UK: Court Considers Whether Owners Had Affirmed A Charter By Allowing Discharge Before Withdrawal For Non-Payment Of Hire

In White Rosebay Shipping SA v Hong Kong Chain Glory Shipping Ltd [2013] EWHC 1335 (Comm), Owners appealed against an arbitration decision stating that they were unable to claim damages from Charterers in respect of the latter's renunciation of the charter. The Tribunal had found that by allowing the vessel to discharge cargo after Charterers' alleged renunciation, Owners had affirmed the charter and their withdrawal was itself a repudiatory breach.

Facts

Charterers consistently paid hire late. Owners eventually took the view that Charterers were in repudiatory breach due to their non-payment of hire and decided to bring the charter to an end. Subsequent to making this decision, Owners allowed the vessel to continue discharging, on the basis that discharge was to be at Charterers' expense. Once discharge had completed, Owners accepted Charterers' repudiatory breach and terminated the charter. Charterers took the view that Owners' withdrawal of the vessel was itself a repudiatory breach.

Tribunal's Findings

Once Owners had decided to accept Charterers' repudiatory breach as terminating the charter, they then continued to treat the charter as alive by allowing the vessel to discharge. The Tribunal found that this was a clear affirmation of the charter, and Owners' withdrawal was itself a repudiatory breach.

Owners appealed. They argued that allowing a vessel to remain in charterers' service in order to discharge could not amount to an unequivocal affirmation of the charter. In any event, Owners said, where the renunciation continued after the innocent party had affirmed a contract, that continuing renunciation could be accepted as terminating the contract.

Findings on Appeal

The court noted that the Tribunal had expressly recognised Owners' commercial reasons for allowing the vessel to continue discharge. The Tribunal had nevertheless concluded that such conduct amounted to an affirmation. This was based on the fact that allowing Charterers to discharge at their own expense was in accordance with the charter terms.

There was no "right answer" as to whether there had been an affirmation. Different tribunals could apply the law correctly, and arrive at different conclusions.

Dealing with Owners' point about the renunciation continuing after any affirmation, the court stated that a tribunal must consider whether there were words or conduct after the affirmation which demonstrated that the renunciation was continuing. The court was unable to infer whether Charterers had continued to renounce the charter after Owners' affirmation. This was a question of fact for the Tribunal to determine, and it had not done so. Termination after an affirmation was not necessarily a repudiatory breach. As such, the Tribunal had erred in holding Owners in repudiatory breach.

The matter was remitted to the Tribunal to consider whether Owners' withdrawal had been legitimate.

Comment

This case highlights the risks associated with terminating a charter on the basis of renunciation. The party looking to terminate must consider very carefully whether they have done or said anything which could amount to an affirmation of the contract, even if they were acting for legitimate commercial reasons. If the contract has been affirmed, then termination itself will amount to a repudiatory breach entitling the other party to damages, unless it can be shown that the renunciation continued beyond the affirmation. As this case makes clear, that is a question of fact in each case.

This case comes shortly after the High Court's decision in Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra)  [2013] EWHC 865 (Comm), in which it was held that the obligation to pay hire is a condition of the charter, breach of which entitles owners to terminate and claim damages. Although that case strengthens owners' position where charterers fail to pay hire, this latest case emphasises the fact that owners must still exercise caution when terminating a charter in order to avoid being found in breach themselves.

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