Present market conditions have led to an increase in claims related to unpaid hire. The Shipowners P&I Club has provided some advice on the issue of ” What to do when you don’t get paid” in order to recover unpaid hire and help operatorsto fully understand who they are contracting with as recovering this from a Charterer is likely to be contingent upon:
- The identity and solvency of the Charterer/Sub-charterer;ƒ
- The Charterers’/Sub-charterers’ assets and the liquidity/location of such assets; and
- ƒ The contractual terms.
Owners should carry out thorough due diligence during pre-contract negotiations, to prevent incurring time and expense caused by chasing Charterers for unpaid hire.
Despite completing thorough due diligence, the Club appreciates that it isn’t always possible to prevent Charterers defaulting on their hire payments. In particular, we recognise that in the current market there are limited contracts available. Owners’ bargaining power in pre-contract negotiations is therefore likely to be restricted. In this scenario it is useful to know as much as possible about the Charterers, to help obtain security, prior to embarking on potentially costly and lengthy litigation.
Before taking a course of action the Owners must decide if the unpaid hire claim is validly disputed or if the Charterers are just delaying payment, for example, because they have cash flow issues. In the current market, the latter scenario has become increasingly common and requires Owners to make a challenging judgement call on how hard to squeeze Charterers. Squeeze too hard and Charterers may go out of business, but press too little and other creditors may secure their claims ahead of yours. Often in this scenario, Owners are left playing a waiting game.
There are several options open to Owners such as
- Option 1: Suspension
- Option 2: Withdrawal
- Option 3: Contractual Lien
- Option 4: Arrest
- Option 5: Commence Proceedings – but obtain security first
However, general advice should be taken from an English law perspective only and we recommend obtaining legal advice before taking any such steps.
Source: Shipowners P&I Club
