Withdrawal: Key Points to Remember

An increase in enquiries to our FD&D team on withdrawal under a time charter party has prompted us to give the following important reminders when dealing with this tricky area of law:

1. Do Owners Have a Right to Withdraw?

There is no automatic right to withdraw the vessel for non-payment or late payment of hire.  The charterparty must include an express contractual right to do so.  It is worth highlighting that the right to withdraw only relates to non-payment of hire (unless the clause states otherwise) and, therefore, failure by a charterer to pay other sums due under the charter would not give an owner the right to withdraw. Also consider carefully whether hire is in fact due and payable.  For example, do charterers have a right to deduct hire?  Is the payment actually late when considering the charterparty terms and various timings and time zones involved?  It may seem obvious that hire is due, but when you “dig deeper” it may not be so clear.

2. Owners Must Strictly Comply With any Notice Provisions

The charterparty will normally contain a clause requiring owners to send charterers a notice giving charterers an extra period of time to make payment, before owners can withdraw the vessel (a so-called “anti-technicality notice”).  This notice must be given at the right time, promptly after the hire is overdue and it must be in the correct form; it must state clearly and unequivocally that the vessel will be withdrawn if the overdue hire is not paid within the given notice period.

3. Don’t delay!  Time is of the Essence

If there is a right to withdraw included in the charterparty, but there is no anti-technicality clause, then the right to withdraw arises immediately upon the late payment of hire and must be exercised promptly by serving a notice of withdrawal on the charterer.

If there is a notice provision or anti-technicality requirement, the notice cannot be served until after midnight on the due date for payment, but should then be served without delay. If payment is not received within the notice period, then the notice of withdrawal must also be served promptly. Timings for action will depend on the facts of the case (for example, how quickly the owners can verify that payment has not been made, time required to prepare the vessel operationally for a withdrawal etc.) but, as general guidance only, Members should give the above notices as soon as possible but, in any event, within 24 hours – unless there are exceptional circumstances.  If owners do not do so, then they may lose the right to withdraw, as the delay could constitute an affirmation of the charterparty.

4. The Charter is at an End and Hire up to the Date of Withdrawal is all Owners May Get! 

Assuming owners have correctly withdrawn the vessel, the charterparty and right to future hire will now be at an end.  Consequently, owners may only be entitled to recover the hire due up to the date of withdrawal and nothing more. Owners will not be entitled to damages for any additional loss, unless there has also been a repudiatory breach of the charterparty.

5. Losing the Right to Withdraw by Accepting Late Payments of Hire

If owners have previously accepted late payments of hire, without protest or reservation, then it is possible that they may have waived and lost their right to withdraw.  Owners should always reserve fully all of their rights under the charterparty when accepting any late or (disputed) part payment of hire, stressing that the late/part payment is wholly unacceptable and that future payments must be made on time, in full and in accordance with the charterparty terms, and note that in accepting late/part payment on this occasion, they are not waiving their right to withdraw.

6. Is There Cargo On Board?

If there is cargo on board the ship at the time of withdrawal, then owners will likely have obligations under the Bills of Lading to deliver it.  Once the charterparty is terminated, owners will no longer be receiving payments from  charterers – so may well be required to complete the voyage at their own expense, although it may be possible to recover any freight remaining due from the cargo interests.  The ability to make a claim against charterers for the delivery costs cannot be presumed and can be legally complex.

7. Our FD&D Team is Here to Help!

Exercising a right to withdraw can be complex and there are many considerations to take into account, with limited time to do so.  If owners wrongly withdraw, charterers will likely bring a significant claim for repudiatory breach!  As such, we would always advise Members to speak to their usual FD&D contacts immediately when considering this difficult issue.