Time Charters. Withdrawal as equivalent to cancellation

… owners will not exercise their right of withdrawal unless it is in their commercial interest to do so.
Per Lord Sumption in Petroleo Brasileiro S.A. (Respondent) v E.N.E. Kos 1 Limited (Appellant) [2012] UKSC 17

No partial withdrawal / temporarily suspension of the timecharter

There cannot be a partial withdrawal of the owners’ vessel and neither any temporarily suspension of the timecharter can take place unless such right is expressly granted to them by the contract (read more Suspension of hire and suspension of service). Withdrawal is irrevocable and therefore operates only in one way: in way of cancellation of charterparty.

Although when Lord Tenterden first wrote his famous text-book on Shipping it was not the practice to provide for hire to be paid in advance and for time charterers to grant an express right of withdrawal on non-payment of such advance payments. these provisions have been common form in time charters in this country and the United States for generations. I think there is much weight in Mr. Pollock’s argument that if the word "withdrawal" bore the construction sought to be placed upon it by Mr. Hallgarten so as to include temporary withdrawal or suspension, this would inevitably have come up for decision in the Courts before now. The Courts seem to have treated the word "withdrawal" as equivalent to "cancellation", an interpretation which, if I may say so with respect, seems to me the natural one.
Per Mocatta J in The Agios Giorgis [1976] 2 Lloyd’s Rep 192.

Commercial cases examining operation of withdrawal option in timecharter contracts represent vivid examples of owners’ persistent efforts to get rid of economically disadvantageous charterparty on raising market.

Pure mercantile background of these disputes was underlined by Lord Hailsham of St.Maylebone, L.C. in Afovos Shipping Co SA v R Pagnan & Fratelli (The Afovos) [1983] 1 Lloyd’s Rep. 335 at p.340 as below:

I have only to add that [withdrawal] option … is not one which the owner is bound to exercise. On the contrary, if the market charge for hire had moved the other way, it seems to me extremely unlikely that he would have wished to do so.

Since the lawful cancellation itself was usually a matter legally pursued by the owners, there was seldom any claim for damages. Moreover failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages because the nonpayment does not itself destroy the bargain or occasion the expenses, unless in the circumstances it is a repudiation which owners have accepted as such.

The question of damages flows directly from the matter of classification of the breach and it is yet to be decided. But what is clear beyond much doubt is that the owners can certainly recover all outstanding hire accrued by the moment of withdrawal. It is remains to be seen what legal issues can eventually come up if or when withdrawal provision will be triggered by the repudiatory breach.

In Petroleo Brasileiro S.A. (Respondent) v E.N.E. Kos 1 Limited (Appellant) [2012] UKSC 17 owners withdrew the vessel following the failure by time charterers to pay hire, there was not anti-technicality clause in charterparty. The vessel was at a load port and had just completed loading a parcel of cargo for the Charterers’ account in accordance with their orders. She was awaiting a second parcel, which in the event was not loaded. There were no bills of lading in the hands of third parties. As a result of fruitless negotiations the vessel was detained for 2.64 days before she was able to discharge the cargo back to the Charterers’ facility. Owners claimed to be entitled to be paid for the service of the vessel during that 2.64 days, and for bunkers consumed in the same period.

The majority of the judges (Lord Mance dissenting) held that owners’ claim succeeded under the express indemnity in respect of losses caused by complying with Charterers’ orders as stipulated in clause 13.

The master (although appointed by owners) shall be under the orders and direction of charterers as regards employment of the vessel, agency or other arrangements. Bill[s] of lading are to be signed as charterers or their agents may direct, without prejudice to this charter... charterers hereby indemnify owners against all consequences or liabilities that may arise from the master, charterers or their agents signing bills of lading or other documents, or from the master otherwise complying with Charterers’ or their agents’ orders …

In this case the Supreme Court held that the relevant order was the order to load the cargo. Lord Sumption said at para 13:

13. For present purposes, the relevant order of the charterers was the order to load the parcel of cargo which was on board the vessel when it was withdrawn. In my judgment the loss claimed by owners was the consequence of that order. The need to discharge the cargo in the owners’ time arose from the combination of two factors, namely
(i) that the cargo had been loaded, and
(ii) that the purpose for which it had been loaded (ie carriage under the charterparty to its destination) had come to an end with the termination of the charterparty. In other words, the cargo which charterers had ordered the vessel to load was still on board when the charterparty came to an end. On any realistic view, this was because the charterers had put it there.

The court explained that the need to discharge the cargo in the owners’ own time and at their own expense was the very reason why the detention of the vessel falls within the indemnity, since it was not an ordinary incident of the chartered service and was not a risk that the owners assumed under the contract, but arose after the chartered service had come to an end in accordance with the withdrawal clause in the contract.

The Supreme Court unanimously held that owners’ claim also succeeded in bailment.

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