We have seen a few occasions where charterers have upset owners by making unauthorised deductions from their invoices and claims. It is safe to say that under English law the charterers are not entitled to make any deductions from the freight earned under a voyage charter. This has long been a sacred principle confirmed by the courts. See, for example, the House of Lords decision in The Aries (Aries Tanker Corp v Total Transport [1977] 1 Lloyd's Rep 334) . Charterers may make deductions only if the charter party specifically says that they can. This was possible in The Olympic Brilliance [1981] 2 Lloyd's Rep 205.
The rules for time charters are different. The time charterer may be able to claim "equitable set-off" as a defence to a claim for hire charges under a t/c - The Nafri [1978] 2 Lloyd's Rep 132.
The legal position regarding deductions of counterclaims from owners’ demurrage can be more complicated. In general, the charterers cannot deduct their claims from the owner’s demurrage unless they are inextricably linked.
English law allows two types of set off (i.e. the deduction of one claim from another). "Equitable set-off" is permitted where one party's claim is so "inextricably linked" to the other party's claim that it would be inequitable to allow the first party to pursue his claim without taking account of the counterclaim. For example, an owner’s breach of the contract of carriage that resulted in contamination of the cargo could entitle the charterers to set off their claim for contamination against the owner’s claim for demurrage. "Legal set-off" is only permitted when there are agreed debts for fixed sums of money between two people / companies. The debts can be set-off against each other, and one debt can be used as a "defence" to a claim for payment of the other debt. This is so even if the debts arise in unrelated transactions.
Both legal and equitable set-offs can be excluded by including in trading contracts the stipulation that payment must be made without deduction or set-off.
Can charterers still rely on a half rate exception in the charter party if they send a vessel to a port where delays are caused by a pre-existing breakdown of plant or machinery of which they are aware? The answer appears to be that they can. This is not the same question that was covered by the Court of appeal in The "Alfrapearl" 2004 (see News Update No.26). The English law on the subject relates mainly to sending a vessel to a strike bound port. One of the leading cases is the Court of Appeal decision in Reardon Smith Line Ltd. v. Ministry of Agriculture [1959] 2 Lloyd's Rep 229. In this case, Donovan LJ said "...I do not think that the charterparty ought to be read as containing an implied term that some alternative port shall be named if unreasonable delay occurs at the first port nominated."
We recently encountered three disputes over early loading clauses and in each case the wording of the charter party clause was different. Nevertheless, one party in each dispute had cited the arbitration award in LMLN 27/04, (covered in our News Update No.27). However, there the wording of the clause was very specific: ".......the charterers shall have the benefit of such time saved which counts under the c/p terms when calculating laytime and/or demurrage at load port and/or subsequent ports of call, and/or waiting places en route between ports. Such benefit shall be from the time laytime commences until commencement of laydays."
The arbitrators were able to seize on the words "such time saved which counts under the c/p terms when calculating laytime and/or demurrage” to conclude that only time up to hoses disconnected at the load port could count as additional laytime for the charterers. The wording in many oil company charter parties is significantly different. For example, clause 7.3.1. of BPVOY4 does not mention time saved. It says “…time from commencement of loading to 0600 hours local time on the Commencement Date shall constitute additional laytime”. Our conclusion is that this clause entitles the charterers to additional laytime equivalent to the period from the commencement of loading to 06.00 on the first day of laydays, even if the vessel completes loading and sails before 06.00 on the first day of laydays.
It is common practice to specify in sales contracts that if there is no charter party demurrage rate (e.g. a time chartered vessel is used) that the applicable Worldscale demurrage rate for the size of vessel multiplied by the AFRA rate will be used. AFRA ( the average freight rate assessment) is published monthly for five different sizes of tankers by the London Tanker Brokers’ Panel and is available on a subscription basis (www.ltbp.com). Unfortunately, it is not uncommon for disputes to arise over which rate will apply. Should it be the rate published on the first day of the month in which the vessel loads or the next rate published after the bill of lading date? It is sensible to make clear which rate applies. Wording such as " the AFRA rate for the month of loading" should be avoided as being too ambiguous. Most industry clauses say that the previously published AFRA will apply, e.g. the AFRA published on 1 December applies to all December B/L's. Using the last published monthly AFRA rate ensures that at the time of the B/L the demurrage rate will already be established, even though it will not reflect the state of the tanker market at the B/L date quite as accurately as the next published AFRA.
The London Tanker Brokers’ Panel will not become involved in disputes over the application of their assessments. However, the rates they publish at the beginning of the month are quoted as the rates, for example, "applicable from 1 December 2005". The fact that they apply from the first day of the month supports the view that the rate should apply forwards to December cargoes, not backwards to November B/L's.