Payment of Hire Not a Condition – The Other View

The generally held view prior to Mr Justice Flaux’s decision in the “ASTRA” [2013] was that payment of hire under a time charter was not a condition. However in The “ASTRA”, Mr Justice Flaux reached the opposite conclusion. The question came up for consideration again in Spar Shipping AS v Grand China Logistics, in which judgment was given by Mr Justice Popplewell. Mr Justice Popplewell disagreed with Flaux J’s analysis and followed the conventional view that payment of hire is an innominate term.

The significance is that any breach of a condition entitles the innocent party to treat itself as discharged from further performance if it wishes to do so and to claim damages for loss sustained by the breach; with an innominate term, the failure to perform may or may not entitle the innocent party to treat itself as discharged depending on the nature and consequences of the breach. The Spar Shipping decision concerned claims under guarantees of three long term time charters on the NYPE 1993 form. Following non-payment of hire Owners withdrew all three vessels and terminated the charters. Owners commenced arbitration proceedings against Charterers claiming the balance of hire due and damages for loss of bargain in respect of the unexpired terms of the charters.

Shortly before the arbitration hearing Charterers went into liquidation and the arbitration proceedings were stayed. Owners brought proceedings against Charterers’ parent company under the guarantees. In reaching his conclusion that payment of hire is not a condition, the Judge rejected the submission that the effect of a charter containing a withdrawal clause was to make payment of hire a condition. The critical question in his view was whether payment of hire would be treated as a condition in the absence of a withdrawal clause. A number of conditions suggested to him that it would not.

Firstly, the inclusion of a contractual right of withdrawal for non-payment suggests that in its absence there would be no such right. Secondly, there is a presumption in commercial contracts that time for payment is not to be treated as a condition absent a contrary indication and here there was none. Thirdly, breaches of terms for payment may range from the trivial to the serious. Default in punctual payment may consist in being marginally late by accident causing no loss or loss which is insignificant in the context of a long term charter. Fourthly, the Judge could not conceive that in the absence of a contractual withdrawal clause, the parties intended that a payment of hire a few minutes late would entitle Owners to throw up a 5 year charter. Fifthly, considerations of commercial certainty did not point in his view to a different conclusion.

Nevertheless on the facts, Charterers had renounced the charterparties as at the date of the termination notices. These notices were to be treated as an election to terminate which preserved Owners’ common law right to damages for loss of bargain.

Source: Waterson Hicks – through