CONTEMPORANEOUS TANK INSPECTION NEEDED TO JUSTIFY CHARTER CANCELLATION

The word “cancellation” as it relates to vessel chartering is an important concept. This is especially true in the voyage tanker trade where the legal ramifications associated with charter cancellations can be costly. Cancelling clauses in charter parties are most important because they can operate as forfeiture provisions against shipowners. These clauses are designed to grant a charterer the option of voiding the charter contract if the tanker is not ready to load by the cancelling date.

In a tanker voyage charter, the shipowner places its vessel at the charterer’s disposal for a single voyage. The shipowner retains control over the vessel’s operation, while the charterer furnishes a cargo and pays freight. The charterer is entitled to a stipulated laytime period to load and discharge, and if laytime is exceeded, the charterer pays demurrage.

Once the charter contract is formed, the shipowner has an absolute duty to send the vessel to the load port with reasonable dispatch, and the tanker must reach the designated area before she can be considered an arrived ship. Usually the vessel arrives ready to load and the master tenders a notice of readiness. The charterer’s surveyor then inspects the vessel’s tanks, afterwhich, laytime begins to run and loading commences.

In determining whether this discretionary doctrine is applied, the plaintiff’s forum choice is given greater weight. However, courts will perform a balancing test and weigh private and public interests affecting the convenience of the parties and the forum. The case may be dismissed if these factors tip strongly toward an alternate forum.

Unfortunately, because of uncertainties associated with shipping, vessels do not always arrive ready to load by their cancelling dates. Under maritime law, the charterer may cancel the charter if the vessel is not properly tendered by the cancelling date. To properly tender, the tanker must be physically and legally ready to perform as required by the charter.

Cancelling clauses are designed for the benefit of the voyage charterer. Therefore, the burden is on the charterer to prove the right to cancel. However, the recent New York maritime arbitration of the M/T ANIARA (S.M.A. 3319) raises an interesting point with regard to this right: Are charterers, in the absence of contemporaneous evidence of the vessel’s condition at the time of tender, obligated to conduct their own inspection to determine if cancellation will be proper?

In the ANIARA, the shipowner claimed damages of $354,000 alleging wrongful cancellation. The relevant charter clauses read: “1) Should the vessel not be ready to load by 4:00 p.m. on the cancelling date, the charterer shall have the option of cancelling; 2) Vessel to arrive at load port with all cargo tanks suitably clean to charterer’s inspector’s satisfaction. . . .”

The charterer in the ANIARA argued that the tender was invalid because the vessel’s tanks were not load-ready. Charterer’s surveyor testified that on the cancelling date, the vessel’s agent told him that the tanks were not ready. On the basis of this information alone, the charterer cancelled.

The shipowner argued the vessel was substantially ready to load because all that remained was to dry two tanks, for one hour. The shipowner further argued that the charterer was unable to document the condition of the tanks since its surveyor was never sent aboard. The three arbitrators rejected the shipowner’s argument and unanimously found the evidence presented during the arbitration proved the tanks were not ready to load on the canceling date.

The M/T ANIARA arbitration award contains a provocative partial dissent that should be of interest to those involved in the international voyage tanker trade:

The difficulty I have with this decision is that it sends the wrong message. Based upon no factual evidence in support of the conditions alleged, charterers cancelled the ANIARA in an anticipatory fashion. . . . Decisions [to cancel] are suppose to be made based upon the facts as known at the time of the event, not with the benefit of hindsight. . . . It is my view that if preemptive or anticipatory cancellations are tolerated, even if proved to be justified based on subsequent discovery proceedings, then, particularly in falling freight markets, fixtures would be subject to a challenge for which an owner never bargained and in fact it would be tantamount to having to face double jeopardy.

The arbitration suggests this type of dispute can be prevented if voyage charter parties mandate that charterer’s inspection takes place prior to cancellation.


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