Ship Charterer Repudiate Charterparty

Shipowners obligation to provide a seaworthy ship as either a condition, any breach of which would entitle the charterer to repudiate his obligations under the contract, or as a warranty, sounding only in damages. The shipowner’s obligation to provide a seaworthy vessel was classified as an innominate or intermediate term by the Court of Appeal in Hong Kong Fir Shipping Co v Kawasaki.
In refusing to categorise the term once and for all as either a condition or a warranty, Diplock LJ pointed out that such an undertaking ‘can be broken by the presence of trivial defects easily and rapidly remediable as well as by defects which must inevitably result in a total loss of the vessel’. As the results of a breach could be so variable it would be as unreasonable to permit a party to repudiate a charter because a few rivets were missing as it would be to prevent him from doing so in the event of the defects in the vessel being irremediable. Thus, while objectively a compass defect was a serious matter, it would be illogical to permit the rejection of a 24-month charterparty if the defect
could be repaired by a compass adjuster within a matter of hours. While damages would always be available for breach of the undertaking, a charterer should only be allowed to repudiate his obligations under the charterparty where the breach deprived him ‘of substantially the whole benefit which it was intended that he should obtain from the contract’. Everything would depend on the effects of the breach in each individual case and, in the view of Diplock LJ, the test as to whether a party had been deprived of substantially the whole
benefit of the contract should be the same whether it resulted from breach of contract by the charterer or from the operation of the doctrine of frustration. What remedies are then available to the charterer in the event of a breach of this intermediate obligation by the shipowner? A distinction has to be drawn between the situation where the breach is discovered before performance of the charterparty has commenced and the position where the breach only comes to light after the vessel has sailed. In the former case the charterer will be able to treat his obligations under the contract as discharged if the breach deprives him of substantially the whole benefit of the contract and it is a breach which cannot be rectified within such time as would prevent the object of the contract from being frustrated. Thus in the case of Stanton v Richardson, where the pumping equipment on the chartered vessel was inadequate to deal with the surplus water from a cargo of wet sugar, the charterer was held entitled to repudiate the contract when it was established that new pumps could not be installed within a reasonable time. On the other hand, if the effects of the breach are less severe, the charterer will be restricted to his remedy in damages. In this respect it must be remembered that the permissible time allowance in which to remedy the defect will vary as between a voyage and a time charter. While a relatively brief delay may be sufficient to frustrate the object of the former, the Court of Appeal held in the Hong Kong Fir case that the absence of a vessel for 5 months undergoing repairs was insufficient to frustrate the objects of a 24-month time charterparty. The provisions of the time charter itself may, however, provide the charterer with an opportunity for escape if the shipowner cannot make good the defect before the cancelling date, even though the breach would not otherwise have entitled the charterer to repudiate. Thus under clause 22 of the Baltime form the charterer is entitled to cancel the charterparty unless the vessel is delivered to him by a specified date, ‘she being in every way fitted for ordinary cargo service’. The charterer in The Madeleine was able to take advantage of this clause when the shipowner was unable to produce the required deratisation certificate by the cancelling date. In the words of Roskill J, ‘there was here an express warranty of seaworthiness and unless the ship was timeously delivered in a seaworthy condition, including the necessary certificate from the port health authority, the charterers had the right to cancel’. Such right to cancel is not, however, dependent on any breach of obligation by the shipowners.
Where the unseaworthy state of the vessel is not discovered until after it has set sail, mere acceptance of the vessel does not amount to a waiver of the charterer’s right to damages. Nor does it necessarily amount to a waiver of the right to repudiate the charter provided that
the breach, when discovered, is sufficiently fundamental. This is particularly true of the time charter though, in the case of the voyage charter, if the breach is not apparent before the vessel sails, for all practical purposes the charterer may have little opportunity to discover it before the vessel arrives at its destination and performance of the contract is complete.