Case Facts
The charterers, Tenax Steamship Co. Ltd., entered into a time charterparty on the New York Produce form dated 22 November 1968 with the registered owners of the vessel, Reinante Transoceanica Navegacion S.A. Under the terms of that charterparty, hire was payable monthly in advance "in New York in cash," and the owners were entitled to withdraw the vessel in the event of a failure to make "punctual … payment" of hire. The owners had assigned the charter hire to MGT (Manufacturers and Guaranty Trust, a New York bank), which acted as sub-agents for the charterers for the purpose of remitting hire.
The hire due on 1 April 1970 was not paid on time. On 2 April 1970, the owners' London agents sent a telex notice of withdrawal to the charterers, purporting to withdraw the vessel on the ground of late payment. The charterers contended that the withdrawal was wrongful on two principal bases: first, that payment of hire had in fact been effected before the withdrawal notice was received; and secondly, that the notice of withdrawal had not been received during normal business hours and therefore could not take effect until the following business day.
The payment mechanism operated as follows. The charterers' bank, H Bank, sent a telex instruction to MGT directing it to credit the owners' account. The question was at what point in this chain the legal obligation to pay hire was discharged. Brandon J. at first instance gave judgment for the owners. The charterers appealed to the Court of Appeal, where the matter was heard between March and May 1974, with judgment delivered on 23 May 1974.
Held
The Court of Appeal dismissed the charterers' appeal and affirmed Brandon J.'s decision in favour of the owners.
On the question of when the telex notice of withdrawal was received, the Court held that Brandon J. was entitled, on the evidence, to find that the telex notice had arrived in the charterers' office before 18:00 hours BST on 2 April 1970 and that it must accordingly be regarded as having been received by the charterers before that time. Applying the principle articulated by Denning LJ in Entores v Miles Far East Corp [1955], the Court held that a telex message is received when it arrives at the recipient's premises during normal business hours, irrespective of whether any individual at those premises actually reads it at the moment of receipt.
On the question of when payment by telex transfer is effected, the Court held that the mere receipt by MGT of H Bank's telex instruction to credit the owners' account did not constitute payment "in cash" within the meaning of the charterparty. Such a telex instruction was revocable and could not be equated with a negotiable instrument or unconditional payment. Payment was only effected when MGT, acting as sub-agents for the charterers, made the operative decision to debit H Bank's account and credit the owners' account. On the evidence, that decision was made at some point between 11:37 and 12:37 hours New York time on 2 April 1970. Given the mathematical probabilities of the chronology, this occurred after the charterers had already received the telex notice of withdrawal. Accordingly, withdrawal of the vessel preceded payment of hire, and the owners' right to withdraw had already crystallised.
As a fourth and independent ground, the Court held that even if payment had technically preceded the service of the withdrawal notice, the appeal would still have failed. The "failing … punctual … payment" wording in the charterparty meant that the owners' right to withdraw, once it had arisen by reason of late payment, remained exercisable notwithstanding a subsequent but still-late payment by the charterers. The Court further held that the assignment of charter hire by the owners to MGT did not affect the owners' right to withdraw, as all parties had at all material times conducted themselves on the basis that the strict terms of the charterparty were to be adhered to.
Ratio Decidendi
The decision establishes the following propositions of law:
Receipt of a telex communication. A telex message is received at the moment it arrives at the recipient's telex machine during normal business hours, regardless of whether the recipient actually reads or notices it at that time. It is not necessary for the recipient personally to become aware of the communication for it to take legal effect. This principle, derived from the approach in Entores v Miles Far East Corp [1955], treats instantaneous communications differently from letters sent by post.
When payment by telex transfer is effected. Where a charterparty requires payment "in cash," payment is not made merely upon the recipient bank receiving a telex instruction directing it to credit an account. Such an instruction is revocable and does not amount to unconditional payment. Payment is made only when the recipient bank takes the operative step of debiting the sending bank's account and crediting the payee's account. It is that act of appropriation — not the prior transmission of an instruction — that discharges the payment obligation.
Persistence of the right to withdraw following late payment. Where a charterparty confers on the owner a right to withdraw "failing … punctual … payment," that right, once it has arisen by reason of a failure to pay on time, is not extinguished merely because the charterers subsequently tender a late payment before the notice of withdrawal is served. The right remains exercisable unless the owners have waived it.
Assignment of hire and right to withdraw. The assignment of hire receivable under the charterparty to a third-party bank does not of itself deprive the owners of their contractual right to withdraw the vessel, where the conduct of all parties demonstrates a common understanding that the strict contractual terms remain in force.
Obiter Dicta
The Court expressed broader observations on the developing law of instantaneous communications in the context of contract formation and performance. The analysis in Entores v Miles Far East Corp [1955] concerning when an acceptance sent by telex becomes effective was considered instructive by analogy when determining when a contractual notice delivered by telex takes effect. The Court indicated that the same underlying principle — that the sender of an instantaneous communication takes the risk that it may not be read immediately, but that the communication is nonetheless received upon arrival during business hours — applies across both the formation and performance contexts. These observations laid the groundwork for the later development of principles governing electronic communications in commercial contract law.