Voyage Charter - "Narrowing Laycan Spread" - Option, Obligation or Condition Precedent?

December 2001

(Sea Venture Volume 20)

In April this year the Court of Appeal delivered its decision in the case of Universal Bulk Carriers Ltd v Andre et Cie S.A. The decision gives guidance on the status of a laycan-narrowing provision in a voyage charterparty and the effect of failure to comply with such a provision.¹

In this case the vessel was chartered on the Baltimore Berth Grain Form C dated 3rd October 1996 for a voyage from the US Gulf to Malaysia to carry a cargo of grain. The charter incorporated, inter alia, the following provisions:

Clause 8: "performing vessel to be nominated 13 days prior ETA loadport during European working hours, together with full itinerary and approximate loadable cargo quantity"

Clause 9: "the owners to give charterers … ten (10) days' notice of the vessel's expected readiness at the loading port and the approximate quantity of cargo required"

Clause 42: "laycan on first half December to be narrowed to 10 days spread 32 days prior to the first layday"

In accordance with clause 42, a 10 day spread would make the first layday begin at 12 noon on 6th December 1996 and any narrowing of the laycan spread would, therefore, have to take place on or before 12 noon on 4th November 1996.

The charterers failed to narrow the laycan spread within the time limit required. They subsequently telephoned owners on 20th November 1996 and informed them that the laydays were 1st to 10th December and asked the owners to nominate the performing vessel. The owners refused to accept the charterers' late notice and argued that they were no longer under an obligation to nominate a vessel because the giving of notice was a condition precedent to the requirement that they nominate a vessel.

The charterers, on the other hand, claimed that that the provision for narrowing of the laycan spread was merely an option and their failure to exercise it did not amount to a breach of contract. The charterers claimed that in failing to nominate a performing vessel the owners had wrongfully and unilaterally terminated the contract.

The main issue to be decided by the arbitrators was whether the notice to be given by the charterers narrowing the laycan under clause 42 was a condition precedent to the nomination by the owners of the vessel or merely an option to be exercised at charterers' choice.

The majority of arbitrators held that the clause narrowing the laycan spread was not a condition but merely an option in favour of the charterers. The owners were therefore held to be in breach of contract and liable in damages to the charterers due to their failure to provide a vessel.

The owners appealed against the ruling. Having considered the nature of clause 42, the Commercial Court held that it was clear, as a matter of construction, that the parties did not intend the clause narrowing the laycan spread to be an option or they would have so worded it. (This was also the minority view at arbitration). The clause amounted to an obligation to narrow the laycan spread. However, this obligation was not a condition precedent to the owners' obligation to nominate a performing vessel but a lesser obligation, breach of which gave rise to a claim by the owners in damages only. The Commercial Court dismissed the appeal.

The owners appealed to the Court of Appeal². The appeal judges agreed with the Commercial Court ruling that clause 42, which had been introduced for the benefit of the charterers, was an obligation and not an option.

The Court of Appeal then went on to consider whether clause 42 was a condition precedent to nomination of a vessel by the owners. The Court examined the decision in Bunge Corporation v Tradax Export S. A.³ where the sellers could not nominate the loading port until the buyers had given the 13 days notice of probable readiness. In that case, giving of notice was a condition precedent to sellers nominating the loading port.

However, that case was distinguished from the present case on the basis that for this charterparty to be performed in accordance with its terms it was not necessary that the charterers narrow the spread to 10 days. If, in fact, notice was not given before 1200 on 4th November the spread would then be fixed in accordance with the first part of clause 42, i.e. it would remain at 15 and a half days (half of the 31 days in December). The laycan spread would be from 0001 on 1 December to 1200 on 16 December.

The Court of Appeal also held that owners' ability to nominate the performing vessel was not dependent upon the charterers giving notice narrowing the laycan spread under clause 42. Accordingly, it was considered unlikely that the parties intended clause 42 to be a condition of the contract such that any breach of it would entitle the owners to treat the charterparty as at an end. The appeal was dismissed.

1. ¹ The Commercial Court decision in the case was reported in “Sea Venture” Vol. 19² Court of Appeal decision 10th April 2001
   ³ [1981] 2 Lloyd's Rep 1