Time Charters. Hire Last updated 27-May-2015

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

Legal principles. Advanced payment.

Payment of hire is a primary obligation of the charterer under the terms of time charterparty. It is also an absolute obligation and is not excused by accident or inadvertence.

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.

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

It is well settled law that an advance payment of hire under a charter-party is provisional in the sense that if the hire is not earned for the whole period covered by the payment the charterer will be entitled to recover pro tanto. It is also necessary to mention here that, although advance hire under a charterparty is provisional, the charterer had a right only against the shipowner under the terms of the charterparty contract for money had and received, i.e. for hire paid but not earned. An assignee of receivables due under time charter, e.g. hire, who received an advance payment of hire pursuant to the assignment is not liable to repay it to the charterer in the event of the hire not being earned.

In Pan Ocean Shipping Ltd v Creditcorp Ltd; (The Trident Beauty) [1994] 1 All ER 470, the charterers sought to recover the money from the assignee, because they did not consider the owners worth suing, on the ground of total failure of consideration, since the vessel was off hire for the whole of the period in respect of which the relevant hire instalment was paid. The House of Lords, dismissing appeal, held that there is no right to recover moneys paid to an assignee, who never intended to be under any obligation to the charterer. The charterer’s only remedy was against the shipowner under the terms of the charterparty contract.

Payments of hire are normally made by electronic communication through a number of banks, and it may well be that through some slip up the money does not arrive in the owner’s account as quickly as the charterer has the right to expect. Once the charterer has instructed his bank to pay, he has no further direct control over the payment which is now in the banking chain. It is for this purpose many time charter forms contain anti-technicality clauses prescribing for the notice to be given to the charterers before exercising the option of withdrawing the vessel from the charterparty. The purpose of the notice is first to inform the charterer that he has failed to make a payment by the due date and then to give him a certain period of grace in which to pay. Such notice shall be served by the owners at midnight on the last day available to them for the due and punctual payment of the hire - a person under an obligation to do a particular act has to do it on or before a particular date he has the whole of that day to perform his duty.

In absence of anti-technicality clause the owners entitled to withdraw the vessel immediately upon the Charterers’ failure to make the advance payment required for the month in question. Also such failure is not a repudiatory breach of contract but withdrawal of vessel from Charterers’ service will usually lead to very unwelcome consequences for the charterers, see for example Petroleo Brasileiro S.A. v E.N.E. Kos 1 Limited [2012] UKSC 17.

No difficulties which charterers can face in planning and scheduling or other intricacies of ship’s employment may affect position of the owner in respect of hire due to him. Lord Mustill in Torvald Klaveness A/S v Arni Maritime Corpn (The Gregos) [1995] 1 Lloyd’s Rep 1 expressed his view in the following words:

Where the charter-party is for a period of time rather than a voyage, and the remuneration is calculated according to the time used rather than the service performed, the risk of delay is primarily on the charterer. For the shipowner, so long as he commits no breach and nothing puts the ship off-hire, his right to remuneration is unaffected by a disturbance of the charterer’s plans. It is for the latter to choose between cautious planning, which may leave gaps between employments, and bolder scheduling with the risk of setting aims which cannot be realized in practice.

The ability of the vessel to earn hire is continuous and reflected in the value of the vessel and if the vessel was stranded and later lost due to the Charterers’ breach of safe port warranty, the hire which would have fallen due until the date of loss was recoverable as damages.

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