How to make sure you incorporate all of the Inter Club Agreement provisions into your charter.

It’s common practice for an owner (or a party in the position of owner) to tender Notice of Readiness (“NOR”) at the earliest possible opportunity. Not only does this avoid potential cancellation by the charterer, it also starts the clock running on the free time available to the charterer before they have to start paying liquidated damages (demurrage).

There are potentially serious consequences should an owner tender notice too early. That was the subject of a recent arbitration decision (London Arbitration 13/19). In this case, owners tendered NOR at the first pilot station on the way to the loading berth. They then proceeded to anchorage to wait for an inspection which they initially failed and then passed. After passing the inspection and whilst waiting the vessel went aground due to a tropical storm which also hit the terminal. The cargo to be shipped, which was stored in barges, was damaged in the storm and the charterers served a force majeure notice.

After the vessel was refloated, the charterers had no immediate cargo to ship. They argued that the NOR had been incorrectly tendered as it was given from the wrong location. As no valid NOR was tendered within the laycan, the charterers decided to cancel the charter. The owners were understandably upset and argued that the cancellation was a repudiation of the charter. There were substantial claims on each side.

The Tribunal held that the NOR was invalid because it was not tendered at the right place. In order to tender a valid NOR the vessel needs to be an “arrived vessel” i.e. at the immediate disposal of the charterer at the designated berth or unable to proceed forthwith to a berth or waiting anchorage. In this case, the vessel was able to and did proceed from the pilot station to the waiting anchorage. It was also held that the NOR was invalid because the vessel was not ready to load having failed the initial inspection. The Master should have tendered a new NOR once the inspection had been passed.

Having said all this, there was a silver lining for owners. The charterers’ initial silence regarding the validity of the NOR in conjunction with the agents submitting the NOR along with the other required documents to the terminal was taken to be a waiver of the requirement for a new notice to be served. Alternatively, it gave rise to estoppel such that it would be inequitable for charterers to require a new notice to be issued. The owners therefore got back most of their demurrage on the basis that the original NOR was deemed accepted. It was held that there was no right to cancel and the force majeure declaration was not valid as the charter party did not relate to specific cargo waiting in barges. As such the charterers had the obligation to provide alternative cargo.

This decision highlights the importance for owners to ensure that a valid NOR is tendered only when the vessel is an ‘arrived vessel’ and to re-tender a new NOR if in any doubt especially in circumstances where they may fail an inspection. We often see cases where multiple NOR’s are issued to be on the safe side.

For charterers, the lesson is perhaps that, although not required to expressly accept or reject an invalidly tendered NOR, care needs to be taken to ensure that their or their agents’ silence or conduct does not prevent them from exercising their legal rights to cancel the charter or to argue that the demurrage owed should be substantially less than that claimed.

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