Voyage Charters. Deduction from Freight.

… it difficult, however, to see how, when a charter-party expressly provides, in effect, that the legal title to advance freight is to be deemed to be complete on the signing of bills of lading, a subsequent breach of the charter-party, even one of a repudiatory character, can properly be regarded as impeaching that title.
Colonial Bank (Now Bank of Boston Connecticut) v European Grain & Shipping Ltd. (The Dominique) [1989] 1 Lloyd’s Rep 431 by Lord Brandon at p.440.

The Dominique

Authorities discussed on Deduction from freight. General Principles and Deduction from freight. Set off pages, all dealt with non-repudiatory breaches and the rule stated in The Aries restricting equitable intervention was formulated by Lord Simon of Glaisdale in the following words:

the equity of the bill had to impeach the title to the legal demand: per Lord Cottenham LC in Rawson v Samuel (1841) Cr & Ph 161 at 178, 179. The title to a claim for freight is not impeached by short delivery of cargo - unless, of course, the latter amounts to repudiation of the contract of carriage.

The question whether claim in respect of a repudiation of contract of carriage is capable of impeaching the title was brought up before the House of Lords in Colonial Bank (Now Bank of Boston Connecticut) v European Grain & Shipping Ltd. (The Dominique) [1989] 1 Lloyd’s Rep 431. This case evolved repudiatory breach of charterparty by the owners who were either unwilling or unable to continue laden voyage after their vessel was arrested by creditor. Charterers incurred considerable expenses arranging discharging of their goods and transportation them by another vessel. Charterparty freight was never paid by the charterers and it was claimed by the owners.

In the House of Lords the charterers accepted that an ordinary cross-claim in respect of loss of or damage to cargo amounting to no more than a breach of warranty, could not give rise to a defence by way of equitable set-off; but they contended that, where there was a repudiation of the charter-party by the owners, accepted by them, a defence by way of equitable set-off became available to them.

Lord Brandon giving the only reasoned judgment in the House of Lords stated three reasons for holding that "the rule against deduction" is equally applicable to both non-repudiatory and repudiatory breaches at pp.441-442:

The first reason is that a repudiatory breach of a charter-party by an owner does not necessarily cause more damage to a charterer than a non-repudiatory breach; it may cause less. There is, therefore, no justification based on quantum of damage for applying the rule against deduction to the latter breach but not to the former. The second reason is that the application of the rule against deduction only works to the ultimate disadvantage of a charterer when the owner’s financial situation makes it impossible for a counterclaim to be enforced against him. That risk, however, exists whether the breach is repudiatory or non-repudiatory. The third reason lies in the manner in which the legislation [Law Reform (Frustrated Contracts) Act, 1943] has treated the premature termination of a voyage charter-party by frustration…

…The legislature must have had a reason for this exclusion [voyage charterparties from application of Law Reform (Frustrated Contracts) Act, 1943] and the only reason which it seems to me that it could have had is an unwillingness to create a situation in which, following the frustration of contracts of this kind, advance freight already due could, if paid, be recovered back in whole or in part, or, if not paid, cease to be payable in whole or in part. In other words the legislature was preserving, in the context of the premature termination of such contracts by frustration, the indefeasibility of an accrued right to advance freight.

EMV2000, EMV2005, BPVOY4 and Shellvoy5 forms of charterparties have incorporated clauses which expressly provide for the Charterers’ right to deduct from freight an amount equal to FOB loading port value of non-delivered cargo.

BPVOY4

33.CARGO RETENTION
33-1 If any quantity of cargo   remaining   on   board   the   Vessel ("ROB") upon completion of discharge is judged by an independent surveyor appointed by Charterers to be liquid, or if Charterers can show that the ROB would have been liquid if Owners and/or the Master, officers and crew had followed Charterers’ instructions for the management of the cargo, then Charterers shall be entitled to deduct from freight the value of such quantity of cargo calculated on the basis of the free on board ("FOB") value at the loading port plus freight thereon calculated in accordance with Clause 31 hereof
33-2 For the purpose of this Clause 33, any quantity of ROB shall be regarded as liquid if sampling and testing, which testing shall be performed as soon as practicable after sampling, shows the ROB to have had a dynamic viscosity of less than 600 centistokes at its temperature when sampled from the Vessel’s tank or, if Charterers’ heating instructions have not been complied with, at the temperature that would have been applicable in the Vessel’s tank if such instructions had been complied with,

Any quantity of ROB which is of insufficient depth to be sampled shall also be regarded as liquid if the independent surveyor judges it to be liquid after using other means of testing including, without limitation, a representative number of dips across each tank
33-3 The independent surveyor’s findings shall be final and binding upon Owners and Charterers save for instances of arithmetical error in calculation
33-4 Charterers hereby agree to indemnify Owners against any liability to a Bill or Lading holder resulting from non-delivery of any such cargo in respect of which a deduction from freight is made under this Clause 33 provided always that Charterers shall under no circumstances be liable to indemnify Owners in an amount greater than the amount of freight so deducted
33-5 For the purpose of this Clause 33, slops shall not be included in the measured and reported liquid volume of oil on board the Vessel prior to loading
33-6 For the avoidance of doubt this Clause 33 refers solely to liquid cargo ROB from the cargo loaded hereunder and any measured volume of liquid oil on board the Vessel prior to loading shall be deducted from any calculation made under this Clause 33.

SHELLVOY5 SHELL ADDITIONAL CLAUSES - February 1999


14. Cargo Retention Clause
If on completion of discharge any liquid cargo of a pumpable nature remains on board (the presence and quantity of such cargo having been established, by application of the wedge formula in respect of any tank the contents of which do not reach the forward bulkhead, by an independent surveyor, appointed by Charterers and paid jointly by Owners and Charterers), Charterers shall have the right to deduct from freight an amount equal to the FOB loading port value of such cargo, cargo insurance plus freight thereon, provided, however, that any action or lack of action hereunder shall be without prejudice to any other rights or obligations of Charterers, under this Charter or otherwise, and provided further that if Owners are liable to any third party in respect of failure to discharge such pumpable cargo, or any part thereof, Charterers shall indemnify Owners against such liability up to the total amount deducted under this clause.

TANKERVOY 87


Freight Payment
(a)Subject to Clauses 4 and 35 freight shall be paid at the rate(s) specified in part I (J), and calculated on the Cargo Outturn intaken quantity of cargo and on Collected Washings Payment of freight as specified in Part I (K) shall be made by Charterers in cash without deductions unless otherwise stated, this Charter is for a full and complete cargo having regard to the permissible freeboard for the voyage in accordance with the International Load Line Convention from time to time in force and the limitations provided in Part I (A) No freight shall be payable on any quantity of cargo in excess of the maximum consistent with such permissible freeboard
(b)If the vessel is ordered to proceed on a voyage for which a fixed differential is provided in Worldscale, such fixed differential shall be payable without applying the percentage referred to in Part I (J)
(c)If cargo is carried between places and/or by a route for which no rate is expressed in Worldscale, then in the absence of agreement as to the freight rate, the parties shall apply to either of the publishers of Worldscale referred to in Part I (H) for the determination of an appropriate Worldscale rate
(d)If on completion of discharge any cargo pumpable by the vessel’s own pumps remains on board the vessel (the presence and quantity, obtained by application of the Wedge Formula in respect of any tank whose contents do not reach the forward bulkhead, of cargo so pumpable having been established by a jointly appointed independent surveyor or if no agreement can be reached on such a surveyor, by two independent surveyors, one to be appointed by Owners and one by Charterers), and Charterers thereby suffer a loss, Charterers shall have the right to deduct from freight an amount corresponding to such loss up to a maximum amount equal to the FOB loading port cost of such cargo plus freight thereon, provided, however, that any action or lack of action hereunder shall be without prejudice to any other rights or obligations of the parties under this Charter or otherwise.

EMV2005


18. PUMPING IN AND OUT.
(h) In the event that any liquid cargo remains on board at completion of discharge for the final voyage under this Charter then Charterer shall have the right to deduct from freight an amount equal to the Free On Board (FOB) port of loading value of such cargo plus freight due with respect thereto The quantity and quality of such liquid hydrocarbon material shall be determined by a mutually agreeable independent cargo inspector The quantity of Remaining On Board (ROB) material shall be measured using the Vessel’s wedge tables if available or otherwise by wedge formula.

SHELLVOY 6


Cargo retention 48.
If on completion of discharge any liquid cargo of a pumpable nature remains on board (the presence and quantity of such cargo having been established, by application of the wedge formula in respect of any tank the contents of which do not reach the forward bulkhead, by an independent surveyor, appointed by Charterers and paid jointly by Owners and Charterers), Charterers shall have the right to deduct from freight an amount equal to the FOB loading port value of such cargo, cargo insurance plus freight thereon; provided, however, that any action or lack of action hereunder shall be without prejudice to any other rights or obligations of Charterers, under this Charter or otherwise, and provided further that if Owners are liable to any third party in respect of failure to discharge such pumpable cargo, or any part thereof, Charterers shall indemnify Owners against such liability up to the total amount deducted under this clause.

But unlike the inexplicable shortage of the cargo in The Olympic Brilliance, the right to deduct vested by these charter forms concerns only that non-delivered cargo which remains on board upon completion of discharge operation and only if its volume can be properly ascertained. Such clauses usually called ROB (Retaining On Board) Clause.

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