25/03/2015

Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd

In 2013, Flaux J decided, obiter, that the obligation to pay hire in the NYPE charter was a condition, so that any breach (if not remedied in accordance with the “anti-technicality” provisions of the charter) entitled the owner not only to bring the charter to an end but also to claim damages for the loss of the charter: The Astra [2013] EWHC 865 (Comm). Although this decision had its supporters, it generated a certain amount of surprise and scepticism, not least because it departed from an earlier decision (The Brimnes [1973] 1 WLR 386) that many had regarded as correct.

In Spar v GCL [2015] EWHC 718 (Comm), a case which involved claims under (disputed) guarantees of three NYPE time charters, Popplewell J has now declined to follow Flaux J. He has reached the opposite conclusion about the status of the obligation to pay hire, i.e. that it is not a condition, in line with the view of Brandon J in Brimnes.  This was a robust decision by Popplewell J, since ordinarily a first instance judge will follow the later of two conflicting first instance decisions, unless convinced it was wrong.

In a long judgment, Popplewell J conducts an extensive review of the authorities, recognising that they do not all speak with one voice. He considers (and rejects) the suggestion that the Brimnes can be distinguished as not involving an anti-technicality clause. He analyses the language used in the charterparty, and considers various factors bearing on the status of the obligation.

Perhaps the single most important plank supporting his ultimate conclusion is his view that the right to withdraw is, in and of itself, rather neutral as regards the status of the obligation to pay hire. In this regard he focused on the Court of Appeal decision in Financings v Baldock [1963] 2 Q.B. 104. In that case, in the context of a hire-purchase agreement relating to a truck, it was argued that a right to terminate for (among other things) non-payment of hire meant that the obligation to pay hire was elevated to a condition. The Court of Appeal rejected that argument.

The right to withdraw being regarded as neutral, there was no residual basis on which the obligation to pay hire could be regarded as a condition. Popplewell J disagreed with the view of Flaux J about the general rule in relation to the time for payment in commercial contracts, holding that the general rule is that payment by the due date is generally not a condition.

While acknowledging that some authorities ran counter to his conclusion, Popplewell J emphasised that little assistance could be derived from the cases which give a strict interpretation to the contractual right to withdraw, and reject attempts to water down that right. The existence of a stringent contractual right to terminate was one thing; a right to damages in respect of the lost contract was another.  In this regard, and again differing from Flaux J, Popplewell J agreed with textbook opinion that the often-stated desirability of certainty related primarily to the right to terminate, and that certainty in that regard could be achieved without also conferring a possibly unmerited claim to damages. 

While the Astra point is the headline news from the case, the judgment will be of some potential interest on other points as well. The judgment also discusses how the test for repudiation will apply, in practice, in the context of late payments of hire; the Judge sets the bar in this regard rather low. He also addresses an argument about the assessment of damages in the absence of an available market for the full remaining period of the charter, but where shorter periods were available.

Michael Coburn QC, instructed by Holman Fenwick Willan LLP, acted for the Defendant.