Lloyd's Maritime and Commercial Law Quarterly
PUNCTUAL PAYMENT OF HIRE: CONDITION OR INNOMINATE TERM?
Spar v Grand China
Paul Todd*
In Spar Shipping A/S v Grand China Logistics Holding (Group) Co Ltd,1 the Court of Appeal has made its long-awaited decision on whether failure punctually to pay time charter hire amounts to a breach of a condition, or simply of an innominate term.2 Prior to this decision there was conflicting authority, in particular The Astra
3 and Spar itself at first
* Professor of Commercial and Maritime Law, University of Southampton.
1. [2016] EWCA Civ 982; [2016] 2 Lloyd’s Rep 447.
2. Presumably the same would apply to a demise charter.
3. Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra) [2013] EWHC 865 (Comm); [2013] 2 Lloyd’s Rep 69.
instance.4 It probably came as no surprise that the Court of Appeal preferred Popplewell J’s view in Spar itself, that the obligation is an innominate term, to that of Flaux J in The Astra, that it is a condition. The decision of the Court of Appeal is to be welcomed for a number of reasons. However, Hamblen LJ’s view,5 that the law was clear prior to The Astra, is not, I suggest, correct, as was demonstrated by the authorities referred to, at first instance, in The Astra and Spar. Whatever the position prior to The Astra, however, we now have a clear statement of the law, at least at Court of Appeal level.
Facts and issues
Spar concerned arrears in payment under three time charterparties, unusually on the NYPE 1993 form, albeit amended, leading (on a falling market) to the eventual withdrawal by the shipowners of all three vessels. By the time of the withdrawal, for a period of some five months, there had been “a chronology of missed or delayed payments” of hire.6 The owners claimed not only the balance of hire due, but also damages for loss of bargain in respect of the unexpired terms of the three charters.7 It was assumed that they could do this only if the charterers were in repudiatory breach of contract. Otherwise, as Lord Mance explained in The Kos,8 these losses “flowed from the owners’ exercise of their option to withdraw”, rather than from the charterers’ breach.
Two arguments were advanced as to why the charterers were in repudiatory breach: that they had renounced the charterparty, and that their late payments amounted to a breach of condition. The Court of Appeal, upholding Popplewell J, held that the charterers had, by their conduct, renounced the charterparties. Since the shipowners would succeed on either basis, this made it unnecessary to consider their alternative contention, that even one late payment amounted to a breach of condition. However, in “the light of the disagreement between two experienced Commercial Court judges”,9 and “with the encouragement and concurrence of both parties”,10 the court considered the issue and, again upholding Popplewell J, held that the late payment did not amount to a breach of condition.
Renunciation
In both The Astra and Spar, the charterers had been late in payments over a period of several months. In Spar, Popplewell J thought that an objective observer would conclude that the charterers were unwilling, because unable, to pay hire punctually for the balance of the charterparty periods, or to pay off the arrears, absent a return of market rates to
4. Spar Shipping A/S v Grand China Logistics Holding (Group) Co Ltd [2015] EWHC 718 (Comm); [2015] 2 Lloyd’s Rep 407.
5. [2016] 2 Lloyd’s Rep 447, [92].
6. [2015] 2 Lloyd’s Rep 407, [3] (Popplewell J); cited [2016] 2 Lloyd’s Rep 447, [10] (Gross LJ).
7. Actually on a guarantee, the charterers themselves having gone into liquidation.
8. ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] UKSC 17; [2012] 2 AC 164; [2012] 2 Lloyd’s Rep 292, [52]; cited [2016] 2 Lloyd’s Rep 447, [26] (Gross LJ).
9. Ibid, [93] (Hamblen LJ).
10. Ibid, [92] (Gross LJ).
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