Neither an arrived ship, nor ready in all respects

Arbitration 13.19 Article


A recently published arbitration decision [London Arbitration 13/19] sheds light on how a charterer may, by their conduct, be deemed to have accepted an otherwise invalid NOR.

Owners chartered out the vessel on amended Norgrain 89 terms for the carriage of a soya meal and soya bean cargo from Myrtle Grove to Casablanca. The charter contained the following relevant provisions:

“4. Should the vessel’s notice of readiness not be tendered and accepted as per Clause 18 before 23.59 hrs on the 2nd day of September … charterers have the option of cancelling this charterparty any time thereafter, but not later than one hour after the tender of notice of readiness as per Clause 18.

18.(a) Notice of Readiness

Notice of Readiness to be tendered whether in berth or not/whether in port or not/whether customs cleared or not/whether in free pratique or not via cable/telex/vhf/within office hours

At load port … 07:00:16:00 …

(b) Waiting for Berth Outside Port Limits

If the vessel is prevented from entering the limits of the loading… port(s) because the first or sole loading… berth or a lay berth or anchorage is not available within the port limits or on the order of the Charterers … or any competent official body or authority, and the Master warrants that the vessel is physically ready in all respects to load …, the Master may tender vessel’s notice of readiness, …, from the usual anchorage outside the limits of the port, whether in free pratique or not, whether customs cleared or not. If after entering the limits of the port, vessel fails to pass inspections as per Clause 18(e) any time so lost shall not count as laytime or time on demurrage from the time vessel fails to pass inspections up to USDA and/or FGIS and/or NCB and/or Shippers Surveyor satisfaction the Notice of Readiness to be considered not valid and Master shall tender valid notice of readiness after vessel passing inspection all time prior to vessel acceptance will not be considered as laytime.”

(e) Inspection

Unless the conditions of Clause 18(b) apply, at first or sole loading port Master’s notice of readiness shall be accompanied by pass of the National Cargo Bureau/Port Warden and Grain Inspectors certificate of vessel’s readiness in all compartments to be loaded, … .

  1. … neither the vessel … nor the Charterers or Receivers shall, unless otherwise in this Charterparty expressly provided, be responsible for loss or damage to or failure to supply, load, … or deliver cargo arising as a result from: Act of God …
  2. Vessel’s cargo holds on arrival at load port to be clean, swept, dried up, free of loose paint/rust scale, free of cargo residues from previous voyage and in every respects ready to load the intended cargo to the satisfaction of shippers’ independent surveyor. Should the vessel fail to pass the hold inspection, … Notice of Readiness to be considered not valid and Master to re-tender Notice of Readiness after Vessel passing inspection and approved by ship’s surveyors.”

The vessel arrived at South West Pass and tendered NOR on 24 August. Thereafter, the vessel entered the Mississippi River and changed pilots at Pilottown before anchoring at Point Celeste Anchorage to await a berth. At 09.00, an NCB surveyor rejected the cargo holds because of rust and paint scale on the hatch covers and subsequently at 17.00, the surveyor approved the holds. At 18.10, charterers’ agents delivered the berthing approval, the NCB and USDA certificates, the NOR, and a cheque for dockage charges to the loading terminal.

The vessel was driven aground by tropical storm Isaac on 30 August. On 6 September, charterers sent a message stating that all the cargo destined for loading had been water-damaged by the hurricane, and they were relying on clause 36 as the damage was due to an Act of God.

On 27 September, owners contacted charterers to say that the vessel had been safely re-floated and was ready to load. However, on 3 October charterers sent a message asserting that the NOR tendered on 24 August was invalid because the vessel was not an arrived ship and was not ready in all respects to load. Charterers claimed they were exercising their right to cancel the charter.

Owners contended that charterers’ purported cancellation was repudiatory. On 9 October, owners informed the charterers that they accepted the repudiatory breach.

Owners, in arbitration claimed, inter alia, USD 372,746.61 in demurrage. Charterers denied liability and counterclaimed USD 1,797,182.82, comprising loss of profit on the sale of the cargo and barge demurrage, on the ground that owners were in breach of clause 77 in failing to present the vessel with clean holds.

The Tribunal found that charterers were correct that the NOR was invalid on both grounds. If there had been no berth nor anchorage available when the vessel arrived at South West Pass, the NOR would have been valid, if the vessel had been ready to load. However, the vessel stopped at South West Pass only to take a pilot and then proceeded upriver. The Master should in fact have tendered the NOR when the vessel anchored at Point Celeste.

As the holds did not pass the NCB inspection, the NOR would have been invalid under clauses 18(b) and 77, even if it had not been tendered prematurely. However, after the holds were passed, the agents included the invalid NOR with documents submitted to the terminal on 24 August and that constituted acceptance by charterers of the NOR, irrespective of it otherwise being invalid. Owners relied on charterers’ conduct in that respect and charterers were correspondingly estopped from contending that the NOR had not been accepted.

The Tribunal therefore held that charterers had lost the right to cancel and in purporting to cancel, were themselves in repudiatory breach. The charter came to an end on 9 October, when owners accepted that repudiation.

Charterers had sought to argue that the hurricane damage to the cargo waiting in the barges was an Act of God and so they were excepted from liability for demurrage under clause 36. This was rejected, as the charter did not relate only to the specific cargo in the barges but was described in a generic sense, as soya beans and soya meal. Accordingly, charterers were obliged to source an alternative cargo of the same description, but , instead they purported to cancel. General exceptions clauses do not apply to laytime and demurrage in the absence of clear wording to that effect and there was no such wording in clause 36.

The Tribunal accepted owners’ submission that laytime counted from 31 August when the hurricane abated. This was the first period of a weather working day. The owners were entitled to demurrage from the completion of laytime until the charter was terminated on 9 October.

There was no merit in charterers’ counterclaim based on breach of clause 77. Clause 77 provided a complete code for the consequences of any failure to have the holds clean on arrival, namely that the owners were to arrange cleaning at their time and expense.

The decision represents an interesting outcome in that both parties were responsible for shortcomings in their approach to the tendering and acceptance of NOR. The holds had failed the NCB inspection but the Master did not submit a fresh NOR. Charterers were at fault when presented with an NOR, as they neither formally accepted nor rejected that notice. Whilst the Tribunal noted that inferences could not be drawn from charterers’ silence alone; that silence, in conjunction with submitting the NOR and other documents to the terminal meant the charterers had waived the requirement for a new NOR.

Assureds wishing to preserve their right of cancellation under the charter or delay the commencement of laytime when served with an invalid NOR should be careful not to take any steps which may be interpreted as accepting the validity of the NOR.

Chris Ward, Claims Executive, Dubai.