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Web Alert: What's the time bar for outstanding hire claims? Some guidance issued
News & Insights 18 April 2016
Hire, unlike freight, is not sacrosanct. In certain limited situations a charterer is entitled to make legitimate deductions from hire. For example, where they can bring themselves within the relevant off hire clause in the charterparty, or where the charterer has a claim for damages for which they are permitted to make a set-off against the hire otherwise due and payable
Hire, unlike freight, is not sacrosanct. In certain limited situations a charterer is entitled to make legitimate deductions from hire. For example, where they can bring themselves within the relevant off hire clause in the charterparty, or where the charterer has a claim for damages for which they are permitted to make a set-off against the hire otherwise due and payable.
As soon as the charterer has a right to make a deduction from hire, they can apply it to the next, forthcoming, hire payment so long as the charterer deducts a bona fide sum that has been assessed on a reasonable basis. See the club’s publication on legitimate deductions from hire.
Where the owner does not agree with the deduction, however, when will their responding claim for the return of the outstanding hire be time barred? This question was looked at recently in London Arbitration 10/16.
Here a dispute arose under a NYPE 1946 amended form time charter, which specified that hire had to be paid 15 days in advance of it falling due. The charter was subject to English law and London arbitration. The charterer paid hire until 7 January 2006 after which it withheld hire for various alleged off hire periods and multiple other claims which it claimed it was entitled to set-off from hire, including a claim for underperformance. Five more hire payments were missed before the ship was redelivered on 22 March 2006.
The owner commenced arbitration for the outstanding sums due on 21 March 2012 (i.e. only one day short of the six year anniversary as to the ship’s redelivery). The charterer, in reply, sought a declaration form the London Tribunal appointed that the claims were already time-barred. The charterer essentially argued that under the Limitation Act 1980 there was a breach of contract on each and every occasion when hire was not paid, with a separate cause of action arising (with time starting to count) each time, so that the claims for outstanding hire here were already time-barred by the time proceedings were commenced on 21 March 2012. The London Tribunal found in favour of the charterer on this preliminary issue.
In coming to their decision, the Tribunal rejected the owner’s principle arguments:
- First the owner alleged that the claim was for the final balance of hire, which was arrived at either on the date of redelivery, 22 March 2006, or just a few days later. Rejected: An owner cannot unilaterally extend his time for commencing proceedings by, in effect, saying that his claim is one for the balance due, based on the final hire statement, rather than for the hire itself. The true claim was one for hire, which fell due on the date it was originally due to be paid under the charterparty.
- Secondly, the owner argued that because the charterer withheld hire on the basis of off hire and the principle of equitable set-off, time did not start to run until the cross claims had been so determined. Rejected: The owner did not allege that the sums had been deducted other than in good faith, so had accepted that the charterer had a potential defence which would have to be determined at arbitration. However, this did not affect the commencement of time for limitation: the charterer could only make deductions from hire which had fallen due for payment and this is when the owner’s cause of action accrued for limitation purposes.
The award was subsequently appealed to the English High Court, who confirmed the above decision. Members should therefore always bear in mind that, in the absence of any express term in the charterparty, the time bar for unpaid hire will be six years from the date that the same hire originally fell due.
This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article.
Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.