Grand China Logistics Holding case review PDF

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Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982

Summary of the case In this case, Spar Shipping let three supramax bulk carriers for long term to Grand China Shipping (GCS). They were time chartered under three charterparties dated 5th March 2010 on amended NYPE 1993 forms on long term charters. Performance guarantees were issued by Grand China Logistics Holding (Group) Co Ltd (GCL) which was the parent company of GCS. However, GCS defaulted on payment of hire and was in substantial arrears with hire payments by April 11. This continued for around six months, despite regular but non-specific assurances from GCS that the arrears would be rectified. On 16 th September, Spar Shipping called on GCL for payment under the Guarantees subsequently terminating the charterparties and withdrawing the three charterparties even though there was time remained to run it. Later, Spar Shipping commenced arbitral proceedings against GCS, which subsequently stayed after it went into liquidation. Spar Shipping then brought a claim against GCL under the Guarantees following the liquidation of the GCS. Spar then claimed in the High Court against GCL under the guarantees for the balance due under the charterparties prior to termination, damages for loss of bargain in respect of the unexpired terms of the charterparties, and the costs of the arbitration. Popplewell J disagreed with the former judgment by Flaux J in The Astra [2013] EWHC 865 (Comm) and held that payment of hire by GCS under clause 11 of the charterparties was not a condition. However, Spar Shipping receives US$24million in damages for loss of bargain in respect of the unexpired terms of the charterparties, where it was decided that GCS had renounced the charterparties. GCL then appealed the decision made by the judge and defended the decision on the renunciation issue.

Spar Shipping contended that the court should have awarded the

additional ground where payment of hire by GCS in accordance with clause 11 was a condition.

Issue to be addressed 1. Whether the requirement to pay hire punctually and in full was a condition or innominate term.

2. Whether there was renunciation by GCS based on the conduct of the charterers.

Decision Court of Appeal Gross LJ commenced his judgement by restating the principles of terms where he relied on Hong Kong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd. [1962] 2 QB 26 (EWCA). Based on the case he distinguished the terms which are condition, warranty and innominate term. A condition is term where it is an essential part of the contract and breach will give the innocent party the right to repudiate the contract. However, a warranty is a term where it is not an essential part of the contract and breach will only give the party the right to only claim for damages. Innominate term is neither a condition or warranty, where a term is innominate the seriousness of breach is determined in order to determine the whether the innocent party can repudiate and can sue for loss. In order for the innocence party to be able to repudiate the contract and claim for damages is when there is breach of condition or when an innominate term is breached and the consequences is serious or in advance of the due performance date , the other party makes clear that it is not going to perform the contract at all. 1st Issue: Whether the requirement to pay hire punctually and in full was a condition or innominate term. The Court of Appeal held unanimously that the obligation to make punctual payment of hire in full was not a condition in the standard form NYPE 1993 time charter, but an “innominate” term. The reasoning of Gross LJ in deciding this case is that the inclusion of the express withdrawal clause did not provide an indication as to whether clause 11 was a condition. The withdrawal clause simply allowed them to withdraw the vessel for the occurrence of events in the clause and did not specify any consequences of such a breach.

He also stated that the authorities emphasise the need not to be “too ready” to interpret clause 11 as conditions and makes it clear that the clause is to be so classified. Thus, if the clause has not been classified as a condition by the parties and if consequence of breach is grave or minor then the clause is classified as innominate. In this case, the charterparties did not make it clear that clause 11 was a condition nor clause 11 express time is the essence of the contract. Third, any general presumption of time being of the essence in mercantile contracts was not of assistance. He state that the general presumption time being the essence of the contract will not give different conclusion as clause 11 is not expressed as a condition. He also state if the time is the essence of the contract it does generally apply to payment. Fourthly, the anti-technicality clause did not strengthen the case for the timely payment of hire being a condition. That clause did no more than protect the charterers from the serious consequences. Lastly, the general view of the market that the obligation to make timely payments of hire is not a condition. The court has uphold the judgment of Popplewell J and declared the decision in The Astra wrong. 2nd Issue: Whether there was renunciation by GCS based on the conduct of the charterers. The Court of Appeal confirmed that the test of whether there has been a renunciation was whether a breach went to the root of the contract. In order to determine the seriousness of the breach, Gross LJ applied Spar’s suggested three-stage analysis. The three-stage were: 1. What was the contractual benefit Spar was intended to obtain from the charterparties? 2.

What was the prospective non-performance foreshadowed by GCS’ words and conduct?

3. Was the prospective non-performance such as to go to the root of the contract? In answer to these questions, it was held that the benefit was regular, periodic payment in advance, that GCS showed prospective non-performance by payment but in arrears and at uncertain times and such conduct goes to the root of the contract and is therefore renunciatory, entitling the owner to terminate.

Conclusion In conclusion, the court has declined the judgement by The Astra. They also provides a more definite direction on the principles of renunciation. The obligation to pay hire punctually and in advance is not a condition, but an innominate term. In order to determine the innominate term the seriousness of the breach must be determined....