31 October, 2012

 

Legal News & Analysis – Asia Pacific – Hong Kong – Shipping Maritime & Aviation

 

In Isabella Shipowner SA v Shagang Shipping Co Ltd (The “AQUAFAITH”) [2012] the Court held that the rule in White & Carter (Councils) Ltd v McGregor [1962] does apply to time charters. 


White & Carter established that:
 
If a party to a contract repudiates it (evinces an intention to no longer be bound by the terms of said contract), then the innocent party has a choice to: 
 
(a)  Accept the repudiation and claim damages for breach; 
or
(b) Reject the repudiation and affirm the contract.
 
If the innocent party affirms and completes his side of the contract, then he is entitled to claim the amount due under the contract. 
 
Accordingly, if a charterer redelivers a vessel early, the owner can reject the repudiation and instead continue to claim hire at the charterparty rate, even though the charterer has stated that it will not use the vessel and is not giving orders. 
 
There are some limitations however. An owner cannot affirm the contract where:
 
(a) It requires a significant degree of cooperation (e.g. a bareboat charter where the charterer crews the vessel);
(b) The decision to do so is beyond all reason or “perverse”. An example of this may be if the charterer redelivers one month into a 5 year time charter – although it is 
worth noting that owners were allowed to maintain the charter for 8 months in The “ODENFELD” (Gator Shipping Corporation v Trans-Asiatic Oil Ltd SA [1978])
 
The “AQUAFAITH” judgment is clearly an owner friendly decision. It gives an owner the option to hold the charterer to the contract, appoint an arbitrator and claim interim final awards in respect of unpaid hire instalments as they fall due. This is a much simpler process than having to prove a claim for damages which requires evidence of mitigation, and of the prevailing market rates.
 
An owner does, therefore, have a choice where a time charterer has repudiated the charterparty. However, in reality, it will only be in an owner’s interest to affirm the 
contract, if the charterer won’t pay. If the charterer can’t pay, then an owner would be better off cutting its losses, looking to re-fix the ship and claiming damages.

 

 

For further information, please contact: 

 
Leon Alexander, Clyde & Co
leon.alexander@clydeco.com
 

Clyde & Co Shipping Maritime & Aviation Practice Profile in Hong Kong

 

 

 

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