This was an appeal from the Court of Appeal which upheld the decision by Donaldson J in the Commercial Court.

On 21 March 1973 the parties entered a charterparty agreement on a standard BP voyage charter form. The charterer (Total Transport Ltd) ordered the Aries to proceed to certain ports in the Arabian Gulf and to load a full cargo of petroleum. The charterer then ordered the vessel to proceed to Rotterdam. Clause 7 of the charterparty provided that freight was to be payable after completion of discharge. Clause 30 provided:

The provisions of articles 3 (other than rule 8), 4 and 8 of the schedule to the Carriage of Goods by Sea Act 1924, of the United Kingdom shall apply to this charter and shall be deemed to be inserted in extenso herein. This charter shall be deemed to be a contract for the carriage of goods by sea to which the said articles apply and owners shall be entitled to the protection of the said articles in respect of any claim made hereunder.

Article 3.6 of the Hague Rules provides:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

The vessel loaded a cargo of gasoline in April 1973. It arrived in Rotterdam in May 1973. When the quantity discharged was measured it was found that there was a short delivery. The charterer claimed that the value of this short delivery was USD 30,000. In June 1973 the appellant paid the freight as provided in the charterparty, but they did so with a deduction of USD 30,000.

On 17 October 1974 the owner (Aries Tanker Corp) issued a specially endorsed writ for GBP 11,753.18, which was the then GBP equivalent of USD 30,000 as unpaid freight. On 21 February 1975 the charterer served a defence and counterclaim in which they admitted that they had withheld USD 30,000 from the freight, but claimed that they were entitled to set off against the freight the loss claimed on the cargo, and that they were not liable for USD 30,000. They also counterclaimed for USD 30,000.

It was not disputed that the charterer had a triable case in respect of a claim for short delivery, and that the charterer had not instituted suit within 12 months of discharge. Donaldson J refused the charterer leave to defend, and gave judgment in favour of the owner for GBP 11,753.18 with interest, subject to a stay pending appeal. This judgment was affirmed by the Court of Appeal. The charterer appealed to the House of Lords.

Held: Appeal dismissed.

The terms of the contract contain an obligation to pay freight, calculated upon the amount of cargo loaded. This obligation arises upon discharge. The contract contemplates the possibility of a cross-claim by the charterer in respect of loss or damage to the cargo, and it expressly provides by the incorporation of art 3.6 of the Hague Rules that the carrier and the ship shall be discharged unless suit is brought within one year after the date of delivery or the date when delivery should have been made. This is a time bar created by contract. This is a time bar of a special kind. It is one which extinguishes the claim, not one as most English statutes of limitation and some international Conventions (eg art 7 of the Collision Convention 1910) do, which bar the remedy while leaving the claim itself in existence. The charterer's claim after May 1974 and before the date of the writ had not merely become unenforceable by action. It had simply ceased to exist. A claim which has ceased to exist cannot be introduced for any purpose into legal proceedings, whether by defence, or as a means of reducing the respondent's claim, or as a set off in any way whatsoever. It is a claim which after May 1974 had no existence in law and could have no relevance in proceedings commenced in October 1974.

The deduction of USD 30,000 by the charterer was not accepted by the owner. This did not confer legal rights, and did not alter the legal position. The charterer had a disputed and unquantified claim against the owner. If it wished to pursue and to quantify the clam, it had to bring a suit for damages or refer the matter to arbitration. By failing to commence a suit before May 1974, it had contractually agreed to discharge it.

A cargo claim cannot be asserted by way of deduction or set-off. This is a long established rule in English law. The rule was approved in The Brede [1974] QB 233 (CMI2167). This decision should not be overturned because the parties in this case contracted upon the basis and the background that the established rule is against deduction.

A rule of law, particularly a rule of commercial law which has stood so long and upon the faith of which many thousands of contracts of carriage have been made and are daily being made containing a provision that the contract is governed by English law, cannot now be successfully challenged in this Court. A rule so well recognised and accepted as English law, if it is to be altered can only be done by Parliament alone. If it were to be altered by statute it would presumably not be altered retrospectively, and therefore would only apply to contracts made after the statute came into operation.

On the assumption that English law allowed loss and damage suffered by the charterer to be deducted from the freight and set up as a defence to a claim for freight, it is not certain that courts would construe art 3.6 of the Hague Rules as precluding the charterer from relying as a defence on the loss that they had suffered as a result of the carrier's negligence. It is possible that a court might construe art 3.6 as meaning no more than that if no suit is brought to recover compensation for the loss or damage to the goods within one year after delivery, the carrier and the ship are then discharged from liability to pay any compensation in any suit which may subsequently be brought against them in respect of such loss or damage.