Charter Party Clauses
Preamble of a Charter Party
Written Charter Party agreements normally begin with a preamble. The preamble identifies the contracting parties, usually the Shipowner and the Charterer, and sets out the broad commercial framework of the agreement. It also links the particular ship, cargo, ports, voyage, and contractual obligations to the standard form being used. In a Voyage Charter Party, the preamble is especially important because it normally describes the ship, the cargo to be loaded, the loading and discharging places, and the basic undertaking of the Shipowner to carry the cargo and of the Charterer to provide it.
A typical Voyage Charter Party preamble may be illustrated by the wording used in GENCON ’94, Part II, Clause 1. In substance, the clause records that the Owners identified in the relevant box agree with the Charterers identified in the corresponding box that the named steamship or motor ship, with the gross and net tonnage, deadweight capability, present position, and expected readiness date stated in the form, will be employed for the agreed voyage. The ship is then required, after completing any previous commitments, to proceed with reasonable dispatch to the loading port or place, or as near to it as she may safely reach while always remaining afloat, and to load the agreed full and complete cargo. If deck cargo is agreed, the carriage of that deck cargo is normally at the Charterers’ risk and responsibility unless the Charter Party provides otherwise. After loading, the ship must proceed to the agreed discharging port or place, or as near to it as she may safely reach while always remaining afloat, and deliver the cargo in accordance with the Bills of Lading (B/L) and the Charter Party terms.
In this type of preamble, the different parts of the Charter Party are closely connected. The GENCON Charter Party Form, like several other modern BIMCO forms, uses a box layout system. Under this structure, the document is divided into two main parts. The first part contains boxes where the parties insert the specific commercial details of the Fixture, such as the parties, ship, cargo, ports, Freight, Laytime, Demurrage, commissions, and other key information. The second part contains the printed standard clauses that apply to the contract. These two parts cross-refer to each other, so the completed boxes and printed clauses must be read together as one document. The GENCON Charter Party is a clear example of this drafting style.
Not all Charter Party Forms use the same structure. Many tanker forms, private oil company forms, and Time Charter forms such as NYPE do not use a BIMCO-style box layout. Instead, their preambles are often drafted in free text, with blank spaces completed by the parties or their Shipbrokers during the Fixture process. Whatever the layout, the purpose is the same: to identify the parties, define the ship and employment, and connect the commercial agreement with the standard contractual clauses that follow.
Most Charter Parties also contain a further section made up of Rider Clauses. These may consist of photocopied standard clauses, clauses copied from previous Fixtures, market clauses, BIMCO clauses, or individually negotiated typewritten provisions. In many modern Fixtures, the Rider Clauses are longer than the printed form itself. Where the amendments are extensive, the final contract may be very different from the original standard document. In some cases, the number and importance of the Rider Clauses may make it difficult to describe the agreement as a standard form in any meaningful sense, because the real risk allocation is found mainly in the negotiated additions.
Parties to the Charter Party
The principal parties to the Charter Party are the Shipowner and the Charterer. Other persons and entities may also be involved in the transaction, including Shipbrokers, agents, Shippers, receivers, cargo owners, guarantors, managers, financiers, and insurers. However, the Charter Party itself normally creates direct contractual obligations between the Shipowner and the Charterer, unless the wording or agency structure provides otherwise.
Identity of the Parties in a Charter Party
Both the Shipowner and the Charterer should carefully investigate the identity and reliability of the other party before committing to a Fixture. During the charter period, and after performance has been completed, each party may need to enforce contractual rights, recover unpaid sums, pursue damages, demand performance, or defend claims. For that reason, it is essential to know the true legal identity, full style, registered address, domicile, contact details, and commercial standing of the counterparty.
In practice, the Charterer may sometimes be introduced through an agent, with wording such as “Messrs XX as Agents for Charterers.” This type of description can create uncertainty if the true principal is not clearly identified. A Shipowner should be cautious before becoming committed to a party whose identity, solvency, authority, or reputation is unclear. Likewise, a Charterer should verify the identity and standing of the Shipowner, especially where the ship is owned through a single-ship company, controlled by a Disponent Owner, or managed by a separate commercial operator.
The ability to withdraw from negotiations may be important if the counterparty proves unsatisfactory because of insolvency, poor market reputation, sanctions exposure, lack of authority, payment history, or operational concerns. Once a binding Fixture has been concluded, it may be much more difficult to avoid the contract merely because the counterparty later appears less attractive. For this reason, due diligence should be conducted before subjects are lifted and before the Fixture becomes clean.
Accurate identification of the parties is also important for operational reasons. Notices under the Charter Party may need to be sent to Charterers, Shipowners, Shippers, receivers, agents, guarantors, technical managers, or other relevant entities. Freight invoices, Hire notices, Bills of Lading (B/L), Letters of Indemnity (LOI), cargo instructions, claims correspondence, arbitration notices, and default notices all require correct company names and contact details. A mistake in the identity of the contracting party may later create serious enforcement problems.
Substitution of Shipowner or Charterer
During the life of a charter, the Shipowner or the Charterer may sometimes wish to replace itself with another party. For example, a Shipowner under a long-term Time Charter may want to sell the ship and have the buyer take over the position of Shipowner under the existing Time Charter Party. Similarly, a Charterer may wish to sub-charter the ship to another Charterer or transfer commercial use of the ship to a third party. These situations must be distinguished carefully because they have different legal consequences.
If the Shipowner sells the ship and wants the new owner to replace the original Shipowner under the existing Charter Party, the original Shipowner is seeking to leave the contract and substitute another party in its place. This cannot normally be done unilaterally. In general, a Shipowner cannot sell a ship during the term of a Time Charter and substitute the new Shipowner into the charter agreement without explicit prior consent. The reason is simple: the Charterer agreed to contract with the original Shipowner, not with an unknown buyer. A change of Shipowner may affect financial reliability, management quality, operational performance, insurance, technical standards, and claims handling.
Such a substitution is usually achieved through a novation agreement. A novation is a separate legal arrangement under which the original contract is replaced, or the original party is released and a new party assumes the obligations. All relevant parties must usually consent to the novation. The Charterer may agree to accept the new Shipowner, but may require evidence of the new Shipowner’s financial standing, technical competence, insurance arrangements, and ability to perform the Charter Party obligations.
If the selling Shipowner is financially strong and reputable, a practical compromise may be possible. The Charterer may accept the new Shipowner, provided the selling Shipowner gives a guarantee for the proper performance of the new Shipowner’s obligations. This allows the sale to proceed while giving the Charterer additional security. In some cases, the Charterer may even prefer a financially stronger new Shipowner. However, the Charterer may still refuse the proposed substitution if the Charterer wishes to preserve the original contractual relationship or has concerns about the new owner.
Where direct substitution is not possible, the Shipowner’s shareholders may attempt to sell the shares of the shipowning company rather than transferring the ship itself. In that case, the legal identity of the Shipowner under the Charter Party remains unchanged, even though the ownership of the company has changed. This may avoid the need for formal substitution under the Charter Party, although the transaction may still raise practical concerns for the Charterer, financiers, insurers, or other interested parties. Similar issues may arise from the Charterer’s side if the Charterer wishes to transfer its position or reorganize its contractual structure.
The Charterer’s right to sub-let (sub-charter) the ship is usually treated differently. In many Time Charter Parties, the Charterer is expressly permitted to sub-let the whole or part of the ship. This allows the Charterer to employ the ship commercially by entering into sub-charters with third parties. However, sub-letting does not normally release the original Charterer from liability to the Shipowner. The original Charterer remains responsible for performing the head Charter Party, including payment of Hire, compliance with trading limits, cargo restrictions, redelivery obligations, and other contractual duties.
A typical example can be found in Time Charter Party wording such as Gentime, Part II, Clause 15(i), headed “sub-letting,” which provides:
“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.”
This wording reflects the usual commercial position. The Charterer may use the ship to create further employment opportunities, but the Shipowner continues to look to the original Charterer for performance. If the sub-Charterer fails to pay, gives improper orders, causes delay, or creates cargo or operational problems, the Shipowner’s primary contractual claim will normally remain against the original Charterer under the head Charter Party. The Charterer may then seek recovery from the sub-Charterer under the sub-charter.
Substitution, novation, and sub-letting therefore require careful drafting. A sale of the ship, change of Shipowner, assignment of rights, corporate restructuring, sub-charter, or transfer of commercial control may affect liability, payment, insurance, performance, and enforcement. The Charter Party should clearly state whether substitution is permitted, whether consent is required, whether consent may be withheld, whether guarantees are needed, and whether the original party remains liable after the change. In long-term charters, these issues are particularly important because the financial and operational position of the parties may change during the charter period.
In practical terms, this type of clause means that the Original Time Charterer maintains liability to the Shipowner, even if the Original Time Charterer transfers the right to direct and commercially employ the ship to another Time Charterer. Unless the Charter Party expressly permits otherwise, the Time Charterer cannot transfer or delegate its contractual obligations toward the Shipowner to a later Time Charterer. The sub-charter may give the sub-Charterer commercial control under a separate contract, but it does not normally release the Original Time Charterer from responsibility under the head Time Charter Party.
Signing of the Charter Party
A Charter Party may be signed directly by the contracting parties or by a person authorized to sign on their behalf. In practice, this person is often a Shipbroker, especially where the Shipbroker has been involved in negotiating the Fixture and preparing the recap. The identity, authority, and location of the person signing the Charter Party may be important, particularly where questions arise concerning applicable law, agency authority, enforceability, or whether the signing party intended to bind a disclosed principal or assume personal responsibility.
Before signature, it is essential to check that the final Charter Party accurately reflects the Fixture and the “RECAP” prepared at the time the Fixture was concluded. The recap normally records the agreed Main Terms and key conditions, while the Charter Party should translate those terms into the formal contractual document. If a party signs and delivers an incorrect Charter Party without objection, or fails to protest promptly when an incorrect Charter Party has been signed by a Shipbroker, the parties may later find themselves bound by wording that does not properly reflect the original bargain. Under English law, correcting such errors after signature may be difficult unless the error is protested within a reasonable time and the parties agree that the document should be corrected.
Under English Law, there is no rigid formal requirement for the creation of a Charter Party. If the parties have reached a complete agreement on the necessary terms, signature by the parties or by their agents is not always essential for a binding contract to exist. The parties may rely on a “RECAP” following email exchanges, sometimes incorporating further wording such as “otherwise as per GENCON form” or “otherwise as per C/P dated for M/V HANDY HANDAN.” However, this practice can create uncertainty if the incorporated terms are unclear, inconsistent, outdated, or not fully known to both parties. For this reason, parties who trade frequently with each other should avoid relying solely on informal email exchanges and recaps. A better practice is to maintain a standard pro forma Charter Party and Fixture note form that can be adapted consistently for each Fixture.
Ship
Nomination, identity, and substitution
The importance of the ship within the Charter Party depends on the type of charter contract involved. In some charter arrangements, the precise identity of the ship is central to the agreement. In others, the ship is less important than the Shipowner’s obligation to provide suitable tonnage capable of performing the transport service. Traditionally, Charterers benefit from knowing exactly which ship will carry the cargo, and early nomination of the ship can be commercially important for cargo planning, port approvals, terminal arrangements, documentation, insurance, and Letter of Credit (L/C) requirements. Although modern transport practice has reduced the importance of ship identity in some trades, the issue remains significant in many chartering contexts.
In traditional Liner Shipping and Tramp Shipping, the Bill of Lading (B/L) is commonly issued as a Shipped Bill of Lading (B/L) after the cargo has been loaded on board the ship. In such cases, the named ship is important because the document records that the cargo has actually been shipped on that particular ship. In modern liner services, however, received-for-shipment Bills of Lading (B/L) are frequently used. Where a received-for-shipment Bill of Lading (B/L) is issued, the exact ship may be less important at the initial documentation stage because the cargo interest relies on the Carrier’s overall service commitment rather than on immediate identification of the ship that will eventually carry the cargo.
In Time Charter and Bareboat Charter agreements, the ship itself is central because both are forms of ship hire arrangements. The Charterer is taking the commercial use of a particular ship, or, in the case of Bareboat Charter, possession and operational control of that ship. The ship’s identity, class, flag, age, performance, capacity, condition, and trading capability therefore form essential parts of the agreement. By contrast, in some Voyage Charter arrangements, which are primarily contracts for carrying a specific cargo between agreed ports, the exact identity of the ship may be less critical at the first stage, provided the Shipowner later nominates a ship suitable for the cargo and the ports.
It is common in Voyage Chartering for the Charter Party to be concluded before the specific ship has been finally identified. The contract may use wording such as “ship to be nominated” or similar language. In that situation, the Shipowner must nominate a ship that is suitable for the agreed cargo, loading port, discharging port, laycan, draft restrictions, cargo-handling requirements, and other contractual conditions. In quantity contracts or Contracts of Affreightment (COA), where the main obligation is to move a defined quantity of cargo within an agreed period, the ships are often unnamed at the time of contract. However, if ship nomination is delayed until shortly before loading, Shippers may face practical difficulties arranging cargo readiness, export documents, terminal acceptance, customs clearance, Letters of Credit (L/C), and other pre-shipment formalities.
Where a charter agreement specifies a named ship, the existence and availability of that ship may be fundamental to the agreement. If the ship is lost or declared a Constructive Total Loss (CTL), the Charter Party may be automatically terminated or treated as frustrated, depending on the governing law and the wording of the contract. Serious and prolonged delay may also raise questions of Frustration if performance becomes legally or commercially impossible in the relevant legal sense. Parties sometimes attempt to rely on the English Doctrine of Frustration to escape an economically unattractive Charter Party, but the doctrine is narrowly applied and generally requires more than mere financial inconvenience or market disadvantage.
In Voyage Chartering, it is also common to include a right of ship substitution. The Charter Party may use wording such as “MV HANDY HANDAN or substitute” or “MV HANDY HANDAN, Owner’s Option (OO) to substitute ship of same class and similar size and position.” The scope of this substitution right should be drafted clearly. The parties should specify whether substitution is merely optional for the Shipowner or whether the Shipowner must provide a substitute if the original ship becomes unavailable. They should also consider whether substitution may be exercised more than once, whether the right expires a certain number of days before the laycan, whether the substitute must be from a named list of ships, and whether any suitable ship of the same type, size, class, and position will be acceptable.
The Charter Party will normally state the ship’s name, nationality, call sign, IMO number, year of build, ship type, class, cargo capacity, and other key particulars. It may describe the ship as a motor ship (MV), motor tanker (MT), reefer ship, bulk carrier, chemical tanker, container ship, or another ship type. Shipowners cannot alter essential ship characteristics described in the Charter Party without Charterer approval. A change of flag, for example, may be commercially important to the Charterer because the ship’s nationality can affect port access, sanctions exposure, cargo acceptance, insurance, financing, political risk, and documentary requirements.
The ship’s detailed description is therefore a critical part of the Charter Party, especially in Voyage Charter and Time Charter contracts. The description may include deadweight, draft, cubic capacity, number of holds and hatches, gear, cranes, grabs, tank coatings, pump capacity, speed, fuel consumption, class, flag, age, emissions performance, and trading certificates. In tanker chartering, oil companies and major cargo interests often impose strict ship quality standards and approval procedures. Vetting inspections, questionnaires, terminal approvals, and oil major acceptance requirements may determine whether a ship is commercially usable for the intended cargo. SHELLVOY 6 is an example of a tanker form containing detailed provisions concerning the description and suitability of the ship.
A clear and accurate ship description protects both parties. The Charterer needs assurance that the ship can perform the employment, carry the cargo safely, enter the ports, meet terminal requirements, and comply with regulatory and documentary conditions. The Shipowner needs to avoid overstating the ship’s capabilities or creating warranties that cannot be met. If the ship description is inaccurate, disputes may arise over misdescription, cancellation rights, performance claims, Deadfreight (DF), off-hire, port unsuitability, cargo rejection, or damages. For that reason, the nomination, identity, description, and substitution of the ship should be handled with precision from the beginning of the Fixture.
Ship Trading Limits
Hull underwriters normally impose geographical trading limits on the ships they insure. These limits define the areas in which a ship may trade without exposing the Shipowner to additional insurance conditions, premiums, or exclusions. The precise wording of these limits may vary between underwriters, but the general structure is similar across the market. Some trading areas are normally permitted without difficulty, some areas are regularly prohibited or heavily restricted, particularly high-risk Arctic regions, and some areas are permitted only during certain seasons because ice, weather, or navigational hazards make trading more dangerous at other times.
The best-known framework for geographical trading restrictions is the International Navigating Limits (INL). These limits were introduced by the Institute of Chartered Underwriters in London and replaced the earlier Institute Warranty Limits (IWL) from 1 November 2003. The INL (International Navigating Limits) identify the geographical boundaries within which ships may trade without automatically attracting additional premiums from hull and machinery underwriters or related insurers. If a ship trades outside these limits, particularly in ice-exposed or otherwise hazardous regions, the Shipowner may face additional insurance premiums, stricter conditions, or even loss of cover if the voyage is performed without proper notification and approval.
The reason for these restrictions is practical and commercial. Trading outside accepted navigation limits may expose the ship to heavier weather, ice pressure, grounding risk, machinery strain, restricted navigation, poor emergency support, and expensive repair delays. A ship ordered into a difficult or restricted area may suffer physical damage, require deviation, lose time, or incur repair costs. For this reason, Charter Parties normally deal carefully with trading limits and with the consequences of orders that may take the ship beyond permitted areas.
Hull underwriters usually base their approved and excluded trading areas on average weather, ice, and navigational conditions. These rules tend to remain relatively stable from year to year because the underlying geographical and seasonal risks do not change quickly. War risk restrictions are different. Restrictions connected with Extra War Insurance (EWI) may change frequently because they depend on current risks such as war, hostilities, terrorism, piracy, strikes, civil unrest, sanctions, political instability, or similar dangers. As these risks develop rapidly, underwriters may revise listed areas and Additional War Premiums at short notice.
The ship’s permitted trading limits may also depend on the ship’s construction, manning, equipment, flag, class, trading certificates, and technical capability. A ship trading worldwide across deep-sea routes will generally require different crewing and equipment standards from a ship trading only in coastal or sheltered waters. Certain routes and countries may also impose special requirements. For example, transits through the Suez Canal, Panama Canal, St. Lawrence Seaway, ice-prone areas, or environmentally sensitive zones may require particular certificates, equipment, pilotage arrangements, reporting systems, or technical standards.
This section concerns the ship’s trading limits in the geographical and insurance sense. Other trading restrictions may also appear in the Charter Party. These may arise from political, commercial, legal, or operational considerations. A Charter Party may exclude particular countries, ports, regions, cargoes, sanctions areas, war risk zones, ice areas, or places where the ship may be exposed to arrest, boycott, blacklisting, or excessive danger. Such restrictions should be clearly stated because they directly affect the Charterer’s right to give employment orders and the Shipowner’s right to refuse unsafe or contractually prohibited orders.
Ship Seaworthiness
Charter Parties commonly provide that the Shipowner must deliver and maintain the ship in a seaworthy condition. Even if the Charter Party does not contain an express seaworthiness clause, the Shipowner may still be subject to an implied obligation or warranty of seaworthiness under the applicable law. The exact scope of this obligation depends on the type of charter, the governing law, the wording of the contract, and any mandatory cargo liability regime that may apply. Shipowners sometimes attempt to limit or exclude liability for seaworthiness, but such exclusions may be ineffective where mandatory legislation applies, particularly under statutes or rules derived from the Carriage of Goods by Sea Act (COGSA), the Hague Rules, the Hague-Visby Rules, or comparable cargo liability systems.
Seaworthiness encompasses three main aspects:
- Technical Seaworthiness;
- Cargoworthiness;
- Seaworthiness specific to the intended voyage.
Technical Seaworthiness concerns the ship’s physical and technical condition. This includes the design of the ship, the condition of the Hull and Machinery (H&M), structural integrity, stability, engines, steering gear, navigation equipment, safety equipment, communications systems, and other essential operational elements. A technically seaworthy ship must be fit in her structure and machinery to face the ordinary risks of the intended service.
Cargoworthiness concerns the ship’s suitability for the cargo to be carried. The ship must be appropriate for the cargo’s nature, handling requirements, stowage needs, temperature requirements, cleanliness standards, and safety characteristics. Holds, tanks, pipelines, pumps, hatch covers, ventilation systems, refrigeration systems, heating coils, coatings, and cargo-handling equipment may all be relevant. A ship may be technically seaworthy in the general sense but still not cargoworthy for a particular cargo if the cargo spaces are dirty, contaminated, unsuitable, or incapable of preserving the cargo during the voyage.
Seaworthiness for the intended voyage requires the ship to be properly prepared for the specific voyage ordered under the Charter Party. This includes sufficient and competent crew, adequate bunkers, proper charts, updated publications, valid certificates, suitable navigation equipment, stores, spares, voyage planning, and compliance with the requirements of the ports and waters to be visited. A ship may be adequate for one voyage but inadequate for another. For example, a ship that is seaworthy for operations on the River Thames may not be seaworthy for a transatlantic voyage from England to New York without additional preparation, equipment, documentation, bunkers, and navigational arrangements.
When assessing seaworthiness, it is necessary to consider each stage of the voyage and the particular circumstances of the employment. This is often described as seaworthiness by stages. A ship may be seaworthy for loading, yet require further preparation before sailing. Similarly, a ship may be ready for a coastal leg but not yet properly prepared for an ocean passage, an ice area, a canal transit, or a port requiring special certification. The relevant question is whether the ship is fit for the stage of the adventure she is about to undertake.
A significant issue in voyage-specific seaworthiness concerns whether the ship has the technical equipment, documents, and certificates needed to call safely and lawfully at the intended ports or countries. Standard trading certificates, class documents, statutory certificates, safety certificates, pollution prevention certificates, crew documents, flag state papers, and port entry documents must be valid and available. This requirement is relevant in both Time Chartering and Voyage Chartering. If a ship under Time Charter is suddenly ordered to a port or country not previously contemplated, the Shipowner may require reasonable time to obtain additional documents, approvals, or certificates needed for that employment.
Difficulties may also arise where documentation is requested by organizations other than national authorities. One example is the ITF (International Transport Workers’ Federation). If certain certificates, crew documents, or labor-related papers are normally required in a particular trade or port, the Shipowner may be expected to keep them available on board. However, if a union, terminal, or private organization suddenly makes an unusual or unexpected demand, the legal position may be less clear. Charter Parties often include special clauses to deal with such issues, especially where trading patterns may expose the ship to labor inspections, boycott risks, or local documentary requirements.
Unexpected restrictions imposed by authorities must be considered according to the facts of each case. Modern shipping practice increasingly requires precise ship descriptions and clear warranties concerning the certificates, approvals, and documents available on board or obtainable within a reasonable time. Charterers want assurance that the ship can perform the employment without avoidable administrative delay, while Shipowners need to avoid being held responsible for unusual requirements that were not known or reasonably foreseeable at the time of fixing.
Preparing the ship for cargo is a critical part of seaworthiness and cargoworthiness. Cargo hold cleaning is relevant to all ship types, although the required standard varies according to the cargo. In dry cargo trades, some cargoes require especially high cleaning standards. Grain cargoes, for example, may demand very clean holds, particularly after previous cargoes such as coal, petcoke, cement, fertilizers, minerals, or other residues that may contaminate food-grade cargo. Failure to prepare the holds properly may lead to rejection by surveyors, delay, additional cleaning costs, loss of Laytime, or claims for cargo contamination.
In tanker trades, cleaning obligations can be even more technical. A tanker that has carried crude oil or other dirty cargo may need extensive tank cleaning before carrying clean petroleum products, chemicals, vegetable oils, or sensitive liquid cargoes. Tanks, pipelines, pumps, valves, and heating systems may require cleaning between voyages to avoid contamination. Tanker operations use specialized cleaning systems and procedures, including Butterworth machines, fixed tank-cleaning systems, and other equipment designed to remove residues safely and efficiently. The required standard depends on the previous cargo, next cargo, charter terms, cargo specifications, terminal requirements, and applicable regulations.
Charter Parties frequently include clauses stating that holds or tanks must be cleaned to a particular standard, sometimes using wording such as “Cleaned to the Charterer’s inspector’s satisfaction.” Such wording can create risk for the Shipowner because the Charterer’s inspector may apply a demanding or subjective standard. If the inspection is delayed or the inspector rejects the holds or tanks, the Shipowner may face loss of time, additional cleaning expense, and possible claims. From the Shipowner’s perspective, clauses referring to objective standards, recognized survey requirements, or specific authority requirements may be safer than wording that gives one party broad discretion.
Seaworthiness is therefore not a single fixed concept. It includes the ship’s technical condition, cargo suitability, voyage preparation, documentation, manning, equipment, and readiness for the particular employment. In chartering practice, disputes about seaworthiness often arise because the parties focus on different aspects of the ship’s readiness. The Charterer may focus on cargo suitability and port compliance, while the Shipowner may focus on technical class status and general trading ability. Clear Charter Party wording helps reduce this gap by stating exactly what condition, documentation, cleaning standard, equipment, and readiness the ship must have at delivery, loading, and throughout the voyage or charter period.
LAYCAN
Under both Voyage Charter and Time Charter arrangements, the Charter Party must identify the period within which the ship is expected to be ready. In a Voyage Charter, this concerns readiness at the first loading port. In a Time Charter, it concerns delivery of the ship to the Charterer at the agreed delivery port, place, pilot station, anchorage, or range. The Shipowner and Ship Master are obligated to exert maximum effort to bring the ship to the initial loading port or delivery location by the agreed date of expected readiness. If the Shipowner or Ship Master intentionally or negligently delays the ship and late arrival results, the Shipowner may be exposed to liability for Breach of Contract (Breach of Charter Party). For practical certainty, the parties normally agree a Laycan Clause, such as “Laycan June 26–30.”
LAY
“Lay” is commonly understood as an abbreviation of “laytime not to commence before.” In a Voyage Charter Party, if the ship arrives at the first loading port before the first agreed Layday and is ready to load, the Shipowner cannot insist that the Charterer begins loading or that laytime starts counting. The Charterer is entitled to wait until the first Layday before being required to begin cargo operations, unless the Charterer voluntarily agrees to start earlier.
In a Time Charter Party, if the ship arrives at the delivery port or delivery location before the Agreed Layday does not obligate the Charterers to accept delivery. Unless the Charterers agree to early delivery, the ship must wait, and the Shipowner may receive no Hire during that waiting period. In some cases, Charterers may want to load the ship before the first Layday without formally taking delivery, thereby avoiding Hire liability during the interim period. The Shipowner is not obliged to accept such an arrangement. If Charterers want to begin loading before the first Layday, the parties should agree clearly on Hire payment, operational control, risk allocation, insurance, cargo responsibility, and when the ship is deemed delivered under the Time Charter Party.
The Layday may not always be stated with complete precision. For example, the GENCON ’94 Charter Party Form, Part II, Clause 1, refers to the ship being “expected ready to load under this Charter Party about the date indicated in Box 9.” The interpretation of “About” depends on the circumstances of the particular Fixture. A longer period between the date of the Fixture and the first Layday may allow a wider margin for “about,” while a short interval may require a narrower interpretation. The ship’s current position, previous employment, voyage distance, weather risks, port congestion, bunkering requirements, and ordinary market understanding may all affect the practical meaning of the expression.
CAN
“Can” refers to the Cancelling Date. If the ship does not arrive at the loading port under a Voyage Charter, or at the delivery port or location under a Time Charter, by the agreed Cancelling Date, the Cancelling Day usually gives Charterers an absolute right to cancel the Charter Party. Standard cancellation clauses, such as those used in GENCON or BALTIME, may apply even where the delay is beyond the Shipowner’s control and even where the Shipowner and Ship Master have used reasonable efforts or due diligence to complete the previous voyage and reach the loading or delivery place as quickly as possible.
If the Shipowner realizes that the ship will not reach the first loading port or delivery location before the Cancelling Date, obtaining the Charterer’s decision becomes commercially important. The Shipowner needs to know whether the Charterer intends to cancel or continue with the Fixture, because the Shipowner may otherwise have to continue the ballast voyage or repositioning voyage without certainty that the Charter Party will remain in force. Under English law, unless the Charter Party expressly provides otherwise, the Charterer isn’t obligated to declare their intention before the Cancelling Date. This can place the Shipowner in a difficult position where late arrival is foreseeable but the Charterer remains silent.
These issues are addressed by clauses such as GENTIME, Part II, Clause 1(d), “period and delivery/cancellation.” In substance, this wording provides that if the ship is not delivered by the agreed date and time, Charterers may cancel the Charter Party without prejudice to any other claims they may have against Owners. If Owners anticipate, despite due diligence, that the ship will not be ready by the agreed date and time, Owners may notify Charterers in writing, state the new expected readiness date, propose a new cancelling date and time, and require Charterers to declare whether they cancel or accept the new position. If Charterers do not cancel or fail to respond within two working days, the proposed new cancelling date replaces the original. This adjustment may be used only once, and if the ship is still not ready by the revised cancelling date, Charterers again have the option to cancel.
This type of wording protects Charterers by preserving their cancellation right where the ship is delayed. At the same time, it gives Shipowners a practical mechanism to obtain clarity and avoid unnecessary uncertainty. If Charterers are willing to proceed despite the delay, the Shipowner can continue toward delivery or loading with greater confidence. If Charterers wish to cancel, the Shipowner may seek alternative employment sooner.
A similar approach appears in the GENCON ’94 Voyage Charter Party Form, Part II, Clause 9, “Cancelling Clause.” Under that structure, Charterers must decide on cancellation within 48 hours after being notified of the ship’s delayed arrival. If Charterers do not exercise their cancellation right, the seventh day after the new readiness date automatically becomes the new Cancelling Date. This differs from the older GENCON ’76 form, under which Charterers must declare cancellation at least 48 hours before the ship’s ETA upon demand. The difference is commercially important. If the Shipowner knows weeks in advance that the ship is unlikely to meet the original Cancelling Date, and the Charterer does not cooperate, the Shipowner may still need to begin or continue the ballast voyage in order to reduce the risk of a claim for breach of the Charter Party.
Paramount Clause
In the contractual relationship between Shipowner and Charterer under a Charter Party, there are generally no compulsory mandatory rules governing cargo liability in the same way as there are under Bills of Lading (B/L) held by cargo interests. Some Charter Parties attempt to reduce the Shipowner’s cargo liability substantially, while others align the parties’ liability structure more closely with international cargo liability regimes. Because the parties to a Charter Party normally have considerable freedom to allocate cargo risk between themselves, many Charter Parties include a separate clause known as a Paramount Clause. This clause addresses liability for damage to or loss of cargo and determines whether the Hague Rules, Hague-Visby Rules, or national legislation based on these conventions will apply.
A Paramount Clause can be drafted in several ways. In some Charter Parties, the clause requires that standard wording must be included in all Bills of Lading (B/L) issued under the Charter Party. This ensures that Bills of Lading (B/L) issued for the cargo incorporate a recognized cargo liability regime. In other cases, the Paramount Clause applies only between the Shipowner and Charterer and governs cargo liability within the Charter Party itself. A broader version may purport to apply the Hague Rules or Hague-Visby Rules to the Charter Party as a whole. This broader approach can create legal difficulties because those conventions were mainly designed to regulate cargo liability under transport documents, not every commercial aspect of chartering practice.
The practical purpose of a Paramount Clause is to create a recognizable liability framework for cargo loss or damage and to reduce uncertainty where Bills of Lading (B/L), Charter Parties, and cargo claims interact. The clause may affect the Carrier’s duties concerning seaworthiness, cargo care, limitation of liability, exceptions, time bars, and defences. Where Bills of Lading (B/L) are issued under a Charter Party and later transferred to third-party holders, the wording of the Paramount Clause may become especially important because the Bill of Lading (B/L) may operate independently from the Charter Party in the hands of a lawful holder.
The Paramount Clause is one of the Protective Clauses commonly found in Charter Parties and Bills of Lading (B/L). Examples of such wording can be seen in SHELLVOY 6, Part II, Clause 37, “Clause Paramount,” and in NYPE 15, Clause 33(a), “Protective Clauses – General Clause Paramount.” Although the precise wording differs from form to form, the central objective is similar: to identify the cargo liability rules that apply and to prevent uncertainty over the legal regime governing cargo damage, loss, or related claims.
War Clauses
During war, revolution, civil unrest, hostilities, terrorism, piracy, sanctions-related disruption, or similar events, the crew, ship, and cargo may be exposed to serious risks. Crew members may face injury, detention, or death. The ship and cargo may be damaged, delayed, seized, diverted, or lost. The parties may also incur additional expenses, including Extra War Insurance premiums, additional war risk premiums, security costs, crew bonuses, deviation costs, bunker costs, port costs, and delays caused by route changes or avoidance of dangerous areas.
To regulate these risks, Charter Parties commonly include a special war clause. A war clause defines the rights, obligations, and liabilities of the parties when the ship, crew, or cargo may be exposed to war-related or similar dangers. It may allow the Shipowner or Ship Master to refuse to proceed to a dangerous area, deviate to avoid risk, request additional costs, or cancel the Charter Party if the risk reaches a defined level. It may also allocate responsibility for additional insurance premiums, crew war bonuses, delay, deviation, substitute ports, and alternative routing.
War clauses are usually divided into two main categories: War Cancellation Clauses and War Risk Clauses (WRC). War Cancellation Clauses normally deal with the right to cancel the Charter Party if war or warlike events make performance fundamentally unsafe, unlawful, or commercially unacceptable under the agreed wording. War Risk Clauses (WRC) generally regulate the parties’ rights and obligations where a war risk exists during performance but does not necessarily terminate the Charter Party. These clauses are particularly important in trades involving politically unstable regions, sanction-sensitive cargoes, naval conflict areas, piracy-prone waters, or ports where hostilities may affect navigation, cargo operations, insurance, or crew safety.
A well-drafted war clause should define the relevant risks clearly, identify who may decide that the ship is exposed to danger, state whether the Shipowner may refuse orders or require alternative orders, allocate additional costs, and explain how delay will be treated. It should also coordinate with insurance clauses, sanctions clauses, safe port provisions, deviation clauses, and any clauses dealing with crew bonuses or additional premiums. In modern chartering, war clauses remain essential because geopolitical risk can change quickly and may affect not only physical safety but also insurance availability, port access, banking, sanctions compliance, and cargo documentation.
War Cancellation Clauses
BIMCO (Baltic and International Maritime Council) has developed a Standard War Cancellation Clause for use in Charter Parties where major war events may fundamentally affect the commercial basis of the contract. The purpose of this type of clause is to give the contracting parties a right to terminate the Charter Party if war breaks out between specified countries, or if the continued employment of the ship becomes seriously affected by requisition, governmental control, or similar measures imposed by the ship’s flag state or home country. In practice, War Cancellation Clauses commonly appear in long-term period Charter Parties and Contracts of Affreightment (COA), because these contracts are more exposed to geopolitical changes over time. However, similar clauses are increasingly encountered in shorter Time Charter Parties and, in some cases, Voyage Charter Parties where the risk profile of the trade justifies special protection.
The commercial logic behind a War Cancellation Clause is that war may radically alter the assumptions on which the parties fixed the ship. Freight and Hire markets may move sharply, insurance costs may rise, trading areas may close, ports may become inaccessible, crew safety may be threatened, and the ship may be prevented from performing the intended employment. In long-term contracts, the parties may not be able to predict these events at the time of fixing. A clearly drafted war cancellation provision therefore gives both Shipowner and Charterer a contractual mechanism for ending the relationship if the defined war event occurs. It should be noted that the latest NYPE edition has removed the war cancellation provision that had previously appeared in NYPE ’93, Clause 32, headed “war cancellation.”
The BIMCO Standard War Cancellation Clause 2004 is closely aligned with the corresponding provision in BARECON 2001. BARECON 2001, Part II, Clause 26(f), headed “war,” provides in substance that if war breaks out, whether formally declared or not, between specified major powers or between countries named in the relevant box of the Charter Party, both Owners and Charterers may cancel the Charter. If cancellation takes place, the Charterers must redeliver the ship to the Owners in accordance with the Charter Party. If cargo is already on board, redelivery will normally take place after discharge at destination, or, if the ship is prevented from reaching or entering the destination, at a near, open, and safe port as directed by the Owners. If the ship has no cargo on board, redelivery will take place at the port where the ship is located, or, if at sea, at a near, open, and safe port as directed by the Owners. Hire continues to be payable until redelivery, and the other provisions of the Charter Party continue to apply until that point.
This type of clause is designed to avoid uncertainty when a major war event makes continued performance commercially or operationally unrealistic. It does not simply terminate the relationship instantly without consequences. Instead, it regulates how the ship is to be redelivered, how cargo on board is to be handled, and how Hire is to continue until the contractual redelivery process has been completed. This is particularly important in Bareboat and long-term Time Charter structures, where the Charterer may have physical or commercial control of the ship and where orderly redelivery is necessary to protect the Shipowner’s asset.
War Risk Clauses
While War Cancellation Clauses are mainly associated with long-term Charter Parties and Contracts of Affreightment (COA), War Risk Clauses should be considered in every Charter Party. War risk exposure may arise suddenly even during a single voyage. A loading port, discharging port, sea route, canal, strait, anchorage, or territorial water may become unsafe because of war, hostilities, piracy, terrorism, mines, sanctions, political violence, or military activity. For this reason, a War Risk Clause is one of the most important protective provisions in modern chartering.
BIMCO has historically published two major standard war risk clauses: CONWARTIME for Time Charter Parties and VOYWAR for Voyage Charter Parties. These clauses have been revised over time to reflect changes in case law, trading practice, security risks, and insurance market expectations. The 2013 revisions replaced the earlier 1993 and 2004 versions and are now incorporated into many new and revised BIMCO standard Charter Parties and related documents. The purpose of these clauses is to provide a recognized framework for dealing with war-related dangers during the performance of the charter.
A War Risk Clause must always define what constitutes a “War Risk.” Without a clear definition, disputes may arise over whether the Shipowner can refuse an order, deviate, demand alternative orders, claim additional costs, or cancel the employment. An example of earlier BIMCO wording appears in VOYWAR 1993, used in GENCON ’94, Part II, Clause 17(1)(b), headed “War Risks.” In substance, that clause defines War Risks broadly to include actual or threatened war, acts of war, civil war, hostilities, revolution, rebellion, civil commotion, warlike operations, the laying of mines, piracy, terrorism, hostile acts, malicious damage, blockades, and similar events imposed by persons, political groups, terrorist bodies, or governments, where, in the reasonable judgment of the Master and/or Owners, the situation may be dangerous or likely to become dangerous to the ship, cargo, crew, or other persons on board.
The later VOYWAR 2013 wording widened and modernized the approach. War risks include not only actual or threatened war and warlike operations but also reported risks. This is important because Shipowners and Masters may need to act before an attack or blockade has physically occurred if credible reports show that danger is developing. VOYWAR 2013 also treats piracy more broadly by expressly referring to “violent robbery and/or capture/seizure,” bringing the clause closer to modern piracy and armed robbery risk as understood in shipping and insurance practice. Certain attacks may not technically qualify as piracy under strict international law, but they may still be treated as piracy-like risks for insurance, security, and chartering purposes.
Not all War Risk Clauses are drafted broadly. Some clauses are much narrower and may apply only where a port is formally “declared blockaded by reason of war” or where a specific type of war-related event occurs. Narrow clauses may leave the Shipowner exposed if danger develops before any formal declaration is made. Some clauses also give the Shipowner alone the right to determine whether a war risk exists, while others require the assessment to be reasonable or allow both parties to raise the issue. The allocation of decision-making authority should be clear because it affects whether the Shipowner can refuse Charterer’s orders, whether the Charterer must nominate an alternative port, and who pays for any resulting delay or additional cost.
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. The clause should answer several practical questions. Can the Shipowner refuse to proceed to a dangerous port or area? Can the Charterer cancel the Charter Party, or must the Charterer nominate alternative cargo, route, or port? Is the Shipowner entitled to discharge at another safe port? Who pays for deviation, waiting time, additional bunkers, extra insurance premiums, crew war bonuses, security measures, or increased port costs? Does the Charterer remain liable for Deadfreight (DF) if cargo cannot be loaded because of a war risk? These questions should be addressed clearly before the risk arises.
War Risk Clauses also need to coordinate with insurance and operational instructions. Hull insurers, war risk underwriters, P&I Clubs, flag states, classification societies, naval authorities, port authorities, or governmental bodies may instruct or strongly recommend that the ship avoid a particular area. If the Charter Party does not clearly permit the Shipowner to comply with such instructions, conflict may arise between the Shipowner’s duty to follow Charterer’s employment orders and the Shipowner’s duty to protect the ship, crew, cargo, and insurance position. A well-drafted War Risk Clause should therefore expressly state that the Shipowner and Ship Master may follow the instructions, requirements, or recommendations of insurers, flag state authorities, classification societies, or other competent authorities where war risks are involved.
In modern shipping, War Risk Clauses have become even more important because geopolitical disruption can affect the voyage in many ways beyond physical danger. Sanctions may prevent payment, ports may refuse entry, banks may block transactions, insurers may withdraw cover, cargo documents may become difficult to process, and alternative routing may substantially increase voyage duration and bunker consumption. A War Risk Clause should therefore be read together with sanctions clauses, safe port clauses, deviation clauses, insurance clauses, piracy clauses, force majeure-type clauses, and any provisions dealing with crew bonuses or additional premiums. The objective is to ensure that the Charter Party remains commercially workable even when external political or military events disrupt the ordinary performance of the charter.
War Risk Clauses in Voyage Charters and Time Charters
Standard Charter Party Forms usually contain a printed War Risk Clause because war-related events can affect the safety of the crew, ship, cargo, route, insurance position, and commercial performance of the charter. In Time Charter Parties, different versions of the BIMCO Conwartime Clause are commonly used. In Voyage Charter Parties, the corresponding versions of the BIMCO Voywar Clause are normally incorporated. Both clauses are detailed and technical, and the full wording should be checked directly in the relevant BIMCO form or clause text before use. For present purposes, the important distinction is that Conwartime is designed for period employment and deals with war risks that may exist either before the Charter Party is concluded or arise during its performance, whereas Voywar is designed for voyage employment and focuses more closely on risks affecting the voyage before loading or after the voyage has commenced.
The difference between Time Charter and Voyage Charter war risk wording is commercially important. In a Time Charter, the Charterer has continuing commercial control over the ship’s employment during the charter period and may order the ship to different ports, regions, or cargoes within the agreed trading limits. The Shipowner therefore needs protection against orders that would expose the ship, crew, cargo, or insurance position to war risks. In a Voyage Charter, the agreed voyage is usually narrower and more clearly defined from the beginning. The War Risk Clause must therefore address whether the ship is required to proceed to the named loading or discharging port, whether alternative ports may be ordered, whether deviation is permitted, and who bears the cost of delay, insurance, additional bunkers, or crew bonuses caused by war risk exposure.
War risk clauses other than those published by BIMCO may also be proposed during chartering negotiations. Some are drafted by oil companies, commodity traders, Shipowners, Charterers, or legal advisers for particular trades or routes. However, alternative or older war clauses may not adequately reflect modern risks, insurance practice, sanctions exposure, piracy developments, cyber-related disruption, or recent case law. Outdated wording may create uncertainty over whether the Shipowner can refuse an order, whether the Charterer must nominate an alternative port, whether additional war risk premiums are recoverable, or whether delay counts as Laytime, off-hire, Demurrage, or ordinary charter time. For this reason, controversial, incomplete, or obsolete clauses should be avoided, particularly in Time Charter Parties where the ship may be exposed to changing trading areas over a long period.
A ship operator must also ensure that the war risk protection in different charter layers is consistent. This is especially important where the operator is acting as a Time Chartered Owner, Disponent Owner, or similar intermediate party in a charter chain. The operator may charter the ship in under a Time Charter and then charter the same ship out on a Voyage Charter or sub-Time Charter. In that situation, the war risk clause in the charter-out should not be less favorable than the clause in the charter-in. If the operator has a right under the head charter to refuse war risk orders, recover additional premiums, or follow insurer instructions, the operator must ensure that equivalent rights exist under the sub-charter. Otherwise, the operator may be caught between inconsistent obligations.
For example, if Conwartime 1993 is used in the Time Charter under which the ship is chartered in, Voywar 1993 should normally be used when the same ship is chartered out on a spot voyage basis. If Conwartime 2013 is used in the time-chartered employment, Voywar 2013 should normally be used for the related voyage charter-out. This approach helps preserve consistency between the rights and protections available under the two contracts. The same care is required in relation to Bills of Lading (B/L). War clauses in Bills of Lading (B/L) should be drafted or incorporated so that they provide protection consistent with the relevant Charter Party clauses, particularly where Bills of Lading (B/L) may be transferred to third-party holders.
Failure to align war clauses across the contractual chain can create serious commercial exposure. A Disponent Owner may be entitled to refuse a dangerous order under the head charter but may have promised the sub-Charterer or cargo interest that the ship will proceed. Alternatively, a Shipowner may be entitled to recover additional war risk premiums from the Time Charterer, but the Time Charterer may fail to recover those costs from the voyage Charterer if the charter-out clause is weaker. Similar problems may arise with deviation costs, delay, crew bonuses, security expenses, alternative port nomination, and insurance requirements. Careful back-to-back drafting is therefore essential whenever the same ship is employed under multiple contracts.
Effect of cost variations on the contractual relationship
The starting point in chartering law and commercial practice is that Shipowners and Charterers remain bound by the Charter Party they have made, even if later economic conditions change. A party who agrees to pay Freight, Hire, bunkers, port costs, canal dues, insurance premiums, wages, cargo-handling costs, or other expenses normally remains responsible for those costs according to the contract. A later rise in the cost of performance does not usually alter the parties’ rights and obligations. Only in exceptional circumstances might a dramatic change amount to Frustration of the Charter Party, and frustration is rarely established merely because the contract has become more expensive or less profitable.
This principle is commercially significant because shipping markets are exposed to constant cost movement. Bunker prices can rise sharply, exchange rates may fluctuate, war risk premiums may increase, port costs can change, canal dues may be revised, crew costs may rise, and new environmental or regulatory requirements may create additional expense. Unless the Charter Party contains wording dealing with these changes, the party who accepted responsibility for the relevant cost will usually bear the risk. For this reason, parties entering longer-term Charter Parties often include special clauses to manage economic change.
Such clauses may include hardship clauses, bunker clauses, currency clauses, or escalation clauses. Their wording and legal effect vary considerably. A Hardship Clause may provide that if economic circumstances change substantially, the parties must reopen negotiations in good faith or attempt to adjust the contract. If renegotiation fails, the disadvantaged party may sometimes be given a right to cancel, suspend, or refer the matter to expert determination or arbitration. However, hardship clauses must be drafted very carefully because vague wording may create uncertainty over when the clause applies, what level of hardship is required, and what remedy follows if the parties cannot agree.
Bunker Clauses are designed to deal with fuel price risk or fuel availability risk. A bunker clause may provide compensation to the Shipowner if bunker prices rise above an agreed level, or it may adjust Freight or Hire according to a published bunker index. In some cases, the clause may excuse or modify performance if compliant bunkers are unavailable at the expected place or price. These clauses have become increasingly important because fuel represents one of the largest voyage costs and because environmental rules have created different fuel grades, sulphur limits, alternative fuels, and compliance obligations. A poorly drafted bunker clause can create disputes over fuel grade, reference price, adjustment date, calculation method, bunker port, consumption assumptions, or whether the adjustment applies to all voyages or only specified voyages.
Currency Clauses are used where the parties want to reduce exposure to exchange rate fluctuations. Freight, Hire, Demurrage, or other sums may be payable in one currency, while the costs of operating the ship may be incurred in another. A currency clause may adjust payment if the exchange rate moves beyond a defined threshold, or it may require payment by reference to a basket of currencies, a fixed conversion rate, or a specified banking quotation. Escalation Clauses are broader compensation mechanisms. They may adjust payment to reflect increases in wages, insurance, port charges, canal dues, taxes, maintenance costs, inflation, or other defined expense categories. In most cases, Currency Clauses and Escalation Clauses operate as Compensation Clauses rather than as clauses allowing termination of the Charter Party.
For long-term Charter Parties, including Bareboat Charters, Time Charters, Contracts of Affreightment (COA), and Consecutive Voyage Charters, the parties must pay particular attention to economic change. A contract that appears profitable at the date of fixing may become commercially difficult if fuel prices rise, currency values shift, insurance premiums increase, sanctions require longer routes, port costs change, or new environmental rules increase compliance costs. Conversely, a clause intended to protect one party may later overcompensate that party if market conditions move in the opposite direction. This is why cost adjustment clauses must be balanced, precise, and commercially tested before agreement.
Drafting effective Currency Clauses, Escalation Clauses, Hardship Clauses, and Bunker Cost Clauses is difficult because no clause can perfectly predict every future development. The parties must decide which costs are included, what trigger activates the clause, how the adjustment is calculated, which index or evidence will be used, whether there is a threshold or cap, whether the clause applies automatically or after notice, and whether disputes will be referred to an expert, arbitrator, or court. If these elements are not clear, the clause may produce the opposite of the intended result and become a source of dispute rather than protection.
Because these clauses may have major financial consequences, Shipowners and Charterers should seek advice from financial specialists, insurance advisers, and maritime lawyers when drafting them. Standard clauses developed by BIMCO may provide a useful starting point, but they should not be inserted mechanically. Each charter must be considered according to its duration, trade route, cargo, fuel exposure, currency risk, sanctions risk, insurance structure, and commercial purpose. Properly drafted cost variation clauses help preserve the economic balance of the Charter Party, while poorly drafted clauses may create uncertainty, disagreement, and avoidable claims during the life of the contract.
Currency Clauses
Currency Clauses are designed to deal with the financial risk created by exchange rate movements between the currency in which Freight, Hire, Demurrage, or other sums are payable and the currency in which the Shipowner or Charterer incurs its main costs. In international shipping, this issue is particularly important because Freight and Hire are often agreed in United States Dollars, while the Shipowner’s operating expenses, financing costs, crew costs, insurance payments, or corporate expenses may be incurred in Euro, Sterling, Yen, Yuan, or another currency. If exchange rates move sharply between the date of fixing and the date of payment, the economic balance of the Charter Party may change significantly.
A simple example illustrates the problem. Assume that a Shipowner whose costs are entirely in Euro calculates the cost of performing a voyage at Euro 24,500. The Freight is fixed at USD 25,000. At the time of fixing, the exchange rate is USD 1 = Euro 1, so the USD 25,000 Freight would convert into Euro 25,000. On that basis, the Shipowner expects a surplus of Euro 500 after covering the Euro 24,500 cost. However, if the exchange rate changes before Freight is paid so that USD 1.20 = Euro 1, the USD 25,000 Freight converts into only about Euro 20,800. Instead of earning a Euro 500 surplus, the Shipowner suffers a deficit of about Euro 3,700. The voyage calculation, which appeared profitable at the time of fixing, becomes loss-making purely because of currency movement.
If the Charter Party contains a Currency Clause fixing the contractual exchange basis at USD/Euro = 1 and providing for adjustment if the exchange rate changes, the Shipowner may be protected. In the example above, the Freight would need to be adjusted to USD 30,000, calculated as USD 25,000 increased by 20%. When USD 30,000 is converted at the later exchange rate of USD 1.20 = Euro 1, the Shipowner receives Euro 25,000. After deducting Euro 24,500 in voyage costs, the expected Euro 500 surplus is preserved. The purpose of the clause is therefore not to give the Shipowner a windfall, but to maintain the economic result originally assumed by the parties when the Freight was fixed.
Several drafting issues must be considered before inserting a Currency Clause. The parties must first decide whether such a clause is necessary at all. If the charter is short and payment is expected quickly, the risk may be limited. If the charter period is long, payment is delayed, or the cost currency differs materially from the payment currency, the risk may be substantial. If the parties decide to include a Currency Clause, they must define its operation carefully. The clause should state whether it protects both parties equally or only one party. It should also state whether any currency movement triggers adjustment, or whether the fluctuation must exceed a defined threshold before the clause applies.
The parties should also identify the reference exchange rate, the bank or financial source from which the exchange rate will be taken, the date on which the exchange rate will be measured, and the payment items covered by the clause. A poorly drafted Currency Clause may create disputes over whether it applies to Freight only, Demurrage, Hire, Deadfreight (DF), bunkers, port disbursements, commissions, or other amounts. It should also state whether the adjustment is automatic or requires notice from one party. In long-term Charter Parties, a Currency Clause may need to operate repeatedly at each payment date, while in a single Voyage Charter it may apply only once.
In liner shipping, currency fluctuation is often addressed through a Currency Adjustment Factor (CAF). CAF is an additional charge added by liner carriers to standard Freight in order to reduce the financial effect of exchange rate movements between the United States Dollar and other currencies. The method of calculation varies between carriers, trades, and commercial contracts. In general terms, the Currency Adjustment Factor (CAF) tends to increase when the United States Dollar weakens against the relevant currency base. Because CAF can change over time and may be difficult for Shippers to predict, many Shippers prefer all-inclusive Freight arrangements at fixed rates, where currency and surcharge exposure is built into the agreed price.
A typical mutual parity clause may be drafted as follows:
“The Freight and the Demurrage rate in this Charter Party are 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 amount shall be adjusted to produce the same amount of EUR as would have been received if the contractual rate of exchange had applied.”
Escalation Clauses
An Escalation Clause is intended to protect a party against rising costs during the life of a Charter Party. It may compensate the affected party fully or partially, depending on the agreed wording. The basic idea is that Freight or Hire will be adjusted continuously, annually, periodically, or upon the occurrence of a defined event if specified costs increase beyond the level assumed at the time of fixing. Escalation Clauses are particularly relevant in long-term Time Charters, Bareboat Charters, Contracts of Affreightment (COA), Consecutive Voyage Charters, and other contracts where the cost of performance may change substantially before the contract ends.
The costs most commonly addressed by Escalation Clauses include crew wages, social contributions, provisions, stores, technical management, maintenance, repairs, drydocking-related expenses, insurance premiums, war bonuses, regulatory compliance costs, and other operating expenses. These costs may rise because of inflation, labor agreements, regulatory changes, insurance market conditions, spare-part prices, exchange rates, or changes in the trading environment. Without a clear Escalation Clause, the party responsible for those costs normally bears the increase, even if the increase was not expected when the Charter Party was agreed.
The main difficulty in drafting an Escalation Clause is selecting a fair and reliable formula for recalculating the Freight or Hire. One approach is to use a particular cost factor, such as crew wages or insurance premiums. Another approach is to use a published index. A third approach is to compare actual costs during the charter period with a baseline cost statement agreed at the date of the Charter Party. For example, if the Shipowner’s agreed operating cost base rises by 10%, and the clause provides for a corresponding Freight or Hire adjustment, the Shipowner may be entitled to a 10% increase in the relevant payment. However, clauses based directly on actual cost increases can reduce the Shipowner’s incentive to control expenses, because higher costs may be passed on to the Charterer.
To avoid that problem, the parties may agree fixed percentage increases in Freight or Hire at defined dates. This gives certainty and reduces accounting disputes, but it may not reflect the real cost movement during the charter period. If actual costs rise faster than the fixed escalation, the Shipowner remains exposed. If actual costs rise more slowly than the agreed escalation, the Charterer may pay more than necessary. The choice between actual-cost escalation, index-based escalation, and fixed-percentage escalation depends on the duration of the charter, bargaining strength, market conditions, and the parties’ appetite for certainty or flexibility.
A typical example of an escalation clause for a period charter is:
“The rate of Hire agreed in this Charter Party is based upon the level of Owners’ monthly operating expenses ruling at the date of this Charter Party, 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. At 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 shall be multiplied by 12 and adjusted in relation to the next Hire payment. The same principle shall apply pro rata at the termination of the Charter Party for any part of a year.”
This type of clause requires a clear baseline statement of operating expenses at the date of the Charter Party. Without that statement, later comparison may become difficult or impossible. The clause should also define which costs are included, which costs are excluded, whether increases and decreases both count, whether the adjustment operates above a threshold only, and whether the Charterer has a right to audit or verify the Shipowner’s expense figures. If these points are not clearly addressed, the Escalation Clause may become a source of dispute rather than a practical cost-adjustment mechanism.
Bunkers Clauses
Currency Clauses and Escalation Clauses are mainly used in long-term Charter Parties, but sudden changes in particular costs can also affect short-term Charter Parties. Bunker cost is the most obvious example. Fuel is one of the largest voyage expenses, and bunker prices may change sharply between the date of Fixture and the commencement or performance of the voyage. If the Shipowner fixes a spot Voyage Charter on the basis of a particular bunker price and the market price rises significantly before the ship begins the voyage, the voyage calculation may be seriously affected.
For this reason, the parties may include a dedicated Bunker Clause in the Charter Party. Such a clause may state that the agreed Freight is based on an assumed bunker price, for example USD X per ton, and that any increase or decrease beyond that price will lead to a corresponding Freight adjustment or compensation. The clause may apply to the whole voyage, to a defined bunker quantity, or to bunkers actually consumed. It may also refer to a named bunker port, published bunker index, fuel grade, or market quotation. The clearer the formula, the lower the risk of later disagreement.
A Bunker Clause should identify the fuel grade covered by the adjustment, such as IFO, VLSFO, LSMGO, MGO, LNG, methanol, or another relevant fuel. It should also specify the reference price, the reference date, the bunker quantity used in the calculation, the source of the price quotation, and whether the adjustment applies symmetrically to increases and decreases. If the ship burns different fuel grades at sea and in port, the clause should explain how each grade is treated. In modern shipping, fuel clauses must also consider sulphur rules, emissions requirements, alternative fuels, fuel availability, bunker quality disputes, and the consequences of stem failure or fuel contamination.
In Time Chartering, bunker clauses are also important at delivery and redelivery. The parties must agree the quantity and price of bunkers on board when the ship is delivered to the Charterer and when the ship is redelivered to the Shipowner. They should also agree minimum and maximum bunker quantities, fuel specifications, sampling procedures, payment arrangements, and the consequences if the ship is redelivered with more or less bunkers than required. Since bunker values can be substantial, unclear bunker wording may lead to significant claims at the end of the charter period.
In liner shipping, Freight pricing commonly includes a Bunker Adjustment Factor (BAF). The Bunker Adjustment Factor (BAF) is a flexible surcharge designed to compensate carriers for movements in fuel prices. Historically, liner conferences often set BAF levels collectively for defined trades and periods. Since October 2008, however, the European Commission’s removal of the liner conference block exemption under European competition rules ended the traditional conference system in European trades. Since then, shipping lines have generally set their own Bunker Adjustment Factor (BAF) levels independently, subject to competition law scrutiny and the need to avoid collusive pricing behavior.
For Shippers, the Bunker Adjustment Factor (BAF) can make total transport cost less predictable because the surcharge may rise or fall during the life of a service contract or shipment program. For carriers, BAF provides a mechanism to recover fuel costs that may otherwise erode margins. For this reason, some customers prefer all-inclusive Freight rates that incorporate expected fuel movement into a fixed price, while carriers may prefer a separate adjustable BAF to avoid being locked into a rate that becomes uneconomic if bunker prices rise sharply.
Bunker Clauses, Currency Clauses, and Escalation Clauses all serve the same broader purpose: they allocate the risk of economic change. Without them, the ordinary rule is that the party responsible for a cost must bear that cost even if it later increases. With them, the parties can preserve the commercial balance of the Charter Party by adjusting Freight, Hire, or other payments according to agreed formulas. However, these clauses must be drafted with precision. If the trigger, calculation method, reference price, reference date, threshold, notice requirement, and payment mechanism are unclear, the clause may create as much uncertainty as the risk it was designed to solve.
Other provisions regarding allocation of costs
Some expenses arising during the performance of a Charter Party are difficult to calculate accurately at the time of fixing. These costs may depend on the ship’s age, flag, class, management, trading area, tax exposure, local regulations, or insurance market conditions. For that reason, Charter Parties often contain specific clauses allocating such expenses between the Shipowner and the Charterer. Clear wording is important because even a relatively small additional cost can materially affect the voyage calculation, especially where Freight margins are narrow or where the ship trades to countries imposing special charges on foreign tonnage.
One common example concerns additional insurance costs. Voyage Charter Parties frequently include wording similar to the following:
“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.”
This type of clause places the cost of additional insurance on the Shipowner where the extra premium arises from characteristics connected with the ship itself. If underwriters, cargo insurers, or other interested parties require an additional premium because the ship is older, flies a particular flag, is managed by a certain entity, has a specific ownership structure, belongs to a particular class, or is affected by condition-related concerns, the Shipowner normally bears that cost under this wording. The commercial reasoning is that the Charterer should not be responsible for increased insurance expense caused by the ship’s own profile unless the Charter Party expressly provides otherwise.
Another important example concerns Freight Tax. The Charter Party may allocate Freight Tax to either Charterers or Owners, depending on the negotiated wording. A simple clause may state:
“Freight Tax, if any, to be for Charterers’ (or Owners’) account.”
Freight Tax is imposed in many jurisdictions and may apply to income earned from the maritime transportation of goods, commonly in connection with export cargoes. In some cases, similar tax exposure may also arise in relation to Time Charter Hire or Bareboat Charter Hire. Shipowners, ship managers, and operators that are not tax residents in the country imposing the charge may be especially affected because the tax can reduce net voyage earnings and disturb the voyage estimate prepared before fixing.
This issue can be particularly significant for international shipping groups, including those listed on United States stock exchanges, because their tax exposure and reporting obligations may be affected by taxes imposed in trading countries. Sometimes, Freight Tax is included within agency fees, port disbursements, or local charges, and the Shipowner may not have been properly informed of the amount before fixing the ship. If the Charter Party does not allocate the cost clearly, disputes may arise over whether the tax is a charge on the ship, the Freight, the cargo, or the Charterer’s commercial operation.
BIMCO (Baltic and International Maritime Council) has played an important role in this area. BIMCO previously published an annually updated booklet titled Freight Taxes, which provided practical information about tax rules in different countries. This information is now available online to BIMCO members. For Shipowners and Shipbrokers, such resources are valuable because they help improve the accuracy of voyage estimates and identify countries where foreign ships may be exposed to local Freight taxes, port-related taxes, or similar charges.
Different clauses may be used to allocate Freight Taxes and related charges between the parties. In Time Charter Parties, a typical provision may read:
“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.”
This wording places a broad range of taxes and dues on the Charterer where they arise from cargoes carried or ports visited under the Time Charter. The logic is that the Charterer directs the ship’s commercial employment and chooses the cargoes and ports within the Charter Party limits. Therefore, taxes generated by that employment are commonly allocated to the Charterer, unless the parties agree a different arrangement.
In Voyage Charter Parties, the wording is often more detailed because the allocation of port charges, cargo dues, ship dues, and Freight taxes may vary depending on the country, port, and trade. A standard clause may provide:
“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.”
This type of wording attempts to distinguish between charges imposed on the ship and charges imposed on the cargo, while also protecting the Shipowner from unusual or cargo-volume-based charges that may otherwise reduce the economic result of the voyage. Because local taxes and dues can be complex, the parties should avoid vague wording and should identify clearly which taxes, port charges, cargo dues, Freight taxes, wharfage, quay dues, and government charges are for Owners’ account and which are for Charterers’ account.
Frustration of Charter Party
The Doctrine of Frustration may sometimes be invoked by Shipowners or Charterers who wish to bring a Charter Party to an end because circumstances have changed dramatically after the contract was made. In shipping, parties may attempt to rely on frustration where performance becomes impossible, illegal, or radically different from what was originally agreed. Economic difficulty alone is usually insufficient. A sharp rise in costs, a poor market, a loss-making voyage, or an unfavorable change in Freight levels will rarely amount to Frustration of the Charter Party.
The doctrine is difficult to apply with certainty. Courts and arbitrators examine the wording of the Charter Party, the nature of the event, the expected duration of the disruption, the commercial purpose of the contract, and whether the risk was already allocated by the contract. If the Charter Party contains war clauses, sanctions clauses, force majeure-type wording, ice clauses, hardship clauses, bunker clauses, or escalation provisions, those clauses may affect whether frustration can be argued at all. Because the consequences of wrongly terminating a Charter Party can be serious, a party should act cautiously and obtain legal advice before notifying the counterparty that the contract has been terminated on the basis of frustration.
Arbitration Clauses
To avoid disputes about which legal system applies and how claims must be resolved, every Charter Party should contain a clear clause dealing with governing law and dispute resolution. Charter Parties commonly provide for arbitration, whereas Bills of Lading (B/L) more often refer to court proceedings or contain jurisdiction clauses. An arbitration clause should do more than merely state that disputes will be arbitrated. It should identify the governing law, the seat or place of arbitration, the method for appointing arbitrators, the applicable procedural rules, the language of the arbitration, and any special procedure for smaller claims.
Where English law applies, the arbitration clause may refer to the relevant Arbitration Act governing the procedure. Historical references may be made to the Arbitration Acts of 1950, 1979, or 1996, although modern English arbitration is primarily governed by the Arbitration Act 1996. The clause should be updated carefully because outdated references can create uncertainty. A well-drafted arbitration clause reduces the risk of preliminary disputes about jurisdiction, appointment of arbitrators, procedure, and enforcement.
Modern Charter Parties often contain a Split Arbitration Clause. This type of clause allows the parties to select arbitration in London, New York, Singapore, or another agreed place. Examples can be found in forms such as GENTIME, Part II, Clause 22, “law and arbitration,” and NYPE 2015, Clause 54, “law and arbitration.” These clauses normally provide that the Charter Party is governed and interpreted according to the law of the selected arbitration venue. If the parties fail to make a selection, the clause may include a default mechanism identifying which law and arbitration venue will apply.
Arbitration clauses may also contain special provisions for Small Amounts Disputes. This is commercially useful because not every chartering dispute justifies a full arbitration procedure. Smaller claims involving Demurrage, Hire deductions, bunker disputes, minor cargo damage, port costs, or agency expenses may be resolved more efficiently through simplified or small-claims procedures. Such provisions can reduce cost and delay while preserving the benefit of specialist maritime dispute resolution.
Time Limits
Most legal systems impose time limits for bringing claims, and Charter Parties often include contractual time bars or notification requirements of their own. The one-year limitation for cargo claims under the Bill of Lading (B/L) conventions is a well-known example. In Charter Party disputes, the parties should generally avoid agreeing to time limits shorter than one year unless there is a strong commercial reason and the consequences are fully understood. A very short time limit may cause a valid claim to be lost before the claimant has had a reasonable opportunity to collect evidence, calculate the claim, and commence proceedings.
Limitation periods under general contract law differ from country to country. Under English Law, the ordinary limitation period for commercial litigation or arbitration connected with Charter Parties is generally six years. Other countries may apply much shorter periods. France, for example, has a one-year limitation in certain maritime contexts, while Spain may apply a six-month period in some cases. The applicable limitation period must therefore be checked carefully, especially where the Charter Party, the parties, the ship, the cargo, and the place of performance are connected with several jurisdictions.
It is also important to recognize that the governing law chosen in the Charter Party may not be the only relevant legal system. Even if the Charter Party is governed by English law and English law allows six years for a contractual claim, the law of the country where the Defendant carries on business or where enforcement is sought may still affect the practical position. For example, if Charterers are based in Spain, Owners may need to consider Spanish limitation rules rather than relying solely on the English six-year period stated by general English contract law principles. This is particularly important where proceedings must be commenced, served, recognized, or enforced in another jurisdiction.
The starting point for the time limit is equally important. In some cases, time may begin to run from final discharge of cargo. In others, it may start from the date of breach, the due date for payment, redelivery, completion of the voyage, issue of the final account, rejection of a claim, or another specific event. Contractual time bar clauses may also require notice of claim, supporting documents, or arbitration commencement within a defined period. If these procedural steps are not followed, the claim may fail even though the underlying claim would otherwise have been valid.
For this reason, Shipowners, Charterers, Shipbrokers, operators, insurers, and claims handlers should identify relevant time limits as soon as a dispute appears possible. Evidence should be preserved, notices should be sent in the correct form, extensions should be requested before expiry where necessary, and arbitration or court proceedings should be commenced in time. In chartering disputes, delay can be as damaging as weak evidence. A strong claim may be lost entirely if the applicable time limit or contractual time bar is missed.
Exception Clauses
Charter Parties commonly contain clauses that exclude, limit, or qualify the liability of Owners, and in some cases the liability of both Shipowners and Charterers. These provisions are generally known as Exception Clauses. Their scope may be narrow, applying only to a specific type of loss, such as cargo loss, cargo damage, or delay, or they may be drafted more broadly to cover several categories of non-performance. In transport documents governed by Bill of Lading (B/L) conventions, certain exceptions may also be available under the applicable cargo liability regime.
One well-known example is the Cesser Clause, which is normally found in Voyage Charter Parties. A Cesser Clause is designed to end the Charterer’s liability once the cargo has been shipped. In commercial terms, the Charterer seeks to transfer the right to have the goods carried to the Shipper or cargo interest after shipment. This type of clause is usually connected with the Shipowner’s right to exercise a Lien over the cargo for sums due under the Charter Party, including Freight (F), Deadfreight (DF), and Demurrage (D). The underlying principle is that the Charterer should be released only to the extent that the Shipowner receives an equivalent and effective security right over the cargo. If the lien does not cover a particular liability, the Charterer may not necessarily be released from that liability.
Exception Clauses may also appear as general responsibility clauses. The following examples illustrate how standard forms may seek to protect the Shipowner in Voyage Charter and Time Charter contexts.
GENCON ’94, Part II, Clause 2 – “Owners’ Responsibility Clause”
Under this type of clause, Owners are responsible for loss of or damage to the goods, or for delay in delivery, only where the loss, damage, or delay results from the personal lack of due diligence of the Owners or their Manager in making the ship seaworthy, properly manned, equipped, and supplied, or from the personal act or default of the Owners or their Manager.
The clause then attempts to exclude responsibility for loss, damage, or delay arising from other causes, even where the event is caused by the neglect or default of the Master, crew, or other persons employed by the Owners on board or ashore, or by the unseaworthiness of the ship at the time of loading, at the commencement of the voyage, or at another time.
Baltime 1939, Edition 2001, Part II, Clause 12 – “Responsibility and Exemption”
Under this wording, Owners are responsible for delay in delivering the ship, delay during the charter period, or loss of or damage to goods on board only where such delay, loss, or damage results from lack of due diligence by Owners or their Manager in making the ship seaworthy and fit for the voyage, or from another personal act, omission, or default by Owners or their Manager.
In other cases, the clause attempts to exclude Owners’ responsibility for damage or delay, however caused, even where the cause is the neglect or default of their employees. The clause also excludes liability for loss or damage caused by strikes, lockouts, or stoppages of work, including those involving the Ship Master, Officers, or Crew, whether partial or general. Charterers, however, remain liable for loss or damage to the ship or to Owners caused by loading cargo contrary to the Charter Party, improper or negligent bunkering, incorrect loading, stowing, or discharging, or other negligent acts by Charterers or their servants.
Both the GENCON and BALTIME clauses appear, at first sight, to give substantial protection to the Shipowner. However, clauses of this kind are often interpreted restrictively by courts and arbitrators. A Shipowner should therefore not assume that broad exemption wording will protect against every loss, delay, or liability. The result will depend on the exact wording of the clause, the nature of the breach, the applicable law, any mandatory cargo liability rules, and the facts of the dispute.
Another form of Exception Clause is a Force Majeure provision, which may give mutual relief to both parties where performance is prevented by events outside their control. A typical wording may provide:
“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 type of clause differs from the GENCON and BALTIME responsibility clauses because it is not drafted solely for the benefit of Owners. It applies mutually to Charterers and Shipowners, provided the event falls within the wording and genuinely prevents or affects performance in the required manner.
Some Charter Parties may also include a limitation of liability clause. GENCON ’76, Part II, Clause 12, headed “indemnity,” contained wording such as:
“Indemnity for non-performance of this Charterparty, proved damages, not exceeding estimated amount of Freight.”
This wording limits recoverable damages for non-performance to the estimated amount of Freight, but it should be noted that this clause does not appear in GENCON ’94. Its absence reflects the different drafting approach adopted in the later form.
Exception Clauses appear in many forms and serve different purposes. Some protect only the Shipowner, some protect both parties, some apply to cargo claims, and others apply to wider non-performance. Their practical effect can be difficult to determine without careful legal analysis. One recurring problem is that Exception Clauses are often overlooked during negotiations. Because they are printed in standard forms and rarely discussed as actively as Freight, Hire, Laytime, Demurrage, or cargo terms, they may be treated as routine background wording. That approach is risky. In a major dispute, the wording of an Exception Clause may determine whether a claim succeeds, whether liability is excluded, or whether damages are recoverable.
Shipowners and Charterers should therefore review Exception Clauses carefully before fixing. They should consider whether the clause is appropriate for the cargo, trade, charter type, legal regime, and commercial risk allocation. This recommendation applies not only to Exception Clauses but to every clause in the Charter Party, especially where the wording may affect liability, time, payment, cargo responsibility, seaworthiness, deviation, war risks, strikes, force majeure, or dispute resolution.
Maritime Liens
A Shipowner may have the right to exercise a Lien over cargo carried on board the ship for unpaid sums such as Freight (F), Deadfreight (DF), Demurrage (D), cargo-related expenses, General Average (GA) contributions, and similar charges. A Lien gives the Shipowner a form of security by allowing the Shipowner, in appropriate circumstances, to retain possession of the cargo or prevent delivery until the outstanding amount is paid or secured. Liens over cargo may arise under general law, by express wording in the Charter Party or Bill of Lading (B/L), or through a combination of legal principles and contractual agreement.
The effectiveness of a Lien depends heavily on the applicable law and the wording of the relevant contract. A Charter Party may give the Shipowner a contractual lien for Freight, Deadfreight, and Demurrage, but that lien may need to be properly incorporated into the Bill of Lading (B/L) if the cargo has passed into the hands of a third-party holder. The practical ability to enforce a lien may also depend on whether the cargo remains in the Shipowner’s possession, whether local law recognizes the lien, whether the cargo has already been discharged, and whether port or warehouse arrangements affect control of the goods.
There are also situations where a claim against the Shipowner may give rise to a Lien over the ship itself. Such a Lien may remain attached to the ship even after the ship is sold to a new Shipowner, depending on the governing law and the nature of the claim. Maritime Liens are therefore powerful rights because they may follow the ship and affect subsequent owners or financiers. The categories of claims giving rise to Maritime Liens vary between jurisdictions, but they may include crew wages, salvage, collision damage, port dues, mortgage claims, or other maritime claims depending on the legal system.
In Time Charter and Bareboat Charter arrangements, Shipowners often negotiate a right to exercise a Lien over Freight payable to Charterers under Bills of Lading (B/L) or sub-Charter Parties. This is commercially important because the Shipowner may not have direct control over cargo Freight earned by the Charterer unless the Charter Party gives a clear lien or assignment-type protection. If Hire is unpaid, the Shipowner may seek to intercept Freight due from sub-Charterers or cargo interests, provided the contractual wording and applicable law permit this.
To determine whether a Lien can be enforced in any particular situation, it is necessary to examine the Charter Party, the Bill of Lading (B/L), the governing law of the contract, the law of the place where the Lien is to be exercised, and the practical status of the cargo or ship. A Lien that appears valid under the Charter Party may not be enforceable in the same way in every jurisdiction. For that reason, Shipowners, Charterers, cargo interests, and insurers should obtain local legal advice before relying on or challenging a Lien.
Arrest of Ships
A person or company with a claim against a Shipowner may sometimes seek to arrest one of the Shipowner’s ships in order to secure payment or obtain security for the claim. Arrest is a powerful legal remedy because it can prevent the ship from sailing until security is provided or the court releases the ship. It is therefore commonly used as a means of obtaining security in maritime disputes, especially where the claimant fears that the Shipowner may not voluntarily pay any later judgment or arbitration award.
The rules governing ship arrest differ significantly from country to country. The applicable procedure depends mainly on the law and jurisdiction of the country where the arrest is attempted. Some jurisdictions allow arrest only for claims secured by a Maritime Lien or a Mortgage over the ship. Other jurisdictions allow arrest for a wider range of maritime claims, and some may even permit arrest for ordinary monetary claims connected with the ship or Shipowner. Because the requirements vary so widely, both the arresting party and the Shipowner should instruct local lawyers immediately.
In some countries, the claimant must provide detailed evidence supporting the claim before the court will issue an arrest order. The claimant may also be required to provide counter-security in case the arrest later proves wrongful. In other jurisdictions, arrest may be easier to obtain and may require relatively limited evidence at the initial stage. This variation makes ship arrest a complex tactical decision. What is possible in one port may not be possible in another, and the cost, speed, and risk of arrest can differ substantially between legal systems.
As a general rule, a Shipowner should act immediately if there is a risk that the ship may be arrested. The Shipowner should contact legal advisers, the P&I Club (Protection and Indemnity Club), Hull Underwriters where relevant, bankers, managers, Charterers, and other interested parties. The objective is to understand the claim, prepare arguments against arrest if possible, arrange security where necessary, and prevent unnecessary delay to the ship. A delayed ship may create further claims under Charter Parties, Bills of Lading (B/L), port contracts, cargo arrangements, and financing documents.
A claimant considering arrest must also proceed carefully. Arrest may be an effective method of obtaining security, but it can expose the claimant to counterclaims if the arrest is later found to be wrongful, abusive, excessive, or unjustified. A wrongful arrest may cause loss of Hire, loss of Freight, missed laycan, cargo delay, port costs, bunker costs, reputational damage, and other losses. Therefore, arrest should be used only after careful legal assessment of the claim, the evidence, the applicable law, the ship’s ownership structure, and the likely consequences of detaining the ship.
Ship arrest is therefore not merely a procedural tool. It is a major commercial and legal measure that can affect the ship, cargo, Charter Party, financing arrangements, insurance position, and ongoing trading schedule. Because the consequences can be serious for both sides, local legal advice and rapid coordination with insurers and commercial managers are essential whenever arrest is threatened, attempted, or executed.
General Average (GA)
General Average (GA) is a long-established maritime law principle that applies when an extraordinary sacrifice or expense is deliberately and reasonably made during a maritime emergency for the purpose of preserving the common adventure. Section 66(2) of the UK Marine Insurance Act 1906 defines the concept 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.”
A General Average (GA) Act therefore exists only where the sacrifice or expenditure is extraordinary, voluntary, reasonable, and made in a time of peril for the common safety of the interests involved in the maritime adventure. The essential idea is that one party should not bear alone a loss or expense that was intentionally incurred to save the ship, cargo, Freight, bunkers, and other property exposed to the same danger. Instead, the loss is shared proportionately among all contributing interests that benefited from the successful preservation of the adventure.
The scope of General Average (GA) extends to all interests involved in the common adventure that are at risk. These interests normally include the ship, cargo, bunkers, stores, and in some circumstances personal effects or other property on board. The concept may also include financial interests connected with the successful completion of the voyage, such as Freight, Time Charter Hire where relevant, and other recoverable interests that depend on the safety of the physical property involved in the maritime venture.
A classic example of General Average (GA) is the voluntary jettison of deck cargo to correct a dangerous list and save the ship, remaining cargo, and Freight. Although this example is traditional and now less common than in earlier shipping practice, it clearly illustrates the principle. A more modern example may involve a ship in distress that receives successful salvage assistance, where extraordinary expenses are incurred to preserve the ship and cargo from a real danger. Other possible situations may include firefighting expenses, port of refuge costs, temporary repairs, towage, salvage remuneration, or sacrifices made to prevent a greater loss.
Most General Average (GA) adjustments are made by reference to the York-Antwerp Rules (YAR). These rules provide an internationally recognized framework for determining what sacrifices, expenses, and contributions are allowable in General Average (GA). First introduced in 1890, the York-Antwerp Rules (YAR) have been revised several times to reflect developments in maritime commerce, salvage practice, insurance, and ship operations. It is common for Charter Parties, Contracts of Affreightment (COA), Bills of Lading (B/L), Sea Waybills, and marine insurance policies to incorporate a specific version of the York-Antwerp Rules (YAR).
Under the York-Antwerp Rules (YAR), the key requirements are that a real peril exists, the act is voluntary and reasonable, the sacrifice or expense is made for the common safety, and the maritime adventure is successfully preserved. The danger does not have to result in total disaster, but it must be sufficiently serious to justify extraordinary action. If cargo is sacrificed to save the ship and the remaining cargo, the cargo interests whose goods were saved must contribute proportionately to the loss suffered by the party whose property was sacrificed. Before cargo is delivered after a General Average (GA) declaration, cargo owners or their insurers are commonly required to provide General Average Bonds, guarantees, or deposits to secure their eventual contribution to the General Average (GA) adjustment.
The York-Antwerp Rules 2016 were approved by CMI (Comité Maritime International) in May 2016 after a lengthy drafting process that began in 2012. The 2016 revision received support from important maritime and insurance organizations, including BIMCO, ICS (International Chamber of Shipping), and IUMI (International Union of Marine Insurance). The York-Antwerp Rules 2016 were intended to modernize General Average (GA) practice and to provide a more acceptable framework after the limited market acceptance of the 2004 Rules. The York-Antwerp Rules 1994 remained widely incorporated in many Charter Parties and Bills of Lading (B/L), but the 2016 Rules have become increasingly important because they aim to balance the interests of Shipowners, cargo interests, and insurers more effectively.
Jason Clause
The Jason Clause, New Jason Clause, and Amended Jason Clause are clauses commonly found in Charter Parties, Bills of Lading (B/L), and other contracts of carriage. Their purpose is connected with General Average (GA) contribution, particularly where the General Average (GA) event has been caused by negligent navigation or negligent management of the ship. The original reason for the clause was to overcome the effect of a United States court decision that prevented a Shipowner from recovering cargo’s contribution to General Average (GA) where the General Average (GA) loss arose from negligent navigation or management of the ship. The clause therefore seeks to preserve the Carrier’s right to collect General Average (GA) contributions from cargo interests in circumstances where the Carrier is not legally responsible for the relevant negligence under the applicable cargo liability regime.
The enforceability and scope of a Jason Clause may depend on the governing law, the wording of the carriage contract, the applicable cargo liability convention, and the facts giving rise to the General Average (GA) claim. For that reason, the clause should not be treated as a simple standard formality. It is a protective provision with potentially significant financial consequences for Shipowners, Carriers, cargo interests, insurers, Shippers, and Consignees.
The “BIMCO New Jason Clause” is commonly 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.”
This wording is designed to ensure that cargo interests contribute to General Average (GA), salvage, and special charges even where the incident arises from negligence, provided the Carrier is not responsible for that negligence under statute, contract, or other applicable legal principles. It also deals with the situation where the salving ship is owned or operated by the Carrier, making clear that salvage is to be treated as payable as if the salving ship were owned by an independent third party. The clause further protects the Carrier by allowing the Carrier or the Carrier’s agents to require deposits or security before cargo delivery.
General Average (GA) Clause
The General Average (GA) Clause is one of the important “Protective Clauses” commonly included in Charter Parties and related sea carriage documents. Its purpose is to identify the rules governing General Average (GA), allocate responsibilities among the parties, and ensure that General Average (GA) contributions are handled in an orderly and legally recognized manner. Because a General Average (GA) event can involve very large sums and many different cargo interests, the clause is commercially important for Shipowners, Charterers, cargo insurers, hull insurers, P&I Clubs, and cargo receivers.
General Average (GA) Clauses appear in a wide range of standard shipping documents, 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 included to establish how General Average (GA) is to be adjusted, which version of the York-Antwerp Rules (YAR) applies, where the adjustment will take place, and how contributions, security, deposits, salvage charges, and related expenses are to be handled. The clause may also interact with the New Jason Clause, cargo liability clauses, Bills of Lading (B/L), insurance policies, and the rights of cargo interests. In practice, once General Average (GA) is declared, an Average Adjuster is usually appointed to collect security, assess allowable sacrifices and expenditures, calculate contributory values, and determine the proportional contributions payable by each interest.
A properly drafted General Average (GA) Clause reduces uncertainty at a time when the parties may already be dealing with a major casualty or emergency. It helps ensure that cargo is not delivered without adequate security, that contributions are calculated under an agreed legal framework, and that the financial burden of extraordinary sacrifice or expense is shared fairly among the interests saved by the General Average (GA) act. For this reason, General Average (GA) wording should be reviewed carefully in Charter Parties, Bills of Lading (B/L), Contracts of Affreightment (COA), and related transport documents before the Fixture is concluded.
Collision
Collisions may occur between two ships or between a ship and fixed or floating objects such as quays, jetties, terminals, shore cranes, buoys, offshore structures, or other port installations. The consequences can be serious. A collision may cause damage to the ship, cargo, terminal property, or other assets, and may also result in delay, pollution, personal injury, or loss of life. Because many contracts of carriage contain a “Both-to-Blame Collision Clause,” it is important to understand the basic legal background and commercial function of this clause.
The “Brussels Collision Convention”, also known as the “Collision Convention 1910,” is formally titled “the Convention for the Unification of Certain Rules of Law with Respect to Collisions Between Vessels,”. It is a multilateral convention adopted in 1910 to create a more uniform legal framework for liability arising from collisions between ships at sea. The Convention is based on three broad principles:
- If the collision is accidental, unavoidable, or caused by an uncertain cause, each party bears its own loss.
- If the collision is caused by the fault of one ship, the party at fault is liable for the resulting damage.
- If more than one ship is at fault, liability is divided between them in proportion to their respective degree of fault. If the degree of fault cannot be established, liability is shared equally.
Under the approach reflected in the Collision Convention 1910, where two ships are both at fault, cargo carried on ship X may recover from ship Y only to the extent of ship Y’s proportion of responsibility. If the owner of ship X is protected under the contract of carriage from liability for cargo loss or damage caused by negligent navigation, the cargo interest on ship X may not be able to recover the balance from the owner of ship X. This produces a different result from the position under United States law, because the Collision Convention 1910 has not been ratified by the United States. Under United States law, cargo on ship A may be able to recover its full loss from ship Y, after which ship Y may seek contribution from ship A, even where ship A’s owner would otherwise have a navigational error defence against the cargo claim.
The Both-to-Blame Collision Clause was developed to deal with this difference and to bring the United States position closer to the international system created by the Collision Convention 1910. The clause seeks to prevent cargo interests from indirectly defeating the carrier’s navigational error defence by claiming against the non-carrying ship, which then claims contribution from the carrying ship. However, the US Supreme Court has held that this clause is void and unenforceable in the United States. As a result, the clause has only limited operation and may be effective only in specific circumstances outside the United States, depending on the governing law and jurisdiction.
In summary, under the Hague-Visby Rules, a carrier who has exercised due diligence to make the ship seaworthy is not normally liable for cargo claims caused by negligent navigation or management of the ship, as reflected in Hague-Visby Rules, Article IV, Paragraph 2a. In many collision cases, both ships may share some responsibility. Cargo interests may therefore bring a claim in tort against the non-carrying ship. Under United States law, those cargo interests may recover the full loss from the owner of the other ship, who may then seek contribution from the carrying ship. This can undermine the navigational error defense because the carrying ship may become indirectly responsible for a cargo claim that could not have been brought directly against it. The Both-to-Blame Clause is therefore designed to preserve, by contractual indemnity, the protection that the carrier would otherwise enjoy under the Hague-Visby Rules.
For this reason, Charter Parties often contain wording requiring all Bills of Lading (B/L) issued under the Charter Party to incorporate the Both-to-Blame Clause. Such wording may also provide an indemnity if the clause is omitted from a Bill of Lading (B/L). This is commercially important because the clause is intended to protect the Shipowner, carrier, or disponent carrier from unexpected exposure arising from collision claims brought through another ship rather than directly under the contract of carriage.
International Safety Management Code (ISM)
The International Safety Management (ISM) Code is a mandatory international safety regime applying to cargo ships and mobile offshore drilling units of 500 gross tonnage and above. The ISM Code has applied to passenger ships, including high-speed passenger craft, oil tankers, chemical tankers, gas carriers, bulk carriers, and high-speed cargo craft since 1 July 1998. Other cargo ships, including containerships and mobile offshore drilling units, have been required to comply with the ISM Code since 1 July 2002.
The purpose of the ISM Code is to improve safety management at sea, prevent injury or loss of life, protect the marine environment, and reduce the risk of damage to ships, cargo, and property. The ISM Code requires Shipowners, managers, or the entity defined as “the Company” under the Code to establish and maintain a Safety Management System. This system should include safe operating procedures, emergency preparedness, reporting systems, internal audits, responsibility structures, and procedures for ensuring compliance with applicable rules and regulations.
As BIMCO has explained:
“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 therefore introduced a standard International Safety Management (ISM) Clause for Voyage and Time Charter Parties. The clause provides in substance that, from the date the ISM Code applies to the ship and throughout the Charter Party period, Owners must ensure that both the ship and “the Company,” as defined in the ISM Code, remain fully compliant with ISM Code requirements. Upon request, Owners must also provide Charterers with copies of the relevant Document of Compliance (DOC) and Safety Management Certificate (SMC).
The clause further provides that, unless the Charter Party states otherwise, any loss, damage, expense, or delay caused by the failure of Owners or “the Company” to comply with the ISM Code will be for Owners’ account. This allocation reflects the fact that ISM compliance is primarily connected with the Shipowner’s or manager’s safety management obligations, technical administration, certification, and regulatory responsibility. From a Charterer’s perspective, ISM compliance is commercially important because lack of compliance may lead to port detention, refusal of terminal acceptance, loss of approvals, insurance complications, cargo delay, or inability to perform the agreed voyage.
Piracy
Piracy has become a major contractual and operational concern in modern chartering because attacks on ships can cause delay, deviation, detention, ransom demands, crew trauma, cargo risk, insurance complications, and major commercial loss. Piracy Clauses were first introduced in a structured way in 2009 to define the rights and obligations of Shipowners and Charterers when ships are exposed to piracy risks. BIMCO (Baltic and International Maritime Council) initially produced three separate clauses covering Time Charter Parties, Consecutive Voyage Charters/Contracts of Affreightment (COAs), and Single Voyage Charters.
Following later court decisions, changes in trade practice, developments in insurance, and the need to clarify Charterers’ responsibilities after a ship is released from seizure, BIMCO revised these clauses in 2013. BIMCO strongly recommends using the most recent versions of these Piracy Clauses, because older wording may not deal adequately with current risks, modern insurance requirements, armed robbery, seizure, ransom-related delay, or the allocation of costs after a piracy incident.
The official wording of the “BIMCO Piracy Clause for Time Charter Parties 2013” appears in NYPE 2015, Clause 39. Separate BIMCO piracy clauses are available for Single Voyage Charters and for Consecutive Voyage Charters/Contracts of Affreightment (COAs). These clauses are designed to address practical questions such as whether the Shipowner may refuse to proceed through a piracy-risk area, whether the Charterer must nominate an alternative route, who pays additional insurance premiums, who bears the cost of armed guards or security measures, how delay is treated, and whether the ship remains on Hire during detention or deviation.
A well-drafted Piracy Clause should work together with the War Risk Clause, insurance clause, safe port clause, deviation clause, off-hire clause, and any provisions dealing with additional premiums, security costs, or crew bonuses. Piracy risk may overlap with war risk, terrorism, violent robbery, armed seizure, naval intervention, sanctions issues, and port security restrictions. For this reason, piracy wording should not be treated as a minor standard clause. It may determine the financial and operational consequences of one of the most serious risks faced by the ship, crew, cargo, Shipowner, Charterer, and insurers.
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