Western Bulk Carriers K/S v Li Hai Maritime Inc

This case represents commerce, red in tooth and claw. The issue is whether the Defendant owners were entitled to withdraw the m.v. “Li Hai” from the Claimant time charterers, after it had been on more or less continuous hire to the Charterers for some 4½ years, for non-payment of US$500, after the market had risen in the space of 10 months to about 2½ times the charter rate. Although $500 represented less than two hours hire, no-one suggested that this sum was de minimis; nor was it. So, there can be no doubt that if it was owing and the appropriate “anti-technicality” notice was given, and in the absence of any estoppel, the Owners were entitled to withdraw the vessel. The Court has no power to relieve from forfeiture on the grounds that this is a harsh case.

M. V. “Li Hai” (“the vessel”) is 27,000 ton “handymax” bulk carrier. It was owned by the Defendants, a Panamanian corporation, but managed by Cosco Bulk Carrier Co. Ltd of Tianjin, China. The vessel was first chartered to the Charterers under a charterparty dated 23 March 1999. The third charter expired on 28 December 2002. The vessel was immediately delivered into the fourth charter, dated 27 September 2002. The vessel was performing under this charter when she was withdrawn.

The charterparty was on the New York Produce Exchange form as amended by the parties. It provided as follows:

“The said owners agree to let and the said Charterers agree to hire the said vessel from the time of delivery, for about 5/7 months period in Charterers’ option (about meaning +/- 15 days) – charterers option for further about 5/7 months … on the following conditions:

cl.4 That the charterers shall pay for the use and hire of the said vessel at the rate of $8,100 per day including overtime for first 5/7 months, $9,100 per day including overtime counting from the maximum time of the first period i.e. 28^th July 2003, 10:20 hrs GMT United States currency …

cl.5 Payment of said hire to be made by charterers to Owners’ nominated bank in cash in United States currency, 15 days in advance, … otherwise failing the punctual and regular payment of the hire … , the Owners shall be at liberty to withdraw the vessel from the service of the Charterers …

Cash for vessel’s ordinary disbursements at any port may be advanced with Owners’ prior approval as required by the Captain, by the Charterers and their agents, subject to 2½% commission and such advances shall be deducted from the hire.

cl. 10 Owners to victual Pilots and customs officers [etc.] …Charterers paying for all victualling US$1,200 lumpsum per month or pro rata including communication/entertainment which to be paid directly to Owner’s bank.

cl.18 … the charterers to have a lien on the Ship for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once.

cl. 47 Punctual Payment/Breach of charter

With reference to Cl. 5 it is agreed that the hire to be considered paid upon charterers instructing their bankers to irrevocably remit the hire to Owners’ bank [in Tianjin].

Before exercising the option of withdrawing the vessel from the charter the Owners will give the Charterers seventytwo hours (Saturdays, Sundays and Holidays and Banking Holidays excluded) official notice in writing and will not withdraw the vessel if the hire is paid or the alleged breach is rectified within the seventytwo hours allowed for notice from time the Charterers received such notice. …”

The charter rate was $8,100 until 28 July 2003, when it rose to $9,100 in the event the option was exercised, as it was. As from early 2003, the market for handymax vessels started to rise ever more steeply, driven by Chinese demands for imported raw materials. Between September and December 2003 alone, the market rate more or less doubled. At the time of the withdrawal, the market rate was about 2½ times the charter rate. This made the charter very valuable to Charterers. It also made it extremely tempting to the Owners to find a way out if they could.

A practice had developed between the Charterers and the Owners that a few days before a hire payment was due, the Charterers would e-mail the Owners, via their brokers Rodskog Shipbrokers Limited of Hong Kong (“Rodskog”) a hire statement setting out the hire that they would instruct their bankers to pay and indicating the deductions that they intended to make. A hard copy would also be sent to Rodskog, enclosing copies of the vouchers. This hard copy would not arrive until after the hire had become due for payment. So at that time, the Owners might not be in a position to judge the propriety of the deduction. From time to time disputes would arise as to whether a deduction ought to have been made. These were resolved by agreement. I shall have to revert later to the question whether this created any kind of estoppel.

The 38^th hire payment was due on 30 June 2003. On 27 June, the Charterers sent a hire statement to Rodskog indicating an intention to deduct twelve items said to be owner’s expenses totalling some $16,500. The Owners objected and demanded full payment immediately. The Charterers swiftly accepted that $6,657 had been mistakenly deducted and gave instructions for that sum to be paid. They faxed copies of the remaining vouchers. This was not acceptable to the Owners and on 2 July they sent the following notice to the Charterers:

“RE: MV LIHAI/WESTERN BULK CARRIERS K/S – NOTICE OF WITHDRAWAL

DEAR SIRS:

WE REFER TO OUR STATEMENT OF 38^TH HIRE WHICH WAS SENT TO YOU ON 27^TH JUNE 2003. BUT WE HAVE ONLY RECEIVED US99,515.10 FOR SAID HIRE PAYMENT, WHICH WAS DUE ON 30^TH JUNE 2003. THIS IS NOT THE FULL AMOUNT OF 38^TH HIRE INSTALLMENT OF US116,025.00 AS PER OUR HIRE STATEMENT.

CHARTERERS HAVE FAILED TO MAKE THE FULL AMOUNT AND SUFFICIENT PAYMENT OF THE 38^TH HIRE, WHICH WAS IN BREACH OF CLAUSE 5 AND CLAUSE 47 OF THE C/P DATED 27^TH SEPT. 2002. OWNERS HEREBY GIVE CHARTERERS FORMAL NOTICE THAT UPON THE EXPIRY OF THE NEXT 72 (SEVENTY TWO) HOURS, FAILURE OF WHICH WE SHALL ACCEPT YOUR ACTION AS BEING IN REPUDIATORY BREACH OF C/P AND OWNERS WILL WITHDRAW THE VESSEL FROM THE SERVICE OF THE CHARTERERS WITHOUT PREJUDICE TO ANY CLAIMS THAT OWNERS MAY OTHERWISE HAVE UPON THE CHARTERERS

THANKS AND BEST REGARDS”

The Charterers’ immediate stance was to maintain the validity of the remaining deductions and to request that the notice be withdrawn. On 4 July, after receipt of the $6,657, the Owners sent a further notice:

“RE: MV LIHAI/WESTERN BULK CARRIERS K/S – NOTICE OF WITHDRAWAL

DEAR SIRS:

WE REFER TO OUR STATEMENT OF 38^TH HIRE WHICH WAS SENT TO YOU ON 27^TH JUNE 2003. SO FAR WE HAVE NOT RECEIVED THE FULL AMOUNT OF 38^TH HIRE INSTALLMENT OF USD116,025.00 AS PER OUR HIRE STATEMENT, WHICH WAS DUE ON 30^TH JUNE 2003.

CHARTERERS HAVE FAILED TO MAKE THE FULL AMOUNT AND SUFFICIENT PAYMENT OF THE 38^TH HIRE, WHICH WAS IN BREACH OF CLAUSE 5 AND CLAUSE 47 OF THE C/P DATED 27^TH SEPT. 2002. OWNERS HEREBY GIVE CHARTERERS FORMAL NOTICE THAT UPON THE EXPIRY OF THE NEXT 72 (SEVENTY TWO) HOURS, FAILURE OF WHICH WE SHALL ACCEPT YOUR ACTION AS BEING IN REPUDIATORY BREACH OF C/P AND OWNERS WILL WITHDRAW THE VESSEL FROM THE SERVICE OF THE CHARTERERS WITHOUT PREJUDICE TO ANY CLAIMS THAT OWNERS MAY OTHERWISE HAVE UPON THE CHARTERERS

THIS NOTICE OF WITHDRAWAL IS WITHOUT PREJUDICE TO THE VALIDITY OF ANY PREVIOUS NOTICE OF WITHDRAWAL.

THANKS AND BEST REGARDS”

This prompted reconsideration by the Charterers and on the same day they gave irrevocable instructions to their bankers to pay the remaining disputed deductions and notified the Owners accordingly. The threat of withdrawal was lifted. Subsequently, agreement was reached as to what could be deducted and the deduction was made from the 40^th hire payment.

The vessel had been sub-chartered to Oldendorff Carriers of Lübeck in early August 2003. On 12 August, the vessel bunkered in Santos and loaded 800 m.t. fuel oil. The vessel started to burn this fuel on 28 August. On 9 September, the Owners complained that the fuel was impure causing frequent stoppages to the fuel oil system and the need to wash the filters frequently. The Charterers requested a joint survey at the next port of call which was Singapore. On 23 September, there was a main engine breakdown, and the vessel was immobilised for a short period. Various piston rings were found to have been broken. The owners blamed the poor quality fuel. The fuel was tested in Singapore and found to be marginally off specification because of an excessive aluminium and silicon content.

The vessel then sailed to Hong Kong. Thereafter it was scheduled for a routine dry docking and special survey at Shanghai. The Owners estimated that, all going well, the dry docking would take about 8 days. On 30 September, the Charterers had given orders to the Master to stem 220 m.t fuel oil and 30 m.t. mgo at Hong Kong. On 5 October the Master required the Charterers to off-load the poor quality fuel oil and clean the tanks in which it had been loaded, and he indicated that the new bunkers could only be loaded after the poor quality fuel oil had been off-loaded and the tanks cleaned out.

This led to a major disagreement between the Owners and the Charterers. The Charterers argued that the fuel oil, even if marginally off specification, could still be used and claimed that Owners were liable, inter alia, to pay the $500 cancellation fee that the Charterers had had to pay on cancelling the stem in Hong Kong. The Owners made it clear in an e-mail dated 8 October that they rejected any claim for the cancellation fee.

The 45^th hire payment became due on 13 October. On 9 October, the Charterers e-mailed a hire statement to the Owners. They proposed to make the following deductions from the $133,275 due:

Rodskog responded with a revised hire statement asking for full payment of the hire (and victualling) without deduction – i.e. $133,275. In the message passed on to the Charterers, the Owners asked Rodskog to “push them to remit hire to ownrs account”.

The row over bunker supplies continued. On 10 October, the Charterers confirmed that the cancellation fee had been deducted but proposed that there should be a change of tone. Rather than throwing unpleasant messages at each other, they proposed a more constructive debate between owners and charterers. In an e-mail also sent on 10 October, owners repeated their rejection of any claims arising from the cancellation of the fuel stem in Hong Kong.

On 13 October, Charterers remitted $68,980 to Owners’ account. On learning this, the Owners sent the following message to the Charterers on 14 October:

“RE: DEDUCTION FOR ESTIMATED DRYDOCKING

SORRY TO FIND THAT CHARTS HAVE DEDUCTED 7 DAYS FOR DD FM HIRE PAYMENT, WHICH IS IN BREACH OF THE CHARTER PARTY DD 27^TH SEPT 2002. IN THIS RESPECT, CHARTS ARE KINDLY REQUESTED TO ARRANGE SAME TO OUR ACCOUNT ASAP. AND THE SAID OFF-HIRE FOR DD WILL BE ADJUSTED FM HIRE PAYMENT AFTER COMPLETION OF DD OR ALTERNATIVELY OWNERS WILL REFUND SAME TO CHARTS IN DUE COURSE. PLS CONFIRM BY RETURN.

RE: DEBUNKER AND CLEANING OF OIL TANKER NO. 3 AND NO. 4

AS WE HAVE STATED, WE FULLY REJECT CHARTS CLAIMS OF USD500.00 FOR CANCELLATION OF OIL SUPPLY AT HONGKONG, WHICH RESULTS FM INFERIOR BUNKER SUPPLIED BY CHARTS AT SANTOS. WE ONCE AGAIN REQUEST CHARTS TO ARRANGE THE DEBUNKER AND CLEANING OF THE OIL TANKERS NO. 2 AND NO. 3 PLS URGENTLY CONFIRM BY RETURN BY 0800 GMT 14^TH OCT. OTHERWISE OWNERS WILL ARRANGE SAME DURING DRYDOCKING AND ALL THE TIME AND COSTS INVOLVED TO BE FOR CHARTS ACCOUNT, FYR, THE COSTS INVOLVED ARE ABOUT USD25,000.00 WHICH IS SUBJECT TO THE FINAL INVOICE TO BE SENT TO CHARTS. PLS ARRANGE SAME TO OWNERS ACCOUNT IN CASE CHARTS ELECT NOT TO ARRANGE THE DEBUNKER AND CLEANING OF SAID OIL BUNKERS.

…”

This was followed on 15 October with the following critical message from Owners – there was no intervening correspondence:

“RE: MV LIHAI/WBC – NOTICE OF WITHDRAWAL

PLS BE ADVISED THAT CHARTERERS WAS IN BREACH OF CLAUSE 5 OF THE CHARTER PARTY DATED 27^TH SEPTEMBER 2002. OWNERS HEREBY GIVE SEVENTY-TWO HOURS NOTICE THAT OWNERS WILL WITHDRAW THE VESSEL FROM THE SERVICE OF THE CHARTERERS WITHOUT PREJUDICE TO ANY CLAIMS THAT OWNERS MAY OTHERWISE HAVE UPON THE CHARTERERS.

BEST REGARDS.

COSBULK/GU RONGHUA”

The message was received by Tor Erik Andersen, a trainee manager at the Charterers’ Oslo office. Although a trainee, he was responsible for managing about 15 ships, including the vessel. Mr Andersen’s belief (the reasonableness of which I will revert to later in this judgment) was that the deduction, to which the Owners were objecting and for which they were threatening to withdraw the vessel, was that for off-hire.

Shortly after the message had been sent, Mr Robert Ng of Rodskog telephoned Mr Andersen. The main purpose was to check that the withdrawal notice had been received, which Mr Andersen confirmed. Mr Ng’s evidence to me was that he explained that the owners were very serious about Charterers’ making deductions from hire and that they meant what they said. According to his witness statement, he said “Owners should remit hire in full without any deduction whatever”. In oral evidence, he qualified this by saying that he did not use the word “whatever”. He thought he referred to all deductions. Mr Andersen did not deal with this conversation in his first witness statement. In his second witness statement, he said he remembered the conversation clearly. He denied that Mr Ng said that Owners should remit hire in full without any deduction whatever. Instead he said that Mr Ng specifically pointed out that, in his experience, it is not normal practice to make deductions from off-hire before the occurrence of the event, and he stressed that the Owners expected the sums deducted in respect of off-hire to be reimbursed, or the vessel would be withdrawn.

There are no notes on either side in relation to this conversation. I am quite satisfied that both witnesses were truthful. I reject the allegation put by Mr Russell QC to Mr Andersen that his evidence was thought up after the event. Both accounts have their weaknesses – Mr Ng’s version of what he said rather changed in his oral evidence; Mr Andersen did not mention the conversation in his first statement and the clarity of recollection that he later claimed is not convincing.

In my judgment, neither witness’s recollection is compelling. The most telling pointer as to what was said lies in Mr Andersen’s behaviour afterwards. He plainly believed that the issue was over the deduction of off-hire. He struck me as an intelligent and thoughtful man. He speaks good English. Mr Ng’s English was less good. If Mr Ng had spoken with the emphasis he claims, I am sure that Mr Andersen would have reacted differently. He would have focussed on the $500 deduction as well as the off-hire deduction. In my view, Mr Ng certainly made it clear that the Owners were deadly serious and were willing to withdraw the vessel if their demands were not met. The main discussion was about the off-hire deduction. I do not accept that, in this conversation, it was made clear by Mr Ng that one of the Owners’ demands was the $500 must also be paid. However, as I explain below, I question whether, when it comes to judging the validity of the anti-technicality notice, it matters what Mr Ng said to Mr Andersen.

After receipt of the withdrawal notice, Mr Andersen consulted with Bjorn Haug, his superior, who was the Charterers’ highly experienced laytime & marine manager. It is not at all clear whether he did so before or after the telephone conversation with Mr Ng. Mr Haug took the notice extremely seriously. His immediate reaction was that the Owners should not be given any opportunity to withdraw the vessel given the profitable hire rate (from the Charterers’ point of view), but nothing was decided.

Mr Haug reviewed the correspondence overnight and he also formed the view that what the Owners were demanding was payment of the 7 days’ off-hire deducted. However, he agreed with Mr Andersen that Charterers were entitled to deduct the off-hire. He felt rather strongly that the Owners’ demands were unjustified when it was obvious the vessel was not going to earn the hire, because she would be in dry-dock.

Mr Andersen was out of the office on 16 October. Mr Oyvind Hellem, a more experienced manager stood in for him. He had been managing the vessel when the threats to withdraw the vessel were made in July. He discussed the case with Mr Haug and it was decided to stand firm. So the Charterers sent the following message to the Owners:

“REF OWNERS MESSAGE WEDNESDAY 15:10 1818 HONG TIME WITH NOTICE OF WITHDRAWAL

FIRSTLY THIS IS THE FIRST TIME IN HISTORY THAT AN OWNER ARGUE THAT HE IS ENTITLED TO HIRE DURING A PERIOD THE VESSEL IS KNOWN NOT TO EARN HIRE EVEN THOUGH OWNERS ACCEPT TO HAVE HIRE ADJUSTED IN ARREARS.

THE HIRE PAYABLE IN ADVANCE IS THE HIRE DUE ONLY AND NOT HIRES TO BECOME DUE/EARNED LATER.

CLAUSE 4 PROVIDES FOR CHARTERERS TO PAY FOR THE USE OF THE VESSEL WHICH IS PLAIN LOGIC WILL EXCLUDE ALL PERIODS WHEN THE VESSEL IS USED BY OWNERS AND CONSEQUENTLY CHARTERS HAVE NO DUTY TO PAY FOR SUCH TIME NEITHER IN ADVANCE (WHEN TIME REASONABLY CLEAR) NOR IN ARREARS. IF HIRE WAS PAID IN ADVANCE WHILE A VESSEL WAS IN DRY DOCK THE HIRE PAID WOULD BE HIRE PAYABLE/DUE FOR THE FIRST PERIOD AFTER THE VESSEL CAME BACK FROM DRY DOCK, BUT SUCH HIRE WOULD NOT BE PAYABLE UNTIL HIRE IS AGAIN PAYABLE 25.10 AND THE NEXT HIRE AVAILABLE.

…

IT IS APPRECIATED THAT OWNERS OFFER TO SETTLE KNOWN OFF HIRE AND COST ONCE ESTABLISHED, BUT THIS IS NOT IN ACCORDANCE WITH THEIR RIGHTS UNDER THE CHARTER PARTY.

OWNERS THEREFORE TAKE A RISK FOR PAYING DAMAGES TO CHARTERERS FOR ALL CHARTERERS LOSSES SHOULD OWNERS BREACH THE TERMS OF THE CHARTER PARTY BY WITHDRAWING A VESSEL AFTER MORE THAN HIRE DUE HAS BEEN PAID BY THE CHARTERERS.

CHARTERERS WOULD THEREFORE APPEAL TO OWNERS TO STUDY THE TERMS OF THE CHARTER PARTY AND CONFIRM THAT THEY WILL PERFORM THE SERVICES ALREADY PAID FOR.

IF OWNERS HAVE ANY REFERENCE TO TERMS OF THE CHARTER PARTY WHICH ALLOWS THEM TO DEMAND HIRE FOR DAYS KNOWN NOT TO BE AT CHARTERERS DISPOSAL THEY ARE INVITED TO DO SO OVERNIGHT.

RATHER THAN TO DELIBERATELY RUN INTO A CASE OF LITIGATION, CHARTERERS MAY DECIDE TO ALLOW SETTLEMENT TO BE MADE IN ARREARS, BUT THIS WILL BE UNDER PROTEST AND CHARTERERS WILL RESERVE ALL THEIR RIGHTS IF OWNERS SHOULD DECIDE TO BREACH THE CHARTER.

OWNERS COMMENTS ARE THEREFORE EXPECTED BY RETURN.”

No response was received from the Owners. However, on 17 October, when Mr Andersen was back in the office, he expressed doubts about the wisdom of the decision made in his absence, and Mr Haug was persuaded that Charterers should pay the off-hire deductions. He did not want to give the Owners any opportunity to withdraw. So on 17 October a revised hire statement was sent crediting the Owners with the off-hire deductions, and adjusting the sums due for victuals and cables proportionately. The $500 deduction was maintained. $60,795 was remitted to the Owners. If the Charterers had appreciated that the Owners were also demanding payment of the $500 as a pre-condition of not withdrawing the vessel, I am sure that this would also have been paid. The Charterers had determined that they would take no chances, and the $500 was too trivial to justify different treatment from the off-hire.

On 22 October 2003, the Owners withdrew the vessel. At first, Mr Haug could not understand on what basis the Owners had withdrawn the vessel, but it soon became apparent that it was because of the $500 deduction in respect of the stem cancellation fee.

The Charterers commenced these proceedings on 11 December 2003 claiming damages for wrongful withdrawal of the vessel and repudiation of the charterparty. At trial, the main issues on liability were:

All these propositions were firmly rejected by Mr Russell QC, who appeared for the Owners. He submitted that the Charterers were placed on due notice that they had to pay the hire in full to avoid withdrawal. Any misunderstanding on the part of the Charterers was not of the Owners’ making. Despite adequate notice, the Charterers failed to make full payment and the Owners were justified in withdrawing the vessel.

Was there any underpayment of the 45^th installment of hire to the Owners?

On the basis of my findings of fact, it was virtually certain that the vessel would be in dry-dock and off-hire for at least a considerable part of the period covered by this advance installment of hire. The Owners themselves estimated that the dry-docking would last 8 days. Whether or not that forecast proved accurate, the period of off-hire was obviously going to exceed the approximately two hours represented by the $500 deduction. On this basis, Mr Hamblen argued that the Charterers were entitled to withhold hire which would never actually be earned. He accepted that this contention went beyond the existing authorities.

The starting point is that there is no express term in the charterparty entitling the Charterers to withhold hire on the basis that it will not be earned.

In Tonnelier and Bolckow, Vaughan and Co v. Smith & Weatherill & Co (1897) 2 Com. Cas. 258, the charterparty required the charterers to pay hire monthly in advance at the rate of £709 per calendar month and at the same rate for any part of a month until her redelivery. Reversing the trial judge, the Court of Appeal held that the charterers were liable to pay a full month’s hire at the beginning of each month, even if it was clear that the ship would be re-delivered to the owners before the month had expired. Rigby LJ and Lord Esher MR (at pp.266-7) said:

“Even when it appears probable that only a few days’ freight will be earned, some circumstances – as, for instance, a strike – may intervene to delay the date of discharge and delivery up, and in the result a whole month’s freight may, after all, be earned. The greater or less degree of probability of the happening of the events which will determine how much freight is to be earned is nowhere referred to in the contract and can scarcely afford a rule for construing it. … No doubt it would have been a reasonable contract that an estimated payment on account should be sufficient if the parties had thought fit to make such an agreement, but nothing about an estimated amount is said in the charterparty. On the other hand, the charterer, if he had to pay a whole month’s freight instead of a third, would only have paid more than actually turned out to be earned – a state of things contemplated by the contract, and provided for by giving him a lien on the ship for over-payment. On the construction acted upon by the learned Judge the parties would be uncertain, until the discharge of the cargo was completed and delivery of the ship made, when the actual payment was to be, and the owners might be driven to an action – a necessity against which the charterparty plainly intended to protect them.”

Tonnelier was approved and applied by the House of Lords in French Marine v. Compagnie Napolitain d’Eclairage et de Chauffage par le Gaz [1921] 2 AC 494. The vessel had been requisitioned after an installment of advance hire had become due, leading to the frustration of the charterparty. The issue was whether the charterers were still liable to pay the hire in full. The House of Lords held that they were. Their Lordships observed that Tonnelier had been so long acted upon in the time-chartering business and had been followed in such a multitude of settlements of ships' accounts, that, unless it was manifestly wrong, it ought not to be overruled – see for instance Lord Sumner’s speech at p. 515. The essence of the majority’s reasoning can be extracted from Lord Dunedin’s speech:

“The question must therefore, in my opinion, be thus approached: On August 10 the respondents were bound to pay a month's hire, on August 16 the further performance of the contract became impossible. Was there or was there not an accrued right on the appellants' part to get repayment of such portion of the hire paid on August 10 as did not, as we conveniently term it in Scotland by a word which is wanting in English, "effeir" to the period from August 10 to 16. The sheet anchor of the appellants' argument is the expression used by Rigby L.J. and the Master of the Rolls in Tonnelier's Case , that the payment in advance is "provisional"; coupled with the admission which had to be given by the respondents' counsel that had there been a delivery at a coal port in the United Kingdom in the ordinary course on the 16th that sum would have been recoverable. I confess I was much moved by that argument, but on further consideration it appeared to me that the word "provisional" might be too hard pressed. I do not think that by terming the payment "provisional" the learned judges meant to say that the payment in advance was not really a payment, but only a deposit, leaving the question of payment over. The payment in advance is truly payment, but it can only be a payment of what the contract says is earned.”

More recently Tonellier was followed by the House of Lords in Pan Ocean Shipping Ltd v Creditcorp Ltd, “The Trident Beauty” [1994] 1 WLR 161 (infra).

The case on which Mr Hamblen focussed his argument was the decision of Bingham J in The Lutetian [1982] 2 Lloyd’s Reps 140. The vessel was chartered on the NYPE form and hire was payable monthly in advance. Clause 15 provided that “in the event of loss of time from … drydocking … preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost …”. The vessel was withdrawn for non-payment of a hire installment. At the relevant time, the vessel was in dry-dock off-hire. The Judge held that whilst the vessel was off-hire, the charterer’s obligation to pay hire was suspended. He accepted the charterer’s argument that that if, on the due date for payment, the vessel was off-hire, under clause 15 the charterers' obligation to make payment of the next monthly installment of hire in advance was suspended until immediately before the vessel was again at the service of the charterers. He concluded (at p. 150 col.1):

“It is not, to my mind, in any way unlikely that the parties intended the owners to be secured by payment in advance in respect of hire which he would or might earn but not in respect of hire which he could never earn.”

However, on the assumption that the obligation to pay hire was not suspended, he rejected the charterers’ alternative argument that they were entitled to deduct in respect of the period for which, on owner’s information, the vessel was reasonably expected to be off-hire. He said:

“There is in the charter-party no reference to any process of estimation or deduction in this situation. On the other hand, a provision for payment in advance does ordinarily relate to money which the recipient will, or at least may, be entitled to retain and it is surprising if an owner is entitled to receive in advance money which he and the charterer have every reason to believe he can never earn. The references already noted to unearned hire are also relevant here. It is even more surprising if the Draconian sanction of withdrawal can apply upon non-payment of money which it is believed the owner can never earn. The decided cases do not approve, but nor as I read them do they condemn, the practice of deduction. They do not deal with vessels which are off-hire on the due date for payment. The answer to this question must, I think, follow the answer to the first question. If, contrary to my view, the charterers remained under obligation to make payment on the due date, I find no clear warrant for the conclusion that they were entitled to pay subject to a deduction for expected off-hire. If, on the other hand, the obligation to make payment was itself suspended in these circumstances, payment on the due date subject to a deduction, while not expressly authorized by the contract, would represent conduct on the charterers' part more favourable to the owners than compliance with their strict legal duty and would therefore be unobjectionable.”

So Bingham J. expressly rejected the submission that Mr Hamblen now makes. If the vessel had not been off-hire at the time an instalment of hire was otherwise due, the full hire would have due without deduction.

My attention was also drawn to a decision of a New York arbitration tribunal in the “M.T Noto” 1979 AMC 116 chaired by Jack Berg, referred to in Wilford on Time Charters (5^th ed.) at §16.133. There the tribunal suggested that, although there was only slender legal authority, a charterer could deduct anticipated off-hire but there would need to be a degree of certainty that the vessel could not be used for any purpose in the period. Wilford implies that there are other American arbitration awards going the other way. None were cited to me.

Whatever the position may be in the United States, in my judgment the position is clear in English law. In the absence of a provision to the contrary, the charterers are not entitled to make a deduction for anticipated off-hire, however certain it may seem that the vessel will be off-hire. To decide otherwise would be inconsistent with Tonnelier and the subsequent authorities. In my view, there is nothing unfair about refusing to permit a deduction for anticipated off-hire. If it turns out that the hire has not been earned in full, the charterers will be entitled to a rebate. The question is really one of cashflow – are potential over-payments resolved in advance on the basis of some estimate or in arrears on the basis of actual events? To allow deduction for anticipated off-hire would be bound to introduce an element of uncertainty and to lead to disputes. Whether the test for permitting deduction was set at the level of certainty, virtual certainty, high probability or probability, there would be bound to be arguments as to whether the threshold had been passed. If the parties had wanted to deal with anticipated off-hire differently, they could always have said so in the charterparty.

So in my judgment, the Charterers were not entitled to withhold any part of the 45^th hire installment on the grounds that it was anticipated that the vessel would be off-hire during the period represented by that advance hire payment.

Mr Hamblen argued that the Master’s refusal to comply with orders and load the bunkers at Hong Kong constituted a breach of clause 8 of the charterparty. The owners had wrongfully deprived the Charterers of the use of the vessel or prejudiced them in the use of it. So, provided this claim could be made honestly and on reasonable grounds, it could be deducted from hire by way of equitable set off: cf. The Nanfri [1978] 2 Lloyd’s Reports 132, 140, per Lord Denning M.R.

Mr Russell’s answer was that this was (at best) a mere cross-claim. It did not impeach the right to payment of any part of the hire payable in advance. The Charterers never suffered any loss of or prejudice in their use of the vessel

It is long established that not every cross claim gives rise to a right of equitable set off, even where the claim and cross-claim arise from the same transaction. An equitable set off is only available where “the equity of the bill impeached the title to the legal demand” – per Lord Cottenham in Rawson v. Samuel (1841) Cr. & Ph 161, 179. See also Hanak v. Green [1958] 2 QB 9.

There has been a series of cases involving claims of equitable set off against payment of advance hire under time charterparties. In The Nanfri (supra at p.976), Lord Denning stated the following principle:

“I would as at present advised limit the right to deduct to cases when the shipowner has wrongly deprived the charterer of the use of the vessel or has prejudiced him in the use of it. I would not extend it to other breaches or defaults of the shipowner, such as damage to cargo arising from the negligence of the crew.”

The Court of Appeal approved the earlier decision of Parker J. in The Teno [1977] 2 Lloyd’s Reps 289, in which he held that, where the charterers alleged that the ship had failed, contrary to instructions, to load a full cargo, there was a right of equitable set off, because the use of the ship had been partially withheld from the charterers.

In The Leon [1985] 2 Lloyd's Rep. 470, the umpire had upheld a deduction from hire on the basis that bunkers had been stolen from the vessel or the charterers had been fraudulently invoiced for bunkers not actually delivered as a result of collusion with the owner’s employees. The charterers contended that the there had been breaches in (a) a failure to keep accurate logs; (b) the master being party to the creation of false documentation by bunker suppliers; (c) a breach of duty by the owners as bailees of the bunkers. Hobhouse J set aside the award. He said (at p. 475 col. 1):

“Hire is paid in advance and failure to make punctual payment gives the owner the right to withdraw the vessel. It is not a coincidence that, in the decided cases reviewed by Mr. Justice Parker in The Teno, [1977] 2 Lloyd's Rep. 289 and by the Court of Appeal in The Nanfri and in the cases since where the right of the equitable set-off has been upheld, the cross-claim has involved something which could be identified as depriving the charterers of the use of the vessel or prejudicing or hindering that use. It is because, in the context of a time charter contract and a claim for time charter hire, it is that type of cross-claim which has the requisite quality of impeaching the plaintiff's demand.”

He concluded that none of the alleged breaches of the Charterparty prejudiced the Charterers in the use of the vessel:

“They do not relate to the use of the vessel. There is no suggestion in the present case the charterers ever directly or indirectly lost even a minute of the ship’s time as a result of these breaches nor is there any suggestion at any time by reason of any of the breaches the whole reach of the vessel’s holds etc., were not at charterers’ disposal or that the master did not prosecute the voyages with despatch or comply with the order of the charterer as regards the vessel’s employment”.

.

Mr Hamblen argued that the facts in this case were analogous to those in The Teno. The Charterers were entitled to the full reach of the vessel including the vessel’s bunker tanks. The shutting out of the bunkers was like the shutting out of cargo. As is well known, charterers can make a profit from the bunkers, for instance on redelivery, or gain financial advantage by loading bunkers at a particular port. Further the latter passage cited from the judgment in The Leon supported the proposition that loss flowing from a failure to comply with the charterers’ orders could be set off in equity against hire.

Here, on the evidence, there is no evidence that the Charterers actually suffered any loss of or prejudice in their use of the vessel. All that happened was that the vessel had rather less fuel oil on board than it otherwise would have had. There was no failure to comply with an order with regard to the vessel’s employment. The vessel’s trading was in no way impeded. I do not accept that a failure to load bunkers is to be treated in the same way as a failure to load revenue earning cargo, unless a consequent fuel shortage actually affects the trading of the vessel adversely. The profit or loss that a charterer may make from the resale of bunkers at the end of a charterparty has nothing to do with the use of the ship. It for the use of the ship that the charterer pays hire, not the right to sell bunkers back to the owners at the end of the charterparty. There is a real distinction in principle between cargo and bunkers. Moreover, here the loss consisted of a $500 cancellation fee, not some loss of earnings. In my judgment, the fee did not impeach the Owner’s right to hire. It was altogether too remote.

Given that the vessel was withdrawn for non-payment of a sum as small as $500, it is not at all surprising that the Charterers should look round for any other sum that might be treated as payment of the $500, assuming that (as I have held) it ought not to have been deducted.

Rather late in argument, Mr Hamblen’s focus turned to the $600. His argument was that, although the Charterers had paid this sum in advance, it was contractually payable in arrears. So, the appropriation of the $600 to victualling and cables was ineffective and the money could be treated as appropriated towards the hire payment.

Clause 15 is silent as to whether the monthly sum of $1,200 payable for victualling/cables is due in advance or in arrears. In my judgment, unless the charter expressly or impliedly required this sum to be paid in advance, it was payable in arrears. There is no express provision in the charterparty, nor in my view is there any necessity to imply one; so I think that payment was due in arrears. However that is not how the parties treated the liability. Throughout the charter, the Charterers regularly paid $600 every 15 days in advance on account of victualling and cables. In their hire statements for the 45^th hire installment, charterers stated that they were paying $600 for “cables, vict., etc.”. Underlying Mr Hamblen’s submission is the proposition that, because the charterers were not obliged to pay this sum in advance, the appropriation was ineffective. I do not think that follows at all. The Charterers may not have been obliged to pay this money in advance, but there was nothing to stop them from doing so. In the event that there proved to be an overpayment, this would be repayable under clause 18. In my judgment this was an effective payment in advance.

Further, there had been a long and invariable practice between the parties that the payment for cables and victualling was made 15 days in advance. If the Charterers had wanted to depart from this practice, they would have had to give notice to the Owners. Of course, the Charterers had no wish at the time to change their practice. This is an argument thought up after the event by Mr Hamblen. I do not criticise him for doing so, but in my judgment the Charterers cannot re-designate the payment made for cables and victualling ex post facto.

My conclusion, therefore, is that the Charterers were not entitled to make a deduction of $500, or any other sum, from the 45^th hire installment. There was an underpayment of the hire due.

Is it relevant that, at the time the vessel was withdrawn, the Charterers had substantially overpaid hire?

The vessel went off-hire at 0430 hours on 14 October and she remained off-hire at all times thereafter. By 17 October, when the Charterers made the further payment reversing the off-hire deduction, the vessel had already been off-hire for 3 days 19 hours and 30 minutes, equivalent to $32,959.07 hire. Mr Hamblen argued:

The Owners riposted:

The charterers are correct that, as and when hire paid in advance proved to have been overpaid because the vessel was off hire, they were entitled to recover that hire as money overpaid for a consideration that had wholly failed: C.A. Stewart & Co. v. PHS Van Ommeren (London) Limited (CA) [1918] 2 K.B. 560 and clause 18 of the charterparty. As Scrutton LJ observed (at p.564) “in practice this [overpayment] of course may be set off against the next month’s hire, but that very convenient course of practice does not alter the legal rights of the parties when it becomes necessary to determine them”. Bingham J. referred to that case in The Lutetian and said (at p150):

“..the principle of that case would have the result ... that the charterers were obliged to make payment of a full month’s hire … but were immediately thereafter entitled, day by day, to recover hire for which the consideration had failed”.

The common law position was reinforced by clause 18 of the NYPE form which provides for “any overpaid hire…to be returned at once”.

But because (as it turned out) the hire was repayable, it does not follow that it was not due in full on the payment date. As Lord Woolf said in Pan Ocean Shipping v. Creditcorp [1994] 1 WLR 161, 168-9 (HL).

“The time charter makes it clear that as between PanOcean and Trident, PanOcean was required to make payments 15 days in advance. If, after the hire has been paid in advance, there occurred an event which caused the vessel to be off-hire during the period for which the hire had been paid, then part or all of the hire paid in advance would not have been earned. In that situation an adjustment of account between the parties would have to be made. The necessary adjustment could be achieved by deducting an appropriate amount from the next payment of advance hire or, if there would be no further payment due, by Trident making a repayment to PanOcean. The fact that … an adjustment or repayment would have to be made would not alter the fact that under the time charter [Owners] had been contractually entitled to receive payment in advance, in full, of the installment which was to be paid prior to the occurrence of the [off-hire] event. Although after the happening of that event [Charterers] would have a right of set-off as against a future installment of hire or a right of repayment, the right to receive the payment of the hire installment was separate and distinct from the right to receive credit for hire which had been paid but not earned and those rights would give rise to independent causes of action. …

Mr Hamblen’s first argument was also advanced to Bingham J. in The Lutetian. He held (at p.158):

“Could the owners lawfully withdraw the vessel if, between the due date for payment and the date of expiry of the cl.31 notice the vessel had been off-hire for as many days as had been deducted by the charterers when calculating their payment?

Mr. Hallgarten's argument here was that even if (contrary to his submission) the full amount of hire was payable on the due date, the period of prospective off-hire being at that time uncertain, there had by the time of withdrawal been a period of off-hire as long as that for which the charterers had deducted. Thus even if the payment was inadequate when made, it was adequate by the time of withdrawal, depriving the owners of their right to withdraw.

I will deal with this argument shortly, since it seems to me to be plainly wrong. The three days' grace provided by the cl. 31 notice was a period within which the charterers could cure, by payment, their default in making payment on the due date. This cure could be affected only by paying "the hire", which can only mean the hire payable on the due date. If, contrary to my view, the charterers were obliged to make the full payment on the due date, I can find no ground for holding that the sum could be reduced thereafter as days of off-hire succeeded one another. Mr. Hallgarten relied on Stewart v. Van Ommeren, sup., as showing that the charterers could not be required to pay hire which was already recoverable for want of consideration, but I think this authority bears more directly on the questions already considered, whether hire or full hire was payable on the due date at all.”

Mr Hamblen argued that this part of Bingham J’s judgment could be distinguished, alternatively it was wrongly decided. I do not detect any distinguishing feature and I respectfully agree with the judgment. As Mr Russell submitted, it is incompatible with the nature of a right to be paid an amount certain on a date certain that the amount payable should be capable of being eroded by events occurring after that date.

I accept that the set-off argument was not separately addressed by the Judge, although it is difficult to conceive that it did not occur to him. Eschewing the interesting arguments addressed to me by Mr Turner as to whether a mutual set-off could be more than a procedural remedy taking effect on judgment, the short answer is that the right to repayment did not start to accrue until after the hire was due and payable. The accrual of the right of repayment could not in some way rectify the non-payment of the hire. The only way to make rectification under clause 47, and thus avoid withdrawal, was by payment of the hire. Furthermore, this is not a point that the Charterers ever took at the time. Assuming they could appropriate the hire repayable back to the balance owing to Owners on the 45^th installment and wished to do so, rather than waiting to correct the position when the next installment became due, I think they needed to say so. They did not do so.

Was there a settled practice for resolving disputes over such small deductions and were the Owners estopped from withdrawing the vessel for non- payment of such a small sum?

I have already referred the long standing practice which developed between the Charterers and the Owners as to dealing with deductions for owner’s disbursements. Clause 5 provided:

Over the term of the four charterparties, some 109 hire payments were made. In about a quarter of these cases, a deduction was made for owner’s expenses. The practice was that a few days before a hire payment was due, the Charterers would e-mail the Owners, via Rodskog a hire statement setting out the hire that they would instruct their bankers to pay and indicating the deductions that they intended to make. A hard copy would also be sent to Rodskog, enclosing copies of the vouchers. This hard copy would not arrive until after the hire had become due for payment. So at that time, the Owners might not be in a position to judge the propriety of the deduction. Most of these deductions were not challenged, but occasionally quite heated disputes would arise as to whether a deduction ought to have been made. These were resolved by agreement. Sometimes the disagreement arose before the vouchers were received by the Owners. On other occasions the disagreement arose once the vouchers had been received.

The Charterers seek to elevate this practice into an estoppel that the Owners would not seek to withdraw the vessel for non-payment of small deductions.

The right to deduct under clause 5 is in respect of cash advanced for ordinary disbursements advanced with the Owners’ approval. In practice this would include payments made direct to suppliers. Inevitably the amount of the disbursements paid could not necessarily be agreed before the next hire payment became due. The Charterers’ contractual right to deduct disbursements from hire is not dependent on the prior agreement of the Owners. So the practice I have summarised is not at all surprising.

The right to make deductions under clause 5 was confined to deductions for ordinary disbursements at any port advanced with Owners’ prior approval as required by the Captain. In practice, however, deductions were made for expenses for which the Owners had not given their prior approval, and objection was not taken on this ground, if the expense was otherwise regarded as proper – the Charterers proved that such deductions were made on some 21 occasions. Where the deduction was considered improper, the Owners insisted on a refund being made. This was usually done in the next statement.

However, even making a generous interpretation of “disbursements” to include what might more accurately be termed owners’ expenses, the $500 cancellation fee was not a disbursement or owners’ expense. It was a claim for damages for an alleged breach of the charterparty. In my judgment, the practice of the parties in relation to disbursements is of little assistance when it comes to the handling of disputed claims, which are fundamentally different. So I focus on the cases where the Charterers sought to deduct a claim from hire.

There were about a dozen cases where deductions were made on account of something other that a disbursement or owners’ expense. Many of these were claims for off-hire or bunkers consumed whilst the vessel was off-hire and speed claims, which would in principle be capable of founding an equitable set-off of hire. Some of these deductions were vigorously challenged by the Owners but ultimately agreement was reached. In the course of these disputes, a number of threats were made. Thus on 2 November 2001, after the Charterers had deducted $9,109.78 in respect of various matters from hire statement number 6, the Owners said:

“OWNERS WOULD LIKE TO REMIND CHRTS THAT OWNERS DO NOT ACCEPT CHRTS CLAIMS MENTIONED IN THEIR MESGS. CHRTS PLS PAY OWNERS ALL THE HIRE PAYMENT (WHICH CHRTS DEDUCTED FROM HIRE PAYMENT NO. 6 AND NO. 7) BEFORE 6^TH NOV 2001. OTHERWISE, OWNERS WILL TAKE THE NECESSARY STEPS TO PROTECT OWNERS INTEREST.”

A similar threat “to take all necessary steps to protect owners’ interest” was made on 27 December 2002, in the face of a deduction for a speed claim.

There are only a few instances of other claims being deducted from hire;

This course of dealing, Mr Hamblen submitted, established very clearly that there was a settled practice as to how small unapproved deductions from hire would be dealt with – either they would be accepted or disputed. If disputed, the matter would be debated and resolved and a refund made where appropriate. On the basis of this practice, he contends that the Owners represented that they would not withdraw the vessel in respect of a small deduction such as that of $500.

I accept that there was such a practice in the case of deductions for disbursements and owners’ expenses, and for off-hire/speed claims. As regards other claims, there were only a few instances, but they were also resolved in the same manner. However, I cannot spell out of this general practice an unequivocal representation by the Owners that they would not seek to withdraw the vessel for small deductions which were improperly made. The Owners never said anything of the kind and from time to time they made threats to protect their position in the face of small deductions which they considered were unjustified. The protection that the Charterers had was that, before the Owners could lawfully withdrew the vessel, they would have to give 72 hours notice under clause 47 which would give the Charterers adequate time to make a considered decision whether to stick by the deduction or to rectify the position. I cannot see that the Owners did anything to preclude themselves from giving a notice under clause 47.

But even if there had been some kind of understanding that the Owners would not seek to withdraw the vessel for small deductions from hire and would leave it to the process of negotiation, that understanding was shattered by the Owners’ formal threats to withdraw the vessel in July 2003 at first for the deduction of $16,500 and then for a lesser sum. By this time, as both parties were well aware, the market had risen sharply and it was obviously tempting for the Owners to withdraw the vessel if they were given any opportunity to do so. In my judgment, from this time, the Charterers were on notice that the Owners might well threaten to withdraw the vessel if a deduction was made from hire which the Owners considered was unjustified. I reject this estoppel case.

Did the Owners’ notice sent on 15 October comply with the requirements of clause 47?

Although it comes logically towards the end of my judgment, Mr Hamblen’s main argument at the trial was that the notice of 15 October 2003 was defective because it failed to give a clear and unambiguous ultimatum to the Charterers. In response, Mr Russell argued that the notice complied with the requirements of the contract, was incapable of being misunderstood, was therefore unexceptional in form and (if relevant) was not in fact misunderstood.

So called anti-technicality clauses were introduced to the market to modify the rigours of the withdrawal clause, which could be extremely harsh in its operation. A good deal of law has built up about the operation of the anti-technicality clause. It is worth observing however that each case must depend on the exact wording used by the parties. However, consistency is also important and narrow distinctions should be avoided; there is nothing unusual about this clause.

The first case considered by the Court of Appeal was Italmare Shipping Co. v. Ocean Tanker Co. Inc. “The Rio Sun” [1982] 1 WLR 158. The clause provided: “If hire not received when due, Owners to give Charterers 48 hours notice in order to rectify the cause for such delay before exercising their rights [of withdrawal] under clause 5.”. The owners withdrew the vessel after enquiring about whether hire had been paid, but without any prior warning.

On the application for leave to appeal, Lord Denning MR said:

“These clauses vary in detail, but for the most part they provide that, before giving a withdrawal notice, the owners must give 48 hours notice. The reason is obvious. It is to give the charterers an opportunity of remedying their breach before they are exposed to forfeiture of their charter. It is comparable to the statutory notice which a landlord has to give to a tenant before enforcing a forfeiture clause.

These clauses have only recently come up for consideration of the courts. In Oceanic Freighters Corporation v. M. V. Libyaville Reederei und Schiffahrts G.m.b.H. (The Libyaville) [1975] 1 Lloyd's Rep. 537, 554, Mocatta J. said:

“... the courts should do their best, consistently with legal principles, to give effect to this clause, which ... shows a praiseworthy effort to reduce the technicalities, inappropriate to a commercial relationship, which so often arise in connection with the right to withdraw a ship under a time charter.”

In Afovos Shipping Co. S.A. v. R. Pagnan and F. lli [1980] 2 Lloyd's Rep. 469 Lloyd J. indicated that, where there was an anti-technicality clause, it was a substitute for relief in equity. He said, at p. 480:

“... the parties themselves have provided machinery for relief against 'forfeiture' by including the anti-technicality clause. It seems to me that in those circumstances equity should be very reluctant indeed to afford additional relief.”

I agree with the arbitrator [Mr Clifford Clark] when he said in this case:

“A notice under clause 30 need not be legally perfect in its draftsmanship, but it must be clear beyond doubt that the owners are putting the charterers on notice that, if the correct hire is not paid within the 48 hours' grace, they will withdraw the vessel.”

Applying these considerations, the charterers’ telex on May 27 was not a notice sufficient to satisfy clause 30. I think a notice must be as clear as an ultimatum. It must tell the charterers: “Unless you pay the hire due within 48 hours, we will withdraw the vessel.” The telex here did not do so.”

When The Rio Sun came to be considered by Mr Justice Parker ([1982] 1 Lloyd’s Rep 404 at p 407), he cited this passage and added:

“Lord Justice Shaw agreed with the judgment of Lord Denning MR. Their views, although not expressed to be provisional, must be taken to be so. Nevertheless they are of great weight. Respectfully, I fully agree with them. Clause 30 requires owners to give charterers 48 hours notice “in order to rectify the cause for such delay”. I accept the submission that a notice need not in terms refer to clause 30, but it must make clear that the owners require the cause of delay to be rectified within 48 hours, failing which the vessel may be withdrawn.”

In the meantime, The Afovos [1982] 1 WLR 848 had come before the Court of Appeal. The Court held the warning notice to be invalid because it was a conditional notice given prematurely: “ … in case we do not receive the hire which is due today …”. As to the form of the notice, Lord Denning said (at p.854B):

“ … the withdrawal notice … has to be clear, definite and absolute”.

Lord Justice Griffiths said, at p 858:

“Withdrawal is so serious a matter for the charterer that it is the duty of the owner to give a clear and unambiguous notice of his intention to withdraw the ship. It should state that payment has not been received and give the charterer 48 hours to pay or lose the ship, see the observations of Lord Denning MR in The Rio Sun. Of course no special wording is required but it is surely not too much to expect men of commerce dealing in huge sums to make their meaning clear.”

In the House of Lords [1983] 1 WLR 195 at 199-200, Lord Hailsham LC found “particularly convincing” two passages in Lord Justice Griffiths’ judgment, the second of which includes a simple statement of what the notice must contain, viz, “You haven't paid up when you should have done: pay in 48 hours or lose the ship”.

In TheLutetian, the clause provided:

“If hire is due and not received the Owners, before exercising the option of withdrawing the vessel will give Charterers three … days notice … and will not withdraw the vessel if the hire is paid within three days.

The notice given by the owners read:

“Please note hire due from you not yet received. Therefore with the present telex we give you the notice contemplated in the clause 31 of the c/p DD Geneva 10/May/79. Failing your payment we shall exercise our right of withdrawing the vessel without any further notice. Regards.”

The bulk of the hire was paid within the notice period, but charterers had deducted 4 days anticipated off-hire, to which owners made no specific reference until late on the third day after notice was given. It was argued on behalf of charterers (pp. 155 col. 2 to 156 col. 1) that it was –

“ … incumbent on the owners, as a matter of construction of cl. 31 or of necessary implication, to identify the ground of their complaint to the charterers in order that they should have three days to remedy it. … The owners' telex of July 18 had stated (quite correctly) that hire due from the charterers had not been received. The charterers had acted promptly to rectify that. Not until well into the afternoon of the third day of the notice did they learn of the owners' objection to the four-day deduction, which up to then they had not conceived of as a ground for complaint. The result was that they had not enjoyed the three days' opportunity to make payment but (at best) a matter of hours. The solution was that the … notice was not by its terms sufficient to justify a withdrawal on the grounds of the four-day deduction and a further notice should have been given.”

Counsel for the owners argued (p. 156 col. 1) that:

“A valid notice was given on July 18 because hire had not been received. The owners gave notice that they would withdraw the vessel after three days if hire due from the charterers (obviously meaning the full hire) were not paid. That was exactly the notice which the clause required. The owners were under no obligation to assist the charterers to make the correct calculation, nor were they under any duty to explain their own thinking. The charterers failed to pay the full hire and the owners became entitled to exercise their option of withdrawal as they did. There was no warrant for construing cl. 31, or implying terms into it, so as to give it an effect it did not truly bear.”

Bingham J. rejected charterers’ submissions, holding (at p. 156 col. 1-2) that:

“This is … a form of charter-party which in its traditional form (without any qualification along the lines of cl. 31) gave the owner a right to withdraw on the charterer’s failure to make due payment, whatever the reason, whether accident, mistake or mishap of any kind affecting the charterer or his bankers. Into that right cl. 31 makes an inroad, but the Court should be wary of enlarging that inroad beyond the extent which the parties have themselves agreed. Clause 31 could sensibly and reasonably have been negotiated so as to require the owners to give notice identifying the failure alleged against the charterers and the steps necessary to rectify it. The clause does not say that. There could be good reason why the clause does not say that, if the owners were unwilling to assume the burden of making the calculation (which was otherwise up to the charterers) and notifying it to the charterers. It would not be right to construe the clause as meaning more than it plainly says. The notice required would enable a charterer to trace the most usual cause of non-payment, a slip in his own organization or by his bank, and I do not think any more far-reaching intention should be attributed to the parties. I also think the charterers' argument on implication fails. Clause 31 itself is not necessary to the commercial operation of this form of charter-party. The implication contended for is not necessary, even if it is desirable, to the commercial operation of cl. 31. It is not for the Courts by judicial ingenuity to grant a party protection that he could have negotiated for himself but has not. The owners are in my view right on this point.”

So the Owners are not obliged to make a calculation for the Charterers as to what they must pay. I am sure, however, that Bingham J. did not intend to depart from what had been said in The Rio Sun and The Afovos.

In The Pamela [1995] 2 Lloyds’ Reps 249, 253, Gatehouse J. cited The Rio Sun and The Afovos and concluded:

“… it seems to me that an anti-technicality clause in the present form requires, as a matter of law, two express statements, although no particular wording has to be used. These are (i) that the hire has not been punctually paid, and (ii) that the charterers have 48 hours in which to pay up or risk losing the ship. The bare message "please notify charterers of withdrawal of the vessel" is not sufficient.” I therefore agree with the dissenting arbitrator because in my view the law prescribes that every such notice must be in the form of a clear and unambiguous ultimatum. It is not enough to establish that, as a matter of fact, the particular charterer ought to have realised the significance of a cryptic message.”

Mr Russell submitted that Gatehouse J. had taken the dicta in The Afovos and The Rio Sun and elevated them to a prescription of what the notice must contain, as distinct from what it must make clear. A requirement that there must be a statement in the notice in terms that hire has not been paid and that the vessel will be withdrawn if hire is not paid within the required period goes beyond the wording of the clause, beyond the existing authorities and could not stand in the light of the decision of the House of Lords in Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749. Although Mannai concerned a notice given under the break clause in a lease, the reasoning of the majority is equally applicable to notices under anti-technicality clauses. Lord Steyn was clear (at p. 768F-G) that:

“There is no justification for placing notices under a break clause in leases in a unique category. Making due allowance for contextual differences, such notices belong to the general class of unilateral notices served under contractual rights reserved, e.g. notices to quit, notices to determine licences and notices to complete … . To those examples may be added notices under charter parties, contracts of affreightment, and so forth. … ”

And at p. 771C-D:

“Nowadays one expects a notice to determine under a commercial lease to be interpreted not as a "technical document" but in accordance with business common sense … . After all, there is no reason whatever why such a document must be drafted by a lawyer. Qualitatively, the notices are of the same type as notices under charter parties and contracts of affreightment. Such notices, even if they entail the exercise of important options, are habitually drafted by commercial men rather than lawyers. It would be a disservice to commercial practice to classify such notices as technical documents and to require them to be interpreted as such. … ”

Mannai, Mr Russell submitted, was clear – if not binding – authority for the proposition that, in order to be valid, a notice of this sort need (in addition to complying with any specific requirements of the relevant clause) be no more than:

“ … sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate … ” (per Slade LJ in Delta Vale Properties Ltd. v. Mills [1990] 1 WLR 445 at p. 454E-G, quoted with approval by Lords Steyn and Clyde in Mannai at pp. 768G and 782B)

The third member of the majority, Lord Hoffmann, preferred (at p. 780) the test propounded by Goulding J. in Carradine Properties v. Aslam [1976] 1 WLR 442 at p. 444:

“"Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?" and he [Goulding J.] went on to say that the reasonable tenant must be taken to know the terms of the lease.”

This test, Mr Russell submitted, was functionally indistinguishable from that adopted by Lords Steyn and Clyde.

Mr Russell also referred me, perhaps a little mischievously, to the “cogent criticism” made in a paper presented to the XVth International Congress of Maritime Arbitrators in April 2004 by Nicholas Hamblen QC and Michael Ashcroft, “The right of withdrawal, anti-technicality notices and The Pamela”, in which the learned authors state (at paragraphs 30 and 33) that the decision:

“ … leads to the absurd result that even though it is perfectly clear to the charterers what the meaning and effect of a notice is, it is not valid because it does not follow the required form.

…

What matters is how the notice would be understood by a reasonable person in the position of the charterers, not the precise wording of the notice”.

The starting point must be the anti-technicality clause itself. What did it require? In this case the requirement was that the Owners gave “72 hours … official notice in writing and will not withdraw the vessel if the hire is paid or the alleged breach is rectified within the 72 hours allowed for notice from time the Charterers served such notice”. The language of the clause is somewhat foreshortened but its sense is clear enough. The notice must be official, that is formal, and in writing and it must put the charterers on notice that, unless they rectify their failure to pay hire within 72 hours, the vessel will be withdrawn.

Mr Russell is correct that Gatehouse J’s rather formulaic requirements for an anti-technicality notice in The Pamela go too far, and must anyway be reconsidered in the light of the House of Lords’ decision in Mannai. It can be assumed that the Charterers are experienced commercial men and have a copy of the charterparty and are reasonably familiar with its terms. The notice will be sufficient as long as it states unambiguously, one way or another, that payment has not been received and gives the charterer a 72 hour ultimatum to pay or lose the ship (see Lord Griffiths in The Afovos). The notice does not have to specify what is due. It can leave that to the Charterers (see Bingham J in The Lutetian), but there must be no ambiguity. The notice must be judged objectively: the question is whether the notice complied with the contractual requirements of the charterparty, not how the recipient may or may not have understood it. Furthermore, although the notice must be construed in the context of what has been passing between the parties, I think it must stand alone. It is intended to be an official or formal warning. If it is inadequate, that inadequacy cannot be cured by subsequent oral communications, because the contract requires the notice to be in writing. So, ultimately, I consider it does not really matter what Mr Robert Ng said to Mr Andersen in the telephone conversation that followed the notice. It is the terms of the notice itself that are crucial.

To recapitulate, the notice dated 15 October 2003 stated:

“RE: MV LIHAI/WBC – NOTICE OF WITHDRAWAL

PLS BE ADVISED THAT CHARTERERS WAS IN BREACH OF CLAUSE 5 OF THE CHARTER PARTY DATED 27^TH SEPTEMBER 2002. OWNERS HEREBY GIVE SEVENTY-TWO HOURS NOTICE THAT OWNERS WILL WITHDRAW THE VESSEL FROM THE SERVICE OF THE CHARTERERS WITHOUT PREJUDICE TO ANY CLAIMS THAT OWNERS MAY OTHERWISE HAVE UPON THE CHARTERERS.

BEST REGARDS.

COSBULK/GU RONGHUA”

It is, in my judgment, an extraordinary document. It contrasts very distinctly with the notices sent in July 2003 which were quite clear and complied with the requirements of the charterparty. All these notices were drafted by Mr Gu Ronghua of Cosbulk. Having heard his evidence, I still do not understand why the July and October notices were so different. The October notice was a statement that (1) the charterers were in breach of clause 5 and (2) the vessel ‘will’ be withdrawn in 72 hours. Given that the Charterers could be assumed to be in possession of the charterparty, the reference to clause 5 amounted to an allegation that the charterers had failed to pay hire, but the notice was no more specific. It did not give an ultimatum that the vessel would be withdrawn unless the hire was paid in full within 72 hours. Instead it stated unconditionally that the vessel will be withdrawn in 72 hours.

I accept that the Court should not be overcritical of the drafting of an anti-technicality notice by an owner or over-technical, but, as Lord Griffiths said, it is surely not too much to expect men of commerce dealing in huge sums to make their meaning clear. In my judgment, this notice came nowhere near to complying with the contractual requirement for an ultimatum. It simply stated that the vessel would be withdrawn and did not state that to avoid this, the Charterers would have to pay the hire in full within 72 hours (Saturdays, Sundays and holidays and banking holidays excluded). It would be going much too far to imply these statements into what is intended to be an official written notice. So in my judgment the anti-technicality notice did not comply with clause 47.

Further, whilst it is not ordinarily necessary for Owners to spell out in the anti-technicality notice exactly what sum must be paid, it is important that there is no ambiguity. The day before the notice was sent the Owners had sent the following to the Charterers:

“RE: DEDUCTION FOR ESTIMATED DRYDOCKING

SORRY TO FIND THAT CHARTS HAVE DEDUCTED 7 DAYS FOR DD FM HIRE PAYMENT, WHICH IS IN BREACH OF THE CHARTER PARTY DD 27^TH SEPT 2002. IN THIS RESPECT, CHARTS ARE KINDLY REQUESTED TO ARRANGE SAME TO OUR ACCOUNT ASAP. AND THE SAID OFF-HIRE FOR DD WILL BE ADJUSTED FM HIRE PAYMENT AFTER COMPLETION OF DD OR ALTERNATIVELY OWNERS WILL REFUND SAME TO CHARTS IN DUE COURSE. PLS CONFIRM BY RETURN.

RE: DEBUNKER AND CLEANING OF OIL TANKER NO. 3 AND NO. 4

AS WE HAVE STATED, WE FULLY REJECT CHARTS CLAIMS OF USD500.00 FOR CANCELLATION OF OIL SUPPLY AT HONGKONG, WHICH RESULTS FM INFERIOR BUNKER SUPPLIED BY CHARTS AT SANTOS. WE ONCE AGAIN REQUEST CHARTS TO ARRANGE THE DEBUNKER AND CLEANING OF THE OIL TANKERS NO. 2 AND NO. 3 PLS URGENTLY CONFIRM BY RETURN BY 0800 GMT 14^TH OCT. OTHERWISE OWNERS WILL ARRANGE SAME DURING DRYDOCKING AND ALL THE TIME AND COSTS INVOLVED TO BE FOR CHARTS ACCOUNT, FYR, THE COSTS INVOLVED ARE ABOUT USD25,000.00 WHICH IS SUBJECT TO THE FINAL INVOICE TO BE SENT TO CHARTS. PLS ARRANGE SAME TO OWNERS ACCOUNT IN CASE CHARTS ELECT NOT TO ARRANGE THE DEBUNKER AND CLEANING OF SAID OIL BUNKERS.

This message led Messrs Haug, Andersen and Hellem of the Charterers to understand that, although the Owners were disputing the cross-claim for $500, the deduction from hire to which the Owners objected was that for anticipated off-hire. I think that understanding was entirely reasonable. It is how I understood the message when I first read it during my pre-reading for the trial. The result was that when the notice was received by the Charterers the next day, they believed that it was in relation to the deduction for anticipated off-hire. So they paid the sum deducted for anticipated off-hire, but not the $500. The Owners created this confusion and it was all the more important that the anti-technicality notice was quite clear as to what was being demanded. In my judgment the notice needed to state categorically that, unless the outstanding hire was paid in full without deduction, the vessel would be withdrawn. However, the notice did no such thing and (at least) perpetuated an ambiguity as to what the Owners were demanding as the price to avoid withdrawal of the vessel. A properly drawn anti-technicality notice has to be unambiguous. In the circumstances, this was not.

For these reasons, in my judgment, having failed to comply with clause 47, the Owners were in breach of the charterparty in withdrawing the vessel on 22 October 2003.

Were the Owners estopped from withdrawing the vessel for non-payment of the $500, having represented that only the off-hire deductions need be paid?

This does not arise in the light of my finding that the anti-technicality notice was defective. However, I shall make my alternative findings briefly. Mr Hamblen argued that the message sent on 14 October amounted to a representation that if the charterers paid the sums deducted for off-hire, the vessel would not be withdrawn. Mr Russell submitted that no such representation was made.

To create an estoppel, there needed to be an unequivocal representation that only the off-hire deductions need be paid. On the facts I have already found, I consider that the Owners’ message of 14 October did make this representation. The withdrawal notice could have corrected it, and had it done so there could have been no estoppel. But the notice did nothing to correct the position, and I am in no doubt that, as a result, the Charterers still believed that if they paid the off-hire deducted, that would avoid a withdrawal. So in my judgment, even if the notice was contractually adequate, as a result of what they had said the day before, the Owners were estopped from withdrawing the vessel.

There was a large measure of agreement between the parties about how damages should be assessed. It was agreed that, following The Elena D’Amico [1980] 1 Lloyd’s Reports 75, 87 (col.1), the normal measure of Charterers’ damages was the difference between the contract rate and market rate for chartering in a substitute vessel for the balance of the charterparty. It was agreed that the market rate was $23,000 per day. Ultimately the only issue was as to what was the balance of the charterparty. The Charterers argued that their claim was for 154.2 days on the basis that the maximum period of the second part of the charter, for which the option had been exercised, was 7 months plus 15 days plus the 14 days 23 hours 50 minutes for off-hire periods which the Charterers were entitled to add under clause 46 of the charterparty. Originally the Owners argued that it was incumbent on the Charterers to prove that they would have been able to trade vessel until the very last minute of the Charter, but that argument was withdrawn. Ultimately the only issue was whether the Charterers were entitled to the extra 15 days. So Owners argued that the remaining balance of the charterparty was 139.2 days.

Mr Russell’s first argument was that the contractual definition of “about” as meaning +/-15 days only applied to the first period and not to the option period. So there was no definition of “about” for that second period. With respect, I think that argument is absurd. The parties have sensibly defined what they mean by “about”. They cannot have intended that “about” should have a different meaning in the second part of the same sentence. Only a pedant would have insisted on inserting the same definition twice in the same sentence. I am in no doubt that the maximum period available under the option was 7 months plus 15 days.

Mr Russell’s second argument was that the allowance was intended to give a degree of flexibility both ways. The Charterers could not be certain that they would succeed in using these 15 days. It was impossible to plan a voyage to that precision. The better course was to ignore the 15 days. In my judgment, this is a throwback to the argument that Mr Russell abandoned. The Court does not attempt to speculate what might have happened as a matter of fact. I cannot see any rational distinction between the range of 5/7 months and the +/- 15 days. The maximum balance of the charter was 154.2 days, and the Charterers must be compensated for the loss of that period.

So the damages I award the Charterers are $2,036,211 calculated as follows: $13,900 [$23,000 - $9,100] x 154.2 days x 95% [to account for broker’s and address commissions that would have had to be paid]. I will hear counsel on what interest should be awarded in addition.