Ship hire may be subject to deduction by a charterer for various reasons:
- The nonpayment of address commission and/or brokerage by the shipowner.
- Port disbursements. Time charterers may make advancements to the master of the ship for incidental expenses (e.g., cash for vessel’s master, chandlery bills, crew leaving or joining, etc.). Any expenses the time charterer and/or the port agent may incur are reimbursed by means of a routine deduction from hire. Most time charter parties such as ASBATIME (see clause 5) give a reward of 2.5 percent commission on any such advances.
- Domestic bunkers: Charterers can negotiate entitlement to an allowance for a vessel’s domestic fuel consumption for heating, lighting, cooking, etc.; this is usually deducted in the form of a lump sum payment from hire.
- Off hire. When the charterer is deprived of the efficient working of the vessel, he or she can deduct from hire. One example of this is when the charterer claims that the vessel has failed to perform in terms of speed and fuel consumption as provided for in the charter party. In a dispute over speed and consumption, the owner may claim that the weather was at fault, while the charterer will argue otherwise and demand financial compensation for the alleged poor performance. Reference will be made to log books and weather records to assess whether a vessel performed poorly or not and, if so, the financial extent of the poor performance.
Many charters contain express provisions that give the charterer the right to make deductions in specified circumstances. For example, the Shelltime 4, cl 9(ii) states: is made pursuant to a right expressly given under a term of the charter (e.g., the off-hire clause or a “disbursements” clause). Of course, any deduction made by the charterer will not necessarily go unchallenged by the shipowner. Equitable set-off entitles charterers to make deduction for claims relating to loss of time. The deduction may be permitted even though the amount to be deducted has not been agreed with the owners or through an independent arbitrator. Also in The Nanfri (1978), Lord Denning M. R. stated: If the charterer quantifies his loss by a reasonable assessment made in good faith, and deducts the sum quantified, then he is not in default. The shipowner cannot withdraw his vessel on account of nonpayment of hire nor hold him guilty at that point of any breach of contract. When the shipowner is guilty of a breach of contract which deprives the time charterer of part of the consideration for which the hire has been paid in advance, the charterer can deduct an equivalent amount out of the hire falling due for the next month. For the right to accrue the shipowner should have wrongly deprived the charterer of the use of the vessel and not for other breaches or default of the shipowner. Deprivation of the use of the ship may be effected through a breach of the speed warranty that leads to under-performance (The Chrysovalandou Dyo, 1981). Even where the entire ship has not been withdrawn from charterers’ service, rights of set-off may still arise if the charterers’ use has nevertheless been prejudiced. Equitable set-off cannot be applied in cases of cargo damage claims, as stated in the case of The Nanfri (1978). “Payment of hire shall be made .. .less … (ii) any amounts disbursed on Owners’ behalf, any advances and commission thereon, and charges which are for Owners’ account pursuant to any provision hereof.”
If the shipowner wrongly, in a breach of contract, deprives the charterer of the use of the ship for a time, the charterer may, by equitable set-off, deduct from the next payment of hire a sum equivalent to the time lost. The sum deducted must, however, be a “…reasonable assessment made in good faith,” according to Lord Denning M.R. in the case of The Nanfri, 1978. Charterers must ensure that any deduction