The England and Wales Court of Appeal has held that, unless the charterparty makes it clear, the time for payment is not a condition entitling an owner to terminate immediately on non-payment. The court overruled The Astra [2013] EWHC 865 (Comm); [2013] 2 All ER (Comm) 689 and held that the time for payment will usually be an innominate term, with the severity of the breach determining the right of termination: Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS (The “Spar Capella”, “Spar Vega” and “Spar Draco”) [2016] FICR 26
Charterers of three vessels – the Spar Capella, Spar Vega and Spar Draco – were late in payments of instalments under the charterparties for over five months, with the arrears fluctuating between about US$1.5 to US$2.5 million. They repeatedly told the owners they were having cash flow problems but expected a cash injection from their parent which never materialised. The parent company had guaranteed the charterers’ performance of the charterparties.
The owner called on the guarantee and then terminated the charterparties when the call was not met. They commenced arbitration in Hong Kong against the charterers for the balance of hire due under the charterparties and damages for loss of bargain for the unexpired term of the charterparties. The charterers went into liquidation shortly before the hearing and the owners then commenced proceedings in the High Court against the parent guarantor for the same claims together with the costs of the arbitration.
Popplewell J gave judgment for the owners for the full amount claimed of US$25,308,320.35 plus interest, holding that payment of instalments under charterparties was not a condition giving rise to a right of termination on breach, but that the charterers were in renunciatory breach entitling termination because of the repeated late payments, unsatisfactorily explained.
The guarantor appealed, arguing that it had not renounced the charterparties, and the owners filed a Respondent’s Notice arguing that payment of instalments under charterparties is a condition justifying termination on breach.
Each charterparty contained a withdrawal clause and anti-technicality clause.
Tomlinson LJ giving the judgment of the court said that the question was determined by whether time for payment was a condition (entitling termination), an innominate term or merely a warranty (not entitling termination). This in turn depends on the the intentions of the parties and thus of the true construction of the contract.
Unless the contract makes it clear that a particular stipulation is a condition or only a warranty, it is to be treated as an innominate term; the courts should not be too ready to interpret contractual clauses as conditions
If a term is a condition, it is unnecessary and inappropriate to explore the gravity of the breach; it is open to the parties to agree that any breach of a particular obligation (regardless of its gravity) will entitle the innocent party to treat the contract as at an end.
If, on the true construction of the contract, the parties have not made a particular term a condition and if the breach of that term may result in trivial, minor or very grave consequences, then the term is innominate
Time for payment under these charterparties was an innominate term as time was not made of the essence, payment was not directly or immediately required to enable the owners to perform, the consequences of breach were not spelled out and could vary dramatically from the trivial to the grave.
Read the full head note here.
