Hire and Withdrawal
Miranda Karali
Partner
General Principles
 Hire is payable continuously and unconditionally from delivery of the vessel to redelivery.
 The obligation to pay hire is suspended only if there is a provision to that effect in the
charterparty – e.g. off-hire clause.
 Generally there is no right of set-off against hire unless;
– the charterparty provides for it, or
– a set-off is possible under the applicable law.
 In examining hire clauses in time charterparties a distinction has to be drawn between;
– when hire is earned, and
– when and in what manner it is to be paid.
 Hire payments are usually payable in advance.
 These general principles are capable of being varied by express terms in the charterparty.
NYPE Clauses
 Clauses 4 and 5 of NYPE deal with the charterers’ obligation to pay hire.
 Clause 4 provides 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”
 This obligation is qualified by Clause 15, the off-hire clause, which stipulates that
“payment of hire shall cease” in certain circumstances.
 Clause 5 states that the charterers are to pay the “said hire … semi-monthly in
advance”.
 Clause 5 also provides that, if hire is not paid punctually, the owners are to have
the right to withdraw the ship. The right to withdraw is a right to terminate the
charter.
 NYPE 93 contains an anti-technicality clause (clause 11). This operates where the
failure to make punctual and regular payment is “due to oversight, negligence,
errors or omissions on the part of the Charterers or their bankers”. The owners are
then required to give notice to pay within an agreed number of “clear banking days”
and may not withdraw before that period of grace has expired.
The right to withdraw
 Refusal or failure to pay hire according to the terms of the charter, or a late
payment amount to a breach of contract.
 Refusal to pay is probably a repudiatory breach and the owner may elect
to cancel the charter and withdraw the vessel.
 Failure to pay or late payment in the first instance gives a right to claim
damages only, as the breach is not repudiatory.
 BUT as we have seen, the charter usually sets out an express right to
withdraw the vessel.
The right to withdraw
 Where the charter gives an express right to withdraw the vessel, the owner
can elect to adopt this remedy.
 If there has also been a breach of the charter the owner may also claim
damages but as we will see, the right to withdraw is not necessarily
associated with a breach of the charter and the right to claim damages.
 Where the owner elects to withdraw the vessel, clear notice of this intention
must be provided.
 No particular form of words is required provided the notice adequately
communicates the intent of the owners.
 Withdrawal is final. With the giving of notice the charter is terminated as to its
future performance. Thereafter there is no right to hire and any hire paid in
advance but not earned must be returned to the charterer.
Previous late payments - waiver
 The right to withdraw may be waived by the owner and the owner may also
be estopped from exercising the right.
 Generally the acceptance of late payment does not amount to a waiver of
the right to withdraw unless the owner accepts it on those terms. But a
waiver will arise if the owner fails within a reasonable time of receipt of the
late payment to give notice of withdrawal.
 Where there has been a history of late payments being accepted so as to
establish a course of conduct, this may amount to a variation of the
contract or establish an estoppel, with the owner required to give notice
before it is possible to return to the original terms of the contract.
Anti-technicality clause
 Most time charterparties contain an anti-technicality clause which requires
the owner to give the charterer notice of the default and to specify a period
of time within which payment is to be made before the contract may be
cancelled and the vessel withdrawn.
 The details of an anti-technicality clause must be meticulously followed by
the owner if the notice is to be valid.
 The anti-technicality clause may include a right to suspend performance of
the contract as an alternative to withdrawal of the vessel, with the charterer
obliged to give the owner an indemnity for the consequences of the
suspension. The right to suspend is without prejudice to the right to
withdraw the vessel.
Effect of withdrawal – bills of lading
 A problem area in relation to withdrawal is where bills of lading have been
issued to third parties.
 These represent distinct contracts between the owner and the holders of
the bills.
 The owner must continue to perform in accordance with the bill of lading,
so in such cases the right to withdraw may not be of much practical effect.
 Where the owners are not bound by bills of lading they will still have an
obligation as bailees to take reasonable care of the cargo.
Can a shipowner withdraw the vessel and also
claim damages?
 At the time of a valid withdrawal the owners can claim hire that they have earned,
together with other amounts due from the charterers at the time of withdrawal. But
what about damages, e.g. the loss caused by the market rate of hire at the time of
the withdrawal being lower than the charter rate?
 If the obligation to pay hire punctually is a condition of the contract then any
failure to pay promptly would give the owners the right both to terminate the
contract and to claim damages.
 However, that obligation may not be a condition: for example, it might be argued
that the NYPE Clause 5 obligation to pay punctually is an intermediate term
reinforced with a contractual option to terminate.
 The owners would only, normally, be entitled to damages resulting from the
termination of the charter if the charterers’ failure to pay had amounted to a
repudiation of the charter: that is, that it amounted to an unambiguous
representation that the charterers would not or could not perform their obligations
under the charter.
When does non-payment amount to repudiation
of the charterparty?
 Assuming that the obligation to pay hire punctually is not a condition of the charter, when
will failure to pay it on time amount to a repudiation of the charter?
 Conduct may amount to repudiation where it shows:
– an intention no longer to be bound by the contract, or
– an inability to perform sufficient to have the effect of depriving the owners of
substantially the whole benefit of the charter
 Failure to pay an instalment of hire on the due date would not satisfy this test
 However, where the conduct of the charterers is such that unwillingness or inability on
their part to pay can be reasonably inferred, then there may well be repudiation.
– For example, where the charterers had dishonoured a bill they had given for one
month’s hire and the next had not been paid at all it was held that the owners were
entitled to treat the charter as at an end and to claim damages as well.
Measure of damages
 The purpose of contract damages is to put the injured party in as good a financial
position as he would have been in had the contract been performed.
 However, damages are limited to those that were foreseeable at the time the
contract was entered into. Recovery of consequential damages will not be
allowed unless at the time of the making of the contract, the parties contemplated
that the loss or damage would be a probable result of a breach of the contract.
 The proper measure of direct damages for a wrongful withdrawal or cancellation
of charter is the difference between the original charter rate and the prevailing
market rate for equivalent business at the time of the breach.
 The market rate is usually determined by reference to other charters for
comparable vessels in the same or comparable trade fixed on or about the date
of the breach.
 BUT the shipowner will be required to mitigate any loss. In doing so, a shipowner
is “required only to use good faith and reasonable diligence in so doing. He is not
required to use the best judgment possible or adopt the wisest course which
hindsight might have dictated.”
Remedies against parties other than the time
charterer
 Lien on cargo
 Lien on sub-freights / sub-hires
Miranda Karali
Partner, Clyde & Co
miranda.karali@clydeco.com
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