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No deductions from hire without shipowner’s consent?

A time charterer is relived of the obligation to pay hire under an off-hire provision. But what if the payment of hire clause is worded in such a way that for any deductions to be made owners’ consent is required, as in The Anna Dorothea [2023]?

Here, three members of the Vessel’s crew had positive rapid lateral flow tests for COVID-19 and the vessel was consequently not allowed to berth at the Lanqiao port. In the end, vessel discharged in Rizhao in August. Charterer refused to pay hire for the period May - Aug. Owners were now claiming for unpaid hire in the sum of US$2.1m.

In another case with a similar clause, The C Challenger [2020], the provision stated that “charterers shall not deduct any monies from hire/earnings without Owners' written confirmation” and the Court held that owners had to exercise their discretion rationally & only for genuine disputes. On the facts in that case, it would not have been rational for owners to withhold their confirmation to reasonably calculated deductions from hire. In this case however, further investigations were needed to know when the crew got Covid and when they would have recovered. In other words, the situation here could be considered as ‘alleged off-hire’ since there was a genuine dispute and as per the Clause in C/P owners were entitled to full hire payment, as per the English High Court.

Agreeing with the Arbitrators, the Court also noted that there are good commercial reasons for such a clause to be inserted, i.e. to protect owners from losing critical hire income based on potentially spurious allegations that the vessel is off hire. In any case, charterers can claim later for overpaid hire.

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