Right place, right time: charterer wrongly cancels for non-arrival

Georgian Maritime Corporation v Sealand Industries (Bermuda) Ltd ("The North Sea')

Plaintiff: Nicholas Hamblen QC (Hill Taylor Dickinson).

Defendant: Richard Southern (Clifford Chance).

A judge in London has made a useful ruling on how to apply the cancellation clause in the ASBATIME form of time charter. Sealand Industries (Bermuda) chartered a containership, North Sea, from Georgian Maritime Corporation. The vessel was not delivered by the stipulated time, 1200 on August 8 1995, so Sealand cancelled the charter. The shipowner complained Sealand had not identified the place of delivery, and claimed for wrongful cancellation. Arbitrator John Maskell rejected the claim. Georgian Maritime appealed to the Commercial Court.

The arbitrator found that on August 9 the master had given 24 hours’ notice of intention to deliver at 1000 hours next day. Sealand had not replied to inquiries as to where the North Sea was to be delivered. At 1200 hours on August 10, it was still at anchorage, neither at Sealand’s berth nor steaming from the pilot station. The charterer exercised its opinion to cancel on the grounds the ship was not at the place mentioned in the charter, nor ready. The arbitrator agreed bunkering was complete at 1400 hours on the 10^th, and that “from a physical point of view” the North Sea was ready to sail at 1000 hours that day. He rejected the non­delivery argument, as it was due to Sealand’s own failure, but agreed that the bunkering being incomplete at 1200 hours meant the vessel was not in a deliverable state in compliance with the charter requirements. Sealand was entitled to cancel.

On appeal the shipowner challenged the arbitrator’s conclusion. The obligation to select a place of delivery was a “precondition” to the owner’s duty and ability to deliver, so the time for delivery and the right to cancel never arose.

Sealand responded that lines 34 to 45 of the charterparty meant that, in the absence of instructions, the vessel was to be placed at charterer’s disposal as and where she lay at anchorage in Hong Kong - which it claimed was more advantageous for the owner than any berth or place where a pilot might have been dropped. Secondly, the vessel could not have been delivered on time with the right quantity of bunkers, so the right to cancel would have arisen anyway.

The ASBATIME Charter: Lines 34 to 45:

“ ... Vessel shall be placed at the disposal of the charterers at charterers ’ berth Hong Kong or DLOSP [dropping last outward sea pilot] Hong Kong in charterers' option at any time ...as Charterers may direct... Vessel shall be ... in every way fitted for container service ...”

Clause 14: "... should the vessel not have been delivered on or before 10, August 1995 at 1200 hours Charterers ... shall have the option of cancelling the charter."

Mr Justice Mance rejected both these arguments, and agreed with the shipowner. The cancelling clause depended on delivery “actually being due and not being made when due”. Clause 14 had be read in conjunction with lines 34 to 45, under which delivery depended on the charterer identifying where it was to take place. The only charterparty agreement was that time ran from the placing of the vessel at that place.

“There is no basis”, he continued, “on which even owners, still less charterers when they were in default of selection, can claim to treat delivery as having been made on any other basis or at any other place”. He rejected the argument that Sealand was not obliged to select the place because the owner would not be able to deliver, at any place, in the right condition and in time.

The arbitrator had not found that the discrepancy in bunkers would have affected the North Sea's trading position. If the cancelling clause had been intended to relate to other specific obligations, it would have made it clear. The charterer might be entitled to damages, but not cancellation.

The Issues:

Was a charterer entitled to cancel for non-delivery if it had not identified the place of delivery?

The charterer claimed: (i) it was entitled to cancel if the vessel was not delivered by the day and time stipulated; (ii) the vessel was not ready as bunkering was incomplete.

The Decision:

Owner’s claim for wrongful cancellation allowed: (i) delivery depended on the charterer identifying the place. As it did not, delivery never became due at all and its claim to invoke the cancellation clause was unjustified, (ii) If delivery had become due, failure to complete bunkering on time would give entitlement to damages but not cancellation.

Case № 14

“Right place” is enough: The Commercial Court was right in saying the North Sea’s charter should not have been cancelled, though for the wrong reasons

Georgian Maritime Corp v Sealand Industries (Bermuda) Ltd (“North Sea’’)

LONDON’S Court of Appeal has dismissed an appeal by Sealand Industries of Bermuda, the time-charterer of the North Sea, though the appeal judges agreed with the judge’s decision rather than his reasoning. He had overruled an arbitrator’s decision that the charterer had legitimately exercised its right to cancel under the charter. He rejected the argument that the ship had not been “delivered” according to its terms, and was not “ready”.

At short notice, Sealand required an extra vessel for its Japan-US liner service. Georgian Maritime had offered the newly purchased North Sea, subject to essential work to fit her for service.

Sealand time-chartered the North Sea from Georgian on an amended ABTA form for a 15- to 25-day trip from Hong Kong via Japanese ports to Long Beach. The vessel was to be available at Hong Kong at Sealand’s berth, or at the outward bound pilot station, at charterer’s option. Delivery was to be by 1200 on August 9 1995 “ready... and in every way fitted for container service... with sufficient power to operate all crew for a vessel of her tonnage”, and with a specified quantity of bunkers. The charterer could cancel if the ship was not delivered by the stated time and date.

The owner hoped, but did not guarantee, that it would be ready by August 8. As the date approached, Georgian gave successive notices that the vessel would be delivered at 1000 on August 10. Sealand did not reply to questions where this was to take place, so on August 10 the vessel was anchored at Hong Kong, though neither at Sealand’s berth nor the pilot station. Bunkering did not finish until 1400, though by 1000 it had sufficient fuel to proceed to its first port of call in Japan. At 1200, Sealand said it was cancelling the charter, apparently because the vessel was not at either of the specified places, and was not “ready”.

Georgian claimed damages for wrongful repudiation, but arbitrator John Maskcll decided that Sealand had been entitled to cancel. The “non-deliveiy” was its own fault, he said, but though it was “physically” ready to sail from 1000, the vessel “could not be said to be ready” as the required quantity of bunkers was not on board at noon. It might have had more than enough fuel to reach Japan, said Mr Maskell, but “it was a term of the charter that certain quantities were to be on board by the time of delivery and they were not.

This conclusion might seem “a little uncommercial”, but he could not go against the parties’ express agreement. Knowing Sealand was likely to he “tough” if the vessel was late. Georgian should perhaps have arranged to take on bunkers earlier.

On appeal to the Commercial Court, the judge reasoned that delivery had never become due at all as the charterer had not identified the place of deliveiy in Hong Kong. The cancelling clause had not come into operation as it depended on “delivery being due, and not made”. Sealand’s failure to identify the place of delivery meant it could not operate its right to cancel. As to the bunkers, he said that if the cancelling clause had been meant to relate to such other obligations as having a certain amount of fuel on board, it would have said so. As it was, the vessel fulfilled the charter requirement of having enough fuel to sail, so the ‘hunkering point’ gave no right to cancel either.

Sealand appealed. Lord Justice Hobhouse agreed with the judge about the bunkers but not about delivery. He took the simpler approach that Sealand had waived its right to require the vessel (for the charterer’s own benefit) to proceed to a named spot. The vessel was already in Hong Kong. He said “there was never any question that it was to be delivered at Hong Kong” and it was arguable that, if the charterer did not exercise its option to direct the North Sea to one or other place within Hong Kong, “delivery in Hong Kong suffices”.

The appeal judges unanimously dismissed the appeal.