Spar Shipping AS v. Grand China Logistics Holding (Group) Co. Ltd  EWHC 718 (Comm)
The Commercial Court has recently made some key findings of fundamental importance to the shipping industry.
- Charterers’ payment obligation under a NYPE 1993 time charter is not a condition of the contract – failure to pay a hire instalment promptly does not automatically allow owners to terminate the charter and claim damages for future loss of profits.
- The inclusion of a withdrawal clause does not affect (either positively or negatively) owners’ rights to claim damages for any post termination loss of profits.
- Owners may only claim damages for post termination loss of profits where:
Where, on the date of termination, there exists no market for a like for like substitute charter, absent any failure to mitigate, owners’ losses are calculated by reference to their actual earnings.
- the effect of charterers’ breaches is to deprive owners of substantially the whole benefit of the charter; or
- charterers evinced an intention no longer to perform their obligations under the charter, so that owners would be deprived of substantially the whole benefit of the charter.
- Where, on the date of termination, there exists no market for a like for like substitute charter, absent any failure to mitigate, owners’ losses are calculated by reference to their actual earnings.
- The Owners could recover against the Charterers’ PRC parent company even though the guarantee had not been registered with SAFE and the parent denied that the signatory to the guarantee had authority to bind it.
The Background Facts
The Commercial Court Decision
- The withdrawal clause provided the Owners with a liberty to withdraw the vessel from service. It was an option to cancel. Without express wording, the withdrawal clause did not make payment of hire a condition.
- In the absence of a withdrawal clause, payment of hire would not be a condition. It could not have been intended that any breach of that obligation, no matter how trivial, would allow the Owners to terminate.
- In commercial contracts and absent express wording, the time for making payment is not generally a condition. There was no good reason to deviate from this general rule.
- The desirability of commercial certainty must be counterbalanced with the need not to impose liability for a trivial breach in undeserving cases. Commercial certainty could be achieved through the withdrawal clause without granting owners an additional right to damages.
- It deprives owners of substantially the whole benefit of the charter; or
- It would lead a reasonable owner to the conclusion that the charterers are unwilling or unable to perform their future obligations, and the failure to perform those obligations would have the effect of depriving the owners of substantially the whole benefit of the charter.
- The signatory signed the document as Board Chairman, when at that time he was only Executive Board Chairman and did not have authority to bind GCL;
- The guarantees did not comply with Chinese exchange controls requiring the approval and registration of guarantees to overseas entities by SAFE.
- Authorised the signatory to sign the guarantees; or
- Been aware that the guarantees were being given and failed to disavow that the signatory was entitled to bind GCL; and
- The signatory was conducting a “duty related activity”, which the Court accepted as a principle under PRC law in which a senior employee who was not a company’s authorised legal representative could still bind the company.
- Ensure that the contract is either “chopped” with the company’s seal or signed by the company’s authorised legal representative. Checking that the signatory to any contract has authority to bind the company is straightforward.
- Demand that any guarantees given by a Chinese company are registered with SAFE.
For further information, please contact:
Max Cross, Partner, Ince & Co