The recent English High Court decision in Kuwait Rocks Co v AMB Bulk Carriers Inc (the ”Astra”) potentially reflects a change in the law so far as owners withdrawing their vessel from charterers service if hire is not paid and the ability to claim damages. Prior to that decision it was widely recognised that, as a matter of English law, a breach of the obligation to pay hire does not constitute a breach of condition and thus the failure to pay hire does not, of itself, give a right to claim damages. It was necessary to establish a repudiatory breach by charterers in order to claim damages. However, subsequent to the “Astra”, that may not now be necessary if a claim for damages is to succeed.
The decision in this respect in the “Astra” arguably was obiter, or may not be free from doubt until the issue comes before a higher court. But what is certain is that owners still need to be cautious when dealing with their charterers’ failure to pay hire on time (or at all).
The recent decision in the “Fortune Plum” underlines this need for caution and the difficulty an owner faces when deciding if their charterers’ conduct evidences an intention no longer to be bound by the charterparty. Even if a charterers conduct is repudiatory there is the added complication of when to accept that repudiatory conduct as bringing the charter to an end; to do so too early may mean the owner is in repudiatory breach, whereas to do so too late runs the risk of owners having lost the right to terminate and, again, being in repudiatory breach themselves.
The "Fortune Plum" – background
In this case owners brought the charter to an end because of charterers’ repudiatory breach in consistently paying hire late but only after allowing the vessel to continue discharging on the basis that discharge was to be at charterers’ expense.
There had been a worsening pattern of paying hire late so much so that eventually a number of hire instalments were unpaid altogether. In mid-October owners discovered that a freezing order had been issued by the English Courts against the assets of the group of which charterers were a member. Owners therefore took the view that the charterers would only make payments when under extreme commercial pressure to do so and otherwise intended to trade the vessel without paying hire. As a consequence, owners informed the sub-charterers that they were exercising a lien over sub-freights and sub-hires, served a statutory demand on the charterers claiming over US$1 million in overdue hire and threatened to wind them up if the outstanding sums were not paid, and informed charterers that the vessel would be withdrawn. There was no response to the statutory demand albeit some monies were paid by charterers as well as the sub-charterers pursuant to the liens. As a result, owners thought the hires would be paid and by late October had decided not to withdraw the vessel.
In fact, there were no further payments of hire and by 7 November when it was apparent that the statutory demand had not been paid owners concluded that charterers were not going to make any more payments. On that assumption, four days later (11 November), owners decided they would have to terminate the charterparty. They instructed the Master that after the vessel departed from Bayuquan, where the vessel was discharging, he was to proceed to a suitable area and wait for further instructions. But it was not until 14 November, when the vessel completed discharging and sailed from Bayuquan, that owners informed charterers that they were in repudiatory/renunciatory breach of the charter and terminated the charter. Charterers countered that the vessel's withdrawal was wrongful and that owners were, themselves in repudiatory breach.
The Tribunal's decision
The tribunal found that charterers were in renunciatory or anticipatory breach by 7 November and owners were entitled to a reasonable period after that date within which to consider whether to accept the charterers' conduct as bringing the charter to an end. The tribunal decided that in this case that period extended to 11 November, the day when owners had decided to accept the breach.
However, the tribunal concluded that by allowing the vessel to remain in charterers' service until the 14 November for the purposes of discharging the cargo, the owners had affirmed the charter.
“…We can understand the commercial reasons which gave rise to the Claimants’ desire to relieve themselves of the expense and responsibility of delivering the cargo before withdrawing the vessel, but in our view, the continued compliance with the charterparty, was a clear affirmation. In the words of the editors of The Law of Waiver, Variation and Estoppel (supra) it was conduct capable of one construction only, namely that the Claimants had chosen to forego their rights. The Claimants sought to answer the Respondents’ case by pointing out that they had repeatedly reserved all their rights. We do not, however, consider that a reservation of rights can suffice to protect the Claimants in circumstances where they acted in a manner which was wholly inconsistent with their accrued right to withdraw the vessel….”
It followed that the owners' withdrawal of the vessel on the morning of Monday 14 November was itself a repudiatory breach
Appeal
On appeal owners argued that the tribunal had made three errors of law:
1. That a shipowner who has made up his mind to accept a repudiatory breach must withdraw the vessel immediately upon expiry of the “reasonable period”.
Teare J did not agree the tribunal had been in error. He found their approach unexceptional and said “… it must be a matter of common sense that an innocent party is entitled to a reasonable period of time in which to decide whether to accept a renunciation. … such an approach is consistent with the approach of Rix LJ in Stocznia v Latco at paragraph 87 where he said: “In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed.” …”
2. That the mere act of discharging can, on its own, amount to an unequivocal act from which it can be inferred that a shipowner intends to affirm the charterparty.
As discussed above, the tribunal had recognised the commercial considerations involved but concluded that by allowing the discharge of the cargo to be completed after 11 November owners had affirmed the charterparty. Teare J considered this a finding of fact and that, while the court may have decided this issue differently on the facts, it was not for the court to interfere with a finding of fact made the tribunal.
3. That the owners were unable to terminate the charterparty in circumstances where the charterers continued to evince an intention not to perform the charterparty.
In deciding for owners, Teare J concluded that an affirmation is not irrevocable where the renunciation continues and therefore if the charterers continued to renounce the charterparty after the owners had affirmed it, owners were not in repudiatory breach if subsequently, i.e. after 11 November, they accepted that continuing renunciation. Accordingly, the judge held that the tribunal had erred in law on this point. As such, it did not necessarily follow from the owners' affirmation after 11 November that the owners themselves committed a repudiatory breach on 14 November when they terminated the charterparty. In other words, when the owners accepted the charterers' renunciation as terminating the charterparty, then that termination could be lawful and not repudiatory.
The tribunal's award was set aside and the matter was remitted to the tribunal to decide if the charterers' renunciation of the charterparty continued after the owners' affirmation of the charterparty. If so, owners’ termination on 14 November was legitimate.
While encouraging for owners, that the right to terminate will revive if, following an affirmation, charterers’ conduct continues to be repudiatory, the decision underlines the uncertainty owners face when deciding whether to accept repudiatory conduct as bringing a charterparty to an end. There is a reasonable but uncertain period of time within which to make that decision; in the “Fortune Plum” the court considered that the time actually taken by owners to make up their mind, i.e. 7 to 11 November, was the best evidence as to a “reasonable period”. However, this is a question of fact to be determined in each case, and notwithstanding:
- an express reservation of rights and /or
- an intention to accept a repudiatory breach and terminate,
if after that reasonable period has passed, owners accept their charterers breach, they will be at risk, by words or conduct, of affirming the charter. In that event, should owners terminate, they will themselves be in breach for repudiatory conduct. As such, great care needs to be exercised not only when determining if charterers’ conduct is repudiatory, but also (a) the time by which that conduct must be accepted if an owners wished to bring the charterparty to an end and (b) what is said and done prior to making that decision.
Article by Malcolm Shelmerdine
