Two years ago Mr Justice Flaux caused much consternation amongst the shipping community in the decision of the “ASTRA” in which he held that payment of hire under an NYPE time charterparty was a condition.
Such decision called into question commentaries in the leading practitioner texts, which lawyers and vessel operators alike had thought settled the position under English law. The debates sparked by the “ASTRA” judgment meant it was only a matter of time before the issue was back before the High Court.
In the recent case of Spar Shipping AS –v- Grand China Logistics Holding (Group) Co. Ltd. , Mr Justice Popplewell addressed the issue of whether payment of hire under an NYPE charterparty is a condition of the contract.
The case itself concerned three charterparties entered into by Grand China Shipping (GCS) with the vessel’s headowners, Spar Shipping. One charter was for a three year period, beginning on 31 June 2010; two charters concerned the delivery of new-build vessels to GCS for a minimum period of five years, such delivery from the shipyard taking place on 6 and 12 January 2011. All three charterparties were the subject of performance guarantees issued by Grand China Logistics (GCL), who was the parent company of GCS.
From April 2011 onwards, GCS failed to pay charter hire when due, falling into arrears under all three charterparties. By exercising liens on sub-freights, Spar Shipping was able to reduce the amount of arrears, but throughout the summer of 2011 GCS remained in substantial arrears across all three fixtures1 . Matters finally culminated when, in September 2011, Spar Shipping withdrew all three vessels from chartered service.
In subsequent arbitration proceedings against GCS, Spar Shipping claimed the balance of hire due under the charterparties, together with damages covering the unexpired portion of the charterparties. However, before the arbitrations could be heard GCS went into liquidation in Hong Kong.
Spar Shipping therefore turned attention to claiming against GCL under the guarantee, which is how the matter came before Mr Justice Popplewell. The question of Spar Shipping’s right to damages covering the unexpired portion of the charterparties essentially boiled down to whether the right conferred by clause 11 of the NYPE 1993 charter to withdraw the vessel for non-payment of hire is to be construed as a condition, alternatively an innominate term with the option to cancel, thereby not sounding in damages in the absence of a repudiatory breach or a renunciation.
Like the “ASTRA”, the point itself was not determinative of the outcome of the case. However, since both sides argued the issue, Mr Justice Popplewell considered it “intellectually pusillanimous” not to address it. At the same time it was recognised that commentaries following the “ASTRA” appeared not to have settled the position and that the question was one of ‘general application and importance in the shipping community’.
Clearly signalling from the start that he disagreed with Mr Justice Flaux’s decision in the “ASTRA” that a payment of hire clause under a standard NYPE charter is a condition, Mr Justice Popplewell sets out a clear, lucid and historical overview of the authorities relating first to time charter withdrawal clauses and second to those cases concerned with the more general categorisation of terms as conditions and making time of the essence of the contract. An important factor in Mr Justice Popplewell’s overall conclusion that the obligation to pay hire is not a condition of the contract is the fact that a right to withdraw within a clause is not in itself determinative as to the status of the obligation to pay hire. Support is found in the Court of Appeal case of Financings –v- Baldock . This case relates to a hire purchase contract and is one where the Court of Appeal rejected an argument that a right to terminate for non-payment of hire meant that the obligation to pay hire was elevated to a condition.
Turning to the status of payment of hire clauses that do not have a right to withdraw provision, Mr Justice Popplewell considered that several reasons can be provided as to why it would not be classed as a condition.
Firstly, the very fact that an express right to withdraw a vessel is included in a charterparty would suggest that in its absence there would be no such right to withdraw. This in turn suggests that such a clause is to be regarded as an innominate term.
Secondly, as a general rule in mercantile contracts stipulations as to time of payment are not to be treated as conditions, unless a contrary intention is shown.
Thirdly, it is noted that a breach of payment of hire provision can carry with it a range of effects from the trivial to the more serious. This is indicative of such terms being treated as an innominate term. Taken at its most trivial, Mr Justice Popplewell saw it as inconceivable that parties would intend that a payment of hire a few minutes late would entitle the owners to “throw up a five year charter”.
Whilst the discussion and conclusion in relation to the status of a payment of hire term in a charterparty context will no doubt be the highlight of the case in the existing and coming commentaries, the judgment itself is lengthy and deals with a number of other interesting points. More notably, there is a discussion of what the appropriate test is for repudiation of late payments of hire.
The ultimate conclusion in the context of time charterparties is that the conduct of the defaulting party is all important. A comparison was drawn between a charterer who consistently pays late every 15 days so as to effectively always be in arrears of hire payment, and one who only makes brief and occasional delays; the latter not necessarily amounting to a repudiation.
Another interesting issue that is examined is the correct assessment of damages for wrongful repudiation of a time charter where there is no available market. Mr Justice Popplewell confirmed the views expressed in The “KILDARE”  and The “WREN”  that owners’ damages are to be assessed as against their actual earnings over the unexpired period. To the extent that such unexpired period covers future earnings from the date of the hearing and subsequent judgment, a notional daily rate of hire can be applied from evidence available to the court (in the instant case, Clarksons had produced figures in relation to this issue, which was noted could be used as a guide).
In summary, this judgment provides a number of interesting discussions on repudiatory conduct and damages in general. However, undoubtedly more press time will be focused on Mr Justice Popplewell’s authoritative and coherent commercial reasoning as to why the “ASTRA” was wrongly decided and why payment of hire clauses in a time charterparty context should be regarded as innominate terms (absent any express wording to the contrary).