Partner Athens
"The ruling clarifies the limits of equitable set-off and confirms the strict enforceability of 'pay now, argue later' obligations."
Background
The dispute arose under a time charter on an amended NYPE 1993 form, dated 13 April 2021, with hire payable every five days in advance at the rate of US$20,000 per day. Crucially, the charterparty included a heavily amended anti-deduction clause:
“No deductions from hire may be made for any reason under Clause 17 or otherwise (whether for alleged off-hire, underperformance, overconsumption or any other cause whatsoever) without the express written agreement of Owners at Owners’ discretion.” (Line 146)
The charter also incorporated the BIMCO Infectious or Contagious Diseases Clause (at clause 67) – highly relevant during the COVID-19 pandemic.
The Dispute
The vessel was delayed in China after crew members tested positive for COVID-19 and she remained idle for nearly three months. Charterers claimed off-hire under Clause 67 and withheld payment. Owners disagreed, citing Line 146.
An arbitral tribunal sided with the owners, emphasising that anti-deduction clauses like Line 146 are enforceable to prevent unilateral deductions from hire.
Commercial Court Decision
The charterers appealed, arguing that because the vessel was allegedly off-hire on the hire due date, no hire was owed in the first place, so they weren’t making a deduction, they were simply not paying what was never owed.
The Commercial Court disagreed. Henshaw J held that withholding hire on the basis of an off-hire claim was a deduction within the meaning of Line 146. It didn’t matter how it was framed. In practice, it was a non-payment of contractually due hire.
"The court described this as a 'hell or high water' obligation."
Even if the vessel was off-hire, the clause required payment unless the owners expressly agreed otherwise. The court described this as a “hell or high water” obligation.
The Court’s Reasoning
Henshaw J summarised the key principles as follows:
- Line 146 was crystal clear: it covered all forms of withholding from hire, including complete non-payment;
- off-hire status does not justify withholding of hire: even if the vessel is arguably off-hire, hire must be paid unless owners have consented; and
- commercial reality: owners rely on timely hire payments to keep vessels operating. Arbitration is not a substitute for cashflow.
The judge also noted that charterers were not left completely powerless: they could recover overpaid hire payments later and had lien rights under the charterparty. But self-help through non-payment of hire was not permitted.
However, citing SK Shipping v Capital VLCC (The C Challenger), the court reaffirmed that owners’ discretion to withhold consent to deductions from hire must be exercised for a contractually appropriate purpose, and rationally. However, crucially, if there is a genuine dispute, owners may refuse consent – even if later proven wrong.
In Anna Dorothea, there was evidence that COVID-related delays might not have matched the amounts deducted by charterers and therefore the owners acted rationally in refusing consent.
"Commercial certainty will often take precedence over broader notions of fairness when parties have expressly agreed to an anti-deduction clause."
Commentary
Normally, equitable set-off allows a charterer to claim off-hire and withhold hire to the extent that the vessel underperformed, overconsumed or otherwise failed to perform the services promised. Equitable set-off is a doctrine well-embedded in English law but it can be excluded by clear contractual wording and that is exactly what Line 146 did.
The Anna Dorothea is a strong reminder that commercial certainty will often take precedence over broader notions of fairness when parties have expressly agreed to an anti-deduction clause. Clauses like Line 146 – drafted in strikingly clear terms – leave very little room for manoeuvre. That’s the point. Shipowners rely on uninterrupted cash flow to operate vessels and this decision sends a clear message that charterers cannot rely on set-off or delay tactics where there is a “pay now, argue later” clause in place.
At the same time, the judgment recognises that the shipowners’ discretion to withhold consent to make deductions from hire is not absolute. It must be exercised rationally. But after Anna Dorothea that threshold is deliberately low: as long as there is a genuine, arguable dispute about the off-hire claim, owners are entitled to insist on full, on-time payment. That may feel commercially unfair in some cases – especially when a vessel is idle through no fault of the charterer – but the legal position is now clearer than ever. If parties want flexibility, they will need to draft for it.
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