The House considered giving relief from forfeiture where an owner had justifiably withdrawn his vessel in accordance with the terms of the charter.
Held: A withdrawal clause under a time charter, exercised on the ground of the charterer’s failure to make punctual payment of an instalment of hire, was not subject to the equitable right to relief against forfeiture, even though it involved the loss of a valuable charter. Such rights of withdrawal are usually exercised where the market rate of hire is substantially above the charter rate. The remedy of relief from forfeiture was unavailable in part because a Court of Equity would not grant specific performance in respect of it.
The House distinguished between merely contractual rights, and contracts concerning the transfer or creation of proprietary or possessory rights. The House warned against the wholesale importation into commercial law of equitable principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs.
An injunction restraining the ship owner from exercising his right of withdrawal of the vessel (a contractual right given to him under the charter) was to be equated with an order for specific performance.
Lord Diplock said: ‘A time charter, unless it is a charter by demise, with which your Lordships are not here concerned, transfers to the charterer no interest in or right to possession of the vessel; it is a contract for services to be rendered to the charterer by the shipowner through the use of the vessel by the shipowner’s own servants, the master and the crew, acting in accordance with such directions as to the cargoes to be loaded and the voyages to be undertaken as by the terms of the charterparty the charterer is entitled to give to them. Being a contract for services it is thus the very prototype of a contract of which before the fusion of law and equity a court would never grant specific performance: Clarke v Price (1819) 2 Wils. 157; Lumley v Wagner (1852) 1 De G.M and G. 604. In the event of failure to render the promised services, the party to whom they were to be rendered would be left to pursue such remedies in damages for breach of contract as he might have at law. But as an unbroken line of uniform authority in this House, from Tankexpress [1949] A.C. 76 to A/S Awilco of Oslo v Fulvia S.p.A. di Navigazione of Cagliari (The Chikuma) [1981] 1 WLR 314, has held, if the withdrawal clause so provides, the shipowner is entitled to withdraw the services of the vessel from the charterer if the latter fails to pay an instalment of hire in precise compliance with the provisions of the charter. So the shipowner commits no breach of contract if he does so; and the charterer has no remedy in damages against him. To grant an injunction restraining the shipowner from exercising his right of withdrawal of the vessel from the service of the charterer, though negative in form, is pregnant with an affirmative order to the shipowner to perform the contract; juristically it is indistinguishable from a decree for specific performance of a contract to render services; and in respect of that category of contracts, even in the event of breach, this is a remedy that English courts have always disclaimed any jurisdiction to grant. This is, in my view, sufficient reason in itself to compel rejection of the suggestion that the equitable principle of relief from forfeiture is juristically capable of extension so as to grant to the court a discretion to prevent a shipowner from exercising his strict contractual rights under a withdrawal clause in a time charter which is not a charter by demise.’
Lord Diplock said that his judgment was concerned only with time charters that were not by demise: ‘the reasoning in my speech has been directed exclusively to time charters that are not by demise. Identical considerations would not be applicable to bareboat charters and it would in my view be unwise for your Lordships to express any views about them.’
. . And: ‘The classic form of penalty clause is one which provides that upon breach of a primary obligation under the contract a secondary obligation shall arise on the part of the party in breach to pay to the other party a sum of money which does not represent a genuine pre-estimate of any loss likely to be sustained by him as the result of the breach of primary obligation but is substantially in excess of that sum. The classic form of relief against such a penalty clause has been to refuse to give effect to it, but to award the common law measure of damages for the breach of primary obligation instead.’
Diplock, Keith of Kinkel, Scarman, Roskill and Bridge of Harwick LL
[1983] 2 AC 694, [1983] 2 AC 694, [1983] 2 All ER 763, [1983] 3 WLR 203
England and Wales
Citing:
Affirmed – Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) CA 1983
Charterers of a ship sought refielf from forfeiture of the charterparty on equitable grounds.
Held: No jurisdiction existed to grant such a rlief. In a commercial agreement between commercial parties, the court had no jurisdiction to relieve a . .
Cited by:
Cited – Lady Navigation Inc v Lauritzencool Ab and Another CA 17-May-2005
The shipowner appealed the award against them of an injunction requiring them not to act inconsistently with a time charterparty. The company said that such a form of order was improper.
Held: The existence of the contract to do what was . .
Applied – Sport International Bussum BV v Inter-Footwear Ltd HL 2-Jan-1984
A contractual licence was granted to use names and trademarks for sports shoes. An earlier action between the parties had been stayed on the terms scheduled to a Tomlin order, which provided for Inter-Footwear to pay a sum in instalments and to have . .
Cited – Sport Internationaal Bussum BV v Inter-Footwear Ltd CA 1984
There had been a contractual licence to use names and trademarks for sports shoes. An earlier action between the parties had been stayed on the terms scheduled to a Tomlin order, which provided for Inter-Footwear to pay andpound;105,000 in three . .
Cited – Cavendish Square Holding Bv v Talal El Makdessi; ParkingEye Ltd v Beavis SC 4-Nov-2015
The court reconsidered the law relating to penalty clauses in contracts. The first appeal, Cavendish Square Holding BV v Talal El Makdessi, raised the issue in relation to two clauses in a substantial commercial contract. The second appeal, . .
Lists of cited by and citing cases may be incomplete.
Transport, Damages, Contract, Equity
Updated: 20 December 2021; Ref: scu.225442