Time Charter Hire Payment

An express term of the charterparty normally specifies the time, place and frequency of payments of hire, together with the currency in which the hire is to be paid. The amount of hire payable is normally fixed at a certain rate for a specified period of time, ranging from 24 hours to 30 days or a calendar month. Installments of hire are then expressly made payable every 15 or 30 days. In view of the fact that such installments of hire are intended to be paid over a lengthy period of time they are particularly susceptible to the risk of inflation and currency fluctuations. In an attempt to minimise these risks it is not uncommon for time charters to include ‘currency clauses’, providing for a fixed rate of exchange between the currency of payment and other relevant currencies and ‘escalator clauses’ which enable the hire rate to be adjusted in line with rises in vessel operating costs.

Payment in cash: Time charters invariably require payment of hire to be made in cash. In the view of Brandon J in The Brimnes,  ‘these words must be interpreted against the background of modern commercial practice. So interpreted it seems to me that they cannot mean only payment in dollar bills or other legal tender of the US. They must . . . have a wider meaning, comprehending any commercially recognised method of transferring funds, the result of which is to give the transferee the unconditional right to the immediate use of the funds transferred.’ Thus banker’s drafts and ‘banker’s payment slips’ appear to have been accepted by commercial usage as equivalent to cash, although opinion appears to be divided as to whether ‘payment orders’ under the London Currency Settlement Scheme fall into this category. While the latter are regarded in the banking world as being equivalent to cash, a customer has no right to draw on a payment order until after the document has been processed. On the other hand, the need for internal processing did not deter Lloyd J in The Afovos from expressing the view that payment by telex transfer from one bank to another constituted ‘payment in cash’ for this purpose. He was prepared to hold that ‘when payment is made by telex transfer from one bank to another for the account of a customer, the payment is complete when the telex is received and tested by the receiving bank; so that if the owners were to make an enquiry at their bank they would be told “Yes, the money has arrived for your account”. It is unnecessary that the funds should have been credited to the owners’ account. Still less is it necessary that the owners should have been in a position to transfer the funds out of the account. It is enough that the funds should have been received for the owners’ account.’ This view is in marked contrast to the attitude adopted by the House of Lords in The Chikuma where the monthly instalments of hire had been paid into the owner’s bank in Genoa on the due date, but the telex transfer included a ‘value date’ four days later. Under Italian banking practice this meant that the money in the owner’s account did not attract interest until the ‘value’ date and should the owner have attempted to withdraw it, he could only have done so ‘subject to a (probable) liability to pay interest’. In substance it was the equivalent of an overdraft facility, which the bank was bound to make available. In these circumstances the House of Lords had no hesitation in holding that such a payment was not ‘equivalent to cash’. Again, in The Brimnes itself, where owner and charterer had accounts in the same branch of the same bank, the receipt of a telex instruction from the charterer to transfer the amount of the monthly instalment of hire into the owner’s account did not operate as a payment in cash. Not until the appropriate amount had been credited to the owner’s account so that he could draw on it was payment effective.

Payment in advance: A further requirement is that payment should be made in advance at monthly (or 30-day) or semi-monthly intervals. Payment is therefore required before performance and may be made on or before the date due. Where the due date falls on a Sunday or other non-banking day, then payment must be made not later than the immediately preceding banking day, otherwise the charterer will be in default. On the other hand, the charterer is permitted the full period up to midnight of the day on which the instalment of hire is due in which to make payment. In the words of Lord Hailsham LC in The Afovos, ‘I take it to be a general principle of law not requiring authority that where a person under an obligation to do a particular act has to do it on or before a particular date he has the whole of that day to perform his duty.’ As the charterer is not in default until the expiry of that period, it is immaterial that payment can only be effected during banking hours. In the view of Griffiths LJ, it is ‘far preferable that so important an obligation . . . should be fixed at the certain time of midnight rather than it should depend upon the particular hours of business of a particular bank named in the charterparty which are likely, of course, to vary from country to country and even from bank to bank and to be a ready source of confusion’. In the absence of provision to the contrary, the final instalment of hire due under the charter is payable in full even though it is clear that the vessel will be redelivered to its owner before the expiry of the relevant period.66 Any overpayment will be refunded by the owners after the return of the vessel. The obligation to pay hire punctually in advance is strictly construed and the charterer is in default if he fails to make payment on or before the specified date even though only a matter of hours or minutes is involved. Nor is it material that the default was not intentional. ‘Apart from some special circumstances excusing performance, it is enough to constitute default that payment has not in fact been made; neither deliberate non-performance nor negligence in performing the contract is required.’