What is the Timebar for Outstanding Ship Hire Claims?

What is the Timebar for Outstanding Ship Hire Claims?

When can a shipowner’s claim for unpaid hire become barred by time?

Unlike freight, hire is not untouchable. In some specific scenarios, a charterer may lawfully reduce hire payments, such as when they fall under an applicable off-hire clause in the charterparty, or if they have a valid claim for damages allowing them to offset against the hire due. Once a charterer is justified in making a deduction from the hire, they can apply this to the next due payment, as long as the deducted amount is in good faith and reasonably calculated. However, if the shipowner disputes this deduction, the question arises: when does the shipowner’s claim for the unpaid hire become barred by time? This issue was examined in London Arbitration 10/161.

Case Background

The disagreement occurred under a NYPE 1946 modified time charter, governed by English law and subject to London arbitration. Hire was to be paid 15 days before due. The charterer ceased paying hire from 7 January 2006, citing off-hire periods and other claims like underperformance. Five subsequent hire payments were missed until the ship’s redelivery on 22 March 2006. The shipowner initiated arbitration for these dues on 21 March 2012, just before the six-year redelivery anniversary. The charterer contended that the claims were already time-barred under the Limitation Act 1980, arguing that a separate cause of action arose with each missed hire payment, starting the limitation period then. The London tribunal agreed with the charterer.

The Decision The tribunal dismissed the Shipowner’s main arguments:

  1. The shipowner claimed the dispute was over the final balance of hire due either on or shortly after the redelivery date, 22 March 2006. The tribunal refuted this, clarifying that the claim was for hire due on the original payment dates as per the charterparty.
  2. The shipowner suggested that since the charterer lawfully withheld hire based on off-hire provisions and equitable set-off, the limitation period should start only after these claims were resolved. The tribunal disagreed, stating that legitimate deductions made in good faith don’t delay the start of the limitation period.

The tribunal’s decision was later upheld by the English High Court. The court clarified that a subsequent tribunal’s decision on the legitimacy of off-hire or set-off periods doesn’t pause the accrual of the cause of action.

Shipowners should remember that, unless the charterparty explicitly states otherwise, under English law, the limitation period for unpaid hire starts six years from the date it was originally due.