When commonsense prevails
COMMONSENSE triumphed in the recent UK Court of Appeal ruling in the Happy Day. The decision reversed a Commercial Court decision in favour of the charterers of the vessel. Happy Day had spent three months at Cochin discharging a grain cargo and yet the Commercial Court held that no demurrage had accrued.
The case involved Flacker Shipping, owners of the Happy Day, and Glencore Grain, the charterers of the vessel. The owners appealed the January 2001 Commercial Court decision, reported as Glencore Grain Ltd v Flacker Shipping Ltd which was, in turn, an appeal by Glencore Grain against an interim final arbitration award in favour of the owners' claim for, inter alia, demurrage under a voyage charter party.
In essence, the high court held that, in the event that no valid notice of readiness is tendered, laytime will not commence at all until a valid notice has been tendered. This decision established that an invalid notice of readiness cannot become a valid notice, even if discharge of the cargo had commenced. The validity of the notice of readiness may well turn on whether the owners have a berth or port charter party which largely defines when a vessel is an "arrived" ship.
Happy Day had not "arrived"
Happy Day was chartered on an amended Synacomex Form - a berth charter. The ship loaded 23,000 tonnes of wheat at Odessa and sailed for Cochin, arriving off the port at 1630hrs on Friday, September 25, 1998. However, the vessel could not enter the port immediately as it had missed the tide and a notice of readiness was tendered.
The next opportunity to enter was the following day, Saturday, September 26, and the vessel berthed at 1315hrs. As the ship was the subject of a berth charter and there was no congestion at the berth, the notice of readiness issued prior to berthing was found to be invalid. No further notice was given. Discharge began on September 26 but was not completed until December 25. The arbitrators found that no valid notice of readiness was given by the owners. However they decided that laytime had commenced at 0800 hrs on September 29, the earliest point at which laytime could have commenced had valid notice been tendered on berthing.
There were two questions for the high court to address;
- Can laytime commence under a voyage charter party requiring service of a valid notice of readiness when no valid notice is ever served?
- If so, when does it commence?
The arbitrators took a commonsense view, deciding that the onus is on the charterers to make a reservation on, or reject, an invalid notice. The high court decided otherwise.
Clear requirements for valid notice
In the Commercial Court, Mr Justice Langley concluded that the terms of Clause 30 of the charter party were clear - laytime started at 0800hrs on the next working day after a valid notice of readiness had been given. No such notice was "given" or "accepted", merely "received". Accordingly, the arguments of waiver and estoppel by the charterers were not available to the owners.
The owners naturally focused on the fact that discharge had started on September 26 and had continued thereafter. Mr Justice Langley held that, if the commencement and continuation of discharge operations can validate an invalid notice, this would be inconsistent with the Court of Appeal's decision in the Mexico 1. Lord Justice Mustill rejected the concept of inchoate notice. In the latter case it was held that a notice could not take effect later - when, in essence, the statements in the notice were fulfilled - unless it could be demonstrated that the charterers had waived their right to a valid notice.
In the Happy Day, Mr Justice Langley held that a decision in favour of the owners would effectively rewrite the contract and delete the charterers' clear requirement for valid notice of readiness. Accordingly, the owners' claim for demurrage failed and, consequently, the charterers' claim for despatch succeeded.
In this decision, Mr Justice Langley applied the view of Lord Justice Mustill. This held that, where an invalid notice of readiness to discharge is given, and discharge takes place without the giving of any further notice, then, "…unless something happened after the notice was sent to make the laytime start, it never started at all, with the consequence not only that the owners have earned no demurrage, but also that they are obliged to pay the charterers' despatch money for the whole of the laytime."
Harsh decision for owners
This decision was harsh from the owners' standpoint, given that it took three months to discharge the ship. To rub salt into the wound, the owners were liable for despatch. These are extreme circumstances but the costs of more modest delays are often severe and a successful challenge by owners in the Court of Appeal was essential to restore commercial balance. The appeal was heard by Lord Justice Potter, Lady Justice Arden and Sir Denis Henry. It was allowed, and thus restored the arbitrators' award of February 22, 2000.
The Court of Appeal decision held that laytime can commence under a voyage charter party requiring service of a notice of readiness when no valid notice has been served, "in circumstances where (a) a notice of readiness valid in form is served upon the charterers or receivers as required under the charter party prior to the arrival of the vessel; (b) the vessel thereafter arrives and is, or is accepted to be, ready to discharge to the knowledge of the charterers; (c) discharge thereafter commences to the order of the charterers or receivers without either having given any intimation of rejection or reservation in respect of the notice of readiness previously served or any indication that further notice of readiness is required before laytime commences."
The conclusion, as delivered by Lord Justice Potter and agreed by Lady Justice Arden and Sir Denis Henry, continued, "In such circumstances, the charterers may be deemed to have waived reliance upon the invalidity of the original notice as from the time of commencement of discharge, and laytime will commence in accordance with the regime provided for in the charter party as if a valid notice of readiness had been served at that time. By answering the question in that way, I should not be thought to doubt that, in appropriate circumstances, the same result may follow by application of the doctrines of variation and estoppel."
Identifying the safest solution
Had the Court of Appeal decision upheld the Commercial Court decision, owners would have faced the prospect of serving repeated notices of readiness in order to protect their interests. The high court, in considering the appeal arising from arbitration, could not re-open any findings of fact. Mr Justice Langley held that there were no findings of fact made by the arbitrators which could justify a conclusion that laytime commenced as a result of the application of principles of waiver, estoppel or implied agreement.
The Court of Appeal decision held that an invalid notice of readiness cannot "evolve" into a valid notice, as circumstances unfold. At the same time, however, the decision places the onus on the charterer to make a reservation or reject an invalid notice of readiness in order not to have waived its right to a valid notice of readiness.
While the outcome is a significant victory for owners, many issues lack clarity. For example, what are the owners' responsibilities in ascertaining whether the charterer has made a reservation? A master with doubts about validity would be wise to tender further notices. In addition, as a backstop, the charter party should perhaps include a provision stating that, in the absence of a valid notice of readiness, laytime will commence when cargo operations commence. This is, of course, the safest solution.