Clause 63 Decoded: Why Charterers Can't Freely Deduct from Hire – Except for One Case!

 💰 Clause 63 Decoded: Why Charterers Can't Freely Deduct from Hire – Except for One Case!

❓ Three Yes/No Questions to Spark Curiosity

• Can charterers deduct any expenses from hire payments as they see fit?
• Are bunker values on redelivery the only permitted deduction from hire?
• Could ignoring Clause 63 lead to a costly hire dispute?

 

📜 Detailed Clause Breakdown

Clause 63 - Deduction from Hire

"No deduction(s) from hire are allowed except Charterers’ option to deduct value of bunkers on redelivery from last sufficient hire payment/s. Owners will settle directly with agents at any port(s) their own expenses."

 

🔍 Explanation

This clause is straightforward but powerful. It restricts the charterers from making any deductions from hire payments except one: the value of bunkers remaining on board at redelivery. It also shifts responsibility for port agency expenses directly onto owners.

 

⚖️ Implications

• No Offset Policy: Charterers cannot withhold or offset claims or disputes (e.g., for performance or damages) by unilaterally deducting from hire.
• Clear Rights: The only permitted deduction is the bunker value upon redelivery, ensuring transparency and minimizing hire payment disputes.
• Owners’ Financial Liability: Owners must directly settle their dues with agents, rather than involving charterers or expecting reimbursement via hire adjustments.

 

📌 Examples

• ✅ Allowed: Charterers deduct the agreed value of remaining VLSFO onboard at redelivery from the final hire installment.
• ❌ Not Allowed: Charterers deduct port expenses or alleged underperformance penalties from hire without owners’ consent.

 

⚠️ Common Pitfalls

• Unjustified Deductions: Charterers sometimes mistakenly deduct claims for underperformance, off-hire periods, or disputed costs without legal basis.
• Delayed Payments: Disputes over deductions may delay hire payments, triggering withdrawal rights under many charter parties.
• Ignored Agency Costs: Owners failing to directly settle agent costs could face local delays or vessel clearance issues.

 

📚 Legal References & BIMCO Commentary

• BIMCO’s Commentary: BIMCO standard charter forms (e.g., NYPE) reinforce that deductions from hire must be clearly stipulated and agreed. Unilateral deductions are viewed as breach of charter.
• Case Law – The Nanfri (1978): The court ruled that charterers may not withhold hire for alleged off-hire periods without first paying and then seeking recovery, unless expressly permitted.

 

✅ Actionable Steps

For Ship Operators & Managers

• Monitor hire payments carefully and escalate any unauthorized deductions promptly.
• Ensure agents' disbursements are paid directly without involving charterers.

For Charterers

• Refrain from unilateral deductions—use dispute resolution clauses for claims.
• Calculate bunker value on redelivery transparently and with supporting documentation.

For Owners

• Clarify the deduction rights in pre-fixture negotiations.
• Keep a buffer hire payment schedule to accommodate bunker value reconciliation at redelivery.

For Both Parties

• Maintain records of bunker quantities and prices, and include them in redelivery protocols.
• Engage a bunker surveyor to validate figures at redelivery to avoid post-fixture disputes.

 

🚢 Conclusion & Call-to-Action

Clause 63 might appear short, but it’s a heavy hitter when it comes to financial discipline in time charter operations. By disallowing deductions (except for bunkers), it protects owners’ cash flow and enforces clear boundaries on charterers’ rights.

Have you encountered a case where unauthorized hire deductions led to operational standoffs or legal action? Share your story below!

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⚠️ Disclaimer:

This blog post is for informational purposes only and does not constitute legal advice. Readers should consult legal counsel for specific guidance on charter party interpretation and enforcement.