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Punctual Payment

Time Charter

Time Charter, Illegal charterers' orders

Time Charter, Last Voyage Orders

Time Charter, Suspension and Withdrawal

Law and Sea.
Time Charterparty. Withdrawal

The most important feature of express withdrawal provision is that any nonconformance in its performance is treated as going to the root of the contract, without regard to the magnitude of the breach …

Withdrawal Clause and Notice of Withdrawal
Last updated: 21-Jun-2015

Aegnoussiotis Shipping Corporation of Monrovia v A/s Kristian Jebsens Rederi of Bergen, (The Aegnoussiotis) [1977] 1 Lloyd’s Rep. 268 per Donaldson J:

No particular form of words or notice is required, but the charterers must be informed that the owner is treating the non-payment of hire as having terminated the charter-party. That did not happen in the present case. The owners simply said that they would not discharge the vessel. This is equivocal. It may mean that the charter is being treated as at an end, but it can equally mean that the owners are refusing to perform their obligations, unless and until the charterers perform theirs. I therefore hold that the charter-party was not ‘cancelled’.

Lord Wilberforce in Mardorf Peach & Co v Attica Sea Carriers Corp of Liberia (The Laconia) [1977] AC 850, at pp.870 and 872:

As has often been pointed out, the description of a time charter as a hire or demise of a ship is very misleading: all that the owner does, in fact, is to agree to provide services, those of the master and the crew (whose wages the owner has - punctually - to pay) in sailing the ship for the charterers’ purposes, and all that the withdrawal clause does is to entitle the owner to cease providing these services.

1. Under the withdrawal clause, as under similar clauses, including the Baltime clause properly interpreted, a right of withdrawal arises as soon as default is made in punctual payment of an instalment of hire.

2. The owners must within a reasonable time after the default give notice of withdrawal to the charterers. What is a reasonable time - essentially a matter for arbitrators to find - depends on the circumstances. In some, indeed many cases, it will be a short time - viz. the shortest time reasonably necessary to enable the shipowner to hear of the default and issue instructions. If, of course, the charterparty contains an express provision regarding notice to the charterers, that provision must be applied.

3. The owners may be held to have waived the default, inter alia, if when a late payment is tendered, they choose to accept it as if it were timeous, or if they do not within a reasonable time give notice that they have rejected it.

China National Foreign Trade Transportation Corp v Evlogia Shipping Co SA of Panama (The Mihalios Xilas) [1979] 2 Lloyd’s Rep. 303 per Lord Diplock at p.307:

The retention by the owners of the hire in respect of the period after withdrawal does not appear to me to make the notice and act of withdrawal any less unequivocal. No doubt upon a settling of accounts between owners and charterers following the withdrawal the owners would have to give credit for so much of the payment made on [date before of withdrawal] as represented hire not yet earned at the time of the withdrawal.

And Lord Salmon at pp.312-3

My Lords, it would seem that there are some members of the Court of Appeal who do not approve of the Baltime form of charter and other forms of charter such as the New York Produce Exchange and the Shelltime forms which closely resemble it. These forms of charter are undoubtedly very strict in relation to the due payment of hire: their meaning, however, is perfectly clear and it is not permissible to put a construction upon them which would depart from that meaning. Unless the full amount of hire is paid by its due date the owners have the undoubted right to withdraw their vessel providing they do so within a reasonable time of the charterers’ default. The only exception is when the parties by their course, of conduct (a) have as in the present case accepted that disbursements made by the charterers in respect of the owners’ liabilities may be deducted from the hire subject to vouchers being produced, or e.g., (b) have accepted as in the Tankexpress, (1948) 82 Ll.L. Rep. 43; [1949] A.C. 76 that the amount of hire posted two days before it falls due shall be deemed to have been paid in time. Otherwise, unless the full hire is paid by the time it falls due the charterers are in default and the vessel may be withdrawn.

Afovos Shipping Co SA v Pagnan and another (The Afovos) [1982] 3 All ER 18, per Lord Denning MR at pp.19-20 and 22:

In time charterparties there is very often a clause giving the shipowners the right to withdraw the vessel from service in case the charterer fails to make regular and punctual payments of hire. This is called a 'withdrawal clause'. When market rates are rising shipowners look at the time of payment very keenly. If the charterer falls behind, even by a second or two by the slightest mischance, the shipowner will seize the opportunity and issue a notice of withdrawal. As a rule there is no actual withdrawal because of the difficulties which would arise for the cargo owners, with the bills of lading, and the like. After the notice of withdrawal is given, in nine cases out of ten the parties agree to go on just as before. If it turns out that notice of withdrawal was rightly given, the charterer will pay the increased market rate. If it was wrongly given, then the rate remains the same.

… A notice must be clear, definite and absolute and given at a time after the default has occurred.

Per Lord Diplock in Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 All ER 763 at p.768:

My Lords, quite apart from the juristic difficulties in the way of recognising a jurisdiction in the court to grant relief against the operation of a withdrawal clause in a time charter, there are practical reasons of legal policy for declining to create any such new jurisdiction out of sympathy for charterers. The freight market is notoriously volatile. If it rises during the period of a time charter, the charterer is the beneficiary of the windfall which he can realise if he wants to by sub-chartering at the then market rates. What withdrawal of the vessel does is to transfer the benefit of the windfall from charterer to shipowner.

In Petroleo Brasileiro S.A. (Respondent) v E.N.E. Kos 1 Limited (Appellant)[2012] UKSC 17 per Lord Sumption at para.7:

It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this. The first is that owners will not exercise their right of withdrawal unless it is in their commercial interest to do so. Usually, this will be because market rates of hire have risen. But it may be in owners’ interest to withdraw the vessel even if they have not risen, for example, where the charterers are insolvent or owners depend on prompt payment to fund payments under a head charter or charterers’ payment record occasions administrative or other difficulties. The second consequence is that any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel.

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