Cancellation – breach by owners of “expected ready to load” clause entitling charterers to cancel
The facts
The vessel was let on a Gencon form for a voyage from Haiphong, North Vietnam to two alternative ports in Europe.
The intended cargo was apatite ore.
The date of the charterparty was 25 May 1965 and the charterparty contained a clause that the vessel was “now trading and expected ready to load under this Charter about 1st July 1965”.
The cancellation clause read as follows:
“Should the Vessel not be ready to load (whether in berth or not) on or before the 20th July 1965 Charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessels’ expected arrival at port of loading….”
On the date of the charter, 25 May 1965, the vessel was on her way to Hong Kong expecting to arrive on June 25 or 26. Fourteen days were reasonably required for discharge plus a further two days for a special survey. In the result, the vessel could only reasonably be expected in Haiphong on 13 or 14 July 1965.
In fact, discharge was only completed on 23 July 1965.
Meanwhile, on 17 July 1965, the charterers gave notice of cancellation on the grounds of force majeure. Transport of apatite to Haiphong was alleged to have been disrupted in the hostilities between the USA and North Vietnam,
The owners labelled the charterers’ cancellation as repudiation, cancelled themselves and sold the vessel out of Hong Kong on 29 July 1965. The owners claimed the sum of £4000 as loss of profits on the intended voyage to Europe.
Two London arbitrators stated a special case of the court. The issues were:
1. whether the charterers were entitled to cancel on breach of the “expected ready to load” clause;
2. whether there was a basis for the force majeure contention;
3. whether the charterers had validly cancelled pursuant to the terms of the cancellation clause; and
4. the extent of damages suffered by the owners in the event of the charterers’ liability.
Findings
Mocatta J in the Commercial Court found, on the reasoning in Hongkong Fir, that the charterers were not entitled to cancel on the owners’ admitted breach of the “expected ready to load” clause.
He found that the charterers’ purported cancellation on 17 July 1965 was a repudiation and awarded the sum of £4000 in damages to the owners.
In the Court of Appeal all three judges (Lord Denning MR, Edmund Davies and Megaw LJJ) held that breach of the “expected ready to load” clause gave the charterers the right to cancel. It was immaterial that they provided an invalid reason for the cancellation.
Despite this finding being determinative, the judges expressed their views on points 3 and 4. That they were not entitled to rely on force majeure, was conceded by charterers.
All three judges agreed that if the owners were to succeed they would be entitled to nominal damages only. This was because they suffered no loss on the facts. Even though the charterers were not entitled to rely on the cancellation clause when they did, it was inevitable that they would have been able to do so on 20 July 1965.
Commentary
This decision confirms the following issues:
1. The right to cancel on breach of an estimated ready to load clause.
2. Provided a valid reason exists, notice of cancellation is valid even if based on an invalid reason.
The judgment of Megaw LJ has been the most influential.
The judgement of Lord Denning deals with the difference between warranties and conditions and the effect of the Hongkong Fir case.
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