Karlander v Eriama Shipping Co. Ltd. [1965] PGSC 23; [1965-66] PNGLR 213 (17 April 1966)

Papua New Guinea Law Reports - 1965-66

[1965-66] PNGLR 213 - Skibsaktiesflskapet Karlander v Eriama Shipping Co. Ltd.

[1965-66] PNGLR 213

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

SKIBSAKTIESFLSKAPET KARLANDER

V.

ERIAMA SHIPPING COMPANY LIMITED

Port Moresby

Frost J

6 July 1965

15 September 1965

17 September 1965

16-17 December 1965

29 March 1966

17 April 1966

SHIPPING - Charter party - Time charter - Default of payment of hire and sums due for overtime - Withdrawal of ship - Loss of future hire - Owner entitled to regard default as repudiation of contract - Right to recover sum due and damages for remainder of agreed period of hire - Natural and probable result of default - No waiver of right of withdrawal by owner’s forbearance.

A charter party by which a ship was let for twenty-four months provided that payment of the agreed hire should be made monthly in advance and that in default of payment the owners should have the right of withdrawing the vessel without noting any protest and without interference by any court and without prejudice to any claim the owners might otherwise have on the charterers under the charter. In addition, the charterers were to refund the owners their outlays for all overtime paid to officers and crew and provide a bank guarantee in favour of the owners on which the owners were entitled to draw, on failure to pay the charter hire. The charterer failed to provide the bank guarantee after delivery of the ship, default was made in payment of overtime and charter hire payments were not regularly made or in advance. At length the owner withdrew the ship from the service of the charterer and, having faileobtain an alte alternative charter, the owner conducted voyages of the vessel on his own account. The owner brought an action st the charterer claiming the hire and overtime payments due under the charter party at that the date of withdrawal and also damages for loss of hire under the charter party during the remainder of the chartered period, the damages being based upon the difference between the rate of hire fixed by the charter and the profit made by the owner after withdrawal.

Held:

N1>(1)      The plaintiffs were entitled to recover, besides the hire and overtime payments in arrear, damages for loss of the future hire, such damages being a natural and probable result of the default in paying the hire and overtime.

N1>(2)      The plaintiffs were entitled to infer from the defendant’s failure to pay sums due for overtime and the sum owing for arrears of hire that the defendant was not going to pay the hire for the remaining period of the charter party and had repudiated it.

N1>(3)      The plaintiff’s forbearance to exercise the right of withdrawal for a time did not operate as a waiver of such right.

Cases referred to:

Leslie Shipping Co. v. Welstead, [1921] 3 K.B. 420; Panoutsos v. Raymond Hadley Corporation of New York, [1917] 1 K.B. 767; Cape Asbestos Co. v. Lloyds Bank Ltd., [1921] W.N. 274; Bird v. Hildage, [1948] 1 K.B. 91.

Action for Damages.

The facts appear sufficiently from the judgment.

Counsel:

McCubbery, for the plaintiff.

Cur. adv. vult.

7 April 1966

FROST J:  In this action the plaintiff sought of the defendant, a company incorporated in the Territory, and recovered by judgment in default of appearance, £11,840 17s. 8d. due under a charter party, and also damages for breach of the charter party to be assessed. On the 15th September, 1965, upon the application of the plaintiff, I ordered that damages should be ascertained by a judge and thereafter the issue was heard by me on 17th September, the proceedings being adjourned to 16th December, 1965, and were concluded on 29th March, 1966, when I reserved my decision. The defendant did not appear on any of these proceedings.

I ordered that the facts might be proved by affidavit because the facts arose outside the jurisdiction and because of the absence of witnesses from this jurisdiction. (Order 41, Rule 1, Rules of the Supreme Court (Queensland adopted).)

By a charter party dated 5th July, 1958, in the form of the Baltic and International Maritime Conference (formerly The Baltic and White Sea Conference), made at Oslo between the plaintiff, Skibsaktieselskapet Karlander of Frederikstad, Norway, the owners of the motor vessel “Slevik”, and the defendant, Eriama Shipping Company Limited, a company incorporated in the Territory of Papua and New Guinea, and having its registered office in Port Moresby, as charterer, it was agreed (inter alia) (clause 1) that the plaintiff should let and the defendant should hire the vessel for twenty-four months from the time the vessel was delivered to the charterer as therein provided, on the following conditions; (clause 3) that the owners should provide and pay for all provisions and wages, for insurance of the vessel, for all deck and engine room stores and maintain her in a thoroughly efficient state in hull and machinery during service; (clause 4) that the charterers should provide and pay for all oils, oil fuel, water, port charges, etc.; (clause 6) that the charterers should pay as hire £A5,500 per 30 days commencing from the time the vessel was delivered and placed at the disposal of the charterers until her delivery to the owners; that the payment of hire should be made in cash in Port Moresby, without discount, every 30 days in advance, as therein provided; and that in default of payment the owners to have the right of withdrawing the vessel from the service of the charterers, without noting any protest and without interference by any court, or any other formality whatsoever and without prejudice to any claim the owners may otherwise have on the charterers under the charter; (clause 9) the master to prosecute all voyages with the utmost despatch, etc.; the master to be under orders of the charterers as regards employment, agency and other arrangements; (clause 17) the charterers to refund the owners their out-lays for all overtime paid to officers and crew in the fixed amount of £A75 monthly, to be subject to quarterly adjustment; (clause 20) the charterers to have the option of sub-letting the vessel, giving due notice to the owners, but the original charterers always to remain responsible to the owners for due performance of the charter; (clause 26) the charterers to provide a guarantee in favour of the owners issued by a first class bank in Oslo or London whereby the bank as principal debtors is guaranteeing at any time during the charter period right payment of the agreed minimum hire for three months, viz: £16,500. If charterers fail to pay the charter-hire as per charter party for any reason whatever, the owners are entitled to draw immediately the hire due on the guarantee.

On the 29th August, 1958, at San Fernando, Philippine Islands, the vessel was delivered to the defendant and commenced time charter on 29th August, 1958.

The defendant failed to provide the guarantee provided for in clause 26, despite numerous requests by the owners, and in fact it was never provided. It failed to pay overtime as required (clause 17) and on 16th June, 1959, all amounts payable by the defendant for overtime, viz. £730, remained due and unpaid. It deducted from the hire payments payable under clause 6 amounts totalling £A6,912 13s. 3d. as payments made by it for disbursements for which the owners were liable under the charter party, but the disbursements were not made by the defendant but by the owners. Thus the payments of hire were not regularly made or in advance and on 16th June, 1959, the amount of £10,796 16s. including the wrongful deduction of £A6,912 13 3d. remained due and unpaid for hire, despite repeated requests made by the owners.

On 16th June, 1959, the plaintiff, presumably pursuant to the charter party, withdrew the vessel from the service of the defendant and on 13th May, 1965, the plaintiff brought the present action against the defendant.

The plaintiff adduced evidence upon affidavit as to the damage sustained by it. It appears from this evidence, which I accept, that on 16th June, 1959, the vessel was in the port of Sydney. After it was withdrawn from the charter, the ship’s agents, F. H. Stephens Pty. Ltd., made efforts to arrange a substitute charter for the vessel. F. H. Stephens Pty. Ltd. acts amongst other things as ships’ brokers arranging charter of vessels, but its efforts to find a charterer for the vessel either in Australia or the South Pacific area were unsuccessful.

No offers to charter could be obtained through other ships’ brokers. Enquiries were made of Messrs. Wallem and Co. (Singapore) Limited at Singapore, who advised that if they could find local business for the vessel, which at the moment was highly problematical, the owners would have to be content with approximately £Stg.2,750 to £Stg.2,800 per month. Stephens’ opinion in June, 1959, was that there was no possibility of arranging a charter of the vessel in Australia or the South Pacific, even at the reduced rates mentioned from Singapore. As all their efforts had failed, the owners decided to conduct voyages of the vessel on their own account. The owners instructed Stephens accordingly. Four voyages were then arranged to various ports in Australia and the Territory of Papua and New Guinea, the total net profit of which, assuming the vessel had been operated by the charterer, amounted to £17,336.

On 26th November, 1959, the ship was sold. On that date a further sum was due for overtime, viz. £405, under clause 17 of the charter party.

The plaintiff now claims that it is entitled to damages in the sum of £29,700, being the sum due for hire from 16th June, 1959, the date when the ship was withdrawn, until 26th November, 1959, at the rate of £A5,500 for 30 days, plus £405 overtime, less £A17,336 to be credited in respect of the profits earned by the vessel after withdrawal from the defendant until the sale thereof, being a balance of £12,769.

Mr. McCubbery, who appeared for the plaintiff, submitted that although the withdrawal of the vessel was made pursuant to the charter party, the plaintiff had, by reason of the defendant’s breach of contract, lost the benefit of the hire for the remaining period of the charter party and was therefore entitled to damages being the difference between the hire as provided in the charter party, less the profits earned by the vessel after its withdrawal. Damages could not be recovered, of course, after the sale of the ship.

He relied on the law as stated in Carver’s Carriage of Goods by Sea, 9th ed., p. 271: “Time charters usually contain a clause entitling the shipowner to withdraw the vessel from the chartered service on default by the charterer of payment of hire. Such a clause cannot be treated as in any way cutting down the right of the shipowner at common law to treat the contract as at an end if the charterer’s failure to pay hire amounts to a repudiation of the charter.”

Scrutton on Charter parties, 17th ed., at pp. 354, 355, sets out the law as follows: “If the shipowner withdraws the ship he cannot recover any hire for the period after withdrawal even though withdrawal takes place in the middle of a period hire for which is payable in advance .... But he can claim damages for the remainder of the agreed period of hire based on the charterer’s repudiation of the charter.”

The text writers cite the case of Leslie Shipping Co. v. Welstead[ccxix]¹. The head note reads as follows: “A charterparty, by which a steamship was let for thirty-six months, provided that payment of the agreed hire should be made monthly in advance, and that ‘In default of such payment ... the owners shall have the faculty of withdrawing the said steamer from the service of the charterers, without prejudice to any claim they (the owners) may otherwise have on the charterers under this charter.’ The charterer made default in paying the third and fourth months’ hire, and the shipowners thereupon withdrew the steamship. The shipowners brought an action against the charterer claiming the hire in arrear at the date of the withdrawal and also damages for loss of hire under the charter party during the remainder of the chartered period, the damages being based upon the difference between the rate of hire fixed by the charter and the hire that could be got apart from the charter:

“Held, that the plaintiffs were entitled to recover, besides the hire in arrear, damages for loss of the future hire measured as aforesaid, inasmuch as these damages were the natural and probable result of the default of the defendant in paying the hire, and not of the withdrawal of the steamship by the plaintiffs.”

The action was brought upon a charter party in similar terms to the one before me. In his judgment Greer J. referred to the breaches of the charter party by the defendant, and then proceeded: “I think that, apart altogether from clause 5 of the charterparty, (which conferred the right of withdrawal) that conduct on the part of the defendant would amount in law to a repudiation by the defendant of a fundamental part of this contract, entitling the plaintiffs to treat it as at an end. It seems clear that clause 5, which is inserted in the charterparty not to the detriment of the plaintiffs, but for their benefit, gives them in these circumstances an express right to withdraw the vessel, and makes it impossible that there should be any discussion about the matter. This clause cannot, I think, be treated as cutting down the rights which the plaintiffs would have had in the absence of such a clause. For these reasons I am against the somewhat belated argument that has been put forward on behalf of the defendant and my judgment is that the plaintiffs are entitled not only to recover the hire due on September 22nd, 1920, the date of the withdrawal, and to withdraw the vessel, but also to damages calculated on the basis of the evidence that has been given and in the manner that has been put forward and agreed upon during the hearing of the case.”

In my opinion this statement is a correct interpretation of the charter party and states the law applicable to it and I am content to apply it to the present case. Having regard to the defendant’s failure to pay all sums which had become due for overtime, and the large sum owing for arrears of hire, I have no difficulty in deciding that the shipowner was entitled to infer from these breaches that the defendant was not going to pay the hire for the remaining period of the charter party and had repudiated it. The defendant’s failure to provide the bank guarantee, being an act which had to be done once and for all, having regard to the lapse of time would not have enabled the plaintiff to cancel the contract: Panoutsos v. Raymond Hadley Corporation of New York[ccxx]²; Cape Asbestos Co. v. Lloyds Bank Ltd.[ccxxi]³ The plaintiff’s forbearance to exercise the right of withdrawal for a time does not operate as a waiver of such right: Bird v. Hildage[ccxxii]⁴.

The plaintiff is accordingly entitled to damages. I accept the evidence that the only course open to the plaintiff was to work the vessel itself, and that Mr. McCubbery’s submission is sound that I should allow the sum claimed.

The plaintiff is entitled to recover the sum claimed for overtime, which in my opinion was an expense payable by the charterer under the charter party, and thus to be deducted from the freight before the net profits of the voyages could be struck.

There will therefore be judgment for the plaintiff in the sum of $25,538, with costs.

Judgment for the plaintiff.

Solicitors for the plaintiff: J. Irwin Cromie & McCubbery.

[ccxix][1921] 3 K.B. 420.

[ccxx][1917] 1 K.B. 767.

[ccxxi] [1921] W.N. 274, at pp. 275-276.

[ccxxii] [1948] 1 K.B. 91.