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

A contractual withdrawal clause in a time charter may confer only an option to cancel. It does not necessarily make payment of hire a condition or confer a right to damages for the unexpired term. Payment of hire is not a condition merely because the charter provides for withdrawal for non-payment.

Repeated substantial arrears, together with conduct objectively indicating an unwillingness or inability to pay punctually in the future, may amount to renunciation. Where no market exists for a replacement charter of the same duration, damages are assessed by reference to the owner’s reasonable actual mitigation earnings, not successive shorter time charters.

Spar owned three vessels chartered on amended NYPE 1993 forms to Grand China Shipping, whose performance was guaranteed by its parent, Grand China Logistics. Hire payments fell substantially into arrears. Spar called on the guarantees and withdrew the vessels.

Grand China Logistics disputed the guarantees’ authority and enforceability, contended that non-payment of hire was not repudiatory, and challenged the proposed loss-of-bargain assessment. The principal issues were whether the guarantees bound the defendant, whether payment of hire was a condition, whether the charterer had renounced the charters, and how damages should be calculated where no equivalent long-term replacement market existed.

1. The guarantees. The guarantees bound GCL. Under the applicable Chinese law principles, authority could arise through express authorisation, knowledge and failure to repudiate, or the performance of a duty-related activity by sufficiently senior personnel. The evidence established each of those bases. The absence of the company seal was not decisive. GCL would also have been bound by ostensible authority, and the guarantees had in any event been ratified.
2. SAFE requirements. The Chinese exchange-control provisions were not mandatorily applicable under article 3.3 of the Rome Convention. In any event, non-registration would not assist GCL because the relevant fault lay with GCL itself.
3. Payment of hire. Clause 11 was an option to cancel directed to future performance. It did not clearly provide that payment of hire was a condition or that time was of the essence. The anti-technicality provision regulated when the contractual withdrawal right arose and did not alter the common-law classification of the payment term. The court therefore declined to follow Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra) [2013] 2 Lloyd's Rep 69, and followed the approach in Tenax Steamship Co Ltd v Reinante Transoceanica Navegacion SA (The Brimnes) [1973] 1 WLR 386.
4. Renunciation. Although payment was not a condition, GCS’s persistent non-payment, substantial arrears, broken promises and absence of any concrete funding proposal objectively demonstrated an intention not to perform the future obligation of punctual advance payment. GCS had therefore renounced the charters. Spar’s withdrawals constituted acceptance of that renunciation and preserved its claim for loss-of-bargain damages.
5. Damages. A succession of shorter time charters was not a like-for-like replacement for the lost long-term charters. Since no market existed for equivalent charters for the full unexpired term, there was no available market for assessment purposes. Subject to reasonable mitigation, Spar’s actual earnings from substitute employment were legally caused by the breach and were to be credited against the charter hire.
6. Guarantee claim. The reasonable costs of the abandoned arbitration proceedings fell within the guarantee’s undertaking to meet losses or damages arising out of GCS’s defaults. They were subject to detailed assessment.

Spar’s claim succeeded and was to be quantified in accordance with those principles.