Marine & Transit - July 2010
The last chance saloon: hire default and anti technicality
notices
Compliance with anti technicality clauses
Owneast Shipping Ltd v Qatar
Navigation QSC
[2010] EWHC1663
(Comm)
Charter termination and withdrawal has been a
feature of the shipping landscape since the 2008 market slump. This
Commercial Court decision (on appeal from a London arbitration
award) illustrates the importance of ship owners adhering to the
correct contractual notices as and when termination situations
arise.
So called anti-technicality clauses are found
in many time charters. Their purpose is to avoid a situation
where owners could otherwise withdraw a vessel for a breach of any
obligation (e.g. to pay hire on time) however minimal or
inconsequential, and to give the charterer some measure of relief
against possible forfeiture in allowing opportunity to rectify
inadvertent breaches.
Here, owners had time chartered a vessel on an
amended NYPE form for a period of 48 months. The charter
contained an anti-technicality clause which provided that:
“Where there is any failure to
make punctual and regular payment due to errors or omission of
charterers’ employees, bankers or agents or otherwise for any
reason where there is absence of intention to follow to make
payment as set out, charterers shall be given by owners 3 banking
days notice to rectify the failure…”
The charterers had a patchy payment record,
with 17 of 30 semi monthly payments having been paid late.
Matters came to ahead in August 2006 when the semi monthly advance
hire fell due on 24 August.
Earlier in the month the vessel had been
discharging a log cargo at Kandla when there had been a series of
breakdowns. Charterers had been awaiting the statement of facts so
as to deduct lost time from that payment, but there were delays in
production of the documentation. As a result, charterers’ personnel
deferred from putting in place the timely approvals and payment
requests which their internal processes required. By the time
payment was in hand (so as to factor in the deductions) it was
evident that remittance would not reach owners’ bank by 24 August.
Accordingly, owners terminated with immediate effect, citing
charterers’ persistent failure to pay hire on time.
Charterers argued the termination was
wrongful, since owners had failed to give them notice to rectify
the breach.
Owners, however, contended an
anti-technicality notice was not required: charterers purposely
delayed payment while awaiting documents to support an off hire
deduction. This delay, together with their internal approval
hurdles, made it obvious that if payment was not sanctioned by 22
August, then its arrival by the 24th would be unlikely.
In fact, the payment request was not filed with the bank until
after hours on the deadline day. There was therefore an “intention
to fail to make payment” that disentitled charterers being granted
a three day grace period.
Further, if the deduction from hire was
unjustified (lacking good faith) it could not be “regular payment”
as the clause required.
The court, as at the majority tribunal,
rejected owners’ arguments relying upon authorities including
The “Libyaville” [1975] 1 Lloyd’s Rep 537 and
The “Rio Sun” [1981] 2 Lloyd’s Rep 418 which
showed that the court looked favourably on anti technicality
clauses and did its best to give effect to them.
Intention had to be interpreted narrowly,
equating to a wilful and deliberate decision to pay late. It could
not be extended so as to encompass recklessness.
On balance, it did not appear that charterers
knew there was a specific deadline by which the payment
instruction had to be given to the Bank, and with that knowledge
consciously decided not to send the instructions so as to meet it.
Nonetheless Christopher Clarke J. acknowledged that “the dividing
line between serious incompetence and deliberate delay amounting to
an intention not to make punctual payment is sometimes thin”.
In relation to the deduction, The
“Libyaville” decision provided guidance. There, despite
the deliberate payment of a lower and disputed rate of hire (which
owners have previously warned against), there was no intention to
fail to make a “regular” payment in the absence of evidence of bad
faith. In the present case, there was no suggestion that
charterers’ deduction was not bona fide.
Therefore, Owners had wrongfully terminated:
charterers has been entitled to service of the anti-technicality
notice.
This decision illustrates the exposure to
owners in cutting corners, rather than erring on the side of
caution in adhering to contractual notice requirements. Making
assumptions will often import a heavy risk since – where intention
is under scrutiny - it will only be after the event that intention
(or in the case of deductions, bad faith) can be established, even
if, at the time, it looks like charterers appreciate what they are
(not) doing. The courts will always seek to construe such clauses
in charterers’ favour, absent wording which softens/widens the
meaning of intention in the context of a failure to pay hire.
Mike Burns,
Partner
Weightmans LLP