Freight Deduction under Tanker Voyage Charter

February 2007

Tanker voyage charters often contain provisions entitling charterers to make deductions from freight payment, such provisions enabling the contracting parties to circumvent the well-established principle applied under English law that the owner has an overriding right to be paid freight, absent a clear provision to the contrary.

In this case, the charterers made a deduction from freight based on the wording of the following provision contained in an amended Asbatankvoy charter party form:

9.3 Cargo clingage

If the vessel is ex dry dock, ex lay-up, or ex dry cargo, a value of cargo determined by fob price for such cargo, plus freight and insurance with respect thereto, will be deducted for any short outturn of cargo quantity, (as determined by an independent surveyor specified by the charterers) calculated by comparing the bill of lading quantity versus discharge quantity basis receiving shore tank gauges). For any short cargo due to clingage, freight and insurance shall be deducted from freight to the extent that such quantity exceeds 0.5% of the bill of lading quantity.

The charter further provided that the charterers would load, and freight would be payable in respect of, a minimum quantity of 30,000.00, or US$275,337.56 net of 3.75% commission applying the agreed freight rate.

The vessel was performing her first voyage in two months, having been in dry dock. 

A Saybolt surveyor was appointed at the discharge port by the buyer of the cargo, and in reliance of that surveyor’s findings, charterers made a deduction from freight of US$83,450.06, this being the value of cargo plus freight and insurance on the quantity of short outturn over and above the allowance of 0.5% provided for in clause 9.3.

The owners objected to the deduction and referred the issue to arbitration in London. 

Charterers sought to justify the deduction based on the application of clause 9.3. In particular, they argued that the specific wording of the clause did not require charterers to prove that the shortage was a direct consequence of clingage. Instead, charterers viewed the provision as giving them a right to deduct from freight in respect of any shortage in excess of 0.5% of bill of lading quantity: all that was required was that the vessel was ex dry-dock, and that there was an evidenced short outturn.

Owners disputed the logic of charterers interpretation of clause 9.3.  It was clear that the vessel had been in dry dock for the two months preceding the subject voyage. It seemed logical therefore that clause 9.3 should apply only in respect of clingage claims arising on voyages after dry-dock. Owners argued that in order to be able to rely on clause 9.3, it was incumbent on charterers to prove that the shortage had occurred as a result of clingage. Owners referred to the Saybolt survey which made no mention of any clingage, and which in fact suggested that there was no clingage. 

The Tribunal agreed with the owners that in order for clause 9.3 to operate, it was a pre-requisite that charterers show that clingage had caused the short out-turn. If charterers could not do so, then they could not rely on the provision.

The Tribunal made an award in the owners favour for charterers to pay the amounts deducted by charterers from freight, plus interest and costs.

The Tribunal showed it’s willingness to look at the commercial context in which the clause operated. Clearly, there would be no sense in calling the provision “cargo clingage”, referring to vessel’s ex dry dock, agreeing a right to deduct, and imposing a limit on it (shortages over 0.5%), unless it was in relation to clingage resulting from the vessel having been in dry dock. 

The case is also interesting for the Tribunal’s rejection of an argument put forward on behalf of the owners that charterers could not rely on clause 9.3 if the independent surveyor was not appointed by the charterers. The Saybolt survey took place at the behest of the cargo buyers, and owners argued that this meant that the surveyor could not have been one “specified by charterers”. The Tribunal held that the owners argument had no merit, as the survey was clearly “specified” by the charterers in the context of the deduction, and the provision did not require the survey to have been originally commissioned by the charterers.