We shall now consider the remedies that the charterer will have if the ship does not comply with its description or is not seaworthy. Where the owner has made a representation of fact to the charterer during the negotiations for the charterparty, probably through its broker, which induced the charterer to enter into the charterparty, and the representation is false, the charterer has a right to elect to avoid the charterparty. It must make an election to avoid or affirm the contract once it is aware that it has such a right, or it will be taken to have waived its right and the contract will be affirmed.
If the charterer does elect to avoid, it is as if the charterparty had never existed. The charterer is entitled to be put back into the position it was in before the representation was made and it was induced to enter into the contract, as it never would have entered into this contract had it not been misled.
The charterer may also be entitled to damages for misrepresentation. Where the mis representation made by the misrepresentor induces the misrepresentee to enter into a contract with the misrepresentor.
Fraudulent Misrepresentation
Where the charterer’s broker made a representation in its personal capacity, rather than as agent on behalf of the owner, and induced the owner to enter into a contract with the charterer, rather than itself, If the charterer can prove that the misrepresentation was made fraudulently, it will be entitled to damages for the tort of deceit for all direct losses, whether foreseeable or not. There is no defence of contributory negligence and the liability cannot be excluded. However, the burden of proof is a heavy one and if it cannot be satisfied the misrepresentor may sue for the tort of negligence.
Breach of term of charterparty
Where the failure complained of is a breach of a term of the charterparty the charterer has a number of contractual remedies. The first to consider is whether the charterer can cancel the charterparty. Standard form charterparties usually give the charterers an express right to cancel if the ship is not delivered ready or in every way fitted for the service by a specific time.
- If the term breached is a condition: Where the term is a condition, the charterer can elect to terminate the charterparty. This position was held by the House of Lords in Bunge Corporation v Tradax Export S.A in which it was further emphasised that the use of the word “guarantee” in a provision served to emphasise the importance of the provision as a condition.
- If the term breached is an innominate term: A term may be an innominate term where the consequences of breach could vary from being very significant to inconsequential. This was the position of the Court of Appeal in The Hong Kong Fir case in which the court held that the obligation as to seaworthiness is an innominate term and therefore breach of that term would only give rise to a right to elect to terminate if the consequences of the breach are so serious that they deprive the innocent party of substantially the whole of the benefit that it was intended to obtain under the contract – in other words if the breach is fundamental or goes to the root of the contract.
Damages
If the term breached is neither a condition nor an innominate term, it will be a warranty and the only remedy for breach of warranty is damages.
The purpose of damages is to compensate the innocent party for the loss of its contractual bargain and to put the innocent party in the position that it would have been in had the contract been performed.
The damages must not be too remote.
Off Hire
Off hire is another important remedy for a time charterer. The charterer of the Hong Kong Fir case did not have to pay hire for the ship during the period that time was lost while repairs to the engines were carried out. Furthermore, some charterparties expressly provide that the charterer is entitled to add off hire periods to the period of the charterparty, as in The Hong Kong Fir, so that the charterer does actually have the use of the ship for the time originally contracted for.
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