Hire and Off-hire

							Payment of Hire and
     Off-hire
              Prof Martin Davies
International Seminar: Tanker Chartering – A
              Legal Perspective
                  Intertanko
          Houston, 29 March 2007
                 Payment of hire
► Charterers’primary obligation
► Must be paid in full without deduction
   Unless the charter permits deduction
   Or Charterers are entitled to deduct by way of set-off
► Non- or under-payment permits Owners to
  withdraw
   NYPE cl. 5: “…otherwise failing the punctual and regular
    payment of the hire…or on any breach of this Charter
    Party, the Owners shall be at liberty to withdraw the
    vessel from the service of the Charterers”
   Disputed deductions
   Rising market
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              Deductions from hire
► Express   provision in the charter
   E.g. Shelltime 4, cl 9(ii): “Payment of hire shall be
    made…less…(ii) any amounts disbursed on Owners’
    behalf, any advances and commission thereon, and
    charges which are for Owners’ account pursuant to any
    provision hereof”
   Ditto STB Form, cl 3(b)
► Equitable   set-off
   Charterers are entitled to make deductions for claims
    relating to loss of time
   Only loss of time claims are sufficiently closely related to
    the obligation to pay hire
   U.S. law generally stricter                                3
  Deduction must be reasonable
► Permitteddeduction may be made even though
  the amount is still in dispute
   No need to agree amount with Owners
   No need to go to arbitration first
► The   Nanfri [1978] QB 927 at 975 per Lord
  Denning MR:
   “If the charterer quantifies his loss by a reasonable
    assessment made in good faith, and deducts the sum
    quantified, then he is not in default. The shipowner
    cannot withdraw his vessel on account of non-payment
    of hire nor hold him guilty at that point of any breach of
    contract.”
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       Reasonable deductions
► Shelltime   4, cl 9(iii)
   “Payment of hire shall be made…less…(iii) any
    amounts due or reasonably estimated to
    become due to Charterers under Clause 3(ii)
    [deficiencies on delivery] or 24 [speed and
    consumption] hereof”




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              Equitable set-off
► The   Nanfri: claims that “arise out of the same
  transaction or are closely connected with it”
► Deprivation of use of ship
    Breach of speed warranty (The Chrysovalandou Dyo
     [1981] 1 Lloyd’s Rep. 159)
    Not cargo damage claims: The Nanfri
► IfCharterers are not entitled to deduct, Owners
  are entitled to summary judgment for hire (or can
  withdraw): The Aditya Vaibhav [1991] 1 Lloyd’s
  Rep. 573
    Bona fide belief not enough
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      Not for any other reason
► Must   pay last month’s (or half-month’s) hire
  in full even if it is obvious that redelivery
  will take place before end of month (or half-
  month)
► Unless specifically permitted by charter:
   E.g. NYPE, lines 58-60: “for the last half month
    or part of same the approximate amount of
    hire…”
   Cf. Baltime: no such provision

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Withdrawal for non-payment of hire

► English   law inflexible
   Owners can withdraw for any late payment or
    under-payment, however technical
     ►Charter   back to Charterers at increased market rate
   No equitable relief against forfeiture: The
    Scaptrade [1983] 2 Lloyd’s Rep. 253
     ►No   matter what the hardship to Charterers




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      “Anti-technicality” clauses
► Designed   to give relief against strictness of
  English law
► In effect, notice of withdrawal clauses
► Shelltime 4, cl 9(a)
   “In default of such proper and timely payment,
       (a) Owners shall notify Charterers of such default and
       Charterers shall within seven days of receipt of such
       notice pay to Owners the amount due including
       interest, failing which Owners may withdraw the
       vessel from the service of Charterers…”

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     “Anti-technicality” clauses
► Owners    must give an ultimatum: must make
  it clear that withdrawal will take place if
  payment is not made
► The Afovos [1983] 1 Lloyd’s Rep. 335 (HL)
   “Owners have instructed us that in case we do
    not receive the hire which is due today, to give
    charterers notice as per cl. 31…for withdrawal
    of the vessel from their service”
   Insufficient

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 More strictness re anti-technicality
► The   Pamela [1995] 2 Lloyd’s Rep. 249
   Notice sent by telex late on Friday night not effective
    until received on Monday morning
   Too late for anti-technicality clause
► The   Western Triumph [2002] 2 Lloyd’s Rep. 1
   Owners gave notice of withdrawal by e-mail before hire
    became overdue
   E-mail not received until after hire was overdue
   Arbitrators held notice invalid because premature
   Immaterial that notice was received after hire became
    overdue

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    Waiver of the right to withdraw
►   Owners lose their right to withdraw if they act in such a
    way as to communicate to Charterers that the charter is to
    continue
     E.g., acceptance of a late payment
     Not enough for Owners’ bank simply to receive payment
     Must retain it for long enough to lead Charterers to believe that it
      will not be returned: The Laconia [1977] 1 Lloyd’s Rep. 315 (HL)
►   Acceptance of timely but under-paid hire does not amount
    to waiver
     Owners entitled to a reasonable time to calculate correctness of
      deductions before exercising right to withdraw: The Mihalios Xilas
      [1979] 2 Lloyd’s Rep. 303 (HL)


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               Effect of withdrawal
►   In English law, charter comes to an end immediately upon
    effective notice of withdrawal
►   If in mid-voyage, Owner must carry cargo to its destination
    and deliver on terms of BLs if they were signed by or on
    behalf of Owners
     Cannot demand freight from receivers if pre-paid to Charterers:
      The Alev [1989] 1 Lloyd’s Rep. 138 (agreement to pay freight
      (again) held invalid because of economic duress)
►   If BLs signed by or on behalf of Charterers, Owners
    assume Charterer’s obligations after withdrawal:The
    Lakatoi Express (1990) 20 NSWLR 57
►   In U.S. law, withdrawal only becomes effective at end of
    voyage and discharge of cargo: Diana v. Sub-freights of
    Admiralty Flyer, 280 F.Supp. 607 (SDNY 1968)
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           Effect of withdrawal
► Ownersentitled to payment from Charterers on
 quantum meruit basis for carrying cargo after
 withdrawal?
   Scrutton says so
   Market rate, not contract rate?
   Left unsettled in The Tropwind (No. 2) [1981] 1 Lloyd’s
    Rep. 45 (CA)
           only arises if Charterer insolvent,
► Presumably
 which makes the question moot
   If Charterer solvent, it may choose to re-charter at new
    market rate anyway
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                Off-hire clauses
►   “Period” = on/off
►   “Net loss of time” = time lost
►   Partial efficiency is the key to the
    difference
       Still off-hire under a period clause
       Lost time only under a “net loss of time”
        clause



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                Period clauses
 E.g. Shelltime 3, cl. 21:
      “In the event of loss of time (whether arising from
       [various specified events] or in any other
       manner)…hire shall cease to be due or payable from
       the commencement of such loss of time until she is
       again ready and in an efficient state to resume her
       service from a position not less favourable to
       Charterers than that at which such loss of time
       commenced.”
 The Bridgestone Maru No. 3 [1985] 2 Lloyd’s
  Rep. 160

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     Net loss of time clauses
 E.g. Shelltime 4, cl. 21:
   ►“On  each and every occasion that there is loss of
    time (whether by way of interruption in the vessel’s
    service or from reduction in the vessel’s
    performance)…the vessel shall be off-hire from the
    commencement of such loss of time until she is again
    ready and in an efficient state to resume her service
    from a position not less favourable to Charterers
    than that at which such loss of time commenced;
    provided, however, that any service given or distance
    made good by the vessel whilst off-hire shall be
    taken into account in assessing the amount to be
    deducted from hire.”
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  Time lost after full efficiency restored

► No deduction under English law, even under “net
 loss of time”
   The Marika M [1981] 2 Lloyd’s Rep. 622: vessel lost
    berthing turn after grounding; not off-hire while waiting
    for berth once in full working order
   NYPE, cl. 15: “the payment of time shall cease for the
    time thereby lost”
► Deduction   would be permitted under U.S. law
   All time lost as a result of enumerated causes
   Not so for “period” clauses


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          “…or any other cause”
► Eiusdem    generis (of the same kind) with listed
 causes
   Unless “whatsoever” is added
► Confined to causes related to physical condition of
 ship or crew
   Not off-hire during delays from “extraneous” causes
   The Aquacharm [1982] 1 Lloyd’s Rep. 7 (not off-hire
    during lightening to pass through Panama Canal)
   The Manhattan Prince [1985] 1 Lloyd’s Rep. 140 (not
    off-hire under Shelltime 3 during boycott by ITF)
► Focusshould be on effect – preventing full
 working – not cause                                      19
               Practice tips
► Read  the clause carefully before you do
  anything, whichever side you are on
► Charterers - if in doubt, pay in full
  (especially in a rising market)
► Owners - give clear and unequivocal notice
  of withdrawal (especially if there is an anti-
  technicality clause)



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