Lloyd's Maritime and Commercial Law Quarterly
After withdrawal: charterers’ wrongs and shipowners’ remedies
Simon Baughen *
The right of withdrawal is a potent remedy for a shipowner. However, exercising the remedy at a time when cargo is on board will lead to the shipowner’s incurring costs in fulfilling contractual obligations owed to shippers, and, in a falling market, the shipowner will incur additional losses represented by the difference between the charter rate and the market rate for the unexpired residue of the terminated charter. As well as claiming the unpaid hire outstanding at the date of the withdrawal, the shipowner will want to recover these additional costs and losses. This article will examine the options open to shipowners in recovering both the costs of completing voyages under contracts of carriage with shippers and the loss sustained by withdrawing in a falling market. These remedies need to be set in the context of the web of contracts that are involved when carrying cargo under a time charter, such as contracts with shippers under, and lawful holders of, bills of lading, and contracts under sub- and sub-sub-charters.
I. INTRODUCTION
Hire is the lifeblood of the shipowner’s business. To secure its punctual payment, time charters will invariably provide for the shipowner to have a right to withdraw the vessel from the charterer’s service in the event that hire is not paid punctually and in full. Market conditions tend to determine the issues relating to withdrawal that come before the courts. In the rising market of the 1970s, shipowners were keen to find any excuse to get out of their time charters and pounced on any delay on the part of charterers in tendering full payment of hire. Since the financial crisis of 2008 there has been a pronounced collapse in the market, with charterers unable to carry on making hire payments under charters made in happier times. For shipowners, the remedy of withdrawal now has the disadvantage that, once free of the old charter, the vessel will be refixed at a rate considerably lower than under the old charter, together with the associated costs of completing bill of lading commitments entered into during the currency of the withdrawn charter. The focus now is on shipowners’ remedies after a withdrawal and here there have been three seminal decisions: that of the Court of Appeal in Spar Shipping on recovery of damages from charterers following a withdrawal; that of the Supreme Court in The Kos on recovery of post-withdrawal costs from charterers; and that of the Court of Appeal in The Bulk Chile on recovery of such costs from third parties through recovery of freight due under the
charterers’ wrongs and shipowners’ remedies
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