Voyage Charters. Deduction from Freight. Right to to set off is not available against a claim for freight

… if either of the parties broke his covenant, the other might bring his action for it: but the [owner]’s right to freight was not to depend upon that.
Davidson v Gwynne (1810) 12 East 381 per Grose J. at p.390

English law generally recognises the right of the injured party to set off the damages against agreed sums to be paid. Application of this general rule is not available against a claim for freight. This exception has a long standing history, which is considered to begin from decision in Sheels v Davies [1814] EngR 159; (1814-1816) 4 Camp 119, where Gibbs C.J. briefly held that the bad stowage of the goods was the subject of a cross-action, and did not affect the right to the freight. This very short report with all judgment contained in one single sentence, has a reference in footnote to the case of Bornmann v Tooke [1811] Camp 376, where ship chartered for voyage from Riga to Portsmouth with the cargo of timber, had made a stop in Copenhagen where she was detained. As a result of such deviation the charterer was put to considerable expense in having fresh insurances done upon her cargo. On delivery of timber to Portsmouth and its acceptance by the merchant, the latter contended that in evidence of his damages resulted from imperfect execution of the contract the owner’s demand for freight must be reduced. Lord Ellenborough said at p.378:

If the plaintiff had proceeded merely on a quantum meruit for an indefinite sum, you might have reduced the damages by shewing a deficient performance of the contract. But here there is a specific agreement for specific freight Therefore the defendant must bring his cross-action for any loss he may have suffered from the default of the plaintiff.

Decision was evidently based on the rule that mutual promises must stand unless condition precedent was broken , and if either of the parties broke his promise, the other might bring his action for it. Short stoppage in Copenhagen was held not to be a condition precedent to payment of freight and having accepted the cargo the charterer must pay the stipulated freight.

Same principle one can find in Lord Tenderden’s Treatise of the Law Relative to Merchant Ships and Seamen, 10th edt.,1856, that once right and true delivery of goods takes place, which means delivery of the entire quantity of chests or bales, freight is to be paid in full. If goods have been damaged by the fault of the master or crew, the remedy of the merchant, who has received them, is in action for such negligence or damage.

The rule is considered to be established in famous nineteenth century case of Dakin v Oxley (1864) 15 C.B. (N.S.) 646 to the effect that English law precludes any deduction from the freight and affords the injured party a remedy by cross-action only:

It would be unjust, and almost absurd that, without regard to the comparative value of the freight and cargo when uninjured, the risk of a mercantile adventure should be thrown upon the ship-owner by the accident of the value of the cargo being a little more than the freight; so that a trifling damage, much less than the freight, would reduce the value to less than the freight; whilst, if the cargo had been much more valuable and the damage greater, or the cargo worth a little less than the freight and the damage the same, so as to bear a greater proportion to the whole value, the freight would have been payable, and the merchant have been put to his cross-action.

The authors of 3rd edition of Voyage Charters, conclude that although "criticised as illogical and unnecessary … the rule is now more firmly established than ever" and reflect two important practical consequences which flow from above special treatment of freight:

i) when the only question is whether the charterer has valid claim for damages the owners is entitled to take legal proceedings for summary judgment, if freight become due and payable;

ii) if time-bar for charterer’s counter-claim is shorter than that which applies to claim for freight, his position is more vulnerable and time sensitive , while owner’s claim for freight is not affected and not extinguished by charterer’s counter-claim.

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