Time Charters. Withdrawal Express provision

Failure to comply with this primary obligation by delay in payment of one instalment is incapable in law of amounting to a "fundamental breach" of contract by the charterers in the sense to which I suggested in Photo Production Ltd. v. Securicor Transport Ltd., [1980] 1 Lloyd’s Rep. 545; [1980] A.C. 827 …
Per Lord Diplock in The Afovos [1983] 1 Lloyd’s Rep. 335, at p.341.

Common law position. Necessity of express wording

A time charter is a contract for services to be rendered to the charterer by the shipowner. In case of non-performance under such contract the common law generally gives to the innocent party only remedies in damages for breach of contract, unless said breach is of repudiatory character. Accordingly, the common law does not treat the late payment of hire by the charterers as a breach of sufficient gravity to give the owners a right to rescind the contract, unless the conduct of the charterers show unwillingness or inability to pay or delay in payment amounts to repudiation of the charter. Because time charters usually have duration of many months or even years, delay in payment of one instalment of hire would not have the effect of depriving the owners of substantially the whole benefit which it was the intention of the parties that the owners should obtain from the unexpired period of the time.

In The Brimnes it was held that late payment of hire was not of itself repudiatory, entitling the owners, in the absence of a withdrawal provision, to terminate the charter. In order to justify a decision that the Charterers’ conduct was repudiatory, it would be necessary to find that they evinced clearly by it an intention not to be bound by the terms of the contract.

The owners for evident operational reasons are prepared to insist on timely and punctual payment of hire and usually do so by inserting express provisions into timecharter giving them a right to withdraw the vessel bypassing the common law rule. These provisions called ‘withdrawal clauses.’

Withdrawal provisions incorporated in standard forms of timecharter parties such as NYPE 93, BPTIME3 and SHELLTIME4.

No particular form of words is required to communicate owners desire to withdraw but such message must be clear, definite and absolute and given at a time after the default has occurred.

NYPE93, Clause 11 - Hire Payment

 

BIMCO Bulletin No. 6, 1993
NYPE93, Clause 11.

The Hire Payment Clause in the NYPE 1946 (Clause 5) was significantly changed when revising the charter in 1981 and the resulting ASBATIME 1981 Charter in Clause 5, combined with Clause 29 in the Rider of Suggested Additional Clauses, introduced some novelties including a grace period for payment of hire as well as stipulations which entitle the owners to withhold the performance of any of their obligations while hire is outstanding. Both the NYPE 1946 and the ASBATIME 1981 contain the important principle which gives the owners the right to withdraw the vessel in the event of failure of the charterers to pay hire on time.

Rather than continue to make some of these provisions optional as in the ASBATIME 1981, all these elements have now been integrated in Clause 11 of the NYPE 93 also because, in practice, they are commonly added to the basic NYPE 1946 form, albeit often in a badly drafted manner.

The right of withdrawal (cancelling) when the charterers are in default of payment of hire is a traditional and very important safeguard for owners. This principle has, therefore, been fully maintained in sub-clause (a) of Clause 11.

In recent years there have been frequent delays of remittances through banks and in order to avoid abuse of the right of withdrawal, it has become common practice, in many instances, to insert in time charter forms a so-called "Anti-Technicality" Clause or a "Grace Period" Clause. In some charter forms, the length of the period of grace has been arbitrarily determined, whereas other charter forms leave it open to the parties to agree on the length of the period of grace normally stipulated as "banking days" and, usually, combined with notification to the charterers.

This latter choice has been included in sub-clause (b) of Clause 11 and it is strongly recommended to study carefully the provisions of sub-clause (b) and to fill in the number of days of grace etc., as agreed, in a correct manner.

These provisions are also fair to charterers since they should prevent cancellations for trifling delays where the situation is no signal of lasting failure to pay.

On the other hand, any abuse of the period of grace by constant late remittance should be safeguarded against by the provisions in the last paragraph of sub-clause (b) entitling owners to withdraw in the case of continued "misuse" of the grace period.

If the hire happens to be still outstanding on the expiry of the grace period, or any time thereafter, the second paragraph of sub-clause (a) of Clause 11 entitles the owners, without prejudice to the liberty to withdraw, to withhold the performance of any and all of their obligations under the charter. The hire may happen to be missing, for instance, just when the vessel is about to load for a new voyage and with a charterer who is about to go bankrupt, the owners then run the risk of being saddled with the performance of a new voyage without hire being paid and without cover for expenses falling upon the charterer. It is too late to withdraw the vessel if cargo has been loaded and bills of lading have been signed obliging the owners to perform the voyage according to the bill of lading contract. Such risk is guarded against by the last paragraph of sub-clause (a).

In matters such as late hire payment, the parties must know where they stand, both when it comes to trifling delays or protracted delays, not to speak of complete failure to pay. It is believed that Clause 11 solves these problems in a fair and equitable manner.

It should also be noted that, whereas the Hire Payment Clause in both the NYPE 1946 and the ASBATIME 1981 provided for payment of hire in U.S. currency only, Clause 11 provides for the option of agreeing on payment in a currency other than United States currency.

Finally, sub-clause (c) deals with last hire payment and sub-clause (d) covers the matter of cash advances.

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, see examples of such operation in Time is of essence of withdrawal provision and Withdrawal for Underpayment of Hire.

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