114. China National Foreign Trade Transportation Corporation v Eulogia Shipping Co, S.A. of Panama (The “Mihalios Xilas”) [1976] 2 Lloyd’s Rep 697; [1978] 2 Lloyd’s Rep 397; [1979] 2 Lloyd’s Rep 303

Withdrawal – efficacy – not affected by failure to remit unearned hire

The facts

The vessel was let for a period of 8/10 months at charterers’ option from the time of delivery.

When the ninth month’s hire became due, the charterers made a deduction which they would have been entitled to do if the ninth month had been the last month of the charter.

The vessel was to be redelivered in China and was in Vancouver preparing to load a cargo of grain.

The view of the owners was that the vessel would not be delivered in time and that the ninth month could not be viewed as the final month. In consequence, the charterers had no right to make any deductions and they were put on terms to make full payment.

An express term of the charterparty gave the owners the unfettered right to withdraw on failure to pay hire strictly in terms of the charter.

When the charterers failed to make up the full payment, the owners withdrew the vessel.

Findings

The two arbitrators appointed were unable to agree and an umpire stated a special case for the court. He found that the failure on the part of the owners to remit the unearned hire disqualified them from relying on their notice of withdrawal.

Kerr J in the Commercial Court examined the authorities on the question of waiver and found that the mere retention of unearned hire pending an arbitration in which claims and cross claims would be made could not undo the effect of a valid notice of withdrawal in terms of the express provisions of the charterparty.

Despite being of the view that the owner was entitled to retain the unearned hire, Lord Denning MR suggested that the owners be put to the election once short payment had been made, either to accept the short payment and continue with the charter or to withdraw and tender the unearned hire.

Eveleigh LJ held that the owners, once they knew that the charterers were treating the ninth month as the last so to justify a deduction, were obliged to make an election within the space of a few days thereafter. Accordingly, their inaction amounted to a waiver of their right to withdraw the vessel.

Geoffrey Lane LJ dissented, being of the same view as Kerr J.

The House of Lords (Lords Diplock, Salmon, Fraser of Tullybelton, Scarman and Viscount Dilhorne – main speech by Lord Diplock) agreed with the Commercial Court and rejected the reasoning of the majority in the Court of Appeal.

Commentary

Lord Diplock’s view was that the singular facts were easily capable of resolution by the application of established principles and the decisions below should not have been included in the published law reports.

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