TRANSATLANTIC SCHIFFAHRTSKONTOR GMBH v. VINCOR SHIPPING CO. LTD.

1985, No. CL-103

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Head-note

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Commercial law - Shipping - Voyage charterparty on GENCON form - Owner's claim for undisputed balance of freight - Whether charterer entitled to set off disputed despatch against freight - Owner's application for Summary Judgment - Arbitration clause - Charterer's Cross-summons for stay under S6A of the Arbitration Ordinance, - Cap. 341

                Under a voyage charterparty on the GENCON form, the plaintiff German ship-owning company carried a cargo of pig iron for the defendant charterer, a Hong Kong company, from Brazil to Shanghai at a freight rate of US$26.80 per metric ton. The charterparty provided that any dispute was to be referred to arbitration in Hong Kong according to Hong Kong law.

                As provided by Clause 18 of the charterparty, 95% of freight was paid after completion of loading and bills of lading had been issued. Clause 18 went on to provide:-

"Balance 5% freight shall be paid after right and true delivery of the cargo and after Owners have presented statement of facts both for loading and discharge port enabling Charterers to draw up proper time sheets. Any possible undisputed despatch money shall be deducted on paying balance freight and any possible demurrage to be added to balance freight. Full freight deemed earned on completion of loading and shall be due discountless and non-returnable whether ship and/or cargo lost or not lost".

                Detailed provisions were included in the charterparty for calculating laytime. Under Clause 24, the Charterers were to pay demurrage at the rate of US$5,500 per day for all time used in excess of the allowed time at the loading and discharge ports, whilst the owners were to pay the Charterers despatch at the rate of US$2,750 for all working time saved.

                After the cargo was discharged at Shanghai, a statement of facts under Clause 18 was duly presented to the defendant charterer. Taking into account undisputed despatch earned at the loading port, the 5% freight balance due from the defendant to the plaintiff was US$36,088.36.

                The defendant has refused to pay that sum, contending it is entitled to set off the sum of US$78,377.48 which it claims for despatch earned at the discharge port. The defendant disputes owing that sum for despatch.

                The plaintiff issued a writ, claiming US$36,088.36 and sought Summary Judgment for that sum under O.14, whilst the defendant by cross summons sought a stay of the plaintiff's action on the ground that a dispute has arisen which must be referred to arbitration under S6A of the Arbitration Ordinance, Cap. 341.

                Held, dismissing the plaintiff's summons for Summary Judgment and allowing the defendant's cross summons for a stay, the defendant had an arguable case that:-

1985, No. CL-103

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff shipowner is a company incorporated in West Germany, whilst the defendant charterer is a company incorporated in Hong Kong.

2. By a voyage charterparty, dated the 16th January 1985, on the GENCON form, the plaintiff agreed to carry a cargo of approximately 95,000 metric tons of pig iron for the defendant in four shipments from Vitoria or Rio de Janeiro in Brazil to Shanghai.

3. Under Clause 40 of the charterparty, any dispute was to be referred to arbitration in Hong Kong according to Hong Kong law, the arbitrators being commercial shipping men.

4. It is common ground that, pursuant to the terms of the charterparty, the vessels APHRODITE, JOVIALITY and MAGIC SKY were nominated, and they loaded 24,974 metric tons, 24,080 metric tons, and 21,000 metric tons of pig iron, respectively, at Vitoria.

5. Freight was payable by the defendant to the plaintiff in the sum of US$26.80 per metric ton. Clause 18 of the charterparty provided that 95% of freight was to be paid after completion of loading and bills of lading had been issued. That 95% of the freight has been duly paid by the defendant to the plaintiff. Clause 18 went on to provide:-

"Balance 5% freight shall be paid after right and true delivery of the cargo and after Owners have presented statement of facts both for loading and discharge port enabling Charterers to draw up proper time sheets. Any possible undisputed despatch money shall be deducted on paying balance freight and any possible demurrage to be added to balance freight. Full freight deemed earned on completion of loading and shall be due discountless and non-returnable whether ship and/or cargo lost or not lost".

6. Detailed provisions were included in the charterparty for calculating laytime. Under paragraph A of Clause 24, the Charterers were to pay demurrage at the rate of US$5,500 per day for all time used in excess of the allowed time at the loading and the discharging ports, whilst under paragraph B the Owners were to pay the Charterers despatch at the rate of US$2,750 per day, being half the demurrage rate, for all working time saved in loading and discharging.

7. Each of the three vessels duly discharged its cargo at Shanghai. A statement of facts for each of those vessels was presented by the plaintiffs to the defendants on or about 4th July 1985. After allowing far undisputed despatch earned at Vitoria, the 5% freight balance due from the defendant to the plaintiff under Clause 18 in respect of each of the vessels was as follows: -

8. The defendant has refused to pay the plaintiff that sum of US$36,088.36 in respect of the three vessels. According to the defendant, that sum of US$36,088.36 claimed by the plaintiff, is overtopped by the stun of US$78,377.48 which the defendant claims for despatch earned at the discharge port of Shanghai. That figure of US$78,377.48 is made up of US$42,235.42 earned by the JOVIALITY and US$41,450.52 by the MAGIC SKY for despatch at Shanghai, and against that the defendant concedes that it has to allow an offsetting amount of US$5,308.46 gained by the APHRODITE for demurrage at Shanghai.

9. The plaintiff has issued a writ, claiming the stun of US$36,088.36 for the 5% balance of freight, less undisputed despatch earned at Vitoria, in respect of the three vessels. The plaintiff now asks for summary judgment under Order 14 for that sum of US$36,088.36. A cross-summons on behalf of the defendant seeks a stay of the plaintiffs action on the ground that a dispute has arisen which must be referred to arbitration under section 6A of the Arbitration Ordinance, Cap. 341. No step has been taken by the defendant in the litigation, beyond entering an acknowledgment of service.

10. For the sake of completeness, it can be noted that the plaintiff's writ also claimed the sum of US$7,944.49 for the HIRA III which the plaintiff contends was also nominated under the charterparty dated 16th January 1985. According to the defendant, the HIRA III was nominated under a later charterparty. It has been agreed between the parties that the plaintiff's claim for summary judgment under Order 14 in respect of the HIRA III and the defendant's cross-summons for arbitration in respect of that vessel should be adjourned pending the outcome of the Order 14 and the cross-summons relating to the other three vessels.

11. Parallel with the litigation commenced by the plaintiff for the amount which it claims due as the balance of freight, the plaintiff has commenced arbitration proceedings against the defendant for monies which the plaintiff claims due under the charterparty of 16th January 1985 for demurrage earned at the discharge port of Shanghai. In that arbitration, US$66,593.35 is claimed as demurrage for the APHRODITE, US$11,752.62 for the MAGIC SKY and US$14,804.16 for the HIRA III. Each side has appointed its arbitrator, and the plaintiff has delivered its points of claim. Briefly, it can be noted that the dispute between the parties as to whether despatch or demurrage was earned at Shanghai stems from opposing views as to when laytime began to run at that port: the defendants contend it commenced from reaching the outer anchorage of Changkiangou, whereas the plaintiffs argue for the inner anchorage of Wusong.

12. In the Order 14 proceedings before me, the plaintiff submitted that, in the light of the wording of Clause 18 of the charterparty, there could be no dispute as to the US$36,088.36 which it was claiming for the 5% balance of freight in respect of the APHRODITE, JOVIALITY, and MAGIC SKY. It was common ground that there had been right and true delivery of the cargo, that the plaintiff had presented statements of facts both for the loading and discharge ports so that the defendant had been able to draw up proper time sheets, and all possible undisputed despatch money had been deducted. As Clause 18 expressly provided that undisputed despatch money could he deducted, as irresistible inference arose, according to the argument advanced by the plaintiff's counsel, that nothing else could be deducted from the 5% balance of freight. Hence, the defendant was not entitled to set off the disputed despatch money at the discharge port.

13. There can be no doubt that despatch money, like demurrage, is a liquidated amount. (See Payne and Ivamy's Carriage of goods by Sea, 11th edition, at page 7). According to counsel for the defendant, the defendant was entitled to set off all sums it claimed for despatch under the charterparty, unless it had expressly foregone the right to make such a deduction. Reliance was placed by counsel for the defendant on Compania Sud Americana De Vapores v. Shipmair B. V. (The "Teno")(1977) 2LL. L. R.289 where there was a charterparty with clauses making provision for specific types of deductions. There, the charterer sought a set-off in respect of a claim different from those referred to in the clauses dealing with the specific types of deductions. Ruling that it was arguable that the charterer was entitled to make the deductions it wanted, Parker J. made the following observation: -

"These clauses make specific provision for deductions but they do not indicate that the charterer is to pay hire without being entitled to deduct ether sums no matter what their nature may be or that, if a right of set-off exists apart from special provision, such right was intended to be excluded. If such a right does exist clear words would be necessary to exclude it, see Modern Engineering v. Gilbert Ash (1974) AC 689 at page 718E".

14. In a similar situation, observations to the like effect were made by Goff, L. J. in Federal Commerce and Navigation Co. Ltd. v. Molena Alpha Inc. ("The Nanfri") (1978) 1 QB 927 at page 988:-

"Having reached the conclusion that equitable set off is not excluded as a matter of law, I then have to determine whether it is excluded in this particular case by the terms of the charterparty as a matter of construction. First, it may be said that this charterparty contains express provisions in clauses 11 and 14 allowing deductions and therefore on the principle expressio unius est exclusio alterius they should not be allowed in any other cases. In my judgment, however, that is not sufficient because equitable set off is part of the general law and can only be excluded by clear provisions to that effect, and such an inference as I am note considering is not sufficient.

In support of that, I make a brief reference again to the Gilbert-Ash base (1974) A.C.689, 707, where Viscount Dilhorne, after referring to the express deduction provisions in that case, said:

"The existence of these provisions in the contract lends no support to the contention that the amount certified is of a special sacrosanct character which must be paid without deduction. If these deductions can be made, as they clearly can, from the amount certified, the amount which clause 30(1) says the contractor is entitled to be paid, why should it be inferred that the contract impliedly, for there is nothing express, excludes reliance by the employer on his common law and equitable rights to counterclaim and set off if sued for the amount certified. I see no ground for any such inference. "

15. I am satisfied that the defendant has a fairly arguable case that Clause 18 of the charterparty has not deprived him of his rights under the general law to set off the monies he claims for despatch at the discharge port against the plaintiff's claim for the balance of freight. I express no concluded view on whether the defendant's claim to set off will ultimately succeed. That is for the arbitrators to decide, as the parties have chosen an arbitration forum: See S L. Sethia Liners Ltd. v. State Trading Corporation of India (English Court of Appeal), Lloyds Maritime Law Newsletter, 24th October, 1985. A corollary of the defendant having an arguable case is that the plaintiff fails under Order 14, and the defendant succeeds in its application to stay the litigation in favour of arbitration.

16. For the plaintiff; much play was made of the fact that the parties had entered into a voyage charterparty. The House of Lords in Aries Tanker Corporation v. Total Transport Ltd. (1977) I.W.L.R.185 confirmed the long-established rule of English commercial law that a charterer does not have an unqualified right to make deductions by way of set-off against freight.  (A different rule appears to obtain in relation to hire arising under a time charter: See the Nanfri, ante). The Aries goes no further than saying, however, that claims in respect of cargo (e.g. damage to cargo or carge short-delivered) cannot be asserted by way of deduction from freight. The type of set-off with which the Aries was concerned related to an unliquidated claim by the charterer, seeking to allege defective performance by the ship owner. This point was also emphasised in Nova (Jersey) Knit Ltd. v. Kammgarn Spinnerei G.m.b.h. (1977) I.W.L.R. 713 at page 728, per Lord Salmon (who was dissenting, but on a different matter): -

"A claim for freight has the following characteristic (vital to this case) which is the same as that of a claim on a bill of exchange: a cross-claim for unliquidated damages cannot be set off or set up against the claim or in any way operate as a defence to it. "

17. Mr. Smith for the defendant before me was quick to point out that his client was not making a cargo claim and was not alleging any defective performance on the part of the plaintiff. Instead, the defendant was merely seeking to set up a liquidated claim for despatch against the plaintiff's claim for freight. There is no case of which I am aware laying down the principle that a liquidated claim cannot be set off against freight.

18. It was pointed out on behalf of the defendant that the rationale behind the rule which prohibits deductions of cargo claims from freight is that the owner's expenses for wages, ships stores, victuals and the like will not be reduced because something has gone wrong with the cargo, and as, historically, "Freight is the mother of wages", no deductions will be allowed which might result in the ship's master finding himself without funds to pay wages etc. on arriving at some distant port where he is relying on receiving the full amount of freight. However, different considerations might arguably apply where the charterer seeks to make deduction for despatCh. Despatch should result in the owner experiencing reduced expenses for wages, victuals etc. as the ship will be released early to earn freight elsewhere.

19. Another argument can be advanced as to why a claim for despatch stands on a different footing from a cargo claim. One reason why cargo claims are not allowed against freight can be found in the following passage from Roskill L. J. in Henrikens Rederi A/S v. T.H.Z. Rolimpex (The Brede) (1973) 1 QB 233 at pa e 263:-

"Nonetheless, it is not difficult for a cargo owner (or for that matter a cargo underwriter) to recover for damage to cargo without prior deduction of freight, which nowadays is more often than not prepaid, for in most cases the shipowner will be entered with a Protection and Indemnity Association and his Protection and Indemnity Association will stand behind the shipowner and discharge any liabilities to cargo interests. "

20. There is no one comparable standing behind the ship owner to discharge liability in respect of despatch money.

21. I am, therefore, satisfied that the defendant has a fairly arguable case that despatch money can be withheld from freight, not with standing that this was a voyage charterparty.

22. One further line of argument was resorted to on behalf of the plaintiff in an endeavour to persuade the court that summary judgment should be granted. This argument was to the effect that the defendant's claim for despatch at the discharge port was too vague. I do not propose to spend much time on this argument. At pages 14, 15 and 16 of my note can be found Mr. Smith's, arithmetical demonstration of how the defendant claims that a balance of US$29,450.82 is now due to it from the plaintiff as the result of despatch money earned at the port of discharge in respect of the APHRODITE, JOVIALITY and MAGIC SKY under the charterparty of the 16th January 1982. That arithmetical calculation is based on the figures shown in the telex dated 27th August 1985 from the defendant to the plaintiff, such telex being pages 14 and 15 of exhibit “JRB-1" to Mr. Blacker's affidavit of 23rd November 1985. The plaintiff came up with some arithmetic of its own which can be found at page 26 and 27 of my notes. The plaintiff points out that the defendant claims a total of $83,685.94 in respect of despatch money at Shanghai. It needs to be noted, however, that the figure of $83,685.94 covers only the despatch for the JOVIALITY and the MAGIC SKY under the charterparty of the 16th January 1985. The plaintiff then asks the court to contrast that with the sum of $94,608.67 which is the total shown in exhibit NJB-2 of Mr. Binnersley's affidavit of the 6th December 1955 for the plaintiff's load port demurrage. However, that load port demurrage is not limited to the charterparty of 16th January 1985, but includes several other vessels in addition. Thus, the plaintiff is unfairly comparing the defendant's claim for despatch at the discharge port in respect of only the charterparty of 16th January 1985 with the plaintiff's claim for demurrage which includes vessels not covered by the charterparty of 16th January 1985. To compound matters, counsel for the plaintiff has confused load port demurrage with discharge port demurrage. (See page 27 of my notes). If the plaintiff really wants the court to start considering claims other than those arising under the charterparty of 16th January 1985, then, presumably, the court should not ignore the sum of US$140,213. 27 which the defendant sets out in "NJB-2" in respect of load port undisputed despatch. That would appear to dwarf the figure of US$94,608.67 for load port demurrage.

23. I do not consider that the defendant's claim for set-off is to be faulted on the ground of vagueness. Clearly, there is much room far argument as to the correctness of the figures, but this is not an area where a determination is required from the court: that is the sphere of the arbitrators.

24. In respect of the plaintiff's claim for freight relating to tie APHRODITE, JOVIALITY and MAGIC SKY, the plaintiff's Order 14 summons fails, while the defendant's cross-summons for a stay succeeds.

25. I will now hear the parties on the issue of how they would like me to proceed respect of the HIRA III.

26. As the points raised before me could be of some general interest to the shipping community, I decided to give my judgment in open court.