It will be of vital importance to the cash flow of the charterer to be able to deduct claims from the hire rather than to have to pay the hire in full and subsequently seek to recover its claims from the owner. The charterer must be careful not to make wrongful deductions as this would entitle the owner to withdraw the ship. The charterer can make deductions from the hire in two situations: where there is an express right to do so or where there is an equitable right of set off. If there is no such right, the charterer must pursue its claim against the owner and, if it is not paid, bring court or arbitration proceedings. This may take considerable time and meanwhile the charterer should seek security for its claim.
It is usual for the charterer to have an express right to deduct a number of different claims from the hire including advances for the ship’s disbursements made by the charterer on behalf of the owner, off hire periods (but not anticipated off hire periods), fuel used while the ship is off hire, the cost of diesel oil consumed for domestic consumption, speed and performance claims and the cost of bunkers on board on redelivery from the last hire payment.
If there is no express provision in the charterparty permitting the charterer to make a deduction from hire for a particular sum, English law recognises limited circumstances in which the time charterer is entitled to deduct from hire by way of equitable set off. This contrasts sharply with the position of the voyage charterer who has no such right to deduct from freight.
Where the owner of the ship is in breach of time charter and the effect of such breach is wrongly to deprive the charterer of the use of the ship or to prejudice the charterer in the use of it, the time charterer is entitled to deduct the claim for such breach from hire. Thus, the time charterer may deduct a claim for speed and performance from the hire, failure to load a full cargo in breach of charterer’s instructions, but not a cargo claim, or claim for misappropriation of the charterer’s bunkers, or fee incurred by the charterers because a delivery of bunkers was cancelled.
Whether the deduction is made pursuant to an express clause or by way of equitable set off it must be a reasonable assessment made in good faith. The amount does not have to be agreed by the owner.
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