CHARTERERS' DEFAULT
PROPELLER CLUB PRESENTATION
23 JANUARY 2013
DIMITRI VASSOS, PARTNER
T: +30 210 429 3978
Dimitri.vassos@hfw.com
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Charterers' Obligations/General Principles
 Hire is payable continuously and unconditionally from delivery of the
vessel to re-delivery.
 Hire is payable 15 days in advance and must be sufficient to cover
every hour of that period – the obligation to pay hire on or before
the due date is an "absolute" one.
 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 no right of set-off against hire unless:
 The Charterparty provides for it, or
 A set-off is possible under the applicable law.
 Bunkers, port, agency etc. are payable in addition to hire (Clause 2
of NYPE).
 These obligations/general principles are capable of being varied by
express terms in the Charterparty.
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NYPE Clauses
 Clause 2 deals with a Charterer's duty to provide and pay for stipulated
items such as bunkers, port charges, agency, pilotage etc.
 Clauses 4 and 5 of NYPE deal with Charterer's obligation to pay hire –
Clause 4 in particular 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".
 Above obligations 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 hire 15 days in advance and
if it 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 46 contains an anti-technicality clause (clause 11) which 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".
 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.
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Previous late payments – waiver/estoppel
 The right to withdraw may be waived by the Owner and the Owner
may also be estopped from exercising the right.
 Effect of Owners' acceptance of the late tender of hire payment will
be considered by the court against all the relevant circumstances
together with any representations made by the Owners (implied or
express) on whether or not their legal rights will be enforced.
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Is the Charterer liable to pay damages in addition to hire and any
other amounts due to the Owners at the time of withdrawal?
 Only 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 and to claim damages.
 However, that obligation may not be a condition; for example, it is at
least arguable that the NYPE Clause 5 obligation to pay punctually
is an intermediate term reinforced with a contractual option to
terminate.
 If the failure to pay is an intermediate term that means the Owners
are not entitled to recover loss of bargain.
 Based on case law to date the uncertainty remains as to whether
the obligation to make punctual payment is a condition (i.e. an
essential/fundamental term of the contract) or an intermediate term
(i.e. a term breach of which may entitle the innocent party to
terminate the contract but only if the consequences of the breach
are sufficiently serious).
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Damages and Mitigation
 A claim for damages can fail due to remoteness (i.e. where the
consequence is different in kind from what the parties could
reasonably have contemplated when entering into the contract
would be likely to result from the breach in question).
 The Owner should do his utmost to re-let the vessel by way of
mitigation of any loss he has suffered. However, the Owner 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 ".
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Charterers' Administration/Insolvency - Ramifications
 Recognition and enforcement of administration or bankruptcy
proceedings in England – effect of Cross-Border Insolvency
Regulations 2006 on arbitration in respect of any claim brought by
Owners against Charterers.
 Effect of above on possible remedies against parties other than the
Charterer – e.g. in relation to the determination of the validity of a
lien over sub-hire.
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