Thursday, 16 April 2015

Termination clauses and repudiatory breach – court finds payment of charter hire is not a condition: Astra not followed

April 16, 2015.
Spar Shipping AS v. Grand China Logistics Holding (Group) Co. Ltd [2015] EWHC 718 (Comm)

Readers may recall our report in July 2014 on The Astra and visitors to our Smart seminars will have heard us speak about the case and its discussion of repudiatory breach. In a decision handed down on 18 March 2015, another Commercial Court judge has declined to follow Flaux J’s decision in The Astra and has concluded that payment of hire by the Charterers was not a condition of the charterparty. Mr Justice Popplewell reached his decision following a careful consideration of the authorities on this issue, including those on repudiatory breach.


Why does this matter?

It is relevant to all who draft and negotiate termination clauses. If a right to terminate is granted in your contract, in the event that payment is not made within a certain period, is that right to terminate all you get? Or can you claim for the loss of the remaining contract period, in other words back log. If the obligation to pay within that period was, properly construed, a condition of the contract the answer is you can claim back log (subject to any exclusions). If it was simply an innominate term, then that will not automatically be the case. You would need to show that the failure to pay had deprived you of substantially the whole benefit of the contract or that there had been a repudiation of the contract in some other respect, entitling you to terminate and claim damages.

In The Astra Flaux J. considered an NYPE charterparty form and concluded that the payment of hire was a condition of the contract and therefore that the failure to pay a single hire payment entitled the Owners to withdraw the vessel and claim loss of profit for the remaining charter period. He suggested that the granting of the right to terminate for non-payment was itself evidence that punctual payment was intended to be a condition of the contract.

In Spar Shipping, Popplewell J. disagreed. He found that the right to terminate/withdraw the vessel was just that: a contractually agreed right. It did not of itself mean that the payment term was intended to be a condition. In fact he noted that time for payment was not generally “of the essence” in commercial contracts, in other words it was not generally considered to be a condition. In other words mere breach of the payment term and a consequent termination did not entitle the Owners to loss of future hire.

In this instance Owners were entitled to claim in respect of the balance of the charters, but only on the basis that the conduct of the Charterers, objectively assessed, evinced an intention not to perform the charters in a way which deprived the Owners of substantially the whole benefit of the charters.

Conclusion

This case, pending any appeal, restores the position as it was generally, pre-Astra, understood to be. It does mean however, that Contractors who are presently not being paid should exercise great care before exercising any termination rights they may have if they wish to be able to claim their back log. Only a repudiatory breach will enable them to do so. Those who are negotiating contracts and wish to ensure that a claim for back log survives termination for breach of a payment term should ensure it is clear in the contract that the time for payment is intended to be a condition of the contract.

Source: http://incelaw.com
           

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