Charter Party Clauses

Charter Party Clauses

Preamble of a Charter Party

Written agreements typically begin with a preamble that identifies the involved parties (Shipowner and Charterer) and summarizes the core terms of the agreement. For instance, a preamble for a Voyage Charterparty may be structured as follows (GENCON ’94, part II, clause 1):

“It is mutually agreed between the party identified in Box 3 as Owners of the steamer or motor-ship named in Box 5, with the GT/NT specified in Box 6, capable of carrying approximately the deadweight cargo tonnage listed in Box 7, currently positioned as noted in Box 8 and anticipated to be ready for loading under this Charter Party around the date specified in Box 9, and the party indicated as Charterers in Box 4, that:

The said ship shall, upon completion of prior commitments, proceed promptly to the loading port(s) or place(s) mentioned in Box 10 or as close as safely reachable, always remaining afloat, to load a full and complete cargo (deck cargo shipment, if agreed, is at Charterers’ risk and responsibility) specified in Box 12, which the Charterers commit to ship. Once loaded, the vessel shall proceed to the discharge port(s) or place(s) listed in Box 11 as directed upon signing the Bills of Lading, or as close as safely reachable, always remaining afloat, to deliver the cargo.”

In such a preamble, different sections of the agreement are interconnected. The GENCON Charter Party Form and several other contemporary Charter Party Forms frequently issued by BIMCO utilize a box layout system, meaning the contract is split into two main segments with mutual cross-references. The initial segment is the box section, containing all specifics related to the particular ship and voyage, whereas the second segment is the textual section with standardized printed clauses. The GENCON Charter Party illustrates this box layout system well. Conversely, other common Charter Parties, including Standard Tanker Charter Party Forms or NYPE, do not employ this box layout; instead, their preamble typically comprises free text and spaces filled out by the contracting parties.

Usually, a Charter Party contains an additional segment, Rider Clauses, comprising photocopied standard clauses or individually negotiated, typewritten provisions. Often, these Rider Clauses exceed the printed form’s length considerably, and in many instances, modifications to the standard document are so extensive that it may become debatable whether the document remains a standard form.

Parties to the Charter Party

The Charterer, the Shipowner, and other involved persons or parties have been previously identified.

Identity of the parties in a Charter Party

Both Shipowner and Charterer should thoroughly assess each other before committing to the agreement. During and following the charter period, each party must retain the capacity to compel the other to fulfill their obligations if necessary. Thus, knowing the identity, full style, and contact details of the counterpart is vital. It is not uncommon for the Charterer to be represented by an agent and known only by phrases like “Messrs XX as Agents for Charterers.” It is crucial to avoid premature commitments and always retain the option to discontinue negotiations if the counterpart proves unsatisfactory due to insolvency, poor reputation, or other reasons. Because various notices need to be communicated to shippers, receivers, or other entities, knowing these companies’ precise identity and contact details is consistently crucial.

 

Substitution of Shipowner or Charterer

Occasionally, during a charter, the Shipowners or the Charterers may seek to replace themselves with other Shipowners or Charterers respectively. For example, it is common for a Shipowner under a long-term Time Charter arrangement to wish to sell their ship and introduce the new owner as the Shipowner in the existing Time Charter Party. Similarly, the Charterer might intend to sub-charter the vessel to another Charterer. A legal distinction exists between these scenarios: in the former, the original Shipowner ceases to be part of the contract following the transaction, whereas in the latter, the original Charterer continues to hold primary liability toward the Shipowner. Generally, a Shipowner cannot sell a vessel during the term of a Time Charter and substitute the new Shipowner into the charter agreement without explicit prior consent. Such arrangements are typically formalized through a novation agreement.

If the selling Shipowner is solvent and reputable, a practical solution could be the Charterer’s acceptance of the new Shipowner combined with a guarantee from the selling Shipowner ensuring the fulfillment of the new Shipowner’s obligations. Occasionally, the Charterer might find it advantageous to engage with a financially stronger new Shipowner but might nonetheless decline the substitution proposal. In such cases, the Shipowner’s shareholders may opt to sell the ship owning entity’s shares instead to the new Shipowner. The situation could similarly apply from the Charterer’s perspective.

The Charterer’s entitlement to sub-let (sub-charter) the ship is typically confirmed explicitly within the Charter Party. An example from a Time Charter Party (Gentime, part II, clause 15(i) “sub-letting”) is as follows:

“The Charterers shall have the right to sub-let all or part of the Vessel whilst remaining responsible to the Owners for the performance of this Charter Party.”

In essence, this clause means the Original Time Charterer maintains liability to the Shipowner, even after transferring rights to direct and order the vessel to another Time Charterer. Unless explicitly permitted in the Charter Party, the Time Charterer cannot delegate their contractual obligations towards the Shipowner to a subsequent Time Charterer.

Signing of the Charter Party

A Charter Party may be signed either by the contracting parties or by an individual authorised by them, typically a Shipbroker. The identity and location of the signatory can be significant, especially regarding applicable law.

It is essential to verify that the final Charter Party matches the Fixture and the “RECAP” created at the time of the Fixture. Signing and delivering an incorrect Charter Party without objection, or failing to protest promptly when an incorrect Charter Party is signed by a Shipbroker, can make the incorrect Charter Party binding for the parties involved. Under English law, correcting such errors later is limited unless a protest is lodged within a reasonable time and both parties agree to the correction.

Under English Law, there is no specific requirement regarding the manner of forming a Charter Party. Provided the parties have reached a complete agreement, signing by or on behalf of the parties is not mandatory. Parties may instead rely on a “RECAP” following email exchanges, possibly referencing additional conditions such as “otherwise as per GENCON form” or “otherwise as per C/P dated for M/V HANDY HANDAN.” However, this practice can easily lead to misunderstandings and disputes. Therefore, frequent business partners should avoid relying solely on email exchanges and a “RECAP,” instead creating a standardized pro forma Charter Party and Fixture note form for each Fixture.

Ship

Nomination, identity, and substitution

Depending on the charter contract type, the ship’s role within the Charter Party may vary significantly. Traditionally, the Charterer benefits from knowing precisely which ship will transport the cargo, with early ship nomination being important. Although this principle may be less critical today, it remains relevant under various conditions.

In conventional Liner Shipping and Tramp Shipping, the Bill of Lading (B/L) is usually a Shipped Bill of Lading (B/L), issued upon cargo loading onto the ship. In such scenarios, the specified ship is essential. Modern liner businesses often use a received-for-shipment Bill of Lading, making the specific ship less crucial, as customers trust the carrier’s performance irrespective of the actual ship used.

In Time Charter and Bareboat Charter agreements, both types being forms of ship hire agreements, the ship itself is central. Conversely, in voyage charters—transport agreements for specific cargo between specified ports—the ship’s description is generally less critical. It’s common for Voyage Charter Parties to be finalized before the particular ship is identified, referring to it as “ship to be nominated” or similar wording. In such situations, the Shipowner must nominate a ship suitable for the cargo and ports involved. For quantity contracts, where moving specific amounts of cargo within a particular timeframe is primary, ships are typically unnamed in the agreement. If ship nomination is delayed until shortly before loading, shippers may face difficulties arranging merchandise and documentation.

When a charter agreement specifies a named ship, the agreement’s validity depends on the ship’s existence. Loss or declaration of a Constructive Total Loss (CTL) of the ship results in automatic termination or Frustration of the agreement. Other circumstances, such as prolonged delays, can also lead to Frustration. Parties occasionally invoke the English “Doctrine of Frustration” to terminate economically disadvantageous Charter Parties.

In Voyage Chartering, it’s common to allow ship substitution. The Charter Party might include phrases like “MV HANDY HANDAN or substitute” or “MV HANDY HANDAN, Owner’s Option (OO) to substitute ship of same class and similar size and position.” It’s crucial to define clearly the scope of substitution rights: Is substitution merely optional for the owner, or mandatory if the original ship becomes unavailable? Can substitutions be repeated? Should substitution rights expire a certain number of days before loading begins? Can only specific ships or types substitute, or is any suitable ship acceptable?

The charter agreement typically specifies the ship’s name, nationality, call sign, IMO-number, year of build, and type (e.g., motor vessel (MV), motor tanker (MT), reefer). Shipowners cannot alter essential ship characteristics described in the Charter Party without Charterer approval. Changing the ship’s nationality (flag), for instance, often requires the Charterer’s consent, as nationality can significantly matter to the Charterer. The ship’s detailed description is critical in chartering contexts, particularly within Voyage Charter Party and Time Charter Party frameworks. Oil companies, for example, have rigorous ship quality requirements, employing comprehensive vetting procedures and extensive questionnaires for tanker approval. SHELLVOY 6 exemplifies a detailed ship description clause.

 

Ship Trading limits

Hull underwriters impose geographical trading limitations concerning the ships they cover. Limits may slightly differ among underwriters. Some trading regions are consistently approved, others consistently prohibited (primarily Arctic regions), while others are permitted only during specific periods and restricted otherwise. Common rules concerning ships’ trading limits are known as the International Navigating Limits (INL), established by the Institute of Chartered Underwriters in London, replacing the earlier Institute Warranty Limits (IWL) as of 1 November 2003. The INL (International Navigating Limits) specify geographic boundaries within which ships can operate without incurring extra insurance premiums from hull and machinery and other related underwriters. Operating outside the INL, particularly in hazardous zones like ice-covered areas, might lead to ship damage and delays caused by necessary repairs.

Hull underwriters base their accepted and excluded trading area guidelines on average ice and weather conditions, typically resulting in stable rules from year to year. Restrictions related to Extra War Insurance (EWI) depend on potential risks from war, hostilities, terrorism, strikes, and similar hazards. Due to the variability of these risks, underwriters frequently update restrictions and associated Additional War Premiums.

The ship’s trading limits depend on its manning levels, construction, and onboard technical equipment. For example, a ship engaged in global ocean voyages typically requires more officers and crew compared to one operating solely in coastal waters. Additionally, certain countries or navigational routes, such as the Suez Canal or the St. Lawrence Seaway, mandate specialized technical equipment aboard ships.

This section covers exclusively the ship’s trading limits. Additional constraints, often influenced by political relations among countries, are commonly explicitly stated within the Charter Party.

Ship Seaworthiness

Charter Parties generally specify that the Shipowner must maintain the ship in a seaworthy condition. Even in the absence of such explicit clauses, Shipowners are usually legally obligated or bound by implied warranties to ensure seaworthiness. Although Shipowners may insert clauses exempting liability for seaworthiness, these exceptions can sometimes be invalid. A notable instance is when Shipowners attempt exemption from liability under the Carriage of Goods by Sea Act (COGSA) or other regulations derived from the Hague/Hague-Visby Rules or comparable legislation.

Seaworthiness encompasses three main aspects:

• Technical Seaworthiness;
• Cargoworthiness;
• Seaworthiness specific to the intended voyage.

Technical Seaworthiness refers to the ship’s design, Hull and Machinery (H&M) condition, and stability. Cargoworthiness indicates that the ship must be appropriate for the designated cargo and adequately cleaned, whereas Seaworthiness for the intended voyage requires the ship to be suitably equipped, crewed, bunkered (fueled), and prepared for the voyage.

When evaluating if a ship is seaworthy, it is essential to consider each stage of the voyage and individual circumstances (Seaworthiness by stages). For example, a ship deemed seaworthy for operations on the River Thames may not be adequate for a voyage from England to New York. Additionally, a ship seaworthy during cargo loading may require additional bunker (fuel), charts, and preparations before embarking on the intended voyage.

A particular concern related to Seaworthiness for a specific voyage involves determining the level of technical equipment and required certifications for the ship to safely and timely call at specific ports or countries.

Regarding standard certificates and documentation, the ship’s owner and master must maintain all essential certificates updated, applicable to both Time Chartering and Voyage Chartering. Exceptions arise if, for instance, a ship operating under a time charter with global routes has a sudden schedule change, leading the ship to a previously unplanned port or country. In such cases, the Shipowner may require extra time to secure necessary documentation.

Concerning documentation demanded by organizations other than national authorities, such as the ITF (International Transport Workers’ Federation), the situation can be unclear. If labor unions typically require specific certificates or documents, the Shipowner likely has an obligation to maintain these on board. However, if requests from unions or similar organizations are unexpected, resolving these matters becomes complicated. Special clauses addressing these concerns are often included in Charter Parties. Issues arising from restrictions and regulations imposed suddenly by authorities must be addressed on a case-by-case basis. Generally, shipping practices increasingly demand precise descriptions of the ship, the certificates onboard or accessible, and place greater responsibility on the Shipowner’s warranties.

A critical aspect of preparing a ship for cargo involves the cleaning of cargo holds, relevant for all ship types but varying in extent based on the cargo type. In dry cargo trades, certain cargoes, like grain, require meticulous cleaning following particular previous cargoes. Similarly, a tanker regularly transporting crude oil (dirty cargo) must undergo thorough cleaning before handling clean cargoes. Cleaning of tanks, pipelines, and pumps is necessary between each voyage. Tanker trades employ specialized cleaning methods such as the Butterworth and Gunclean systems.

Frequently, Charter Parties include conditions like “Cleaned to the Charterer’s inspector’s satisfaction.” Such clauses can pose risks or burdens for the Shipowner. In certain trades, cleaning standards required by specific authorities tend to pose fewer risks from the Shipowner’s perspective.

 

LAYCAN

Under both Voyage Charter and Time Charter, an agreement must specify when the ship is required to be ready for loading at the initial port or delivered to the Charterer, respectively. The Shipowner and Ship Master are obligated to exert maximum effort to ensure the ship arrives at the initial loading port (for a voyage charter) or the delivery location (for a period charter) by or before the agreed date of expected readiness for loading. If the Shipowner or Ship Master intentionally or negligently delays the ship, causing late arrival, the Shipowner could face liability for Breach of Contract (Breach of Charter Party). Usually, a Laycan Clause is agreed upon, for example, “Laycan June 26–30.”

LAY

“Lay” abbreviates “laytime not to commence before.” Under a Voyage Charter Party, if the ship arrives ready at the initial loading port before the agreed Layday, the Shipowner cannot insist that the Charterer begins loading or that laytime starts counting.

For ships chartered under a Time Charter Party, arriving at the delivery port or location before the Agreed Layday does not obligate the Charterers to accept delivery. Unless Charterers consent to earlier delivery, the ship must wait, earning no income for the Shipowners. Occasionally, Charterers prefer to load the ship before the first Layday without officially taking delivery, thus avoiding payment. The Shipowner isn’t required to agree to this arrangement; consequently, if Charterers want to start loading before the first Layday, clear agreements on Hire payments and risk allocation during the interim period are essential.

Layday may not always be precisely specified. For example, GENCON ’94 Charter Party Form (part II, clause 1) refers to “expected ready to load under this Charter Party about the date indicated in Box 9.” The interpretation of “About” depends on case-specific circumstances. A longer interval between Fixture and the initial layday generally extends the meaning of “About.”

CAN

If a ship doesn’t promptly arrive at the loading port under a Voyage Charter or at the delivery port/location under a Time Charter, the Cancelling Day usually grants Charterers an absolute right to cancel the agreement. Typical cancellation clauses, such as those in GENCON or BALTIME, apply when delays are beyond the Shipowner’s control, despite efforts by the Shipowner and master to expedite the voyage.

If it’s clear to the Shipowner that the ship won’t reach the initial loading or delivery port before the Cancelling Date, obtaining the Charterer’s decision on cancellation becomes critical. Under English law, unless explicitly stated in the Charter Party, the Charterer isn’t obligated to declare their intention.

These issues and solutions are illustrated in the clause (GENTIME, part II, clause 1(d) “period and delivery/cancellation”):

“Should the Vessel not be delivered by the date/time stated in Box 10, the Charterers shall have the option to cancel the Charter Party without prejudice to any claims the Charterers may otherwise have on the Owners under the Charter Party. If the Owners anticipate, despite due diligence, the Vessel won’t be ready by the date/time stated in Box 10, they may notify Charterers in writing, stating the new expected readiness date, proposing a new cancelling date/time, and requiring Charterers to declare cancellation or acceptance. If Charterers choose not to cancel or fail to respond within two working days, the new proposed cancelling date/time replaces the original. This adjustment can only occur once, and if the Vessel isn’t ready by the revised cancelling date/time, Charterers again have the option to cancel.”

This wording provides Charterers cancellation rights for delayed arrivals and protects Shipowners by allowing a new Cancelling Day if Charterers don’t confirm their decision promptly. A similar practice exists in GENCON ’94 Voyage Charterparty Form (part II, clause 9 “cancelling clause”), requiring Charterers to decide on cancellation within 48 hours following notification of delayed arrival. If Charterers don’t exercise cancellation rights, the seventh day following the new readiness date automatically becomes the new Cancelling Date. This approach contrasts with the GENCON ’76 Charter Party Form, where Charterers must declare cancellation at least 48 hours before the ship’s ETA upon demand. Thus, if the Shipowner anticipates missing the Cancelling Date weeks in advance, without the Charterer’s cooperation, the Shipowner may have to initiate the Ballast Voyage to avoid a potential breach of Charter Party claim.

 

Paramount Clause

In relation to the interactions between Shipowner and Charterer under Charter Parties, there are no compulsory (mandatory) regulations regarding cargo liability. Some Charter Parties aim to relieve the Shipowner of much of his cargo liability, while others include terms closely aligned with the mandatory cargo liability regime. Although the parties involved in Charter Parties are generally free to define the extent of the Shipowner’s cargo liability, it is common to find a separate provision called a “Paramount Clause” addressing liability for damage to or loss of cargo. A Paramount Clause can be formulated in various ways; however, the core principle is that the Hague Rules, Hague-Visby Rules, or national laws based on these international conventions shall apply to cases involving cargo damage or cargo liability.

A Paramount Clause in a Charter Party may stipulate that standard wording must be included in all Bills of Lading (B/L) issued under the Charter Party, or the clause may exclusively address the Cargo Liability framework within the Charter Party. Alternatively, the clause might apply to the Charter Party as a whole. In this final scenario, various legal challenges can arise, since the Hague Rules and related conventions primarily focus on cargo liability rather than chartering practices and commercial activities.

Paramount Clause is among the Protective Clauses typically included in various Charter Parties or Bills of Lading. Indicative wordings can be observed in SHELLVOY 6 (part II, clause 37) “Clause Paramount,” as well as NYPE 15 (Clause 33a) “Protective Clauses – General Clause Paramount.”

War Clauses

During periods of war, revolution, or similar unrest, the crew, ship, and cargo may face specific risks. Personnel onboard might sustain injuries or fatalities, while cargo and ship may be damaged or lost. Additionally, there is a risk of delays and increased expenses, such as additional insurance premiums for cargo and ship, or extra wages for the crew. To clarify the rights, duties, and liabilities of involved parties when crew, ship, and cargo encounter such risks, a special war clause is commonly included in the Charter Party. War clauses are categorized into two groups: War Cancellation Clauses and War Risk Clauses (WRC).

 

War Cancellation Clauses

BIMCO (Baltic and International Maritime Council) has issued a Standard War Cancellation Clause. Such a clause typically intends to allow both contracting parties to terminate the charter agreement if the Freight market significantly changes due to a war between certain nations or if further use of the ship is hindered by requisition or comparable actions by the ship’s home country. War Cancellation Clauses commonly appear in long-term period Charter Parties and Contracts of Affreightment (COA), but they are increasingly found in shorter Time Charter Parties and even in voyage Charter Parties. It should be noted that the latest NYPE edition has removed such a war cancellation provision, previously included in NYPE ’93 (clause 32 “war cancellation”).

The BIMCO Standard War Cancellation Clause 2004 aligns with the respective provision in BARECON 2001, which is phrased as follows (BARECON 2001, part II, clause 26(f) “war”):

“In the event of the outbreak of war (whether there be a declaration of war or not): (i) between any two or more of the following countries: the United States of America; Russia; the United Kingdom; France; and the People’s Republic of China (ii) between any two or more of the countries stated in Box 36, both the Owners and the Charterers shall have the right to cancel this Charter, whereupon the Charterers shall redeliver the Vessel to the Owners in accordance with Clause 15, if the Vessel has cargo on board after discharge thereof at destination, or if debarred under this Clause from reaching or entering it at a near, open and safe port as directed by the Owners, or if the Vessel has no cargo on board, at the port at which she then is or if at sea at a near, open and safe port as directed by the Owners. In all cases hire shall continue to be paid in accordance with Clause 11 and except as aforesaid all other provisions of this Charter shall apply until redelivery.”

War Risk Clauses

While the War Cancellation Clauses are primarily included in long-term Charter Parties or Contracts of Affreightment (COA), War Risk Clauses should be incorporated into all charter agreements.

BIMCO has historically published the CONWARTIME and the VOYWAR war risk clauses, respectively for Time Charter Parties and Voyage Charter Parties. Reflecting recent court views, changes in trading practices, and insurance considerations, their most recent revision was finalized in 2013, replacing earlier versions from 1993 and 2004. These standard clauses were updated and are now included in all new and revised BIMCO standard Charter Parties and related documentation.

A War Risk Clause must always include a definition of “War Risk.” The following example is from BIMCO’s clause VOYWAR 1993, as found in GENCON ’94 (part II, clause 17(1)(b) “War Risks”):

“ʻWar Risks’ shall include any war (whether actual or threatened), act of war, civil war, hostilities, revolution, rebellion, civil commotion, warlike operations, the laying of mines (whether actual or reported), acts of piracy, acts of terrorists, acts of hostility or malicious damage, blockades (whether imposed against all ships or imposed selectively against ships of certain flags or ownership, or against certain cargoes or crews or otherwise howsoever), by any person, body, terrorist or political group, or the Government of any state whatsoever, which, in the reasonable judgement of the Master and/or the Owners, may be dangerous or are likely to be or to become dangerous to the Vessel, her cargo, crew or other persons on board the Vessel.”

In the latest version of the clause, VOYWAR 2013, war risks include not only actual or threatened war and warlike operations but also those reported. Additionally, piracy now explicitly covers “violent robbery and/or capture/seizure” to ensure consistency with the BIMCO piracy clause. Such attacks frequently occur today and, though not technically classified as piracy under international law, are treated as such for insurance purposes.

Many War Risk Clauses have narrower definitions. For example, a War Risk Clause might apply only if a port is “declared blockaded by reason of war” or similar circumstances. Occasionally, War Risk Clauses specify that only the Shipowner can determine whether a war risk exists.

The primary purpose of a War Risk Clause is to clearly outline each party’s rights and responsibilities when crew, ship, and cargo face war risks. Key issues to address include: Can only the Shipowner, or both the Charterer and the Shipowner, cancel the Charter Party without compensation, or is it the Charterer’s responsibility to arrange alternative cargo or pay Deadfreight (DF)? Is the Shipowner obligated to proceed to another port or area free from war risks? Who bears the costs associated with delays in loading, sea voyages, or discharging, and who covers additional insurance premiums and crew wages?

Sometimes, hull and war risk insurers or authorities such as flag states, classification societies, or ports may instruct the ship to avoid certain areas due to war risks. It is crucial that a War Risk Clause explicitly states the Shipowner’s right to follow such instructions.

 

War Risk Clauses in Voyage Charters and Time Charters

Generally, Standard Charter Party Forms include a printed War Risk Clause. In Time Charters, different versions of the BIMCO Conwartime Clause are commonly employed. In Voyage Charters, the relevant versions of the BIMCO Voywar Clause are incorporated into the charter documents. Both clauses are extensive; readers should refer to BIMCO for the complete texts. When comparing the concepts and application of these clauses, it is crucial to note that Conwartime addresses war risks that might exist either before or after concluding a Charter Party, whereas Voywar specifically targets situations arising before loading or after commencement of the voyage.

Other war risk clauses, beyond those published by BIMCO, can also be included in chartering negotiations. However, these alternative clauses might not adequately meet the requirements of modern charter agreements, potentially causing disputes. It is advisable to avoid controversial or outdated clauses, especially in Time Charter Parties.

A ship operator should ensure consistency between war risk clauses intended for Voyage Chartering and those used in Time Chartering. For instance, when acting as a Time Chartered Owner, Disponent Owner, or similar role, the operator must carefully include a War Risk Clause in the charter-out that is no less favorable than the one in the charter-in. If Conwartime 1993 is used for chartering-in a ship under a Time Charter, Voywar 1993 should be applied when chartering-out the ship on a spot basis. Similarly, if Conwartime 2013 is used for a time-chartered ship, Voywar 2013 should be applied for voyage agreements involving the same ship. Additionally, the Bill of Lading (B/L) war clauses must be drafted appropriately to provide equivalent protection to the relevant Charter Party clauses.

Effect of cost variations on the contractual relationship

The fundamental principle here is that Shipowners and Charterers remain bound by their Charter Party, regardless of subsequent economic developments. Both Shipowners and Charterers agree to adhere strictly to their contractual rights and duties, irrespective of future circumstances. An unexpected cost increase usually will not affect the obligations of the paying party unless it constitutes Frustration of the Charter Party, which rarely occurs. Consequently, Shipowners and Charterers must contractually address these issues if they wish economic developments to influence their rights and obligations. Specific clauses addressing these matters may occasionally appear in Charter Parties spanning extensive periods, such as hardship clauses, bunker clauses, currency clauses, or escalation clauses, with varying objectives and constructions.

A Hardship Clause might aim to initiate renegotiation between Shipowners and Charterers if economic conditions change significantly. If renegotiation fails, the disadvantaged party could then potentially cancel the agreement. Such clauses vary considerably in drafting and effectiveness. Bunker Clauses might provide compensation to the Shipowner in cases of rising bunker prices or relieve the Shipowner from certain obligations in the event of bunker shortages. Currency Clauses and Escalation Clauses typically function only as Compensation Clauses.

For Charter Parties covering extended periods, such as Bareboat Charter, Time Charter, Contract of Affreightment (COA), or Consecutive Voyages, Shipowners and Charterers must account for risks associated with changing economic conditions, especially rising costs and currency exchange rate fluctuations. Drafting effective Currency Clauses, Escalation Clauses, or Bunker Cost Clauses to address all potential scenarios is often challenging. Consequently, these clauses may sometimes yield outcomes opposite to their intended effects. It is recommended to seek advice from financial experts and lawyers when drafting these clauses. Standard clauses developed by BIMCO might serve as a useful starting point, but the specific circumstances of each agreement should always be considered.

 

Currency Clauses

The examples provided illustrate issues that may occur due to fluctuations in the relative currency exchange rate.

A Shipowner whose costs are entirely in Euro calculates expenses for a specific voyage at Euro 24,500. The Freight is fixed at USD 25,000, which, at an exchange rate of USD 1 = Euro 1, results in a corresponding income of Euro 25,000 when converted to the home currency. Thus, the surplus is calculated as Euro 500. However, if before the Freight payment, the currency exchange rate shifts to USD 1.20 = Euro 1 (indicating a 20% depreciation of the US Dollar), the Shipowner’s compensation, when converted into the home currency, would decrease to approximately Euro 20,800. Consequently, rather than a Euro 500 surplus, a deficit of approximately Euro 3,700 emerges. If the Charter Party had included a Currency Clause stating that Freight payments would be based on an agreed exchange rate of USD/Euro = 1 and any fluctuations would be adjusted accordingly, the Shipowner would be eligible for a Freight payment of USD 30,000 [i.e., USD 25,000 × (1+20%)]. In this scenario, the surplus in the home currency would remain unchanged at Euro 500 [i.e., (USD 30,000 ÷ 1.20) – Euro 24,500], still sufficient to cover the costs.

Several considerations must be taken into account when drafting such a clause. Firstly, parties must determine whether a currency clause should be included at all. If they decide affirmatively, they must carefully draft it. This process can be complicated. Parties must clarify various aspects, such as whether the clause operates mutually or protects only one party, and whether currency fluctuations must exceed a particular threshold before activating the clause.

In liner business, pricing structures often incorporate a Currency Adjustment Factor (CAF). CAF is an additional fee added to standard Freighting charges by liner carrier companies to address ongoing fluctuations between the US Dollar and other currencies. Its purpose is to mitigate potential losses incurred by carriers due to continual exchange rate volatility. Calculation methods and criteria may vary among companies. Generally, the Currency Adjustment Factor (CAF) rises as the US Dollar weakens in most situations. This surcharge is implemented as a percentage above the base exchange rate agreed upon. Due to the unpredictable nature of this additional charge, shippers usually prefer all-inclusive contracts at fixed rates, accounting for all potential charges, thereby limiting the impact of the Currency Adjustment Factor (CAF).

Below is a typical example of a Parity Clause offering mutual protection:

“The Freight and the demurrage rate in this Charter Party is based on a rate of exchange where USD 1 is equal to EUR . . . (the contractual rate of exchange). If, on the actual payment date, the fixing rate for US Dollars quoted by . . . Bank differs from the contractual rate of exchange, the US Dollar shall be adjusted to realise the same amount of EUR as if the contractual rate of exchange was used.”

 

Escalation Clauses

An escalation clause aims to protect the party impacted by rising costs, compensating him either fully or partially. The clause typically ensures the Freight is adjusted continuously or at set intervals according to changes in cost. Costs particularly relevant in this context include those related to manning, maintenance and repair, and insurance of the ship.

The main challenge with escalation clauses is identifying a base or formula for recalculating the Freight. Sometimes, a specific cost factor is utilized, sometimes an index is applied, and occasionally, actual cost changes are directly used. For example, if the Shipowner’s costs rise by 10% within a certain timeframe, an escalation clause allowing equal adjustments in Freight corresponding to cost increases would entitle him to a 10% Freight increase. Nevertheless, such clauses may reduce the Shipowner’s motivation for effective cost management. Alternatively, parties may agree beforehand on fixed percentage increases in Freight at designated intervals or dates.

A typical example of an escalation clause for a period charter is:

“The rate of hire agreed in this charter is based upon the level of owners’ monthly operating expenses ruling at the date of this charter as shown in the statement for future comparison attached hereto, including provisions, stores, master’s and crew’s wages, war bonus and other remuneration, maintenance and usual insurance premiums. By the end of every year of the charter period the average monthly expenses for the preceding year shall be compared with the basic statement attached hereto. Any difference exceeding 5 per cent, to be multiplied by 12 and regulated in relation with the next hire payment. The same principle to apply pro rata at the termination of the charter for any part of a year.”

 

Bunkers Clauses

Currency Clauses and Escalation Clauses are predominantly utilized in long-term Charter Parties. However, even in short-term Charter Parties, it is recommended to include additional clauses addressing rapid fluctuations in specific costs, especially where neither party can influence such costs. One common example involves the cost of bunkers. If bunker prices significantly increase between the Fixture of a spot charter and the voyage’s commencement, the Shipowner’s initial calculation might become inaccurate. Therefore, a dedicated Bunker Clause may be added to the Charter Party, stating that Freight payment is based on a specific bunker price (USD X per ton), with any variation in bunker prices entitling the owner to corresponding Freight adjustments or compensation.

In liner shipping, pricing schemes typically include a Bunker Adjustment Factor (BAF). This is a flexible component of sea Freight charges, representing additional payments due to fluctuations in oil prices. Historically, liner conferences collectively set BAF charges for defined periods and routes. Since October 2008, however, the European Commission banned these carrier conferences under anti-trust regulations, leading shipping lines to independently determine their Bunker Adjustment Factor (BAF) rates, closely overseen by the EU to prevent collusion in pricing.

 

Other provisions regarding allocation of costs

Some additional expenses that are uncertain or challenging to estimate in advance may be handled through specific clauses.

For example, the clause below relates to insurance costs and frequently appears in voyage Charter Parties:

“Any additional insurance on ship and/or cargo levied due to the ship’s age, flag, ownership, management, class or condition to be for owner’s account.”

Another example relates to payment of Freight Tax, which may be the responsibility of either the Charterers or the Shipowners, as stipulated in the Charter Party. The wording can appear as follows:

“Freight Tax, if any, to be for Charterers’ (or Owners’) account.”

Numerous countries impose Freight taxes. These taxes apply to income earned from maritime transportation of goods, typically on export cargoes. In certain situations, charter hire for time charter or bareboat charter may also be subject to taxation. Shipowners and ship managers, especially those not residing in the tax-levying countries, may be particularly affected. This issue can significantly impact shipping groups listed on US stock exchanges. Occasionally, agency fees include a Freight Tax component that the owner was not adequately informed of before fixing the ship. BIMCO has played an essential role regarding this issue, previously publishing an annually updated booklet titled Freight Taxes, which offered crucial information on taxes applicable in various countries. This information is now provided online exclusively to BIMCO members. Shipowners can use this resource to enhance the accuracy of their voyage cost estimates, as it provides clear and updated information about nations imposing taxes on foreign ships using their ports.

Various clauses allocate Freight Taxes between the involved parties. A typical provision for time Charter Parties is:

“All taxes and dues on the Vessel and/or cargo and on charter hire and Freight arising out of cargoes carried or ports visited under this Charterparty shall be for the Charterer’s account.”

For Voyage Charter Parties, the following wording is standard:

“Dues and other charges levied against the Vessel shall be paid by the Owners, and dues and other charges levied against the cargo shall be paid by Charterers. Without prejudice to the foregoing, . . . the Vessel will be free of any wharfage, dock dues, quay dues, . . . or other taxes, assessment or charges calculated based on the quantity of cargo loaded or discharged, and also free of . . . taxes on Freight and any unusual taxes, assessment or government charges effective at the date of this Charterparty or becoming effective before its completion, either on the Vessel or Freight, whether measured by cargo quantity or volume.”

Frustration of Charter Party

The Doctrine of Frustration might occasionally be invoked by Charterers or Shipowners seeking to terminate a Charter Party due to economic factors. It is not possible here to discuss all complex issues related to this doctrine in depth. However, determining beforehand whether courts or arbitrators will accept a frustration claim is typically very challenging. Therefore, caution should be exercised, and legal advice should always be sought before notifying the counterparty of termination based on the Doctrine of Frustration.

Arbitration Clauses

To prevent disputes regarding which law applies to the Charter Party, all Charter Party forms should include a clause addressing the applicable law and the procedure for handling disputes between the parties. The Charter Parties typically refer to Arbitration, whereas Bills of Lading (B/L) more frequently mention court procedures. An arbitration clause should not only reference the applicable law but also specify the rules regarding the procedure for nominating arbitrators. When English law applies, the arbitration clause may refer to an Arbitration Act that governs the procedure; specific mention should be made of the Arbitration Acts of 1950, 1979, or 1996.

Modern Charter Parties often feature a Split Arbitration Clause, allowing Charterers and Shipowners to decide whether arbitration should take place in London, New York, or another location (GENTIME, part II, clause 22 “law and arbitration” or , NYPE 2015, clause 54 “law and arbitration”). These clauses usually state that the contract shall be governed and interpreted according to the law of the chosen arbitration venue. If the parties responsible for selecting the arbitration location, as per the Arbitration Clause, fail to reach an agreement, the Charter Parties may include a default provision, such as GENTIME, part II, clause 22(d) “law and arbitration.” Lastly, it is common for Arbitration Clauses to specifically address Small Amounts Disputes.

Time Limits

Most countries impose general time limits for claims, and Charter Parties typically include similar restrictions. The one-year limitation for cargo claims under the Bill of Lading (B/L) conventions is one such example. Regarding time limitations in Charter Parties, it is generally recommended to avoid limits shorter than one year.

Time limits under general contract law vary from country to country, and both parties in the Charter Party must determine the applicable limitation for filing a suit in their case. Under English Law, the primary limitation period for commercial litigation or arbitration related to Charter Parties is six years. Other countries impose shorter limits; for example, France has a one-year limit, while Spain enforces a six-month limit. It is also important to consider that even if the charter agreement is governed by English law with a six-year limitation, the laws and regulations of the country where the Defendant conducts business may still apply. For instance, if the Charterers are Spanish, the owners must be mindful of Spain’s six-month limit rather than relying on the English six-year limit applicable to the Charter Party under English law. Additionally, it is crucial to determine the starting point for the time limit. In some cases, the time begins from the final discharge of cargo, while in others, it starts from different events or specific circumstances.

Exception Clauses

Charter Parties typically include clauses that exempt the Owners or both Shipowners and Charterers from liabilities. Exception Clauses may sometimes apply only to specific loss or damage (e.g., loss or damage to cargo), while in other cases, they have a broader scope. The Bill of Lading (B/L) conventions provide exemptions in certain situations.

One example is the Cesser Clause, which applies in a Voyage Charter Party, where the Charterer’s liability ends upon shipment of the cargo. In this scenario, the Charterer aims to transfer their right to have goods transported to a shipper. This clause is commonly associated with the Shipowner’s right to enforce a Lien on the shipper’s goods for Freight (F), Deadfreight (DF), and Demurrage (D) due under the Charter Party. Consequently, the Charterer is only released from liabilities that are replaced by a lien granted to the Shipowner.

The following examples illustrate Exception Clauses of a general nature—one for a Voyage Charter Party and another for a Time Charter Party:

GENCON ’94, Part II, Clause 2 – “Owners’ Responsibility Clause”

“The Owners are responsible for loss of or damage to the goods, or for delay in delivery of the goods, only if the loss, damage, or delay is due to personal want of due diligence by the Owners or their Manager in ensuring the ship is fully seaworthy, properly manned, equipped, and supplied, or due to a personal act or default of the Owners or their Manager.

Shipowners are not responsible for loss, damage, or delay resulting from any other cause whatsoever, even if caused by the neglect or default of the Master, crew, or any other person employed by the Owners on board or ashore, for whom they would otherwise be responsible, or due to the unseaworthiness of the Vessel at the time of loading, voyage commencement, or any other time.”

Baltime 1939, Edition 2001, Part II, Clause 12 – “Responsibility and Exemption”

“The Owners are responsible for any delay in delivering the Vessel, delay during the Charter period, or loss or damage to goods onboard only if such delay or loss results from a lack of due diligence by the Owners or their Manager in ensuring the Vessel is seaworthy and fit for the voyage, or from any other personal act, omission, or default by the Owners or their Manager.

In all other cases, the Shipowners bear no responsibility for damage or delay, regardless of how it arises, even if caused by the neglect or default of their employees. The Owners are also not liable for loss or damage caused by strikes, lock-outs, or work stoppages, including those involving the Ship Master, Officers, or Crew, whether partial or widespread. The Charterers, on the other hand, are liable for any loss or damage to the Vessel or the Owners resulting from loading goods contrary to Charter terms, improper or negligent bunkering, incorrect loading, stowing, or discharging of goods, or any other negligent act committed by them or their employees.”

Both the GENCON and the BALTIME Clauses appear to be highly advantageous for the Shipowner. However, it should be noted that courts and arbitrators tend to interpret such clauses restrictively, meaning the Shipowner cannot fully depend on similar wording.

Another type of exception clause may include the Force Majeure provision, which grants mutual relief to both parties, as stated below:

“Charterers and Owners exempt each other from responsibility for non-performance of this agreement when same is caused by Acts of God, Governmental, Institutional Restrictions, or any other cause beyond control of either party.”

This clause applies equally to Charterers and Shipowners, unlike the GENCON and BALTIME clauses mentioned earlier.

At times, a “limitation of liability” clause may be included, structured as follows (GENCON ’76, Part II, Clause 12 “indemnity”):

“Indemnity for non-performance of this Charterparty, proved damages, not exceeding estimated amount of Freight.”

It is important to highlight that this clause is not present in GENCON ’94.

As noted, various types of Exception Clauses exist in Charter Parties, and determining their exact applicability in a given situation can be challenging. A key issue with Exception Clauses is that they are frequently overlooked during negotiations. The printed clauses in Standard Charter Party Forms tend to “slip in” unnoticed by Shipowners and Charterers. This likely occurs because these clauses are not commonly referred to by either party and are therefore perceived as insignificant. However, this assumption is incorrect. The presence and specific wording of an Exception Clause can be critical, especially in disputes involving substantial financial sums, where parties may rely on the clause to support their case.

Shipowners and Charterers are advised to thoroughly review all Exception Clauses and carefully evaluate their implications before agreeing to them. This is, of course, a general recommendation that applies to all clauses in the Charter Party.

Maritime Liens

A Shipowner has the right to enforce a Lien on cargoes carried on board the ship for costs such as Freight (F), Deadfreight (DF), Demurrage (D), cargo-related expenses, General Average (GA) contributions, and similar charges. Liens on goods may be established based on applicable general law, explicit agreement in the Charter Party or Bill of Lading (B/L), or both legal principles and contractual agreements.

Conversely, there are instances where a claim against the Shipowner may lead to a Lien on the ship. Such a Lien may persist on the ship even after it has been sold to another Shipowner. In Time and Bareboat Charter agreements, Shipowners often, by mutual agreement, secure a right to a Lien on the Freight owed by Charterers under any related Bill of Lading (B/L) or sub-Charter Party.

To determine the viability of enforcing a Lien in a specific situation, it is essential to consider not only the terms of the Charter Party and Bill of Lading (B/L) but also the relevant legal framework, including the governing law of the contract and the jurisdiction where the Lien is to be executed.

Arrest of Ships

Individuals or companies with claims against a Shipowner may sometimes seek to arrest one of the Shipowner’s ships to secure payment or obtain security for their claim. The rules governing the arrest of a ship vary significantly, primarily depending on the applicable law and the legal jurisdiction of the country where the arrestor plans to arrest the ship. Therefore, it is crucial for both the arrestor and the Shipowner to engage a local lawyer who can provide legal guidance, assess the case, and manage the necessary legal procedures.

As an example of these variations across different countries, in some jurisdictions, a ship can only be arrested for claims secured by a Maritime Lien or a Mortgage on the ship, whereas in other jurisdictions, a ship may be arrested for any monetary claim, regardless of whether it is secured or not. In certain cases, the arrestor must provide evidence and security for their claim, while in other instances, a ship may be arrested based on minimal justification and without security. Given these complexities, it is difficult to provide specific recommendations on how parties should proceed.

As a general rule, a Shipowner should act immediately if there is a potential risk of arrest. The Shipowner should consult legal advisors, the P&I Club (Protection and Indemnity Club), bankers, and other relevant parties to prepare defenses, arguments, and security measures to prevent delays to the ship. On the other hand, any person or company considering the arrest of a ship should be aware that, even though it may sometimes be a straightforward process to obtain security, they may face a counterclaim for delaying the ship if the arrest is later found to have been unjustified.

General Average (GA)

The definition of General Average (GA) is outlined in Section 66(2) of the UK Marine Insurance Act 1906 as follows:

“There is a general average act, where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure.”

Thus, a General Average (GA) Act occurs only when an extraordinary sacrifice or expenditure is voluntarily or reasonably made for the common safety and to protect the properties at risk in a common maritime adventure. A key feature of General Average (GA) is that sacrifices and expenditures are shared proportionally among the different contributing interests of the maritime adventure.

The scope of General Average (GA) covers all interests involved in the common adventure that are at risk. These include physical assets such as the ship, the cargo, the bunkers (fuel), stores, and personal effects. Additionally, there are interests tied to the safety of these physical assets, such as the Freight, Time Charter Hire (which depends on the safe transport of cargo), and any other property exposed to risk during a common maritime adventure.

A classic but somewhat outdated example of General Average (GA) involves the jettisoning of deck cargo to stabilize a listing ship and thereby save the vessel, its remaining cargo, and Freight. A more modern example occurs when a ship in distress is successfully rescued.

Most General Average (GA) cases are settled in accordance with the York-Antwerp Rules (YAR), a set of regulations that establish the international framework for General Average (GA) settlements. First introduced in 1890, the York-Antwerp Rules (YAR) have been revised multiple times. It is common for Charter Parties, Contracts of Affreightment (COA), Bills of Lading (B/L), Waybills, and marine insurance policies to reference a specific version of these rules.

Under the York-Antwerp Rules (YAR), certain conditions must be met: the danger must be imminent, a portion of the ship’s cargo must be voluntarily jettisoned to save the whole, and the effort to avoid the danger must be successful. If these criteria are fulfilled, all parties involved in the maritime adventure must proportionally share the financial loss suffered by those whose cargo was sacrificed to protect the ship, the cargo, and other property. Before the cargo is discharged from a ship when General Average (GA) is declared, cargo owners, other stakeholders, or their insurers typically provide Bonds, ensuring their contribution to the eventual General Average (GA) adjustment.

The York-Antwerp Rules (YAR) were approved by CMI (Comité Maritime International) in May 2016, following a lengthy drafting process that began in 2012. Industry stakeholders such as BIMCO, ICS (International Chamber of Shipping), and IUMI (International Union of Marine Insurance) have all endorsed the 2016 revision. These updated rules are expected to be widely adopted, replacing the York-Antwerp Rules 1994, which are currently the most commonly referenced in Charter Parties and Bills of Lading (B/L). The York-Antwerp Rules 2016 aim to address the gap left by the unsuccessful 2004 Rules, which were promoted by cargo interests but were never accepted by the ship-owning community due to their less favorable provisions for Shipowners.

Jason Clause

The Jason Clause, New Jason Clause, or Amended Jason Clause are variations frequently included in Charter Parties and other carriage contracts. This clause was originally created to counteract the effects of a U.S. court ruling that determined a Shipowner could not recover the cargo’s proportion of General Average (GA) resulting from negligent navigation or errors in ship management. However, there remains uncertainty regarding the extent to which a Jason Clause or similar provision is enforceable.

The “BIMCO New Jason Clause” is worded as follows:

“In the event of accident, danger, damage, or disaster before or after the commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, the Carrier is not responsible by statute, contract, or otherwise, the goods, Shippers, Consignees, or owners of the goods shall contribute with the Carrier in General Average to the payment of any sacrifices, losses, or expenses of a General Average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the goods.

If a salving ship is owned or operated by the Carrier, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the Carrier or his agents may deem sufficient to cover the estimated contribution of the goods and any salvage and special charges thereon shall, if required, be made by the goods, Shippers, Consignees, or owners of the goods to the Carrier before delivery.”

General Average (GA) Clause

The General Average (GA) Clause is one of the “Protective Clauses” commonly included in Charter Parties. It appears in various agreements, including:

  • Dry Cargo Voyage Charter Party (GENCON ’94, Part II, Clause 12 – “General Average (GA) and New Jason Clause”)
  • Tanker Voyage Charter Party (SHELLVOY 6, Part II, Clause 36 – “General Average (GA)/New Jason Clause”)
  • Time Charter Party (NYPE 2015, Clause 33c – “Protective Clauses – New Jason Clause”)

These clauses are incorporated to establish the responsibilities and obligations of the parties involved in a General Average (GA) situation, ensuring that financial contributions are appropriately allocated among those with an interest in the maritime adventure.

Collision

Collisions between ships or between a ship and structures such as a quay, a shore crane, or similar objects can result in significant loss or damage to the ship, cargo, or other property. Delays are often a consequence, and in some cases, injuries or fatalities may occur. However, as many contracts of carriage include a “Both-to-Blame Collision Clause,” only key aspects will be explained here.

The “Brussels Collision Convention” or “Collision Convention 1910,” formally known as “the Convention for the Unification of Certain Rules of Law with Respect to Collisions Between Vessels,” is a multilateral treaty established in 1910 that sets out the legal liability rules arising from ship collisions at sea. The Convention outlines three general principles:

  1. If a collision occurs due to an accident or an uncertain cause, each party bears its own losses.
  2. If a collision results from the fault of one party, that party is liable for the damages caused.
  3. If multiple parties are at fault, liability is shared proportionally according to their degree of fault. If the extent of fault cannot be determined, liability is divided equally.

Based on the Collision Convention 1910, when two ships are at fault in a collision, the cargo on ship X may recover damages from ship Y in proportion to its liability. However, if the contract of carriage exempts the owner of ship X from liability for cargo loss or damage due to navigational error, the cargo owner on ship X cannot recover the remaining amount from owner X. Furthermore, since the Collision Convention 1910 has not been ratified by the United States, US law differs in that cargo on ship A may recover the full amount of its loss from ship Y, which may then claim back 50% of this amount from ship X—even if ship A is exempt from liability for damage caused by navigational error.

The Both-to-Blame Collision Clause was introduced to align US law with international regulations as established by the Collision Convention 1910. However, the US Supreme Court has ruled that the clause is void and cannot be enforced in the United States. As a result, this clause can only be applied under very specific conditions outside the USA.

To summarize, according to the Hague-Visby Rules, if the carrier has exercised due diligence to provide a seaworthy ship, they are not liable for cargo claims arising from a collision caused wholly or partially by negligent navigation (Hague-Visby Rules, Article IV, Paragraph 2a). Since in many cases both ships share responsibility for a collision, cargo interests may file claims in tort against the non-carrying ship. Under US law, claimants may recover their full losses from the owner of the other ship, who may then seek reimbursement of 50% from the carrier. However, this effectively bypasses the navigational error defense, creating the inconsistency that cargo owners cannot recover losses if the carrying ship is entirely at fault. The Both-to-Blame Clause is therefore designed to preserve the protection that carriers enjoy under the Hague-Visby Rules by contractually indemnifying them against cargo claims.

Additionally, Charter Parties commonly include a clause requiring that all Bills of Lading incorporate the Both-to-Blame Clause, ensuring indemnification in case it is omitted.

International Safety Management Code (ISM)

The International Safety Management (ISM) Code is a mandatory regulation under international law, applying to all cargo ships and mobile offshore drilling units with a gross tonnage of 500 or more. The ISM Code has been in effect for all passenger ships (including high-speed craft), oil tankers, chemical tankers, gas carriers, bulk carriers, and high-speed cargo craft since 1 July 1998. Other cargo ships, such as containerships and mobile offshore drilling units, have been required to comply with the ISM Code since 1 July 2002.

As BIMCO has clearly stated:

“The ISM Code is just one part of the extensive regulations that Shipowners must adhere to under the laws of the Flag State. As an integral part of the SOLAS Convention 1974, as amended, compliance with the ISM Code is mandatory for all Contracting States under international law. Most standard Charter Parties include broad provisions requiring the owner to ensure that the ship complies fully with all relevant international laws and regulations and holds the necessary certifications to allow the ship to operate within the agreed trading limits. Therefore, from a strictly legal standpoint, BIMCO does not see an immediate contractual necessity to explicitly reference the ISM Code in a voyage or time charter.

Nevertheless, due to Member demand and for those who prefer to include a direct reference to the ISM Code in their Charter Parties, BIMCO has developed a neutral and comprehensive ISM Clause.”

BIMCO has introduced the following standard International Safety Management (ISM) Clause for Voyage and Time Charter Parties:

“From the date the International Safety Management (ISM) Code becomes applicable to the Vessel, and throughout the duration of this Charter Party, the Owners shall ensure that both the Vessel and ‘the Company’ (as defined in the ISM Code) remain in full compliance with ISM Code requirements. Upon request, Owners shall provide the Charterers with a copy of the relevant Document of Compliance (DOC) and Safety Management Certificate (SMC).

Unless otherwise stated in this Charter Party, any loss, damage, expense, or delay resulting from the Owners’ or ‘the Company’s’ failure to comply with the ISM Code shall be borne by the Owners.”

Piracy

Piracy Clauses outlining party rights and obligations in response to increasing piracy risks were first introduced in 2009. BIMCO (Baltic and International Maritime Council) initially developed three separate clauses for Time Charter Parties, Consecutive Voyage Charters/Contracts of Affreightment (COAs), and Single Voyage Charters.

However, following a recent court case, evolving trade practices, the need to clarify Charterers’ liabilities after a ship is released from seizure, and insurance considerations, BIMCO revised all three clauses in 2013 to ensure they align with current commercial requirements. BIMCO strongly advises using the most recent versions of these Piracy Clauses.

The official text of the “BIMCO Piracy Clause for Time Charter Parties 2013” can be found in NYPE 2015, Clause 39. The relevant clauses for Single Voyage Charters and Consecutive Voyage Charters/Contracts of Affreightment (COAs) are available through BIMCO.