WHEN WITHDRAWAL IS A REPUDIATION

A recent London arbitration award is a stark reminder to owners and disponent owners of the importance of strict compliance with anti-technicality notices.

The clause in the charterparty read as follows and was subject to review by the arbitrators.

“Clause 32. Hire Payments:
In default of prompt payment of the hire, or bank guarantee or deposit, or an any fundamental breach of this Charter Party the Owners shall give the Charterers three clear banking days written notice to rectify the default whereupon Charterers will rectify within such 3 banking days, failing which Owners shall have the right to withdraw the vessel from the service of Charterers, without prejudice to any claim Owners may otherwise have on Charterers under this Charter.”
[emphasis added by the writer]

Hire was due on 6 November 2015 and when it was not paid, owners wrote to charterers on 10 November 2015 as follows:

“charterer is requested again to do the due payment w/i 3 banking days from now on, to rectify your default before 12th/Nov/2015, or else, owner has the right to exercise our rights under the CP.”

Following a partial payment of hire, owners sent the following message to the charterers on 13 November 2015:“The owners are disappointed that the charterers have failed to pay hire punctually in breach of C/P clause 32. As a result of the charterer’s failure to pay hire, the owners hereby withdraw the vessel from the charterer’s service with immediate effect and treat this as having terminated the C/P. The Master will be notified accordingly.”

Later the same day the charterers replied:

“We refer to Owners withdrawal notice of today, 13 November 2015 and are very disappointed that Owners have elected to unlawfully terminate the charterparty….

-pursuant to clause 32 of the charterparty, Owners must give ‘3 clear banking days notice’ prior to the exercise of any right to cancel/withdraw the vessel.

It is therefore crystal clear from the above that in renunciatory breach of the charterparty, owners have unlawfully terminated the charterparty and Charterers are hereby compelled to accept Owners breach as bringing an end to the charter …”

Charterers commenced arbitration claiming that owners had wrongfully withdrawn the vessel and consequently charterers were entitled to a balance due to them as per the final hire statement. Owners had failed to comply with the anti-technicality provision in clause 32 and therefore owners’ withdrawal of the vessel amounted to a repudiation or renunciation of the charterparty.

The Tribunal found that at the time of withdrawal charterers were in breach of their obligation to make punctual and regular payment of the hire and pursuant to clause 5 of the standard form of NYPE 1946 charterparty, owners would have been entitled to withdraw the vessel. BUT, the charterparty contained an anti-technicality clause, clause 32, which provided that charterers were to be given “three clear banking days written notice to rectify the default”.

Whilst owners purported to give that notice on 10 November 2015, the three clear banking days required (11/12/13) did not expire until midnight on 13 November. Owners withdrew the vessel on 13 November at 17.38, namely 6 hours, 22 minutes before the third banking day deadline expired. The withdrawal was thus premature.

This was a clear renunciation or repudiation of the charterparty, which charterers were entitled to accept as bringing the charterparty to an end. That they did in their message to the owners of 13 November 2015.

Further, the anti-technicality notice was deficient as it should have been an ultimatum. It was not. It simply reminded charterers that owners had rights pursuant to the charterparty. The anti-technicality notice did not state that owners would exercise their rights under the charterparty to withdraw the vessel. That was fatal.

Accordingly, the charterers’ claim for the balance of hire succeeded.

Commentary

Considering the Award, it is worth reminding our charterer clients or clients acting as disponent owners of factors they should bear in mind when an owner threatens to withdraw. For the below reasons it is always best to consult the Club under Defence cover should such a situation arise.

Charterers cannot be in default of payment until after midnight on the due date for payment: The “Afovos” [1983.]. If hire is due on a weekend, payment should be made on the last working day before the weekend: The “Zographia M” [1976].

What if hire has been paid, but in a lesser amount than owners assert is due. Do charterers have a right to make a deduction or adjustment for an off-hire event, or is there an express right to deduct agreed claims?

Charterers may have made a deduction for a damages claim of their own relying on equitable set-off.   Whilst the general rule is that charterers are not entitled to set-off claims for damages, they may do where owners’ breach of charter has deprived charterers of the use of the ship and the claim “arises out of the same transaction or are closely connected with it”: The “Nanfri” [1978]. Charterers however must be aware of the risks they take if there is doubt as to whether their damages claim meets the equitable set-off criteria. They may prefer to agree with Owners to place any disputed funds on escrow pending resolution and thus avoid the radical consequences of withdrawal.

Where an anti-technicality notice is provided for, this is a condition precedent to the right to withdraw and the notice cannot be given until after the actual due time/date.

There are very strict requirements for giving such notices. The notice must require payment within the period provided for in the charter and must unequivocally state that if the notice is not complied with, the vessel WILL be withdrawn.

Whilst owners are allowed time to consider their rights following non-payment of hire, an anti-technicality notice must be given within a reasonable period of time or owners may have waived the right to do so.

Notice that the vessel has been withdrawn takes effect at the time received by the charterers and brings the charter to a complete end. It is a draconian measure and owners must ensure it is exercised correctly as the owners in this latest Award found to their cost.

 

Sian Morris – Deputy Claims Manager

London Office

 

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