Shipowner Right to Withdraw for Non-Payment

Hire is the price paid for the use of the vessel and is usually calculated on the basis of a fixed sum per ton of the vessel deadweight for a specific period of time, such as 30 days or a calendar month. It is normally payable in advance at monthly or semi-monthly intervals. Where vessels are chartered for relatively long periods of time, there is constant exposure to the risks of currency devaluations, fluctuations in the market rate of hire, and the effects of inflation on the operating costs of the vessel defrayable by the shipowner. It is, therefore, common for the parties to make express provision in the charter for such contingencies by the use of such devices as a ‘currency clause’, providing for a fixed rate of exchange between the currency stipulated for payment of hire and any other relevant currency, and an ‘escalator’ clause providing for a periodic revision of the hire rate. At common law time is not of the essence of a charter of this type with the result that a shipowner cannot repudiate the contract for late payment of hire unless the delay is such as to frustrate the object of the contract. It is consequently standard practice for a specific clause to be included in the charter giving the shipowner the right to withdraw his vessel in default of payment of an instalment of hire on the due date. While the original object of the clause was to enable a shipowner to put pressure on the recalcitrant charterer, or to recover the vessel from an incipient bankrupt, it has been used in recent years to take advantage of fluctuations in the market rates of hire. Vessels have accordingly been immediately withdrawn by their owners on a default in payment of the hire and then offered back to the identical charterers for the residue of the charter period at the current enhanced market rate. The courts have adopted a strict approach in the interpretation of such withdrawal clauses and have refused to exercise their discretion by extending towards the charterer any form of equitable relief against forfeiture. This problem can, however, be avoided by including in the charter an ‘anti-technicality clause’ requiring the shipowner, on default in payment of hire, to give the charterer a specified period of notice before exercising his right to withdraw the vessel.