Skuld advises charterers on anti-technicality notices

Norwegian marine insurer Skuld has noted in a web article that Issues concerning the service of anti-technicality notices and the withdrawal of vessels were almost exclusively approached from a shipowners’ perspective. However, “these issues are equally relevant to charterers both in terms of contractual rights and the protections afforded charterers when facing unreasonable attempts to withdraw”, the club said.

The traditional remedy in a charterparty for a time charterer in default of his obligation to pay hire is the withdrawal of the vessel from charterers’ service. There is no automatic right to withdraw a vessel for late or non-payment of hire, so a charterparty will almost always contain an express clause giving a shipowner the right to withdraw in the event of default.

Given the serious consequences of such withdrawal, in order to protect charterers from unreasonable and/or unjust withdrawal by owners for minimal or inconsequential matters, the contractual right of withdrawal is usually expressed within the constraints of an anti-technicality clause.

An anti-technicality clause generally requires owners to send charterers an anti-technicality notice which allows charterers a specific additional period to remedy the default and prevent a withdrawal of the vessel.

Skuld observed that such a notice was important because it imposed a grace period for payment that was designed to protect charterers from forfeiture in circumstances where they had a reasonable opportunity to rectify inadvertent or unintentional breaches.

Skuld noted that, because of the draconian nature and consequences of a withdrawal of a vessel from service, the English Courts and Tribunals had been willing to construe the operation of anti-technicality notices, when ambiguous or uncertain, in a charterers’ favour.

Therefore, when faced with the service of an anti-technicality notice, a charterer should have in mind the following important considerations:

1. Owners are required to serve the anti-technicality notice promptly after the hire is overdue. An anti-technicality notice cannot generally be served by a shipowner until after midnight on the due date for payment. Thereafter, the owner is obligated to serve the notice without delay. If charterers are served with a notice several days after a default, then the notice may be held to be invalid. The acceptable duration of any delay will depend on the specific facts, but, absent exceptional circumstances, a significant delay can be deemed a waiver of owners’ right to withdraw, and instead constitute an affirmation of the charterparty.

2. Owners are obliged to strictly adhere to the terms of the anti-technicality notice. Charterers should check that any anti-technicality notice received, has been served in the correct form. This is a strict obligation on owners. In a recent London arbitral decision (London Arbitration 1/18) an anti-technicality notice provided for prompt payment of hire to be made in three clear banking days from the date that notice was given. Owners’ however miscalculated the date for withdrawal in the notice. When owners subsequently withdrew the vessel, the Tribunal held that owners had not provided the proper contractual notice period, and therefore the notice was invalid, and charterers were entitled to damages from owners for wrongful repudiation of charterparty.

In addition, the notice must state clearly and unequivocally that the vessel will be withdrawn if the overdue hire is not paid. A notice received by charterers which simply mentions that owners will exercise their rights under the charterparty without specifically referring to withdrawal, will not be deemed sufficiently clear notice, and will likely be held to be invalid.

3. Owners’ previous acceptance of late hire payments may prevent them from withdrawing on the basis of subsequent late payments. If owners have previously accepted late payments of hire, without protest or reservation, then owners may have waived or lost their right to withdraw. However, charterers will need to be careful not to rely on this as an excuse for intentional late payment(s). Courts will look at the totality of charterers’ conduct in determining the right to withdraw and are unlikely to allow a charterer to use previous late payments as justification for a deliberate intention to default on their present hire obligations.

4. Charterers are entitled to make bona fide deductions from hire. Charterers should be aware that an owner is not entitled to withdraw a vessel for non-payment of hire if a charterer can establish that the deduction from hire is bona fide and reasonable, even though the amount which the charterer deducts subsequently turns out to have been too much (The Nanfri [1978] QB 927).

5. Owners’ subsequent conduct may affirm the charterparty. Owners can, by their conduct, subsequently inadvertently affirm the charter contract notwithstanding their previously having served a valid anti-technicality notice. Any attempt to terminate the charter thereafter may be deemed a repudiation of contract by owners and entitle charterers to claim damages. An example of this was in case of The Fortune Plum [2013] EWHC 1355 where shipowners served an anti-technicality notice and advised they would be terminating the contract. The vessel was discharging, and owners allowed completion of discharging operations notwithstanding the notice. The Court held that by allowing the vessel to continue charterers’ service for the purposes of discharging the cargo, owners had affirmed the charter. It followed that owners’ subsequent withdrawal of the vessel was a repudiatory breach of charter and charterers were entitled to claim damages.

Skuld concluded that issues surrounding the service of anti-technicality notices and exercising the right to withdraw a vessel could be complicated, and it was incumbent on both charterers and owners to be aware of the rights and risks involved. There were many factors that needed to be taken into account. Whereas arbitrators and Courts were likely to interpret anti-technicality clauses narrowly against an owner seeking to terminate the charterparty, the risks were considerable on both sides. It was always advisable for charterers and owners to seek legal advice when faced with service of an anti-technicality notice and possible withdrawal of the vessel.