Defence Guide - Withdrawal and suspension of service of a ship in a nutshell
When a charterer fails to make punctual payment, the owner has a variety of remedies. He may elect to lien cargo, (sub) freight and/or (sub) hire (see our articles on these subjects). Alternatively, owners may have the right either to withdraw the vessel from the charter or suspend the service of the vessel and her crew from charterers.
1. Do owners have a right to withdraw the vessel from the charter or to suspend service?
a) Where Owners have an express right
Only the standard NYPE 1993 charter party gives an express right to the
b) Where Owners do not have an express right
Where there is no express right to withdraw and owners wish to get their ship back from the charter, owners face a more difficult route. In such cases, owners will need to establish that charterers’ failure(s) to pay hire also amount to a repudiatory breach of charter which, once accepted by owners, would bring the charter to an end. The difficult question owners face in this situation is how many missed hire payments are necessary to establish a repudiatory breach.
2. Is the hire actually late?
a) The midnight rule
- The time the vessel is delivered under charter is irrelevant; and
- It will not matter that the bank is closed and it is too late to transfer the funds
- Charterers’ instructions to transfer does not equal payment
- An irrevocable instruction to the bank to pay the hire might be deemed paid once the order is received and authenticated by owners’ bank
3. Partial/non-payment of hire by charterers relating to a charter party dispute. Can owners withdraw or suspend service for insufficient payment?
a) Do charterers have a right to deduct?
b) How much hire are charterers entitled to deduct?
4. Can owners withdraw the ship as soon as payment is late?
5. ‘Anti technicality’ provisions
a) ‘Anti technicality’ provisions: the wording of the notice to be given
The wording notice must make it clear that:
- Hire has not been paid punctually and in full; and that
- Owners are giving an ultimatum that unless the full hire owing is paid within the stipulated grace period owners “will withdraw” the vessel.
b) ‘Anti technicality’ provisions: the timing of notice
- The place of business of charterers?
- The place of business of owners?
- The location of the vessel?
- The location of the paying (or receiving) bank account? (If payment is made in United States Dollars, beware of the different time zones in
- the United States).
c) ‘Anti technicality’ provisions: the period of the Notice
- Public holidays; and
- Weekends (the days for which may differ in different countries)
6. Notice of withdrawal
- Make clear that owners are treating non-payment of hire as terminating the charter; and
- Be given to charterers (owners cannot just give it to the master)
7. Other considerations: Waiver by conduct or words
a) Waiver: can owners waive their right to withdraw the vessel from charter if they delay the withdrawal?
b) Waiver: can owners accept full late payment and then withdraw?
c) Waiver: can owners keep funds received after valid withdrawal notice was served?
d) Waiver: can owners accept partial payment of hire and still withdraw?
8. Other considerations: can owners suspend performance of the vessel/her crew if charterers are late in paying hire?
Another factor to take into account is that if the vessel has cargo on board, owners will also generally be party to the bill of lading contract and will have duties as bailee of the cargo and could possibly be in breach of their due despatch obligations vis-à-vis cargo interests and face claims in delay should they suspend performance under the charter party.
9. Other considerations: is it the right moment to withdraw the ship?
Is there cargo on board?
Because the charter has come to an end, all costs which were due to be paid by charterers (loading/unloading/ bunkers) will be for owners’ account.
Owners may only become entitled to remuneration for those services rendered after withdrawal. They may also have an “equitable” claim to the bill of lading freights if the vessel was withdrawn before the freights became due. Getting these sums back may well end up be costly and fruitless if charterers are insolvent.
10. Other considerations: Damages
If owners want to withdraw the vessel and terminate the charter for nonpayment of hire, owners will have to send a notice giving 3 banking days to rectify the failure (a grace period). This notice is not an “anti-technicality” notice per se. Unlike the NYPE 1993 charter party, a notice can be served under the NYPE 2015 whether or not the failure to pay hire promptly is due to “oversight, errors or omissions on the part of the Charterers or their bankers”. It is now unqualified meaning that whatever the reason for the charterers’ failure to make punctual payment of hire, they will be in breach of charter party entitling