“The Sword of Damocles”
Can an owner, under the BIMCO Non-Payment of Hire Clause, withdraw a vessel from service for historic arrears
QUIANA NAVIGATION SA -v- PACIFIC GULF SHIPPING (SINGAPORE) PTE LTD (the “CARAVOS LIBERTY”)
Charterers have successfully defended an appeal by Owners following an arbitration Award in which the arbitration Tribunal found in favour of Charterers following their claim against Owners that the vessel had been wrongfully withdrawn from service.
The facts are relatively straightforward. The BIMCO Non-Payment of Hire Clause (the “BIMCO Clause”) was incorporated into an amended NYPE’46 charterparty. Upon the fourth hire instalment Charterers deducted a disputed sum from hire (which the Tribunal later found had been wrongfully deducted). Owners protested the deduction but ultimately did not take further action. The fifth and the sixth hire instalments were paid in full and on time. Nevertheless, upon receipt of the sixth hire instalment Owners served an anti-technicality notice in respect of the disputed arrears deducted from the fourth hire instalment. When the disputed sum was not received in time, Owners withdrew the vessel.
The opening line of the BIMCO Clause provides:
If the hire is not received by Owners by midnight on the due date…
During the arbitration, Owners argued that “hire” in its true sense meant the total amount of hire currently owed on “the due date”. In other words, all hire due would have to be paid by the due date, including historic arrears, for the debt in hire to be satisfied. This view, according to Owners, was supported by the parties’ respective statements of account, which at all times provided for a running total of hire paid and owed. In effect, a debt could be rolled over across subsequent hire periods until such time that it is satisfied thereby ensuring the remedies provided by the BIMCO Clause arose as a new right of action upon every due date (in this instance every 15 days). Therefore it didn’t matter what hire period the vessel was withdrawn if hire (as Owners interpreted the meaning of hire) was due.
The arbitration Tribunal held that Owners were not entitled to withdraw the vessel. Owners’ behaviour was not in accordance with their rights under the BIMCO Clause, because payment of the sixth hire instalment corresponded precisely to the amount due on that particular due date. It was not possible to roll over historic arrears and enact the draconian remedies of withdrawal on each occasion a due date arose.
The Court held that the Tribunal had not erred in their decision. The Judge agreed that Owners were not entitled to withdraw the vessel in respect of a deduction from the fourth hire instalment, following payment of the sixth hire instalment in full. That was not to say that the debt that had accrued was not recoverable (along with interest to compensate for delay in payment) but that remedy was distinct from the “nuclear option” of withdrawing the vessel brought about by “careful contractual requirements” which could be “easily lost” in accordance with the authorities that had been analysed at the hearing.
In other words, it made no commercial sense to have a continual Sword of Damocles permanently hanging over a charterer’s head in respect of old debt for (potentially) a long period of time that could extend into years. That would mean if the market conditions were preferable all of a sudden, it made commercial sense for an owner to try and legitimately withdraw their vessel if it were contractually possible to do so. A charterer would never know if they had true control over the vessel or not when considering their trading options.
Accordingly, Owners were refused leave to appeal to the Court of Appeal.
With thanks to James Cottrell and Andrew Hughes of MFB for this article.
Should clients have any queries in relation to this bulletin then they should contact their usual contact in the Claims department in London, Dubai or Shanghai
The Charterers P&I Club
8 January 2020