Milly Brooks, Deputy Syndicate manager at Shipowners’ Club has written on the problems that can arise for owners when dealing with difficult charterers under the MYBA Charter Agreement, which was widely used in the luxury yacht market.
Brooks noted that the Club had recently assisted in several cases involving charterers committing multiple breaches of clause 13, the clause that governed the way in which the charterer and their guests should use the yacht during the charter period. She said that these cases illustrated that, in practice, careful consideration needed to be given to an owner’s options when dealing with poorly behaved charterers under the MYBA Charter Agreement.
Clause 13 of the MYBA Charter Agreement sets out the charterer’s obligations with respect to the use of the yacht. Among other things, the charterer must comply with the laws and regulations of any country into whose water the yacht enters. They must also ensure that their behaviour, and the behaviour of their guests, does not cause a nuisance to any person or bring the yacht into disrepute and they and their guests must afford the crew due respect at all times.
Under clause 7 of the Agreement, if the Captain reasonably believed that the charterer or their guests had infringed any of the terms in clause 13, they would be required to give ‘due and specific’ warning to the charterer. If the behaviour continued, the Captain could, by notice in writing given to the charterer, terminate the Agreement forthwith and the charterers would be obliged to settle all outstanding expenses and will not be entitled to any refund.
There were certain actions of a charterer that would give rise to an owners’ right to terminate forthwith, without giving due and specific warning to the charterers. The first such action would be if the charterer or any of their guests committed an offence contrary to the laws and regulations of any country. The offence would have to result in a crew member being detained, fined or imprisoned, or to the yacht being detained, arrested, seized or fined. If this occurred, not only could an owner terminate the Agreement forthwith by notice to the charterer, but the charterer was also required to indemnify the owner against all loss, damage and expense incurred by the owner as a result.
The second such action would be if the charterer or their guests breached the ‘zero tolerance policy’ by having in their possession any illegal drugs or weapons.
Shipowners’ Club said that it had recently assisted a number of Members in cases involving potential breaches of clause 13. These cases illustrated that, in practice, it could be difficult for the owners to exercise their right to terminate without fear that they would be committing a repudiatory breach of the Agreement. This could mean that owners might not always have an effective remedy in situations involving a difficult or poorly behaved charterer, particularly so in the case of short-term charters.
Importantly, said Brooks, it needed to be noted that clause 13 did not include any obligations with respect to treatment of the yacht and property on board. This meant that that there was no right to terminate in circumstances where the charterers or their guests damaged the yacht. Clause 3 of the Agreement obliged the charterers to redeliver the yacht in ‘as good a condition as when delivery was taken’, except for fair wear and tear arising from ordinary use. Therefore, if the charterers physically damaged the yacht, repairs would have to be carried out before the yacht was redelivered. If the yacht was not redelivered by the charterers in as good a condition as at delivery, the owners would be entitled to recover the cost of repairs from the charterers or deduct such costs from any security deposit provided.
If owners were to suffer other losses from delayed delivery due to repairs necessitated by the charterers, they might claim these as damages for breach of clause 3. However, there was no express provision for such a claim and at present there was no clear case law on this point.
Brooks said that there were questions as to the extent to which the Agreement provided owners with an effective remedy in the case of a charterer behaving in an unacceptable way. There was no authoritative case law on this point, and disputes in this area were likely to rely on the strength of the contemporaneous evidence obtained. This meant that it was difficult for owners to determine with certainty whether there had been a provable breach of clause 13. If owners terminated the Agreement and were unable to prove such a breach, they would be exposed to a claim for damages arising from repudiatory breach.
Shipowners’ Club strongly recommended that owners seek legal advice prior to any termination of any charterparty. Where the charterparty was subject to English law, Members of the Club could also use their two hours of free legal advice, available under the CTRL Benefit Clause, to deal with any pre or post-contractual queries they had in respect of their charterparties.