Court Of Appeal Decision In Spar Shipping Handed Down

Is prompt payment of charterparty hire a contractual condition? - Certainty returns!

Today's hotly anticipated Court of Appeal judgment in Grand China Logistics v Spar Shipping has clarified the position under English law as to whether failure to pay charterparty hire on time is a breach of condition, holding that it is not.

Assuming that the decision is not appealed to the Supreme Court, it draws a line under recent uncertainty in this regard arising from conflicting first instance decisions, and will be broadly, if not universally, welcomed by the market.

(Grand China Logistics Holding (Group) Co Ltd v Spar Shipping [2016] EWCA Civ 982)

Introduction

Up until the 2013 decision of Flaux J in The Astra [2013] 2 Lloyd's Rep. 69, it had been the general understanding of the market that the failure to pay hire punctually and in advance under a time charterparty was not a breach of condition entitling a shipowner both to terminate the charter and claim damages for the loss of the remainder of the charterparty period. This understanding reflected the decision of Brandon J in The Brimnes [1972] 2 Lloyd's Rep. 465 which, perhaps surprisingly, remained the only decision on this important point for about 40 years.

The decision in The Astra therefore generated significant market interest in holding, contrary to The Brimnes, that the punctual payment of hire was indeed a condition. It was soon followed by another first instance decision on the same point, that of Popplewell J in Spar Shipping [2015] 2 Lloyd's Rep. 407. Popplewell J held that the obligation is not a condition, but an innominate term, meaning that a shipowner is only entitled to claim damages, based on any difference between the charterparty and market rate of hire for the balance of the agreed charter period, if charterers' actions are repudiatory/renunciatory.

In light of the above conflicting first instance decisions, it was with some relief on the part of the market that permission to appeal Spar Shipping was granted. The Court of Appeal's judgment has today (7 October 2016) been handed down, and the key aspects of the ruling are as follows:

(1) Prompt payment of time charterparty hire is not a contractual condition. The Astra was wrongly decided;

(2) As such, absent express contractual provision, an owner wishing to claim loss of bargain damages after electing to terminate a charterparty for late payment of hire will need to demonstrate that the charterer's breach goes to the root...