CHARTERERS' DEFAULT PROPELLER CLUB PRESENTATION 23 JANUARY 2013 DIMITRI VASSOS, PARTNER T:

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Charterers' Obligations/General Principles  Hire is payable continuously and unconditionally from delivery of the vessel to re-delivery.  Hire is payable 15 days in advance and must be sufficient to cover every hour of that period – the obligation to pay hire on or before the due date is an "absolute" one.  The obligation to pay hire is suspended only if there is a provision to that effect in the Charterparty – e.g. off-hire clause.  Generally no right of set-off against hire unless:  The Charterparty provides for it, or  A set-off is possible under the applicable law.  Bunkers, port, agency etc. are payable in addition to hire (Clause 2 of NYPE).  These obligations/general principles are capable of being varied by express terms in the Charterparty. 3

NYPE Clauses  Clause 2 deals with a Charterer's duty to provide and pay for stipulated items such as bunkers, port charges, agency, pilotage etc.  Clauses 4 and 5 of NYPE deal with Charterer's obligation to pay hire – Clause 4 in particular provides that the Charterers are to "pay for the use and hire" of the ship from "the day of her delivery … until the hour of the day of her re-delivery".  Above obligations qualified by clause 15, the off-hire clause, which stipulates that "payment of hire shall cease" in certain circumstances.  Clause 5 states that the charterers are to pay hire 15 days in advance and if it is not paid punctually, the Owners are to have the right to withdraw the ship. The right to withdraw is a right to terminate the Charter.  NYPE 46 contains an anti-technicality clause (clause 11) which operates where the failure to make punctual and regular payment is "due to oversight, negligence, errors or omissions on the part of the Charterers or their bankers".  Owners are then required to give notice to pay within an agreed number of "clear banking days" and may not withdraw before that period of grace has expired.  4

Previous late payments – waiver/estoppel  The right to withdraw may be waived by the Owner and the Owner may also be estopped from exercising the right.  Effect of Owners' acceptance of the late tender of hire payment will be considered by the court against all the relevant circumstances together with any representations made by the Owners (implied or express) on whether or not their legal rights will be enforced. 5

Is the Charterer liable to pay damages in addition to hire and any other amounts due to the Owners at the time of withdrawal?  Only if the obligation to pay hire punctually is a condition of the contract; then any failure to pay promptly would give the Owners the right both to terminate and to claim damages.  However, that obligation may not be a condition; for example, it is at least arguable that the NYPE Clause 5 obligation to pay punctually is an intermediate term reinforced with a contractual option to terminate.  If the failure to pay is an intermediate term that means the Owners are not entitled to recover loss of bargain.  Based on case law to date the uncertainty remains as to whether the obligation to make punctual payment is a condition (i.e. an essential/fundamental term of the contract) or an intermediate term (i.e. a term breach of which may entitle the innocent party to terminate the contract but only if the consequences of the breach are sufficiently serious). 6

Damages and Mitigation  A claim for damages can fail due to remoteness (i.e. where the consequence is different in kind from what the parties could reasonably have contemplated when entering into the contract would be likely to result from the breach in question).  The Owner should do his utmost to re-let the vessel by way of mitigation of any loss he has suffered. However, the Owner is "required only to use good faith and reasonable diligence in so doing. He is not required to use the best judgment possible or adopt the wisest course which hindsight might have dictated ". 7

Charterers' Administration/Insolvency - Ramifications  Recognition and enforcement of administration or bankruptcy proceedings in England – effect of Cross-Border Insolvency Regulations 2006 on arbitration in respect of any claim brought by Owners against Charterers.  Effect of above on possible remedies against parties other than the Charterer – e.g. in relation to the determination of the validity of a lien over sub-hire. 8

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