FEDERAL COURT OF AUSTRALIA

ADMIRALTY – maritime agency agreement – set-off - right to freight collected after termination of agency agreement – running account – continuance after termination – contractual set-off – equitable set-off - non deduction from freight.

Airservices Australia v Ferrier (1986) 185 CLR 483, applied

Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110, cited

Queensland Bacon Pty Limited v Rees (1966) 115 CLR 266, cited

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, distinguished

Colonial Bank (Bank of Boston Connecticut) v European Grain & Shipping Ltd (The “Dominique”) [1989] 1 Lloyd’s Rep 431, cited

D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10, applied

G Hawkins & Sons Pty Ltd v Cable Belt (Australia) Pty Ltd (1984) 2 BCL 246, cited

AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705, cited

Westwind Air Charter Pty Ltd v Hawker de Havilland Ltd (199) 3 WAR 71, cited

Gibb  Australia Pty Ltd v Cremor Pty Ltd (1992) 108 FLRl 129,  cited

McCosker v Lovett (1995) 12 BCL 146,  cited

James v Commonwealth Bank of Australia (1992) 37 FCR 445, followed

James & Co. v Scheepvaart en Handelmij B.V. v Chinecrest Ltd [1978] 1 Lloyd’s Rep 126, followed

Aries Tanker Corporation v Total Transport Ltd (“The “Aries”) [1977] 1 Lloyd’s Rep 334, followed

A\S Gunnstein & Co K/S v Jensen (“The Alfa Nord”) [1977] 2 Lloyd’s Rep 434, followed

Derham; Set-off, 2^nd edn (1996) at 52-54

Carver, Carriage by Sea, 13^th edn (1982) pars 1723-1726

Davies and Dickey, Shipping Law 2^nd edn (1995) at 234-6

OPAL MARITIME AGENCIES PTY LIMITED v

BALTIC SHIPPING COMPANY, MICHAEL McCANN AND DAVID SCOTT

NG 392 of 1998

TAMBERLIN J

SYDNEY

15 OCTOBER 1998

REASONS FOR JUDGMENT

The present proceeding originated in the Supreme Court of New South Wales on 26 March 1998 and has been cross-vested to this Court.

Opal Maritime Agencies Pty Limited (“Opal”) has filed a notice of motion seeking judgment against Baltic Shipping Company (“BSC”) in an amount of $1,244,823.  This amount is claimed to be owing to it as at the termination of an agency agreement between Opal and BSC made on 24 January 1992 (“the agency agreement”) in respect of work done and expenses incurred while acting as a general maritime agent of BSC in relation to vessels owned, manned and chartered by BSC and calling at ports within Australia.  The notice of motion also seeks a declaration that Opal is entitled to set-off the above amount against freight collected for Baltic.

The second and third defendants (“the receivers”) were appointed as receivers and managers of the assets of Baltic by order of this Court made by Sheppard J on 28 March 1996 for the purpose of realising the Australian assets of Baltic in satisfaction of a judgment delivered by his Honour on 16 November 1995.  The judgment, on which the appointment of the receivers was made, was obtained by Seachart Corporation Pty Limited (“Seachart”).

On the material before me, I am satisfied that Opal has made out its claim against Baltic in the amount claimed in the Statement of Claim.  In arriving at this view, I note that the receivers does not wish to make any submission in relation to this aspect of the application.

The freight collected amounted to $200,815 and is presently held in a solicitor’s trust account pursuant to a Deed dated 16 august 1996 made between Opal (which was then in provisional liquidation); Brian Silvia (the then professional liquidator of Opal) and the abovenamed receivers of Baltic assets.

The relevant recitals to the Deed of 16 August 1996 read as follows:

“WHEREAS:

A.        The Provisional Liquidator was appointed pursuant to an Order of the Supreme Court of New South Wales as Provisional Liquidator of the Company on 10th July, 1995.

B.         The Receivers were appointed by Order of the Federal Court of Australia as joint and several Receivers of all of the property and assets of Baltic Shipping Company (hereinafter called “Baltic”) wherever situated within Australia (hereinafter called “the receivership”).

C.        The Company and the Provisional Liquidator assert that Baltic is a creditor of the Company in an amount of $638,772.85 which said debt was alleged to be in existence as at the commencement of the provisional liquidation.  The Receivers deny that Baltic is indebted to the Company as aforesaid.

D.        The Provisional Liquidator of the Company in his capacity as agent for Baltic pursuant to an Agency Agreement dated 24th January, 1992 has after the commencement of the provisional liquidation collected an amount of $524,930.60 (hereinafter called “the Baltic debt”).

E.        The Provisional Liquidator has incurred expenses in relation to the collection of the Baltic debt in a total amount of $324,115.13 which expenses have been vouched by the Receivers and conceded as being accurate and validly incurred.

F.        The Provisional Liquidator has the sum of $200,815.48 which is held as part of the moneys under his control (hereafter called “the Baltic funds”) and it is conceded by the Receivers that the maximum amount payable by the Company to Baltic will not exceed this sum.

G.        Baltic had maintained a claim against the Company arising prior to the appointment of the Provisional Liquidator which was the subject of a disputed Proof of Debt and resolved by Order made on 1st April, 1996 by the Supreme Court of New South Wales in Equity dismissing Baltic’s Summons and terminating its claim to be a creditor prior to the date of commencement of the provisional liquidation.

…

J.         It is intended to terminate the provisional liquidation and restore the Company to the control of its directors as soon as practicable and in order to achieve this it is necessary for the Receivers, the Provisional Liquidator and the Company to record their respective agreements as between themselves in the manner hereinafter appearing."

The relevant operative part of the Deed provides as follows:

“1.       The Receivers acknowledge on behalf of Baltic that:

 a.        Baltic has established no claim to any amount whatsoever as against the Company arising prior to the commencement of the provisional liquidation.

 b.        The maximum amount for which Baltic is entitled to claim against the Company is for the amount of the Baltic funds.

2.         The parties hereto acknowledge that there is a dispute as between Baltic and the Company as to whether:

 a.        Baltic is a debtor of the Company with regard to the sum of $638,772.85 or any part thereof, and

 b.        If Baltic is a debtor of the Company as to whether the Baltic funds can be offset as against the amounts owing or said to be owing by Baltic to the Company as aforesaid.

3.         In order to relieve the Provisional Liquidator from any further involvement in the dispute as specified in clause 2 hereof as between Baltic and the Company, the Company and the Receivers hereby direct the Provisional Liquidator to pay the Baltic funds into Court or alternatively by agreement to the credit of the Trust Account of a nominated solicitor holding a practising Certificate in New South Wales to abide a determination of the Court as to entitlement thereto or agreement between Baltic and the Company.

4.         The Receivers acknowledge that Baltic has no claim to the Cipriani moneys or any part thereof and authorises the Provisional Liquidator to pay the sum or such part thereof as he deems appropriate to Cipriani in full satisfaction of all claims.

5.         Subject to the foregoing and to the payment of the Baltic funds as aforesaid the Receivers release the Provisional Liquidator from all claims demands suits it actions which Baltic ma have been able to maintain against him in his capacity as Provisional Liquidator and acknowledge that he is justified, subject to approval of the Supreme Court of New South Wales, in terminating the provisional liquidation and doing all things within his power to cause the Company to revert to the control of its directors and the winding up Summons to be dismissed and that any further litigation affecting any of the matters the subject matter of this Deed will be conducted as between the Receivers representing Baltic or such other persons as may be appointed for that purpose and the Company without the involvement of the Provisional Liquidator.

…”

The Baltic Fund is presently held in a trust account as required by cl 3, pending the outcome of this proceeding.  As indicated in the Deed, the sum of $200,815 represents the net freight collected by Opal during the provisional liquidation for a period of twelve months after 10 July 1995.  Baltic emerged from provisional liquidation, as foreshadowed in the Deed, shortly after its execution in August 1996.  It is common ground that the 1992 agency agreement was terminated by notice dated 15 May 1995 given in accordance with its terms.  It is also common ground that there was, in effect, a running account between Opal and Baltic up to the notice of termination of the agency agreement.

The agency agreement

The agency agreement appointed Opal as its agent in Australian ports.

The preamble indicates that the agreement covers tramp and passenger vessels owned, managed, operated or chartered by Baltic, whenever relevant contracts of freight allow Baltic to nominate their own agent.  It also covers certain liner vessels and owner’s vessels under repair in shipyards in ports covered by the agreement, subject to the special instructions of Baltic.  Clause 2 sets out the general obligations of Opal under the agreement.  It then deals with agency services to the owner’s vessels.  These include providing assistance with information; arranging for the berthing of vessels entering and leaving the port (including pilotage, towage and other matters).  Also included are obligations with respect to documentation and the organising and coordinating of cargo operations required to be made for the relevant port; supply of fuel; lubricants; fresh water, and the provision of numerous other services.  Clause 3 is concerned with the obligations of the owner with respect to information as to documents, movements, charterparties, contracts and so forth.

The financial obligations of Opal are spelt out in cl 5, which requires Opal to collect and remit freight, dead freight, demurrage, passage money and other amounts due to Baltic and to provide Baltic with full information regarding settlement of freight and other amounts due to Baltic.  It also deals with the obligations of Opal to check and settle local accounts relating to services and supplies.

Clause 5.10, in particular, provides for an agency fee pertaining to owner tramp vessels, which are to be included in the final disbursement account.  Agency commission in favour of Opal is calculated on the net freight which is determined after deducting all taxes and levies on freight commissions; brokerage and other similar expenses. 

Clause 5.14 provides:

“All payments between Owner and Agent are to be effected in free convertible currency.”

Note:   Owner is to ensure that Agent is placed in funds at all times to meet Owner financial obligations.”

Clause 8 is concerned with duration of the agreement and provides:

“This Agreement is concluded for an unlimited period and can be terminated at any time subject to three months notice given by either party.  The reason for the termination need not be disclosed.

No compensation shall be payable to either party in respect of any such termination.”

There were three Addenda.  The relevant one for present purposes is Addendum N3, which reads as follows:

“The following procedure for the settlement of freights and disbursement is agreed:

1.         Upon completion of Disbursement Accounts the Agent may deduct the balance due from freight collections owed to Owners.  The Agent will notify the Owner each week as to the balance of freight due to the Owner.

            Where the balance of the Owner’s account with the Agent is in credit the Owner may direct the Agent to disburse the funds in any way the Owner sees fit.  If the funds are retained by the Agent interest will be paid on those funds at agreed interest rates.

            Where the balance of the Owner’s account with the Agent is in debit the Owner will remit appropriate amounts to the Agent’s bank.  For the time that the Owner’s account remains in debit, the Agent may reduce any interest due to the Owner by applying the same interest rates as above.

2.         Amounts in dispute if discovered after Owners receive and check the final disbursement Accounts are to be agreed upon between Owners and Agents in the shortest possible period.  Overpaid amounts are to be credited by the Agent by means of special Credit-Note with proper reference.

3.         All payments between Owners and Agents are to be effected in accordance with the terms of the Payment Agreement existing between the Russia and Australia.

4.         This Addendum comes into force from 24 january (sic) 1992.”

Present dispute

The question is whether Opal is now entitled to set-off the Baltic debt due to it of $1,244,862 on account of its services as agent for Baltic against its claim to the funds held in the escrow account, which comprised the freight collected by the provisional liquidator during the period of provisional liquidation (July 1995 to August 1996).

I turn to consider the ways in which Opal’s claim is formulated.

Running account

Opal’s first submission is that Opal and Baltic have at all times operated a running account, which includes all debits and credits arising on each side since inception of the agency agreement.  In the ordinary course, it is said, Opal would have allocated all freight receipts as and when received against the outstanding liability to it on a regular basis.  Counsel for Opal submitted that in these circumstances Opal would have been entitled to obtain judgment for the balance in the event of dispute.  Accordingly, it is said that Opal is entitled to the escrow funds and to judgment for the balance.

The authorities indicate that a running account is founded on a mutual contemplation that the business relationship of the parties is continuing and that payments are made in the course of an ongoing relationship between the parties, in the light of the overall effect of the transactions in question.

As Dawson, Gaudron and McHugh JJ said in Airservices Australia v Ferrier (1986) 185 CLR 483 at 504-505:

“A running account between traders is merely another name for an active account running from day to day, as opposed to an account where future debits are not contemplated.  The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded.  Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account.  Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt ….

If the record of the dealings of the parties fits the description of a “running account”, that record will usually provide a solid ground for concluding that they conducted their dealings on the basis that they had a continuing business relationship and that the goods or services would be provided and paid for on the credit terms ordinarily applicable in the creditor’s business.  When that is so, a court will usually be able to conclude that the parties mutually assumed that from a business point of view each particular payment was connected with the subsequent provision of goods or services in that account. … Thus, it is not the label “running account” but the conclusion that the payments in the account were connected to the future supply of goods or services that is relevant, because it is that connection which indicates a continuing relationship of debtor and creditor.”

Their Honours referred at those pages to and applied statements in earlier decisions: see Richardson v Commercial Banking Co of Sydney Ltd (1952) 85 CLR 110 and Queensland Bacon Pty Limited v Rees (1966) 115 CLR 266 at 286.

In my view, the submission based on the alleged existence of a running account does not support Opal’s case in the present circumstances because the Baltic funds were collected after the agreement had been terminated.  The freight was collected by the provisional liquidator during the term of the provisional liquidation, which only began on 10 July 1995. As from the notice of termination given on 15 May 1995 it could, in my view, no longer be said that the parties entertained a mutual assumption that their relationship of debits and credits would be an ongoing one pursuant to the terms of the contractual arrangements.  Accordingly, there was no continuing right of set-off which could be supported on the basis of a running account after termination of the agreement in respect of the freight collected by the provisional liquidator during the period after 10 July 1995.

Contractual set-off

The second submission advanced for Opal is that there was a contractual right of set-off under the agency agreement and that when the agreement was terminated, the contractual right was not lost because it was an accrued right which was capable of enforcement.  The contractual right of set-off is based on the provisions of the agency agreement and the Addendum N3 to that agreement, set out earlier in these reasons.

Although the agency agreement and the Addendum speak in terms of “disbursements”, in my view, this expression is sufficiently wide to include fees and commissions payable to Opal.  In this respect, the provisions of cll 5.10 and 5.11 are important.  Also, the note to cl 5.14 specifically requires Baltic to ensure that Opal is placed in funds at all times.

While cl 1 of Addendum N3 authorises the reduction from freight collected to meet the agents’ disbursements at the end of each week, that arrangement came to an end as a consequence of the notice of 15 May 1995.  Accordingly, the contractual authorisation in the Addendum to deduct freight thereupon ceased to entitle Opal to deduct the disbursements incurred by it from freight collected on behalf of Baltic.  The Addendum, thereafter, cannot be relied on to support a set-off of freight collected by the provisional liquidator, who was appointed two months later.  The right of contractual set-off had been terminated.

Opal seeks support for the continued existence of an “accrued” right of contractual set-off by reference to the statement of Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477, which reads:

“When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning.  Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired.  Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach like continue unaffected.  When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition, or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.”  (Emphasis added)

The above statement of principle was accepted and applied by the House of Lords in Colonial Bank (Bank of Boston Connecticut) v European Grain & Shipping Ltd (The “Dominique”) [1989] 1 Lloyd’s Rep 431 at 435.

When the agency agreement was terminated in the present case, the accrued rights of the parties fell to be adjusted as at the date of termination.  Consequently, the freight collected as at that date could be applied against the debt due by Baltic at that date.  This is indicated by a reference in cl 1 of the Addendum to making a deduction from “freight collections”.  The agreement does not refer to “freight to be collected” or to any similar expression.  It contemplates the striking of a weekly balance during the currency of the agreement.  It does not, in my view, enable Opal to apply the freight collected by the provisional liquidator after 10 July 1995 from the Baltic debt as it stood at the termination of the agreement. The correct analysis, in my opinion, is that after termination of the agency agreement the freight collected was collected for and on behalf of Baltic and, as such, the freight fell to be treated as an asset of Baltic.  The provision would have entitled Opal to deduct the balance due to it as at the date of termination from the freight collected by it, which was owed to Baltic as at the date of termination, but it did not extend to freight not owed as at that date.

For these reasons I do not accept the second submission based on contractual set-off.

Equitable set-off

Opal submits that it would be an artificial and inequitable windfall for other creditors of Baltic to be entitled to the funds collected by the provisional liquidator in preference to Opal, which had the benefit of an express right of set-off.  It is said that an equitable set-off arises in the present circumstances because the rights of Opal and Baltic under the agency agreement are so closely connected and because it would be inequitable for Baltic to claim the contrary.

The relevant principles generally applicable to claims for equitable set-off were summarised by Woodward J in D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 25-26, as follows:

“I believe that the relevant principles to be extracted from the authorities are as follows:-

(i)        Failure in part to perform a contract, or defective performance of a contract requiring work to be done again or directly reducing the value of work done or goods supplied, may be raised as a defence to an action for money due under that contract: Allen v Cameron; Lowe v Holme; Mondel v Steel.

(ii)       Claims for money due under a contract and for damages for breach of the same contract (arising, for example, from delay) may be set-off against each other where the equity of the case requires that it should be so.  This will depend upon how closely the respective claims are related, particularly as to time and subject-matter.  The general conduct of the respective parties will, as always, be relevant to the granting of such equitable relief: Young v Kitchin; Newfoundland Government v Newfoundland Railway Co; Bankes v Jarvis; Hanak v Green.

(iii)      Even where one of the claims is not in terms based upon the contract, but it flows out of and is directly connected with it, a court may be prepared to recognise an equitable set-off: Piggott v Williams; Beasley v D’Arcy; Smith v Parkes; Morgan & Son v S Martin Johnson & Co; Hanak v Green (per Sellers LJ).

(iv)      The above statements of principle cannot be regarded as having universal application.  They do clearly apply to contracts for work and labour, but special considerations are relevant in other areas such as  - bills of exchange: Glennie v Imri; James Lamont & Co Ltd v Hyland Ltd; landlord and tenant: Fong v Cilli and carriage of goods Henriksens A/S v Rolimpex.”

These principles have been considered and applied in later cases: see G Hawkins & Sons Pty Ltd v Cable Belt (Australia) Pty Ltd (1984) 2 BCL 246; AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705; Westwind Air Charter Pty Ltd v Hawker de Havilland Ltd (1990) 3 WAR 71; Gibb  Australia Pty Ltd v Cremor Pty Ltd (1992) 108 FLR 129; McCosker v Lovett (1995) 12 BCL 146 and Derham; Set-Off, 2^nd edn (1996) at 52-54.

The reasons for judgment of Giles J in the AWA case at 710 ff provide a helpful overview of the authorities on equitable set-off.  Having reviewed the authorities, his Honour said at 712:

“The ultimate question is whether, bearing in mind that the existence of Exicom’s claim is not enough and that something more is needed, sufficient to warrant the intervention of equity to protect Exicom, it would be unjust or inequitable that AWA should be permitted to proceed with its claim.  Primarily, that throws up the relationship and the closeness of connection between the claims.  That the ultimate question is one of equity’s intervention is shown by the observations that the general conduct of the parties will be relevant to the granting of equitable relief.”(Emphasis added)

In this Court the principles have been considered in James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 457-462.  Gummow J in that case accepted (at 457) that equitable set-off is available where the parties seeking it can show an equitable ground for protection from an adversary’s demand.  He said that the mere existence of a cross-claim is not enough.  His Honour referred to the principle that the set-off must essentially be bound up with or “impeach” the title said to warrant the making of the legal demand.  The decisions, in his view, indicated that the requirement of “impeachment” is not to be narrowly construed.

In the present case, the freight was collected after the agreement between Opal and Baltic had ended.   In these circumstances it is clear that the freight was collected by Opal as agent for and on behalf of Baltic.  The freight was an asset of Baltic.  The collection of the freight was not performed pursuant to the agency agreement because it had been terminated and there was no longer any provision relating to striking a balance or permitting off-set of freight against the claim for disbursements.  In view of this, I do not consider that there was such a degree of connection between the disbursements to be paid under the agency agreement and the freight collected in the period of provisional liquidation to give rise to a right of set-off of the freight against the debt due from Baltic.

Freight – the non-deductive rule

The submission that there is no equitable set-off in the present circumstances is further supported by a consistent line of authority in shipping cases to the effect that equitable set-off is not available in respect of claims for payment of freight: see for example the decision of the English Court of Appeal in James & Co. v Scheepvaart en Handelmij B.V. v Chinecrest Ltd [1978] 1 Lloyd’s Rep 126.  In that case the appellant, a company incorporated in Holland, managed vessels including liner services.  The action was brought against Chinecrest, which acted as cargo agents and brokers for the purposes of obtaining cargo for shipment from England. The Court of Appeal held that because the subject matter of the claim was for freight, the moneys in question were received by Chinecrest as agents for the appellant.  The agent claimed an equitable set-off for breach of contract against the claim for freight.  The Court held, following a long list of English authority, that there was no right of equitable set-off against the freight.

At 129, Stevenson LJ (with whom Lawton LJ agreed) said:

“It is quite true that the freight was payable (on the defendant’s version) under the clause to which I have referred, allowing them to retain any profit at the rate of £37 per freight ton, but it was nonetheless freight.  It is quite true that it is not freight being claimed simply by one of two parties to an ordinary shipping contract.  There is this intervention of the agents, but it is the defendants, as agents, who are collecting freight for the plaintiffs, and I cannot myself see that that is a rational ground for distinguishing this case from such cases as “The Brede” [1973] 2 Lloyd’s Rep 333; and “The Aries” [1977 I Lloyd’s Rep 334…, in the last of which the House of Lords expressing perhaps no unqualified approval for the anomalous rule which makes it impossible to set off a claim for damages for breach of contract against a claim for freight, … reaffirmed that rule and said the parties must be taken to contract on the basis of its existence, and unless you can find an equity sufficient to override that long standing rule of common law, it prevents a defendant from setting–off his cross-claim for damages.”

In Aries Tanker Corporation v Total Transport Ltd (“The “Aries”) [1977] 1 Lloyd’s Rep 334, the House of Lords reaffirmed the principle that a claim in respect of cargo damages cannot be asserted by way of deduction from freight. It was accepted as a long established rule in English law, although their Lordships considered that it was arbitrary and to some extent anomalous.  As Lord Simon said in that case (at 340):

“Freight representing the original rule, stands uneroded, like an outcrop of pre-Cambrian amid the detritus of sedimentary deposits.  That freight must be paid without deduction has been stated in successive editions of Scrutton and Carver.”

In The “Dominique” case in 1988 (supra), the House of Lords again applied the rule, which it referred to as the non-deduction rule, and allowed an appeal from a decision of the Court of Appeal in which Mustill LJ (with whom the other members of the Court agreed) made out a powerful case for not applying the principle.  In his speech in the House, on the appeal, Lord Brandon (with whom all other members agreed) said (at 436):

“It is a long established rule of English law, dating at least from the early part of the 19th century, that a cargo owner is not entitled to set up, as a defence to a claim for freight, damage suffered by him by reason of some breach of contract by the shipowner in relation to the carriage … but must enforce any right which he has in respect of such breach by a cross-claim …”

(Emphasis added)

In the course of his speech, his Lordship also quoted with approval the statement of Roskill LJ in A\S Gunnstein & Co K/S v Jensen (“The Alfa Nord”) [1977] 2 Lloyd’s Rep 434 at 436 where he said:

“We have to apply the well-settled principle that there is no right of set-off for claims for damages for breach of charter, whether for loss of or damage to goods or for alleged failure to prosecute a voyage with reasonable dispatch or otherwise, or otherwise, against a claim for freight.”

The principle is also discussed in Carver, Carriage by Sea, 13^th edn (1982) pars 1723-1726 and Davies and Dickey, Shipping Law 2^nd edn (1995) at 234-6.

A submission was made that the shipping cases, which support the “non-deduction” principle, are distinguishable because they relate, in the main, to claims brought for cargo damage.  In my view, the reasoning expressed in the authorities as to the special position of freight claims, is relevant in the present circumstances.  In this respect, the Court of Appeal decision in The “Chinecrest”(supra),which concerned the position of an agent collecting freight for the plaintiffs is of particular relevance.  The shipping cases provide further support for the conclusion in the present circumstances that Opal has not demonstrated any sufficient basis to support its claim to an equitable set-off of the Baltic debt due to it against the freight claim by Baltic.

For these reasons, I am satisfied that Opal has not made out its case and that no deduction should be made from the claim of Baltic in respect of freight on the ground of equitable set-off.

General

Other submissions were made on behalf of the receivers relating to the effect of their appointment on Opal’s claim and the rights of Opal to enforce its judgment.  However, in view of the conclusions I have reached on the above matters it is not necessary for me to deal with them and I do not think it appropriate to do so.

Conclusions

Opal is entitled to judgment for the amount claimed by way of fees and disbursements but it is not entitled to apply the net amount of freight collected by the provisional liquidator and held in the escrow account by way of set-off against payment of that debt.  The Notice of Motion seeking a declaration that Opal is entitled to the set-off claimed should, therefore, be dismissed with costs.  At this stage, however, I will not make any order but I direct the parties to bring in draft Short Minutes within seven days to give effect to these reasons.

Associate:

Dated:              15 October 1998