Deductions from Freight

Any deductions from freight should be made only if there is express agreement in the charterparty, for example, Address Commission or Brokerage Commission, Cash to Master etc. Under English law there is a rule known as equitable set-off where claims may be deducted from monies being under a contract, this rule does not apply to freight and was firmly established in The Aries [1977]. This case covered a cargo of oil, where freight was payable on the intaken quantity on delivery of the cargo. The charterer deducted $30,000 from freight, without owners consent, in respect of a claim for damages for short delivery. The charterers, presumably feeling that their loss had been recovered, did not actually lodge a claim for the short delivery, which would have in some measure justified the deduction. Two years after delivery the owners started proceedings to claim the balance of freight. The charterers argued that the ordinary rules of set-off should apply and that freight should not be treated as a special case. The case reached the House of Lords who found in favour of owners. Briefly the judgment stated: ‘that the rule with regard to freight was so firmly established, it would be wrong to depart from it. In addition, since the 12 month time limit in the Hague Rules did not merely bar the remedy, but extinguished the claim, there was no claim the charterers could set-off, even where there were a set-off permissible. The deduction made by the charterer, to which the owners had not agreed, had no legal significance and did not relieve the charterer of the need to commence suit within 12 months, if he wished owner’s liability for the cargo damage to remain in existence.’ The simple rule for the charterer then is to pay the freight as agreed and commence proceedings against the owner to recover losses.