Web Alert: Anti-technicality clauses and withdrawal – the devil is in the detail

Withdrawal of a ship on time charter is the owner’s traditional remedy against non-payment of hire. However, an owner should exercise great caution when withdrawing a ship as it can result in substantial claims against the owner if the procedure is not precisely followed, as outlined in a recent arbitration[1]. 

The subject ship was on time charter and delivered to the charterer on 22 August 2015. By early November 2015, the charterer notified the owner of cash flow difficulties and when attempts to negotiate a better hire rate failed, the charterer gave premature notice of redelivery of the ship for 18 November 2015. On 6 November, a further instalment of hire became due and on 10 November, the owner wrote to the charterer as follows:

“charterer is requested again to do the due payment w/i 3 banking days written notice to rectify your default before 12^th/Nov/2015, or else, owner has the right to exercise our rights under the CP”

The anti-technicality clause in the charterparty stated “In default of prompt payment of hire…the Owners shall give Charterers three clear banking days’ written notice to rectify the default whereupon Charterers will rectify within such three banking days. Failing which Owners shall have the right to withdraw the vessel…”.

On 13 November, the owner told the charterer that it was withdrawing the ship with immediate effect under Clause 32 due to non-payment of hire. The charterer replied that the owner had unlawfully terminated the charterparty as the owner did not give three clear banking days’ notice prior to the exercise of any right to cancel/withdraw the ship. The charterer also made clear that it accepted the owner’s renunciatory breach as bringing an end to the charter.

The charterer paid hire up to 13 November, and sent a final hire statement showing US$ 47,419.55 as being due from the owner to the charterer. The owner replied by arguing that it was entitled to additional hire up to the date on which the next instalment of hire would have been due.

The charterer brought arbitration proceedings against the owner for wrongful termination of the charterparty, demanding payment of the balance due as calculated by the charterer. The owner counter-claimed for additional hire until 22 November, based on the charterer’s notice of redelivery, seeking a balance in the owner’s favour of US$ 30,653.74.

The tribunal found in favour of the charterer on the following grounds:

1)  Anti-technicality Clause 32: Clause 32 required the owner to give the charterer three clear banking days written notice to rectify the default. The owner purported to give that notice on 10 November, however, the three clear banking days would not have expired until midnight on 13 November, not 12 November as stated by owner. The owner withdrew the ship on 13 November more than 6 hours before the expiry of the third banking day deadline. The withdrawal constituted a repudiation of the charterparty which the charterer was entitled to accept.

2)  Unclear language of owner's notice: The message sent by the owner on 10 November, seemed to be drafted as a statement of the owner’s rights and did not clearly state that the owner would exercise the right to withdraw the ship.

The owner was ordered to pay charterer the outstanding hire balance of US$ 47,419.55 and its counterclaim failed.

This case is a reminder to owners to exercise extreme caution when considering the withdrawal of their ship from a charterer’s service, especially when the charterparty contains an anti-technicality clause. If an owner fails to strictly comply with the procedure or seeks to withdraw a ship earlier than the deadline imposed by the grace period, an owner could find itself in repudiatory breach of charter, entitling a charterer either to keep the charter alive, or alternatively, to treat the charter as at an end and claim damages against an owner. As this case shows, arbitrators as well as courts are likely to interpret anti-technicality clauses narrowly against an owner seeking to terminate the charterparty, owners are advised to seek legal advice when intending to withdraw a ship.

This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article. 
 
Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.