Withdrawal – charterers’ liability to pay extra war risk premiums – interpretation of clause 5 of NYPE charterparty
The vessel was let for a minimum of 22 maximum 24 months with the option to renew for a further 22 or 24 months.
Clause 5 of the charter read as follows:
“Payment of said hire to be made…. monthly in advance… otherwise failing the punctual and regular payment of the hire…. or on any breach of this charterparty, the owners shall be at liberty to withdraw the vessel from the service of the charterers, without prejudice to any claim they (the owners) may otherwise have on the charterers.”
Clause 35 read as follows:
“War risk insurance is always to be maintained and the orders of owners’ war risk underwriters are always to be followed.
Charterers to re-imburse owners for bonuses and extra war risk insurance following receipt of invoices and supporting vouchers on payment of next hire.
Owners will provide charterers copies of underwriters’ invoices covering the period of this charter.”
The charterers required the vessel to sail through the Gulf of Iran which attracted extra war risk insurance.
There was a dispute between the parties relating to the value of the ship for the purposes of the cover and the extent of the cover.
Although monthly hire was due on the 25th of each month, the charterers usually paid by the 20th.
Owners provided invoices for the extra premiums after the monthly payment of hire on the 20th but in time for payment on the 25th.
The charterers referred the dispute regarding the extent of the cover to arbitration. Without waiting for the outcome of such reference, the owners withdrew the vessel, contending that failure to pay the extra premiums by the cut off date amounted to a breach of the charter which entitled them to cancel pursuant to clause 5 referred to above.
The Commercial Court (Neill J) found that the contract required the charters to pay incidental extras in arrears and on the occasion of the next payment. The fact that the invoices were supplied after actual payment gave charterers the the right to include the difference in the next months’ installment. The charterers were, therefore, not in breach and the notice of withdrawal was premature.
Although not necessary for the decision, he considered that the phrase “any breach” in clause 5 was to be given its ordinary meaning and that the owners were entitled to withdraw on any breach, however trivial.
The Court of Appeal (Stephenson, Kerr and Purchas LJJ) confirmed the decision of the Commercial Court.
Kerr LJ expressed the opinion that clause 5 contained a dichotomy between payments of hire and other payments, the former to be treated more strictly than the latter. In his view, late payments or refusal to pay other charges did not fall within the purview of “any breach”.
Purchas LJ agreed with Neill J’s interpretation of clause 5 while Stephenson LJ considered that clause 5 created the unusual situation where the literal interpretation of the clause was so far removed from the presumed intention of the parties that the court was entitled to read in a reasonable interpretation which excluded entitlement to withdraw on a trivial breach.
This case turned on its own facts which were comprehensively set out by Lord Justice Kerr.
Lord Justice Purchas commented that the maxim, expressio unius est exclusio alterius (like fire and government) was a useful servant but a dangerous master.
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