Deductions from Ship Hire

At the end of a charter party calculations of performance have been carried out and the result is that whilst the ship has not been capable of reaching her warranted speed ship has also under-consumed bunkers. The charterers therefore have a claim for overpaid hire whilst the owners are entitled to a bonus for bunker saving. How will these be recovered? If the calculations are made and agreed before redelivery of the vessel agreement may be reached on a reduction of hire for the charterers to compensate for the speed claim and a deduction from the bunker values to compensate owners. But what if agreement cannot be reached? One of the simplest ways for charterers to obtain recovery would be to set off their claim against hire due to the owners – but are they entitled to do this? The present position is far from clear. In a line of cases leading up to ‘The Nanfri’ [1978] various judges had indicated that it might be permissible for deductions to be made from hire if the charterers had effectively been deprived of their use of the vessel. In that case the Court of Appeal confirmed that this was correct and that ship owners were not entitled to withdraw the vessel for failure to pay hire in those circumstances. The difficulty that has arisen since in the context of performance claims is whether they are of a nature that they can be classified as ‘depriving charterers of the use of the vessel’. In ‘The Chrysovalandou Oyo’ [1981]  a judgment was given which did allow a deduction from hire for a claim that there had been a breach of the speed warranty. The reasoning is that if the vessel performed at the warranted speed the charterers would have additional time at their disposal, but that this time was lost. This has been followed in subsequent cases but the position still awaits clarification by the Court of Appeal or House of Lords. The charterers might therefore open themselves up to a slight risk of being accused of wrongfully deducting hire but this is unlikely, particularly if the counter-claim for the hire was secured. Deducting for over-consumption is more risky as this is not a claim for loss of use of the vessel but damages for uncontractual deprivation. The best advice that might be given to charterers is to await the final installment of hire before making any deduction. It is also important to note that any claim must be made in good faith and on the basis of a reasonable assessment. An arbitrary deduction without good evidence might well be considered wrongful and allow the owners to withdraw the ship under the charter. But what if the lack of performance is having a real and adverse effect on the charterers’ business? Are they entitled to withdraw from the charter? This is obviously the most drastic self-help remedy and must be an action of last resort. As set out at the beginning of this section, performance obligations have been classified as intermediate terms giving rise to the right to terminate where the breach goes to the very substance of the agreement. The circumstances where damages alone will not be sufficient to compensate the charterers will be very rare but they do exist; the best example was in ‘The Aegean Dolphin’ [1992] In this case the charterers were running a cruise-ship service but on a relatively tight schedule between a number of ports. This was known to the owners when they entered the charter and they warranted that the vessel was capable ‘of
18 knots in good weather conditions’. In fact, the vessel could not perform at this speed which meant that she would fall behind the agreed schedules with devastating consequences to the charterers’ business. The court found that, in these circumstances, the charterers were entitled to reject the vessel. Unfortunately for the charterers they had signed a document saying that the vessel was satisfactory as a result of which they were found to have waived their right to cancel.