1
 
   
 

Standard form time charters contain a provision which allows owners to terminate the charterparty in the event that charterers fail to pay hire on or before the due date. Without such a provision in the charterparty, owners would not have the right to terminate and, under the common law, delay in payment would only entitle them to claim interest or damages.

To mitigate the draconian effects of owners’ right to withdraw the vessel, most time charterparties contain an “anti-technicality” or “grace period” clause. Such clauses are designed to give the charterer a certain specified period within which to remedy the default in payment before the owners’ right to withdraw arises. However, great care must be taken to ensure that the withdrawal notice under an anti-technicality clause is given both at the correct time and it is absolute in its terms.

A withdrawal notice under an anti-technicality clause cannot be given until after midnight on the due date: this is the time when the charterers become in default. The wording of the notice must make it clear that hire has not been paid on the due date and that owners are giving an ultimatum to the charterers that unless hire is paid within the grace period provided for in the anti-technicality clause, the vessel will be withdrawn.
The consequences of a defective notice can be catastrophic for an owner, as was exemplified in the recent decision of the English court in the “LI HAI” [2005] 2 Lloyd’s Rep., a case which the judge described as “….representing commerce, red in tooth and claw.”
The issue in the “LI HAI” was whether the owners were entitled to withdraw the vessel from the time charterers for non-payment of US$500. The vessel had been on continuous hire to the charterers for 4½ years and in the space of just 10 months the market had risen to about 250% of the original charter rate.
At the outset the judge emphasised that although the US$500 deduction represented less than two hours’ hire there could be no doubt that if US$500 were owing to the owners and the appropriate anti-technicality notice had been correctly given the owners would be entitled to withdraw the vessel. Although the sum was insubstantial, the court had no power to grant relief for forfeiture on the grounds that it was a harsh case.
On the facts of the case, the court held that US$500 was due to the owners, however, the owners were caught by the anti-technicality notice.
The anti-technicality clause of the charterparty (clause 47) read as follows:
“…Before exercising the option of withdrawing the vessel from the Charter the Owners will give the Charterers seventy two hours (Saturdays, Sundays and Holidays and Banking Holidays excluded) official notice in writing and will not withdraw the Vessel if the hire is paid within the seventy two hours allowed for notice from the time the Charterers received such notice…”
The notice sent by the Owners read:
“please be advised that Charterers was in breach of clause 5 of the Charterparty dated…Owners hereby give seventy-two hours notice that Owners will withdraw the vessel from the service of the Charterers without prejudice to any claims that Owners may otherwise have upon the Charterers.”
The judge concluded:
“…in my judgment the notice needed to state categorically that unless the outstanding hire was paid in full without deduction…within 72 hours the vessel would be withdrawn. However the notice did no such thing…A properly drawn anti-technicality notice has to be unambiguous. In the circumstances this was not…It did not give an ultimatum that the vessel would be withdrawn unless the hire was paid in full within 72 hours. Instead it stated unconditionally that the vessel will be withdrawn in 72 hours…For these reasons…the owners were in breach of the Charterparty.”
In consequence of the judge’s finding the charterers recovered damages in the sum of US$2,036,211, being the difference between the contract hire rate and the market rate for chartering in a substitute vessel for the balance of the charter period.
 
 

Regulated by the Solicitors Regulation Authority