Charterer maintains course over contract

The Appeal Court is set to decide whether a charterer was entitled to invoke its cancellation clause, reports Roger Pearson.

Judgment is now pending in a case of considerable significance in the shipping world. It centres on the rights of charterers to cancel charterparties.

A finding by Mr Justice Mance in the High Court on 18 April last year, that an arbitrator was wrong in ruling that a charterer had lawfully cancelled a charterparty and was not in breach of contract, has been challenged in the Court of Appeal.

Sealand Industries (Bermuda) chartered the vessel, North Sea, from owner Georgian Maritime Corporation. The charterparty made express provision for the quality of bunkers, in terms of heavy fuel oil, intermediate fuel oil and marine diesel oil, which the vessel was required to have on board at delivery.

The charterer had the option to cancel in the event that the vessel had not been delivered by 1200 hours on 10 August 1995. Bunkering began at about 0850 hours on 10 August and was completed at 1400 hours on the same day. But at 1200 hours the vessel did not have on board the quantity of bunkers called for by the charterparty and, as a result of this, Sealand cancelled the charterparty.

An arbitrator upheld its cancellation, but Mr Justice Mance ruled that the arbitrator should not have rejected the owner's argument. The owner claimed that, as the charterer had not indicated an election between "charterer's berth, Hong Kong" or "dropping last outward sea pilot, Hong Kong" as the place at which the vessel should be placed at its disposal, neither the time for delivery nor any right to cancel ever arose.

Judge Mance held that the charterer's failure to identify any place for delivery, amounted to a failure to elect between the two contractually permitted alternatives and that the consequence of this was that the vessel remained at the anchorage in Hong Kong.

That meant that delivery never became due at all and that the charterer's claim to invoke the cancellation clause was unjustified.

In the appeal, Stephen Tomlinson QC, counsel for Sealand, argued that the judge should have held that a time charterer was entitled to cancel a time charterparty in the way it had been cancelled in this case.