Quiana Navigation SA -v- Pacific Gulf Shipping (Singapore) PTE Ltd [2019] EWHC 3171 (Comm)

This appeal concerned the BIMCO Non-Payment of Hire Clause for Time Charter Parties (BIMCO Clause) and in particular, the question of whether it was possible to withdraw a vessel under this clause when the breach in question related to non-payment for an earlier period of hire.

Factual background

The time charter in question was concluded on 26 May 2017 between the claimant/appellant (owners) and the respondent (charterers) in respect of MV “CARAVOS LIBERTY”. The charterparty was on an amended NYPE form with rider clauses and a fixture recap.

The charterparty provided for hire to be paid every 15 days in advance and incorporated the BIMCO Clause, which breaks down into four sub-clauses:

1. Sub-clause (a) dealt with the gateway to the clause and suspension of performance, providing that if the hire was not received by owners by midnight on the due date, they might suspend the performance of their obligations under the charterparty (and if they so suspended, inform charterers accordingly) until payment was received
2. Sub-clause (b) provided for the service of an anti-technicality notice (ATN) and withdrawal
3. Sub-clause (c) dealt with indemnities for liabilities as a result of suspension/withdrawal
4. Sub-clause (d) was an anti-waiver provision, primarily directed at arguments that acceptance of late payments in the past precluded future prompt withdrawal

On 11 July 2017 (the fourth payment date), charterers underpaid by US$8,015.40 because they claimed (wrongly) that there had been overconsumption of fuel. There were protests from owners but no ATN was served. On 26 July 2017 (the fifth date) and on 10 August 2017 (the sixth date), charterers paid 15 days’ worth of hire in full but did not pay the shortfall. The statements from owners leading up to the fifth and sixth dates made clear that charterers were asked to pay the shortfall from the fourth instalment, but charterers never did. No ATN was served after the fifth date in July.

However, after the sixth date, owners served anti-technicality notices calling for payment of the full balance of hire due and withdrew the vessel on 14 August 2017, following charterers’ failure to comply with the demand.

The tribunal accepted that charterers’ deduction on 11 July 2017 was wrongful and resulted in a shortfall, which remained due thereafter. However, owners were not entitled to invoke the withdrawal procedure in respect of the sixth payment, because that payment date equated to the 15 days’ worth of hire, which fell due on that date. The BIMCO Clause was not concerned with whether charterers paid all the hire due on 10 August 2017, only whether they paid the hire that fell due for the first time on that day, i.e. 15 days’ worth.

The tribunal therefore ruled that owners acted in ‘renunciatory/repudiatory breach’ by withdrawing the vessel without contractual justification.

Legal analysis

The essence of this appeal was therefore whether the BIMCO Clause was engaged in circumstances where:

• there was a short payment on the fourth payment date;

• owners objected, but did not serve an anti-technicality notice within the 24-hour period allowed under the BIMCO Clause;

• the payments made on each of the fifth and sixth payment dates equated to 15 days’ worth of hire, but did not make up the shortfall; and

• owners served an anti-technicality notice, and then withdrew, on the basis of that shortfall, in the context of the payment due on the sixth date, i.e. 10 August 2017.

Construction of the clause

Owners’ case on this appeal was that the tribunal’s conclusion was inconsistent with the fundamental characteristics of the time charter bargain and could not be reconciled with the natural meaning of the words of the BIMCO Clause.

The wording of sub-clause (a) was this: ‘If the hire is not received by owners by midnight on the due date…’

The judge held that to a reader the use of the phrase ‘the hire’, particularly taken with the identification of a single ‘due date’ provided an initial indicator in favour of the right to withdraw being tied to a particular hire instalment. This was more so where each claim for an instalment of hire under a time charterparty was a separate cause of action. It was therefore not a natural use of language to say that, in relation to the sum not paid in respect of the fourth hire payment, its ‘due date’ was the date for payment of the sixth hire instalment.

The wording in this case much more naturally reflected and reinforced the necessary connection between the relevant hire instalment and the (single) due date, and it also prescribed conditions for withdrawal that, as the tribunal recognised, simply could not be satisfied in respect of historic arrears. The reality was that the shortfall had been due since 11 July, it remained outstanding on 10 August, but it was no more due on 10 August than it had been on 9 August. It would be illogical in those circumstances to say that a withdrawal notice in which time was key (with the time for compliance fixed not just in hours but ‘running hours’ for clarity) should run from a date which meant nothing in the context of that particular sum.

Commercial context

Owners’ second major point was, in essence, a variant of a commercial context argument, as it would force the owners to perform services on credit. Owners’ argument impermissibly elided the very real distinction between the continuing entitlement to recover hire as a debt and the independent contractual entitlement to withdraw; just because the right of withdrawal was not available did not mean that owners were obliged to perform on credit. In addition, it ignored the fact that there was an earlier right of withdrawal at the time of the fourth payment when owners consciously chose not to exercise their contractual rights.

Owners’ argument on commercial common sense was that there was inadequate protection if owners were unable within 24 hours to work out whether they had a right to serve such a notice (as required by the clause) and inadequate leverage for owners to obtain payment of everything payable without forcing them into the nuclear option of withdrawal and that approach should be considered unlikely in the context of a time charter with the need for ongoing co-operation.

Here the situation was one where commercial parties had wittingly signed up to a particular regime that was predicated on a 24-hour period for the service of the notice. Owners presumably would not have agreed to this if they thought it was likely that this period would be inadequate.

Charterers also suggested that commercially speaking, an arrangement whereby a continuing right to sue for the debt was repeatedly periodically augmented by a right to withdraw the vessel was bizarre.

The judge held that the more commercially uncomfortable consequences came if one pursued owners’ argument, and produced a result where, far from offering a scheme involving speedy certainty, late hire could be a basis for withdrawal possibly for a period of years – but only at the time of some later, completely distinct payment. That was a solution lacking in logic or commercial coherence.

Owners’ appeal was dismissed.

Comment

This case clearly demonstrates the importance of following precisely the wording of the charterparty terms – a party may be found in repudiatory breach, as in this case, where the terms of the clause are not adhered to strictly.

The court in this case also reiterated the well-known principles of contractual construction regarding hire. These are referred to below as a useful reminder:

1. Hire is earned continuously by owners and therefore payable continuously by charterers (unless the vessel is off-hire): Mareva Navigation Co Ltd -v- Canaria Armadora S.A. (The “MAREVA A.S.”) [1977] 1 Lloyd’s Rep 368, 381, per Kerr J
2. The obligation to pay hire in advance requires charterers to pay hire in advance of midnight on a certain date (called the due date): Astro Amo Compania Naviera SA -v- Elf Union SA (THE “ZOGRAPHIA M”) [1976] 2 Lloyd’s Rep 382, 393, per Ackner J
3. The obligation to pay in advance has no regard to the number of days’ hire likely or estimated to be earned in fact. Rigby LJ and Lord Esher MR in: Tonnelier -v- Smith [1897] 2 Com. Cas. 258 (CA), 266
4. Charterers bear the burden of calculating the correct amount of hire to discharge their obligation to pay hire to owners: The “LUTETIAN” [1982] 2 Lloyd’s Rep 140, 154
5. ‘[H]ire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer’: Scandinavian Trading Tanker Co AB -v- Flota Petrolera Ecuatoriana (The “SCAPTRADE”) [1983] 2 AC 694, 702D, per Lord Diplock
6. Any underpayment of hire of any size is the same as non-payment, i.e. it is a failure to make punctual and regular payment and thus a default which, subject to any contrary withdrawal or anti-technicality provision, entitles owners to withdraw the vessel from the charter: The “LUTETIAN”, p. 154 lhc, per Bingham J