Time Charters. Time is of essence of withdrawal provision

A stipulation that time is of the essence, in relation to a particular contractual term, denotes that timely performance is a condition of the contract. The consequence is that delay in performance is treated as going to the root of the contract, without regard to the magnitude of the breach.
Per Mustill LJ in Lombard North Central v Butterworth [1987] QB 527

Importance of advance payment of hire by the charterer

In A/S Tankexpress v Compagnie Financiere Belge Des Petroles SA [1948] 2 All ER 939 the House of Lords held that time was of the essence of the clause which entitles the owner to cancel. Lord Wright said at p.946:

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. Hence the stringency of his right to cancel.

In The Brimnes it was held that for late payment of hire to be of repudiatory character it would be necessary to find that they evinced clearly by it an intention not to be bound by the terms of the contract. However in several later decisions of the House of Lords unequivocal statements of Lord Diplock suggest that timely payment of hire is of the essence and therefore a condition of the contract of affreightment.

Thus, dictum of Lord Diplock in United Scientific Holdings Ltd. v Burnlye Borough Council Cheapside Land Development Co. Ltd [1978] AC 904 at p.924 says that:

In commercial contracts for the sale of goods prima facie a stipulated time of delivery is of the essence, but prima facie a stipulated time of payment is not (Sale of Goods 1893, section 10 (1)), in a charterparty a stipulated time of payment of hire is of the essence.

Later in Afovos Shipping Co SA v R Pagnan & Fratelli (The Afovos) [1983] 1 Lloyd’s Rep. 335 Lord Diplock said at p.341:

The owners are to be at liberty to withdraw the vessel from the service of the charterers; in other words they are entitled to treat the breach when it occurs as a breach of condition and so giving them the right to elect to treat it as putting an end to all their own primary obligations under the charter-party then remaining unperformed.

And finally, in case Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 All ER 768 Lord Diplock referring to decision in The Afovos further explained that:

When time is made of the essence of a primary obligation, failure to perform it punctually is a breach of a condition of the contract which entitles the party not in breach to elect to treat the breach as putting an end to all primary obligations under the contract that have not already been performed. … 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.

The view that provision for timely and punctual payment is a condition rather than an innominate term1 was directly supported by statement of Lord Wilberforce in Mardorf Peach & Co v Attica Sea Carriers Corp of Liberia (The Laconia) [1977] AC 850, stated at 867 and 872 that:

It must mean that once a punctual payment of any instalment has not been made, a right of withdrawal accrues to the owners. Conversely, it is incapable of meaning that a charterer who has failed to make a punctual payment, can (unless the owners have waived the default) avoid the consequences of his failure by later tendering an unpunctual payment. He would still have failed to make a punctual payment, and it is on this failure and by reason of it that the owners get the right to withdraw.

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.

Late payment or repeated late payments of hire will usually fall short of repudiatory breach, in absence of express provision entitling the owners to withdraw their vessel for late or non-punctual payment of hire, unless the charterers show clear intention not to be bound by the terms of the contract. When, however, withdrawal clause expressly incorporated into the time charterparty it is evidently a condition of contract and if breached gives to the owners a right to cancel the charter.

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