Withdrawing A Vessel For Unpaid Hire: Timing Is Crucial

Parbulk II A/S v. Heritage Maritime Ltd SA (Mahakam) [2011] EWHC 2917 (Comm)

Where owners are considering withdrawing a vessel on time charter for non-payment of hire, timing is critical. If they withdraw the vessel too early, for example by not allowing the charterers the full grace period to rectify the failure to pay, they may find that they themselves are in breach of charterparty. On the other hand, if they withdraw too late, for example because they are deciding what to do, they may be held to have lost their right to withdraw and affirmed the charterparty – see, for example, Stocznia Gdanska SA v. Latvian Shipping [2002] 2 LLR 436, where the court held that "There is clearly a fine line between taking time to make a decision, and conduct which will be considered as affirming the contract".

In the present case, Mr Justice Eder took a commercial view of the negotiations and correspondence between the parties surrounding the non-payment of hire and upheld the arbitrators' award that the owners had been entitled to terminate the charterparty and withdraw the vessel. The judgment does, however, highlight that owners have to tread a very "fine line" between keeping a potentially viable and profitable charterparty alive by allowing charterers to make good the non-payment of hire without inadvertently waiving the right to withdraw the vessel when it transpires that the charterers are not going to pay.

The background facts

In December 2007, the parties entered into a bareboat charterparty on an amended BARECON 2001 form for 60 months at a daily rate of US$38,500.

Whilst the charterparty provided for hire to be paid punctually twice a month and for time to be of the essence, it also contained an anti-technicality provision whereby the charterers were to be allowed three banking days in which to rectify any failure to pay hire. A failure by the charterers to rectify the non-payment of hire within this grace period was an event of default under the charterparty, the occurrence of which would entitle the owners to terminate the charter and withdraw the vessel with immediate effect and recover any amounts outstanding. The owners' various rights on termination were set out in a separate provision and included, but were not limited to, the recovery of outstanding hire and any loss or damage suffered by the owners as a result of the early termination.

About eighteen months into the charter period, the charterers stopped paying hire. In broad terms:

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