• Non-Payment of Hire
  • June 26, 2015 | Author: Jacy A. J. Whittaker
  • Law Firm: Parris Whittaker - Freeport Office
  • In the complex and fast-paced world of the maritime and shipping industry, serious issues can arise regarding the terms of a charter - including non-payment of fees. If you are experiencing difficulties with delayed payments, whether as a vessel owner or a chartering party, you need swift, expert legal advice.

    Non-Payment of Hire

    Recent Commercial Court judgments in the UK regarding the non-payment of hire have demonstrated some of the complexities regarding the issue - and the importance of securing expert legal advice should the need arise.

    Generally speaking, when the charterer of a vessel defaults on the cost of the hire, the ship owner would terminate the contract, and make a claim for damages. While there have historically been inconsistencies between different legal jurisdictions in the way such damages are awarded, the general understanding was that the payment of hire would not be a condition of the contract as such, but that damages would be awarded where the breach of the charterparty was either repudiatory or a renunciation.

    This would mean that the breach went ‘to the root of the charterparty contract’, and deprived ‘the innocent party of substantially the whole benefit of the contract.

    A ruling in the Astra1 case challenged this assumption. The court held that the payment of hire was a condition of the charterparty which, in turn, meant that any breach of the contract gave the shipowner the immediate right to terminate the charterparty and claim for damages.

    However, a High Court judge has recently challenged this ruling and decided, instead, that the payment of hire is an innominate term - and not a condition of the contract2. As a consequence, the charterparty would be terminated only if there was a serious (repudiatory) breach, or if it could be shown that the charterer had an intention not to honour his contractual obligations.

    The judge also clarified the position with regard to the including in the charterparty of an ‘anti-technicality’ clause. These clauses are designed to protect charterers from facing the consequences of making ‘good faith’ errors in respect of honouring their obligations towards the payment of hire (such as an administrative failure on the part of the banks.) He held that the inclusion of such a clause would not change the position set out in the ruling.

    These conflicting rulings demonstrate that there remains a lack of clarity in the shipping industry regarding the position of both shipowners and charterers. There may yet be further judgments in the Court of Appeal in the UK which could provide some clarification - but in the meantime, it is clear that securing expert legal advice at the earliest possible stage is essential.

    1 Kuwait Rocks Co v AMN Bulkcarriers Inc (The MV “Astra”) [2013] EWHC 865 (Comm)

    2 Spar Shipping AS v Grand China Logistics Holding (Group) Co., Ltd [2015] EWHC 718 (Comm)