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the case of the “ASTRA” (Kuwait Rocks Co v AMN Bulkcarriers inc [2013] EWHC 865 (Comm))
It is vital for Charterers to know what the consequences will be of failing to pay hire according to the charterparty provisions, and this question was recently considered in detail in the case of the “ASTRA” (Kuwait Rocks Co v AMN Bulkcarriers inc [2013] EWHC 865 (Comm)). In the light of the findings of this case that the requirement to pay hire is a contractual condition, and therefore that Owners can terminate the charterparty and claim damages if hire is not paid on time, Charterama is issuing a general warning to its Assureds of the importance of the timeous payment of hire.
In the “ASTRA” the charterparty was concluded in 2008 at the peak of the market. Following the collapse of the market, the Charterers requested various reductions in hire or they would declare themselves bankrupt. The reductions were granted on the understanding that full hire would be reinstated in July 2010. Charterers failed to pay either of the July 2010 instalments of hire. Owners withdrew the vessel and claimed damages of approximately $13 million, representing the difference between the contract rate and the market rate for the rest of the charterparty term. The matter went to arbitration in London, and the arbitrators based their decision on the generally understood position that payment of hire is not a condition which entitles Owners to terminate on breach and claim damages. The Charterers were however in repudiatory breach of the charterparty by threatening bankruptcy to obtain a lower hire rate and then failing to pay the hire instalments in July 2010. It was the repudiatory breach which allowed the Owners to terminate and claim damages. The case was appealed to the High Court, where Mr. Justice Flaux agreed with the arbitrators that the Charterers were in repudiatory breach. However, he then went on to consider at some length whether or not the NYPE clause 5 obligation to pay hire was in any event a condition, and concluded that it was. This would mean that Owners could terminate and claim damages after the failure to pay one instalment of hire, regardless of the circumstances or the length of the charter, which could have far reaching effects on the relationship between Owners and Charterers. At present the status of the “ASTRA” is uncertain: the judge did not need to consider whether payment of hire was a condition in order to dismiss the appeal, so strictly speaking this ruling is not binding on the Courts; and there has been a lot of discussion in the market whether his conclusion was correct. (Nor did the Judge consider whether and to what extent Charterers could make otherwise lawful deductions from hire.) Nevertheless the decision will be persuasive for Courts and arbitrators, and so Charterama advises all Assureds to consider their hire payment obligations carefully in light of the increased risk of a claim for substantial damages in addition to the withdrawal of the vessel by Owners if timeous and proper payments are not made.
Charterama claims handlers recently participated in a seminar on the “ASTRA” with London solicitors, given by Nigel Jacobs QC of Quadrant Chambers. |
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