Voyage Charter - Notice of Readiness

December 2001 (Updated September 2002)

(Sea Venture Volume 20)

In the much reported case of Glencore Trading Ltd v Flacker Shipping Ltd the English Commercial Court gave a decision which has caused a stir in the shipping community.

The MV "Happy Day" was chartered on an amended Synacomex form. The master was required to give notice of readiness upon arrival at port triggering the commencement of laytime at 8 a.m. on the next working day.

The vessel arrived at Cochin but was unable to enter the port because she missed the tide. Despite this, the master purported to serve notice of readiness at that time, although the vessel did not, in fact, enter the port and berth until the following day. Discharge began on that day and was completed 3 months later.

The charter was a berth charter but owners had purported to give notice from outside the berth in circumstances where there was no congestion at the berth. No other notice of readiness was ever given.

Arbitrators held that no valid notice of readiness was ever given but, nonetheless, they calculated that laytime commenced at 8 a.m. on the day after the first date when a valid notice of readiness could have been given after commencement of discharge.

The charterers appealed the decision.

The owners submitted that as discharge had commenced without the charterers or receivers rejecting the notice, they had, effectively, waived the requirement or were estopped from denying its validity and that, in fact, laytime had commenced as the arbitrators had described.

In the commercial court, Langley J held that the notice of readiness had not been accepted in any sense on which the owners could rely. In addition, to allow the commencement of discharge operations to validate an invalid notice would be inconsistent with the Court of Appeal’s decision in The "Mexico I"¹ (in which Lord Mustill had rejected the idea of the inchoate notice) and would effectively override the parties’ own agreed requirements for the notice.

Accordingly, the owners’ lost their claim for demurrage and the charterers succeeded in their claim for despatch. The owners are appealing the decision.

Update (September 2002)

The much awaited Court of Appeal decision was given on 15 July 2002. 

Langley J had held that although discharge had commenced with the charterers’ knowledge but without protest or reservation on their part as to the validity of the notice of readiness, this, of itself, was insufficient to trigger the start of laytime.

The Court of Appeal disagreed: On the basis of the arbitrators’ finding of fact it was open to them to reach the conclusion that when discharge commenced, charterers had waived any right to rely on the invalidity of the notice served on the receivers or their agents in order to defer the commencement of laytime.

Lord Justice Potter:

"…in the appropriate commercial context, silence in response to the receipt of an invalid notice in the sense of a failure to intimate rejection of it, may, at least, in combination with some other step taken or assented to under the contract, amount to a waiver of the invalidity or, put another way, may amount to acceptance of the notice as complying with the contract…"

In applying these principles to the facts of the case the Court reached the following conclusion:

"On an objective construction of those matters, although the charterers were not under a contractual duty to indicate rejection of the notice, by their failure to do so, coupled with their assent to commencement of the discharging operations, they intimated, and any reasonable shipowner would have concluded, that the charterers thereby waived reliance on any invalidity in the notice and any requirement for a further notice."

The Court addressed the issue of the receivers'/agents' involvement in the case and and the question of their authority to   waive a requirement as to the validity of the notice of readiness. It was held that where the charterparty provides that notice of readiness is to be served upon receivers or their agents (as opposed to charterers themselves) then the owner is entitled to look to such persons to make decisions as to the readiness of the vessel for discharge. Equally, the Court held,  such persons must have implied authority to waive a condition as to commencement of laytime, including an invalidity in the notice of readiness.  

As to the commencement of laytime, the Court of Appeal established the following principles which will provide useful guidance for the future:

"Laytime can commence under a voyage charterparty requiring the service of a notice of readiness when no valid notice of readiness has been served in circumstances where:

1. a notice of readiness valid in form has been served upon the charterers or receivers as required under the charterparty prior to arrival of the vessel;
2. the vessel thereafter arrives and is, or is accepted to be, ready to discharge to the knowledge of the charterers;
3. 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.

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 charterparty, as if a valid notice of readiness had been served at that time…"

The arbitrators’ award was, accordingly, restored.

While the facts of this case did not support the finding of either an implied agreement to vary the terms of the contract or estoppel, in other cases a similar outcome may follow by application of these doctrines.

It is understood that charterers do not intend to appeal the decision.

This decision is most welcome and, many would say, the only fair and commercially sensible outcome. However, it should not be assumed that any invalidity in procedure relating to the commencement of laytime can be "made good" by waiver, variation or estoppel; each case will turn on its own facts. Care should be taken to ensure satisfaction of the relevant charterparty provisions. If there is doubt as to whether a valid notice of readiness has been given, owners should consider whether further notices should be tendered², including on commencement of discharge.

¹ [1990] 1 Lloyd’s Rep. 507
² The impact of subsequent notices on the potential validity of those previously tendered should, nonetheless, be borne in mind: For the avoidance of doubt, subsequent notices should be marked "without prejudice to the validity of the notice of readiness given on xx/yy/zz".