Spar Shipping v Grand China Logistics
Spar Shipping AS v Grand China Logistics Holding (Group) Co., Ltd: Queen's Bench Division Commercial Court:  EWHC 718 (Comm): Popplewell J.: 18 March 2015
Nevil Phillips and Natalie Moore (instructed by Thomas Cooper LLP ) for the Claimant, Spar Shipping
Michael Coburn QC (instructed by Holman Fenwick Willan LLP ) for the Defendant, Grand China Logistics
NYPE 1993 FORM TIMECHARTER: FAILURE TO PAY HIRE ON TIME: WHETHER BREACH OF CONDITION: WHETHER BREACH OF AN INNOMINATE TERM: RIGHT TO CLAIM DAMAGES FOR LOSS OF BARGAIN: WHETHER CHARTERER’S CONDUCT AMOUNTED TO REPUDIATORY BREACH OF CONTRACT
Note: this decision has been upheld by the Court of Appeal on 7 October 2016 - see Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS  EWCA Civ 982. [] In its decision, the Court of Appeal held also that the case of "The Astra" - Kuwait Rocks Co v AMN Bulkcarriers Inc  EWHC 865 (Comm) - was wrongly decided on the 'condition' point.
In this case, Popplewell J. took the view that the obligation to pay hire on time under the standard wording of the 1993 version of the New York Produce Exchange Form charterparty was an innominate term, rather than a condition. Thus, in order to establish a claim for loss of bargain, the Owner had to show that the Charterer’s failure to pay hire on time evinced an intention not to be further bound by the charterparty, that is to say, that it amounted to a repudiatory breach of contract at common law.
Popplewell J. thus declined to follow the reasoning in the case of Kuwait Rocks Co v AMN Bulkcarriers  EWHC 865 (Comm), where Mr Justice Flaux had concluded that a simple breach of the obligation to pay hire on time amounted to a breach of condition, entitling the Owner to claim damages for loss of bargain, where he had suffered them.
This note is based in part on a note written by James Shirley, a barrister at Stone Chambers, Gray’s Inn, London, which appears on the Stone Chambers website @www.stonechambers.com
The Claimant (“Spar”) was the registered owner of three supramax bulk carriers, the SPAR CAPELLA, SPAR VEGA and SPAR DRACO (collectively “the Vessels”). By three charterparties dated 5 March 2010 on amended NYPE 1993 forms, the Vessels were let on long term time charter to Grand China Shipping (Hong Kong) Co Ltd (“GCS”). The charterparties provided for guarantees to be issued by the Defendant (“GCL”), which is the parent of GCS. Three letters of guarantee were issued on behalf of GCL dated 25 March 2010 (“the Guarantees”).
The SPAR DRACO was built in 2006 and was of some 53,500 mt dwt. It was chartered for minimum 35 maximum 37 months in charterers' option with hire of US$16,500 per day payable semi monthly in advance. It was delivered into the charter on 31 May 2010. The SPAR CAPELLA and SPAR VEGA were newbuildings at a Chinese yard of some 58,000 mt dwt and were delivered into the charterparties from the yard on 6 and 12 January 2011 respectively. Those charters were for minimum 59 maximum 62 months in charterers' option with hire of US$16,750 per day payable semi monthly in advance.
From April 2011 GCS was in arrears in payment of hire. Spar recouped some of the arrears by exercising its lien on sub freights, but there remained substantial arrears of hire on all three vessels throughout the summer of 2011 and a chronology of missed or delayed payments. Spar called on GCL for payment under the Guarantees on 16 September 2011. On 23 September 2011 Spar withdrew the SPAR CAPELLA and terminated that charterparty. On 30 September 2011 Spar withdrew the SPAR VEGA and SPAR DRACO and terminated those charterparties.
Spar commenced arbitration proceedings against GCS claiming the balance of hire due under the charters and damages for loss of bargain in respect of the unexpired term of the charters. Shortly prior to the hearing of the arbitration GCS went into liquidation in Hong Kong and the arbitration proceedings were stayed.
Spar then brought the present claim against GCL under the Guarantees. The amounts claimed comprised the following:
(1) The balance due under the charters prior to termination, quantified at some USD562,000 and
(2) Damages for loss of bargain in respect of the unexpired term of the charters, amounting to some USD23.378,000.
GCL submitted that it was under no liability in relation to the unexpired periods of the charters: the right of withdrawal under the charters was a contractual option but there had been no breach of the charters giving rise to a right to damages at common law for repudiation or renunciation.
Spar contended that it was entitled to damages for loss of bargain for such period because payment of hire was a condition of the charters; alternatively if payment of hire was an innominate term, GCS's conduct was repudiatory and/or evinced an intention not to pay hire timeously which constituted a renunciation of the charters.
The prime focus of the judgment was on Spar’s argument that timely payment of hire under the charterparties was a condition, breach of which entitled Spar both to withdraw the ships from the chartered service and to claim damages for loss of bargain for the remaining period of the charters. It is upon this point that this note concentrates.
The charterparties contained the standard provisions in this regard, found at clause 11. It read as follows:
“11. Hire Payment
Payment of Hire shall be made so as to be received by the Owners or their designated payee as per...in United States Currency, in funds available to the Owners on the due date, 15 days in advance … Failing the punctual and regular payment of the hire, or on any fundamental breach whatsoever of this Charter Party, the Owners shall be at liberty to withdraw the Vessel from the service of the Charterers without prejudice to any claims they (the Owners) may otherwise have on the Charterers....
(b) Grace Period
Where there is a failure to make punctual and regular payment of hire due to oversight, negligence, errors or omissions on the part of the Charterers or their bankers, the Charterers shall be given by the Owners 3 clear banking days … written notice to rectify the failure, and when so rectified within those 3 days following the Owners' notice the payment shall stand as regular and punctual. Failure by the Charterers to pay the hire within 3 days of their receiving the Owners' notice as provided herein, shall entitle the Owners to withdraw as set forth in Sub-clause 11(a) above.”
That failure to pay hire in accordance with clause 11(a) amounted to a breach of condition had been strongly advocated by an obiter part of the judgment of Flaux J. in the recent case of The “Astra” – Kuwait Rocks Co v AMN Bulkcarriers Inc  EWHC 865 (Comm).
The judge found, on the facts of the case, that GCS's conduct had been repudiatory and/or had evinced an intention not to pay hire timeously which constituted a renunciation of the charters. As a result, there was no need to re-examine the issue whether a failure to pay hire in accordance with clause 11 amounted in and of itself to a breach of condition entitling Spar to damages for loss of bargain.
Nevertheless, the judge did so, given the substantial argument that had been addressed to him on this point.
The judge placed considerable reliance on a case that may not have been cited to Flaux J. in The Astra case, namely that of Financings Ltd v. Baldock  2 QB 104. This was a hire purchase case in which the Court of Appeal considered whether breach of the hirer’s timely payment obligation, which (along with other events, some breaches, some not) was supported by a right of termination even in respect of relatively minor breaches, would, following termination, also entitle the owner to damages for loss of bargain. In Financings, the court found that, in the absence of a serious breach by the hirer, there was no entitlement to loss of bargain damages.
Whereas in The Astra, Flaux J. had treated the presence of a right to terminate even for trivial breaches in NYPE as highly suggestive that the obligation to pay hire punctually was a condition, in Financings, the contractual right of termination appears to have been treated as being irrelevant to the equivalent assessment.
Crucially, Popplewell J recognised that if the question was whether, on a true construction of the contract, the obligation to pay hire on time was a condition or merely an innominate term with one characteristic of a condition (the right to terminate on any breach), the mere fact of the right to terminate on any breach cannot itself provide the answer. Rather:
“Which of two consequences is intended is a question which falls to be considered as a matter of interpretation of the termination provision and the other terms of the contract. The mere existence of a termination provision tells one nothing about the status of the term without discovering the intention of the parties as to the consequences of the contractual right of termination by this process of interpretation.”
While, in The Astra, Flaux J had drawn support from the need for certainty in commercial dealings and from what he took to be the general classification of time clauses in commercial contracts requiring something to be done as conditions, Popplewell J saw things differently:
“If the owner is not paid fully and on time in advance, effect should be given to the right for which he has bargained, in unqualified terms, no longer to provide the services of the master and crew to the defaulting charterer, and to be free to employ his vessel elsewhere. But this says little, if anything, about whether a trivial should additionally carry with it a liability on the charterers to pay damages in respect of the unexpired term of the charter. If full and punctual advance payment of hire is the lifeblood of the owner, on which he is entitled to insist, a withdrawal clause which amounts to an option to cancel adequately protects this commercial interest: once exercised the owner is free to employ his vessel elsewhere, trusting to the performance of a different charterer to pay hire fully and punctually in advance. I see nothing in the owner’s interest which is not adequately protected by an option to cancel.”
The judge recognised that the owner would rely on a steady stream of hire in order to discharge his own obligations, but that did not put the obligation to pay hire on time in the same category as the buyer’s obligation to give timely Notice of Readiness of a vessel under a GAFTA FOB contract (the term considered in Bunge Corp v. Tradax Export SA  1 WLR 711 and relied on by Flaux J in The Astra).
The language of the NYPE clause (a “liberty to withdraw”) was addressed “solely towards future performance” of the charter and was “neutral as to the common law rights of the parties apart from the clause”.
On the other hand, in the judge’s view, a number of factors pointed to the obligation to pay hire punctually being an innominate term:
(1) the very inclusion of the contractual right to withdraw on any breach suggested that in its absence there would be no such right;
(2) stipulations as to the time of payment would not be treated as conditions unless the contract indicated otherwise;
(3) breaches might range from the trivial to the serious so classification as an innominate term would be natural;
(4) in the absence of the express right to terminate, it was inconceivable that the parties would be taken to have intended a delay of a few minutes in the payment of hire to entitle an owner to withdraw the vessel from a long-term time charter.
(5) Considerations of commercial certainty did not suggest any different conclusion: “certainty is a desideratum which must be counterbalanced with the need not to impose liability for a trivial breach in undeserving case”; and, in any event, for many years prior to The "Astra", commercial parties had continued to contract on the basis of NYPE, Baltime and Shelltime without amending them to make it clear that the obligation was a condition.
As to the presence of an anti-technicality clause, which Flaux J treated as putting the matter beyond any real doubt, the judge said:
“A notice to make time of the essence does not convert an innominate term into a condition. Failure to make payment before the expiry of the notice period is not a breach of condition; on the contrary it is merely of evidential significance in relation to whether the breach of the innominate payment term is thereafter to be treated as repudiatory or renunciatory.”
Comment: (from James Shirley)
It is submitted that the decision in Spar Shipping is to be welcomed as a matter of legal principle and for the sound commercial reasons given by Popplewell J. As well as the issues considered above, the judgment contains interesting discussions of the sort of conduct that will amount to a renunciation and of the assessment of damages following termination, where there is no equivalent market available.
Even though the Court of Appeal may be called on to decide the condition point at some stage, for the time being Spar Shipping is the latest word on the subject and because it contains such a compelling analysis, both of the substance of the issues and of the state of the authorities prior to The Astra, it seems eminently possible that the latter case will be regarded as having gone supernova: it burned bright but faded fast!