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Anti-deductions
clauses – a gift or a
curse?
Analysing the High Court decision in Fastfreight Pte
Ltd -v- Bulk Trident Shipping Ltd [2023] EWHC 105

Home Insights
Anti-deductions clauses – a gift or a curse?

24 February 2023

Facts

Under a trip time charter incorporating amended NYPE 1993

form wording (‘the Charterparty’), Charterers hired the
vessel for the carriage of bulk cargo from India to China.

Charterers agreed to pay hire of US $20,000 per day, which

was payable every five days in advance.

The Charterparty provided that no deductions (including for

off-hire or alleged off-hire) were permissible without the
‘express written agreement of Owners at Owners’ discretion’
(Line 146). The key Charterparty provisions in this dispute
were Clause 17, the off-hire clause, and Clause 67 (BIMCO
terms), which provided that if a crew member is found to be
infected with a highly contagious disease, the ‘vessel shall
be off-hire’.

On 1 May 2021, three crew members tested positive for

Covid-19, so when the vessel arrived at the discharge port on
4 May 2021, she was unable to berth, and the cargo was not
discharged. Charterers did not pay hire from 4 May 2021
thereafter and the vessel was eventually redelivered to
Owners on 28 August 2021.

Issue

Where a charterparty clause provides that no deductions

from hire may be made without Owners’ consent, can
Charterers withhold payment of hire if the Vessel may be off-
hire at the instalment date?

Findings

The inclusion of the anti-deductions clause in the

Charterparty meant that Charterers were required to pay
hire in full even if such obligation had ceased at the relevant
instalment date.

Analysis

Relying on Clause 67 of the Charterparty, Charterers ceased

paying hire alleging that the Vessel was off-hire from 4 May
on the basis that crew members were testing positive for
Covid-19 from 1 May 2021. Owners argued that Charterers
were not entitled to withhold payment where there was a
dispute as to whether the Vessel was off-hire. Charterers
contested that by saying that this would have the effect of
them paying hire as a means of security for a period where
no hire might eventually be due.

The arbitrators found that the language used in Line 146

evidenced the clear intention that Charterers could not
withhold payment of hire without Owners’ agreement. They
also noted that, in any case, the crew would have recovered
by 13 May and on Charterer’s case (following the decision in
The C Challenger [2020] EWHC 3448 where a similar anti-
deductions clause meant that Owners had to exercise their
discretion for a contractually appropriate purpose and
rationally) there was a genuine dispute as to whether the
vessel was off-hire. Therefore, Charterers could only withhold
payment if:

1 The Vessel was actually off-hire as of the date when the

relevant instalment was due, and
2 The Owners agreed in writing that the Vessel was off-
hire.

Charterers launched a section 69 appeal (Arbitration Act

199) against a partial final award (‘the Award’) under which a
Tribunal awarded Owners US $2.1 million in respect of unpaid
hire under the time charter.

In dismissing Charterers’ appeal, the court found that:

1 Line 146 applied to any exercise of rights otherwise

arising under the off-hire clause (Clause 17) to refuse to
make a hire payment.
2 The word “alleged” in Line 146 meant that, in case of an
off-hire dispute, Charterers were required to pay hire
and argue later.
3 Clause 17 mainly addressed whether hire had accrued,
and it gave Charterers the right to have any overpaid
hire returned at once, secured by a lien on the vessel.
4 Charterers retained the benefit of Clause 23 whereby
they could bring a cross-claim in debt, which is secured
by a lien on the vessel, for any overpaid hire.

As such, hire remained payable even if it might later be

determined or agreed that the Vessel was indeed off-hire.

Comments

The charterer has an absolute obligation to pay hire under a

time charterparty. The purpose of the off-hire clause is to
suspend the running of hire in circumstances where a delay
is caused in the operation of the vessel. As such, the burden
of proof will be on the charterer when seeking suspension
of hire.

To place the vessel off-hire, the charterer must show:

 1 That the vessel cannot perform the services required by
the charterer under the time charter.
2 That the delay was caused by an event listed in the off-
hire clause. Such event must be fortuitous and not
merely a consequence of the charterer’s use of the
vessel (The Rijn, [1981] 2 Lloyd’s Rep, 267).
3 The amount of time lost due to the off-hire event.

The construction of the relevant off-hire clause is key in

determining what deductions, if any, a charterer can make
from hire, and when an owner can request hire payment. A
charterer who gets these wrong exposes himself to the risk
of withdrawal of the vessel.

In this case, the wording in Line 146 had the effect of

safeguarding Owners’ revenue during the time charter. It
essentially required charterers to pay hire and dispute the
off-hire status of the vessel later. However, the court did
point out that Owners do not have ‘unfettered discretion’
when it comes to deciding whether to agree to an alleged
off-hire, but have to exercise their discretion rationally.

Conclusion

This decision will be welcomed by owners as it shows how

the inclusion of clear wording (e.g., Line 146) can protect
their income stream against artificial deductions from hire. It
favours the ‘pay now, argue later’ approach, which saves
owners, who have been deprived of hire payments, from
having to finance the vessel while waiting for an arbitral
award.

The case also serves as a useful reminder that before

asserting a right to make deductions from hire, Charterers
should carefully consider the terms of their charterparty and,
if necessary, seek legal advice.

Authors
 Dimitra Damaskopoulou
Senior Associate
London (City)

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