Time Charters
16
Hire and Withdrawal
Hire and Withdrawal
| “58 | 5. Payment of said hire to be made in New York in cash in United States Currency, semi-monthly in advance, and for the last half month or |
| 59. | part of same the approximate amount of hire, and should same not cover the actual time, hire is to be paid for the balance day by day, as it becomes |
| 60. | due, if so required by Owners, unless bank guarantee or deposit is made by the Charterers, otherwise failing the punctual and regular payment of the |
| 61. | hire, or bank guarantee, or on any breach of this Charter Party, the Owners shall be at liberty to withdraw the vessel from the service of the Char- |
| 62. | terers, without prejudice to any claim they (the Owners) may otherwise have on the Charterers… ” |
General
16.1 Clauses 4 and 5 of the New York Produce form deal with the charterers’ obligation to pay hire. Clause 4 stipulates that the charterers are to “pay for the use and hire” of the ship from “the day of her delivery… until the hour of the day of her re-delivery” – although this obligation is qualified by the off-hire clause, Clause 15, which stipulates that “payment of hire shall cease” in certain circumstances. Clause 5 stipulates that the charterers are to pay the “said hire… semi-monthly in advance”. 16.2 The question how these clauses operate together is discussed further in et seq., below. However, the general scheme of these two provisions was succinctly described by Bingham, J., in The Lutetian , at page 149, as follows: “Clause 4 of the charter-party deals with the computation of hire both as to amount and period. Clause 5 governs the mechanics of payment. …” 16.3 The charterers’ obligation to pay on or before the due date is an absolute one. Lord Porter, in Tankexpress v. Compagnie Financière Belge des Pétroles (1948) 82 Ll.L.Rep. 43, said, at page 51: “Apart from some special circumstances excusing performance, it is enough to constitute default that payment has not in fact been made: neither deliberate nonperformance nor negligence in performing the contract is required.” If hire is not paid punctually, then under clause 5, the owners are to have the right to withdraw the ship. The right to withdraw is a right to terminate the charter. The same right is also included in all the standard forms of time charter. It reflects the importance to the owners of the regular receipt of hire. Also in the Tankexpress case, above, Lord Wright said, at page 53: “The importance of this advance payment to be made by the charterers, is that it is the substance of the consideration given to the shipowner for the use and service of the ship and crew which the shipowner agrees to give. He is entitled to have the periodical payment as stipulated in advance of his performance so long as the charter-party continues. Hence the stringency of his right to cancel.” 16.4 The main topics dealt with in this chapter are: (a) the obligation to pay hire in advance; (b) the time and mode of payment; (c) the charterers’ right to make deductions from hire; and (d) the owners’ right to withdraw.Payment in advance and the charterers’ right to payment of an adjustment
In advance
16.5 Under Clause 5 of the New York Produce form, hire is to be paid “semi-monthly in advance”. Under clause 11(a) of the NYPE 93 form, this has been changed to “15 days in advance”. However, this means, “every 15 days in advance”. So, for each period of 15 days, hire is to be paid no later than midnight on the day before that period begins. 16.6 Where payment is made in advance for, say, 15 days, it relates to the ensuing 15 calendar days. It is not payment for the next 15 days during which the ship may in fact be on hire: Stewart v. Van Ommeren [1918] 2 K.B. 560, per Scrutton, L.J., at page 564. Consequently, if any hire is not earned during those 15 days, the charterers are entitled to repayment of what was not earned. 16.7 Where hire is payable for a particular period in advance, the charterers’ obligation under Clause 5 is to pay in advance hire sufficient to cover every hour of that period (although in the case of the last hire instalment this obligation is modified: see , below). This is the case even if the charterers believe, or know, that the ship will be off hire for part of that period: The Li Hai , per Jonathan Hirst Q.C. at page 398. On the other hand, if the ship is off hire at the moment that the payment of hire falls due, it may be that the charterers’ obligation to pay is suspended: see , below.The owners’ obligation to pay an adjustment of hire
16.8 Obviously, the obligation to pay hire in full for a month (or half-month) in advance may have the consequence that the charterers are subsequently found to have paid the owners in advance for time during which the ship was off hire under Clause 15. Likewise, it sometimes happens that a ship is redelivered earlier than was expected when the last instalment of hire was paid, so that more hire is paid in advance than is eventually earned (as to “earned” here, see et seq., below). 16.9 In such circumstances, the charterers have a right to be paid an adjustment of hire. That right is expressly stipulated by Clause 11(A), Lines 151 and 152, of the Baltime form. It is also expressly provided for (though less clearly) in Clause 18, Lines 111 and 112, of the New York Produce form. 16.10 Where a charter does not contain an express right to payment of an adjustment, such a right will be implied. In The Trident Beauty (H.L.), at page 368, Lord Goff said, “the charter will usually make express provision for the repayment of hire which has been overpaid. In the present charter [which was made on the New York Produce form], such a provision is to be found in cl. 18 of the printed form, which provides that ‘any overpaid hire’ is ‘to be returned at once’. This provision gives rise to a contractual debt payable in the relevant circumstances by the shipowner to the charterer. But even in the absence of any such express contractual provision, advance hire which proves to have been paid in respect of a period during which the ship was rendered off hire under a term of the contract must ordinarily be repaid, and if necessary a term will be implied into the contract to that effect… All this… means that, as between shipowner and charterer, there is a contractual regime which legislates for the recovery of overpaid hire.” For an example of the application of this decision, see The Riza and The Sun , per Timothy Walker, J., at pages 320 to 321. 16.11 The obligation to pay an adjustment of hire arises in relation to hire paid in respect of: (a) time that the ship is off hire; and (b) time after redelivery of the ship or the termination of the charter. Hire paid in respect of any period of time after the ship has been withdrawn falls within the latter category: see The Mihalios Xilas , per Lord Diplock at pages 307 to 308. See further , below. 16.12 In The Trident Beauty, above, however, it was held that an assignee of the owners’ right to receive hire in advance was not bound by the owners’ contractual obligation to pay an adjustment of hire. The facts of the case are at .The language used to refer to the owners’ obligation to pay an adjustment of hire
16.13 When speaking of the owners’ obligation to pay an adjustment of hire, it is usually said that the owners have a duty to repay hire which has not been “earned” (and this usage is reflected in the language of Clauses 16 and 18 of the New York Produce form). That simply means the hire in question has been paid in respect of time during which, in the event, the ship was not on hire. It does not imply that the hire was not fully due and payable when paid. In French Marine v. Compagnie Napolitaine [1921] 2 A.C. 494, the House of Lords held that a payment of hire in advance was not a mere deposit, out of which payment is to be taken at a later stage: see per Lord Dunedin at page 513, and Lord Sumner at page 519. 16.14 Similarly, it is sometimes said that hire paid in advance is ‘provisional’ or ‘conditional’. These terms “mean no more than that the payment is not final since under the contract there is an obligation, express or implied, to repay to the charterer any part of the hire payment which has not been earned”: per Lord Goff in The Trident Beauty , at page 369. 16.15 In a number of cases, it is said that the charterers are entitled to recover unearned hire on the ground that the consideration for the unearned hire has wholly failed: see, for example, Stewart v. Van Ommeren [1918] 2 K.B. 560, per Scrutton, L.J., at page 564. It is perhaps doubtful whether there is a total failure of consideration where only a proportion of hire paid in advance is not earned: see Lord Sumner’s comments in French Marine v. Compagnie Napolitaine [1921] 2 A.C. 494, at page 520. Be that as it may, the charterers’ right to payment of an adjustment is a contractual right, in the nature of a debt. The charterers have no claim for restitution. In The Trident Beauty , at page 368, Lord Goff said that in most cases where hire has been paid but not earned, “there is no basis for the charterer recovering overpaid hire from the shipowner in restitution on the ground of total failure of consideration. It is true that sometimes we find in the cases reference to there having been in such circumstances a failure of consideration… But it should not be inferred that such statements refer to a quasi-contractual, as opposed to a contractual, remedy.”When and how the adjustment of hire is paid
16.16 In principle, where the owners come under an obligation to pay the charterers an adjustment of hire, their obligation is to pay that adjustment forthwith: see Scrutton L.J.’s comments in Stewart v. Van Ommeren [1918] 2 K.B. 560, at page 564. Indeed Clause 18 of the New York Produce form expressly requires that overpaid hire is returned “at once”. So if, for example, if the ship is off hire, the owners’ obligation to pay the consequent adjustment accrues each day that the ship is off hire. 16.17 However, in practice adjustments are normally made by way of set-off against the following month’s hire. In The Trident Beauty (H.L.), at page 367, Lord Goff commented as follows: “given the circumstances that the charter hire was payable in advance and that the ship might be off hire under one or other of the relevant clauses during a period in respect of which hire had been paid, it was inevitable that, from time to time, there might have to be an adjustment of the hire so paid. Such adjustments are a normal feature of administration of time charters. The usual practice is, I understand, for an adjustment to be made when the next instalment of hire falls due, by making a deduction from such instalment in respect of hire previously paid in advance which has not been earned… If the relevant period is the last hire period under the charter, such a deduction may not be possible. Any overpayment will then have to be repaid by the shipowner, and no doubt this will normally be taken care of in the final account drawn up at the end of the charter period.”Suspension of the obligation to pay hire in advance
Where the ship is off-hire on the due date
16.18 In The Lutetian , Bingham, J., held that under the New York Produce form the charterers were not obliged to pay an instalment of hire on the due date if the ship was off hire at that time, as Clause 15 provided that when time was lost from the listed causes “the payment of hire shall cease”. He accepted the contention that in such circumstances the charterers’ obligation to make payment of the next monthly instalment of hire in advance was suspended until immediately before the ship was again at the service of the charterers: see particularly at pages 150 and 153. This is a fair reading of the language of Clause 15, but, perhaps, not the only possible reading. It is suggested that, unless and until confirmed by the Court of Appeal, charterers should be cautious about relying on Bingham, J.’s view.Where the use of the ship is being withheld on the due date
16.19 Where the owners are wrongfully withholding the services of the ship, and the charter is on the New York Produce form, it is thought that the ship will be off hire under the “or any other cause” wording: see , below. Accordingly, the obligation to pay hire may be suspended, as discussed above. However, other off-hire clauses may not put the ship off hire in these circumstances. If the ship is not off hire, the charterers will be entitled to damages from the owners in respect of hire paid for the relevant period and will be entitled to set those damages off against subsequent hire payments: see et seq. However, the obligation to pay hire is probably not suspended. 16.20 In Tankexpress v. Compagnie Financière Belge des Pétroles (1946) 79 Ll.L.Rep. 451, Atkinson, J., held that the charterers were not in breach of charter in failing to make a particular payment of hire because on the due date the master was, on the owners’ orders, wrongfully refusing to obey their instructions to load the ship. A two-judge Court of Appeal was split on this point: (1947) 80 Ll.L.Rep 365. The House of Lords decided the case on other grounds ((1948) 82 Ll.L.Rep. 43), but Lord Porter and Lord du Parcq made comments, obiter, suggesting that Atkinson, J., was in error and that the obligation to pay hire continued (unless of course the conduct of the owners amounted to a repudiation of the whole contract and the charterers decided to accept it and treat the contract as discharged). Lord du Parcq said, at page 60: “… I have not been persuaded that a charterer who has agreed to pay a month’s hire in advance is absolved from making the payment if, although the owners have not sought to repudiate the contract, the ship is not in fact at the disposal of the charterer for some days immediately before and after the first day of the month of hire.”Other issues relating to time of payment
Semi-monthly and monthly
16.21 Line 58 of the New York Produce form requires hire to be paid “semi-monthly” in advance, but that is often altered by the parties to “monthly”. A month in this context means a calendar month. Monthly hire will be due on the same numbered day in each calendar month. In Freeman v. Reed (1863) 4 B. & S. 174, Cockburn, C.J., said: “the calendar month… is complete when, starting from the given day in the first month, you come to the corresponding day in the succeeding month whatever be the length of either.” If a month does not have a corresponding day, hire will be due on its last day. For a more recent review of this subject see Dodds v. Walker [1980] 1 W.L.R. 1061, where a majority of the Court of Appeal followed the ‘corresponding day’ rule and held that four calendar months from 30 September expired on 30 January, despite the fact that the period then began at the end of the first month but finished before the end of the fourth. Their decision was affirmed by the House of Lords, [1981] 1 W.L.R. 1027. 16.22 In the absence of express agreement or settled practice, the charterers have until midnight on the due day in which to effect each periodic payment, regardless of the hour at which the obligation to pay hire had commenced at the beginning of the charter period: see The Afovos (C.A.), and (H.L.). It is suggested that, again in the absence of express agreement, the last moment for timely payment should be calculated by reference to the place where payment is to be made so that (for example) a payment to be made in New York and due on 30 April is timely if effected late in the afternoon that day in New York even if the ship is then in the Far East so that for her it is 1 May.NYPE 93, Baltime
16.23 The Baltime form avoids the difficulty of long and short months by providing in Line 85 that hire be paid “every 30 days”. For this calculation months can be disregarded. The NYPE 93 form deals with the same difficulty by stipulating payment intervals of 15 days. The phrase “15 days in advance” means “every 15 days in advance”.Payment due on a non-banking day
16.24 If the due day for a particular payment falls on a Sunday or some other non-banking day the charterers are not entitled to defer making payment until the next banking day: see the judgment of Ackner, J., in The Zographia M . Similarly, in The Laconia , at page 323, Lord Salmon made the following (obiter) remarks: “Punctual payment cannot be made on the day after it falls due, but I cannot see any reason in the present case why it could not be made before that day. If the hire is to be paid to the owners’ bank semi-monthly in advance and an instalment happens to fall due on a Sunday when the banks are closed, then as the banks are also closed on Saturday, payment, in my view, should be tendered on the previous Friday. This will be payment in advance. If it is not tendered until the Monday it will not be made in advance of the period for which it is tendered.”The first instalment of hire
16.25 The obligation to pay hire in advance probably applies to the first instalment just as it applies to subsequent instalments. Branson, J., so held in Kawasaki v. Bantham Steamship (1938) 60 Ll.L.Rep. 70 (but compare the judgment of Roche, J., in Budd v. Johnson, Englehart (1920) 2 Ll.L.Rep. 27, where he reached the opposite conclusion). Thus under the New York Produce form the charterers must pay either before the expiry of the Clause 5 notice period or before they use the ship pursuant to that clause. In The Zographia M , it was submitted that the obligation to pay in advance did not apply to the first payment of hire. The court was referred to Budd v. Johnson, Englehart but Kawasaki v. Bantham Steamship was not cited. It was also submitted that a term should be implied that the owners must give reasonable notice of when they will deliver. Ackner, J., at page 392, accepted these submissions.The final instalment of hire in advance
16.26 If the charter does not expressly provide to the contrary, hire payable in advance for a month or half a month will be payable in full even where it is clear that the ship will be redelivered before the end of the month or half month: see Tonnelier v. Smith (1897) 2 Com. Cas. 258. After redelivery, the amount overpaid is to be calculated and repaid by the owners: see Stewart v. Van Ommeren [1918] 2 K.B. 560. This general rule in Tonnelier v. Smith applies to the Baltime form. 16.27 The New York Produce form provides to the contrary in Lines 58 to 60: “for the last half month or part of same the approximate amount of hire, and should same not cover the actual time, hire is to be paid for the balance day by day, as it becomes due, if so required by Owners, unless bank guarantee or deposit is made by the Charterers…” Thus less than the full semi-monthly hire may be paid in advance where redelivery is expected to be made before the end of that period. In that case, the charterers are obliged to pay in advance only an amount calculated in accordance with their estimate as to the probable date of redelivery. But they must pay hire for the whole period up to that date. Thus Mocatta, J., held the charterers in breach in The Chrysovalandou Dyo , when they paid hire for a period which ended three days before their own estimate of the redelivery date. Moreover, the charterers’ estimate must be made on reasonable grounds; it is not sufficient that it should have been made bona fide: see The Mihalios Xilas (C.A.) and (H.L.), per Lord Diplock at page 308, where the relevant clause read: “the last month’s hire to be estimated and paid in advance, less bunker cost… up to such time as vessel is expected to be redelivered…”. Although the words of Lines 59 and 60 of the New York Produce form are somewhat different from those in The Mihalios Xilas, it is anticipated that they would be construed in the same way so far as this point is concerned. 16.28 Where the words of the charter permit deductions of specified items from the last hire payments, the amount of such deductions must also be made on objectively reasonable grounds: see The Mihalios Xilas, above.NYPE 93
16.29 Clause 11(c) of the 1993 revision of the New York Produce form expands on the provisions in Lines 58 to 60 of the 1946 version, embracing the penultimate as well as the last anticipated payment if this falls during the final voyage to the redelivery port and requiring account to be taken of bunkers on board at redelivery and of owners’ disbursements: see Lines 168 to 174.Mode of payment
16.30 Line 58 requires the charterers to pay hire “in cash”. However, this stipulation should not be read literally. In The Brimnes , at page 476, Brandon, J., said: “In my view these words must be interpreted against the background of modern commercial practice. So interpreted it seems to me that they cannot mean only payment in dollar bills or other legal tender of the U.S. They must… have a wider meaning, comprehending any commercially-recognised method of transferring funds, the result of which is to give the transferee the unconditional right to the immediate use of the funds transferred.” Edmund Davies, L.J., in the Court of Appeal , at page 248, specifically agreed with that definition. Brandon, J.’s, definition was referred to with approval and clarified by the House of Lords in The Chikuma : see , below. At page 375, Lord Bridge agreed with Robert Goff, J., who had taken “unconditional” in Brandon, J.’s, definition to have a wide and liberal sense “equivalent to unfettered or unrestricted”, and added this: “The underlying concept is surely this, that when payment is made to a bank otherwise than literally in cash, i.e. in dollar bills or other legal tender (which no one expects), there is no ‘payment in cash’ within the meaning of cl. 5 unless what the creditor receives is the equivalent of cash, or as good as cash.” 16.31 Similarly, in The Laconia , at page 402, Lawton, L.J., said: “The construction of the word ‘cash’ provides no difficulty. Amongst business men engaged in international shipping it now means such banking arrangements as can be treated as cash.”Bankers’ drafts
16.32 A bankers’ draft is a form of payment equivalent to cash: see The Brimnes , per Brandon, J., at page 476. However, where payment is made by a bankers’ draft, the issue may arise as to when the payment takes place: is it on delivery of the draft to the owner’s bank or when the money is credited to his account? The answer is probably the former. This is despite the fact that the owners may not be able to make immediate use of the money because there is a period of internal processing before the owners’ bank will actually credit the owners’ account. As Lord Salmon pointed out in The Laconia , in a case about payment orders, even if the charterers had literally paid in cash, a certain amount of processing would be needed before a credit was raised in an owner’s account: see page 326. 16.33 In The Brimnes , at page 468, Brandon, J., concluded that where payment was made by presentation of a bankers’ draft, the payment was effected at the time of presentation. This conclusion was not challenged in the Court of Appeal: see , per Edmund Davies, L.J., at page 247.Electronic transfers of funds
16.34 A more common substitute for cash is an electronic funds transfer. Where the transfer is international, it is almost always made by means of a payment order sent through the SWIFT secure message system. The order is sent by the charterers’ bank to the owners’ bank. It instructs the owners’ bank to credit the owners’ account with a sum of money and tells them how they will be reimbursed. The reimbursement is effected by a transfer of funds, typically through a correspondent bank which holds accounts with both the owners’ and the charterers’ banks or through a chain of correspondent banks. The SWIFT message has a value date, which is the date on which the funds are to be transferred between the relevant banks. 16.35 Where a payment is made by a payment order of this kind, the order may be received by the owners’ bank some days before the interbank value date. Where that is the case, the charterers are not treated as having made a payment at least until the interbank value date.The charterers of the Chikuma paid an instalment of hire using a payment order. The payment order was sent by the charterers’ bank to the owners’ bank in Italy. It bore a ‘for value’ date falling four days after the date of the order. In those circumstances, in accordance with Italian banking practice, the owners’ bank credited the owners’ account immediately, but the credit was made on terms that the owners would not earn interest on the money until the bank had been reimbursed four days later. The House of Lords held that, in those circumstances, the receipt of the charterers’ payment order and the credit made to the owners’ account were not payment for the purposes of the charter: they did not provide the owners with unconditional and immediate use of the funds. Having referred to the statement of Brandon, J., in The Brimnes, see , above, Lord Bridge said, at page 376: “The book entry made by the owners’ bank on Jan. 22 in the owners’ account was clearly not the equivalent of cash… It could not be used to earn interest… It could only be drawn subject to a (probable) liability to pay interest. … It follows, in my view, that on Jan. 22 there was no ‘payment in cash’ … and the owners… were entitled to withdraw the ship, as they did, on Jan. 24.”