Breach of Charterparty
It’s crucial to grasp some fundamental principles of English contract law, especially regarding the rights of a Shipowner or Charterer to terminate a charterparty due to the other party’s breach.
Not all breaches of a contract result in a discharge from liability. A party may be relieved from further performing their duties under the contract or accepting the other party’s performance due to a breach.
However, not every breach allows for contract termination. Typically, the affected party is entitled to remedies, often as damages. English law categorizes contractual terms into three classes:
- Condition: A breach of which permits the innocent party to terminate the contract;
- Warranty: A breach of which does not allow for contract termination;
- Innominate Terms: A breach of which might permit termination if it significantly impacts the contract’s foundation.
Unless expressly allowed by a contractual term, Shipowners or Charterers can only end a contract if there is a breach of either a condition or an innominate term that fundamentally undermines the Charter Party.
The right to terminate due to a breach is effectively a choice for the non-breaching party. This party must decide whether to terminate the contract and seek damages or continue the contract despite the breach.
Terminating a contract for a breach ceases the obligation for both parties to fulfill unperformed duties from the time of termination but does not impact previously accrued rights.
If a party incorrectly terminates a contract claiming a breach that doesn’t legally justify termination, they may still rely on other valid reasons for termination, even if those reasons were unknown at the time of termination.
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