Simon Rainey QC, Nevil Phillips and Natalie Moore appeared for the successful respondent owners, instructed by Thomas Cooper LLP.

The Court of Appeal handed down judgment today (7th October 2016) in Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982 dismissing an appeal by unsuccessful time charterers. In doing so, it determined the controversial question of whether a charterer’s failure to pay an instalment of hire punctually and in advance under a time charterparty is a breach of condition, entitling the shipowner to terminate the charter and claim damages for the loss of the balance of the charterparty.

The Court of Appeal (Sir Terence Etherton MR, Gross and Hamblen LJJ) unanimously held that the answer to that question is “no” and that, without more, such a failure merely entitles the shipowner to withdraw the vessel from service in accordance with the withdrawal clause. 

The decision, for all practical purposes, finally resolves an issue which has attracted much market interest and generated conflicting observations from judges of the highest standing. It also reviews modern principles applicable to the proper classification of a contract term as a condition.

The leading judgment of Gross LJ also contains a valuable summary of the legal principles relating to renunciation in the context of late and non-payment of hire under time charterparties.

The Court of Appeal firmly rejected a novel argument by the appellant time charterers that the test for renunciation by time charterers in relation to defaults in payment of hire (whether by late or short payment) was applied too strictly (“unwarrantably severe”) and was out of step with the Court’s approach in other non-payment contexts under different types of contract, thereby amounting to unjustified “preferential treatment” for shipowners under time charters.

Simon Rainey QC, Nevil Phillips and Natalie Moore appeared for the successful respondent owners, instructed by Thomas Cooper LLP.

Headline Summary of the Decision

The obligation to pay hire under a time charterparty is not a condition but an innominate or intermediate term. Flaux J’s decision to the contrary in The Astra [2013] EWHC 865 (Comm) was wrong.

The obligation to pay hire promptly and in advance under a time charterparty lay at the heart of the contractual bargain represented by such a charterparty. Late and short payment would unilaterally convert a contract for payment in advance into a transaction for unsecured credit and without any provision for the payment of interest: such conduct went to the root of the contract, was renunciatory and entitled an owner to terminate.

While therefore removing the availability of a condition from the shipowner’s arsenal of remedies for non-payment of hire, the Court of Appeal has roundly endorsed the critical importance of prompt and full payment of hire in advance, and has emphatically highlighted the risks which a time-charterer takes in making payment late or in missing payments, however much it protests that it wishes or intends to perform or perform better.

If an owner wishes to be able to terminate for any failure to pay hire – irrespective of renunciation or repudiation - and claim damages in addition, it will now have to contract on special terms to this effect (cf. the hire provisions in the new NYPE 2015 form which so provide).

A copy of a fuller article written by Simon Rainey QC, Nevil Phillips and Natalie Moore can be found here.

A copy of the Court of Appeal’s judgment can be found here.