The clause means that the shipper, who obtained the original bill of lading, simply undertakes to pay the freight. Ships v. Les Industries Lyon, and does not mean that the freight has actually been paid in advance. The words are traditional and do not indicate that the freight has actually been paid. The shipper is still responsible for payment of the freight. However, if the shipper has paid the freight to the freight forwarder who has not paid it to the carrier, the shipper may not be required to pay the freight again to the carrier.
Such a requirement may be met in a contract of carriage and is very common in liner services. Problems for shipowners can arise where the vessel is under a time charter, the charterer obtains freight in advance and then refuses to continue to pay the hire and the owner is left without a remedy.
The owners did so. The charterers then became bankrupt and could not pay the hire. The owners had no choice but to continue the voyage under the contract of carriage contained in the bills of lading and deliver the cargo, despite not being paid their hire.
The owners attempted to obtain a contribution from the cargo receivers. The latter refused because they had already paid the freight to the charterers. The owners finally threatened to discharge the cargo before the discharging port and possibly sell it unless the receivers agreed to pay the port and discharging costs. The receivers agreed, being left with no other choice.
The vessel arrived at the discharging port and commenced discharge. The receivers then had the vessel arrested, claiming that their agreement had been obtained under duress. The local court decided in favour of the receivers.
The shipowners paid the damages and obtained the release of their vessel. Because the agreement between the receivers and the owners was subject to English law the owners brought an action against the receivers in an English court.
The judge in the English court also found against the shipowners because the agreement was obtained under duress. This may 34 operate to fix freight on the basis of the quantity or weight so stated. Bills of lading or charterparties may provide for freight to be earned 36 at a different stage, such as on shipment. The significance of this is that once the relevant event has occurred that earns the shipowner his freight, he has an indefeasible right to such freight that is unaffected by subsequent events, including loss of the vessel or cargo 37 or repudiatory breach of the contract of carriage by the carrier.
The Court of Appeal differed from the arbitrators and the judge at first instance in their construction of this clause. The court held that the opening words gave the shipowners an accrued right to per cent of the freight on completion of loading and this right was unaffected by the subsequent loss of the vessel and cargo, with the consequence that discharge never took place. This principle is illustrated by SS Oriental v Tylor , 41 where one-third of freight was payable on signing the bill of lading, based on the bill of lading weight and the master was to sign bills within 24 hours of completion of loading.
After completion of loading the vessel sailed and very shortly thereafter sank. The shippers refused to present bills for signature by the master. The vessel loaded and the 95 per cent freight was paid but she sank on the voyage. The question was whether, on these facts, the owners could claim the balance of 5 per cent of freight.
The court was faced with the difficulty that the event under the contract that was to be the trigger for payment of the balance of 5 per cent never occurred. The court concluded that the remaining 5 per cent of freight had been earned on shipment and that, in the circumstances, payment of this balance had to be made within a reasonable time.
This phrase on its own connotes delivery at the place specified, or at least a place where delivery is accepted pursuant to the contract of carriage. However, delivery at a different place will not defeat an accrued right to freight arising from a provision that the freight is earned at an earlier stage. The right to freight still accrues at the time of delivery, subject to contractual provision to the contrary, and will also be payable even if no cargo is shipped as a result of a default by the shipper.
It is simply an obligation to make a payment on account of freight at a time when it has not yet been earned. However that obligation is subject to a customary incident, capable of being varied or confirmed by express stipulation, that advance freight paid pursuant to the contract is not returnable or recoverable should the contract be frustrated before the freight can be earned see Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour 73 Ll.
The vessel was lost before five days after signing bills of lading. It was held that no freight was payable, because the time for payment at the latest was five days after signing the bills of lading. That will depend on the bill of lading wording.
In Allison v Bristol Marine , 55 freight was payable at 42s. After signing the bills and before delivery of the cargo in Bombay, half of the cargo was lost when the vessel foundered on a reef outside Bombay. The master did not claim the balance of freight from the charterers at Bombay, thinking that the prepayment had satisfied the total freight for the cargo that was delivered. Subsequently, the shipowner sued the defendants, who were underwriters of policies on the 50 per cent of the freight that was to be paid on the total cargo that was due to be delivered at Bombay.
By the late s, a number of cases had come before the courts in which this issue had arisen. For example, in. Two years later, however, in. J, disagreed, holding that a right of set-off could in principle exist. The case in fact went to the House of Lords but, as will be seen, it was decided there on other grounds. The owners had let three ships to the charterers for periods of 6 years to carry grain from the Great Lakes to Europe, with steel cargoes being carried on the return voyages.
The cargoes were generally sold on CIF terms under which the shippers paid the freight in advance and required freight prepaid bills. There were the usual provisions relating to the payment of hire in advance. The owners were given a contractual right of withdrawal for non-payment of hire, and a lien in respect of sums due.
There were also two specific clauses under which off-hire claims and sub-performance claims could be deducted from hire.
However, while the charters remained in existence, it was also provided that the master was to be under the orders of the charterers as regards employment, agency and other arrangements.
It was the charterers' practice to sign bills as the master's agent, rather than presenting them to him for signature. Disputes arose as to the owners' performance of the charter, and charterers made a number of deductions from hire as a result. Many of these deductions fell within the specific "deduction" clauses referred to above. However, after a period of time, the owners sought to challenge the deductions, and asserted that. Owners therefore informed the charterers, firstly that the masters of all three ships were being instructed "to withdraw all direct or implied authority to charterers or their agents to sign bills of lading", and secondly that the masters themselves would not sign bills of lading which were endorsed "freight prepaid" and which did not bear an endorsement incorporating the charterparty lien clause.
Instructions to that effect were indeed given to the masters. The effect of such instructions on the charterers' business was potentially disastrous, since they had to be able to procure the issue of clean freight prepaid bills. Despite this, the owners persisted in their position and the charterers accepted their conduct as a repudiation of the charters, thereby bringing them to an end. The case involved a number of issues which are not directly relevant here.
Indeed, in both the Court of Appeal and the House of Lords, the charterers ultimately succeeded on the basis that, while the charters continued in existence, the owners were not entitled to instruct their master not to comply with the charterers' orders, so that their instructions amounted to a repudiatory breach.
For this reason, the House of Lords expressly declined to consider the set-off point. In the Court of Appeal, however, the issue of equitable set-off was considered in depth. After reviewing the previous case law, and the history of the voyage charter deduction rule, the Court decided, by a majority of two to one, that time charters should be aligned with the doctrine of equitable set-off, and not with the rule against deductions. The right of equitable set-off did therefore apply, in principle, to time charters.
In view of the passage of Lord Denning quoted above, however, not every damages claim by the charterer would give rise to a right of deduction. The right would only exist where This would generally only be the case where the owner's conduct had wrongfully.
Although the Court of Appeal decision was only by a majority Cumming Bruce LJ considered that there should be no distinction drawn between time and voyage charters , and the House of Lords expressly declined to adjudicate upon the point, the reasoning of the majority has been followed time and time again in subsequent decisions, and it now appears to be well established that, where the requisite criteria are met, a time charterer may in principle make deductions from hire by way of equitable set-off.
Further, the rule has been applied both to ordinary time charters and trip time charters see e. Again, in the words of Lord Denning:. I would as at present advised limit the right to deduct to cases when the shipowner has wrongly deprived the charterer of the use of the vessel or has prejudiced him in the use of it.
I would not extend it to other breaches or default of the shipowner This can be a difficult test to apply, and the best way of illustrating it is by way of case examples. Some of the cases considered below were decided prior to. Cases involving loss of time as a result of total deprivation of the use of the ship are usually straightforward. Thus, in. Mocatta J. It is submitted that, on the basis of. 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.
Thus, a claim in respect of under performance will probably give rise to a right of set-off, see. Further, failure to make the whole cargo space of the ship available to the time charterer may equally be within the set-off principle. Unfortunately, the vessel's ballast pipeline system broke down, with the result that deballasting could not continue and the vessel reached her maximum draft when she was still m. The master refused to delay at the port in order to repair the ballast pipe unless charterers accepted responsibility for the time lost as a result, which they refused to do.
In the event, he insisted on sailing from the load port without the balance of cargo on board. J, held that the charterers were entitled to make a deduction from hire in respect of their claim, to reflect their loss of use of the vessel. This was identified by both Lord Denning M. R and Goff L. Contamination of cargo may well be a wrong in respect of which the charterer is entitled to recover damages, but it does not go directly to his use of the vessel.
This view has been affirmed repeatedly in subsequent cases. It was said that:. They do not relate to the use of the vessel. There is no suggestion that in the present case the charterers ever directly or indirectly lost even a minute of the ship's time as a result of any of these breaches nor is there any suggestion that at any time by reason of any of the breaches the whole reach of the vessel's holds, etc, were not at charterers' disposal or that the master did not prosecute the voyages with despatch or comply with the orders of the charterers as regards the vessel's employment None of the three alleged breaches is capable in law of justifying a conclusion that they prejudiced the charterers or their use of the vessel".
Perhaps the decision which is nearest to the dividing line between claims which can be set-off and those which cannot is. The vessel, while approaching her berth, struck the quayside and was damaged. Delay was thereby incurred while she was repaired. During this period, she went off-hire. However, as a result, the charterers lost their anticipated cargo and had to wait for a new one. Further delay was therefore incurred, even after she had come back on hire.
Charterers contended that they were entitled to set-off their claim for time lost waiting for the new cargo, on the basis that the delay had been caused by the casualty. In the event, the Court concluded that the owners were not liable for the casualty at all, so that no cross-claim arose.
If that had not been the case, however, the Court of Appeal considered that the claim would not have given rise to a right of set-off anyway. A set-off would only have been available if the charterers had been deprived of the use of the ship. In the present case, they had had the full use of her throughout the period in question.
Their difficulty was that they could not make good use of that period, because no cargo was available. Further, their claim for loss of profits arising from lost business was also considered to be "clearly outside any equitable set-off". The charterers' alleged that owners had failed to clean the holds properly as a result of which time was lost.
They deducted from hire not only in respect of the time lost but also for an extra period sufficient to compensate for their additional losses. It was not seriously disputed that the first category of deduction was justified. Saville J held, however, that the second was not. The vessel was fully at the service of the charterers at the time in respect of which the deduction had been made.
The act of set-off itself is, of course, straightforward, since it merely involves making a payment which is for less than that which would otherwise be due. However, although the cases do not address the problem in detail, it is plainly both good legal and commercial sense for the charterer also to give clear notice to the owners as to what he is doing and why, and how the amount of the deduction is calculated.
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