UK: Outstanding Hire: Do Owners Have To Give Charterers Notice Before Suspending Performance?

The answer is: no - if you have a BIMCO Supplytime 1989 form of charterparty, according to Gloster J, in Greatship (India) Ltd v Oceanografia SA de CV [2012].

The facts

Under a charterparty on an amended BIMCO Supplytime 1989 form, the owners of the "GREATSHIP DHRITI", Greatship (India) Limited, chartered her to Oceanografia S.A. de C.V. for a period of two years. Clause 10(e) of the BIMCO Supplytime 1989 charterparty provided, inter alia "[2] if payment is not received by the Owners within 5 banking days following the due date the Owners are entitled to charge interest ... on the amount outstanding from and including the due date until payment is received... [3] in default of payment ... the Owners may require the Charterers to make payment of the amount due within 5 banking days of receipt of notification from Owners; failing which the Owners shall have the right to withdraw the Vessel ... [4] while payment remains due the Owners shall be entitled to suspend the performance of any and all of their obligations hereunder...".

In this case, the owners purported to suspend the provision of the services of the vessel under clause 10(e) for non-payment of certain of the hire charges. The dispute was referred to London arbitration where owners claimed that clause 10(e) of the charterparty did not contain any requirement for owners to give notice to charterers before suspending performance.

Charterers argued that the charterparty contained an express or implied requirement to give five banking days' notice of owners' intention to suspend.

The tribunal's decision

The London arbitrators held in favour of the charterers, deciding that the express notice provisions in parts [2] and [3] of Clause 10(e) applied to part [4]. Owners were given permission to appeal the Tribunal's award as the question was determined to be of general public importance, since it arose out of a standard form charterparty which remains in regular use.

The court's decision

Owners submitted that the arbitrators should have given effect to the clear, unambiguous and "unfettered" language used in the charterparty (Rainy Sky SA v Kookmin Bank [2011]) as a result of which, according to those principles of construction, owners were able to suspend performance "while payment remains due".

Gloster J held that the owners were not required to give charterers five banking days' notice of the suspension. Her ladyship commented that "if the contract has used clear and unambiguous language, the court must apply it, however surprising or unreasonable the result might appear to be. But where there are two possible constructions, the court is entitled to reject the one which is unreasonable and, in a commercial context, the one which flouts business common sense."

In Gloster J's view, the words "while payment remains due" in clause 10(e) clearly and unambiguously suggested that an owner was entitled to suspend performance of his obligations at any time after payment became due, and whilst hire remained unpaid. Her ladyship decided that, had the parties intended to make the right to suspend dependent on a period of notice, they could have made express provision for that in the charterparty, as they had in numerous other contexts. In this case, the wording of clause 10(e) was clear and unambiguous, and there was no scope for any alternate construction; there was no justification for what would, in effect, be a rewrite of the charterparty. Gloster J also saw no justification for the implication of a term in the charterparty, as charterers had suggested.

Commentary

This case demonstrates, once again, how important it is to use clear and unambiguous wording in contracts. Charterers who are tempted to pay hire late for cash flow reasons may, unexpectedly, find themselves at risk of suspension of services by owners without notice if their charterparty contains similar wording to clause 10(e) of the charterparty in this case. If charterers want to make sure they are given notice of suspension, they must state this expressly in the charterparty. They cannot rely on other notice provisions in the charterparty, even when contained in other parts of the same clause. This decision must provide some comfort for owners regarding prompt payment of hire, particularly in these difficult economic times.

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.

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