Western Bulk Carriers K/S v Li Hai Maritime Inc

Under a time charterparty requiring hire to be paid in advance, charterers cannot deduct anticipated off-hire unless the contract permits it. Hire due on the payment date remains payable in full, even if the vessel later goes off-hire and the charterers acquire a right to repayment or set-off against future hire.

An equitable set-off against advance hire requires a cross-claim that impeaches the owner’s right to hire, such as wrongful deprivation of, or prejudice to, the use of the vessel. A claim for a bunker cancellation fee did not satisfy that requirement.

An anti-technicality notice must be a clear written ultimatum: unless the outstanding hire is paid within the contractual period, the vessel will be withdrawn. Ambiguity cannot be cured by subsequent oral communications.

The claimant time charterers claimed damages after the defendant shipowners withdrew the vessel Li Hai for alleged non-payment of hire. The charterers had deducted anticipated dry-docking off-hire and US$500 paid as a bunker cancellation fee. They also relied on a payment made for victualling and cables, subsequent off-hire, an alleged settled practice, the validity of the 72-hour anti-technicality notice, and estoppel.

The central questions were whether the deductions were contractually or equitably permissible, whether later off-hire could cure an initial underpayment, and whether the owners’ notice complied with clause 47.

1. Claim succeeded. The owners were in breach of the charterparty because the withdrawal was not authorised by clause 47. Damages were awarded in the sum of US$2,036,211, subject to interest.
2. Hire payable in advance was due in full on the contractual payment date. The charterers could not deduct anticipated off-hire, however certain the future off-hire appeared. Any resulting overpayment was recoverable afterwards under clause 18 and the general law. The approach in Tonnelier and Bolckow, Vaughan and Co v Smith & Weatherill & Co (1897) 2 Com. Cas. 258, approved in French Marine v Compagnie Napolitain d’Eclairage et de Chauffage par le Gaz [1921] 2 AC 494 and applied in Pan Ocean Shipping Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161, governed the issue. The same conclusion was reached in The Lutetian [1982] 2 Lloyd’s Rep 140.
3. The US$500 bunker cancellation fee could not be deducted by way of equitable set-off. The claim did not concern deprivation of, or prejudice to, the use of the vessel. The distinction between cargo and bunkers was material, and the fee did not impeach the owners’ right to hire.
4. The US$600 payment for victualling and cables was effective. Although the sum was contractually payable in arrears, the parties’ consistent practice was to pay it in advance, and the charterers could not re-designate that payment after the event.
5. Later off-hire did not cure the failure to pay the hire due on 13 October. The right to repayment arose only after the hire had become payable. Clause 47 required rectification by payment of the hire, not by an ex post facto accounting adjustment.
6. The parties’ practice did not establish an unequivocal representation that the owners would never withdraw for a small disputed deduction. In any event, the owners’ July 2003 withdrawal threats had destroyed any such understanding.
7. The 15 October notice was invalid. It stated that the vessel would be withdrawn in 72 hours, but did not state that withdrawal would be avoided if the hire was paid in full within that period. It was also ambiguous because the preceding correspondence reasonably suggested that only the anticipated off-hire deduction was being demanded. The notice had to stand alone, and the subsequent telephone conversation could not cure its defects.
8. Alternatively, the owners were estopped from withdrawing. Their 14 October message represented that payment of the off-hire deduction would avoid withdrawal, and the notice did not correct that representation.
9. Damages were assessed by reference to the difference between the charter rate and the market rate for the remaining charter period, including the contractual 15-day flexibility.