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Off-Hire

Off-Hire, Net Loss and Period Clauses

Payment in Cash

Time Charter


Law and Sea.
Payment of Hire

The importance of this advance payment to be made by the charterers is that it is the substance of the consideration given to the shipowner for the use and service of the ship and crew which the shipowner agrees to give. He is entitled to have the periodical payment as stipulated in advance of his performance so long as the charterparty continues.
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Hire
Last updated: 12-Jun-2015

In Tonnelier v Smith, (1897) 2 Com.Cas. 258 per Lord Esher, M.R. at p.265:

The last provision, that the charterer was to have a lien on the ship for all moneys paid in advance and not earned, makes it plain, if it were otherwise doubtful, that the payments in advance were to be provisional only and not final, and would entitle the charterer to postpone delivery of the ship until the unearned payments were repaid-a right which would effectively secure prompt repayment of those amounts.

C.A. Stewart and Co. v Phillips van Ommeren (London) Ltd., [1918] 2 Q.B. 560, per Scrutton, LJ, at p.564:

… if during that calendar month the ship is off hire for a number of days, there is a failure of consideration for the payment, and the sum paid in respect of those days can be recovered by action. In practice this of course may be set off against the next month’s hire, but that very convenient course of practice does not alter the legal rights of the parties when it becomes necessary to determine them. The view I have expressed is in accordance with that taken by the majority of the court in Tonnelier v Smith.

Per Lord Dunedin in French Marine Ltd. v Compagnie Napolitaine d' Eclairage et de Chauffage par le Gaz, [1921] 2 A.C. 494 at p513:

I do not think that by terming the payment "provisional" the learned Judges meant to say that the payment in advance was not really a payment, but only a deposit, leaving the question of payment over. The payment in advance is truly payment, but it can only be a payment of what the contract says is earned. Now, the payment earned by the contract is freight for use till redelivery of the ship in terms of the contract; on delivery freight ceases; consequently the money paid in advance in so far as it does not represent freight earned became mere money had and received, and, as such, recoverable.

By Lord Wright in A/S Tankexpress v Compagnie Financiere Belge Des Petroles SA (The Petrofina) [1948] 2 All ER 939 at p.946:

The payment of hire was a vital matter because, if there was default of "such payment" (ie, in cash monthly in advance in London), the owners were entitled to cancel the long and valuable charter. Default in payment, that is, on the due date is not, in my opinion, excused by accident or inadvertence. The duty to pay is unqualified so far as the express terms of the charterparty go. … The importance of this advance payment to be made by the charterers is that it is the substance of the consideration given to the shipowner for the use and service of the ship and crew which the shipowner agrees to give. He is entitled to have the periodical payment as stipulated in advance of his performance so long as the charterparty continues. Hence the stringency of his right to cancel.

In Royal Greek Government v Minister of Transport (The Ann Stathatos), (1948) 82 Ll.L.Rep. 196 at p. 199, Lord Justice Bucknill said:

The cardinal rule, if I may call it such, in interpreting such a charter-party as this, is that the charterer will pay hire for the use of the ship unless he can bring himself within the exceptions. I think he must bring himself clearly within the exceptions. If there is a doubt as to what the words mean, then I think those words must be read in favour of the owners because the charterer is attempting to cut down the owners' right to hire.

Per Lord Diplock in Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 All ER 763 at p.767:

Hire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer that he has undertaken to bear himself under the charterparty, in particular the wages and victualling of master and crew, the insurance of the vessel and her maintenance in such a state as will enable her to continue to comply with the warranty of performance.


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