This was an appeal from a judgment of Moccatta J. The Brede was owned by Henrikens Rederi A/S (the shipowner). In January 1964, PHZ Rolimpex (the charterer), chartered the Brede on the Gencon form to carry a cargo of rice from Yangon in Myanmar to Gdynia in Poland. The charterparty incorporated the Hague Rules. 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 deliver of the goods or the date when the goods should have been delivered.'

The cargo was loaded and bills of lading issued, dated 10 February and 15 February 1964. On 20 February the charterers paid 80% of the freight. In March 1964 the Brede arrived at Gdynia and discharged the cargo. On arrival the charterer complained that some of the cargo had been lost during the voyage and some of it had been damaged. The charterer paid another amount of freight but withheld GBP 3,000 on account of short delivery and damage.

The shipowner told the charterer to pay the freight in full and that their P&I Club would issue a guarantee in respect of the charterers’ claim for damage to cargo. The cargo owners declined the offer. The shipowner said that cargo damage was a matter for insurance. The cargo underwriters paid the charterers for the damage to cargo, but the charterers repaid it to the underwriters and continued to withhold it from the freight.

After two years (in January 1966), the shipowner claimed for the freight and the parties went to arbitration. At arbitration, the umpire held that the shipowner’s claim for freight succeeded but the charterer's claim for the short delivery and damage to cargo was time-barred due to the one-year time bar in the Hague Rules. The umpire stated a case for the opinion of the Court. Moccatta J affirmed the umpire's award.

The charterer appealed.

Held: Appeal dismissed.

With respect to the running of time, an action is deemed to commence when the writ is issued. An arbitration is deemed to commence when one party serves notice on the other to appoint an arbitrator. When applying the law of limitation, a distinction must be drawn between a matter which is in the nature of a defence, and one which is in the nature of a cross-claim. When a defendant is sued, it can raise a matter that is in the nature of a defence without concern to the limitation period. But a matter that is properly the subject of a cross-claim must be raised within the period of limitation allowed for such a claim. A cross-claim can be made in a separate action or by way of set-off or counterclaim, but will always be subject to a time bar.

When a cross-claim arises from the same transaction, it can be raised as a legal or equitable defence in two categories. The first is where the cross-claim goes directly in diminution or extinction of the claim such when goods are sold with a warranty and the breach of that warranty means the goods are worth less than the contract, or where work and labour are expended and defects mean the work actually done is worth less than the contract price. The second is where the cross-claim does not reduce the value or the goods sold or the work done but causes other damage; such as where goods are delayed in delivery and the buyer has a cross-claim for damages for delay or where a contractor employed to clean windows and negligently breaks a chair.

However, this general principle does not apply to a contract for freight. The law of England as to freight has developed along its own special lines. Freight is payable according to the terms of the contract. No defence of recoupment is allowed. The good conduct of business demands that freight should be paid according to the terms of the contract. Payment should not be held up because the goods are alleged to have been damaged in transit. If that were allowed, it would enable unscrupulous persons to make unfounded allegations to avoid payment. Freight was historically 'the mother of wages' and if a master did not get the freight, the crew and repair bills were liable to go unpaid. This consideration does not have as much weight nowadays, but nonetheless it is not difficult for a cargo owner to recover for damage to cargo without prior deduction of freight.

Claims for damage to cargo should be settled with cargo insurers. They should indemnify the cargo owners for the damage, and then decide whether or not it was due to the actionable fault of the carrier. If it was, the insurers, by subrogation, use the name of the cargo owners to sue the carrier. Under the Hague Rules suit has to be brought within twelve months.