Law Report: No liability to repay hire cost: Pan Ocean Shipping Ltd v Creditcorp Ltd - House of Lords (Lord Keith of Kinkel, Lord Goff of Chieveley, Lord Lowry, Lord Slynn of Hadley and Lord Woolf), 27 January 1994

The assignee of the benefit of hire instalments paid in advance under a contract was not liable to make any repayment for overpaid hire. The unearned hire could be recovered from the other party to the contract but not from the assignee to whom payment was made.

The House of Lords dismissed an appeal by Pan Ocean from the Court of Appeal's decision (1993) 1 Lloyd's Rep 443 that Pan Ocean was not entitled to succeed in its claim against Creditcorp.

Pan Ocean chartered from Trident Shipping Co Ltd the vessel Trident Beauty for a single time-charter trip at the rate of dollars 6,400 per day, payable 15 days in advance. The charter provided for an adjustment of account or repayment if the vessel was off-hire during the period for which the hire had been paid in advance.

As part of an arrangement between Trident and Creditcorp, on behalf of a group of investors, finance was made available to Trident, and Trident assigned to the investors 'free of all encumbrances and third party interests', its right, title and interest in and to sums which were payable for the charter of the vessel.

Pan Ocean was notified of the assignment and made its third payment in advance to Creditcorp to cover the period 31 May to 15 June 1991. However, the Trident Beauty was off-hire during that period and was withdrawn. The charter came to an end. Pan Ocean sought to recover the hire instalment from Creditcorp on the ground of total failure of consideration and not from Trident, which was not considered worth suing.

Jonathan Hirst QC, and Tom Adam (Sinclair Roche Temperley) for Pan Ocean; Angus Glennie QC, and Karen Maxwell (Lawrence Graham) for Creditcorp.

LORD GOFF said that as between shipowner and charterer there was a contractual regime which legislated for the recovery of overpaid hire. Although the benefit of the contract debt between Pan Ocean and Trident had been assigned to Creditcorp, the burden of the contract remained on Trident. Trident remained contractually bound to repay to Pan Ocean any overpaid hire, notwithstanding that such hire had been paid not to Trident but to Creditcorp as assignee. There was nothing in the assignment which even contemplated, still less imposed, any additional obligation on Creditcorp to repay unearned hire.

LORD WOOLF said that under the time charter the right to receive the payment of hire instalment was separate and distinct from the right to receive credit for hire which had been paid but not earned and those rights would give rise to independent causes of action. It was one thing to require the other party to the contract to repay if he did not provide the consideration which, under the contract, he was under obligation to supply; it was another to make the assignee, who was never intended to be under any obligation to supply the consideration liable to make repayment. There was no justification for subjecting an assignee, because he had received a payment in advance, to an obligation to make a repayment because of the non-performance of an event for which he had no responsibility.

Pan Ocean was in exactly the same position as against Trident as it would have been if there had been no assignment to Creditcorp of the right to receive payment. The assignment occurred quite independently of Pan Ocean's contract with Trident. If Pan Ocean were entitled to recover from Creditcorp, the consequence would be that it would have two different parties instead of a single party from whom it could recover - against Trident under contract and against Creditcorp for money had and received.

Why should Pan Ocean have two alternative parties to whom to look for a repayment merely because Trident, as part of its own financial arrangements, had assigned its right to receive payment to a third party, Creditcorp?

LORD KEITH, LORD LOWRY and LORD SLYNN agreed.

Ying Hui Tan, Barrister