Hire and Withdrawal

Miranda Karali Partner

The right to withdraw (1)

 Refusal or failure to pay hire or a late payment amount to a breach of contract  Refusal to pay is probably a repudiatory breach and the owner may elect to cancel the charter  Failure to pay or late payment in the first instance gives a right to claim damages only, as the breach is not repudiatory  BUT the charter usually sets out an express right to withdraw the vessel

The right to withdraw (2)

 Where the charter gives an express right to withdraw the vessel, the owner can elect this remedy  If there has also been a breach of the charter the owner may also claim damages  Clear notice is required  No particular form of words is required  Withdrawal is final

Previous late payments - waiver

 Generally the acceptance of late payment does not amount to a waiver of the right to withdraw unless the owner accepts it on those terms  But a waiver will arise if the owner fails within a reasonable time of receipt of the late payment to give notice of withdrawal  Where there has been a history of late payments being accepted, this may be a variation of the contract or establish an estoppel  If waiver or estoppel, then new notice is required

Anti-technicality clause

 Most time charterparties contain an anti-technicality clause  The details of an anti-technicality clause must be meticulously followed  The anti-technicality clause may include a right to suspend performance of the contract as an alternative to withdrawal of the vessel

Effect of withdrawal

CARGO INTERESTS

 A problem area where bills of lading have been issued to third parties  These are distinct contracts  The owner must continue to perform in accordance with the bills of lading  Even where no bills of lading are issued, owners have an obligation as bailees to take reasonable care of the cargo

CHARTERERS

 At valid withdrawal the owners can claim hire earnt, but what about damages?

Can a shipowner withdraw the vessel and also claim damages? Repudiation

 The owners would only be entitled to damages if the charterers’ failure to pay amounted to a repudiation of the charter  Assuming that the obligation to pay hire punctually is not a condition of the charter, when will failure to pay it on time amount to a repudiation of the charter?

 Conduct may amount to repudiation where it shows: – an intention no longer to be bound by the contract, or – an inability to perform sufficient to have the effect of depriving the owners of substantially the whole benefit of the charter  Failure to pay an instalment of hire on the due date would not satisfy this test  However, where the conduct of the charterers is such that unwillingness or inability on their part to pay can be reasonably inferred, then there may well be repudiation  Owners can accept repudiation and sue for damages or refuse repudiation, affirm the contract and sue for hire

Measure of damages

 The purpose of contract damages is to put the injured party in as good a financial position as he would have been in had the contract been performed  Damages are limited to those that were foreseeable at the time the contract was entered into. Recovery of consequential damages will not be allowed  The proper measure of direct damages for a wrongful withdrawal or cancellation of charter is the difference between the original charter rate and the prevailing market rate for equivalent business at the time of the breach  Duty to mitigate damages

Remedies against parties other than the time charterer

 Lien on cargo  Lien on sub-freights / sub-hires

Miranda Karali

Partner, Clyde & Co [email protected]

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