In brief – Failure by charterers to pay hire equates to breach of condition allowing termination of charter
In a significant and long awaited clarification, Mr Justice Flaux in the English Commercial Court has held that a failure by charterers to pay hire under an New York Produce Exchange (NYPE) charterparty amounts to a breach of condition which entitles a ship-owner to terminate the charter and claim damages for future loss of earnings under the charter.
Traditional view that termination of charter requires series of consecutive defaults
The decision in the case of Kuwait Rocks Co v AMN Bulkcarriers Inc. (The Astra) (2013) EWHC 865 (Comm.) has found contrary to the traditional view, which was that the obligation to pay hire as it fell due was not a condition and that if owners wished to terminate on this basis they needed to establish a series of consecutive defaults amounting to a repudiatory breach of the contract.
The relevant clause in the NYPE form at Clause 5 provides for payment of hire in advance and states "failing the punctual and regular payment of hire... the Owner shall be at liberty to withdraw the vessel".
Anti-technicality clause may allow period of grace before termination of charter
Why did the position change from that in previous UK decisions?
The judge reviewed the numerous previous authorities on the point and noted that there was an "anti-technicality clause" in this charter and not in other charters considered in earlier cases, but regardless of this Mr Justice Flaux considered Clause 5 amounted to a contract condition.
Mr Justice Flaux's decision suggests that an anti-technicality clause allows a period of grace that must be allowed to pass before owners can rely upon the breach of condition as a basis for termination of the charter.
Reversal of traditional approach may lead to Supreme Court appeal
It seems quite possible that the decision will be subject to an appeal to the Supreme Court as it changes the previously accepted thinking on this issue.
However, for the present it will no doubt raise the stakes for owners who will take some comfort from this decision.
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