Claims Letter – Cancelling Clauses

Cancelling Clauses

Cancelling clauses are for the benefit of the charterers. It gives charterers the right to cancel the C/P if the vessel does not arrive at the specified destination by the agreed time. It does however not give charterers the right to claim damages unless the C/P expressly says so.

However, owners will be liable for damages in case the vessel will not only miss her cancelling date but if separate from that owners will be in breach of another obligation under the C/P.  This will be discussed further below.

Voyage Charters

The following cancelling clauses are respectively incorporated in the standard Gencon 1976 form and the standard Gencon 1994 form:

 Gencon 1976 C/P – clause 10 line 121 – 129

Should the vessel not be ready to load (whether in berth or not) on or before the date indicated in box 19 (cancelling date) Charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before the vessel’s expected arrival at the port of loading. 

Should the vessel be delayed on account of average or otherwise, Charterers to be informed as soon as possible, and if the vessel is delayed for more than 10 days after the day she is stated to be expected ready to load, Charterers have the option of cancelling this contract, unless a cancelling date has been agreed upon. 

Gencon 1994 C/P – clause 9 line 138 – 153

  • Should the vessel not be ready to load (whether in berth or not) on the cancelling date indicated in box 21, the Charterers shall have the option of cancelling this Charter Party.
  • Should the Owners anticipate that, despite the exercise of due diligence, the vessel will not be ready to load by the cancelling date, they shall notify the Charterers thereof without delay stating the expected date of the vessel’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 Owners’ notice. If the Charterers do not exercise their option of cancelling, then this C/P shall be deemed to be amended such that the seventh day after the new readiness date stated in the Owners’ 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 vessel’s further delay, the charterers shall have the option of cancelling the C/P as per sub-clause (a) of this clause.         

Under both clauses the starting point is the same: Charterers have the option to cancel the C/P if the vessel is not ready to load by the cancelling date.  Charterers may exercise their option until the vessel is ready to load or, depending on the circumstances, within reasonable time thereafter.

A late exercise of the option to cancel is invalid. The owners may not accept it, agree to it or accept it as a repudiatory breach of the C/P.

“Ready to load” means that the vessel must have arrived at the specified destination, usually from which a valid NOR can be tendered. However, for the purpose of the cancelling clause the vessel does not necessarily have to be that ready as for the purpose of tendering a valid NOR. The burden of proving that the vessel is not ready to load due to a significant defect is on charterers.

The remainder of both clauses (which is paragraph (b) of the 1994 form) gives owners a tool which they may use to enforce charterers to decide whether they will cancel the C/P or not.  Both clauses have been phrased differently in this respect and will be discussed here below.

Gencon 1976 C/P

When the cancelling date has passed, owners may demand from charterers to declare whether they will cancel the C/P or not.  Thus, charterers do not have to consider earlier requests for cancelling the C/P or extension of the cancelling date. In order to avoid the risk that a cancellation of the C/P will be considered as unlawful, charterers better wait until the cancelling date has passed.

After the demand is made the charterers have to decide what to do at least 48 hours before vessel’s expected arrival or within a reasonable period in case such demand is made within 48 hours of vessel’s ETA.

The reason behind this mechanism is to protect owners against performing a long approach voyage, only to hear upon arrival that the C/P has been cancelled. However, this clause only affords the owners protection of minimum 2 days, at least assuming that the demand to cancel has been made before 48 hours of vessel’s ETA.

 Gencon 1994 C/P

Clause 9 (b) of the Gencon 1994 form offers owners more protection but charterers less flexibility.

Under clause 9 (b) owners do not have to wait until the cancelling date actually has passed. If they expect that the vessel will not be ready in time, owners have to notify charterers about this together with vessel’s ETA and their request whether charterers are going to cancel or not.

Now charterers have to declare within the next 48 hours whether they will cancel or not and if they do not exercise their option to cancel,  the original cancelling date will be extended to the seventh day after vessel’s ETA as stated in owners’ notification.

The last paragraph of clause 9 (b) makes clear that owners can call on sub-clause (b) only once. In case the vessel does not meet the new cancelling as well, owners will have to face sub-clause 9 (a) only.

Last paragraph of clause 10 of the Gencon 1976 form

Should the vessel be delayed on account of average or otherwise charterers to be informed as soon as possible, and if the vessel is delayed for more than 10 days after the day she is stated to be expected ready to load (box 9) charterers have the option of cancelling this contract, unless a cancelling date has been agreed upon. 

This paragraph only operates in case no cancelling date has been agreed. The “expected ready to load” date as stated in box 9 becomes determining for the purpose of cancelling the C/P.

Other Voyage C/P’s

The most standard forms have a cancelling clause of the same tenor as described here above but not always accompanied by a possibility for owners to force charterers to make up their mind.

Examples of other occurring variations are:

  • Charterers have a right to cancel in case no valid NOR has been given before the cancelling date has passed, until a valid NOR has been given (or one hour thereafter).
  • Should the vessel not be ready to load on the cancelling date, charterers to give notice to owners of their option to cancel within 24 hours after the cancelling date, otherwise the C/P to remain in full force and effect.

Claims for Damages       

As mentioned in the first paragraph the cancelling clause gives no right to claim damages. However, if the vessel missed her cancelling date because of a separate breach of the C/P, owners are liable for damages. In the standard Gencon 1976 and 1994 forms, clause 1 in combination with box 8 and 9 could be relevant in this respect.

If the owners wrongly stated vessel’s present position (which is the position at the time of fixing) in box 8 or the date on which she is expected ready to load in box 9, they may face a claim for damages. If on top of that the vessel missed her cancelling date, the cancelling date may operate independently from this breach.

Linked with these provisions is the obligation to proceed to the loadport (with reasonable despatch). In the Gencon C/P this phrase is stated in clause 1.

The combination with “expected ready to load” means that the approach voyage must be commenced timely so that it can reasonably be expected that the vessel, proceeding normally, will be ready to load at the date stated in the C/P.

Finally the owners may be required to give notices of vessel’s ETA at the port of loading. This is not so in the Gencon form but in other forms (f.e. without an “expected ready to load” provision) it might be a standard requirement.

In case owners fail to provide a reasonable estimate or do not give such notice at the prescribed time or not at all, in principle charterers may claim damages as a consequence of such failure which puts them in the same position as if respectively a reasonable estimate had been given or as if the notice was given at the prescribed time.

 

Time Charters

Most Time Charters have a cancelling clause of the same tenor as discussed here above under “Voyage Charters”

The “New York Produce Exchange 1946” form states by virtue of clause 14 that:

“If required by charterers, time not to commence before……. and should the vessel not have given written notice of readiness on or before……but not later than 4 p.m. charterers or their agents have  the option of cancelling this Charter at any time not later than the day of vessel’s readiness”.

The notice of readiness to which this clause refers is the notice which has to be given to allow  delivery of the vessel into charterers’ service. This means that the vessel has to be at the place and in the condition as required under the C/P.    

Likewise, clause 21 of the Baltime form allows charterers to cancel if the vessel has not been delivered by the cancelling date (box 22) and clause 16 of the NYPE 1993 form states that charterers may cancel if the vessel is not ready for delivery on the agreed date.

The same basic principles apply to these clauses as discussed under “Voyage Charters”.  Charterers are not allowed to cancel before the cancelling date but may wait to cancel until owners have delivered the vessel properly.

More or less similar to the Gencon  1994 form, the Baltime and the NYPE 1993 forms allow owners to demand from charterers whether they will cancel or not already when it is clear that the vessel will not arrive in time. The accompanying procedure bears similarities as well.

So, compared to these forms, the older NYPE form gives charterers’ more room to manoeuvre and affords owners less protection.

 Claims for Damages

Also, under a Time C/P a separate breach may give rise to a claim for damages. A mere cancelling of the C/P pursuant to the cancelling clause does not have this effect.

Apart from owners’ obligation to exercise reasonable diligence to deliver the vessel before the cancelling date, the C/P may contain an estimated time of arrival or a requirement to provide delivery notices.

Such presentations should be given reasonably and honestly.  If owners fail to do so they will be liable for damages which should put charterers in the same position in which they would have been if the information (ETA or delivery notices) was given on reasonable grounds.

Condition of the vessel on delivery and place of delivery

If the vessel is not in the condition or at the place as required by the C/P (Voyage C/P or Time C/P) by the cancelling date, apart from the right to cancel under the cancelling clause, this could be a separate breach of the C/P as a consequence of which damages can be claimed.

However, this subject (Delivery of the vessel, tender of a valid NOR) requires separate consideration and has been discussed in previous service-letters.

 

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