COURT OF APPEAL DECIDES OBLIGATION TO PAY CHARTERPARTY HIRE IS NOT A CONDITION
SPAR SHIPPING A.S. V GRAND CHINA LOGISTICS HOLDING (GROUP) CO. LTD  EWCA CIV 982
On 7 October 2016, the Court of Appeal handed down the eagerly awaited appeal decision from the Commercial Court decision in Spar Shipping A.S. v. Grand China Logistics Holding (Group) Co. Ltd. The Court of Appeal dismissed the appeal made by Grand China Logistics Holding (Group) Co. Ltd (“GCL”), providing definitive guidance on the question of whether the obligation to pay time charter hire is a condition. Answering the shipping market’s unease that arose out of conflicting first instance court decisions on the issue, the Court determined that a charterer’s failure to pay its hire instalments punctually and in advance under a time charterparty did not constitute a breach of condition. It also provided helpful guidance on the legal principles surrounding renunciation in the context of late and non-payment of hire under time charterparties.
The background of this case has been laid out in previous articles and so will not be repeated at length here. In brief however, this was a dispute regarding the non and/or late payment of hire under three long-term amended NYPE 1993 form charters dated 5 March 2010 (the “Charterparties”). The unpaid period for which the Owners claimed spanned April to September 2011. The Owners also sought to recover the resulting damages for loss of bargain for the considerable unexpired period of the Charterparties thereafter.
On 18 March 2015, the Commercial Court delivered its judgment. Notwithstanding careful consideration of the principles laid down by Mr Justice FLaux in The Astra  EWHC 865 (Comm), Mr Justice Popplewell disagreed with that decision and ruled that punctual payment of hire in fact did not constitute a condition for the following reasons:-
?A withdrawal clause gave owners no more than an option to cancel. On this basis, Clause 11 (the hire payment/anti-technicality clause) of the Charterparties could not be said to amount to a condition. Had there been express wording to the effect that the clause was more than an option to withdraw, the position may have been different. However, as it stood, the clause provided no more than a liberty to the Owners to withdraw the vessel from service.
Even had there been no withdrawal clause in the Charterparties and, consequently, no express right to terminate, payment of hire would not have been treated as a condition of the Charterparties. It could not have been intended that any breach of the hire payment, no matter how serious or trivial, would have the same consequences and allow the Owners to terminate a long-term charter even for a trivial breach.
Payment of hire in commercial contracts was not generally considered to be “of the essence” unless the contract expressly stated so. On that basis, in a time charter context, there was no good reason to treat payment of hire as a condition (unless expressly stated), since in any event the owners could exercise their contractual right to terminate the charter and put an end to the future performance of the vessel (and, therefore, the future expense of operating the vessel for the benefit of the charterer). Where an owner no longer has to provide a charterer with service of Master and crew, then the owner’s interest in the prompt and punctual payment of hire disappears.
Commercial certainty was not good reason to treat payment of hire as a condition. A withdrawal clause offering an option to cancel without conferring on the owners an unmerited right to damages was said to “adequately protect[s] this commercial interest”. The Court was clear that the desire for commercial certainty needed to be counterbalanced so as not to impose liability for trivial breaches in undeserving cases.
The Court did, however, find in favour of the Owners on the ground that the Charterers had evinced an intention not to perform the Charterparties in a way that deprived the Owners of substantially their whole benefit under them. The Charterers were, therefore, in renunciatory breach.
The appeal was heard by Sir Terence Etherton MR, Gross and Hamblen LJJ in June 2016, with judgment handed down on 7 October 2016. The Court of Appeal determined that the Charterers’ failure to pay instalments of hire punctually and in advance under the Charterparties was not a breach of condition. Indeed, the appeal judges considered that failure to make payment (without more) merely permitted the Owners to withdraw the vessel from service in accordance with Clause 11 of the Charterparties. The decision therefore confirms that the obligation to pay hire under a time charterparty constitutes no more than an intermediate or innominate term.
The leading judgment of Lord Justice Gross provides considerable and helpful guidance as to the legal principles surrounding renunciation where there is late and/or non-payment of hire under time charterparties. In rejecting GCL’s argument that the test for renunciation was applied too strictly, and in conflict to the Court’s approach in other instances of non-payment (albeit in different types of contract), the Court of Appeal ruled that ultimately the obligation to pay hire promptly and in advance lay at the heart of the time charterparty. Where there was evidence of intent not to make such payment, that conduct went straight to the root of the contract, amounting to renunciatory breach and thereby entitling owners to terminate. It remains to be seen whether this conclusion will cause future courts and arbitrators to be more willing to find that a number of missed or partial payments of hire amounts to a renunciatory breach entitling an owner to terminate and claim damages for future losses.
Lord Justice Gross的判決，還就如何認定期租中遲付和不付租金導致的renunciation（預期違約），給出了重要的、有幫助的指導意見。大新華認為一審判定renunciation的標準過于嚴苛，并且有悖于其他類似案件（也是有關支付違約案件，但有關不同類型的合同）使用的方法。上訴院駁回了大新華的觀點，上訴院認為按時預付租金是期租租約的核心。如有證據證明租家已沒有意向支付租金，則這將影響到合同的根基，構成renunciation（預期違約），進而船東有權終止租約。本判決之后，，我們拭目以待。
The outcome of this appeal now answers the market unease resulting from the decision in the Astra, whilst also offering more definitive legal guidance as to renunciation in the context of late and non-payment of hire in time charterparties.
It may be argued that the decision lacks the certainty of a rule that a single failure to pay hire in full and on time gives rise to a right to terminate and claim damages. However, as highlighted by Lord Justice Gross, the key question is “striking the right balance”. Where the likely breaches of an obligation to pay hire may have consequences that can be either trivial or serious, then the certainty achieved by classifying an obligation as a condition is that trivial breaches will have disproportionate consequences. This, in Lord Justice Gross’s view, was “an unsatisfactory balance”. Rather, sufficient certainty was provided by the withdrawal clause.