New Decision: Is Failure To Pay Hire A Breach Of Condition?

On 18 April 2013, Mr Justice Flaux handed down judgment in Kuwait Rocks Co v AMN Bulkcarriers Inc (The "ASTRA") [2013]. The case considers whether a charterers' failure to pay hire is a breach of a condition which entitles owners to cancel the charter, and claim damages for the unperformed part. The Judge's detailed decision is likely to have significant practical consequences for those within the industry, and in particular those with extant early redelivery disputes.

The Facts

Charterers hired the vessel on an NYPE 1946 Form for five years from 6 October 2008. The charter contained the standard clause 5 wording:

"Payment of said hire to be ... 30 days in advance ... failing the punctual and regular payment of the hire ... the Owners shall be at liberty to withdraw the vessel from the service of the Charterers, without prejudice to any claim they (the Owners) may otherwise have on the Charterers".

Following the significant drop in freight rates at the time, charterers were unable to sub-charter the vessel at a profit so owners agreed a hire reduction for a defined period. When that period expired, the charterers requested a further period at a reduced rate, this time threatening that if agreement could not be reached they would declare bankruptcy. Owners agreed, and an addendum to the charter was issued that reduced the daily hire rate for a fixed period, following which the full charter rate would be payable once again.

After expiry of the fixed period, charterers continued to pay the reduced sum, and not the full charter rate as agreed. Owners held charterers in breach, gave them two days to remedy the breach (pursuant to the "anti-technicality clause"), and when charterers failed to do so, owners withdrew the vessel.

Owners commenced arbitration, claiming USD13 million, being the difference between the market and the full hire rate for the two years and three months remaining on the charter.

The Arbitration

The Tribunal considered:-

1. Was charterers' conduct tantamount to a "renunciation" or "repudiation" of the charterparty (the "Repudiatory Breach")? And

2. Were charterers in breach of condition in not paying hire punctually (the "Breach of Condition")?

   For Repudiatory Breach, owners had to show that, by their words or conduct, the charterers evinced an intention not to perform the contract, which a reasonable person would regard as clear and absolute. It would be sufficient if, taking into account the history of the contractual...