Kuwait Rocks Co v AMN Bulkcarriers Inc

A tribunal does not apply an insufficiently stringent repudiation test merely because its reasoning uses the expression inconsistent performance. The question is whether the threatened or intended breach would deprive the innocent party of the substantial benefit of further performance or go to the root of the contract.

In a time charter, an obligation to pay hire punctually may be a condition. A withdrawal clause, particularly when combined with an anti-technicality clause defining a final period of grace, may make time of the essence. Breach may then entitle the owner both to withdraw the vessel and to recover loss-of-bargain damages. A compensation clause providing for future loss of earnings in cases of termination for sufficiently serious breach is not penal where it reflects the loss ordinarily caused by early withdrawal.

The charterers appealed under section 69 of the Arbitration Act 1996 two questions of law arising from a second partial arbitration award concerning the termination of a five-year time charterparty.

The tribunal had held that the charterers’ repeated threats of bankruptcy, failure to perform a compromise agreement and failure to pay hire at the restored contractual rate amounted to renunciation or repudiation. It awarded the owners loss-of-bargain damages. The charterers argued that the tribunal had applied an insufficiently stringent test and that contractual provisions for future loss of earnings were penalties. The owners relied additionally on the proposition that punctual payment of hire was a condition of the charterparty.

1. Repudiation. The tribunal had stated and applied the correct legal test. The formulations in Ross T Smyth & Co v T D Bailey & Son, Decro-Wall International SA v Practitioners in Marketing Ltd and Federal Commerce & Navigation Co v Molena Alpha Inc (The Nanfri) expressed the same principle: repudiation requires a breach going to the root of the contract or depriving the innocent party of the substantial benefit of further performance.
2. The tribunal’s factual findings were not open to challenge on an appeal on a question of law. Viewed objectively and cumulatively, the threats of bankruptcy, non-performance of the compromise agreement and refusal to pay the full contractual hire justified the conclusion that the charterers intended to perform the remaining contract inconsistently with it and to deprive the owners of its substantial benefit.
3. Compensation clause. The clause was not a penalty. Read with Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios), the reference to any breach concerned breaches sufficiently serious to justify termination or cancellation. The agreed compensation reflected the ordinary loss of future earnings caused by withdrawal in a falling market.
4. Status of punctual payment. The obligation to pay hire punctually under clause 5, whether considered alone or with the two-banking-day grace period in clause 31, was a condition. The express right to withdraw for failure to pay punctually, the mercantile importance of certainty and the defined final grace period supported that construction. The reasoning in The Brimnes was distinguishable because the charter there lacked an anti-technicality clause; in any event, the judge declined to follow it on this issue.
5. Breach of that condition entitled the owners to withdraw and claim damages for loss of bargain. Even if clauses 5 and 31 had not themselves created a condition, the compensation clause made the obligation a condition by providing expressly for loss-of-bargain compensation on termination. The appeal was dismissed and the award upheld.

The judgment concerned an appeal under section 69 of the Arbitration Act 1996 from a second partial arbitration award dated 11 April 2012. The tribunal had awarded the owners damages for termination of the time charterparty. The High Court dismissed the appeal and upheld the award.