130. The Leon Corporation v Atlantic Lines and Navigation Co. Inc (The “Leon”) [1985] 2 Lloyd’s Rep 470

Equitable set-off – requirements in respect of hire

The facts

The vessel was chartered for five years. In the fifth year the charterers sought to set off a substantial sum for damages arising out of a discrepancy between bunkers ordered and paid for on the one hand and bunkers consumed by the vessel on the other.

The charterers were in possession of proof that, at least on one occasion, the master and the chief engineer had attempted to persuade suppliers of bunkers to supply less than the order and to pay the difference to them in cash.

The charterers requested a declaratory order that they were entitled to equitable set-off against hire.

The umpire found that the charterers had made out a prima facie case.

The owners appealed to the Commercial Court on a question of law, namely, whether equitable set-off was available in the circumstances.

Findings

Hobhouse J found that equitable set-off was only permissible in respect of hire where the act complained of by the charterers deprived them of their use of the ship. This was the principle laid down by the Court of Appeal in the Nanfri.

He held that since the merging of equity and law, equitable set-off gave rise to a defence in law.

The principle upon which equitable set-off had to be applied was that there had to be a relationship between the claim and the cross claim.

As the charterers’ claim for the loss of bunkers did not impact on their use of the ship, they were not entitled to equitable set-off.

Commentary

The judgement follows Parker J in the Teno which contains a useful catalogue of decisions for and against the recognition of equitable set-off in relation to hire.

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