This case arose out of a bareboat charter which operated as a hire purchase agreement under which, at the end of the period, the demise charterers would own the vessel. But after only a few months the owners exercised a right to withdraw on the ground of late (and insufficient) payment. The defaults were not great and the shortfalls were small. The court found this was the sort of transaction where it had the power to grant relief from forfeiture - but that in the circumstances of this case it would not do so.
DMC Category Rating: Confirmed
This case note is based on an Article in the May 2004 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website.
The ordinary form of hire clause in the Barecon 89 Form was replaced by clause 31. This stated that the sale price was US$950,000, and provided for payment of an initial deposit of US$25,000, a monthly bareboat hire rate of US$15,104.17 in advance to be paid "discountless" and additional deposits to be paid at six months, twelve months and sixteen months. In addition, the standard provision in Barecon 89 allowing a seven days' period of grace for payment was deleted and replaced by clause 32, which provided:
"It is hereby agreed between seller and buyers that in case of buyers' default for non-payment of hire monies due to owner or non-performance of any of the agreed terms within the realm of this agreement the vessel will return back to the sellers free of all expense incurred, if any
Should buyers default seller will not be obliged to pay back any money paid down during the bareboat period. If the hire paid down during the bareboat period does not cover the sellers' losses, they shall be entitled to claim further compensation for their losses and for all expenses".
The effect of default
The demise charterers argued that this was a conditional sale agreement rather than a hire purchase agreement because, at the end of the period, they were bound to proceed with the purchase (rather than merely having an option to purchase). The payments referred to as hire were really instalments of the purchase price. Consequently, section 10 of the Sale of Goods Act 1979 applied, which provided that stipulations as to time of payment are not of the essence to the contract of sale, unless a contrary intention appears. Alternatively, the demise charterers maintained that owners had waived their right to withdraw for non-payment of hire by failing to do so within a reasonable time after the failure to make payment.
Relief from forfeiture
In Shiloh Spinners Limited -v- Harding  AC 69, the House of Lords identified situations in which the court could grant relief from forfeiture. The first was where it was possible to state that the object of the transaction and the inclusion of the right to forfeit were essentially to secure the payment of monies. The second was in cases of fraud, accident, mistake or surprise. The third was a debateable area which included obligations in leases such as to repair, covenant to insure, and so on.
The charterers argued that this situation fell into the first category. The purpose of including the right to withdraw the vessel under clause 32 was to secure the hire payments and the deposits.
As for the waiver argument, there could be no serious suggestion that anything said or done by the owners led the demise charterers to believe the owners would not exercise their right to withdraw. The owners had consistently insisted on prompt payment. The charterers had been fully aware of the risks that they deliberately chose to run and the effect this would have. In this context, the length of time between the due date for payment and the withdrawal could not constitute a waiver.
However, as regards forfeiture, the judge agreed that the nature of this transaction was such that the court had power to grant relief from forfeiture.
But should the court grant relief? Following Shiloh, it had to take into account such things as the conduct of the defaulting party, the gravity of the breach and the disparity between the value of the property and the damage caused by the breach. Here, the conduct of the demise charterers had not been meritorious. They had deliberately flouted their obligations to pay on time and pay in full despite protests from the owners. Although the shortfalls were small, they demonstrated a cavalier disregard for the strict obligations of the contract. This was not a case where a significant part of the charter period had passed. The first three months showed that the charterers were unsatisfactory payers. Although the direct effects of late payment and underpayment were small, it was the attitude that underlied it that gave cause for concern.
Taking all this into account, the judge found that this was one of those cases where granting relief from forfeiture was not appropriate.
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