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The "Astra" - Appeal Status and Update

Further to our April 2013 Briefing regarding Mr Justice Flaux’s decision in Kuwait Rocks Co v AMN Bulkcarriers Inc (The mv Astra) [2013] EWHC 865 (Comm) we now provide an update on the status of that decision.

Our April 2013 Briefing on this can be found at www.hfw.com/Astra-Briefing-April-2013

It was originally held (in obiter) that the obligation upon a charterer to make punctual payment of hire in clause 5 of the NYPE 1946 form charter is a contractual condition, a breach of which entitles an owner to terminate the charter and claim damages for future loss of earnings.

The charterers have not obtained leave to appeal the High Court’s decision. Therefore, until there is a clear and binding decision on point, Mr Justice Flaux’s conclusions regarding the status of the clause 5 obligation to pay hire is the most relevant and up-to-date authority in this area. As such, it may well be considered persuasive by other High Court Judges and arbitrators, although they are not obliged to follow the decision on the basis that Mr Justice Flaux’s conclusions were obiter.

At first blush it would seem that the decision in the Astra provides clarity in respect of a charterers’ failure to pay hire. However, on closer inspection it arguably creates potential uncertainty in two main respects.

First, as mentioned above, the status of the clause 5 obligation to pay hire was not a ground of appeal from the original tribunal’s decision and therefore Mr Justice Flaux’s conclusions are obiter. If Mr Justice Flaux’s approach is followed, an owner who does not terminate in a prompt manner following a single missed payment of hire would become exposed to arguments that they have affirmed the contract due to delay. This creates a quandary for owners who, following a payment default by charterers, must decide whether to terminate or not in the face of uncertainty as to whether the decision in the Astra will be followed.

Secondly, it is now arguable that adeduction from hire may be a breach of condition and therefore repudiatory. All may turn on whether or not the deduction was valid. If the owner terminates and the deduction is later found to be valid then the owner will himself be in repudiatory breach and liable in damages to the charterer. If the owner terminates and the deduction is later found to be invalid then the charterer will be liable in damages to the owner. As a result, the consequences of a charterer making deductions from hire are now potentially very serious if an owner decides to press the issue.

Therefore, it would seem that Mr Justice Flaux’s attempts to bring some clarity, could actually have the unintended effect of creating further uncertainty due in part to the obiter nature of the decision.

The eventual impact of the Astra decision is potentially ground-breaking, however, it remains to be seen whether it will be followed either at first instance level or in the appeal courts and further decisions on the point will be closely watched.

In the meantime, parties will need to consider payment of hire issues in a new way. It may lead charterers seeking amendments to their standard form charters aimed at revising provisions regarding payment of hire and changing the contractual regime to provide better protection when making deductions from hire.

Whilst the Astra judgment is of significant potential benefit to owners, in the short term at least, owners may face a dilemma as to whether or not to rely upon the Astra to terminate a charter following a single payment default by charterers and claim prospective damages or follow the previous conflicting authorities.

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