3.3 Redelivery notice – an obligation to inform, or a mechanism for redelivery?
3.3.1 Initial reflections
To understand the legal effect of a short notice, it is necessary to determine what a redelivery notice does. How does the rule of notice fit in the normative framework of the time charter? What is its role in the redelivery scheme?
Looking at the landscape of contractual notices, two main classes emerge. We can distinguish between rules that ask for notice for the sake of notice so that it operates as a standalone obligation, and rules pursuant to which notice has a pre-defined legal effect outside of itself. The Norwegian EPC standard NTK 15 provides a good example as it contains notice rules of both kinds. There are a number of events and conditions that are the company’s risk, but upon discovery of which the contractor must notify the company, for example of an added regulatory burden pursuant to Art. 5.1 or intrusive behaviour from the company’s representative pursuant to Art. 3.3. These notice duties have an effect beyond themselves, as the notification preserves the contractor’s right to be indemnified through a variation order.(1) Kaasen (2018), pp. 272–273. Differently put, absence of timely notice extinguishes that right. But the contractor also has a general duty pursuant to Art. 11.1 to notify the company whenever he has reason to believe that work will fail to progress as planned, whatever the reason for delay. A notice pursuant to Art 11.1 has no effect beyond fulfilment of that obligation to notify.(2) Kaasen (2018), p. 272. If the contractor does not comply, the company may under the circumstances claim damages for losses incurred due to the lack of notice i.e., similar to Jantzen’s conception of a short redelivery notice, but it does not otherwise affect the contractor’s primary rights and obligations.(3) But may coincide with neglect of one of the particular notice duties.
There is one duty to inform that is perhaps best understood as sui generis – the real debitor’s pre-contractual duty of disclosure. When the real debitor neglects to give information about essential aspects of the performance that the creditor had good reason to expect, that neglect will transform the material requirements of performance so that it answers to the creditor’s mistaken expectations.(4) See e.g., Sales of Goods Act § 19 (1) and Real Property Sale Act § 3-7. The duty is a general principle that also applies outside the statutory context, cf. Hagstrøm (2011), p. 148. Like in the short notice situation, the information is negatively flawed i.e., there is too little of it compared to what the norm requires. One could envision this rule as a solution model for the short notice situation, in the sense that the owner prior to receipt of short notice may have had an expectation for the vessel to be redelivered later pursuant to proper notice.(5) So that if there is a ~15-day notice requirement, the owner may prior to receipt of notice expect redelivery to occur at minimum ~15 days into the future. The pre-contractual duty of disclosure is, however, not a liable analogy. It is based on a standard of honesty and good faith, as these values are greatly at play in the exchange of information prior to property changing hands.(6) In Norwegian jurisprudence, the understanding of the duty as a standard of honesty is underlined by its close association with the Formation of Agreements Act § 33. A notice of redelivery occurs in contractu and is not subject to potential abuse in a comparable manner. While not a realistic fit for the short notice situation, the pre-contractual duty is mentioned here to round off a sketch of the various ways in which duties to inform work in contractual settings.
We proceed to characterize what a redelivery notice rule may look like depending on which of the two main classes of notice rules it belongs to. In the first alternative, the rule does nothing more than lay down a narrow obligation to inform ahead of redelivery. Understood in this limited way, the rule on notice does not regulate the lawful time of redelivery. It is a standalone obligation that asks for notice only for the sake of notice. While it is redelivery that lets us ascertain breach, it does so only because it provides us with the factual input to conclude that there was a prior information deficiency, and not because there was fault in the timing of the redelivery per se.
In the second alternative, notice acts as the key that eventually opens the window for lawful redelivery. The obvious analogy is to notices of terminations in e.g., tenancies and employment agreements, wherein to issue notice is the act that initiates cessation of contract pursuant to a pre-defined procedure. If a notice of redelivery is to be understood correspondingly, it regulates the lawful time of redelivery in a layer above the charter period regulation.
Were one to ascribe to a notice of redelivery the same effect as notice in e.g., tenancies, it would entail that redelivery could not – with respect to its timing – lawfully occur prior to the end of a notice period of pre-determined length commencing from the owner’s receipt of notice, no matter what it ostensibly communicated. If so, one could confidently assert that any redelivery prior to the full observation of notice time would be a breach in the timing of the redelivery, thereby answering the research question pertaining to the correct measure of damages. It is therefore pivotal to examine whether the time charter notice provision regulates the lawful time of redelivery in a comparable fashion.
3.3.2 Finite versus non-finite contracts
Provisions for notice to initiate cessation are especially relevant in non-finite contracts, as tenancies and employment agreements often are. When the contract period is not set in advance, it is sensible to have a procedure that considers the other party’s expectation of continued performance as well as interest in preparing for what lies ahead after cessation. Commonly, there will be a pre-defined notice period between the notice and lawful cessation defined by the terms of the agreement or by default or mandatory background law. The Norwegian Tenancy Act § 9-6 provides a default period of 3 months commencing on the 1st day of the month following notice. Similarly, the Working Environment Act § 15-3 provides various default and partially mandatory rules on the length of such periods. Outside of the statutory context, it is probably a general principle that non-finite service and lease agreements can be terminated, when they so can, only after a period of reasonable notice (absent agreement to the contrary).
Time charters are finite i.e., they regulate in advance the duration of the parties’ obligations to perform, commencing with delivery and ceasing with redelivery. Whether the charter is flat, about or contains express wide margins, the parameter for redelivery is pre-agreed. There is therefore no inherent need to provide for another legal mechanism to regulate the lawful window of redelivery. The observation hints to a more limited role pertaining narrowly to an obligation to inform. Nevertheless, parties may of course agree on an additional rule layer, wherein notice takes part in addition to the charter period regulation. Whether that is the case, is a matter of construction.
3.3.3 The textual basis
It is said that one is to interpret commercial contracts objectively.(7) Unless there are grounds to use the ‘inter-subjective’ approach, but this is not relevant in a general exposition like here. This essentially means that one looks to what a reasonable person would infer from the agreement in its relevant context.(8) Tørum (2019), pp. 23–24. In that regard, the letter of the relevant provision is a principal determinant.(9) See e.g., rt. 2002 p. 1155 Hansa Borg.
Neither Clause 7 Baltime nor its relatives describe in express terms that notice acts as a procedural key. It does not expressly regulate anything other than the giving of notice itself. Contrast with Supplytime’s clause on the charterer’s discretionary right to terminate early:(10) Offshore forms come with an option to provide the charterer with a discretionary right to terminate early, which otherwise tends not to be a feature of time charters.
The Charterers may terminate this Charter Party at any time by giving the Owners written notice of termination as stated in Box 14, upon expiry of which this Charter Party will terminate.(11) Supplytime 2017 Cl. 34 (a).
The desired legal effect is achieved only through issuing notice, and it does not materialize prior to the expiry of the pre-defined notice period. It lays down a procedure for cessation. Any redelivery prior to the end of the notice period would not merely violate a right to information, but the timing of the redelivery would itself be premature.
Compare with Supplytime’s Clause 2 (d) on redelivery notices:
Redelivery – (…) The Charterers shall give not less than the number of days’ notice in writing of their intention to redeliver the Vessel, as stated in Box 8(ii).(12) Supplytime 2017 Cl. 2 (d).
The provision straightforwardly asks for notice without describing it as a key to open a legal window. It appears to ask for notice for notice’s sake.
A difference in wording is indicative of a difference in meaning. If one intended for a notice of redelivery to have a function comparable to a notice of termination, it would be straightforward to achieve that effect. The clause could have read: “To redeliver, the charterer must give the Owner ___ days’ notice of redelivery, upon expiry of which this Charter Party will cease.” Even without the last sub-clause, to pre-condition (lawful) redelivery on observation of notice would go some way in tying notice to the lawfulness of the timing of the redelivery.
The differential analysis given above is only valid for Supplytime, which is a relatively recent and specialized time charter. Outside that context, one cannot as easily draw negative inferences.
Maybe one simply did not think to or consider it necessary to spell out the link between notice and the lawful timing of redelivery. It is probably true as a general matter, that when contextual factors indicate as much, there is a case to be made for drawing analogy to notice as a procedural key, even if the text does not expressly provide for such a mechanism. It may therefore be regarded as unsatisfactory to rule out that alternative without considering other factors. In doing so, one ought to recognize, however, that a rule to that end would alter the de jure charter duration and thereby the extent of the main contractual obligations of the parties. An interpretation along those lines should therefore be well justified when the text does not speak in its favour.
3.3.4 The contractual scheme
The objective approach does not entail construing meaning narrowly from the wording alone.(13) Rt. 2010 p. 961. para 44. Tørum (2019), p. 24: 2-029. It is a common-sense approach where one must pay regard to both textual and contextual factors. One such factor that is especially relevant here is the scheme of the contract i.e., its internal context. When there is a comprehensive agreed document, there is a strong common-sense presumption that the contract makes a coherent whole.(14) See especially HR-2016-1447-A paras 43-44 as regards agreed documents.
In that regard, one may observe that a procedural interpretation does not easily fit with flat charters, wherein the pre-agreed cessation is in principle set to fall on a specific day. Outside the limited right to overlap, there is little space for an additional rule on the lawful time of redelivery. If the ship is redelivered on short notice prior to the day of expiry – so-called underlap –, a claim for missing charter hire will be based on the minimum charter period.(15) But note that unlike Norwegian and English law, American law recognizes the charterer’s right (and duty) to redeliver early without liability if the last voyage’s overlap exceeds the underlap, cf. Michelet (1997), p. 171. If the notice time extends beyond the day of expiry, one would be pressed for an answer. Under what circumstances, if any, can a short notice lead to an owner’s claim for hire beyond the pre-agreed day of cessation?
When the notice obligation was introduced in Baltime 1909, flat forms were standard. The original Baltime was drafted through and through to operate as a flat charter.(16) See Clause 1 on the period and Clause 7’s regulation of overlap rights. Jantzen (1909), p. 100. It seems close to inconceivable that the drafters would intend for a notice rule comparable in function to notices in tenancies without regulating in detail how this rule interoperates with the charter’s pre-agreed day of expiry. This can likely be ruled out.
The modern trade favours express wide margins for the legal certainty they offer. And when there is e.g., a two-month window of redelivery, the contractual scheme does not stand in the way for notice to function as a procedural mechanism. However, the express wide margin charter would face a contradiction of its own. When the formulation, as it typically does in its modern iteration, asks for e.g., 15 days’ approximate notice, the period in-between notice and lawful redelivery is defined with reference to an approximate number of days. This imprecise measure of time precisely lends itself to the kind of legal uncertainty that express wide margins are designed to avoid. What is more, when a provision requires an approximate and a definite notice as is common in modern charters, one would expect specific rules on how the two notices interoperate if they did in fact take part in a procedure for cessation.
In any event, it would be unfortunate if similarly worded clauses could yield one interpretation for flat charters and another entirely when there are express wide margins. When a similarly worded clause is used in related agreed documents like time charters, business common sense suggests that one sticks to one interpretation.(17) Tørum (2019), p. 141 (4-042).
3.3.5 Summary
The textual and contextual factors point in the same direction. It appears, that the clause means what it says, and it asks for notice for the sake of notice. It is narrowly an obligation to inform. International opinion does little to challenge that conclusion. The Liepaya based damages on a right to earlier notice, congruent with a pure obligation to inform.(18) [1999] Lloyd’s rep 649 (p. 672). Not even The Great Creation offers support for the mechanical interpretation. While the Judge did indeed hold that the owner in some cases were entitled to damages premised on a later redelivery, he would in other cases only have a right to damages based on earlier notice.(19) [2015] Lloyd’s rep 315. The procedural interpretation would not permit such variability, as the owner would always be entitled to redelivery at the end of the pre-defined notice period. What remains are the two American arbitrations Transocean and Loreto Compania. Absent persuasive value, they do not carry enough weight to alter our conclusion.(20) The decisions do not discuss the issue in any detail.
Accordingly, we will prima facie infer that in case of short notice, the owner may only claim as damages his disposition losses from not having been given earlier notice – the Jantzen approach. When the breach lies in the information rather than the timing of the redelivery, damages rectify the owner’s predicament by altering the information. One may perceive it as redelivery controlling when notice ought to have been given, rather than the other way around. In chapter 4 we will look closer at how measurement principles apply to this situation given our interpretation of the contract and examine whether there are viable counterarguments to our initial inference. But first, we will look at one more aspect of the content of the obligation to inform.