Anti-Technicality Clauses and Withdrawal - Exercise of Great Caution Revisited
Published: March 01, 2011
The "Qatar Star”, inter alia, mainly focused on the following points:
1. The “intention” required by charterers with respect to their default in timely and regular payment of hire under an anti-technicality clause,
2. The owners’ approach to withdrawal under an anti-technicality clause in the charterparty.
3. The importance of clear and unequivocal wording in these types of clauses.
Material Facts
The charter between owners and charterers was based on an amended NYPE form and additional clauses were added thereto.
Amongst other clauses, the Charter contained the following unamended clause 5:
“5. Payment of said hire to be made to Owners designated bank account in cash in United States Currency 15 days in advance…otherwise failing the punctual and regular payment of hire, or bank guarantee or deposit, or on any fundamental breach of this Charter Party, the Owners shall be at liberty to withdraw the vessel from the service of the Charterers without prejudice to any claim they may have against the Charterers…”
An additional anti-technicality clause was included which read:
“62. …where there is any failure to make ‘punctual and regular payment’ due to errors or omission of Charterers’ employees, bankers or Agents or otherwise for any reason where there is absence of intention to fail to make payment as set out, Charterers shall be given by owners 3 banking days notice to rectify the failure and where so rectifed the payment shall stand as punctual and regular payment.”
The charterers had a very poor payment record generally. In fact, of the first 30 hire payments 17 had been paid late (on four occasions, five or six days late) but it was only on the 33rd payment date that owners served an anti-technicality notice under clause 62 and on that occasion hire was paid immediately.
A few weeks before the 34th payment fell due there were delays during discharge when three of the vessel’s four cranes broke down. The charterers intended to deduct the time lost from the 34th hire payment but only received the information necessary to make the deductions after office hours two days before that hire instalment was due. The payment, less deductions, was authorised and processed on the day that hire was to be received in owners’ account but the instructions to the bank arrived after banking hours. The charterers’ bank was closed the next day for the weekend, and it was on this day, one day after hire should have been paid, that owners withdrew the vessel from the charter. An anti-technicality notice was not served. Owners’ notice of withdrawal stated:
"it is clear to us that your persistent failure to pay hire timeously as required by the Charterparty is deliberate and/or that you no longer intend to be bound by the terms of the Charterparty. We therefore hereby give you notice that we are exercising our right under clause 5 of the Charterparty and withdrawing ‘QATAR STAR’ from your service with immediate effect, alternatively we hereby accept your conduct as amounting to a repudiatory breach of the Charterparty and are terminating the Charterparty with immediate effect."
No further hire payments were made and charterers started arbitration claiming damages for the wrongful withdrawal of the vessel. On a majority decision the tribunal agreed that an anti-technicality notice should have been served. Owners appealed to the High Court.
The Arguments
The charterers’ position was straightforward. While hire was late, there was no intention to pay late. Therefore, an anti-technicality notice should have been served in accordance with clause 62.
In contrast owners took the view that they were not obliged to serve any an anti-technicality notice because there was an “intention” on the charterers’ part not to “make payment as set out” and thus clause 62 did not apply. The charterers had decided to make deductions from the hire and had intentionally delayed remitting hire whilst awaiting documents to support the off-hire deductions with the inevitable consequence that hire was paid late. This was the view of the minority arbitrator. The majority of the tribunal had concluded the cause of the delayed payment was a case of severe incompetence in asking for the information necessary to make the deductions from hire so late and then being slow to calculate those deductions and authorise the net payment, not intentional non-payment of hire on or before the due date by 24 August.
In an attempt to counter the majority view, and thus avoid the need to have served an anti-technicality notice, owners also argued that “intention” embraces recklessness, or an awareness that late payment would be the virtually inevitable consequence of a deliberate course of action.
Finally, owners also argued that the deductions from hire that the charterers had intended to make from the 34th hire payment were unreasonable and unjustifiable, and evidenced charterers’ intention to make hire payment that was not ”regular” in accordance with clause 62.
The Decision
The Court, agreeing with the majority of the tribunal, dismissed charterers’ appeal.
So far as recklessness, Christopher Clarke J said: “It does not seem to me that a commercial man in the position of the parties to this charter would regard the word "intention" as having what seems to me an extended meaning so as to include recklessness.”. He reached this decision for a number of reasons one of which was the distinction made between intent and recklessness in a number of statutory or contractual provisions in the commercial field. For example, and so far as relevant to shipping, the words "or recklessly and with knowledge that damage would probably result" that appear at Article 4 of the 1976 Limitation Convention were adopted from the Warsaw Convention, as amended in The Hague in 1955 also appear in:
(i) The International Convention on the Carriage of Hazardous and Noxious Substances by Sea (schedule 5A to the Merchant Shipping Act 1995), articles 7(5) and 9(2);
(ii) The Convention on the Carriage of Passengers and Luggage by Sea (schedule 6 to the Merchant Shipping Act 1995), article 13.
(iii) The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea ("The Rotterdam Rules"), article 62.
In summary on this point, reflecting the draconian effect of withdrawal clauses and that to mitigate their effect that the courts look favourably on anti-technicality clauses, Christopher Clarke J said:
“I recognise that if there has to be absence of intention, and recklessness is insufficient, the bar for an owner will be a high one. Mr Coburn [owners’ counsel] contended that such an interpretation would render the clause unworkable and would mean, in practice, that an owner would probably have to serve a notice in every case except the most obvious. I do not regard these considerations as compelling. Quite apart from the fact that the clause is, in substantial measure, unworkable anyway, the parties could easily have provided that absence of recklessness was necessary if a notice was to be given. I decline, in the context of a clause giving relief against forfeiture, to widen the scope of the limited form of words which the parties have, presumably intentionally, used.”
As for the owners’ argument that charterers had intended to make a hire payment that was not “regular” in accordance with clause 62, an owner may not withdraw a vessel for non-payment of hire if the charterer makes a payment of the hire less a deduction which is: (i) bona fide and (ii) reasonable in respect of an item for which there is a right under the charterparty (or by way of equitable set off) to make some deduction, even though the amount which he deducts turns out to have been too much( Federal Commerce and Navigation Ltd v Molena Alpha Inc (the “Nanfri”) [1978] QB 927).
Further, in the The “Libyaville” (Oceanic Freight Corp v. Reederei und Schiffahrts GmbH) 1975, 1 Lloyd’s Rep 537 QBD (Comm) Mocatta J concluded that the charterers, notwithstanding their deliberate payment of hire at a lower rate, fell within the charterparty anti-technicality clause which was in similar terms to clause 62. Indeed, a different construction would in effect mean that an owner did not have to provide any warning notice in the case of a timeous payment, if a deduction was made in good faith but unreasonably, provided that the deduction was deliberate.
That would be inconsistent with the “Nanfri” and mean charterers would have significantly reduced protection against withdrawal when deductions from hire were made.
Conclusion
The” Qatar Star” is yet another reminder to owners to exercise extreme caution when considering the withdrawal of their vessel from charters’ service. Courts are likely to interpret anti technicality clauses in a manner beneficial to the charterers, and the decision in the “Qatar Star” reflects this approach. As observed by Mance J in “The North Sea” (1997) 2 LLR 328, a withdrawal or cancellation clause is a forfeiture clause and caution must always be exercised in any attempt to extend the application of such clauses.
Article by Christine Vella
