Industry expertise
March 2015
Olivia Furmston
Legal Director
T: +44 20 3320 8858
E: olivia.furmston@ctplc.com
LeRoy Lambert
President
Regional Claims Director
T: +1 646 753 9020
E: leroy.lambert@ctplc.com
Defence class cover
Payment of hire:
is it a condition?
The Astra
The decision
In 2013, the judge in The Astra1, Mr Justice
Flaux, created controversy, interest and debate
by defining a charterers obligation to make
punctual hire payments under a time charter
to be a condition of the contract. Prior to this
decision, the obligation to pay hire punctually
under a time charter had only been considered
as an innominate term.
A condition in a contract is defined as a
promise or undertaking that is fundamental to
the contract, any breach of which entitles the
innocent party to terminate the contract, in
addition to their right to damages.
Conversely, a breach of an innominate term
gives the innocent party the right to terminate
only if the breach is so serious that it deprives
the innocent party of substantially the whole
benefit he was intended to obtain from the
contract. The innocent party may still recover
damages for the breach, but may not have the
right to terminate.
What this means
Previously, in the case of non-payment of a
single hire instalment, an owner could do no
more than withdraw his vessel (subject to
strict compliance with any anti-technicality
provision(s) in the charterparty) and claim any
unpaid hire up to and until that date. To claim
anything more, such as future lost earnings,
the owner needed to show that the charterer
had repudiated the contract. It had to be
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shown that the charterer in question did not
intend to be bound by the contract any longer,
thereby depriving the owner of substantially
the whole benefit of the charterparty. This
often meant that an owner, especially under a
long-term time charter, had to await several
missed hire instalments before establishing a
case of repudiation. After The Astra decision,
the question of what constitutes a valid
deduction instantly acquired new significance
as charterers recognised the repercussions
of being held in breach of a condition. Indeed,
breach of a contractual condition would entitle
the owner not only to terminate the charter,
but also to claim damages for future loss of
earnings.
It should be mentioned that all the comments
made by Mr Justice Flaux as to a charterers
obligation to pay hire (in this case, under Clause
5 of the NYPE charter) were made obiter i.e.
they are not binding on other courts. Therefore,
it remains to be seen whether this decision will
be followed, either at first instance or in the
English appeal courts. This leaves both owners
and charterers somewhat in shifting sands for
the time being. This is particularly worrying for
an owner, who in the meantime may be held to
have affirmed a charter if it does not terminate
and withdraw promptly following a single
missed payment of hire. For this reason, any
acceptance by an owner of a late or partial hire
instalment should be expressly made subject to
its reservation of rights, including its right not
to accept a late and/or partial payment in the
future, and this should be made in writing.
Industry expertise
This information is published on
behalf of The Standard Club Ltd
by the managers London agents:
Charles Taylor & Co. Limited
Standard House, 1213 Essex Street,
London, WC2R 3AA, UK
Registered in England No. 2561548
Telephone: +44 20 3320 8888
Emergency mobile: +44 7932 113573
Email: pandi.london@ctplc.com
Website: www.standard-club.com
Implications for the owner For further guidance on the principle of
From the perspective of the owner, there has equitable set-off, please see the clubs
been historic uncertainty as to what constitutes publication: Legitimate deductions from
a repudiatory breach of charterparty in respect charter hire. A charterer member should not
of missed hire instalment(s). If an owner hesitate to contact their usual club claims
operates his right to withdraw2 his ship against handler if ever in need of advice as to whether
a defaulting charterer too soon, in a falling a specific deduction from hire is permissible
market, this could mean the loss of a substantial under the subject charter.
damages claim for future loss of income at the
higher charterparty rate. Therefore, if correct
and followed in the future, The Astra decision The need for ongoing vigilance
significantly improves an owners position when
Until there has been a definitive judgment on
faced with a defaulting charterer, especially
these issues, the owners question of when to
in a falling market. To put it another way, if the
withdraw and the charterers question of what
charterer breaches his contractual condition
and when to deduct from hire remain unsettled
to pay hire punctually, as per The Astra, he has
and risky. The eventual effects of The Astra
repudiated the charter even if only one hire
could be radical and far-reaching. However, in
instalment is missed and a damages claim for
the short term, the situation is unclear. What is
future losses is crystallised without dispute.
certain is that parties should consider payment
of hire issues in a new way, perhaps seeking
Implications for the charterer more express contractual terms and with an eye
on their own protection.
From the perspective of the charterer,
assessing what constitutes a valid deduction
from charter hire must become more stringent
Defence cover is, by its very nature,
than ever. Making disputed deductions or late
discretionary in that the club must be satisfied
payments of hire would become high-risk
as to the merits and quantum of the claim
activities, exposing the charterer to the loss of
in question and the likelihood of achieving a
the ship from charter and a significant damages
successful outcome, if it is to lend support.
claim for the balance of the charterparty period.
With this in mind, it is advisable that charterers
Members requiring further information
(if acting outside an express contractual right
on this topic should direct their enquiries
to deduct) seek to agree the amount with
to either their usual contact at the club or
the owner before acting. Failing agreement,
to olivia.furmston@ctplc.com. The club
theyshould:
wishes to thank Charlotte Baly for her valued
contribution to this article.
pay the full hire punctually, but under protest
and with the express intention of recovery via
legal proceedings; or
pay the disputed sum into escrow, with the
owners agreement; or
if still determined to make the deduction
from hire, ensure they are entitled to do so as
per the principle of equitable set-off.
1. Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra) [2013] EWHC 865 (Comm).
2. The owner must always adhere to its own contractual requirements, such as any anti-technicality clauses within the
subject charterparty, to avoid being in breach of contract if/when it withdraws a ship.
The information and commentary herein are not intended to amount to legal ortechnical
advice to any person in general or about a specific case. Every effort is made to make them
accurate and up to date. However, no responsibility is assumed for their accuracy nor for the
views or opinions expressed, nor for anyconsequence of or reliance on them. You are advised
to seek specific legal or technical advice from your usual advisers about any specific matter.
The Standard Club Ltd is regulated by the Bermuda Monetary Authority.