Shipowner lose right to Withdraw Ship

Shipowner may lose his right of withdrawal by waiver of the breach. But to constitute waiver his conduct must amount to a clear and unequivocal act showing acceptance of late payment as though it had been made on time or such a delay in refusing the late tender of payment as might reasonably cause the charterer to believe that it had been accepted. Receipt of late payment by an agent will not amount to waiver by the shipowner unless the agent has express authority to take such decisions on the shipowner’s behalf. Thus in The Laconia, where payment of hire was due on a Sunday, the charterer’s bankers delivered by hand to the shipowner’s bank at 3 p.m. the following day a payment order for the appropriate sum under the London Currency Settlement Scheme. The bankers took delivery of the payment order over the counter but, on subsequently informing the shipowners of its receipt, were immediately instructed to refuse the money and return it to the charterer’s bank. In these circumstances the House of Lords held that the shipowners were still entitled to withdraw the vessel since, in taking delivery of the payment order, their bankers were merely performing a ministerial act and had no authority to make business decisions on behalf of their principals as to the continuance or otherwise of the charterparty. ‘Certainly it was not within the bankers’ express or implied authority to make commercial decisions on behalf of their customers by accepting or rejecting late payments of hire without taking instructions. They did take instructions and were told to reject the payment. They did so and returned it to the charterers on the following day which in any view must have been within a reasonable time.’ Acceptance of part of the hire on or before the date due does not amount to a waiver of the owner’s right to withdraw the vessel if the balance of the hire is not paid by midnight on the due date. In The Mihalios Xilas  the charterers had the right, on payment of the final month’s hire under the charterparty, to deduct bunker cost and owner’s disbursements. In the erroneous belief that the ninth month was the final month of the charterparty, the charterer indicated his intention of deducting $31,000 from the instalment due on 22 March, though without disclosing the basis on which the deductions had been calculated. On 20 March the shipowners objected to the proposed deductions, but did not instruct their bankers to refuse payment of the balance of the hire, which was made on 21 March. The following day the shipowners were supplied with details of the deductions from which it was evident that the charterers were treating the ninth month as the last month of the charterparty. The shipowners then requested further details and supporting vouchers which were not supplied by the charterers. Eventually the owners withdrew the vessel on 26 March, whereupon the charterers claimed damages for wrongful withdrawal, arguing that by accepting the payment tendered on 21 March the owners had waived their right to withdraw the vessel. The House of Lords held that acceptance of part of the hire on 21 March did not amount to a waiver since, as the charterer had at least until the end of trading on 22 March in which to make payment, there was no default of payment for the owner to waive at that stage. As to the delay of four days before withdrawing the vessel, Lord Diplock took the view that ‘Waiver requires knowledge, and I agree with the umpire that the owners were entitled to a reasonable time to make enquiries of the charterers and of the master of the vessel (as they did) with a view to ascertaining whether [the right to withdraw the vessel under clause 7 had accrued] before electing whether to withdraw or not. That being so, his finding that from 21 March to noon on 26 March was a reasonable time to do so is one of fact which cannot be disturbed.’ Nor did the retention of the advance payment of hire during this period amount to an unequivocal act of waiver. Subsequent cases have suggested that a delay of from four to five days after the failure to make payment on the due date is not unreasonable and will not constitute waiver of the breach. In the view of Lloyd J in The Scaptrade, ‘what is the shortest time reasonably necessary will depend upon all the circumstances of the case. In some cases it will be reasonable for the owners to take time to consider their position, as withdrawal under a time charter is a serious step not lightly to be undertaken. In other cases it may be reasonable for owners to seek legal advice . . . it would be quite wrong in cases of this kind to require owners to grasp at the first opportunity to withdraw or to hold that they act at their peril by giving charterers two or three days grace.’ There is authority to suggest that repeated failure by a shipowner to insist on his strict legal rights in respect of payment of installments of hire might establish a course of conduct which would prevent him from exercising his right of withdrawal in the event of a subsequent breach by the charterer, at least until the shipowner had given adequate warning of his intention to revert to his strict legal rights on future occasions. In Tankexpress v Compagnie Financière Belge des Petroles a seven-year time charter required hire to be paid in cash, monthly in advance, with the proviso that the owners could withdraw the vessel ‘in default of such payment’. In fact, from the outset, the charterers had regularly posted a cheque for the relevant amount, addressed to the owner’s bank in London, two days before the hire was due. The owners had accepted this mode of payment for two years with- out complaint but, when payment of the September 1939 instalment arrived late having been delayed in the post by the outbreak of war, they sought to exercise their right to withdraw the vessel. The House of Lords held that they were not entitled to do so. In the words of Lord Porter, ‘In these circumstances I think the true inference to be drawn is that the method of performance of the contract was varied by an arrangement for payment to Hambros bank by cheque posted at such time as would in the ordinary course of post reach London on the 27th of the month . . . No doubt the owners could at any time have insisted upon a strict perform- ance of the contract after due notice, but they were not, in my view, entitled suddenly to vary the accepted mode of performance without first notifying the charterers in time to enable them to perform the contract in the manner demanded.’ On the other hand, it would appear that a distinction has to be drawn between such an ‘accepted mode of performance’ and the situation where the shipowner accepts late payment on a number of occasions without complaint. In the latter case such conduct will rarely constitute an unequivocal representation that the right to withdraw will not be exercised on a future occasion in the event of a late payment of hire. So in The Scaptrade the Court of Appeal held that such an estoppel did not arise when only six of the previous 22 instalments had been paid on time. In the opinion of Robert Goff LJ, ‘it is not at all easy to infer, from the mere fact that late payments had been accepted in the past by the owners without protest, an unequivocal representation by them not to exercise their strict legal right of withdrawal in the event of late payment by the charterers of a subsequent installment of hire – if only because the circumstances prevailing at the time when the earlier late payments were accepted may not be the same as those prevailing in the future’.
For a while it was thought that the equitable doctrine of relief against forfeiture might be invoked to mitigate the effects of a strict application of the withdrawal clause. However, attempts to enlist the aid of the doctrine found little support in The Laconia. In the Court of Appeal Lord Denning MR commented that ‘on reflection I do not think that equity would have intervened in a commercial case of this kind. It would have left the parties to have their rights determined by law. In commercial matters certainty is of the essence, as well as time and speed, and equity provides none of these.’ In the House of Lords, Lord Wilberforce took a similar view, pointing to the clear distinction between contracts of charterparty and leases of land, in the context of which the equitable doctrine had been developed. Lord Simon could, however, ‘conceive of circumstances where failure to make punctual payment might be due to some pure accident and might occasion no real detriment to the owners whereas withdrawal might cause very heavy loss to the charterers; so that reasonable commercial people might think it unconscionable for the owners to take advantage of the failure’. Even so, he admitted that such cases would be extremely rare. This possible loop- hole now appears to have been finally closed by the decision in The Scaptrade where it was held that the courts had no jurisdiction to grant equitable relief in such cases. The judgment of Robert Goff LJ in the Court of Appeal epitomises the current attitude of the courts to the interpretation of charterparty clauses: ‘It is of the utmost importance in commercial transactions that if any particular event occurs which may affect the parties’ respective rights under a commercial contract, they should know where they stand. The Court should so far as possible desist from placing obstacles in the way of either party ascertaining his legal position, if necessary with the aid of advice from a qualified lawyer: because it may be commercially desirable for action to be taken without delay, action which may be irrecoverable and which may have far-reaching consequences . . . The policy which favours certainty in commercial transactions is so antipathetic to the form of equitable intervention invoked by the charterers in the present case that we do not think it would be right to extend that jurisdiction to relieve time charterers from the consequences of withdrawal. We consider that the mere existence of such a jurisdiction would constitute an undesirable fetter upon the exercise by parties of their contractual rights under a commercial transaction of this kind . . . for the mere possibility that it may be exercised can produce uncertainty, disputes and litigation.’The reluctance of the courts to invoke equitable relief in such cases stems partly from the fact that a number of ‘anti-technicality clauses’ are available for inclusion in a charterparty if the parties so desire. These clauses normally provide that, in the event of default in payment of hire, the shipowner must give specific notice to the charterer before invoking the withdrawal clause. So in The Libyaville a clause in the charterparty provided that ‘where there is any failure to make punctual and regular payment . . . Charterers shall be given by Owners two banking working days’ written notice to rectify the failure’. These anti-technicality clauses have, in their turn, been equally strictly applied by the courts. Thus an enquiry as to the reason for failure to pay an installment of hire has been held not to constitute notice of intention to exercise the right of withdrawal. Again, it has been held that notice under such a clause cannot be given until after midnight on the day an instalment of hire is due, with the result that notice given before midnight but after the banks had closed on the due date was ineffective. The practical reasons behind the strict adherence to the terms of an anti- technicality clause were explained by Griffiths LJ in The Afovos. ‘Payments of [hire] are normally made by telex through a number of banks and it may well be that, through some slip up, the money does not arrive in the owner’s account as quickly as the charterer has a right to expect. Once the charterer has instructed his bank to pay he has no further control over the payment which is now in the banking chain . . . therefore . . . charterers do require to be told by the owners that payment has not been received. There is little point in telling the charterer that payment has not been received until the time for payment has expired; if the charterer is told that payment has not been received before the time for payment has expired, he may not realise the urgency of the matter and continue to expect that the payment will be credited in time. On the other hand, if he is told after the time for payment has expired, he will realise that he is in breach and has only 48 hours in which to save himself.