When charterers fail to pay hire:


Owners continue to face uncertainty when charterers fail to pay hire under a time charterparty, particularly in respect of when they can withdraw the vessel and/or terminate and claim damages for future loss of hire, with recent cases on the subject conflicting.

However, these uncertainties can be managed by including appropriate terms in the charterparty and also by a careful and well advised approach when charterers do fail to pay.


It is now almost two years since Mr Justice Flaux decided in the Astra[1] that the payment obligation at clause 5 of the NYPE 1946 form was a “condition”. Conditions are clauses in contracts in English law which are accorded a special status; breaching a condition gives rise to an immediate right to terminate the contract. On this basis, any failure to pay hire as required by the charter would entitle owners to terminate the charterparty and claim both the unpaid hire up to the date of withdrawal and also damages for any loss of future hire (in a falling market). 

Previously, it was generally accepted that the payment obligation was not a condition. Accordingly, if charterers failed to pay hire owners could withdraw the vessel immediately under the withdrawal clause (subject to any ant-technicality notices) and claim any unpaid hire. However, in order to claim damages for owners also had to establish that the charterer had repudiated the charterparty. That meant owners had to show charterers had displayed a clear intention no longer to be bound by the charterparty. 

In the Astra, the charterers were found to be in repudiatory breach in any event where they clearly only intended to pay a significantly reduced rate of hire for over three years of the remaining charter period. Yet, in practice it is often very hard to evidence repudiatory breach as the tests are quite general and it is not always clear how many missed hire payments or short payments are required or what sort of conduct is necessary. For example, the tribunal in the Fortune Plum[2] found that there was nothing seriously wrong in the fact that charterers had paid hire late for many months.

Mr Justice Flaux focussed on the need for certainty when reaching his decision in the Astra. However, as it was out of line with previous case law, it created a dilemma for parties. Owners were in a stronger position but were not sure how far to rely solely on this judgment and how far to look to previous law. Further, there was criticism that, if strictly followed, it could have led to liability being imposed on charterers for trivial breaches.


Recently, Mr Justice Popplewell considered the obligation to pay hire punctually in time charters under NYPE 1993 form and departed from the reasoning of Mr Justice Flaux in The Astra. In Spar Shipping, the Court returned to the previous pre-vailing approach: namely, that the obligation to pay hire is not a condition but a more general term (called an innominate term) which would not give a right to terminate and claim damages for future loss unless breach of it amounted to a repudiation of the contract. On his analysis,  the language of the NYPE form, including the stipulations for time of payment, was neutral and did not give support for the view that any breach, even a trivial one (eg. late payment by a few minutes) should give rise to a right for owners to terminate.

Unlike Mr Justice Flaux, Mr Justice Popplewell did not think his conclusion ran counter to the requirements of commercial certainty. Rather he thought that making timely hire payment a condition could itself lead to uncommercial results. In a rising market, a trivial breach could mean charterers would suffer in not being able to trade or sub-charter the vessel. Whereas in a falling market owners would not be interested in trivial breaches, but rather successive failures to pay by charterers, but which would likely be repudiatory breach in any event.


It is likely that this issue will come before the Court of Appeal at some point in the future. There are currently two conflicting decisions of the same level: The Astra and Spar Shipping. Spar Shipping is more in line with the traditional thinking, and had the benefit of fuller argument and case law citation than the earlier case. It seems very likely that Spar Shipping will be preferred by the Courts.


Although Spar Shipping’s traditional approach does not give owners certainty, it does give the parties the chance to rectify failures to pay hire on time and also the time and flexibility for commercial negotiations, which can lead to a mutually satisfactory resolution.  

Apart from negotiation when charterers are already paying late, what can owners do to protect their position? Owners may seek to include a “compensation clause” in the charter-party providing expressly for the right to claim damages for future loss of hire in the event of a failure to pay by charterers. Mr Justice Flaux ruled that there was nothing penal in such clauses[4]. A compensation clause may be very harsh but could be more acceptable to charterers if included with an anti-technicality clause allowing charterers time to rectify any mistake or failure to pay hire as required. This type of clause is commonly found in long term bareboat charters anyway especially for transactions like sale and leaseback. But it could now be deployed in more short term time charters.

An anti-technicality clause may of itself provide the protection to owners. Of course, these are already commonplace and included as standard in the NYPE 93 form. Although ostensibly for the benefit of charterers, Mr Justice Flaux stated that the effect of an anti-technicality clause could be to make time for payment of hire by the end of the grace period of the essence, so that the clause would be a condition[5]. Mr Justice Popplewell, however, disagreed with this analysis stating that a notice to make time of the essence did not convert an innominate term into a condition. Any anti-technicality clause should be very carefully drafted[6], and owners need to be aware that they may not be able to rely successfully on the reasoning of Mr Justice Flaux in the Astra.

Otherwise, owners should in all circumstances proceed very carefully when charterers fail to pay hire and seek legal advice given the uncertainties in this area.   


[1] Kuwait Rocks Co v AMN Bulkcarriers Inc (the Astra) [2013] EWHC 865 (Comm)

[2] White Rosebay Shipping SA v. Hong Kong Chain Glory Shipping Limited (Fortune Plum) [2013] EWHC 1355 (Comm)

[3] Spar Shipping v Grand China [2015] EWHC 718 (Comm)

[4] At para 31

[5] At para 113

[6] See the case of Owneast Shipping Ltd v Qatar Navigation QSC (Qatar Star) [2010] EWHC 1663 (Comm)