The Astra: Single Hire Default Entitles Owners To Withdraw And Claim Loss Of Profit For Remaining Charter Period

Kuwait Rocks Co v. AMN Bulkcarriers (Astra) [2013] EWHC 865 (Comm)

A Commercial Court judge has decided that a failure to pay hire under an NYPE charterparty amounts to a breach of condition, entitling a ship-owner to terminate and seek damages. This goes against the previous view generally held in the market that the obligation to pay hire under a time charter as it falls due is not a condition such that, if an owner wants to recover its future losses following a termination, it must seek to bring the charter to an end for repudiatory breach of contract, the latter invariably involving a series of consecutive defaults by the charterers.

The Court also considered whether the arbitrators had correctly applied the law on repudiatory breach and whether an addendum to the charter, stating that if the time charter was terminated the owners would be entitled to recover future loss of earnings, constituted a penalty clause.

The background facts

The Astra was chartered on an amended version of the NYPE 1946 form dated 6 October 2008 for a period of five years. Under Clause 5 of the NYPE form, a charterer is required to pay hire in advance and "failing the punctual and regular payment of hire... the Owner shall be at liberty to withdraw the vessel...". The charterparty also contained an anti-technicality provision which required the Owners to give the Charterers two banking days' notice of a failure to make a hire payment.

After the commencement of the charter, the market continued to decline and the Charterers found they could not employ the vessel at a profit. On various occasions, the Charterers sought a reduction in the hire rate and threatened that, if the Owners did not agree, then they would liquidate the company. In July 2009, the Owners agreed to reduce the hire rate for one year and the parties entered into an addendum to the charter. Amongst other things, the addendum recorded that "In the event of the termination or cancellation of the Charter by reason of any breach by or failure of the Charterers to perform their obligations, Charterers shall... pay to the Owners compensation for future loss of earnings...". This was referred to in the judgment as the "Compensation Clause".

Even after the addendum was agreed, the Charterers continued to insist on further reductions of hire. When the Charterers failed to remit the hire payment due for August 2010 on time, the Owners withdrew the vessel from the Charterers' service and terminated the charterparty. The Owners then claimed their...