Transcript Document 7692244

Payment of Hire and
Off-hire
Prof Martin Davies
Tulane Maritime Law Center, New Orleans
Intertanko International Chartering Forum
Mumbai, 3 October 2006
Payment of hire
► Charterers’
primary obligation
► Must be paid in full without deduction
 Unless the charter permits deduction
 Or Charterers are entitled to deduct by way of set-off
► Non-
or under-payment permits Owners to
withdraw
 NYPE cl. 5: “…otherwise failing the punctual and regular
payment of the hire…or on any breach of this Charter
Party, the Owners shall be at liberty to withdraw the
vessel from the service of the Charterers”
 Disputed deductions
 Rising market
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Deductions from hire
► Express
provision in the charter
 E.g. Shelltime 4, cl 9(ii): “Payment of hire shall be
made…less…(ii) any amounts disbursed on Owners’
behalf, any advances and commission thereon, and
charges which are for Owners’ account pursuant to any
provision hereof”
 Ditto STB Form, cl 3(b)
► Equitable
set-off
 Charterers are entitled to make deductions for claims
relating to loss of time
 Only loss of time claims are sufficiently closely related to
the obligation to pay hire
 U.S. law generally stricter
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Deduction must be reasonable
► Permitted
deduction may be made even though
the amount is still in dispute
 No need to agree amount with Owners
 No need to go to arbitration first
► The
Nanfri [1978] QB 927 at 975 per Lord
Denning MR:
 “If the charterer quantifies his loss by a reasonable
assessment made in good faith, and deducts the sum
quantified, then he is not in default. The shipowner
cannot withdraw his vessel on account of non-payment
of hire nor hold him guilty at that point of any breach of
contract.”
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Reasonable deductions
► Shelltime
4, cl 9(iii)
 “Payment of hire shall be made…less…(iii) any
amounts due or reasonably estimated to
become due to Charterers under Clause 3(ii)
[deficiencies on delivery] or 24 [speed and
consumption] hereof”
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Equitable set-off
► The
Nanfri: claims that “arise out of the same
transaction or are closely connected with it”
► Deprivation of use of ship
 Breach of speed warranty (The Chrysovalandou Dyo
[1981] 1 Lloyd’s Rep. 159)
 Not cargo damage claims: The Nanfri
► If
Charterers are not entitled to deduct, Owners
are entitled to summary judgment for hire (or can
withdraw): The Aditya Vaibhav [1991] 1 Lloyd’s
Rep. 573
 Bona fide belief not enough
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Not for any other reason
► Must
pay last month’s (or half-month’s) hire
in full even if it is obvious that redelivery will
take place before end of month (or halfmonth)
► Unless specifically permitted by charter:
 E.g. NYPE, lines 58-60: “for the last half month
or part of same the approximate amount of
hire…”
 Cf. Baltime: no such provision
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Withdrawal for non-payment of hire
► English
law inflexible
 Owners can withdraw for any late payment or
under-payment, however technical
►Charter
back to Charterers at increased market rate
 No equitable relief against forfeiture: The
Scaptrade [1983] 2 Lloyd’s Rep. 253
►No
matter what the hardship to Charterers
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“Anti-technicality” clauses
► Designed
to give relief against strictness of
English law
► In effect, notice of withdrawal clauses
► Shelltime 4, cl 9(a)
 “In default of such proper and timely payment,
(a) Owners shall notify Charterers of such default and
Charterers shall within seven days of receipt of such
notice pay to Owners the amount due including
interest, failing which Owners may withdraw the
vessel from the service of Charterers…”
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“Anti-technicality” clauses
► Owners
must give an ultimatum: must make
it clear that withdrawal will take place if
payment is not made
► The Afovos [1983] 1 Lloyd’s Rep. 335 (HL)
 “Owners have instructed us that in case we do
not receive the hire which is due today, to give
charterers notice as per cl. 31…for withdrawal
of the vessel from their service”
 Insufficient
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More strictness re anti-technicality
► The
Pamela [1995] 2 Lloyd’s Rep. 249
 Notice sent by telex late on Friday night not effective
until received on Monday morning
 Too late for anti-technicality clause
► The
Western Triumph [2002] 2 Lloyd’s Rep. 1
 Owners gave notice of withdrawal by e-mail before hire
became overdue
 E-mail not received until after hire was overdue
 Arbitrators held notice invalid because premature
 Immaterial that notice was received after hire became
overdue
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Waiver of the right to withdraw
►
Owners lose their right to withdraw if they act in such a
way as to communicate to Charterers that the charter is to
continue
 E.g., acceptance of a late payment
 Not enough for Owners’ bank simply to receive payment
 Must retain it for long enough to lead Charterers to believe that it
will not be returned: The Laconia [1977] 1 Lloyd’s Rep. 315 (HL)
►
Acceptance of timely but under-paid hire does not amount
to waiver
 Owners entitled to a reasonable time to calculate correctness of
deductions before exercising right to withdraw: The Mihalios Xilas
[1979] 2 Lloyd’s Rep. 303 (HL)
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Effect of withdrawal
►
►
In English law, charter comes to an end immediately upon
effective notice of withdrawal
If in mid-voyage, Owner must carry cargo to its destination
and deliver on terms of BLs if they were signed by or on
behalf of Owners
 Cannot demand freight from receivers if pre-paid to Charterers:
The Alev [1989] 1 Lloyd’s Rep. 138 (agreement to pay freight
(again) held invalid because of economic duress)
If BLs signed by or on behalf of Charterers, Owners
assume Charterer’s obligations after withdrawal:The
Lakatoi Express (1990) 20 NSWLR 57
► In U.S. law, withdrawal only becomes effective at end of
voyage and discharge of cargo: Diana v. Sub-freights of
Admiralty Flyer, 280 F.Supp. 607 (SDNY 1968)
►
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Effect of withdrawal
► Owners
entitled to payment from Charterers on
quantum meruit basis for carrying cargo after
withdrawal?
 Scrutton says so
 Market rate, not contract rate?
 Left unsettled in The Tropwind (No. 2) [1981] 1 Lloyd’s
Rep. 45 (CA)
► Presumably
only arises if Charterer insolvent,
which makes the question moot
 If Charterer solvent, it may choose to re-charter at new
market rate anyway
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Off-hire clauses
►
►
►
“Period” = on/off
“Net loss of time” = time lost
Partial efficiency is the key to the
difference


Still off-hire under a period clause
Lost time only under a “net loss of time”
clause
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Period clauses
 E.g. Shelltime 3, cl. 21:

“In the event of loss of time (whether arising from
[various specified events] or in any other
manner)…hire shall cease to be due or payable from
the commencement of such loss of time until she is
again ready and in an efficient state to resume her
service from a position not less favourable to
Charterers than that at which such loss of time
commenced.”
 The Bridgestone Maru No. 3 [1985] 2 Lloyd’s
Rep. 160
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Net loss of time clauses
 E.g. Shelltime 4, cl. 21:
►“On
each and every occasion that there is loss of
time (whether by way of interruption in the vessel’s
service or from reduction in the vessel’s
performance)…the vessel shall be off-hire from the
commencement of such loss of time until she is
again ready and in an efficient state to resume her
service from a position not less favourable to
Charterers than that at which such loss of time
commenced; provided, however, that any service
given or distance made good by the vessel whilst offhire shall be taken into account in assessing the
amount to be deducted from hire.”
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Time lost after full efficiency restored
► No
deduction under English law, even under “net
loss of time”
 The Marika M [1981] 2 Lloyd’s Rep. 622: vessel lost
berthing turn after grounding; not off-hire while waiting
for berth once in full working order
 NYPE, cl. 15: “the payment of time shall cease for the
time thereby lost”
► Deduction
would be permitted under U.S. law
 All time lost as a result of enumerated causes
 Not so for “period” clauses
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“…or any other cause”
► Eiusdem
causes
generis (of the same kind) with listed
 Unless “whatsoever” is added
► Confined
to causes related to physical condition of
ship or crew
 Not off-hire during delays from “extraneous” causes
 The Aquacharm [1982] 1 Lloyd’s Rep. 7 (not off-hire
during lightening to pass through Panama Canal)
 The Manhattan Prince [1985] 1 Lloyd’s Rep. 140 (not
off-hire under Shelltime 3 during boycott by ITF)
should be on effect – preventing full
working – not cause
► Focus
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Practice tips
► Read
the clause carefully before you do
anything, whichever side you are on
► Charterers - if in doubt, pay in full
(especially in a rising market)
► Owners - give clear and unequivocal notice
of withdrawal (especially if there is an antitechnicality clause)
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