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No notice required before suspending performance under Supplytime 1989

Insights / / Hong Kong

Greatship India Ltd v. Oceanographia SA de CV (Greatship Dhriti) [2012] EWHC 3468 (Comm)

The Commercial Court has recently determined a question of law arising under the Supplytime 1989 charterparty form. The dispute arose in connection with clause 10(e) of the form which provides for a right, where there has been a failure to pay hire, to withdraw the vessel and/or to suspend performance under the contract.

The background facts

Due to the non-payment of hire, the owners suspended the provision of the vessel’s services under the charterparty. The owners submitted in arbitration that there was no obligation under the Supplytime 1989 form to give notice before exercising that right. The relevant part of clause 10(e) of the Supplytime 1989 form reads as follows:

“While payment remains due Owners shall be entitled to suspend the performance of any and all of their obligations hereunder…”

By contrast, the charterers submitted that there was an express or implied requirement that the owners would give five banking days’ notice before suspending performance.  Amongst other arguments, the charterers relied upon an earlier part of clause 10(e) which, in relation to the right to withdraw, reads as follows:

“In default of payment as herein specified, Owners may require Charterers to make a payment of the amount due within 5 banking days of receipt of notification from Owners; failing which Owners shall have the right to withdraw the vessel…”

The arbitrators’ decision

The arbitrators noted that clause 10(e) appeared to give the owners an unfettered right to suspend performance of the vessel without giving any notice. However, they determined that the right to suspend was not a stand-alone provision and could not be separated from the context of the remainder of clause 10(e). The arbitrators therefore determined that there was an express requirement that five banking days’ notice be given before the owners could suspend performance. To support this conclusion, the arbitrators found that the words “while payment remains due” did not refer to the failure to pay hire on the due date but rather to the period of time after the owners have given their five day notice that they intended to withdraw the vessel. The owners appealed.

The Commercial Court decision

Mrs Justice Gloster agreed with the owners that there was no qualification to the right to suspend performance requiring them to give five banking days’ notice of a suspension.  The charterers had argued that theirs was the most commercial construction on the basis that any suspension of services under a Supplytime charter, which may be used in connection with complicated offshore activities, could have a very severe effect on the charterer. Whilst not accepting that this was the most commercial construction of the relevant provision, the judge agreed with the owners that, as per the principle stated by the Supreme Court in Rainy Sky v. Kookmin SA [2011] UKSC 50, the court should give effect to clear, unambiguous and unfettered language. The court found that the words “while payment remains due” clearly and unambiguously mean that the owners are entitled to suspend performance at any time after payment has become due and whilst it remains unpaid. Mrs Justice Gloster saw no justification for an implied notice period as one was not required to make the contract workable. 

Finally, the judge noted that the Supplytime 2005 form contains modified wording in respect of suspension and withdrawal but expressed no view as to whether, under the revised form, suspension could only take place after notification has been given. 

Comment

This is perhaps an unsurprising result given that the relevant wording makes no reference to a notice period. The Commercial Court made it clear that the Rainy Sky principle of applying a “business common sense” construction is only relevant where there are two possible constructions of the same wording. In this case, it was held that there was only one logical construction of the wording and the arbitrators’ decision was overturned.

Max Cross

Max Cross Partner

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