Cancellation provisions, particularly on a lengthy approach voyage, can be problematic for Shipowners. Clearly, if the ship is unlikely to arrive at the load port within the cancelling period the Shipowners may not wish to undertake a long approach voyage, particularly if it is passing alternative loading areas, without the comfort of knowing whether or not the Charterers are likely to cancel the charterparty.
Therefore, it is common to see within charterparties an express additional provision stating that in the event that Shipowners consider the ship unlikely to meet the laycan provisions they can give notice to Charterers requiring charterers to confirm whether or not they will exercise their right to cancel the charterparty and that the cancellation date will be extended.
Wording as follows is commonly used: “If the ship is not delivered by midnight local time on the cancelling date stated … the charterers shall be entitled to cancel this charterparty. However, if the shipowners will be unable to deliver the ship by the cancelling date, they may give notice in writing to the charterers at any time prior to the delivery date as stated … and shall state in such notice the date by which they will be able to deliver the ship. The charterers may within 24 hours of receipt of such notice give notice in writing to the shipowners cancelling this charterparty. If the charterers do not give such notice then the later date specified in the shipowners’ notice shall be substituted for the cancelling date for all the purposes of this charterparty.”
The approach voyage ends and the next stage of the Voyage Charterparty takes place when the Ship Master gives Notice of Readiness (NOR) at the load port.
Notice of Readiness (NOR) is the trigger to commence the running of laytime, the period allowed for the loading and discharging of cargo on board the ship.
For a valid Notice of Readiness (NOR) to be given, and the approach voyage to be concluded, the ship must be an Arrived Ship and comply with the specific provisions within the charterparty for the tender of Notice of Readiness (NOR).
How to cancel Charterparty?
Exercising a Right to Cancel a Charterparty
Exercising the right to cancel a charterparty effectively ends the agreement, freeing both parties from their contractual commitments. This right can be invoked even in the absence of a breach by the Shipowners.
1- Cancelling Dates – Fixed, Laycan, and Narrowing Clauses:
The right to cancel typically arises if the ship is not delivered or ready to load by the specified cancelling date. This date can be a fixed point or fall within a laycan period, with the right to cancel becoming applicable only after this period. The duration of the laycan is subject to mutual agreement. Charterers often prefer a set arrival date for precise cargo loading plans, while shipowners favor flexibility to accommodate potential delays. Parties may also agree to shorten the laycan before the ship’s delivery. The responsibility for narrowing the laycan, whether on charterers or shipowners, affects the consequences of failing to issue a proper laycan narrowing notice. Without a defined delivery time or cancelling date in the charterparty, shipowners are generally expected to deliver the ship promptly.
2- Readiness as a Pre-Requisite for Cancellation:
Certain charterparties, such as Gencon 76, Gencon 94, and Asbatankvoy, stipulate that cancellation rights arise if the ship is not ready to load by the cancelling date. “Readiness” in this context differs from that in laytime. Here, a ship is not ready if it has a significant defect affecting the charterparty’s commercial objective. For instance, a bunker shortage at delivery might not be considered material for cancellation unless specified otherwise in the charterparty.
Contractual variations can alter this standard. For example, in the NYPE 2015, it states that if the ship fails hold inspection, it goes off-hire until passing a subsequent inspection. This suggests that for a ship to be off-hire, it must have been initially accepted as ready. Thus, charterers are expected to accept the ship, with their remedy being to declare the ship off-hire rather than cancel the charterparty for unclean holds.
Advance Charterparty Cancellation
1- Shipowner-Requested Early Cancellation:
Without a specific clause, shipowners cannot force charterers to cancel early if the ship cannot be delivered by the cancelling date. In such cases, shipowners must still head to the delivery port at their own cost, facing the possibility of charterers cancelling upon arrival. However, some standard charters provide a solution. For instance, the Gencon cancelling clause permits shipowners, who have diligently tried to meet the cancelling date, to inform charterers of a new readiness date and inquire if they will cancel or agree to a new cancellation date. Charterers must decide within 48 hours of receiving this notice. If they don’t cancel, the charterparty is amended, making the seventh day after the new readiness date the new cancelling date. A similar clause is present in clause 16 of the NYPE 1993, aiding shipowners in avoiding unnecessary journeys if their ship is delayed.
2- Early Cancellation by Charterers:
Under English law, as demonstrated in The Madeleine  2 Lloyd’s Rep 224, charterers lack the right to prematurely cancel a charterparty before the set cancelling date or laycan period. Early cancellation by charterers may result in a claim for damages due to a repudiatory breach of the charterparty. However, this does not restrict charterers from ending the charterparty in cases of a repudiatory breach by the shipowners or if the contract becomes frustrated.
Damages for Charterparty Cancellation
1- Charterers’ Risk of Damages for Early Cancellation:
If charterers cancel a charterparty prematurely, it constitutes a repudiatory breach (as seen in The Mihalis Angelos  1 QB), making them liable for damages to shipowners. Should shipowners secure another charter at lower rates due to a market decline, they are entitled to damages for the rate difference for the original charter’s duration. For voyage charters, damages are calculated based on the freight rate difference for a reasonable completion time of the cancelled voyage. However, if market rates increase, shipowners would likely incur no loss and be entitled only to nominal damages.
2- Charterers’ Claim for Damages:
Charterers’ right to cancel a charterparty does not inherently entitle them to claim damages against shipowners. They can only claim damages if they establish a breach by the shipowners.
3- Shipowners’ Obligation Regarding Timely Arrival:
Shipowners are not absolutely bound to ensure the ship’s arrival by the cancelling date. The law implies terms related to the ship’s arrival based on the charter type. In a time charterparty, shipowners must exercise due diligence for timely arrival. In a voyage charterparty, if no specific loading date is set, the law implies that shipowners must start the approach voyage early enough to reasonably ensure arrival by the cancelling date (PACIFIC VOYAGER ). This difference arises because the service in a time charterparty starts upon the ship’s arrival at the load port, whereas in a voyage charterparty, the service includes the approach voyage, demanding utmost dispatch.
4- Shipowners’ Duty Regarding Ship’s Condition:
The cancelling clause does not obligate shipowners to ensure the ship is in charterparty-compliant condition by the cancelling date. Damage to the ship not repairable before this date is not deemed a charterparty breach.
5- Charterers’ Claims Restricted by Their Own Breach:
Charterers cannot invoke a cancelling clause if their breach caused the ship’s late arrival. For instance, a late port nomination after the ship set course (Shipping Corporation of India v Naviera Letasa S.A.  1 Lloyd’s Rep 132) precludes charterers from claiming damages stemming from their fault.
6- Charterers’ Claims Limited to Reasonable Mitigation:
Charterers can’t claim damages solely resulting from their decision to cancel unless this decision reasonably mitigates their losses.
When do Charterers lose the option to cancel Charterparty?
1- Expiration of Specified Time in Clause:
Cancellation clauses often include a specific time limit for exercising the right to cancel. For instance, clause 14 of the NYPE 1946 form allows charterers to cancel “no later than the day of the ship’s readiness”. Without such an express limit, it’s probable that a term would be implied, requiring the cancellation option to be exercised within a reasonable timeframe after the ship is tendered for delivery.
2- Charterers’ Waiver of Cancellation Right:
Charterers may lose their right to cancel if they indicate, before this right expires, that they choose not to cancel. Clear instances include accepting the ship’s delivery and starting to load cargo (as in Moel Tryvan v Weir  2 KB 844). Also, re-nominating a load port after the ship could not reach it by the cancellation date constitutes a waiver (as seen in St Shipping & Transport Inc v Kriti Filoxenia Shipping Co SA  EWHC 997 (Comm)).
3- Charterers’ Breach Precluding Cancellation:
As mentioned earlier, charterers cannot use a cancelling clause if their own breach results in the ship’s late arrival. This breach also precludes them from claiming damages.
Charterparty Cancellation Clauses
Charterers are obligated to provide cargo at the load port and load it within the specified laytime. However, it’s common for Shipowners to find no immediate cargo at the nominated load port, with uncertainty about its availability. While this non-availability may breach charterers’ obligations, it’s not necessarily a repudiatory breach that allows Shipowners to terminate the charterparty. Instead, Shipowners typically seek compensation for lost time through demurrage after laytime expiry or detention damages if the cargo unavailability prevents the ship from becoming an ‘arrived ship’.
Laytime exceptions clauses might cover cargo unavailability, pausing laytime for events like strikes or factors beyond the charterers’ control. Shipowners may face long delays and substantial losses without accruing demurrage. Even with demurrage, it may not fully offset significant delays, and recovering large demurrage amounts from charterers can be challenging.
Shipowners might consider leaving the load port upon realizing cargo unavailability. However, this poses a dilemma: leaving could risk a repudiatory breach of the charterparty, while waiting may lead to unrecoverable demurrage. Standard forms sometimes allow withholding services when hire is unpaid, but ship withdrawal is a severe remedy that must be executed correctly to avoid Shipowner liability for repudiation. Typically, withdrawal is only practical when the ship is cargo-free.
To mitigate these issues, it’s advisable to include a cancellation clause in the charterparty. This clause allows Shipowners to cancel under specific circumstances.
Suggested Charterparty Cancellation Clause Wording:
“A) Should cargo be unavailable for loading upon: i) ship’s arrival in port or the usual waiting place, ii) ship’s tendering Notice of Readiness, or iii) ship’s arrival off the port when entry is prevented by cargo unavailability and the ship is ready to load, Shipowners may cancel the charterparty by written notice (including fax, telex, or cable) to Charterers or their agents within [ ] hours. (*Shipowners should choose i), ii), or iii) based on the fixture.)
B) Regardless of cargo availability, if loading hasn’t started within [ ] hours of* [ ], unless due to Shipowners’ actions, Shipowners can cancel the charterparty with written notice to Charterers or their agents, given within [ ] hours of the cancellation option arising. (*Shipowners should select either i or ii from Clause A or the expiry of laytime.)
Cancellation is without prejudice to any damages and/or demurrage claims Shipowners may have.”
If the charterparty includes a laytime and demurrage exceptions clause, like Clause 8 of Asbatankvoy Part II, the following addition is recommended:
“If laytime is interrupted or demurrage incurred at the loading port due to strikes, lockouts, labour stoppages or machinery breakdowns at charterer, supplier, or shipper plants, and such stoppage lasts [ ] days/hours from when the ship is ready to load, Shipowners may cancel the charterparty provided no cargo is loaded. Written cancellation notice must be given to Charterers or their agents within [ ] hours of the cancellation option arising.
Cancellation is without prejudice to any damages and/or demurrage claims Shipowners may have.”
BIMCO Cancelling Clause 2002 (Code Name: CANCELCON 2002)
(a) Should the Ship not be ready to load (whether in berth or not) on the agreed cancelling date, the Charterers shall have the option of cancelling this Charter Party.
(b) Should the shipowners anticipate that, despite the exercise of due diligence, the Ship will not be ready to load by the cancelling date, they shall notify the Charterers thereof without delay stating the expected date of the Ship’s readiness to load and asking whether the Charterers will exercise their option of cancelling the Charter Party, or agree to a new cancelling date.
Such option must be declared by the Charterers within 48 running hours after the receipt of the shipowners’ notice. If the Charterers do not exercise their option of cancelling, then this Charter Party shall be deemed to be amended such that the seventh day after the new readiness date stated in the shipowners’ notification to the Charterers shall be the new cancelling date.
The provisions of sub-clause (b) of this Clause shall operate only once, and in case of the Ship’s further delay, the Charterers shall have the option of cancelling the Charter Party as per sub-clause (a) of this Clause.
We kindly suggest that you visit the web page of BIMCO (Baltic and International Maritime Council) to learn more about BIMCO Charterparty Cancelling Clause and to obtain the original Charter Party forms and documents. www.bimco.org
Do cancellation rights under Voyage Charterparty survive re-nomination of load port?
In the case of St Shipping & Transport Inc v. Kriti Filoxenia Shipping Co SA  EWHC 997 (Comm) (MT Kriti Filoxenia), the English Commercial Court examined the applicability of cancellation provisions in a BEEPEEVOY3 charterparty in the context of charterers re-nominating a load port.
Background: The dispute arose under a voyage charterparty using the BEEPEEVOY 3 standard form. Key clauses included:
- Clause 17, allowing charterers to cancel if they anticipate ship delay beyond the Cancelling Date.
- Clause 24, permitting charterers to re-nominate load or discharge ports, with additional steaming time counting as laytime or demurrage.
In this instance, charterers re-nominated a load port, which the shipowners couldn’t reach by the cancellation date, leading to charterers canceling the charterparty. Shipowners contested this, viewing it as a charterparty repudiation.
Arbitration Award: The Tribunal sided with the shipowners, ruling that clause 17’s cancellation provisions didn’t apply when charterers exercised their right under clause 24 to re-nominate the load port. The Tribunal also found that charterers couldn’t cancel if the re-nomination made the estimated arrival at the new port beyond the cancellation date.
Commercial Court Decision: The Court’s interpretation focused on the ordinary meaning of clauses 17 and 24, within the charterparty’s context. It emphasized the cooperative nature required in charterparty ventures. The Court observed that a cancellation date provides certainty, preventing disputes over delay-induced frustration of the charter’s commercial purpose.
The Court also considered the commercial rationale behind the re-nomination and cancellation clauses. While re-nomination offers flexibility to charterers, the absence of such a provision benefits shipowners with irrevocable nomination certainty. The Court recognized the importance of the cancellation clause for charterers but ultimately gave more weight to shipowners’ need for nomination certainty, even at the risk of losing their right to cancel.
Additionally, the Court noted clause 24’s lack of explicit reference to cancellation rights under clause 17. Given the careful drafting of the BEEPEEVOY 3 standard form, the Court inferred that if the drafters intended clause 17’s rights to apply to load port re-nominations under clause 24, they would have explicitly stated so.
Appeal Outcome: The appeal was dismissed, upholding the Tribunal’s findings.
Significance: This case underscores the English Court’s approach to charterparty provision interpretation, particularly regarding the interaction between cancellation clauses and load port re-nomination clauses. It highlights the Court’s commercial viewpoint, stressing charterers’ duty to cooperate and enable the ship to meet the cancellation date to utilize the cancellation clause.
Cancellation of Charterparty in Maritime Law and Shipping Law
Repudiation of a charterparty often occurs when the voyage or time charterer cancels the contract due to the ship missing the cancelling date, or when the time charterer cancels because the ship is off-hire for longer than the stipulated period in the charterparty.
Every charter includes a cancelling date, by which the shipowner must notify the charterer of the ship’s readiness at the port of loading. The cancelling date gives the charterer the option to cancel the charter if the ship arrives late. This date might be the second in a range of laydays cancelling, such as “laydays 27 June cancelling 3 July” or abbreviated as “laycan 27 June/3 July”. The charterer isn’t obligated to start loading before the first date, even if the ship arrives earlier.
If the ship is likely to be delayed in reaching the load port (in a voyage charter) or the place of delivery (in a time charter), the shipowner may request an extension of the cancelling date from the charterer. If the charterer agrees, the contract is amended. If not, the charterer can choose to cancel the charter either before the cancelling date by mutual agreement or after it within a specified time in the charterparty. Otherwise, the shipowner must present the ship at the load port, regardless of lateness.
The cancelling date might be stated in a cancellation or cancelling clause, or separately, like in a box on the face of the charterparty, with the cancelling clause only containing the definition.
BIMCO’s “CANCELCON 2002” is a standard cancelling clause, offering a framework for these situations. It states that if the ship isn’t ready to load by the agreed cancelling date, the charterers have the option to cancel. If the shipowners anticipate a delay despite due diligence, they must inform the charterers, stating the new expected readiness date and asking if the charterers will cancel or agree to a new date. Charterers must declare their decision within 48 running hours of receiving the shipowner’s notice. If they don’t cancel, the charterparty is amended to make the seventh day after the new readiness date the new cancelling date. This sub-clause operates only once; if further delays occur, the charterers can cancel as per the original clause.
What is the Cancelling Clause in Charterparty?
The “Cancelling Clause” in a charterparty is a provision that allows either the charterer or the shipowner to cancel the agreement if a specified event occurs by a certain date. This clause is commonly used in time and voyage charterparties.
Here’s a brief overview:
- Purpose: The main purpose of the cancelling clause is to provide security and predictability to both parties. It sets a deadline by which certain conditions must be met, usually relating to the readiness of the ship. If these conditions are not met by the specified date, the charterparty can be cancelled without penalty.
- Common Usage: In a voyage charterparty, this clause typically specifies the latest date by which the ship must be ready to load the cargo. In a time charterparty, it might specify the date by which the ship must be delivered to the charterer.
- Implications: If the ship is not ready by the cancelling date, the charterer has the option to cancel the charterparty. This helps the charterer to make alternative arrangements if needed. For the shipowner, it provides a clear deadline to have the ship ready and avoids indefinite waiting periods.
- Risk Allocation: This clause allocates risk between the parties. It protects the charterer from the risk of a delayed ship and the shipowner from the risk of an indefinite obligation to provide a ship.
- Negotiations and Variations: The specific terms of a cancelling clause can vary and are often a subject of negotiation between the parties. The clause can be tailored to the specific needs and risks of the transaction.
- Legal Consequences: If a party wrongfully cancels the charterparty (i.e., without proper grounds under the cancelling clause), it may be liable for damages for breach of contract.
The cancelling clause is an important risk management tool in maritime contracts, providing a mechanism to address situations where a ship is not ready by an agreed date.
What is an example of a Cancellation Clause in Charterparty?
Arriving late at the loading port in voyage charters is a complex issue. When negotiating a voyage charter, it’s hard to precisely predict the ship’s arrival at the loading port, especially if the ship is still engaged in prior commitments. Consequently, shipowners often hesitate to commit to a specific arrival date, and most voyage charters don’t legally require them to do so. This situation can be problematic for the charterer, who may have his own contractual obligations, such as sale or sub-chartering agreements. If the ship is delayed, the charterer needs to know as soon as possible to make alternative plans. To address these concerns, charters often include provisions for “expected readiness to load” and requirements for the ship to proceed to the load port with “due diligence” or “due dispatch.” A common practice is to incorporate a “cancelling clause,” allowing the charterer to terminate the charter if the ship doesn’t arrive by a certain date, without necessarily constituting a breach of contract by the shipowner. This article examines the function of cancelling clauses and their interaction with the charterer’s rights when the shipowner breaches other charter provisions regarding the ship’s arrival or readiness at the load port.
Charterparty Cancelling Clauses:
Voyage charters typically include a variety of cancelling clauses. For instance, the 1994 Gencon form, in clause 9(a), and Asbatankvoy, in clause 5, outline conditions under which a charterer can cancel the charter if the ship isn’t ready by a specified date. However, these clauses don’t obligate the shipowner to ensure the ship’s timely arrival. If the ship arrives late, the charterer can cancel the contract but cannot claim damages for breach unless there’s an independent violation by the owner.
The right to cancel is contractually based and doesn’t exist under general law. If there’s no cancelling clause, there’s no cancellation right. The charterer must comply precisely with the clause’s requirements, or he risks breaching the contract. The charterer bears the burden of proving the right to cancel has arisen, and this depends on the specific clause wording. Key considerations in exercising cancellation rights include:
- Timing of the Right to Cancel: This right typically arises only if the ship isn’t ready by the cancelling date. If the charterer cancels early, anticipating late arrival, he might breach the contract.
- Definition of “Readiness”: “Readiness” implies the ship’s arrival at the load port and physical preparedness to load. If the ship is not in a ready state on the cancelling date, the charterer may cancel.
- Delay in Exercising the Right to Cancel: If the ship isn’t at the load port by the cancelling date, the charterer usually doesn’t have to cancel immediately and can wait until the ship arrives. However, once the ship arrives, the charterer must cancel promptly.
- Method of Cancellation: The clause might not specify how to cancel, but notice should clearly indicate the charterer’s intention to cancel under the clause.
- Late Arrival Caused by the Charterer: If the charterer’s breach causes the ship’s delay, he cannot rely on the right to cancel.
In conclusion, navigating the complexities of cancelling clauses in voyage charters requires careful consideration of specific contractual terms and the particular circumstances of each case.
Ship Late Arrival and Breach:
Even though failing to arrive by the cancelling date alone doesn’t constitute a breach of contract, it might suggest a breach of another charter provision. Conversely, a delay in arrival could result in a breach even before the cancelling date, as seen in The MIHALIS ANGELOS case.
In evaluating breach issues, the owner’s specific obligations depend on the charter’s terms. The owner might explicitly promise to arrive by a certain date or to depart for the load port by a specified date. Such clear obligations are rare, but if present and breached, they can justify contract termination. More commonly, if the ship arrives late, two less direct clause types are involved: clauses regarding the ship’s current position and expected readiness to load (“ERL”), and clauses about the shipowner’s duty to proceed to the load port. These can lead to separate breaches or, when combined, create an implied obligation for the ship to depart in time to meet the ERL.
(a) Representations of Ship’s Position, Readiness, and ETA
- Ship’s “Present Position”: Often included in charters, if this statement is inaccurate, it may constitute a breach. However, the significance of the misdescription depends on its extent and the charter’s other terms.
- Ship’s Expected Readiness to Load (“ERL”): This clause, usually seen as a condition, can lead to termination rights if breached. The shipowner’s good faith and reasonable grounds for ERL are crucial. If the shipowner takes on commitments that inevitably delay ERL, this is a breach.
- Ship’s ETA: Legal principles similar to ERL apply, affecting both ETA and the due diligence obligation.
(b) Obligation to Proceed with Due Diligence to Load Port
- This clause, often implied or expressed in charters, requires the shipowner to proceed with reasonable despatch. The timing of this obligation’s onset can vary, especially if the ship has prior commitments.
(c) Combined ERL and Due Diligence Obligation
- When ERL (Ship’s Expected Readiness to Load) and due diligence clauses are combined, the shipowner has an implied obligation to start the approach voyage in time to meet the ERL. Any delay during prior commitments may result in breach, as the shipowner’s responsibility begins with the approach voyage.
Relationship Between Cancellation and Breach
- If a ship arrives late without breaching the charter, the charterer can cancel but has no other remedy.
- If the late arrival is due to a breach that doesn’t justify repudiation, the charterer might claim damages for direct losses from the delay, regardless of whether they cancel.
- If the late arrival results from a repudiatory breach, like substantial misrepresentation or failure to proceed with due diligence, the charterer can both cancel and treat the shipowner as in repudiatory breach, claiming additional losses for making alternative arrangements.
These scenarios underscore the importance of carefully drafting messages to maintain all rights and consider potential fallback positions if the shipowner is wrongly treated as in repudiatory breach.
Laydays, Cancelling Date, and Laytime Clause in a Charter Party Agreement
Laydays and Cancelling Date in Charterparty
- Laydays are a specified range of dates (e.g., “June 9/15”) during which the shipowner must present the ship for loading.
- This term should not be confused with laytime, which is a different concept related to the time allotted for loading and/or discharging the cargo.
- The cancelling date is the final date in the laydays range.
- If the ship is not presented for loading by this date, the charterers may reject the ship and cancel the charter.
- This is typically outlined in a Cancelling Clause, which also states that charterers cannot cancel the charter before this date, even if it’s clear the ship won’t arrive in time.
- Laycan (laydays/cancelling) is the period in which the ship must be presented at the agreed port or place.
- If the ship arrives before the laydays begin, the charterers are not obliged to accept her until the laydays start.
- If the ship arrives after the cancelling date, the charterers can reject and cancel the charter.
- Charterers aren’t forced to decide on cancellation before the ship’s arrival at the loading port.
- Some charter parties include a clause requiring charterers to declare within a specific time post-arrival if they choose to cancel due to late arrival.
Definition and Purpose:
- Laytime is the period allowed for loading and discharging the cargo, defined in the Voyage Charter party Laytime Interpretation Rules 1993.
- It’s the time during which the shipowner makes the ship available for these operations without additional freight charges.
Types of Laytime:
- Definite Laytime: Specified as a fixed period in the charter party (e.g., “7 days” or “72 running hours”).
- Calculable Laytime: Determined by a computation based on charter party terms (e.g., loading 50,000 tons at a rate of 10,000 tons per day equals 5.00 days of laytime).
- Indefinite Laytime: Stated in terms such as “customary despatch” or “as fast as the ship can receive.”
Conditions for Laytime Commencement:
- Arrived Ship: The ship must be an “arrived ship” as per the charter party terms.
- Readiness: The ship should be ready to load/discharge.
- Notice of Readiness (NOR): This must be served on or received by the charterers or their agent in line with the charter party provisions.
- Laytime generally runs until the completion of loading or discharging.
- Some charters state that laytime extends beyond completion if there’s a delay for charterer-related reasons (e.g., testing, documentation).
- Masters are advised to obtain the Voyage Charter party Laytime Interpretation Rules 1993 for a comprehensive understanding of laytime, demurrage, and despatch calculations.