The majority of vessel charter parties contain provisions that provide that a charter may be canceled under certain circumstances.

The most common provision grants the charterer the option of canceling the charter if the ship is not ready to load cargo or is not delivered by the shipowner to the charterer by a certain date. This provision is generally referred to as the "cancellation clause."

The cancellation clause is one of the most important provisions in a charter. Most parties, however, when chartering vessels, choose standard form charters, and little or no thought is given to the actual wording of the cancellation clause. Such wording can become critical if a vessel experiences delays. This is especially true in voyage charters that are often entered into long before a voyage is performed.

Under a voyage charter, the vessel owner places his ship at the charterer's disposal for carrying cargo. However, the shipowner retains full control over the navigation and operation of the vessel. The charterer is responsible for furnishing a specified amount of cargo and for paying freight. The charterer is entitled to a stipulated period of time to load and discharge the vessel, known as laytime. If laytime is exceeded, the charterer then pays an additional charge called demurrage. If the charterer fails to load all of the specified cargo, he then will pay "deadfreight" to the shipowner.

Once the voyage charter is formed, the vessel owner has an absolute duty to send the ship to the load port with reasonable dispatch. Usually the vessel will arrive ready to load before the charter canceling date. The captain will tender a notice of readiness to the charterer and laytime will begin to run. The charterer then will load the ship, and the voyage will commence.

Unfortunately, because of uncertainties associated with shipping, vessels do not always arrive at load ports by their canceling dates. When this happens, the specific wording of the cancellation clause becomes most important.

Under American and English maritime law, the charterer is given the absolute option to cancel the charter if the vessel is not tendered (delivered) by the cancellation date. Eve so, the vessel owner is bound to send the ship to the load port to tender even if the vessel cannot arrive by the cancellation date. Furthermore, without a specific provision in the charter, the charterer cannot be compelled to disclose if he will exercise his option to cancel until the vessel is tendered at the load port. This practice was emphasized and dealt with in a somewhat colloquial manner by an English judge in the Steendiek case (2 Lloyds' Rep. 298): "It is well-established, if somewhat unattractive law, that a charterer is entitled to order a shipowner to send his vessel halfway round the world, and, when it arrives, cock a snook at him by cancellation."

A recent New York arbitration award (Fort St. John S.M.A. 2682) illustrates the importance of cancellation clause wording. That relevant clause stated: "Should the vessel not be ready to load by 4:00pm on the canceling date ... the charter shall have the option of canceling. . . . by giving the (vessel) owner notice within 24 hours after such cancellation date."

The tanker arrived at the load port within 24 hours of the canceling date and tendered. The vessel's tanks were inspected and loading hoses were connected. However, cargo was not loaded. The charterer canceled within 24 hours based upon the specific language in the canceling clause.

The owner claimed deadfreight and argued that the canceling option could not be construed as absolute, but must be viewed in light of commercial considerations. The arbitration rejected this argument because the clause was clear and unambiguous.

American court decisions and arbitration awards demonstrate that judges and arbitrators interpret cancellation clauses narrowly. Because these clauses are in effect forfeiture provisions, it behooves the parties, especially the shipowner, to give careful consideration when selecting them. This must be done at the time the vessel is chartered, not when it is sailing halfway round the world.