UK: Commercial Court Upholds Anti-Technicality Clause

Last Updated: 6 September 2010
Article by Max Cross and Reema Shour

Owneast Shipping Ltd v Qatar Navigation QSC (Qatar Star) [2010] EWHC 1663 (Comm)

An anti-technicality clause is commonly found in time charters where the intention is to avoid a situation where owners may withdraw the vessel due to a late payment of hire that may be minimal or inconsequential. Mr Justice Mance in The North Sea [1997] 2 Lloyd's Rep 328 observed that since a withdrawal or cancellation clause is a forfeiture clause, the effect of which may be draconian, caution must always be exercised in any attempt to extend its application. The approach of giving effect to anti-technicality provisions as a means of providing time charterers with a measure of relief from what could be unjust forfeiture of a ship is reflected in the Commercial Court judgment in this case.

Background facts

The Qatar Star was chartered on an amended NYPE form with additional clauses dated 7 February 2005 for 48 months +/-2 months at charterers' option. The charter contained inter alia the following provisions:

"5. Payment of said hire to be made to Owners designated bank account in cash in United States Currency, 15 days in advance . . . otherwise failing the punctual and regular payment of the hire, or bank guarantee or deposit, or on any fundamental breach of this Charter Party, the Owners shall be at liberty to withdraw the vessel from the service of the Charterers, without prejudice to any claim they may have against the Charterers. . . ."

"15. That in the event of the loss of time from deficiency and/or default and/or strike of men or deficiency of stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, drydocking for the purposes of examination or painting bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost and all extra directly related expenses may be deducted from hire;..."

62. Punctual Payment

"Referring to lines 60 and 61, 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 fail to make payment as set out, Charterers shall be given by owners 3 banking days notice to rectify the failure and where so rectified the payment shall stand as punctual and regular payment."

The charterers were not punctual in their semi-monthly hire payments, many of which were paid up to four or five days late. At one stage, the charterers had sought (pursuant to clause 15 of the charter) to make deductions from hire as a result of crane breakdown but paid immediately upon receiving the owners' anti-technicality notice under clause 62.

In respect of the 34th semi-monthly payment which was due on 24 August 2006, hire had not been paid by the due time and so, at 10.11 on 25 August 2006, the vessel was withdrawn. The owners' notice of withdrawal stated as follows:

"It is clear to us that your persistent failure to pay hire timeously as required by the Charterparty is deliberate and/or that you no longer intend to be bound by the terms of the Charterparty. We therefore hereby give you notice that we are exercising our right under clause 5 of the Charterparty and withdrawing "QATAR STAR" from your service with immediate effect, alternatively we hereby accept your conduct as amounting to a repudiatory breach of the Charterparty and are terminating the Charterparty with immediate effect."

The owners did not give the charterers three banking days grace (per clause 62) before withdrawing the vessel. Thereafter, the charterers made no further hire payments. However, they brought a claim in arbitration against the owners for wrongful withdrawal of the vessel. The tribunal had to consider whether, in the circumstances, a withdrawal notice that complied with the requirements of clause 62 had been necessary.

Tribunal's decision

The Tribunal commented that clause 62 was poorly drafted and impractical because its application depended on facts of which the owners might have no knowledge, namely the reason for non-payment of an instalment or charterers' intentions as to payment. The majority of the Tribunal considered that the words in clause 62 "where there is absence of intention" to make punctual and regular payment should be construed as meaning what a commercial man would understand them to mean and concluded that a commercial man would interpret them as meaning deliberate or wilful failure to make regular and punctual payment, but not recklessness as to the consequences of their conduct. By a majority, they found on the facts that the dominant cause of the charterers' failure to pay was seriously incompetent management on the part of their general manager but not intentional non-payment. Consequently, the majority view was that owners' notice of withdrawal should have complied with the requirements of clause 62. The owners appealed on two points of law.

Commercial Court

Will recklessness suffice to exclude clause 62?

The first question of law for Mr Justice Christopher Clarke was whether clause 62 applied where the failure to pay any hire by the due date was the result of recklessness on the part of the charterers. The judge agreed with the Tribunal's view that a commercial man in the position of the parties to this charter would not regard the word "intention" as extending to include recklessness. He also dismissed owners' submission that intention must encompass awareness that late payment will be the virtually inevitable consequence of a deliberate course of action. The fact that the court's strict interpretation of clause 62 meant that owners would probably have to serve a clause 62 notice in every case except the most obvious was not, in the judge's opinion, a compelling consideration for interpreting it differently. Quite apart from the fact that he considered the clause substantially unworkable in any event, he added that the parties could have expressly provided in the charter that absence of recklessness was necessary if a notice was to be given.

Was charterers' intended deduction from hire reasonable / bona fide?

The second issue the judge had to consider was whether the fact that the charterers had (as demonstrated by the evidence) intended to make the payment but with a substantial deduction meant, as owners argued, that they intended to make a payment of hire which was not "regular" in accordance with clause 62 and therefore a clause 62 notice was not required.

Mr Justice Christopher Clarke relied on The Nanfri [1978] QB 927, where it was held that an owner may not withdraw a vessel for non-payment of hire inter alia if the charterer's deduction from hire is bona fide, even though the amount which he deducts turns out to have been too much. The judge also cited The Libyaville [1975] 1 Lloyd's Rep 537, where the charterparty contained a clause in terms very similar to clause 62. In that case, Mocatta J found on the evidence that the charterers did not intend to fail to make punctual and regular payment, but had at all times intended to comply with their obligations under the charter even though they deliberately paid a lower rate of hire which in the event turned out to be the incorrect rate.

Mr Justice Christopher Clarke said that if the failure to make punctual and regular payments arose from any of the specified causes in clause 62, a notice would be required unless the charterers' intention was to make a payment which involved a calculation of a deduction that was made in bad faith. There was no evidence of bad faith in this case. The appeal was therefore dismissed.

Comment

As Mr Justice Christopher Clarke put it, "the dividing line between serious incompetence and deliberate delay amounting to an intention not to make punctual payment is sometimes thin". Faced with "a deeply unsatisfactory provision", the majority of the arbitral tribunal and the Commercial Court judge gave the charterers the benefit of the doubt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Clyde & Co
Barlow Lyde & Gilbert LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Clyde & Co
Barlow Lyde & Gilbert LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions