117. Tenax Steamship Co. Ltd v The Owners of the “Brimnes” [1972] 2 Lloyd’s Rep 465; [1974] 2 Lloyd’s Rep 241

Withdrawal – acceptance of late payment by charterers not precluding owners’ right to withdraw

The facts

The vessel was initially owned by the charterers who sold the vessel to the owners with whom they immediately entered into a time charter.

The purchase of the ship was financed by a loan from a New York bank. Repayment of the loan was secured by a mortgage on the ship and by an assignment of the charter hire to the same bank.

The term of the charter was 24/26 months.

Hire was to be paid monthly in advance to the New York bank for the credit of the ship owners’ account. Failing punctual payment of hire the owners had the right to withdraw the ship.

The charterers employed a London bank to effect payment of hire.

On most occasions the charterers’ bank sent an instruction by telex to the owners’ bank with an order to credit the owners’ account. After certain internal procedures were completed, the owners’ account was credited and the charterers’ bank debited. On a few occasions, an intermediary correspondent bank in New York was appointed by the charterers’ bank to effect the same process. There was a pattern of late payments.

Midway through the term of the charter the owners cautioned the charterers to effect punctual payment.

In March 1970 payment was monitored by the owners and, though one day late, the right to withdraw was not exercised.

With regard to the April 1970 payment, the owners, informed their bank that they intended withdrawing the vessel on failure of punctual payment. To this end they requested immediate notification of payment.

The charterers’ bank telexed the usual instruction for payment at 4h53, New York time on 2 April 1970.

On being informed that no payment had been made on 1 April 1970, the owners issued a notice of withdrawal.

The main issue between the parties was whether the owners were entitled to withdraw the vessel.

The charterers attempted to show that actual payment was made before the issue of the notice of withdrawal.

Findings

Even though the instruction for payment arrived in New York before the notice of withdrawal was issued, payment in cash was required and this did not occur until the owners had full and unrestricted use to the funds i.e. once their account was credited.

On the above basis, Brandon J found that the payment was made after the notice of withdrawal was received by the charterers.

Brandon J went on to hold that, in any event, on a proper construction of the cancellation clause, withdrawal could take place even after payment. The court distinguished the Georgios C which was authority for the blanket proposition that withdrawal could never effectively take place once payment had been made even if such payment was late.

Because the hire was paid in advance, the court entertained the argument that the acceptance of hire was inconsistent with the expressed intention to withdraw the vessel. The court considered that this argument would be valid if the payment had been made directly into the hands of the owners. As matters stood, the payment was made to a third party who acted as a stakeholder. The owners were therefore in a position to retain the hire paid in advance as security for a cross claim without prejudice to their right to withdrawal.

Brandon J held that the right to withdraw was derived from the wording of the withdrawal clause itself and not because time was of the essence in payment of charter hire.

In the Court of Appeal, Edmund Davies LJ agreed with Brandon J’s finding of fact that the notice of withdrawal preceded the late payment. He agreed that the Georgios C was distinguishable. He disagreed with Brandon J on the question of the acceptance of the hire by the New York bank as being merely ministerial. In his view, the unqualified acceptance of unearned hire amounted to waiver of the right to withdraw and if the factual finding with regard to timing had not been what it was, he would have allowed the appeal.

Megaw LJ agreed with the findings of Brandon J in all but one respect. He thought that the assignment of hire to the New York bank had the effect that payment to the bank was payment in terms of the charterparty and it was, therefore, not necessary to wait for the monies to be actually credited to the owners’ account. It was not open to the charterers to argue that failure to return hire paid in advance amounted to waiver.

Cairns LJ held that if there had been an assignment to the bank, payment to the bank of advance hire and acceptance of such payment would be inconsistent with an election to withdraw and would amount to waiver. Had he not found that the notice of withdrawal preceded the payment, he would have found for the charterers.

Commentary

The matter was tried in the Admiralty Court.

The decision on the timing of the two primary events, the notice of withdrawal and payment, take up a large portion of the lengthy judgments in both the court of first instance and the Court of Appeal.

The case deals with the effect of telegraphic orders for payment (particularly in the judgments of Megaw and Cairns LJJ).

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