More Pitfalls For Owners Looking To Terminate For Unpaid Hire

Januzaj v. Valilas [2014] EWCA Civ 436

It is a debatable point whether or not the obligation to pay hire under a time charter is a condition of the contract or not, notwithstanding the obiter comments of Mr Justice Flaux in the Astra [2013] EWHC 865 (see the Shipping E-Brief July 2013). Making payment under a commercial contract is said to be "not of the essence of the contract" and therefore not a condition. The significance is that a breach of condition allows the innocent party to terminate the contract in addition to claiming damages. Otherwise, he may be limited to his damages claim but unable to terminate the contract unless the failure to make payment, or indeed making repeated late payment under an instalment contract, amounts to a repudiatory breach of the contract.

The traditional view is that, in order to terminate a time charter and claim damages for losses suffered following a failure to pay hire, the charterer's conduct must be shown to be (i) repudiatory in the sense that the breach deprives the owner of substantially the whole benefit of the charter; and/or (ii) renunciatory in the sense that it evinces an intention on the charterer's part no longer to perform the charter at all or to perform the charter in a manner substantially inconsistent with his contractual obligations.

It will very much depend on the facts and circumstances in any given case whether the non-payment or late payment of hire instalments under a time charter amounts to a repudiatory breach. This often requires the owner to make a difficult decision as to whether the charterer's failure to pay a number of hire instalments, or paying them late, entitles him, the owner, to terminate the charter. If the owner "calls it wrong", he can find himself in repudiatory breach for wrongful termination and facing a claim for damages from the charterer.

Januzaj v. Valilas is not a shipping case but deals with general principles concerning the law on repudiation. It arguably introduces a further potential pitfall for owners seeking to rely on multiple failures to pay hire, or repeated late payments of hire, in order to demonstrate repudiatory conduct on the part of a charterer.

The background facts

The Claimant was a dentist operating his practice from the Defendant's premises. The Claimant had agreed to pay the Defendant half his earnings from his practice in return for use of the premises. The Claimant's earnings came from the UK's National Health Service (the "NHS")...