Grand China Logistics Holding (Group) Co. Ltd v Spar Shipping AS (Rev 1)

An obligation to pay hire punctually under a standard-form time charterparty is an innominate term unless the contract clearly makes it a condition. An express right to withdraw the vessel does not, without more, confer a right to loss-of-bargain damages.

Persistent defaults may nevertheless amount to renunciation. The question is whether the charterer objectively evinces an intention to perform in a manner substantially inconsistent with the contract, so that the owner would be deprived of substantially the whole contractual benefit. An intention to replace advance payment with substantial, continuing payment in arrears may satisfy that test. Inability to perform can negative contractual intention as effectively as an express refusal.

The respondent shipowner let three vessels to a subsidiary of the appellant under time charterparties requiring semi-monthly hire in advance. The appellant guaranteed the charterer’s obligations. Following substantial and persistent arrears, the owner withdrew the vessels and claimed unpaid hire and damages for the remaining charter periods.

Popplewell J held in [2015] EWHC 718 (Comm) that punctual payment was not a condition, but that the charterer had renounced the charterparties. He awarded approximately US$25.3 million, interest and arbitration costs under the guarantees.

The guarantor appealed on renunciation. By respondent’s notice, the owner contended that punctual payment was a condition. The Court of Appeal therefore considered both the classification of the payment term and whether the charterer’s past defaults, financial position and projected future performance objectively amounted to renunciation.

1. The appeal was dismissed unanimously. The respondent’s notice was rejected. The obligation to pay hire punctually under clause 11 was an innominate term, but the charterer’s conduct amounted to renunciation of all three charterparties.

2. Whether a contractual term is a condition is a question of construction. The modern approach treats a term as innominate unless the contract makes clear, expressly or by necessary implication, that it is a condition or warranty. Clause 11 did not make time of payment of the essence or state that every default would attract common-law loss-of-bargain damages. The potential consequences of late payment ranged from trivial to grave, which was characteristic of an innominate term.

3. The express withdrawal clause gave the owner a contractual option to end future performance. Its inclusion did not establish that punctual payment was a condition. Contractual termination rights may arise upon breaches which are not repudiatory. The anti-technicality provision merely protected charterers against withdrawal following specified accidental defaults; it did not convert the payment obligation into a condition.

4. Commercial certainty did not require a different construction. The withdrawal clause itself provided substantial certainty. Treating every payment default as a breach of condition would attach disproportionate loss-of-bargain consequences to trivial delays. The court therefore held that The Astra [2013] EWHC 865 (Comm) had been wrongly decided on this issue.

5. Renunciation is established where words or conduct would lead a reasonable person to conclude that a party intends not to perform future obligations, or intends performance substantially inconsistent with the contract, and the threatened departure would deprive the innocent party of substantially the whole contractual benefit. An inability to perform may negative an intention to perform. Past breaches may assist in determining objectively what future performance is intended.

6. The trial judge was entitled to find renunciation. Almost every instalment over more than five months had been late or unpaid. Arrears commonly stood between US$1.5 million and US$2.5 million despite liens, assurances had repeatedly failed, and no concrete source or timetable for sufficient funding was provided. The charterer objectively proposed continuing payment late and in arrears, dependent upon market conditions. That would transform a bargain for advance payment into unsecured, interest-free credit and deprive the owner of substantially the whole contractual benefit.

1. Court of Appeal (Civil Division): In [2016] EWCA Civ 982, unanimously dismissed the guarantor’s appeal on renunciation and rejected the shipowner’s respondent’s notice contending that punctual payment of hire was a condition.
2. High Court, Commercial Court: Popplewell J held in [2015] EWHC 718 (Comm) that punctual payment was not a condition, but that the charterer had renounced the charterparties. Judgment was entered against the guarantor for unpaid hire, loss-of-bargain damages, interest and arbitration costs.