Suspending performance – no notice required under Supplytime 89

BIMCO Supplytime 1989 charterparty form (“Supplytime 89”), a standard contract for offshore service vessels, has historically held the reputation as being favourable to owners and the decision handed down earlier this year by the English High Court supports that view. The decision, which confirms that vessel owners can rely on clause 10(e) to suspend performance in the event of non-payment of hire by charterers will be welcomed by owners.

Whilst the decision only goes as far as to confirm that the literal wording of the charterparty is to be applied, the right to suspend performance is a formidable weapon in an owner’s arsenal and this clarification now provides owners with considerable commercial leverage when dealing with the threat of late or non-payment.

Background facts

Following non-payment of hire, owners of the “GREATSHIP DHRITI”, a platform supply vessel which had been chartered to Oceanografia S.A. de C.V. for a period of two years, suspended the vessel’s services under an amended Supplytime 89 form, relying on the unamended standard wording of the final sentence of clause 10(e). Clause 10(e) provides, inter alia:

"[2] if payment is not received by the owners within 5 banking days following the due date the owners are entitled to charge interest ... on the amount outstanding from and including the due date until payment is received... [3] in default of payment ... the owners may require the Charterers to make payment of the amount due within 5 banking days of receipt of notification from owners; failing which the owners shall have the right to withdraw the Vessel ... [4] while payment remains due the owners shall be entitled to suspend the performance of any and all of their obligations hereunder...".

Charterers did not accept owner’s position and argued that the clause contained an express or implied requirement that owners give five banking days' notice of owners' intention to suspend performance and the dispute was referred to arbitration in London.

The tribunal’s decision

Although the tribunal noted that clause 10(e) appeared to give the owners an unfettered right to suspend performance without giving any notice, arbitrators held in favour of the charterers and determined that the right to suspend was not a stand-alone provision and could not be separated from the context of the remainder of clause 10(e). To support their conclusion, the tribunal found that the words “while payment remains due” referred to the period of time following owners’ five-day notice that they intended to withdraw the vessel, rather than the period after which hire fell due and remained unpaid.

Appeal

Owners were given permission to appeal the Tribunal's award as the question was determined to be of general public importance, since it arose out of a charterparty form used regularly in the industry.

Owners submitted that the arbitrators should have given effect to the clear, unambiguous and unfettered language used in the charterparty (Rainy Sky SA v Kookmin Bank [2011]) and allowed owners to suspend performance as soon as payment was due. Mrs Justice Gloster agreed with owners that there was no qualification to the right to suspend performance and disregarded charterers' commercial arguments that the right to withdraw a vessel on immediate notice could have severe consequences for charterers.  The court found that the words “while payment remains due” clearly and unambiguously meant that owners were entitled to suspend performance at any time after payment had become due and remained unpaid.

Comment

The court's decision underlines, once again, the importance of using clear and unambiguous wording in contract and that the Rainy Sky principle of applying a "business common sense" construction will only be applied in the event of ambiguity. Although the decision is relatively unsurprising, it does provide clarity in relation to the scope of clause 10(e) of SUPPLYTIME 89 (and the judgment is also relevant to an owners' right to suspend performance under 12(f)(i) of SUPPLYTIME 2005) . So if charterers want owners to give notice of non-payment and to allow for a grace period before they can suspend performance, charterers must check the charter party wording provides exactly that.  If it does not, (and for the reasons explained in the "GREATSHIP DHRITI", neither SUPPLYTIME form unamended does) then they will need to negotiate an amendment to the charter party terms.