timeframe. Nonetheless, such clauses do not grant the charterers the authority to demand compensation unless explicitly specified in the Charter Party.

Conversely, owners shall bear responsibility for damages not only if the ship surpasses the cancellation date but also if, apart from that, they breach any other obligation outlined in the Charter Party. We shall delve deeper into this matter in subsequent discussions.

Cancelling Clauses in Voyage Charters

The subsequent nullifying provisions are respectively incorporated in the standard Gencon 1976 form and the standard Gencon 1994 form:

Gencon 1976 Charter Party – clause 10, lines 121-129 In the event that the ship is not prepared for loading (regardless of whether it is in berth or not) on or before the specified date in box 19 (referred to as the “cancelling date”), the Charterers possess the option to annul this agreement. Such option must be declared, if demanded, at least 48 hours prior to the ship’s expected arrival at the loading port.

If the ship encounters delays due to average or other reasons, the Charterers must be promptly informed. If the ship remains delayed for more than 10 days beyond the date it was expected to be ready for loading, the Charterers have the right to cancel this agreement, unless a specific cancelling date has been mutually agreed upon.

Gencon 1994 Charter Party – clause 9, lines 138-153 In the event that the ship is not prepared for loading (regardless of whether it is in berth or not) on the cancelling date specified in box 21, the Charterers shall have the option to terminate this Charter Party.

If the Owners anticipate that, despite exercising due diligence, the ship will not be prepared for loading by the cancelling date, they must promptly notify the Charterers, stating the expected date when the ship will be ready for loading, and inquire whether the Charterers will exercise their option to cancel the Charter Party or agree to a new cancelling date.

The Charterers must declare their option within 48 running hours after receiving the Owners’ notice. If the Charterers choose not to cancel, this Charter Party shall be deemed amended such that the seventh day after the new readiness date mentioned in the Owners’ notification to the Charterers becomes the new cancelling date.

The provisions of sub-clause (b) of this clause shall only be applicable once, and in case of further delays to the ship, the Charterers shall have the option to cancel the Charter Party as per sub-clause (a) of this clause.

In both clauses, the starting point remains the same: the Charterers have the choice to cancel the Charter Party if the ship is not ready for loading by the cancelling date. The Charterers may exercise this option until the ship is ready to load or, depending on the circumstances, within a reasonable time thereafter.

An untimely exercise of the cancellation option is invalid. The Owners may not accept, agree to, or treat it as a repudiatory breach of the Charter Party.

“Ready to load” refers to the ship having arrived at the specified destination, usually allowing for a valid Notice of Readiness (NOR) to be tendered. However, for the purpose of the cancelling clause, the ship does not necessarily have to be as fully prepared as required for the tendering of a valid NOR. The burden of proof that the ship is not ready for loading due to a significant defect lies with the Charterers.

The remaining portions of both clauses (referred to as paragraph (b) in the 1994 form) provide the Owners with a mechanism to prompt the Charterers to make a decision regarding the cancellation of the Charter Party. These clauses have been formulated differently in this regard and will be further discussed below.

Gencon 1976 Charter Party

Upon the expiration of the cancellation date, owners are entitled to request charterers to declare their intention regarding the cancellation of the Charter Party. Consequently, charterers are relieved of the obligation to consider any previous requests to cancel the Charter Party or extend the cancellation date. To avoid the risk of deeming the cancellation of the Charter Party as unlawful, it is advisable for charterers to exercise patience and await the passing of the cancellation date.

Once the demand is made, charterers must make a decision at least 48 hours prior to the expected arrival of the ship, or within a reasonable timeframe if the demand is made within 48 hours of the ship’s estimated time of arrival (ETA).

The underlying purpose of this mechanism is to safeguard owners from undertaking a lengthy voyage, only to discover upon arrival that the Charter Party has been rescinded. Nonetheless, this provision only ensures a minimum protection period of two days for owners, assuming that the cancellation request has been submitted prior to 48 hours of the ship’s ETA.

Gencon 1994 Charter Party

Clause 9 (b) of the Gencon 1994 form provides owners with increased protection, while affording charterers less flexibility.

Under clause 9 (b), owners need not wait for the actual passing of the cancellation date. If they anticipate that the ship will not be prepared in due time, owners are obliged to inform charterers of this circumstance, along with the ship’s ETA, and request charterers’ decision regarding cancellation.

Consequently, charterers must declare their intention within the next 48 hours, and should they choose not to exercise their cancellation option, the original cancellation date shall be extended to the seventh day following the ship’s ETA, as indicated in owners’ notification.

The final paragraph of clause 9 (b) clearly states that owners can invoke sub-clause (b) only once. In the event that the ship fails to meet the revised cancellation requirements, owners will be subject to sub-clause 9 (a) exclusively.

Last paragraph of clause 10 in the Gencon 1976 form

In the event that the ship experiences delays resulting from general or particular average, charterers must be promptly notified. If the ship remains delayed for a period exceeding 10 days from the specified ready-to-load date (box 9), charterers possess the option to terminate this contract, unless a mutually agreed cancellation date has been established.

This paragraph solely applies if no cancellation date has been agreed upon. The “expected ready to load” date, as indicated in box 9, becomes crucial for the purpose of canceling the C/P.

Other Voyage Charter Parties

While the majority of standard forms contain a cancellation clause similar to the one previously described, not all of them include provisions enabling owners to compel charterers to make a definitive decision.

Examples of other variations that may arise are as follows:

Charterers hold the right to cancel the contract in the absence of a valid Notice of Readiness (NOR) prior to the passing of the cancellation date, until such time as a valid NOR is given (or one hour thereafter).

In the event that the ship is not prepared for loading on the cancellation date, charterers are required to notify owners of their cancellation option within 24 hours subsequent to the cancellation date. Failure to do so will result in the Charter Party remaining fully enforceable.

Voyage Charter Party Cancellation and Damages Claims

As stipulated in the initial paragraph, the provision for cancellation does not confer any entitlement to assert claims for damages. However, if the ship fails to meet its cancellation deadline due to a separate breach of the Charter Party, the owners become liable for damages. In the conventional Gencon 1976 and 1994 forms, the interplay between clause 1, box 8, and box 9 assumes significance in this regard.

Should the owners inaccurately specify the ship’s current location (i.e., its position at the time of contracting) in box 8 or the anticipated date of readiness to load in box 9, they may face legal action seeking compensation. Furthermore, if the ship, in addition to the aforementioned breach, misses its cancellation date, the cancellation may be invoked independently of this violation.

Implicit within these provisions is the obligation to proceed to the designated loading port in a prompt and efficient manner. This requirement finds expression in clause 1 of the Gencon Charter Party.

The inclusion of the phrase “expected ready to load” implies that the voyage leading to the loading port must commence in a timely manner, such that it can reasonably be expected that, under normal circumstances, the ship will be prepared to load on the specified date indicated in the Charter Party.

Lastly, the owners may be obligated to provide notifications regarding the ship’s Estimated Time of Arrival (ETA) at the loading port. While this provision is not present in the Gencon form, it may be a customary requirement in other forms of charter agreements (e.g., those lacking the “expected ready to load” provision).

If, in the event of the owners’ failure to offer a reasonable estimation or provide timely or any notice, the charterers may, in principle, seek compensation for the resulting damages, placing them in a position akin to one where a reasonable estimation had been provided or the notice was given at the specified time.

Cancelling Clauses in Time Charters

Most Time Charters possess a terminating provision of equivalent essence as elucidated earlier in the context of “Voyage Charters.”

As stipulated in the “New York Produce Exchange 1946” document, clause 14 establishes the following:

“If, as requested by the charterers, the period is not to commence prior to… and in the event that the ship fails to provide written notice of readiness on or before… but no later than 4 p.m., charterers or their representatives retain the option to terminate this Charter at any time up to the day of the ship’s preparedness.”

The notice of readiness alluded to in this clause pertains to the communication required to permit the transfer of the ship into the service of the charterers. This implies that the ship must be present at the designated location and in the prescribed condition as specified in the Charter Party.

Similarly, clause 21 of the Baltime document permits charterers to cancel if the ship has not been delivered by the cancellation date (box 22), while clause 16 of the NYPE 1993 document states that charterers possess the right to cancel if the ship is not prepared for delivery on the agreed-upon date.

The fundamental principles governing these clauses align with those discussed under “Voyage Charters.” Charterers are prohibited from terminating the agreement prior to the cancellation date but retain the prerogative to cancel after owners have effectively delivered the ship.

Comparable to the Gencon 1994 document, both the Baltime and NYPE 1993 forms empower owners to inquire of charterers whether they intend to proceed with cancellation when it becomes evident that the ship will not arrive punctually. The accompanying procedures also exhibit resemblances.

Thus, in contrast to these forms, the older NYPE form grants charterers greater latitude to maneuver while affording owners relatively less protection.

Time Charter Party Cancellation and Damages Claims

Moreover, in the context of a Time Charter Party, a separate breach may give rise to a claim for damages. The mere act of cancelling the Charter Party in accordance with the cancellation clause does not engender this consequence.

Aside from owners’ obligation to exercise reasonable diligence in delivering the ship prior to the cancellation date, the Charter Party may include an estimated time of arrival or a requirement to issue delivery notices.

Such representations should be conveyed in a fair and truthful manner. Failure on the part of owners to do so renders them liable for damages, which aim to place charterers in the position they would have occupied had the information (ETA or delivery notices) been furnished on reasonable grounds.

Condition of the Ship Upon Delivery and Place of Delivery

If the ship fails to meet the stipulated condition or is not positioned as required by the Charter Party (be it a Voyage Charter Party or Time Charter Party) on the cancellation date, this may constitute an independent breach of the Charter Party, entailing the possibility of claiming damages.

Nevertheless, the topic of ship delivery and the tendering of a valid Notice of Readiness necessitates separate consideration, as previously expounded upon in previous correspondence.

 

 

What is the cancelling clause of Time Charter?

A cancelling clause in a time charter is a provision that allows the charterer to cancel the contract in the event that the ship is not delivered by the owner by a certain date. This date is known as the cancelling date or laycan (layday cancelling date).

The cancelling clause is crucial for charterers because it provides protection against delays in the delivery of the ship. If a ship is not delivered on time, the charterer may suffer substantial financial loss due to missed opportunities or unexpected costs. Therefore, the cancelling clause gives the charterer the right to walk away from the contract without any penalty.

The specific wording of the cancelling clause can vary, but it often includes details on:

1. The cancelling date: The exact date or range of dates by which the ship must be delivered.
2. Notice period: How much notice the charterer must give before cancelling the contract. This is usually a few days.
3. Conditions for cancellation: The circumstances under which the charterer can cancel the contract. This typically includes a delay in the delivery of the ship, but might also include other conditions, such as the ship failing to meet certain specifications.

Here’s an example of what a cancelling clause might look like:

“In the event the Ship is not delivered by 17:00 hours local time on [date], the Charterers have the option of cancelling this Charter Party. Notice of cancellation must be received by the Owners no later than 48 hours prior to the cancelling date.”

This is a simplified example, and actual clauses might include more specific terms and conditions. As with any legal contract, it’s always a good idea to consult with a legal professional to fully understand the implications of the cancelling clause and other provisions in a time charter.

 

What is the cancellation clause of Charterparty?

A cancellation clause in a charterparty is a provision that allows one or both parties to cancel the contract under specific circumstances. The exact terms can vary widely, as they are subject to negotiation between the parties involved.

Typically, a cancellation clause can be invoked under circumstances such as:

1. Late Delivery: If the ship is not delivered to the charterer by a specific date, the charterer might be given the right to cancel the contract.
2. Off-Hire Period: If the ship is off-hire (i.e., unable to be used for its intended purpose) for a period exceeding a certain duration, the charterer might have the right to cancel.
3. Breach of Contract: If either party fails to meet their obligations under the contract, the other party may be entitled to cancel. This could include situations where the charterer fails to pay hire, or the owner fails to maintain the ship in a seaworthy condition.
4. Insolvency: If either party becomes insolvent, the other party may be given the right to cancel the charterparty.
5. Force Majeure: Some contracts include a force majeure clause, allowing cancellation in the event of extraordinary and unforeseeable circumstances beyond the control of either party, such as natural disasters or political unrest.

The specific cancellation clause in your charterparty may differ from these examples. It’s important to read and understand your contract, and consult a legal professional if necessary, to understand your rights and obligations regarding cancellation

 

 

Exercising a Right to Cancel a Charterparty 

In the realm of maritime law, a charterparty is a legal contract between the owner of a ship and the charterer. The charterer agrees to rent the ship, or a part of it, for a particular period of time or for a specific journey. However, there may come a time when one of the parties wishes to cancel the contract.

The right to cancel a charterparty can be exercised under specific conditions as stipulated in the contract. It’s essential to review the cancellation clause in your charterparty to understand the conditions under which you can cancel.

To exercise your right to cancel a charterparty, here’s a general guide:

1. Review the Contract: Look through the charterparty contract to ensure you understand the terms and conditions, especially the cancellation clause.
2. Identify Grounds for Cancellation: Identify valid reasons as per the contract for cancelling the charterparty. This could be due to a breach of contract, such as late delivery or failure to pay hire, or other reasons stipulated in the contract.
3. Notify the Other Party: Once you’ve identified valid reasons for cancellation, you should notify the other party in writing. This notification should detail the grounds for cancellation and refer to the relevant clauses in the contract that give you the right to cancel.
4. Seek Legal Advice: It’s always prudent to seek legal advice before making such a significant decision. A legal professional can help ensure you’ve correctly interpreted the contract and are acting within your rights.
5. Document Everything: Keep a record of all correspondence and interactions related to the cancellation. This may be necessary for legal purposes in case of a dispute.
6. Fulfill Any Remaining Obligations: Even if you cancel the contract, you may still have obligations to fulfill. This could include settling outstanding payments or fulfilling notice periods.
7. Protect Your Rights: If the other party is in breach, consider whether you may have a claim for damages. In such cases, it may be worth pursuing legal action.

Remember, every charterparty is unique, and the specifics of your contract may require a different approach. Always consult a maritime law professional to ensure you’re taking the right steps.