Anti-technicality clauses and withdrawal ─ the devil is in the detail

Standard Club has issued a Web Alert on anti-technicality clauses. Claims executive Alexia-Anna Kalafati wrote that withdrawal of a ship on time charter was the owner’s traditional remedy against non-payment of hire. However, she warned that an owner should exercise great caution when withdrawing a ship as it could result in substantial claims against the owner if the procedure was not precisely followed

In a case from a couple of years ago, a ship was on time charter and delivered to the charterer on August 22nd 2015. By early November 2015, the charterer notified the owner of cash flow difficulties. When attempts to negotiate a better hire rate failed, the charterer gave premature notice of redelivery of the ship for November 18th 2015. On November 6th a further instalment of hire became due.

The anti-technicality clause in the charterparty stated that “in default of prompt payment of hire…the Owners shall give Charterers three clear banking days’ written notice to rectify the default whereupon Charterers will rectify within such three banking days. Failing which Owners shall have the right to withdraw the vessel…”.

On November 10th the owner wrote to the charterer stating that “charterer is requested again to do the due payment w/i 3 banking days written notice to rectify your default before 12th/Nov/2015, or else, owner has the right to exercise our rights under the CP.” The wording here proved to be key.

On November 13th the owner told the charterer that it was withdrawing the ship with immediate effect under Clause 32, due to non-payment of hire. The charterer replied that the owner had unlawfully terminated the charterparty, because the owner did not give three clear banking days’ notice prior to the exercise of any right to cancel/withdraw the ship. The charterer also made clear that it accepted the owner’s renunciatory breach as bringing an end to the charter.

The charterer paid hire up to November 13th, sending a final hire statement of $47,419.55 as being due from the owner to the charterer. The owner replied that it was entitled to additional hire up to the date on which the next instalment of hire would have been due.

The charterer brought arbitration proceedings against the owner for wrongful termination of the charterparty, demanding payment of the balance due as calculated by the charterer. The owner counter-claimed for additional hire until November 22nd, based on the charterer’s notice of redelivery, and sough a balance in its own favour of $30,653.74.

The tribunal found in favour of the charterer. It said:

1) Anti-technicality Clause 32: Clause 32 required the owner to give the charterer three clear banking days written notice to rectify the default. The owner purported to give that notice on November 10th. However, the three clear banking days would not have expired until midnight on November 13th, not November 12th as stated by owner. The owner withdrew the ship on November 13th, more than six hours before the expiry of the third banking day deadline. The withdrawal constituted a repudiation of the charterparty, which the charterer was entitled to accept.

2)  Unclear language of owner’s notice: The message sent by the owner on November 10th seemed to be drafted as a statement of the owner’s rights. It did not clearly state that the owner would exercise the right to withdraw the ship.

The owner was ordered to pay charterer the outstanding hire balance of  $47,419.55. The counterclaim failed.

Kalafati wrote that this case was a reminder to owners to exercise extreme caution when considering the withdrawal of their ship from a charterer’s service, especially when the charterparty contained an anti-technicality clause. If an owner failed strictly to comply with the procedure or sought to withdraw a ship earlier than the deadline imposed by the grace period, an owner could find itself in repudiatory breach of charter, entitling a charterer either to keep the charter alive, or alternatively, to treat the charter as at an end and claim damages against an owner.

“As this case shows, arbitrators as well as courts are likely to interpret anti-technicality clauses narrowly against an owner seeking to terminate the charterparty.”