Effect Of Non-Payment Of Hire: After The Astra Comes Another Twist In The Tale

On 18 April 2013, Flaux J handed down a judgment in Kuwait Rocks Co v AMN Bulkcarriers Inc. (The Astra) that surprised many in the shipping community with its analysis that a charterers' failure to pay hire amounted to a breach of a condition, thereby entitling an owner not only to cancel the charter and escape future performance but also to claim damages for the unperformed part. The recent judgment of Popplewell J in Spar Shipping AS v Grand China Logistics Holding (Group) Co., Ltd, handed down on 18 March 2015, challenges that conclusion in a thorough and significant review of this important area of law.

Background

Clearly a refusal or failure to pay hire according to the terms of the charter, or a late payment, amounts to a breach of contract. The difficulty comes in determining whether that breach gives rise to a right to terminate the contract and claim damages. Although in most cases the charterparty will contain provisions that grant the owner a contractual right to withdraw the vessel in the event of non-payment, this will generally only provide the owner with the right to claim hire that is payable and earned up to that point. For the owner to establish a claim for damages for loss of the value of the rest of the contract, or the "bargain" - usually the difference between the market rate of hire and the charterparty rate for the remaining period of the charter – there must either be a breach of condition or some other breach that is deemed to be sufficiently serious to amount to a repudiation or renunciation of the charter.

If the payment provisions in the charterparty (for example, Clause 5 of the NYPE 1946 form) do not amount to a condition, then in practice the owner would need to show that the breach was sufficient to amount to an unambiguous representation that the charterers would not or could not perform their obligations under the charter. This will not always be easy for an owner and so the legal and commercial significance of whether or not the payment provisions are a condition of the contract entitling termination for even the slightest of breaches, together with a right to claim damages for the unexpired period, becomes immediately apparent.

The generally accepted position prior to The Astra was that although the owner may often have had a contractual right to withdraw the vessel for non-payment of hire, it would also have been necessary to establish a repudiatory breach by the charterers if the owner was also to...