A time charterer pays its third monthly instalment ten days late, then stops paying altogether. The vessel is at sea with sub-charterers’ cargo on board. The owner wants its ship back but fears incurring liability towards the shippers.
Withdrawal, a contractual remedy
Withdrawal is the owner’s right to terminate the charter and take back the vessel when hire is not paid on the due date. It is provided for by the charterparty, not by French law, which merely requires hire to be paid monthly in advance (Article R. 5423-15 of the French Transport Code). Its exercise is strictly regulated: a wrongful withdrawal is a wrongful termination, which exposes the owner to compensating the charterer’s proven loss, assessed over the remaining term of the charter, most often by reference to the difference between the agreed hire and the market rate.
The anti-technicality notice
NYPE 2015 (clause 11) requires, before any withdrawal, a written notice giving the charterer three banking days to rectify. Failure to send that notice, or a poorly drafted notice, deprives the withdrawal of effect. The notice must state the amount due, the due date and the grace period. Accepting a late payment without reservation may amount to a waiver of the right to withdraw for that default.
The owner’s other levers
Withdrawal is not the only weapon. The Transport Code grants the owner a lien on the goods for payment of its freight (Article L. 5423-3). Charterparties also provide for a lien on cargoes and on sub-freights due from sub-charterers. Finally, the Code gives the owner a direct action: to the extent of what the charterer owes it, the owner may claim against the sub-charterer for the freight still owed by the latter (Article L. 5423-7).
Where the cargo belongs to third-party bill of lading holders, the owner remains liable to them as carrier. A withdrawal during a voyage must therefore be planned: completion of the voyage, delivery, then repossession of the vessel.
The charterer’s side
A charterer disputing part of the hire, for example on account of off-hire, is well advised to pay the undisputed amount on time, to notify its deduction in writing and to substantiate it. A delay of a few hours is sometimes enough to trigger the notice.
What the firm checks first
- The payment clause and the anti-technicality clause.
- The due dates and the payments received, with their dates.
- The notice: content, addressee, time limit.
- The position of the cargo and the bills of lading issued.
- Current sub-charters and the freights due.
For the firm’s involvement, see Charterparties and demurrage.
Further reading
- Off-hire: when a time charterer may stop paying hire
- End of a bareboat charter: redelivery of the vessel, repairs and delay
- Unpaid freight: can the carrier retain the goods?
This analysis is part of the firm’s work in maritime law.
Frequently asked questions
Can the owner withdraw the vessel on the first day of late payment?
Only if the charterparty allows it and after the notice required by the anti-technicality clause.
What does an owner risk by withdrawing the vessel wrongfully?
An award for wrongful termination, in the amount of the loss proved by the charterer over the remaining term.
Can the owner obtain payment from the sub-charterer?
Yes, to the extent of what the charterer owes it and of the freight still owed by the sub-charterer (Article L. 5423-7 of the Transport Code).