Spar Shipping AS v Grand China Logistics Holding (Group) Co, Ltd

The balance due under the charters prior to termination, quantified after credit for bunkers remaining on board and other cross claims at US$217,238.95 for the SPAR CAPELLA and US$344,431.14 for the SPAR VEGA (there was a small balance in favour of GCS on the balance of accounts for the SPAR DRACO).

Damages for loss of bargain in respect of the unexpired term of the charters. In respect of the SPAR DRACO it was common ground that there was at the date of termination an available market for a substitute time charter for the unexpired term of the charter of about 18 months at US$13,000 per day, on the basis of which damages were quantified at US$2,739,029. In respect of the SPAR CAPELLA and SPAR VEGA it was common ground that at the date of termination there was no market for a substitute time charter for the unexpired term of the charters of about four years. Spar has quantified the damages as the difference between what it would have earned under the charters and the actual earnings from employment of the vessels to date and estimated future earnings of US$9,600 per day until expiry of the charter periods in December 2015. The calculations performed by Spar in respect of actual earnings did not in fact cover the entire period up to the hearing date but only up to 31 December 2014 with the period thereafter being treated as future earnings. The amounts claimed were:

Spar’s costs of the arbitration proceedings against GCS in the sum of £319,868.19.

Is GCL bound by the Guarantees? In particular:

Is payment of hire a condition of the charterparties?

If not, was GCS’s conduct in relation to payment of hire a repudiation or renunciation?

What is the correct principle for assessment of damages for a charterer’s repudiation of a time charter where there is no market for a replacement time charter of the duration of the unexpired term of the charter?

What alternative time charter employment was available for the SPAR CAPELLA and SPAR VEGA?

What other adjustments fall to be made, if any, to the quantum of Spar’s claim?

Do the arbitration costs fall within the scope of liability under the Guarantees?

Name: XXX XXX

Title: Board Chairman

For and on behalf of [blank]

On 24 September 2011 Spar entered into a substitute fixture with the existing subcharterers, Flame SA, for a short period, to enable discharge of the cargo then loaded on board, at a daily rate of US$14,275.

On 29 September 2011, Spar fixed a time charter with Swiss Marine Asia for a term of 12 months on a floating rate of 103.75% of the daily Baltic Supramax Index. The Vessel was delivered into the charter on 8 October 2011, after completion of the discharge of cargo in South China and re-delivery of the vessel from Flame SA. The Vessel was redelivered on 16 September 2012.

From 16 September 2012, Spar entered the Vessel in the Navig8 Pool, for a minimum period of 12 months. Mr Ellefsen gave evidence that the SPAR CAPELLA was still in the Navig8 pool at the time of the hearing, but that Spar had recently given notice to withdraw it.

On 29 September 2011 Spar entered into a 12 month substitute fixture with Swiss Marine Asia, for the same duration and on similar terms as those agreed in respect of the SPAR CAPELLA. The vessel was re-delivered in mid-October 2012.

The vessel was placed in the Navig8 Pool from 16 October 2012 and remained in the pool until November 2014.

On 18 November 2014 Spar entered into a charterparty with Centurion Bulk Pte Ltd for a minimum period of 40 days at a rate of $10,000 per day. Mr Ellefsen gave evidence that the vessel was re-delivered at the beginning of January 2015 and had subsequently been employed in a new charter going into the Persian Gulf at a daily rate of $6,000.

On 5 October 2011 Spar entered into a substitute short-term fixture with JSW Ispat Steel Ltd for a term of 10 - 15 days at a daily rate of US$14,100.

Following re-delivery of the vessel, Spar entered into a new fixture with Allied Maritime Inc for 4 - 6 months at a rate of US$14,250 per day.

On 23 February 2012 Spar entered into a new 4 - 6 month fixture with D'Amico Dry Ltd at $11,500 per day. The vessel was delivered on 16 March 2012 and re-delivered to Spar on 6 June 2012.

On 4 September 2012 Spar entered into an agreement for the SPAR DRACO to be placed into the Navig8 Pool for a minimum period of 12 months.

Article 13 of the Company Law provides for a company to have a Legal Representative who is registered in a publicly available register. The Legal Representative is to be the Board Chairman, the Executive Board Chairman or the Manager, in accordance with the company’s articles of association. Articles 26 and 31 of GCL’s articles of association provided for the Chairman to be the Legal Representative. Mr Li Qing was the Chairman of GCL March 2010 and therefore the Legal Representative pursuant to its articles of association at the time the Guarantees were executed.

Under Article 38 of the General Principles of Civil Law PRC (1987) (“GPCL”), a company is bound by the acts of its Legal Representative exercising his powers in accordance with the articles of association. Mr Li therefore would have had authority to enter into the Guarantees if in so doing he was exercising powers he had under the articles.

Acts of a person other than the Legal Representative will also be binding if the company has authorised that other person to perform the acts. This is the effect of Article 63(1)(2) of the GPCL which provides:

“… legal persons may perform civil juristic acts through agents. An agent shall perform civil juristic acts in the principal’s name within the scope of the power of agency. The principal shall bear civil liability for the agent’s acts of agency.”

Accordingly if Mr Li as Legal Representative had authority to enter into the Guarantees exercising powers he had under the articles, and authorised Mr Jia to execute the Guarantees, GCL would be bound by them. The possibility of such delegated authority is expressly recognised in article 31 of GCL’s articles of association.

Acts of a person other than the Legal Representative will also be binding if the person performs an act in the name of the company, with the knowledge of the company, and the company makes no objection. This is the effect of Article 66 of GPCL which provides:

“The principal shall bear civil liability for an act performed by an actor with no power of agency, beyond the scope of his power of agency or after his power of agency has expired, only if he recognizes the act retroactively. If the act is not so recognized, the performer shall bear civil liability for it. If a principal is aware that a civil act is being executed in his name but fails to repudiate it, his consent shall be deemed to have been given.”

Contracts will bind a company if signed or sealed by the relevant person. It is not necessary that they should be both signed and sealed. Whereas it was common in the past for the company seal or “chop” to be attached to documents, the practice was not universal and has become less frequent in more recent years in relation to international contracts.

Mr Li expressly authorised Mr Jia to sign them; or

Mr Li knew that Mr Jia was signing them and purporting to bind GCL when they were executed, but did nothing to repudiate Mr Jia’s authority to do so; or

Irrespective of any authorisation or knowledge on the part of Mr Li, Mr Jia was performing a duty related activity in signing the Guarantees.

Actual authority: the facts

On 4 March 2010 GCS imposed a “subject BOD” approval and subsequently confirmed on 5 March 2010 that it had been lifted. I have already expressed my conclusion that the obvious inference from this exchange, and from the further exchange on 8 March 2010, is that a board resolution of GCS had taken place on 5 March 2010 following conclusion of the fixture negotiations, in order to give or withhold approval of GCS entering into the charters. Mr Coburn submitted that the fact that the subject was lifted did not necessarily mean that a board meeting had taken place. But there would have been little purpose in imposing the subject in the first place unless board approval was regarded as required. The significance of this is that Mr Li was not only Chairman of GCL, but was also at the time a director of GCS, who would have attended such a board meeting in that capacity and participated in giving approval on behalf of GCS. The fixture terms made very clear that GCS’s obligations were to be guaranteed by GCL and Mr Li could not have been unaware of this as a member of GCS’s board considering approval of the charters. He must have known that Guarantees were required to be, and would be, given on behalf of GCL.

On 5 March 2010 Mr Kong of GCS said that the Guarantees were “on formalities for approving”, and “now in the process of internal procedure” which suggests that GCL’s internal procedures were being engaged. If these required authorisation from Mr Li, the natural inference is that the procedures were followed and such authorisation was sought and granted before any Guarantees were provided. Mr Kong confirmed on 25 March 2010 that the formalities had been completed. The natural inference is that whatever authority was required by internal procedures for the execution of the Guarantees by whoever was to sign them had been obtained.

Mr Jia signed the Guarantees. Mr Yang’s unchallenged evidence was that Mr Li’s background was in aviation, whereas Mr Jia’s was in shipping. It would therefore have been natural for Mr Jia to be in charge of executing Guarantees for long term time charters. There is no evidence which suggests that Mr Jia was the kind of man who would execute guarantees without being authorised, or of any reason why he would have done so in this instance. The fact that he did so over the title of Chairman is consistent with his not noticing or being bothered about that inaccuracy given that the draft was prepared by Spar and would have been presented to him in that form. Mr Coburn referred me to some internet material which raised the suggestion that Mr Jia had subsequently been accused of bribery in relation to a different charter, but Mr Coburn made clear that he did not accuse Spar of involvement in any bribery, and GCL could have been expected to adduce evidence if there were any grounds for even suspicion of bribery in relation to these charters or Guarantees.

Mr Jia had executed guarantees on behalf of GCL which guaranteed GCS’s charter obligations on at least six other occasions whilst he was Executive Board Chairman in 2010:

Five of these six guarantees bore the company seal. Either it was applied by Mr Jia, which suggests that he had access to the seal and therefore that he was on occasion given authority to sign guarantees on behalf of GCL; or the seal was applied by Mr Li with signature by Mr Jia either before or afterwards, which again would be indicative of Mr Jia having authority to sign such guarantees.

GCL did not disclose copies of any of these six guarantees signed by Mr Jia. Spar obtained them from public files in litigation in the USA. In fact GCL did not disclose any documents evidencing internal communications in respect of the conclusion of the Spar charters or the Guarantees, notwithstanding that Mr Li described a formal internal procedure requiring consideration by the compliance department, the financial department and the board of directors. GCL served a witness statement from the General Manager of its HR department explaining that its practice was such that it was left to retiring employees to select documents from their personal hard drives to pass on to those taking over, and the remainder would be deleted. Whilst not accepting Mr Phillips’ submission that such a document retention policy was incredible, nevertheless I find it hard to believe that no documentation survives from the formal compliance and authorisation procedures for those guarantees executed by Mr Jia in other cases, or that copies of those guarantees themselves, which would be important documents, were not preserved in copy. I am forced to the conclusion that such material has not been provided because those within GCL who are responsible for doing so did not wish the court to see it because it did not assist GCL’s case.

The report of what Mr Adam Tan of HNA/GCL said at the meeting in early July 2011 suggests that GCL were then treating the Guarantees as validly given on its behalf. If there had been any doubt over Mr Jia’s authority to execute them the previous year, Mr Tan could have been expected to raise it then.

When Spar sent letters to GCL on 16 September 2011 claiming on the Guarantees, GCL could have been expected to deny that the Guarantees were binding if that was thought to be the case. There was no such response. I reject GCL’s suggestion that the letters were not received, in the light of the fact that they were sent to what was still GCL’s current fax number; and in the light of the subsequent discussion between Mr Shao of RS Platou and Mr Luo Zhipeng, the general manager of GCL’s compliance department, on 22 September, followed by an email referring to the claim on the Guarantees and Mr Luo’s response.

Again, Mr Luo’s failure to suggest at this point that there was any doubt that GCL was bound by the Guarantees is telling. He was not some junior functionary but head of the compliance compartment and could be expected to have investigated whether the Guarantees had indeed been validly given on behalf of GCL before corresponding on the basis that they had.

Although Mr Jia has left GCL, GCL provided no information, still less evidence, to the effect that he would not assist by giving evidence, and if so explaining why not. His departure from GCL is not of itself an explanation, as is apparent from Mr Li’s willingness to provide a statement despite having left the company. Applying the principles identified in Wisniewsky v Central Manchester Healthy Authority [1998] PIQR 324, 340, it is legitimate to draw the inference, that GCL has not called him because it did not think that his evidence would assist its case.

GCL has disclosed no documents or other evidence identifying when it discovered the existence of the allegedly unauthorised Guarantees, of which it was aware no later than 16 September 2011, nor any documents containing or evidencing any adverse reaction, either internally or externally. Had Mr Jia been unauthorised, one would have expected disclosure of such documents and some witness evidence explaining GCL’s reaction upon its discovery and its investigation into what had happened.

Mr Li was not called to give evidence and his evidence has not been tested.

Spar had given advance notice that it would ask the court to draw adverse inferences from the failure of Mr Li to give evidence. Although he has left GCL, it had access to him as a cooperative and potentially available witness who agreed to provide a statement. In advance of the trial GCL adduced no evidence as to why Mr Li was not to be called as a witness. The Court will only take into account evidence, not submission, which is tendered as an explanation for failure to call a witness if advance notice has been given that the court will be invited to draw an adverse inference: see Imam-Sadeque v Bluebay Asset Management [2012] EWHC 3511 (QB) at paragraph [10]. In his opening, Mr Coburn submitted on instructions (from what GCL had told his instructing solicitors, not as a result of any direct contact between the solicitors and Mr Li) that Mr Li was unwilling to attend. Mr Phillips said that he was prepared to treat this as being evidence. I therefore proceed on the basis that the explanation for his absence is not incapacity or unavailability but simply an unwillingness to give his evidence on oath and face cross examination. There was no information from GCL, still less evidence, as to why Mr Li was unwilling to give evidence. Mr Coburn speculated that it might have been the result of a reluctance to travel a long distance to be subjected to an ordeal in a hostile foreign environment. This is illegitimate speculation, but in any event would not explain an unwillingness to give evidence by video link. In the absence of further explanation, it is permissible to draw the conclusion that he was unwilling to give his evidence on oath and have the evidence tested by questioning because he did not think it would stand scrutiny.

This is an inference which gains strength from other aspects of his statement which are inconsistent with evidence in the case in important respects:

Mr Li’s statement leaves many questions unanswered. If the internal procedures required submission to the compliance department, the financial department, the board and then him, why did none of these take place? Or if authorisation was declined somewhere in the chain, when, and by whom, and why? And if so why were Spar not so informed? Or if the authorisation process was never initiated, how is that to be reconciled with the correspondence suggesting that it was, and the express requirement in the fixture that there should be guarantees? And again, if so, why was Spar not informed? What explanation could there be for Mr Jia executing the Guarantees when he knew he was not authorised to do so? He could hardly have expected the fact that he had done so to be secret from others. GCL’s case involves the improbable assumption that Mr Jia was on an unexplained frolic of his own in signing these Guarantees, of which no one else within GCL or HNA was aware for several years.

Ostensible authority

Ratification

SAFE

Terminology

There are essentially three categories of conduct by one party to a contract which may entitle the innocent party to treat the contract as at an end, namely (a) a total or partial failure to perform obligations which have fallen due, (b) conduct which evinces an intention not to perform future obligations when they fall due, and (c) impossibility to perform future obligations when they fall due created by the defaulting party’s own act. The first is actual breach. The second and third, commonly termed renunciation and self induced impossibility respectively, are the two forms of anticipatory breach.

In the absence of any relevant contractual or statutory provision, the innocent party’s right to treat the contract as terminated will depend upon whether the term breached is to be categorised as a condition, a warranty or an innominate term. Any breach of a condition will entitle the innocent party to terminate the contract. Only a sufficiently serious breach of an innominate term will do so, often expressed as one which goes to the root of the contract or one which deprives the innocent party of substantially the whole benefit of the contract. The expression repudiatory breach is sometimes used to cover only a breach of an innominate term, in distinction to a breach of condition; sometimes it is used to cover both. I shall use it to cover both. It is also commonly used to describe the form of anticipatory breach directed to performance of future obligations, which I prefer to call renunciation. Elision between use of the terms repudiation and renunciation is common in the cases, not least because an actual breach may itself evince an intention not to perform in the future and therefore be renunciatory. But use of the word repudiatory to refer to conduct which is relevant not as actual breach in the past but only insofar as it casts light on future performance may lead to confusion of thought, and I prefer to use it only to describe a category of actual breach.

Where there is a repudiatory breach or renunciation, the innocent party is entitled to elect to terminate the contract. If he does so, the consequence is that (a) each party is relieved from its obligations to render any further performance under the contract; and (b) the innocent party is entitled to damages for loss caused by the breach, which includes loss flowing from the termination. For the purpose of assessing damages, it is the defaulting party’s repudiatory breach or renunciation which is regarded as the cause of the termination, not the innocent party’s election to terminate.

Other language has been used to describe a “condition”, used in this sense as a term any breach of which is sufficient to give rise to a right to terminate. Where the obligation in question falls to be performed by a certain time, the question has often been formulated as "whether time is of the essence”. Other formulations include whether the term is an essential term or a fundamental term, although Lord Diplock who has played a large part in the development of the jurisprudence in this area, uses the expression fundamental breach to connote a repudiatory breach of an innominate term in contradistinction to a breach of condition.

It is possible by express provision in the contract to make a term a condition, even if it would not be so in the absence of such a provision. So 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 repudiatory, without regard to the gravity of the breach, such that the injured party may elect to terminate and recover damages in respect of the defaulting party’s outstanding obligations.

The time charter withdrawal authorities.

He went on at pp. 408D-409F to consider the “so long as” construction point, on which he distinguished The Georgios C by reason of the difference in the wording of the NYPE withdrawal clause before him from that of the Baltime clause under consideration in The Georgios C, rejecting the “so long as” construction and holding that the right to withdraw accrued as soon as there was a default in payment and could not be defeated by a subsequent payment or tender of hire, in the absence of waiver. He then considered and rejected the second of the owners’ three alternative arguments, that of repudiatory breach of an innominate term at pp.409F-410A. The upshot was that the owners were held to be entitled to terminate contractually but not at common law. I agree with Flaux J that Brandon J’s decision on the condition point was part of the ratio, because it was one of a number of reasons for his decision.

In the Court of Appeal, owners’ entitlement to withdraw was upheld as a contractual termination under the clause, rejecting charterers’ “so long as” construction and distinguishing The Georgios C on the different wording of the clauses: Edmund Davies LJ at pp. 951F-953H, Megaw LJ at pp. 957C, 957G-958H, Cairns LJ at p.971A-G.

Owners’ alternative argument, that there was a common law termination apart from the contractual right of termination, was the subject of a cross appeal. The argument was addressed by Edmund Davies LJ, in these terms at p. 956C-E:

“6.

Repudiation

It remains to deal with the owners’ cross-notice. This relates to Brandon J.’s rejection of the plea contained in paragraph 13 of the defence that the charterers’ failure to pay the April hire punctually, following as it did on persistent late payments and notwithstanding the owners’ protests in January and February 1970,. . . “constituted a breach of condition and/or a repudiation and/or fundamental breach of the charterparty . . .” which entitled the owners to rescind by withdrawing the ship. Mr. Anthony Evans evinced no enthusiasm in supporting this plea, and that, I think, was wholly understandable. Brandon J. said [1973] 1 W.L.R. 386, 409:

“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.”

He declined to hold that they had, and, on the whole of the evidence, I agree with him.”

Although he refers to the pleaded case of breach of condition, Edmund Davies LJ only addresses the argument of repudiatory breach of an innominate term, not breach of condition, citing the passage in Brandon J’s judgment where he dealt with the repudiatory breach point discretely. Similarly Megaw LJ addressed the argument solely as one of repudiatory breach of an innominate term at p. 963A-B:

“The repudiation question

The owners contend that the history of belated hire payments by the charterers is such that the owners were entitled to treat the charterparty contract as at an end, apart altogether from the “failing punctual payment” clause. Once again, because of the assignment, there might be difficulties for the owners in relying on late payments, the right to receive which they had transferred to another person. In any event, however, with all respect, the argument on behalf of the owners wholly failed to convince me that there was any possible basis for disagreeing with the view held and expressed by Brandon J, who rejected this submission on his review of the relevant facts.”

Flaux J said at paragraph [72] of The Astra that nothing in the judgments in the Court of Appeal suggests that the condition point was argued, and that there is therefore nothing in the Court of Appeal judgments which assists on the current issue. I agree that the judgments contain nothing to indicate that Mr Evans addressed the condition point as a separate argument. Nevertheless the repudiation ground was maintained by Mr Evans, even if with little enthusiasm (the report suggests that it was described by Mr Evans in argument as “academic since no damages have been claimed by the owners”) and all three members of the Court must have had in mind the alternative route to common law termination, that of breach of condition, which was separately addressed by Brandon J in the judgment being appealed and expressly adverted to as part of the owners’ pleaded case by Edmund Davies LJ in the passage quoted above. Even if one were to treat the condition point as conceded by owners in the Court of Appeal, I regard it as significant that no member of the Court expressed any reservation about that aspect of Brandon J’s decision, which if wrong would have rendered the debate on the construction point otiose and meant that the argument on repudiation was conducted and addressed on the false footing that payment of hire was an innominate term. The decision involves at least implicit approval by a strong Court of Appeal of Brandon J’s decision that payment of hire was not a condition.

In Steelwood Carriers Inc v Evimeria Compania Vaviera SA (The Agios Giorgis) [1976] 2 Lloyd’s Rep 192 charterers under a time charter on the NYPE form withheld a sum from a monthly instalment of hire in respect of a speed claim. The owners instructed the master not to discharge and two days were lost before the charterers paid the balance and discharge occurred. The umpire determined that the charterers’ deduction for the speed claim was excessive, such that there had been a default in payment of hire. Upon the hearing of a case stated owners argued that clause 5 granted a right to make a temporary withdrawal of the vessel as much as a permanent one. In support of this argument it was contended that the payment of hire was a condition precedent to performance by the owners and that the obligations of the charterers to pay hire in advance and of continued performance were concurrent conditions requiring mutuality. Mocatta J said at p. 201 col 2:

“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.”

Having referred to The Antonios Mavrogordatos and The Petrofina amongst other authority, he went on at p. 202 cols 1-2:

“Apart from these authorities and the remarkable absence of any authority the other way, I thought there was force and relevance in Mr. Pollock’s submission that payment of hire is not a condition precedent in the contract to immediate further performance by the shipowner. Thus in The Brimnes both Mr. Justice Brandon, [1972] 2 Lloyd’s Rep. 465 and 483, and the Court of Appeal [1974] 2 Lloyd’s Rep. 241 at pp. 252, 256 and 262, 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 this connection his citation of Leslie Shipping Co. v. Welstead, (1921) 7 Ll.L.Rep. 251; [1921] 3 K.B. 420, was interesting. There Mr. Justice Greer (as he then was) said at pp. 253 and 426 that the withdrawal clause was inserted in the charter for the benefit of the shipowners giving them an express right to withdraw the vessel and making it impossible that there should be any discussion about the matter. If timely payment of hire was a condition precedent, there would have been no relevance in this comment. .

If hire still remains payable should the services of the ship be withdrawn for a period without this amounting to a repudiation which is accepted, then I do not think there is that close concurrent mutuality for which Mr. Hallgarten argued.”

Although I have not found this passage entirely easy, it is clear at least that it treats The Brimnes as correctly deciding that payment of hire is not a condition, and raises the further point that were it a condition there would be no need for a contractual right of termination to be inserted for the benefit of the shipowner because it would not enlarge his common law rights.

The decision in The Georgios C was subsequently overruled by the House of Lords in Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850, another case on the NYPE form of charterparty. In that case hire was due on a Sunday, the charterers’ bank tendered payment to the owners’ bank by delivery of a payment order on the Monday afternoon, the payment order was accepted and began to be processed for credit to the owners’ account, but before such credit the owners gave notice of withdrawal. Again the market had risen substantially since the date of the charter and the only issue was the owners’ right to withdraw, not any claim for damages. The arbitrators and Donaldson J held that the owners were entitled to withdraw, the Court of Appeal by a majority that they were not. Lord Denning, in the majority, gave as one ground that the withdrawal clause was a forfeiture clause and that the law will not enforce such a clause after payment or tender, relying on a previous dictum of his to that effect in The Georgios C. The House of Lords allowed the appeal, holding that the right to withdraw accrued the moment the charterers were in default of payment and the right to withdraw remained exercisable for a reasonable time thereafter, in the absence of waiver, despite the late tender or payment of hire by the charterers in the meantime.

Lord Wilberforce said at p. 867 that the result turned upon two and only two questions, namely the construction of the withdrawal clause and waiver. It is apparent that so far as relevant to the present issue the reversal of the The Georgios C was confined to the point that the withdrawal clause was operative only for so long as hire remained unpaid. Lord Wilberforce rejected the “so long as” construction as contrary to the unambiguous wording of the withdrawal clause and endorsed the decision of Brandon J and the Court of Appeal in The Brimnes to that effect (pp. 867G-868A). He criticised The Georgios C construction on the wording of the Baltime clause in that case, and insofar as it suggested a “so long as” construction could apply to other standard withdrawal clause wordings (pp. 868C-869E). He went on to criticise Lord Denning’s approach in the decision under appeal, and in the The Georgios C, to the effect that, by reference to an analogy with forfeiture clauses, there was a general bar to reliance on a withdrawal clause if tender or payment was made before withdrawal (pp. 869A-870D). In this last context he said:

“As has often been pointed out the description of a time charter as a hire or demise of a ship is very misleading: all that the owner does, in fact, is to agree to provide services, those of the master and the crew (whose wages the owner has - punctually - to pay) in sailing the ship for the charterers’ purposes, and all that the withdrawal clause does is to entitle the owner to cease providing these services (for example see Lord Porter in the Tankexpress [1949] A.C. 76, 90). It must be obvious that this is a very different type of creature from a lease of land. I would certainly go so far as to agree that the owner has to show that the conditions necessary to entitle him to withdraw have been strictly complied with: but equally I would not overlook the fact that there are very good reasons why the charterer should punctiliously comply with the provisions as to the payment of hire in which the owner has an interest very different from that of a landlord whose essential interest is to receive the rent.”

The “good reasons” for punctilious payment of hire no doubt included those articulated by Mr Hobhouse QC in argument at p. 854A-C:

“A time charter is a contract for the provision of services. Much of its language has historical origins and is not appropriate to modern times: see Sea and Land Securities Ltd. v. William Dickinson and Co. Ltd. [1942] 2 K.B. 65, 69. During the provision of the services the shipowner bears the cost of running the vessel from day to day. For this he is to get the hire in advance because the owner puts the profit earning capacity of the ship at the disposal of the charterer. The freights are collected by the charterer; the shipowner never sees these profits. The shipowner is not obliged to perform the services on credit; he does so only against advance payment. He stipulates for and is entitled to advance payment monthly or fortnightly. He is not obliged to provide the services here for a given fortnight until he has had payment in full in respect of it: see Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. (The Petrofina)[1949] A.C. 76, 81, 89-90, 91, 93, 94, 97, 99-100, 102, 105. The withdrawal clause allows the shipowner to put an end to the contract.”

To these may be added two further reasons why prompt payment of hire in advance may be of importance to owners. First it is commonplace for vessels to be mortgaged on terms which require punctual payment of instalments to the bank, with any default triggering acceleration of repayment of the loan and the bank’s right to realise its security by selling the mortgaged vessel. Where the owners are part of a group owning a fleet of vessels there may be cross default provisions, such that any one failure to meet a repayment instalment to one bank in respect of one vessel may have this effect across part or all of the fleet. Punctual payment of hire is of importance to owners in such circumstances in order to meet their financing obligations. Secondly, the term must bear the same categorisation where it appears in an intermediate charter in a string of time charters, which are sometimes on back to back terms save as to rates, as it bears in the head charter or where there is no string. Where hire is due to a disponent owner under an intermediate charter, the disponent owner may be dependent upon punctual receipt to fulfil his own hire obligations to pay hire under the head charterparty.

Lord Simon agreed with Lord Wilberforce. Lord Salmon expressed similar views on The Georgios C being wrong as a matter of construction of the Baltime clause at p. 876A-G, and on analogy with forfeiture cases being inapposite at p. 878A-F. He emphasised the need for commercial certainty at p. 878E-G. Lord Fraser treated The Georgios C as being wrongly decided as a matter of construction at pp. 882H-883D, as did Lord Russell at pp. 887A-888C. Lord Fraser also emphasised the need for certainty at pp. 882H-883E.

There is to my mind nothing in these criticisms of The Georgios C, or in the criticism of Lord Denning’s reliance on a forfeiture analogy, which undermines Brandon J’s reliance on The Georgios C in The Brimnes for the point currently under debate, namely that payment of hire is not a condition any breach of which gives rise to a common law right of termination but merely triggers a contractual right of termination. Brandon J did not follow The Georgios C on the “so long as” construction point, which was the aspect of the latter case which the House of Lords held to be erroneous, but rather distinguished it. The proposition for which Brandon J treated The Georgios C as authoritative was that articulated by Donaldson J and by Lord Denning, namely that there was no common law right to terminate for repudiation on the grounds that time was of the essence, so that, absent conduct which would be a repudiatory breach of an innominate term, the right of withdrawal depended upon the construction of the clause. There is no hint of any criticism in the speeches of the House of Lords in The Laconia of this aspect of the reasoning in The Georgios C. They contain no analysis of the categorisation of the term as a condition or innominate term, or of whether time was of the essence.

China Trade Corporation v Evoglia (The Mihalios Xilas) [1979] 1 WLR 1018 was a withdrawal case which turned on its particular facts, in which the House of Lords again criticised Lord Denning’s continued determination to relieve charterers from the strict effect of withdrawal clauses by invoking the analogy of forfeiture clauses. The hire clause was in bespoke terms providing for withdrawal “in default of payment”. The payment of hire for the final instalment was deficient because, as the umpire held, the charterers’ deductions for the length of the final voyage and bunkers on board at redelivery were unreasonable. Before Kerr J and in the appeals there was no dispute that there was a default in payment of hire and the argument was addressed to whether owners had waived the right to withdraw in reliance on the withdrawal clause. In the Court of Appeal Lord Denning and Eveleigh LJ held, for different reasons, that they had waived the right, with Geoffrey Lane LJ dissenting. The House of Lords allowed the appeal. At pp. 1024H-1025A Lord Diplock criticised Lord Denning’s approach to the whole case as coloured by a view that withdrawal clauses contained the “distasteful characteristics” of a forfeiture clause which would justify the court finding one or other of a variety of excuses for refusing to give effect to it. Lord Salmon said at p. 1032B-G:

“My Lords, it would seem that there are some members of the Court of Appeal who do not approve of the Baltime form of charter and other forms of charter such as the New York Produce Exchange and the Shelltime forms which closely resemble it. These forms of charter are undoubtedly very strict in relation to the due payment of hire: their meaning, however, is perfectly clear and it is not permissible to put a construction upon them which would depart from that meaning. Unless the full amount of hire is paid by its due date the owners have the undoubted right to withdraw their vessel providing they do so within a reasonable time of the charterers’ default. The only exception is when the parties by their course of conduct (a) have as in the present case accepted that disbursements made by the charterers in respect of the owners’ liabilities may be deducted from the hire subject to vouchers being produced, or e.g., (b) have accepted as in Tankexpress A/S v. Compagnie Financière Belge des Petroles S.A. [1949] A.C. 76 that the amount of hire posted two days before it falls due shall be deemed to have been paid in time. Otherwise, unless the full hire is paid by the time it falls due the charterers are in default and the vessel may be withdrawn. On the appeal to your Lordships’ House in The Laconia [1977] A.C. 850 I ventured to point out that the law relating to the owners’ rights under a Baltime form of charter to withdraw their vessel should the charterers fail to pay the hire in time had been clearly stated by your Lordships’ House in the Tankexpress case; but that a great deal of doubt on the subject had since been generated by the Court of Appeal in The Georgios C [1971] 1 Q.B. 488 and had troubled the waters ever since. I expressed the hope that those doubts might finally be dispelled by your Lordships’ reversal of the Court of Appeal’s decision in The Laconia and overruling its decision in The Georgios C. These doubts were, however, temporarily revivified by the decision of the Court of Appeal in the present case but will now, I think, permanently be laid to rest by your Lordships’ decision allowing this appeal; Certainty of meaning is of primary importance in all commercial transactions. Commercial contracts all over the world, having nothing to do with the United Kingdom, have for generations provided that any dispute arising under the contract shall be decided in the English commercial court or by arbitration in London according to English law. This is because of the confidence which exists throughout the commercial world in the administration of English justice. I fear that this confidence will hardly be strengthened should there be any further decisions in the Court of Appeal similar to those in The Georgios C, The Laconia and the instant case.”

I shall return to the subject of commercial certainty in due course, but the criticism of Lord Denning’s approach in this case casts no doubt upon what he said about common law repudiation in The Georgios C or upon Brandon J’s reliance upon it in The Brimnes.

In an earlier passage at page 1031G-H Lord Salmon said:

“The Baltime form of charter and others which closely resemble it may be hard on charterers, especially when the market for hiring vessels rises sharply during the span of the charter. Certainly there are other forms of charter which are not so strict. It must, however, be remembered that charterers and shipowners are usually hard-headed and experienced businessmen who freely agree upon which form of charter they will adopt.”

I make two observations about this passage. First, it emphasises that the terms of a right of withdrawal are a matter for contractual bargain between the parties, and presupposes that payment of hire would not be treated as a condition absent such a contractually negotiated right of termination. Secondly, Lord Salmon there seems to contemplate that the principal risk to charterers from a stringent clause is losing a profitable charter in a risen market, not an exposure to damages in a fallen market, an approach which assumes that the clause is an option to cancel, rather than conferring on the payment term the status of condition so as to give rise to a common law right of termination and damages. If payment of hire were a condition entitling owners to terminate at common law and claim damages, charterers’ exposure would be just as great if the market had fallen as if it had risen. On a risen market the charterers would bear the market difference by having to charter in at a higher rate; in a fallen market charterers would have to pay owners for the fall in the rate as damages for repudiation.

In A/S Awilco v Fulvia S.p.a. di Navigazione (The Chikuma) [1981] 1 WLR 314 the charter was on the NYPE form providing for payment of hire in cash. Hire was due on 22 January, at which time the charterers’ bank had made a telex transfer of the instalment to owners’ bank for value on 26 January. This was held by the House of Lords not to constitute timeous payment under the clause because owners’ access to the funds on 22 January was not unconditional, with the result that owners’ withdrawal of the vessel on 24 January was valid. Lord Bridge, giving the leading speech, observed that exercises of judicial ingenuity to mitigate the rigours of shipowners’ rights to withdraw vessels for non payment of hire had not had a happy history. He cited the passage from Lord Wright in The Petrofina which I have quoted above, referring to the importance of advance hire to owners in justifying “the stringency of the right to cancel”, and of Lord Salmon in The Laconia stressing the importance of certainty in commercial transactions (p. 321B-H).

Afovos Shipping Co SA v R. Pagnan & F.lli (The Afovos) [1983] 1 Lloyds’s Rep 335 involved a time charter on the NYPE form with an anti-technicality clause providing that if hire was not paid, the owners were to give the charterers 48 hours’ notice and could not withdraw the vessel if the hire was paid within such period. The last day for payment of hire was 14 June. On 11 June the charterers instructed their bank to remit the hire due on 14 June to the owners’ bank in London as required by clause 5. The charterers’ bank purported to comply by sending a telex transfer to the owners’ London bank on 13 June, but in error, the telex was sent to a sand and silica merchant in Reigate. The owners served a 48 hour notice at 16.40 on 14 June, to which the charterers replied that the hire had been sent by telex transfer. When payment had still not been received on 18 June, the owners withdrew the vessel. The error in relation to the telex was only discovered on 19 June. The dispute concerned whether the 48 hour notice had been given prematurely. Both the Court of Appeal and the House of Lords held that it had, since at 16.40 on 14 June, the charterers were not yet in breach of clause 5. Of relevance to the present debate is owners’ argument that the charterers were in anticipatory breach of contract when the notice was served having disabled themselves from paying the hire that day by 16.40, because that was after banking hours. Lord Diplock (with whom Lords Hailsham, Keith, Brightman and Roskill agreed) said at p. 341:

“Nevertheless the doctrine of anticipatory breach by conduct which disables a party to a contract from performing one of his primary obligations under the contract has in my view no application to a breach of such a clause.

The relevant portions of cl. 5 have been set out by the Lord Chancellor. The first part of the clause imposes upon the respondents as charterers a primary obligation to pay the “said hire” (which by cl. 4 had been fixed at a monthly rate and pro-rata for any part of a month) punctually and regularly in advance by semi-monthly instalments in the manner specified, which would involve the payment of a minimum of 42 and a maximum of 54 instalments, during the period of the charter. 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 at pp. 553 and 849, this expression, if used as a term of legal art, ought to be confined. The reason is that such delay in payment of one half-monthly instalment 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 charter extending over a period of between 21 and 27 months.

The second part of cl. 5, however, starting with the word “otherwise” goes on to provide expressly what the rights of the owners are to be in the event of any such breach by the charterers of their primary obligation to make punctual payment of an instalment. 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. But although failure by the charterers in punctual payment of any instalment, however brief the delay involved may be, is made a breach of condition it is not also thereby converted into a fundamental breach; and it is to fundamental breaches alone that the doctrine of anticipatory breach is applicable.”

In this passage Lord Diplock uses the expression “fundamental breach” as connoting a repudiatory breach of an innominate term in contradistinction to the species of repudiatory breach comprising breach of condition. He had recently expressed the view in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849D-F that the expression “fundamental breach” should be confined to such use and not extend to breach of condition. His statement that it is to fundamental breaches alone, in this sense, that the doctrine of anticipatory breach is applicable, is problematic: see the discussion in Treitel The Law of Contract 13^th edn at 17-083. I find it difficult to reconcile with the principled explanation of the rationale underlying the doctrine of anticipatory breach in Universal Carriers v Citati, namely that the innocent party is entitled to assume that there will inevitably happen that which the other party has made clear he intends to happen, and so does not have to wait until the inevitable occurs: see pp. 436-438. This applies as much to anticipatory breaches of condition as to anticipatory repudiatory breaches of innominate terms.

The decision can be explained on the basis suggested in Treitel, and in Chitty on Contracts at paragraph 24-032, that the doctrine of anticipatory breach cannot be applied to a contractual right of termination and that the latter cannot be exercised until its terms are fulfilled. This raises the question whether, as the editors of Wilford on Time Charters had suggested as a possible interpretation prior to the decision in The Astra, this passage merely treats the clause as one which gives rise to a contractual right of termination because it confers a right to terminate in the same circumstances as a right to terminate would arise if payment were a condition. In The Astra at paragraph [91] Flaux J described the latter argument as an impermissible gloss. I agree. Whilst I would have been attracted to such an interpretation solely on a reading of the language used taken in isolation, the passage must be read in the light of Lord Diplock’s clearly stated view in an obiter dictum five years earlier in United Scientific Holdings v Burnley Borough Council [1978] AC 904 at 924 that “in a charterparty a stipulated time of payment is of the essence” and his careful use of language distinguishing a fundamental breach from a breach of condition in Photo Production and The Afovos itself, and again later in The Antaios (see below). Lord Diplock’s analysis is that the effect of the withdrawal provision is to make the payment term a condition although in the absence of the withdrawal provision it would be an innominate term.

In Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694, the House of Lords rejected the argument that charterers could invoke the equitable doctrine of relief from forfeiture so as to avoid the effect of owners’ right to withdraw for non payment of hire under the Shelltime 3 form. The question whether the term was a condition was not directly in issue, but was relevant to a number of ways in which the argument was framed in relation to relief from forfeiture: see pp. 696C, 696F-G and 697G-H. It appears to have been conceded by Mr Steyn QC on behalf of the charterers, as he then was, that payment of hire was a condition.

Lord Diplock, with whom Lords Keith, Scarman, Roskill and Bridge agreed, endorsed the statement of Lord Wilberforce in The Laconia that a time charter was a very different type of creature from a lease of land. He said at p. 702D-E

“Moreover, in the case of a time charter it is not possible to state that the object of the insertion of a withdrawal clause, let alone the transaction itself, is essentially to secure the payment of money. Hire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer that he has undertaken to bear himself under the charterparty; in particular the wages and victualling of master and crew, the insurance of the vessel and her maintenance in such a state as will enable her to continue to comply with the warranty of performance.”

This is a further clear statement of Lord Diplock’s view that the effect of the withdrawal clause was to make the payment of hire a condition. It is also a statement that such was what was decided by The Petrofina, although as I have sought to explain, I do not regard the latter decision as going so far.

In Antaios Compania SA v Salen AB (The Antaios) [1985] 1 AC 191 the owners withdrew the vessel, not for non payment of hire, but relying on the wording of the other half of the NYPE form withdrawal clause “or on any breach of this charterparty”. The breach relied upon was the issue of inaccurate bills of lading. The arbitrators rejected owners’ entitlement to withdraw on the grounds that “any” breach meant any repudiatory breach, a conclusion which was unanimously upheld by the House of Lords. In the leading speech Lord Diplock, (with whom amongst others Lord Brandon agreed) said at pp. 200E-201B.

“The arbitrators decided this issue against the shipowners. The 78 pages in which they expressed their reasons for doing so contained an interesting, learned and detailed dissertation on the law, so lengthy as to be, in my view, inappropriate for inclusion in the reasons given by arbitrators for an award. Their reasons can be adequately summarised as being (1) that “any other breach of this charter party” in the withdrawal clause means a repudiatory breach - that is to say: a fundamental breach of an innominate term or breach of a term expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongfully repudiated by the charterers, a category into which in the arbitrators’ opinion the breaches complained of did not fall, and (2) that even if that were wrong, the word “on” immediately preceding “any other breach” meant “within a reasonable time of” their first knowledge of the breach; and the shipowners, in the arbitrators’ opinion, had not given notice of withdrawal until after such reasonable time had expired.

To the semantic analysis, buttressed by generous citation of judicial authority, which led the arbitrators to the conclusions as to the interpretation of the wording of the withdrawal clause that I have summarised, the arbitrators’ added an uncomplicated reason based simply upon business commonsense:

“We always return to the point that the owners’ construction is wholly unreasonable, totally uncommercial and in total contradiction to the whole purpose of the N.Y.P.E. time charter form. The owners relied on what they said was 'the literal meaning of the words in the clause'. We would say that if necessary, in a situation such as this, a purposive construction should be given to the clause so as not to defeat the commercial purpose of the contract.””

The case does not bear directly on whether payment of hire is a condition, but I mention it for three reasons. First it is further evidence of Lord Diplock’s terminology using the expression “fundamental breach” as the species of repudiatory breach which is a breach of an innominate term, in contradistinction to breach of a condition. Secondly, the wording of the NYPE 1993 form clause has been revised to replace “any breach” with “any fundamental breach”. This might be taken to be a conscious adoption of the effect and language of The Antaios, including Lord Diplock’s terminology; if so it would suggest that the second half of the clause in the new form is narrower than the interpretation put upon the 1946 form as applying to any repudiatory breach whether a fundamental breach or a breach of condition, a point to which I will return when considering arguments on the language of clause 11. Thirdly, Rix LJ later referred to The Antaios as supportive of there being a good argument that payment of hire was a condition. I do not myself see that it provides any support for that proposition.

In ENE 1 Kos Ltd v Petroleo Brasiliero SA (The Kos) [2012] 2 AC 164 the charter was on the Shelltime 3 form, with no anti-technicality clause. Owners gave notice of withdrawal for non payment of hire, which was disputed, following which the charterers had continued use of the vessel for some 2½ days in discharging. Owners claimed some US$400,000 for charterers’ use and detention of the vessel on alternative bases, the first being as damages for non payment of hire and the second for an indemnity under clause 13 for the master’s failure to comply with the charterers’ orders. The latter basis succeeded in the Supreme Court. Counsel for the owners, Mr Eder QC as he then was, made clear that in arguing the case for damages for non payment of hire he was not arguing that it was a breach of condition. At first instance ([2010] 1 Lloyd’s Rep 87) Andrew Smith J said at paragraphs [37]-[38]:

“37.

In presenting this part of the owners’ argument, Mr Eder emphasised that the owners do not contend that it was a repudiation of the charterparty not to pay hire, at least in the case of a failure to pay for as short a period as in this case. The point is not straightforward: as Rix LJ said in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 at para 80, there must be a good argument that ‘the express right to withdraw in the case of unpunctual payment under such a clause is a breach of a condition of the contract, breach of which is in itself repudiatory’. However, the general view is, I think, that a failure to pay hire when it is due is a breach of an intermediate term, and not necessarily repudiatory and does not in itself entitle the owner to claim damages for loss resulting from the termination of the charterparty: see Time Charters, 2008, 6th Edition, at paras 16.128 and 16.132. Even if the owners had argued otherwise and I had been persuaded to award damages for such loss, the damages resulting from the termination of the charterparty would not be based upon the market rate of hire but the contractual rate, and no such claim has been advanced.

38.

In these circumstances, I cannot accept that the owners’ claim is recoverable as damages for the failure to pay hire. I agree with the charterers’ submission that, once the breach is not said to be repudiatory, it is an answer to the claim that the loss was not effectively caused by their failure to pay hire on time because the owners’ decision to withdraw the vessel breaks the chain of causation. This is, I think, why Lord Denning MR said in Tropwind AG of Zug v Jade Enterprises Ltd (The Tropwood) (No 2) [1982] I Lloyd’s Rep 232 at page 237 (in a passage to which I refer further below): ‘The damages for such a breach would be trifling’.”

In the Supreme Court, again it appears that new counsel for the owners did not contend that the failure to pay hire was repudiatory. Nevertheless both Lord Sumption and Lord Mance, whose experience in this area of the law is considerable, expressed the view that payment of hire was not a condition. Lord Phillips and Lord Walker agreed with Lord Sumption (as did Lord Clarke although expressed on more limited grounds). Lord Sumption said at paragraphs [6]-[7]

6.

Under all the remaining heads of claim, the charterers argument is substantially the same, namely that any delay or loss arising from the need to discharge the cargo results from the owners’ decision to withdraw. That was a decision made at their own election and for their own commercial purposes. The owners, it is said, must bear the adverse as well as the beneficial consequences of an optional decision made in their own interest. It is clear that this consideration influenced both courts below, and that it was decisive in the minds of the Court of Appeal.

7.

The factual premise of the argument is of course correct. It is axiomatic that a withdrawal clause operates at the election of owners, and not automatically. Two main consequences follow from this. The first is that owners will not exercise their right of withdrawal unless it is in their commercial interest to do so. Usually, this will be because market rates of hire have risen. But it may be in owners’ interest to withdraw the vessel even if they have not risen, for example, where the charterers are insolvent or owners depend on prompt payment to fund payments under a head charter or charterers’ payment record occasions administrative or other difficulties. The second consequence is that any failure on the part of the charterers to pay hire when it falls due will not of itself entitle the owners to damages representing the loss of the bargain or the expenses of termination simply because the owners respond by withdrawing the vessel. This is because the non-payment does not itself destroy the bargain or occasion the expenses, unless in the circumstances it is a repudiation which owners have accepted as such. But the present claim is not a claim for damages, and the non-payment of the June 2008 hire payment in this case was not a repudiation. This, however, is as much as can usefully be said. The fact that rather than perform the contract the owners found it more advantageous to exercise an express right of termination is morally and legally neutral. There are no standards by which the owners’ reasons may be judged, other than those to be found in the contract. There is no legal policy specific to termination rights restricting their availability or the consequences of their exercise more narrowly than does the language of the contract or the general law. More generally, the reasons for any particular withdrawal cannot affect the principle to be applied in resolving an issue like the present one.”

Lord Mance said in a speech which concurred with the majority as to the result but dissented on the application of the indemnity clause:

“52.

The general contractual context in my view also supports a conclusion that the express indemnity clause is inapt to apply to the present situation. Clause 8 of the charterparty gives owners a simple contractual option. It is accepted that the mere late payment of one instalment did not constitute a repudiatory breach (or a breach of a condition in a sense like that used in the Sale of Goods Act 1979) which could entitle the owners to damages for loss of the charter. That loss flowed from the owners’ exercise of their option to withdraw. The phrase in clause 8 “without prejudice to any claim owners may otherwise have on charterers under this charter” does not create a right of action, and looks on its face only to pre-existing claims. So there is no way in which the time spent discharging in Angra dos Reis can be claimed as damages.”

The starting point is the seminal judgment of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kishen Kaisha Ltd [1962] 2 QB 26. His analysis begins by equating events which are sufficiently serious to bring a contract to an end for breach with those which are sufficiently serious for frustration, and treats the various metaphors used to define such seriousness as encapsulated in a test of whether the event deprives the party of substantially the whole benefit of the contract (p.66). After a survey of the historical development of the law on conditions and warranties he states at pp. 69-70:

“No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity (“It goes without saying”) to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a “condition.” So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non- defaulting party to treat the contract as repudiated, is a “warranty.”

There are, however, many contractual undertakings of a more complex character which cannot be categorised as being “conditions" or "warranties,” if the late nineteenth-century meaning adopted in the Sale of Goods Act, 1893, and used by Bowen L.J. in Bentsen v. Taylor, Sons & Co. be given to those terms. Of such undertakings all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that be should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty.”

This passage identifies that a term is to be categorised as a condition only if any predicated breach would deprive the innocent party of substantially the whole benefit of the contract, in the absence of agreement between the parties that a breach shall entitle the innocent party to treat the contract as repudiated. This qualification is not to be elevated into a principle that a contractual right of termination on any breach of the term is indicative that it is a condition. To have such effect it must be an agreement that the breach shall “entitle the defaulting party to treat the contract as repudiated”, in the words of Diplock LJ. A contractual right to terminate may or may not be such an agreement, depending upon its proper construction; it may be no more than an option to cancel, as Diplock LJ himself made clear in Financings v Baldock a year later. I would therefore reject the submission of counsel for the owners in The Astra, recorded at paragraph [39], that the logical corollary of Diplock LJ’s analysis of what constitutes a condition is that if the contract provides for a right to terminate, that is a very strong indication that the term in question is a condition. This seems to me to turn the passage on its head. The essential test proposed is whether the term is one any predicated breach of which deprives the innocent party of substantially the whole benefit of the contract. This may be modified by the agreement of the parties that a breach will entitle the innocent party to treat the contract as repudiated. A contractual termination clause may be one which provides that the agreement is to be treated as repudiated at common law, or may be one which treats the contract as cancelled in futuro as a matter of contractual option. Which of two consequences is intended is a question which falls to be considered as a matter of interpretation of the termination provision and the other terms of the contract. The mere existence of a termination provision tells one nothing about the status of the term without discovering the intention of the parties as to the consequences of the contractual right of termination by this process of interpretation.

In Bunge v Tradax [1981] 1 WLR 711, buyers purchased a quantity of soya bean meal on fob terms to be shipped in three instalments in each of the months May, June and July 1975. Buyers were required to give 15 days notice of readiness of a vessel to lift the shipments at a loading port thereafter to be nominated by the sellers. The first monthly shipment was extended to June, the last day for shipment by sellers being 30 June, and consequently the last date for notice of readiness of a vessel to be given by buyers, allowing for loading time, was 12 June. Notice was not given by buyers until 17 June, 5 days late. Sellers treated the buyers as in default and claimed damages for repudiation on the ground that the notice of readiness term was a condition, a contention which succeeded in the Court of Appeal and House of Lords. In the Court of Appeal ([1980] 1 Lloyd’s Rep 294) Megaw LJ gave the leading judgment, which was subsequently expressly endorsed by the House of Lords in the speeches of Lord Wilberforce and Lord Roskill. He took as his starting point (p.303 col 1) that it was an accepted principle of English law that in a contract for the sale of goods the seller’s stipulated time of delivery is prima facie of the essence, citing in support Lord Diplock’s speech in the United Scientific Holdings case, and reasoned that since the purpose of the buyers’ notice of readiness was to give the sellers what the parties agreed was a reasonable time in order for them to make arrangements to perform this delivery condition, the giving of timeous notice of readiness by the buyers must be just as much a condition as was the shipment obligation of the sellers (p. 303 col 2). At p. 305 Col 2 Megaw LJ expressed disagreement with Diplock LJ's formulation of the test in Hongkong Fir insofar as it suggested that a term could only be a condition if it deprived the other party of substantially the whole benefit of the contract, drawing attention to Bowes v. Shand (1877) 2 App. Cas. 455 and other cases in which it had been held that time was of the essence in commercial contracts such that breach gave rise to a right to repudiate irrespective of the gravity of the consequences of the breach.

In the House of Lords, Lord Wilberforce recited the buyers’ argument based on Diplock LJ’s analysis in Hongkong Fir that because breach of the notice of readinesss clause might have consequences which ranged from the trivial to the serious it was to be categorised as an innominate term. Lord Wilberforce said at p. 715D:

“Diplock L.J. then generalised this particular consequence into the analysis which has since become classical. The fundamental fallacy of the appellants’ argument lies in attempting to apply this analysis to a time clause such as the present in a mercantile contract which is totally different in character. As to such a clause there is only one kind of breach possible, namely, to be late, and the questions which have to be asked are, first, what importance have the parties expressly ascribed to this consequence and secondly, in the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole.

The test suggested by the appellants was a different one. One must consider, they said, the breach actually committed and then decide whether that default would deprive the party not in default of substantially the whole benefit of the contract. They invoked even certain passages in the judgment of Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 to support it. One may observe in the first place that the introduction of a test of this kind would be commercially most undesirable. It would expose the parties, after a breach of one, two, three, seven and other numbers of days to an argument whether this delay would have left time for the seller to provide the goods. It would make it, at the time, at least difficult, and sometimes impossible, for the supplier to know whether he could do so. It would fatally remove from a vital provision in the contract that certainty which is the most indispensable quality of mercantile contracts and lead to a large increase in arbitrations. It would confine the seller—perhaps after arbitration and reference through the courts—to a remedy in damages which might be extremely difficult to quantify. These are all serious objections in practice. But I am clear that the submission is unacceptable in law. The judgment of Diplock L.J. does not give any support and ought not to give any encouragement to any such proposition; for beyond doubt it recognises that it is open to the parties to agree that, as regards a particular obligation, any breach shall entitle the party not in default to treat the contract as repudiated. Indeed, if he were not doing so he would, in a passage which does not profess to be more than clarificatory, be discrediting a long and uniform series of cases—at least from Bowes v. Shand (1877) 2 App. Cas. 455 onwards which have been referred to by my noble and learned friend, Lord Roskill. It remains true, as Lord Roskill has pointed out in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The Hansa Nord) [1976] Q.B. 44, that the courts should not be too ready to interpret contractual clauses as conditions. And I have myself commended, and continue to commend, the greater flexibility in the law of contracts to which Hongkong Fir points the way (Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen) [1976] 1 W.L.R. 989, 998). But I do not doubt that, in suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition, and that indeed they should usually do so in the case of time clauses in mercantile contracts. To such cases the “gravity of the breach” approach of the Hongkong Fir case [1962] 2 Q.B. 26 would be unsuitable. I need only add on this point that the word “expressly” used by Diplock L.J. at p. 70 of his judgment in Hongkong Fir should not be read as requiring the actual use of the word “condition”: any term or terms of the contract, which, fairly read, have the effect indicated, are sufficient. Lord Diplock himself has given recognition to this in this House: Photo Production Ltd. v. Securicor Transport Ltd [1980] AC. 827, 849. I therefore reject that part of the appellants’ argument which was based upon it, and I must disagree with the judgment of the learned trial judge in so far as he accepted it. I respectfully endorse, on the other hand, the full and learned treatment of this issue in the judgment of Megaw L.J. in the Court of Appeal.

I would add that the argument above applies equally to the use which the appellants endeavoured to make of certain observations in United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C, 904, a case on which I do not need to comment on this occasion.

In conclusion, the statement of the law in Halsbury’s Laws of England, 4th ed., vol. 9 (1974), paras. 481—482, including the footnotes to paragraph 482 (generally approved in the House in the United Scientific Holdings case), appears to me to be correct, in particular in asserting (1) that the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties, and (2) that broadly speaking time will be considered of the essence in “mercantile” contracts—with footnote reference to authorities which I have mentioned.

The relevant clause falls squarely within these principles, and such authority as there is supports its status as a condition: see Bremer Handelsgesellschaft m.b.H. v. J. H. Rayner & Co. Ltd. [1978] 2 Lloyd’s Rep. 73 and see Turnbull (Peter) & Co. Pty. Ltd. v. Mundas Trading Co. (Australasia) Pty. Ltd [1954] 2 Lloyd’s Rep. 198. In this present context it is clearly essential that both buyer and seller (who may change roles in the next series of contracts, or even in the same chain of contracts) should know precisely what their obligations are, most especially because the ability of the seller to fulfil his obligation may well be totally dependent on punctual performance by the buyer.”

Lord Roskill endorsed the view of Megaw LJ that Diplock LJ’s categorisation in Hongkong Fir was not intended to change longstanding authority that where time was of the essence in a mercantile contract any breach would give rise to a right to terminate even if not depriving the innocent party of the whole benefit of the contract. In doing so he emphasised the importance of certainty in this passage at p. 725C-D:

“Parties to commercial transactions should be entitled to know their rights at once and should not, when possible, be required to wait upon events before those rights can be determined. Of course, in many cases of alleged frustration or of alleged repudiatory delay it may be necessary to await events upon the happening or non-happening of which rights may well crystallise. But your Lordships’ House has recently reiterated in a series of cases arising from the withdrawal of ships on time charter for non-payment of hire the need for certainty where punctual payment of hire is required and has held that the right to rescind automatically follows a breach of any such condition.”

In context, this is a clear statement that payment of hire is a condition, although of course the point was not in issue in the case. Lord Roskill does not identify the recent series of House of Lords cases which he regarded as to that effect. They are likely to include The Laconia, and The Chikuma and perhaps albeit less recent The Petrofina. In each of those cases considerations of commercial certainty were addressed to whether the withdrawal clause should be given full and stringent effect in accordance with its terms, rather than for the purposes of any analysis of whether the term was a condition for the purposes of repudiation at common law.

Lord Roskill drew attention to the decision of the House of Lords in Bremer Handelsgesellschaft m.b.h v Vanden Avenne-Izigem P.V.B.A [1978] 2 Lloyd’s Rep 109 in which clause 22 of the contract had been held to be a condition but clause 21 not to be. He went on at p. 727E:

“In short, while recognising the modern approach and not being over-ready to construe terms as conditions unless the contract clearly requires the court so to do, none the less the basic principles of construction for determining whether or not a particular term is a condition remain as before, always bearing in mind on the one hand the need for certainty and on the other the desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical and where damages would clearly be an adequate remedy. It is therefore in my opinion wrong to use the language employed by Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 as directed to the determination of the question which terms of a particular contract are conditions and which are only innominate terms. I respectfully agree with what Megaw L.J. said in the passage in his judgment in the instant case.”

It is to be noted that the balance between the need for certainty and the undesirability of treating trivial breaches as carrying the consequences of breaches of condition requires a more nuanced approach where there is a contractual termination clause. In such circumstances the desideratum of certainty may be fulfilled by the contractual right to put an end to the future performance obligations without the full common law consequences of repudiation attaching. This was not a matter which fell to be considered on the facts of that case.

At pp. 728H-729D Lord Roskill said

“In reply to this part of Mr. Buckley’s argument Mr. Staughton drew your Lordships’ attention to Halsbury’s Laws of England 4th ed., vol. 9 (1974), paras. 481 and 482. He was able to show that the penultimate full paragraph in paragraph 481 had been expressly approved by no less than three of your Lordships in the United Scientific Holdings case [1978] A.C. 904, by Viscount Dilhorne at p. 937, Lord Simon of Glaisdale at pp. 941 and 944, and by Lord Fraser of Tullybelton at p. 958, while Lord Salmon at p. 950 stated the law in virtually identical terms though without an express reference to this particular passage in Halsbury. The passage in question reads:

“The modern law, in the case of contracts of all types, may be summarised as follows. Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subjected to unreasonable delay gives notice to the party in default making time of the essence.”

The relevant passage in para. 482 reads:

“Apart from express agreement or notice making time of the essence, the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties. Broadly speaking, time will be considered of the essence in ‘mercantile’ contracts and in other cases where the nature of the contract or of the subject matter or the circumstances of the case require precise compliance.”

A footnote, no. 3, refers among other cases to Reuter v. Sala, 4 C.P.D. 239 and to Bowes v. Shand 2 App. Cas. 455. My Lords, I agree with Mr. Staughton that the express approval of the passage in paragraph 481 cannot be taken as involving implied disapproval of the passage I have just quoted from paragraph 482.”

At p729E-H Lord Roskill said:

“My Lords, I venture to doubt whether much help is necessarily to be derived in determining whether a particular term is to be construed as a condition or as an innominate term by attaching a particular label to the contract. Plainly there are terms in a mercantile contract, as your Lordships’ House pointed out in Bremer Handelsgesellschaft m.b.H. v. Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep. 109, which are not to be considered as conditions. But the need for certainty in mercantile contracts is often of great importance and sometimes may well be a determining factor in deciding the true construction of a particular term in such a contract.

To my mind the most important single factor in favour of Mr. Staughton’s submission is that until the requirement of the 15-day consecutive notice was fulfilled, the respondents could not nominate the “one Gulf port” as the loading port, which under the instant contract it was their sole right to do. I agree with Mr. Staughton that in a mercantile contract when a term has to be performed by one party as a condition precedent to the ability of the other party to perform another term, especially an essential term such as the nomination of a single loading port, the term as to time for the performance of the former obligation will in general fall to be treated as a condition. Until the 15 consecutive days’ notice had been given, the respondents could not know for certain which loading port they should nominate so as to ensure that the contract goods would be available for loading on the ship’s arrival at that port before the end of the shipment period.”

Lord Scarman agreed with Lord Wilberforce and Lord Roskill that the term was a condition and said at p 718C-E:

“The difficulty in the present case is, as Mr Buckley’s excellent argument for the appellants revealed, to determine what is the true construction of the completed clause 7 of GAFTA form 119, which the parties incorporated in their contract. After some hesitation, I have concluded that the clause was intended as a term, the buyer’s performance of which was the necessary condition to performance by the seller of his obligations. The contract, when made, was, to use the idiom of Diplock LJ. [1962] 2 Q.B. 26, 65 and Demosthenes (Oratt. Attici, Reiske 867.11), “synallagmatic,” i.e. a contract of mutual engagements to be performed in the future, or, in the more familiar English/Latin idiom, an “executory” contract. The seller needed sufficient notice to enable him to choose the loading port: the parties were agreed that the notice to be given him was 15 days: this was a mercantile contract in which the parties required to know where they stood not merely later with hindsight but at once as events occurred. Because it makes commercial sense to treat the clause in the context and circumstances of this contract as a condition to be performed before the seller takes his steps to comply with the bargain, I would hold it to be not an innominate term but a condition.”

Lord Lowry said at p. 719E-720D:

“The second general point which I desire to mention concerns stipulations as to time in mercantile contracts, in regard to which it has been said that, broadly speaking, time will be considered to be of the essence. To treat time limits thus means treating them as conditions, and he who would do so must pay respect to the principle enunciated by Roskill L.J. in Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. [1976] Q.B. 44, 71A, that contracts are made to be performed and not to be avoided. The treatment of time limits as conditions in mercantile contracts does not appear to me to be justifiable by any presumption of fact or rule of law, but rather to be a practical expedient founded on and dictated by the experience of businessmen, just the kind of thing which Bowen L.J. could have had in mind when framing his classic observations on the implied term in The Moorcock (1889) 14 P.D. 64, 68:

“Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side: and I believe if one were to take all the cases, and they are many, of implied warranties of covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. Now what did each party in a case like this know? For if we are examining into their presumed intention we must examine into their minds as to what the transaction was.”

This passage has stood the test of time and I commend it to all lawyers who undertake to advise their clients on mercantile affairs.

In order to identify an implied term (concerning which both parties to the contract, being men of business, would say, “of course; it goes without saying") one must construe the contract in the light of the surrounding circumstances and, to understand how that is done, we cannot do better than read the passage from Lord Wilberforce’s speech in the Reardon Smith case [1976] 1 W.L.R. 989, 995E—997C to which my noble and learned friend, Lord Scarman, has already referred your Lordships.”

I emphasise three further aspects of the decision. First, both Lord Wilberforce and Lord Roskill recognised that the court should not be too ready to treat terms as conditions unless the terms of the contract clearly indicated such an intention. Secondly, Bunge v Tradax was a case in which the term in question carried a dependent term: performance of the nomination by the buyers was necessary in order to enable the sellers to fulfil their obligation to nominate the loading port and ship the goods. It was therefore an example of a case in which performance of the relevant term by one party was a condition precedent to the ability of the other party to perform another term which was itself a condition. This was treated by Megaw LJ and Lords Wilberforce, Scarman and Roskill as an important feature of the case. That is not a feature of the term requiring payment of hire in the present case. That this is an important and potentially critical distinction is illustrated by Universal Bulk Carriers Ltd v Andre et Cie [2001] 2 Lloyd’s Rep 65, especially per Clarke LJ as he then was at paragraphs [26]-[32].

Thirdly, the endorsement by Lords Roskill and Wilberforce of the passage in paragraph 482 of Vol 9 of the 4^th edition of Halsbury’s Laws, to the effect that “broadly speaking” time is of the essence in commercial contracts, requires further comment. The cases footnoted in that paragraph in support of the proposition were Reuter v Sala, Bowes v Shand and the other authorities considered by Megaw LJ at [1980] 1 Lloyds Rep at pp. 306-7. All were concerned with contractual obligations other than an obligation to make payment, as was, of course Bunge v Tradax itself. There is no such presumption in respect of terms providing for payment in commercial contracts, in respect of which generally speaking time is not of the essence unless a contrary intention clearly appears from the terms of the contract, or the surrounding circumstances, as exemplified by s. 10 of the Sale of Goods Act 1979. The position had recently been analysed by the House of Lords in United Scientific Holdings v Burnley Borough Council [1978] AC 904, in which it was held that the time for performance of steps under a rent review clause was not of the essence. Lord Diplock said at p. 924C-E:

“I shall have to examine rather more closely what are the legal consequences of “time being of the essence” and time not being of the essence; but I do not think that the question of principle involved in these appeals can be solved by classifying the contract of tenancy as being of a commercial character. In some stipulations in commercial contracts as to the time when something must be done by one of the parties or some event must occur, time is of the essence; in others it is not. 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 Act 1893, section 10 (1)); in a charterparty a stipulated time of payment of hire is of the essence. Moreover a contract of tenancy of business premises would not appear to be more of a commercial character than a contract for sale of those premises. Nevertheless, the latter provides a classic example of a contract in which stipulations as to the time when the various steps to complete the purchase are to be taken are not regarded as of the essence of the contract.”

He went on to explain the historical difference in approach of Courts of common law and equity prior to the Judicature Act 1873 which gave preference to the rules of equity. In relation to the latter he summarised the position at p. 927C-E

“My Lords, the rules of equity, to the extent that the Court of Chancery had developed them up to 1873 as a system distinct from rules of common law, did not regard stipulations in contracts as to the time by which various steps should be taken by the parties as being of the essence of the contract unless the express words of the contract, the nature of its subject matter or the surrounding circumstances made it inequitable not to treat the failure of one party to comply exactly with the stipulation as relieving the other party from the duty to perform his obligations under the contract. The Court of Chancery had reached this position in relation to contracts for the sale of land by the extension by Lord Eldon L.C. of the earlier doctrine that a stipulation as to the time of repayment by the mortgagor under a legal mortgage was not of the essence of the contract so as to entitle the mortgagee to refuse to reconvey the property if payment with interest was tendered after the stipulated date was passed: Seton v. Slade (1802) 7 Ves. Jun. 265.”

As to the common law, at p. 925G he pointed out that it had been established in Martindale v Smith (1841) 1 QB 389 and embodied in the Sale of Goods Act 1893 that the time of payment in a contract for the sale of goods is not of the essence unless made so by an express term. He summarised the common law position at p. 928A-C;

“My Lords, I will not take up time in repeating here what I myself said in the Hongkong Fir case, except to point out that by 1873:

(1)

Stipulations as to the time at which a party was to perform a promise on his part were among the contractual stipulations which were not regarded as “conditions precedent” if his failure to perform that promise punctually did not deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract;

(2)

When the delay by one party in performing a particular promise punctually had become so prolonged as to deprive the other party of substantially the whole benefit which it was intended that he should obtain from the contract it did discharge that other party from the obligation to continue to perform any of his own promises which as yet were unperformed;”

Having drawn attention to particular considerations involving contracts for the sale of land and options, he concluded that a stipulation as to time in a rent review clause was no different from any other term in a synallagmatic contract where the obligation arises upon the occurrence of a described event and concluded at p. 930G.

“So upon the question of principle which these two appeals were brought to settle, I would hold that in the absence of any contra-indications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the time-table specified in a rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.”

The principle that stipulations as to time of payment are not generally to be regarded as of the essence in commercial contracts unless a contrary intention appears from the contract or the surrounding circumstances has been judicially restated on a number of occasions: see for example per Christopher Clarke J, as he then was, in Dalkia Utilities Services Plc v Celltech International Ltd [2006] 1 Lloyd’s Rep 599 at paragraphs [130]-[131]. It is reflected in the current edition of Chitty on Contracts at paragraph 12-037 and Halsbury’s Laws Vol 22 at paragraph 502.

In Stocznia Gdanska SA v Latvian Shipping Co & others [2002] 2 Lloyd’s Rep 436 the Court was concerned with a shipbuilder’s right to rescind and claim damages for the failure of the buyer to pay instalments for six ships being built at the yard. The contracts provided a 21 day grace period, following which there was a contractual right on the part of the yard to rescind. The relevant aspect of the decision for present purposes is that addressing the buyer’s argument that the failure to pay the keel laying instalment on the first contract was not repudiatory, such that the contractual right of rescission did not carry with it an entitlement to damages. Rix LJ, giving the leading judgment, held at paragraphs [74]-[76] that the buyer’s breach was a renunciation whether or not the payment provision was a condition or innominate term, but went on, obiter, to conclude that the payment term was a condition. He said:

“77.

Mr. Glennie pointed out that time for payment under a commercial contract is not normally of the essence, i.e. that time for payment is not normally a condition of such a contract: see for instance s.l0 of the Sale of Goods Act, 1979. That is true as far as it goes: see Bunge Corporation v. Tradax Export S.A., [1981] 2 Lloyd’s Rep. 1; [1981] 1 W.L.R. 711.

……….

79.

Moreover, The Georgios C is in my judgment of little assistance. It may be the case that in a withdrawal clause construed to mean “and for so long as default continues” the clause itself does not amount to a condition and thus the breach of non payment does not ipso facto amount to a repudiation. Since the clause only permitted withdrawal if the default was still continuing at the time of withdrawal, any remarks on the subject were in any event necessarily obiter. Our clause, however, is different from that in The Georgios C, not because it did not permit late payment as a remedy preventing rescission, for it allowed a period of grace of 21 days (cl. 5.05 first paragraph), but because it stated that those 21 days were the limit of such period of grace. There was in fact no right of rescission immediately Latreefers failed to pay by the due date, but only upon default 21 days after the due date of payment. In a contract where a vessel is to be built with funds provided by the purchaser in stages, an instalment notice is to be given requiring payment within five banking days, and a further 21 days of grace are then allowed, I do not see why provision for what is then called default entitling rescission should not be regarded as setting a condition of the contract.

80.

In any event, the jurisprudence regarding time charter withdrawal clauses does not end with The Georgios C, which was itself overruled in Mardorf Peach & Co. Ltd. v. Attica Sea Carriers Corporation of Liberia (The Laconia), [1977] 1 Lloyd’s Rep. 315; [1977] A.C. 850. In Antaios Compania Naviera S.A. a Salen Rederierna AB (The Antaios) [1984] 2 Lloyd’s Rep. 235; [1985] A.C. 191 the withdrawal clause under consideration operated “failing the punctual and regular payment of the hire or on any breach of this charter party”. The House of Lords held that “any breach” meant any repudiatory breach — “that is to say: a fundamental breach of an innominate term or a breach expressly stated to be a condition, such as would entitle the shipowners to elect to treat the contract as wrongly repudiated by the charterers” (per Lord Diplock at p. 238, col. 1; p. 200F). Although the point has not been decided and is perhaps controversial, there must be a good argument that it follows that the express right to withdraw in the case of unpunctual payment under such a clause is a condition of the contract, breach of which is in itself repudiatory.”

For reasons I have endeavoured to explain, I do not regard the overruling of The Georgios C on another point in The Laconia as denting the authority of what Donaldson J and Lord Denning said about payment of hire not being a condition; nor is there to my mind anything in The Antaios which supports the proposition that payment of hire is a condition. I do not derive any particular assistance from the conclusion that the instalment payment in the shipbuilding contract in that case was a condition. The position of a yard under such a contract is very different to that of a shipowner under a time charter. In the latter case the withdrawal clause leaves the owner free to employ his vessel profitably elsewhere and puts an end to any loss continuing to be caused to the owner resulting from the termination, other than the loss of bargain which crystallises on termination. By contrast a shipbuilder exercising a right to terminate for default in payment by his buyer is left with an unfinished vessel in his yard whose presence will cause continuing damage. It is easy to see why in such circumstances the shipbuilder and buyer might be thought to have intended that the termination should not merely put an end to future obligations but oblige the buyer to pay for the losses flowing from the termination.

Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 1 Lloyds Rep 461 was a shipbuilding case in which buyers invoked a contractual right to terminate for delay by the yard in completion of three vessels and the question arose whether they were entitled to damages for loss of bargain. The Court of Appeal held that they were. The delay in that case was sufficient to be repudiatory or renunciatory if the term was an innominate term, such that the question whether it was a condition was not in issue. The argument for the buyers was that the contractual termination provision, clause 10, displaced the common law right to treat the contract as repudiated and/or was a complete code regulating rights flowing from the breach so as to excluded liability for the breach. The decision is not therefore directly in point. Nevertheless Moore-Bick LJ, who gave the leading judgment, made various statements which in The Astra Flaux J considered provided support for his conclusion that non payment of hire in a time charter is a breach of condition. Moore-Bick LJ said:

“The nature of the contract

12.

The contract in the present case is one for the sale of future goods, in this case a vessel, to be constructed by the seller (the yard) and delivered to the buyer (Gearbulk) by an agreed date. It contains many detailed provisions relating to the specification and performance of the vessel, as well as other matters. In relation to delay in delivery and deficiencies in speed, fuel consumption and deadweight capacity it provided for the payment of liquidated damages by the yard and, if the delay or any of the deficiencies exceeded a certain level, ultimately gave Gearbulk a right to terminate the contract. The contract also gave the yard a right to terminate it if Gearbulk failed to pay an instalment of the price when it became due.”

………..

“14.

It is inherent in the nature of a legally binding contract that each party expects to obtain the benefit of the bargain into which he has entered or, if the contract is not performed, a right to recover compensation in the form of damages for the loss of that benefit. Accordingly, in a case where one party’s breach is such as, in the words of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] 2 Lloyd’s Rep 478: [1962] 2 QB 26, to deprive the other of substantially the whole benefit which it was intended that he should obtain from the contract, the common law recognises the right of the injured party to treat the contract as discharged and to recover damages for the loss of the bargain. Such a breach is commonly described as “going to the root of the contract”. That is all trite law, but it provides the underpinning, should it be required, for Mr Boyd QC’s submission that parties to a contract of this kind, or indeed to any contract, enter into negotiations in the expectation that if one of them commits a breach which goes to the root of the contract in the sense just described, the other will be entitled to recover damages for the loss of his bargain. The parties may, of course, agree to depart from that position, but that is the point from which they start.

15.

Whether a breach is sufficiently serious to go to the root of the contract depends on the terms of the contract and the nature of the breach, but it is open to the parties to agree that the breach of a particular term, however slight, is to be treated as having that effect and shall therefore entitle the other to treat the contract as repudiated. Different words have been used to express that intention. The use of the word “condition” will usually (though not always — see Wickman Machine Tool Sales v Schuler AG [1973] 2 Lloyd’s Rep 53; [1974] AC 235) be sufficient, but many other forms of wording can be found. Sometimes the consequences of a breach are spelled out and sometimes they are not; in each case it is necessary to construe the contract as a whole to ascertain what the parties intended.

…………

“20.

In my view Mr Dunning’s submission fails properly to recognise the true nature of the contract. The primary purpose of article 10 in the present case is to provide an agreed measure of compensation for breaches of contract by way of delay in delivery and deficiencies in capacity and performance which, although important, do not go to the root of the contract. For these the parties have agreed the payment of liquidated damages which are to be deducted from the final instalment of the price and to that extent their agreement displaces the general law, at least as regards the measure of damages recoverable for a breach of that kind. However, they have also agreed that there comes a point at which the delay or deficiency is so serious that it should entitle Gearbulk to terminate the contract. In my view they must be taken to have agreed that at that point the breach is to be treated as going to the root of the contract. In those circumstances the right to terminate the contract cannot sensibly be understood as anything other than embodying the parties’ agreement that Gearbulk has the right to treat the contract as repudiated, with (subject to Mr Dunning’s alternative argument) the usual consequences. The same holds true in relation to the yard’s right to terminate the contract under article 5.7. Although the parties may have agreed to exclude, in whole or in part, Gearbulk’s right to recover damages for a repudiatory breach on the part of the yard, I am unable to accept that they intended to create by their contract a situation which differed in its effect from that which would arise on the acceptance of a repudiation under the general law. Article 5.9 and article 10 simply identify the circumstances in which one or other of the parties is entitled to treat the contract as discharged by the other’s breach. In para 88 of his judgment in Stocznia Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436 Rix LJ expressed the view that where contractual and common law rights overlap it would be too harsh to regard the use of a contractual mechanism of termination as ousting the common law mechanism, at any rate against a background of an express reservation of rights. In this case I would go further. In my view it is wrong to treat the right to terminate in accordance with the terms of the contract as different in substance from the right to treat the contract as discharged by reason of repudiation at common law. In those cases where the contract gives a right of termination they are in effect one and the same.”

No doubt what Moore-Bick LJ meant by “those cases” were the factual circumstances triggering the clause in the contracts before him. I apprehend that he was not intending to set out a general rule that whenever a contract contains a termination clause, the clause is to be treated as equivalent to a right to accept a repudiatory breach at common law, a proposition which would be inconsistent with the very existence of options to cancel.

I find nothing in this decision or reasoning which advances the current debate. As Flaux J recognised at paragraph [99] of The Astra there are important differences between the shipbuilding contract in that case and the contractual termination framework within it, and right of withdrawal for non payment of hire in a time charter. This decision seems to me to be no more than a conventional application of the principle in Financings v Baldock that the exercise of a contractual right of termination will prima facie also be treated as an acceptance of repudiatory breach if and to the extent there has been such a breach unless the language of the clause and the contract dictates otherwise.

Clause 77 of the SPAR Vessel charters, which permits GCS to cancel if the vessel is off hire for more than 60 days, affords an example of these owners and charterers agreeing an option to cancel. Off hire events are not confined to breaches of contract by Spar, although such events will commonly be breaches. It is common ground that clause 77 is directed only to future obligations: if it is triggered by the vessel being off-hire for more than 60 days and GCS elects to terminate the charterparty, both parties are relieved from further performance; but GCS does not thereby gain a right to damages for losses flowing from the termination. If GCS were to lose the balance of a profitable charter on a rising market, it would have no claim against Spar unless Spar’s conduct was a repudiation or renunciation permitting termination apart from the clause.

This suggests that there is nothing inherent in the particular relationship between owners and charterers created by a time charter which is inimical to an option to cancel, and that it is a form of termination provision not only known to the law but within the particular contemplation of these contracting parties.

Both Mr Phillips and Mr Coburn sought to gain assistance from the words in the clause “Failing the punctual payment of hire, or any fundamental breach whatsoever of this Charter Party.” Mr Phillips’ suggestion that “whatsoever” links the two halves of the clause so as to treat punctual payment of hire as part of a genus to which the two halves of the clause belongs seem to me to put more weight on the word than it will bear. It is merely a word of emphasis governing the word “any”, emphasis which is understandable since in the previous NYPE form “any” had been held not to mean any. Moreover if the new wording introduced into the 1993 NYPE form was consciously intended to reflect The Antaios, including Lord Diplock’s terminology used there and in Photo Productions and The Afovos, it is arguable that fundamental breach is not part of a genus to which breach of condition belongs, being a repudiatory breach of an innominate term in contradistinction to a breach of condition. This may be reading too much into the language, and was not a point advanced in argument before me, which proceeded on both sides on the premise that the second half of the clause applied to repudiatory breaches including breaches of conditions. I do not think that the position is affected by whether fundamental breach means a repudiatory breach, as was held to be the meaning of any breach in the 1948 form in The Antaios, or is more narrowly confined to breach of an innominate term so as to exclude breach of condition. As Mr Coburn pointed out, there is no use of the word “other” in the second half of the clause, or anything else directly linking the two halves to a single genus. There is simply no language connecting the two halves of the clause.

I was similarly unpersuaded that the saving “without prejudice to any claims they (the Owners) may otherwise have on the Charterers” assisted the debate although both parties invoked the words in support of their contentions. Those words make clear that accrued rights to debts or damages which have already accrued at the time of termination are not affected; that casts no light on whether the right of termination is to take effect only as a release from future performance as an option to cancel or is a recognition of breach of a condition sounding in damages flowing from the termination itself.

I also attach no significance to the additional remedy introduced into the 1993 NYPE form which has no counterpart in the common law, enabling Owners to withdraw the vessel temporarily. Had this been a bespoke clause with no history I might have regarded that as an indication that the parties intended the clause to affect future performance only, without affecting such common law rights as would exist but for the clause. But the history of withdrawal clauses in time charters generally, and the previous NYPE form, suggests that this was simply intended as an additional remedy and could not by a side wind change the effect of a clause providing for withdrawal simpliciter.

Mr Phillips attached particular significance to the so called anti-technicality provisions of clause 11(b) and argued that they were to be treated as an indication that time was intended to be made of the essence by a three day period of grace following a notice. I cannot accept that such was their intention. Anti-technicality clauses of this kind arose against the background of the strict construction of withdrawal clauses and the risks of drastic consequences for charterers acting in good faith from errors in the banking system exemplified by the cases in the 1970s and 1980s. That it was the intention of clause 11(b) merely to mitigate these risks is apparent from the fact that its wording makes it applicable where the failure to make payment is due to oversight, negligence, errors and omissions on the part of the Charterers or their bankers. It is doubtful whether that provision would prevent owners exercising the right to withdraw immediately if charterers simply decided that they were unwilling to pay until served with a notice.

Moreover all that the anti-technicality provision does is to require a notice, after hire has fallen due and remains unpaid, followed by a further period of grace, as a condition which must be fulfilled, at least in some circumstances, before the right of withdrawal may be exercised. It is directed solely to the circumstances in which the contractual right arises; it can say nothing about what rights arise apart from the contractual right of termination conferred by the clause.

There are in any event conceptual difficulties with the analogy between anti-technicality clauses and notices making time of the essence. There is an important distinction between, on the one hand, a provision in the contract that time is to be of the essence in relation to a particular term, by which the parties accord it the status of a condition, and on the other, a notice making time of the essence. The former makes the failure to comply a breach of condition when it occurs. The latter presupposes that the breach is of an innominate term, not a breach of condition, when it occurs, and is not at that stage repudiatory; it seeks to put the innocent party in a position to treat the continuing breach as repudiatory or renunciatory. A notice to make time of the essence does not convert an innominate term into a condition. Failure to make payment before the expiry of the notice period is not a breach of condition; on the contrary it is merely of evidential significance in relation to whether the breach of the innominate payment term is thereafter to be treated as repudiatory or renunciatory. The principles were summarised by Christopher Clarke J in Dalkia v Celtech at paragraph 131 as follows:

“131.

In Re Olympia & York Canary Wharf Ltd (No 2) [1993] BCC 159 Morritt J, as he then was, considered the authorities relating to the making of time of the essence. From that analysis and other authority I derive the following propositions:

(a)

Equity, before the Judicature Acts, insisted that prima facie time for payment was not essential. But equity’s patience was exhaustible. It would allow the contract to be treated as repudiated if the party in default had been given the opportunity to mend his ways by the giving of a notice to comply within a reasonable time. Whilst this is described as making time of the essence in reality the notice is the means of bringing to an end equity’s interference with the contract: Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1;

(b)

Such a notice, which may be given in respect of any species of term, may not be served until the time for performance has expired; but it may be served as soon as that time arrives;

(c)

Such a notice must state clearly what the other party is required to do and the consequence if he fails ie that the contract may he terminated: Afovos Shipping Co SA v R Pagnan and Flli (The Afovos) [1982] 1 Lloyd’s Rep 562, 565 col 2; [1982] 1 WLR 848, 854C;

(d)

If the defaulting party fails to perform after service of such a notice, the failure is not automatically a repudiation of the contract, giving rise to a right to terminate. The breach must go to the root of the contract;

(e)

The notice operates as evidence of the date by which the promisee considers it reasonable to require the contract to be performed, failure to perform by which is evidence of an intention not to perform: see Lord Simon of Glaisdale in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, 946E—947A; Astea (UK) Ltd v Time Group Ltd [2003] EWHC 725 (TCC) para 147.”

What then is the position on owners’ argument once hire has fallen due but before a notice has been given, or before expiry of the three days from the giving of a notice? Is the non payment a breach of condition? If so, the anti-technicality notice can have no bearing on the question. Is it a breach of an innominate term? If so, the term does not change its status simply by the giving of a notice. Or is it no breach at all, such that there is only ever a default if and when a notice has been given and three days have elapsed? That would be inconsistent with the primary obligation being expressed to be the payment of hire 15 days in advance.

For all these reasons I do not consider that the anti-technicality provision in clause 11(b) assists owners’ argument. It merely indicates that the strictness of the right to withdraw under the clause is to be tempered to provide for mishaps in circumstances in which the clause will have potentially drastic consequences for charterers in a rising market. That does not dictate that it should be regarded as more than an option to cancel. In Financings v Baldock there was a 10 day grace period before the contractual right of termination arose. That was not regarded as something which turned the payment obligation into a condition.

There is one aspect of the language of the clause to which I do attach particular significance. It is that what the clause seeks to identify as the consequence of the triggering event is a remedy in the form of a liberty to withdraw the vessel from service. It does not say that payment of hire is to be treated as a condition, or that the time of payment is to be treated as of the essence. It does not purport to confer a right to damages where such a right would not otherwise exist. Its language is more naturally indicative of an option to cancel directed solely to future performance, not as something intended to impose new liabilities.

As is apparent from my review of the authorities, those which expressly address or mention the question whether payment of hire in time charters is a condition do not speak with one voice. That payment of hire is not a condition is supported by the dicta of Donaldson J and Lord Denning in The Georgios C, in passages not affected by the overruling of the decision in The Laconia; the judgment of Brandon J in The Brimnes and its implicit approval by a strong Court of Appeal (Edmund Davies, Megaw, Cairns LLJ) in that case; the dicta of Mocatta J in the Agios Giorgis; and the dicta of Lord Sumption and Lord Mance in The Kos, together with the dicta of Andrew Smith J and the concession by Eder J as counsel in that case. On the other hand authority that payment of hire is to be treated as a condition is to be found in the dicta of Lord Diplock in United Scientific Holdings, The Afovos and The Scaptrade; the dicta of Lord Roskill in Bunge v Tradax; the concession by Lord Steyn as counsel in the Scaptrade; the dicta of Rix LJ in Stocznia Gdanska v Latvia (although not expressed as a concluded view); and not least the reasoned judgment of Flaux J in The Astra.

Lord Diplock said in The Antaios at p. 204B that dicta are of persuasive strength, depending upon the professional reputation of the judge who voiced them. In this case dicta come from judges on each side with great experience in this area of commercial law and practice, who command the very greatest respect. It would be invidious to seek to ascribe relative weight to the professional reputations of each of those identified. The solution to this issue is not to be found by a judicial game of cards, allocating to the authors of the views the status of colour cards or trumps so as to assess which is the stronger hand.

I start with the approach which I take to be supported by Financings v Baldock, that a contractual termination clause should be treated as an option to cancel which does not confer greater rights to damages at common law than would exist apart from the clause unless there is clear language to that effect.

There is no such clear language in clause 11 or elsewhere in these charters. On the contrary, the language of clause 11, providing for a liberty to withdraw the vessel from service, addresses itself solely towards future performance. Save in relation to future performance the clause neither expands nor restricts the rights of the parties. It does not purport to confer a right to damages where none would otherwise exist, nor to remove a right to damages where such right would otherwise exist. In short it is neutral as to the common law rights of the parties apart from the clause.

A clause which merely provides a contractual remedy for default is not naturally to be interpreted as determining what remedies are available if the contractual remedy is not relied on. Moreover if it had been intended to introduce a provision to make clear that payment of hire was a condition, one would expect it to be framed by reference to the term requiring payment, stating that it was to be treated as a condition or that time of payment was to be of the essence, which was the formula used in the bareboat charter in Parbulk II A/S v Heritage Maritime Ltd SA (The Mahakan) [2012] 1 Lloyd’s Rep 87.

For reasons which I have endeavoured to explain, the existence of the anti-technicality provision in clause 11(b) does not detract from this analysis.

I therefore reject the submission that the effect of the withdrawal clause is to make payment of hire a condition. The critical question which arises is whether payment of hire would be treated as a condition in the absence of the withdrawal clause. A number of considerations suggest that it would not.

First, there is force in the point which formed part of the successful argument of Mr Robert Goff QC, as he then was, on behalf of charterers in The Brimnes, that provision for an express right of withdrawal for failure to pay hire tends to show that the obligation was not otherwise of such a character as to be a condition. The very inclusion of the contractual right of withdrawal for non payment of hire suggests that in its absence there would be no such right. Such a provision would be otiose if the owner had the right at common law to put an end to the contract for any default in payment of hire as a breach of condition. It is clear from Lord Diplock’s speech in The Afovos that he would have regarded the term as an innominate one in the absence of a withdrawal clause.

Secondly, there is the presumption that in mercantile contracts, stipulations as to the time of payment are not to be treated as conditions absent a contrary indication in the contract, of which there is none in these charters.

Thirdly, predicated breaches of the term may range from the trivial to the serious. Default in punctual payment may consist in being marginally late, by accident, causing no loss to owners or loss which is insignificant in the context of the long term charter as a whole. In this respect the payment term carries the hallmarks of an innominate term. Bunge v Tradax establishes that this is not determinative, but nor is it irrelevant. Absent considerations of commercial certainty which dictate a different result, the general approach should be that where predicated breaches of a term may have consequences ranging from the trivial to the serious, that is a strong indication that it is to be treated as an innominate term. This applies as much to a time charter as any other form of contract (see for example Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC 757 per Lord Wilberforce at p. 778F).

Fourthly I cannot conceive that in the absence of a contractual withdrawal clause, owners and charterers should be taken to have intended that a payment of hire a few minutes late would entitle the owners to throw up a five year charter. It would not satisfy the test for an implied term which Lord Lowry suggested in Bunge v Tradax as a useful guide. I do not regard that conclusion as put in doubt by what was said in The Petrofina, The Laconia, The Mihalios Xilas and other cases emphasising the importance to owners of punctual advance payment. Those are good reasons for giving a stringent interpretation to a contractual option to cancel where that is what the parties have bargained for in clear terms; they provide no warrant for supposing that the parties would have had such an intention if they had not contracted for a right of withdrawal in such circumstances. Although they may also colour the approach to the factual inquiry whether the default deprives the shipowner of substantially the whole benefit of the contract, and may justify setting the bar at which non payment is repudiatory or renunciatory at a lower level than would be the case in relation to payment obligations under contracts of a different nature, I cannot regard them as sufficient to justify any failure to pay hire punctually being treated as allowing owners to put an end to a long term time charter in the absence of express agreement.

Fifthly, I do not regard considerations of commercial certainty as pointing to a different conclusion. As Lord Roskill observed in Bunge v Tradax certainty is a desideratum which must be counterbalanced with the need not to impose liability for a trivial breach in undeserving cases.

Moreover a very considerable measure of certainty is conferred by the withdrawal clause itself as an option to cancel. There is no uncertainty over the ability to put an end to future performance. It is true that if payment of hire is an innominate term and the right to terminate only entitles owners to termination damages if the breach is repudiatory, the owners will not have absolute certainty in a fallen market in determining when the exact moment comes at which exercising the right will enable them to recover damages for the loss of bargain. But that is an uncertainty regularly faced by commercial parties whose contracts commonly contain innominate terms, and charterparties contain many such terms (for example as to seaworthiness). I see no reason why shipowners should be treated more favourably in this respect than others; owners of vessels are not unique in the commercial world in relying on prompt payment by their contractual counterparty to finance their performance of the contract.

In this context it is significant that until The Astra, Brandon J’s conclusion in The Brimnes on this point was generally accepted in the shipping community, as the editors of Time Charters 7^th edn observe at paragraph 6.129, although the point was not regarded as free from controversy. In the 40 years since, owners and charterers have conducted business, and resolved disputes, on the footing that the payment of hire is not a condition, or at the very least may not be. The NYPE, Baltime and Shelltime forms of time charter have not been altered to make clear that payment of hire is a condition; nor so far as I am aware have any other standard time charterparty forms. Nor has there grown up any regular practice of including bespoke terms to that effect in time charters (cf the term that payment of hire should be of the essence in a bareboat charter in The Mahakan). Markets have not been on an uninterrupted rise throughout this period but have risen and fallen in cycles. There have been many disputes in arbitration in which the conduct of charterers has fallen to be examined to see whether failures to pay hire are sufficiently serious to be repudiatory or renunciatory. None of this suggests that the shipping community considers the desideratum of commercial certainty to be such as to require payment of hire to be treated as a condition.

In The Astra Flaux J gave four reasons for concluding that payment of hire was a condition. The first, at paragraph [109], is that because the withdrawal clause makes clear that there is a right to terminate for any failure to make punctual payment, it makes clear that any non payment is sufficiently serious to justify termination, which is a strong indication that it was intended that a failure to pay hire promptly would go to the root of the contract and thus that the provision was a condition. This is in essence an acceptance of the argument of counsel for the owners recorded at paragraph [39], that the logical corollary of Diplock LJ’s analysis of what constitutes a condition is that if the contract provides for a right to terminate, that is a very strong indication that the term in question is a condition. I have endeavoured to explain why I believe this turns the passage on its head. Moreover its reasoning is difficult to reconcile with Financings v Baldock (which it is not apparent from the report was cited to Flaux J). Once it is recognised that a clause providing for termination on any breach of a term, however trivial, may constitute an option to cancel, the fact that the clause is triggered by such a breach tells one nothing about whether the term breached is to be characterised as a condition.

Flaux J’s second reason, at paragraph [110], is that the general rule in mercantile contracts where there is a time provision requiring something to be done is that time is of the essence, subject to payment of the price in sale of goods which is not here relevant; and that the dicta in the House of Lords in The Petrofina, The Mihailis Xilas, United Scientific Holdings, Bunge v Tradax, and The Afovos all indicate that the obligation to pay hire punctually is such a provision where time is of the essence and hence a condition. As to this the presumption in commercial contracts is that stipulations as to time of payment are not of the essence in the absence of a clear indication to the contrary. The dicta in the cases about the owners’ commercial interest in prompt and punctual advance payment provide good reason for approaching a contractual option to terminate with the stringency which its unqualified terms require, but no reason additionally to treat the term as a condition conferring a right to terminate at common law with its different financial consequences: once the owner is able to invoke his option to cancel to put an end to future performance he is no longer obliged to fund the operation of the vessel for the benefit of the charterer. His interest in the prompt and punctual payment of hire for so long as he has to provide the services of the master and crew to the charterers disappears when he withdraws the vessel from service. Insofar as the dicta go beyond this and state in terms that payment of hire is a condition, as those of Lord Diplock and Lord Roskill undoubtedly do, they were not made after argument on the point and are counterbalanced by other judicial dicta and the decision of Brandon J in The Brimnes to the contrary.

Flaux J gave four reasons for declining to follow the The Brimnes. The first (paragraph [111]) was that in that case the charter contained no anti-technicality clause. That seems to me to afford no real ground of distinction. The clause in The Astra, clause 31, was in materially similar terms to clause 11(b) of the SPAR charters save that it provided two banking days grace. It too was expressed in terms which only covered accidental lateness. I have sought to explain why the anti-technicality clause does not in my view indicate that time was intended to be of the essence and drawn attention to the fact that the 10 day grace period in Financings v Baldock was not treated as having that effect. Flaux J’s second reason for not following The Brimnes (paragraph [114]) was that the decision is inconsistent with the dicta in the House of Lords to which he referred. That would be good reason if the dicta undermined the reasoning, but again for reasons I have sought to explain I do not believe they do so, and in any event the decision also has the support of other dicta at the highest level. Flaux J’s third reason (paragraph [114]) was that Brandon J relied heavily on the dicta of Donaldson J and Lord Denning in The Georgios C, which was subsequently overruled in The Laconia. It was, however, overruled on a different point, not that for which Brandon J treated it as authoritative support. Flaux J’s fourth reason is that the speeches in The Laconia falsified the argument on behalf of charterers by Mr Robert Goff QC, as he then was, in The Brimnes that “punctual” added nothing to “payment” so as not to afford a ground for distinguishing The Georgios C. I do not regard anything said by the House of Lords in The Laconia as undermining Mr Goff’s argument: the relevant passages served to reaffirm the considerable commercial importance of payment of hire to owners, which exists irrespective of a reference to punctuality in the clause. On the contrary, Mr Goff’s submission that there was no relevant distinction between the forms of wording was supported by what Lord Wright had said at p. 94 of The Petrofina in the passage I have quoted above.

The third of Flaux J’s reasons for concluding that payment of hire was a condition (at paragraph [115]) was the need for commercial certainty: if the right to withdraw the vessel for non payment left the owners with no remedy in damages on a falling market, save in cases where charterers’ conduct was repudiatory, that would leave owners in a position of uncertainty whether to soldier on with a recalcitrant charterer until such time as the owners were in a position to say that the charterers were in repudiatory breach. Insofar as having to “soldier on” is a disadvantage, it is no more than any commercial party faces as a result of the law that it is only breaches of innominate terms which are of a repudiatory character which allow a party to put an end to contractual obligations; whether that gives rise to uncertainty depends upon the application of settled law to common facts. I would endorse the view of the editor of Treitel on The Law of Contract 13^th edn at paragraph 18-069 that the principal function of both conditions and express contractual termination provisions is to ensure certainty so far as the right to terminate is concerned. That can be achieved by an option to cancel without conferring an unmerited right to damages.

Flaux J’s fourth reason for holding that payment of hire was a condition was that the conclusion was supported by the two shipbuilding cases, which, again for reasons I have endeavoured to explain, I do not view as having that effect.

For these reasons and with the greatest respect I have felt unable to follow the decision of Flaux J on this point in The Astra, and have concluded that payment of hire by GCS in accordance with clause 11 of these charters is not a condition.

Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit he is intended to receive as consideration for performance of his future obligations under the contract. Although different formulations or metaphors have been used, notably whether the breach goes to the root of the contract, these are merely different ways of expressing the “substantially the whole benefit” test: Hongkong Fir at pp. 66, 72; The Nanfri at pp. 778G-779D.

Conduct is renunciatory if it evinces an intention to commit a repudiatory breach, that is to say if it would lead a reasonable person to the conclusion that the party does not intend to perform his future obligations where the failure to perform such obligations when they fell due would be repudiatory: Universal Carriers v Citati at p. 436, The Afovos at p. 341 col 2.

Evincing an intention to perform but in a manner which is substantially inconsistent with the contractual terms is evincing an intention not to perform: Ross T Smyth & Co Ltd v T.D. Bailey, Son & Co [1940] 3 All ER 60, 72. Whether such conduct is renunciatory depends upon whether the threatened difference in performance is repudiatory. It is not here necessary to explore the position where the innocent party misappreciates the nature or scope of his obligations (see Woodar Investment Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 and Chilean Nitrate Sales Corporation v Marine Transportation Co Ltd (The Hermosa) [1982] 1 Lloyd’s Rep 570, 572-3).

An intention to perform connotes a willingness to perform, but willingness in this context does not mean a desire to perform despite an inability to do so. As Devlin J put it in Universal Carriers v Citati at p. 437, to say: “I would like to but I cannot” negatives intent just as much as “I will not.”

The facts

GCS had regularly failed to pay hire punctually since mid-April 2011, a period of over 5 months. Almost all payments on all three Vessels were unpaid when they fell due. Some were not paid at all, others only months after they fell due. In those months, only in July were instalments paid on time or within a few days of falling due.

For most of the period the arrears fluctuated between about US$1.5m and US$2.5m, and would have been up to US$1m more but for the exercise by Spar of its lien on sub-hire/sub-freights. If one takes a total of US$2m as a very rough average, this is broadly equivalent to about eight instalments over the three Vessels; individually the arrears of hire for the Vessels fluctuated between about one and four instalments.

GCS had made clear that non payment was due to cash flow difficulties caused by the fall in the market which rendered it unable to meet its hire obligations to all the owners of its chartered fleet. Since June it had repeatedly said that it expected cash injection from its parent which would enable it to make punctual payments and pay off the arrears. Despite such indications it continued to fail to make punctual payments on all three Vessels. It twice promised to pay off half the arrears by 31 August but failed to do so.

By the beginning of September GCS was emphasising its cash flow difficulties, providing no concrete payment proposal, and suggesting that it would merely pass on sub-hires when received, which in a market which had substantially fallen since the date of the charterparties was bound to amount to a significant shortfall on the hire due to Spar. It sought to excuse non payment of a SPAR DRACO instalment by saying that sub-charterers had not paid the sub-hire, suggesting that it would only (part) perform its hire obligations on each vessel if timeously paid the (insufficient) sub hire, an approach aptly described by Spar as hand to mouth.

At no stage did GCS provide any detail of what amounts were expected to be received from its parent, or when; or of how any such receipts would be allocated amongst competing creditor shipowners. It provided no explanation as to why its avowed expectations were unfulfilled, or why it was unable to fulfil its promise to pay off half the arrears by the end of August.

The only response from GCL to the request to fulfil its guarantee obligations was on 23 September 2011, when it indicated that the group was prioritising payment of bank interest over operational payments such as the hire due to Spar, and that “financial support will come” in October. This gave no explanation of how much financial support would come in October or when in that month. It made no concrete proposal for discharge of the liabilities and belittled the amount outstanding as a “relatively small sum”.

at the date of the termination of the SPAR CAPELLA and SPAR VEGA charters in September 2011, there was no market for a substitute time charter for the minimum unexpired term of those charters, which will expire in December 2015;

there was throughout the period between September 2011 and today a market for time charters of the vessels for shorter periods, such that Spar would have been able, had they so chosen, to earn hire from time charter employment of the vessels for two or more successive charters; and

Spar had acted reasonably in its choice of employment for the vessels and had not failed to mitigate its loss; nevertheless with hindsight Spar was disappointed with the earnings of the vessels in the Navig8 pool; had they been in time charter employment, the earnings of the two vessels over the period between September 2011 and today would have been several million dollars greater.

September 2011 US$14,000

September 2012 US$9,500

September 2013 US$10,750

September 2014 (no market for one year charters)

Conclusion