Charter Party in Dry Bulk Shipping
Primarily, there are three (3) types of Charter Parties in use:
1- Time Charter Party
2- Voyage Charter Party
3- Bareboat Charter Party
1- Time Charter Party
In Time Charter Party, the Charterer hires the ship for some time within agreed limits during which time the Charterer has the discretion as to how the ship shall be employed. Usually, Time Charter Hires are paid to the Shipowners on a monthly or semi-monthly basis.
Technical Management of the ship is not transferred to the Time Charterer. Commercial Management of the ship is transferred to the Time Charterer. Time Charterer is more involved with the voyage than Voyage Charterer.
In a Time Charter Party, the Time Charterer supplies and pays for the bunkers, docks, harbor dues. Furthermore, the Time Charterer arranges and pays for cargo handling costs (loading and discharge expenses).
The Time Charterer delivers instructions to the Ship Master as to which ports the ship will steam. Nevertheless, in a Time Charter Party, the Ship Master and Crew Members are the servants of the Shipowner. Therefore, it will be the Shipowner to whom any Vicarious Liability is attributed.
The Time Charterer may negotiate the option to Sub-Charter (Sublet) the ship in which event the Time Charterer’s name will appear as the Disponent Owner which means Time Charterer is deemed to be the Shipowner but not actually the Shipowner.
2- Voyage Charter Party
In Voyage Charter Party, the Voyage Charterer pays Freight to the Shipowner for the carriage of cargo for a particular voyage. The Voyage Charterer may or may not be the owner of the cargo.
In consideration of employing the ship, the Voyage Charterer pays Freight to the Shipowner.
In Voyage Charter Party, depending upon the commodity concerned, Freight may be either an agreed rate per tonne of cargo or a fixed lump sum paid to the shipowner.
In Voyage Charter Party, it is the Shipowner’s responsibility to ensure that the ship carries the cargo from a stipulated loading port to a stipulated discharging port.
In Voyage Charter Party, the Ship Master and Crew Members are the servants of the Shipowner, not of the Charterer. Therefore, the Shipowner will have Vicarious Liability for the negligence of the Ship Master and Crew Members.
The Voyage Charter Party incorporates an Express Term obliging the Shipowner to carry the cargo from the named loading port to the named discharging port. Both loading and discharging port names must be mentioned in the Voyage Charter Party. However, the Charterer may negotiate the option to declare at a later date a port name out of an agreed list of ports or out of a geographical range. For example, ARAG Range (Amsterdam-Rotterdam-Antwerp-Gent Range).
3- Bareboat Charter Party
In Bareboat Charter Party, the Charterer takes over the possession and control of the ship for a certain period. The Bareboat Charter Party is like a lease agreement and the Charterer mans and supplies the ship. Bareboat Charter Parties tend to be used mainly as a method of effectively financing the owning of a ship.
In Bareboat Charter Party, the Charterer takes all responsibility for the ship’s navigation, management, and operation.
In Bareboat Charter Party, a Bareboat Charterer may even change the Ship’s Flag during the period of the lease.
In Bareboat Charter Party, a Bareboat Charterer is regarded as being the owner of the ship for legal liability in respect of the ship during the bareboat charter period.
In Bareboat Charter Party, the Ship Master is the agent of the Bareboat Charterer and not the Shipowner. Consequently, the important feature of the Bareboat Charter Party is that the Ship Master and Crew Members are engaged, employed, and paid by the Bareboat Charterer. Therefore, the Bareboat Charterer is the person to whom Vicarious Liability will be attributed for the acts, neglects, and defaults of the Ship Master and Crew Members.
Difference Between Bareboat Charter Party and Demise Charter Party
Unfortunately, many Academics and Shipping Lawyers use the term Demise Charter Party when referring to a Bareboat Charter Party. Shipbrokers should refrain from using the terms synonymously.
If the Shipowner leases the ship with the Shipowner’s Ship Master and Crew Members it is called a Demise Charter Party. If the Shipowner leases the ship without the Ship Master and Crew Members it is called Bareboat Charter Party.
Charter Party Implied Terms
Common Law implies certain terms in any contract governed by English law. These terms are either implied as a matter of fact by the Courts or may be implied by Statute.
Implied Terms are deemed as incorporated in a contract to give it Business Efficacy. This is undoubtedly the case concerning charter parties.
The Common Law implies four (4) terms for every Voyage Charter Party:
1- Reasonable Despatch
The ship must be ready to commence the voyage agreed on and to load the cargo to be carried and shall proceed upon and complete the voyage agreed upon with all reasonable despatch.
A breach of this implied term gives the charterer the right to repudiate the charter party if the delay is so serious as to go to the root of the contract. Otherwise, the sole remedy would be damages.
2- Seaworthy Ship
At Common Law, the Shipowner’s duty to provide a seaworthy ship is absolute. Even if the shipowner takes all reasonable care, and exercises all due diligence to ensure that the ship is seaworthy, the shipowner will nonetheless be liable for breach of the charter party if the ship is not seaworthy.
At Common Law, the Shipowner’s liability to provide a seaworthy ship is strict, in other words, no-fault liability.
Seaworthy Ship at Common Law Vs Hague-Visby Rules
Under the Hague-Visby Rules, the Shipowner’s duty to provide a seaworthy ship is to exercise all due diligence. Under the Hague-Visby Rules, the Shipowner would only be liable, if the Shipowner had been negligent in ensuring that the ship was seaworthy.
The Shipowner’s absolute warranty at Common Law is different from the duty to act with due diligence under the Hague-Visby Rules.
Furthermore, it is important to distinguish between the obligation of the shipowner to provide a ship that is seaworthy at the beginning of the voyage from the obligation to stow the cargo and care for the cargo after the voyage has commenced.
The seaworthiness obligation also includes a strict duty to ensure that the ship is able to carry the cargo provided by the charterer. In other words, the term Seaworthy is including the term Cargoworthy.
The provisions of the Hague-Visby Rules may also be incorporated into a Charter Party. If the Hague-Visby Rules are incorporated into a Charter Party the standard to which a Shipowner must comply in order not to be in breach of the implied terms may, under the provisions of the Hague-Visby Rules, be less burdensome.
Three (3) types of Charterparty Terms:
3- Innominate Terms
In the Hong Kong Fir Shipping case, the term describing the seaworthiness of the ship was an Innominate Term. It is not feasible to pre-classify the term as being either a condition or warranty when assessing the rights of the injured party, but it is critical to examine the effect of the breach.
A ship would be deemed unseaworthy, by the incompetence of the Ship Master or Crew Members’ knowledge. For instance, prudent Shipowners would not have put the ship into the ocean, knowing of the Ship Master’s lack of knowledge of how to use a particular fire extinguishing system.
A ship would be deemed unseaworthy, at the time of ship delivery, if the ship’s engine room staff is incompetent.
A ship would be deemed unseaworthy, at the time of ship delivery, if the ship did not have a Deratisation Certificate. Without a Deratisation Certificate, the ship could not operate as the Charterparty provided or for the considered intention.
A ship would be deemed unseaworthy, if the ship does not have adequate bunkers for the voyage or, where the voyage is a long one, for the respective stage of the trip during which the loss materializes.
The term “in every way fitted for cargo service” does not impose an absolute obligation on the Shipowners to deliver the ship in a fit condition but simply to use reasonable diligence to do so.
Test for Ship Seaworthiness
The test for Ship Seaworthiness is would a prudent Shipowner have directed the deficiency to be remedied before steaming his ship to the ocean if the Shipowner had known of it? If the Shipowner would the ship is unseaworthy.
Ship Seaworthiness at the Commencement of the Voyage
Charterparty term that “the ship must be tight staunch and strong, and in every way fitted for the voyage” relates to the initial voyage to the port of loading. It refers to the time at which the contract is made or to the time of sailing for the port of loading. The undertaking for seaworthiness implied by law relates to the time of sailing from the port of loading.
The undertaking as to seaworthiness is that the ship is fit to receive the particular cargo at the time of loading so that a deficiency materializing after the cargo has been shipped is no breach of this undertaking and the ship is seaworthy at the time of sailing.
A breach of the implied undertaking of seaworthiness at the port of loading entitles a Charterer to refuse to load the ship. However, the breach would have to be such as to frustrate the object of the Charterparty. The discrepancy appears because the Charterer’s obligation to load the ship is conditional on the ship being seaworthy at the port of loading not upon the ship being seaworthy at the time the contract was made.
At Common Law, ship seaworthiness obligation can be limited by an exemption clause. Under the Hague-Visby Rules, ship seaworthiness obligation can not be limited by an exemption clause.
At Common Law, ship seaworthiness obligation can be limited, however, it must be expressly excluded, and in the most straightforward phrases: the courts adopt a presumption that an exemption clause does not apply to unseaworthiness unless expressly so remarking. Any equivocation in an exemption clause will be construed against the Shipowner.
Ship Saworthiness obligation applies equally to Time Charter Parties as to Voyage Charter Parties.
3- Dangerous Cargo
Common Law implies that Charterers do not ship dangerous cargo without notice. Bill of Lading (B/L) stipulates that dangerous cargo must not be tendered for shipment unless earlier arrangements and written notice have been given to the Shipowner.
The Shipper of Dangerous Cargo would be liable for all resulting damage and cost if the prerequisites are not fulfilled thoroughly.
Cargo may be considered dangerous if that cargo may cause detention of the ship due to legal obstacles.
Unless the Shipowner knows or ought to have known the dangerous character of the cargo, there is an implied warranty by the shipper that the cargo is fit for shipment in a standard way and are not dangerous.
Merchant Shipping Act 1894 (Section 446-450) explains Dangerous Goods. Primarily, the Merchant Shipping Act 1894 (Section 446-450) provides that where a person sends or attempts to send dangerous goods without notifying the Ship Master or the Shipowner by written notice, that person shall be liable for a criminal offense.
Consequently, the Common Law rules create contractual liability between the Shipowner and the Charterer, whereas the statutory rules under the Merchant Shipping Act 1894 create a relationship between the person sending or attempting to send the goods and the State.
4- Ship Deviation
At Common Law, Ship Deviation is solely justifiable where the deviation is to Save Life.
At Common Law, Ship Deviation to Save Property is unjustifiable unless expressly specified in the Charterparty
Under the Hague-Visby Rules, Ship Deviation to Save Property is justifiable.
Furthermore, at Common Law, Ship Deviation is justifiable for the prosecution of the voyage or the safety of the venture. Ship Master is required to use all reasonable care to bring the venture to a successful conclusion protecting the ship and cargo from undue risks. If a ship sustains such damage that repairs are required the Ship Master must put the ship to the nearest port at which such repairs can be conducted. The same principle applies in the case of any other peril endangering the ship or the ship’s cargo.
Ship Deviation would be justified even if necessitated by the ship’s unseaworthiness at the beginning of the voyage if it would be dangerous to keep the ship at sea without conducting such repairs.
In the United Kingdom, Ship Deviation means geographical deviation. In the United States, the Ship Deviation has been extended to comprise other unjustified practices of carrying out the contract.
Some charterparty terms may give the shipowner the right to call at ports of the ordinary trade route. Nevertheless, inadequate general terms will not be taken to grant a right to deviate.
Unless the Bill of Lading (B/L) or Charter Party stipulates the sea route to be followed, the carrier must follow the customary (standard) sea route. Customary (standard) sea route is presumed to be the direct geographical route, but the presumption may be rebutted by evidence of a practice adopted in a certain trade, or by a certain shipping line.
Ship Deviate Clauses will be construed contra proferentum, in other words, against the person who aims to rely upon them.
What are the consequences of Unjustified Deviation?
In the past, it was firmly considered that ship deviation goes to the root of the charter party, which lost the carriers the right to rely on an exclusion clause. The rationale for such a strict view was at one time the equally strict view taken in insurance in that ship deviation in a voyage policy put the assured off risk from the time of deviation.
Today, all voyage policies incorporate a held covered clause which continues the insurance cover in the event of ship deviation. The old strict rule of automatic insurance cover termination for the fundamental breach has been closely analyzed in the general law. It has been held inapplicable to intentional delays by the charterer. Nevertheless, Ship Deviation can be waived, if the charterer continues with the charter after the ship deviation, the charterer cannot subsequently change his mind and raise an objection.
Ship Deviation remains a breach even if the charter party is not repudiated. The charterer will be entitled to foreseeable consequential losses. However, the charterer will not be entitled to foreseeable consequential losses that are too remote from the breach.
Standard Charter Party Forms
Generally, Voyage Charter Parties, Time Charter Parties, and Bareboat Charter Parties are concluded based on Standard Charter Party Forms. Thus, Standard Charter Party Forms are broadly important in the ship chartering practice.
In the mid of the 19th century, shipowners and charterers commenced drafting Standard Charter Party Forms. Initially, Standard Charter Party Forms were drafted and employed by respective contracting parties. Later on, collaborative action was undertaken by a group of shipowners and charterers.
Standard Charter Party Form Examples
Three (3) institutions have played an important role in the development of internationally used Standard Charter Party Forms. Standard Charter Party Forms may be obtained from these organizations’ web pages:
BIMCO, ASBA, and the UK Chamber of Shipping have issued or approved plenty of Charter Party Forms. Most of the Charter Party Forms are so-called Agreed Documents. Agreed Documents result from considering the negotiations between charterers’ and shipowners’ interests. In the ship chartering business, these Charter Party Forms are commonly referred to as Approved Charter Party Forms or Official Charter Party Forms.
Private Charter Party Forms
Besides the BIMCO, ASBA, and the UK Chamber of Shipping’s Standard Charter Party Forms, there are miscellaneous longstanding Private Charter Party Forms that are in widespread use in various trades.
Private Charter Party Forms are sometimes called House Charter Party Forms. Private Charter Party Forms are issued and used by particular companies.
Advantages of using Standard Charter Party Forms
One of the major advantages of using Standard Charter Party Forms is that oftentimes the contracting parties are domiciled in different countries and that the chartering negotiations, which are usually carried out through the intermediary of one or several brokers, are often accomplished under considerable time pressure. By basing the chartering negotiations on Standard Charter Pary Forms, the terms of which are well-known or readily available, the negotiating parties can focus on the specific matters on which the parties require a unique regulation, leaving all other questions to be handled by the terms of the Standard Charter Party Forms. Therefore, the use of Standard Charter Party Forms means that the contracting parties do not run the risk of being caught out by an uncommon clause imposing unreasonable or unanticipated obligations upon the contracting parties.
On the other hand, the use of the Standard Charter Party Forms has the extra advantage from a broad legal perspective, that Standard Charter Party Forms contribute to international uniformity. The use of the Standard Charter Party Forms partially neutralizes the discrepancies between regulations stipulated in the miscellaneous legal systems. Therefore, identical cases taken to arbitration or litigation will tend, to a certain extent, to bring identical results, irrespective of the jurisdiction under which the cases are settled.
In the ship chartering business, all Standard Charter Party Forms are known by a code name, for example, ASBATIME, GENCON, BALTIME, etc.
TIME CHARTER PARTY
Time Charter Party’s preamble is similar to that of a Voyage Charter Party. However, Time Charter Party’s preamble usually incorporates more details about the ship such as bunker capacity, grain, and bale cubic capacities.
In Time Charter Party’s preamble, the most important added information is the ship’s speed and bunker consumption. Frequently, the ship’s speed and bunker consumption are topics of disagreement between the Shipowners and Time Charterers.
In Time Charter Party, the ship’s present position is stipulated as in a Voyage Charter Party.
In the Time Charter Party, the period of hire is stipulated. In the Time Charter business, the period of hire may be fairly short, maybe for only one trip, it is referred to in the chartering market as a Time Charter Trip (TCT). On the other hand, the period can be for several months or even several years and an area of potential dispute is over the Final Voyage in a Period Time Charter.
In Time Charter Party, the place of ship delivery is stipulated. Time Charterers attempt to negotiate ship delivery at the exact place at which Time Charterers’ business is due to commence.
In Time Charter Party, the first date for delivery and a canceling date is stipulated. Unfortunately, some shipbrokers use the term laydays which here is not strictly correct.
In Time Charter Party, the trading limits are stipulated. The Shipowners may stipulate the geographical limits within which the ship is allowed to trade, or the Shipowners may exclude certain maritime nations for political reasons.
In Time Charter Party, the cargo exclusions are stipulated. Shipowners do not prefer to load some type of cargoes on their ships.
In Time Charter Party, Time Charterers and Shipowners agree on a minimum and a maximum quantity of bunkers to be on board at delivery and at re-delivery and how the bunker price will be determined.
In Time Charter Party, the charter hire is stipulated. Hire may be a daily rate or it may be a rate of so much per deadweight ton per month. Usually, hire is payable in advance, and hire may be monthly or semi-monthly. Furthermore, the place and currency are stipulated. Time Charter Party’s Hire Payment Clause grants the Shipowner the right to withdraw the ship from charter if hire payment is not made on the due date.
Time Charter Party’s Anti-Technicality Clause stipulates that if the hire payment is late, the Shipowners will postpone exercising their right to withdraw the ship to give time, usually, 48 hours, to check whether the lateness is due to a problem in the banking system rather than actual default by the Time Charterer.
In Time Charter Party, the ship re-delivery is stipulated. Time Charterers have to agree on and arrange a port for ship re-delivery. Usually, Time Charterers try to get a deal to the widest possible range of ports for ship re-delivery particularly if the Time Charterers cannot foresee where the ship will end her Final Voyage.
In Time Charter Party, the off-hire clause is stipulated. Some Time Charter Parties incorporate a clause detailing how long, usually 24 hours, will be allowed for the Shipowners to rectify an immobilizing fault before the ship is put off-hire.
In Time Charter Party, the Bill of Lading (B/L) Clause is stipulated. The Bill of Lading (B/L) Clause lays down instructions to the Ship Master regarding the signing of the Bill of Lading (B/L).
In every Time Charter Party, some clauses stipulate what the Shipowners have to provide and what the Time Charterers have to provide.
In every Time Charter Party, some clauses stipulate Arbitration, Commissions, Arbitration, and Protection Clauses.
VOYAGE CHARTER PARTY
Voyage Charter Party Forms may differ widely depending upon the commodity or trade concerned. However, all Voyage Charter Party Forms have similar fundamental anatomy.
In Voyage Charter Party’s preamble, the date and the place, where the negotiations are concluded, are stipulated. Then, the name of the Shipowner and the Charterer is stipulated.
In Voyage Charter Party, the name of the ship together with a description is stipulated. Usually, the description includes the ship’s flag, class, deadweight, draft, year of build, etc.
In Voyage Charter Party, there is a clause that notifies the ship’s present position and the ship’s expected date of readiness to load. Although later in the Voyage Charter Party Form there is a clause stipulating the laydays and canceling date, the Voyage Charterer bases the cargo arrangements on the information in the Voyage Charter Party’s preamble.
The Voyage Charterer would have a case for damages, if the Shipowner deliberately slipped in another cargo and arrived very close to the canceling date as a consequence, conceivably causing the Voyage Charterer to incur demurrage on the trucks, rail wagons, barges, etc.
In Voyage Charter Party, cargo details are stipulated, i.e. the commodity and the quantity. Usually, there is a margin of 5% or 10% MOLOO (More or Less in Owner’s Option) as the exact cargo quantity is affected by the quantity of bunkers and stores on board as well as the allowed draft for that season and the parts of the world that the voyage involves.
In Voyage Charter Party, the places of loading and discharging are stipulated. Here, Shipbrokers must be extremely careful, whether this is a Port Charter or a Berth Charter.
In Voyage Charter Party, the places of loading and discharging may be one or more named ports to one or more named ports. Furthermore, the Voyage Charterer may prefer to defer declaring precisely which ports until nearer the time. Therefore, the Voyage Charterer may state a series of named ports, such as Gent, Rotterdam, or Amsterdam. Alternatively, the Voyage Charterer may state a geographical range, such as North Continent. Voyage Charter Party stipulates a time frame by which a precise port nomination has to be made by the Voyage Charterers.
In Voyage Charter Party, the places of laydays and canceling dates are stipulated. The term laydays is peculiar to chartering business. The term laydays’ origins are not quite clear. Laydays are the days allowed for loading and discharging. Usually, the actual phrases in the clause state “Laydays not to commence before”. Therefore, if the vessel arrives before that date the Charterer is not obliged to begin loading. However, many Voyage Charter Parties stipulate a provision for an early commencement if the Charterer can begin early loading operation.
In Voyage Charter Party, canceling date is practically an option. The Voyage Charter Party is not automatically canceled if the vessel misses the canceling date. The Canceling Date Clause provides the Charterers the option to cancel the vessel if the vessel arrives after the agreed date. Many Voyage Charter Parties have wording to cover the Charterer having to declare his intention when it is obvious that the vessel is running late. Otherwise, in some cases, the vessel arrives at the loading port and presents NOR (Notice of Readiness) only to be advised the Voyage Charter Party is canceled.
In Voyage Charter Party, the NOR (Notice of Readiness) Clause is stipulated. The NOR (Notice of Readiness) Clause may have stipulations about giving ETAs (Estimated Time of Arrivals) at particular times but eventually stipulates when and how the vessel gives the NOR (Notice of Readiness) to load or discharge. The NOR (Notice of Readiness) starts the laytime clock.
Laytime (time used in loading and discharging) is the most disputed part of the Voyage Charter Party.
In Voyage Charter Party, the loading rate and discharging rate are stipulated. In dry cargo chartering, the loading rate and discharging rate are usually expressed as so many tonnes per day. In tanker chartering, the loading rate and discharging rate are customarily expressed as the total number of hours. This clause will specify the day whether SHINC (Sundays Holidays Included) or SHEX (Sundays Holidays Excepted). In dry cargo chartering, the loading rate and discharging rate refer to WWD (Weather Working Days). In tanker chartering, charters are invariably SHINC (Sundays Holidays Included) and have no reference to the weather.
In Voyage Charter Party, the freight is stipulated. Usually, freight is stipulated per tonne but in some cases, freight is stipulated as a lump sum. The Freight Clause spells out when freight is payable, where freight is to be paid, and in what currency.
In Voyage Charter Party, demurrage is stipulated. Demurrage is a type of Liquidated Damages for exceeding the amount of time allowed for loading and discharging.
In Voyage Charter Party, despatch money is stipulated. Despatch Money is a bonus paid by the Shipowner to the Voyage Charterer if the ship’s loading and discharging operations are completed in a shorter time than allowed. Usually, Despatch Money is at Half the Demurrage Rate (DHD: Demurrage Half Despatch). In tanker chartering, there is no provision for Despatch Money.
In Voyage Charter Party, an arbitration clause is stipulated. Arbitration Clause spells out where arbitration should take place.
In Voyage Charter Party, a commission (brokerage) clause is stipulated. Shipbrokers must insert their names as well as the percentage or amount if Shipbrokers want to take full advantage of the Contracts (Rights of Third Parties) Act 1999.
In Voyage Charter Party, miscellaneous protection clauses, such as Strike Clause, War Risk Clause, Ice Clause, General Average Clause, and Bill of Lading Clause, are stipulated,
What is Freight?
In Voyage Charter, Freight is the remuneration payable to the Carrier (Shipowner or Ship Operator) for the carriage of cargo by sea under a Voyage Charter Party. In Voyage Charter, the Charterer is concerned with the carriage of the cargo and not the use of the vessel itself.
When is Freight Payable?
If there is no provision to the contrary, Freight is payable on the delivery of the cargo, and is calculated on the quantity actually delivered.
In some cases, Charterers and Carriers (Shipowners or Ship Operators) agree that a lumpsum freight shall be paid irrespective of the quantity of cargo carried.
In some cases, Charterers and Carriers (Shipowners or Ship Operators) agree that Freight is to be Paid in Advance. For example, “on signing bills of lading” in which case the Freight will be paid on the Bill of Lading (B/L) Quantity and the Original Bill of Lading (B/L) will not be handed to the Charterer until Freight is received. This clause continues by expressing “ship lost or not lost” which may seem burdensome but merely shifts the burden of insuring the Freight from the Shipowner to the Charterer. FDEDANRSAOCLONL (Freight Deemed Earned Discountless and Non-Refundable Ship and/or Cargo Lost or Not Lost)
In some cases, Charterers and Carriers (Shipowners or Ship Operators) agree on “within X days of signing freight prepaid Bills of Lading (B/L)” which involves the Shipowner giving credit to the Charterer. The goal of such a term is to allow the Charterer to collect payment under a Letter of Credit (L/C).
In some cases, Charterers and Carriers (Shipowners or Ship Operators) agree on “freight payable before breaking bulk (BBB)”. This term gives the Charterer all the voyage time up to the ship’s arrival at discharging port before paying the freight. In these freight payment variations, it is standard to incorporate the terms FDEOSBL (Freight Deemed Earned on Signing Bills of Lading) which also shifts insurance to the Charterer
MOLOO (More or Less in Owner’s Option): the quantity to be loaded being within particular limits at the Shipowners’ option to authorize the Ship Master to calculate how much the ship can take cargo to bring the ship down to the permitted draft. After declaring cargo quantity intake to the Charterer, if the full cargo is not provided by the Charterer, the Shipowner may claim damages in the form of Deadfreight. Deadfreight is the freight due for the missing quantity less any savings as a consequence of the cargo not being loaded.
There must always be right and true delivery of the cargo which gives the Cargo Owners the right of action against the Shipowner for damages in cases where the cargo may arrive at the destination in a damaged state. Cargo Owners are not entitled to refuse payment of freight unless the cargo has lost the total commercial monetary value.
Furthermore, the Charterer cannot deduct from the freight the damage to the cargo. The Charterer would initiate an independent cause of action for the cargo damage unless the cargo damage was caused exclusively by excepted perils whether excepted by express term or by the operation of the Common Law. Unless the Shipowner fails to carry the cargo to the destination agreed, the Shipowner is entitled to be paid the freight.
Freight must be paid in Full without Deductions
In The Nanfri (1978) case, although it was concerned with a Time Charter, the subject of deductions from freight payment was assessed carefully by Lord Denning MR. Lord Denning MR exemplified the question of whether a Time Charterer could set off cargo damages against the Hire.
Lord Denning MR recognized that at one time it had been common to describe sums payable under a Time Charter as Freight but that in modern times a transformation had come about. Payments under Time Charters were now described as Hire.
Lord Denning MR acknowledged that this transformation corresponded to a recognition that the Time Charters and Voyage Charters were quite different. Consequently, the special rule of English law whereby freight must be paid in full without deductions for short delivery or cargo damage could not be applied automatically to Time Charterers. Lord Denning MR stated that Equity would allow a Time Charterer to deduct for short delivery or cargo damage claims against the Hire.
In the case of Lumpsum Freight with the Bills of Lading (B/L) providing that freight shall be payable as per the Charter Party, each Bill of Lading (B/L) Holder will be liable for such proportion of the Lumpsum Freight as his parcels bear to the whole cargo shipped. If a ship arrives at the discharging port, the Charterer must pay Full Lumpsum Freight even if some of the cargo were lost through causes other than excepted perils. In some cases, the Charter Party provides that lumpsum freight is payable in advance and will not be returnable even if the ship and or her cargo is lost.
A lien may be described as a right over the property of another which materializes in respect of a debt owed by the owner of the property to the holder thereof.
There are four (4) types of liens:
1- Contractual Liens: Contractual Liens is dependent upon the provisions as stipulated in the respective contract.
2- Common Law Possessory Liens: Common Law Possessory Liens are dependent upon the possession of the property.
3- Equitable Liens: Equitable Liens are not dependent upon possession. An Equitable Lien arises where Equity holds that a lien should exist. However, in these cases, the Possessory Lien is lost as the holder has parted with possession of the property. The Equitable Lien is ended once the property is sold to a third party who had no notice of the lien.
4- Maritime Liens: Maritime Liens are privileged liens that are materializing in consideration of maritime property. Maritime Liens are not dependent upon the possession of the property. Furthermore, Maritime Liens are not ended by a sale of the property to a third party.
Concerning the Carriage of Goods by Sea, the Shipowner has a Common Law Possessory Lien on the cargo for any Unpaid Freight that is due to the Shipowner and it is earned. The Common Law Possessory Lien is bounded to freight due on certain cargoes that have been carried. In other words, Common Law Possessory Lien is a particular possessory lien and is dependant upon the Shipowner having possession of the cargoes and emerges exclusively in respect of those cargoes.
What happens if the Charterer fails to pay the Freight?
If the Charterer fails to pay the freight due, for instance, at the discharging port, the Shipowner must take action to enforce the cargo lien by retaining continuous possession of the cargoes until the freight is received. Cargo Lien for unpaid freight is the Shipowner’s right under Common Law.
Possessory Liens do not materialize in respect of Deadfreight or Demurrage payments. For the shipowner to have a lien in respect of Deadfreight or Demurrage, there must be express provisions for this within the terms of the Charter Party. In other words, a Contractual Lien.
As the Common Law Possessory Lien arises in respect of Feight due on delivery of the cargo. However, there is no Common Law Possessory Lien in respect of Advance Freight.
In Unpaid Freight cases, the Shipowner can lien on cargo and keep the cargo on the ship. However, in practice, keeping the cargo on the ship is not always feasible due to the forthcoming commitments of the ship. Usually, the Shipowner places the cargo in the custody of a wharfinger and notifies the wharfinger in writing that the lien is attached to the cargo.
Merchant Shipping Act 1894 (Section 497) stipulates the cargo lien. If the freight continues to be unpaid then the Shipowner, through the wharfinger, has the authority in law to sell the cargo after a waiting duration of around 90 days. The funds raised from the sale of the cargo may be disbursed to defray miscellaneous expenses of the sale, handling of the cargo, warehouse expenses, and the freight due to the shipowner.
What is NOR (Notice of Readiness)?
NOR (Notice of Readiness) is the written advice submitted by the Ship Master or the Ship Agent to the Charterers stating that the ship is in all respects ready for loading or discharging operation. Charter Party stipulates the details of the tendering of NOR (Notice of Readiness).
Usually, the NOR (Notice of Readiness) Clause stipulates the office hours when notice may be tendered. There is frequently a Time Lapse between the NOR (Notice of Readiness) being tendered and the time starting to count. For instance, the NOR (Notice of Readiness) Clause may stipulate that NOR (Notice of Readiness) has to be tendered on a weekday within normal office hours. A vessel could have arrived on Friday evening and the loading operation commenced as soon as the ship berthed but time to calculate Laytime (Lay Days) and any eventual Demurrage or Despatch will only commence according to the NOR (Notice of Readiness) Clause unless the NOR (Notice of Readiness) Clause stipulates otherwise. Until a Valid NOR (Notice of Readiness) is tendered the Laytime Clock does not start to tick.
Even a vessel would normally have achieved significant Demurrage but as the NOR (Notice of Readiness) was not valid for some reason, the Charterers claim that no time counts at all and the vessel owes Despatch Money. Maritime participants highlight the importance of the NOR (Notice of Readiness) and its effect on when time starts counting.
What is Laytime (Lay Days)?
Laytime (Lay Days) is the time contracted between the Shipowners and the Charterers during which the Shipowner will make and keep the ship available for loading and/or discharging without payment additional to the freight payment.
Under the terms of the charter party, the Shipowner must make the ship available for the Charterer, at the agreed place, and contrariwise, the Charterer must make the cargo available and must bring the cargo along to the ship for loading operation.
Laytime (Lay Days) is the length of time allocated free of charge to the Charterers by the Shipowners, under the terms of the Charter Party, to load or discharge the ship.
What is Demurrage?
If the Charterers have delayed the ship in loading and/or discharging beyond the time specified in the Charter Party, in other words, Laytime (Lay Days) is Exceeded, then that will amount to a Breach of the Charter Party and the Charter Party may call upon the Charterer to compensate to the Shipowner Liquidated Damages known as Demurrage.
What is Despatch Money?
Under the terms of most Dry Cargo Charter Parties, but not in Tankers Charter Parties, if the Charterers load or discharge the cargo in a period that is shorter than the agreed Laytime (Lay Days) in the Charter Party, the Charterers may be entitled to a bonus, in other words, a reward that is known as Despatch Money.
Total Laytime (Lay Days)
The total Laytime (Lay Days) available to the Charterers depends upon the terms of the Charter Party.
In dry bulk chartering, particularly where the cargo would be damaged by being wetted by rain. Therefore, it is customary for the Laytime (Lay Days) available to the Charterers to be expressed as WWD (Weather Working Days). WWD (Weather Working Days) indicates that if Laytime (Lay Days) has started to count, bad weather prevents the berth from loading or discharging operations, that bad weather time does not count. Even if the vessel is waiting off the berth, at the anchorage, and the bad weather prevents operation on vessels on the berth in front of the vessel concerned, time ceases during the time of the bad weather. WWD (Weather Working Days) expression describes the type of day. WWD (Weather Working Days) expression does not refer to work on that particular vessel.
In SHEX (Sundays and Holidays Excepted) Charter Party, if the Charterers work during these periods and the Shipowners and the Charterers negotiate how SHEX (Sundays and Holidays Excepted) is dealt with in three (3) ways:
1- SHEX even if used
2- SHEX if used actual time used to count
3- SHEX if used half actual time used to count
When calculating Demurrage or Despatch, Shipbrokers estimate the total Laytime (Lay Days) available to the Charterers by taking into account all these elements and any delays through mechanical breakdowns, strikes, etc
In tanker chartering, for example, the total Laytime (Lay Days) available to the Charterers is invariably expressed in Running Hours. Running Hours indicates that once the time starts to count there is no exception for holidays or bad weather.
What is Demurrage?
What are the Damages for Detention?
The Charterer may detain the ship beyond the agreed Laytime (Lay Days) whilst loading or discharging operation and set this extra time against the Charterer’s payment of demurrage. Nevertheless, there are two (2) qualifications for Demurrage:
1- The ship is not obliged to remain at the port indefinitely and any unreasonable delay may frustrate the purpose of the Charter Party.
In other words, once the ship has been detained on demurrage for a reasonable time, the Shipowner may be entitled to treat the Charter Party as a Frustrated Contract and order the ship to steam away.
2- The Shipowner may order the ship to steam away once the Charterer has repudiated the Charter Party. The Charterer has repudiated the Charter Party where it is apparent that there is no possibility of the contractual obligations being performed and that further delay will inevitably frustrate the purpose of the Charter Party.
Once on Demurrage, Always on Demurrage
The primary principle when dealing with Demurrage is that Once on Demurrage, Always on Demurrage. In other words, Demurrage is payable on all time lost after the expiration of the Laytime (Lay Days) including Sundays, Holidays, and any other excepted times such as Strikes, etc.
The length of time for which Despatch Money is payable relies on the terms of the Charter Party. Despatch Money may be paid on:
1- All Time Saved
2- All Working Time Saved (All Laytime Saved)
All Time Saved means actual time saved to the Shipowner and includes both Laytime (Lay Days) and Calendar Days. On the other hand, the Charter Party may stipulate the Despatch Money to be paid on All Working Time Saved (All Laytime Saved).
Additional information regarding Laytime (Lay Days) is incorporated in the VOYLAYRULES (Voyage Charterparty Laytime Interpretation Rules) which have been prepared by BIMCO (Baltic and International Maritime Council) and FONASBA.
Port Charterparty Vs Berth Charterparty
Before Laytime (Lay Days) may start, there are three (3) major conditions that must be fulfilled by the Shipowner before the Charterer is obliged to start loading the ship:
1- Arrived Ship: the ship must have arrived at the destination as expressed in the Charterparty.
2- NOR (Notice of Readiness) if required, must have been correctly tendered and received by the Charterer or the Charterer’s Agent.
3- The ship must be Ready and must be fit to receive the cargo
1- Arrived Ship
The ship must be an Arrived Ship at the spot where according to the terms of the Charter Party, the ship should load or discharge the cargo. This is crucial because Laytime (Lay Days) may only start to run if the ship is an Arrived Ship.
Some Charterparties stipulate the Port to which the vessel should proceed are called Port Charterparties.
Some Charterparties stipulate that the vessel shall proceed to a specified actual loading Berth in a port are called Berth Charterparties.
If the Charterparty stipulates that the vessel shall proceed to a berth to be named by the Charterer, the situation is the same as if the named berth was stipulated in the Charterparty.
If the berth is named in a Charterparty, the vessel must get into that Berth before the vessel can be considered as an Arrived Ship. In Berth Charterparties, the Shipowners bear the risk of the berth being congested even if the congestion may have been generated by the terminal operators’ inefficiency
If the Charterparty stipulates a Dock as the loading place, the vessel is considered as an Arrived Ship as soon as the vessel gets into that Dock, even though the vessel cannot get to the Berth immediately and must therefore wait before the vessel can commence loading operation.
In Port Charterparties, it is not always straightforward to decide whether the vessel is an Arrived Ship.
Customary Anchorage Area
In some cases, a vessel may have to wait at a Customary Anchorage Area until a berth becomes available and the vessel can proceed thereto. If the Customary Anchorage Area is within the Legal, Geographical, and Administrative area of the port, and the vessel is at the Immediate and Effective Disposition of the Charter, the vessel is an Arrived Ship. The subject of an Arrived Ship under a Port Charterparty has been the subject of vast judicial discussions in courts and arbitrations.
Arrived Ship Cases and Parker Test
The leading Arrived Ship cases are the Maratha Envoy (1977) and Johanna Oldendorff (1974).
In The Aello (1961) case, the usual waiting place for ships arriving at the port of Buenos Aires was close to the loading berth, but owing to temporary congestion the Port Authority determined that ships that arrived and had no cargo waiting for the ship must wait at a point which, though within the limits of the port, was some 22 miles from the loading place. Therefore, the ship had to wait there. It was held at the Court of First Instance, by the Court of Appeal, and by the preponderance of the House of Lords, that the ship was not an Arrived Ship.
In The Aello (1961) case, the Court of Appeal had specified a ship’s arrival as being in the commercial area of the port. The commercial area is within that part of the port where a ship can be loaded when a berth is available.
In The Aello (1961) case, in the Court of Appeal, Lord Justice Parker formulated Arrived Ship Test. Lord Justice Parker believed that a vessel was an Arrived Ship once within the commercial area, in other words, where the vessel could be loaded when a berth was available, albeit that the vessel could not be loaded until a berth was available. The preponderance of the House of Lords accepted the interpretation of an Arrived Ship and consequently, The Aello (1961) case was considered as having designated the Parker Test as being the law.
In the Johanna Oldendorff (1974) case, Lord Reid over-ruled what was formerly known as the Parker Test which had been based on The Aello (1961) case.
In the Johanna Oldendorff (1974) case, Lord Reid thought that it was not enough that the ship should be within the commercial area of a port to be deemed an Arrived Ship.
In the Johanna Oldendorff (1974) case, Lord Reid found the expression commercial area far too imprecise. To be deemed as an Arrived Ship the vessel, if the vessel cannot immediately proceed to a berth, has reached a place within the port where the ship is at the Immediate and Effective Disposition of the Charterer.
In the Johanna Oldendorff (1974) case, Lord Reid stated that if the ship is at a place where waiting ships usually lie, the ship will be in this position unless there are extraordinary circumstances; proof of which would lie in the Charterer. If the ship is waiting at some other place in the port then it will be for the Shipowner to prove that the ship is as fully at the disposition of the Charterer as the ship would have been if in the vicinity of the berth for loading or discharging operations.
In the Johanna Oldendorff (1974) case, the preponderance in the House of Lords was of the opinion that the Parker Test should be overruled.
In the Johanna Oldendorff (1974) case, it was a Port Charterparty, and the Charterers nominated Liverpool/Birkenhead as the port of discharge. The MV Johanna Oldendorff arrived at Mersey Bar anchorage on 2nd January 1968, but no berth was nominated by the Charterers. The following day MV Johanna Oldendorff cleared with customs and was ordered to proceed to anchor at the Bar Light Vessel. This position was about 17 miles away from the berths but still in the port area. The ship lay at anchor at the Bar from January 3rd to 20th, ready, as far as it was concerned, to discharge. The Bar was the customary waiting place for bulk grain vessels. The Shipowners tendered NOR (Notice of Readiness) to discharge on January 3rd, 1968. The issue was who was liable to pay for the delay. That depended on whether the MV Johanna Oldendorff was an Arrived ship. The House of Lords held that the ship, when anchored at the Bar, was an arrived ship because it was at the immediate and effective disposition of the charterers at a place within the port area where waiting ships would usually lay.
Lord Reid’s Reid Test was applied in the later case of the Maratha Envoy (1978). However, in Maratha Envoy’s (1978) case, it was held that the ship was not an Arrived Ship because neither in a port charter nor a berth charter was a voyage brought to an end by the arrival of the ship at a waiting place outside the named port of discharge.
2- NOR (Notice of Readiness)
NOR (Notice of Readiness) is the written advice submitted by the Ship Master or the Ship Agent to the Charterers stating that the ship is in all respects ready for loading or discharging operation. Charter Party stipulates the details of the tendering of NOR (Notice of Readiness).
3- The ship must be Ready and must be fit to receive the cargo
The Carrier (Shipowner or Ship Operator) must satisfy before the commencement of Laytime (Lay Days), is that when the ship has arrived at her destination the ship must be ready in all respects to commence loading before Laytime (Lay Days) will commence. In other words, the ship must be ready in all of her holds to give the Charterer full control of every part of the ship available for cargo. The ship must be adequately equipped and her gear in perfect working order ready for the reception of the cargo. Furthermore, the ship must be in Free Pratique to be accepted as a ready ship because, no matter how physically ready the ship may be, until the Port Health Officials have approved the ship, nobody is authorized on board.
What is Free Pratique?
Free Pratique dates back to the days when severe diseases, even plagues, moved around the world in vessels. In some ports, vessels are obliged to fly a Yellow Signal Flag on arrival. Yellow Signal Flag indicates that Port Health Authorities are not yet on board. After the Port Health Authorities are on board and granted a Clean Bill of Health, the ship would be declared to be in Free Pratique. Today, in most modern ports, the ship is interrogated by radio about any obvious diseases on board and so long as there are none and the ship has not arrived from somewhere where some contagious disease is rife, the ship will be granted Free Pratique by radio. Nevertheless, Free Pratique by radio is not yet in every port and the Ship Agent’s recommendation can be helpful here. Usually, the Ship Agent provides a SOF (Statement of Facts) in which the date and time of every step of the cargo operation are recorded. SOF (Statement of Facts) records when the ship arrived, when the NOR (Notice of Readiness) was tendered, when loading or discharging operation commenced, public holidays, etc. Furthermore, SOF (Statement of Facts) records stoppages due to bad weather, breakdown of machinery, etc.
What is Cesser Clause?
Cesser Clause may be encountered in many forms of Voyage Charterparties. Cesser Clause stipulates that the Charterer’s liability shall cease upon the load of the cargo on the ship.
Cesser Clause has been expressed as a Cesser-Lien Clause because it is co-extensive with the right of the Shipowner to have a lien on the cargo for any outstanding Demurrage and Deadfreight. Under the terms of the Voyage Charterparty, the Charterer understands exactly at what stage the Charterer’s liability towards the Shipowner shall cease, but in return, the Shipowner retains the right to have a lien on the cargo for outstanding demurrage and deadfreight payments. Consequently, the Shipowner not only has a lien on the cargo for the Freight itself but additionally for other ancillary subjects such as Deadfreight and Demurrage incurred at the port of loading. Furthermore, the Charterer remains responsible for Freight and Demurrage, if any, incurred at the port of discharge but only to such extent as the Shipowner is unable to obtain payments thereof by exercising the lien on the cargo.
Cesser Clause in the Voyage Charterparty will not free a Charterer who is also a Shipper. The Charterer who is also a Shipper is sued as such from liability to pay Freight arising on the Bill of Lading (B/L). Even though the Bill of Lading (B/L) stipulates for Freight As Per Charterparty since the Cesser Clause protects only the Charterers as such and not the Shippers.
It is not sufficient to include in the Bill of Lading (B/L) a clause purporting to create a lien. The Charterer’s liability will not cease unless the lien is effective. Therefore, if the local law or practice at the port of discharge is such that no lien can be exercised by the Shipowner, then the Cesser Clause does not protect the Charterer from liability. The rule that the Cesser Clause does not protect the Charterers against claims for which no lien is given by the Bill of Lading (B/L) applies even when the form of Bill of Lading (B/L) to be signed is specified in the charter and one is signed in another stipulated form. Furthermore, the fact that the Charterer is also the Consignee of the cargo will not destroy the Charterer’s exemption under such a clause.
The courts adopted an approach that is called Strict Contra Proferentum. Strict Contra Proferentum means against he who seeks to rely upon it.
Cesser Clause is relied on by the Charterers, Lien Clause is in favor of the Shipowners. In the reconciliation of the Cesser Clause and Lien Clause, the courts hold that the reconciliation is to be effected by bearing that the Cesser Clause only applies in so far as the Lien Clause is effective.
The Cesser Clause did not avail the Charterer where the Shipowner had a lien on cargo which the Shipowner could not enforce owing to local laws or practices. If the Shipowners had no alternative remedy against the Consignees of the Cargo, the Cesser Clause could not be construed as cutting out the Charterer’s primary liability in respect of damage to the cargo.
What is Ship Hire?
In Time Charterparty, the remuneration payable to the Shipowner by the Time Charterer is called Hire. In other words, the ship is hired for a particular Trip (Time Charter Trip – TCT) or for a period of time (Period Time Charter)
Hire Vs Freight
In Time Charterparty, the remuneration payable to the Shipowner by the Time Charterer is called Hire. In Voyage Charterparty, the remuneration payable to the Shipowner by the Voyage Charterer is called Freight. The term Hire itself is more conducive to rental rather than Freight.
Usually, the Time Charter Hire payment is paid either on a semi-monthly or monthly basis in advance. The Time Charterparty stipulates that if the ship suffers any loss of time through deficiency of crew, breakdown or machinery, or other damage preventing the normal working of the ship, then the Hire payments shall cease until the ship is again in an efficient condition to resume the voyage. In this case, any Prepaid Hire would be returnable by the Shipowner to the Time Charterer as the Hire had not been effectively earned.
Usually, the Time Charterparty stipulates the amount of Hire which must be paid. If there is a discrepancy between the Local Time (LT) at the port of delivery and that at the port of redelivery, the Shipowners are allowed to claim to hire only in respect of the Actual Time which has elapsed from the moment of delivery of the ship.
In the Time Charterparty, if the Hire is payable in advance at so much per ton on the DWT (Deadweight) capacity of the ship, there is an implied obligation on the Shipowner to inform the Charterer accurately as to the DWT (Deadweight) capacity of the ship.
In the Time Charterparty, if the Shipowner wrongly and in breach of the Time Charterparty deprives the Charterer of a time of use of the ship, the Charterer can deduct a sum equivalent to the hire for the time so lost. This right does not extend to other breaches or defaults of the Shipowner. This right does not extend to where the Ship Master has failed to keep accurate ship logs and to disclose ship logs to the Charterer. This right does not extend to where there has been a breach of the Shipowner’s duty as a bailee of the bunkers to use the bunkers per the Charterer’s orders. The logic for this is that none of these breaches actually affect the use of the ship.
What is Anti-Technicality Clause?
The Shipowner may withdraw the ship in default of hire payment by the Time Charterer. Most of the Time Charterparties include an Anti-Technicality Clause that provides that the Shipowner should give the Time Charterer a certain period of notice to correct the cause for delay of payment before exercising the right of withdrawal of the ship.
Anti-Technicality Clause was introduced because of the number of cases where Shipowners, in periods of the ship market booming, took advantage of a few hours’ delay in hire payment to withdraw the ship to take advantage of the higher ship market.
Ship Withdrawing Problems
Ship Withdrawing from a Time Charter has its problems. In many cases, Unscrupulous Time Charterers have taken ships on Time Charter and paid the hire correctly until the Unscrupulous Time Charterers have loaded the ship with cargo for which freight has been paid in exchange for Freight Prepaid Bill of Lading (B/L). At that moment, the Unscrupulous Time Charterers vanish with the cash. The problem which materializes for the Shipowner is that the Consignee has title to the goods so the ship is obliged to conclude the voyage and deliver the cargo. In some cases, the Time Charterers’ economic problems are genuine, and even if the cargo is not Freight Prepaid, the fact remains that the ship is full of cargo for which reasonable legal arrangements have to be made. Therefore, Ship Withdrawing is no cure-all, and dealing with the Time Charterer may often be the better approach to follow.
Most Common Disputes in Time Charter
Time Charters tend to be prone to two (1) other areas of dispute:
1- Ship’s Performance
2- Final Voyage
1- Ship’s Performance
In Time Charter, the most common dispute between the Shipowner and the Time Charterer is the Ship’s Performance (Speed and Bunker Consumption). The Time Charterer’s first allegation is that the ship’s performance was overstated in the Time Charterparty.
Usually, in the Ship’s Performance arbitrations, the arbitrators examine the ship’s bridge and engine room logs as well as weather reports to ascertain whether given less severe weather the figures would prove correct or whether there has been a misrepresentation in the Time Charterparty. In misrepresentation cases, it will be a Breach of a Warranty so damages rather than cancellation of the Time Charter is the correct outcome.
2- Final Voyage
In some cases, a Time Charter may be for a considerable period, and timing re-delivery to the exact end of the agreed time is not possible. A Time Charterer who deliberately commits the ship to a Final Voyage which apparently means that Ship Re-delivery will be substantially late will be in Breach of the Time Charterparty. If the shipping market is weaker than at the time the ship was fixed, it is unlikely that the Shipowner will complain. However, the Shipowner will complain when the shipping market at end of the period is much firmer than at the commencement. How much extra hire the Time Charterer should pay to the Shipowner for the over-extended period may resolve the dispute.
What is General Average (GA)?
Three (3) interests are at risk during a sea voyage:
General Average (GA) Vs Particular Average (PA)
In Particular Average (PA), as a general rule, any loss that any of these interests (Ship, Cargo, Freight) sustains must be borne by that interest alone. In other words, the loss is to be borne by the particular interest incurring it. For instance, if one of the ship’s boats is carried away in a windstorm, this is a Particular Average Loss and must be borne by the Shipowner alone.
In General Average (GA), extraordinary sacrifices are made or expenditure is incurred for the benefit of the whole adventure the loss is borne by all in proportion and is known as a General Average Loss. Therefore, Shipbrokers must distinguish between the Particular Average (PA) and the General Average (GA).
In the General Average (GA) case, the party who has suffered the loss is entitled to a contribution from the other involved parties. Furthermore, damage done to the property of Third Parties may be the subject of the General Average (GA).
General Average (GA) Requirements
The circumstances under which a General Average (GA) contribution may be claimed are:
1- There must be a Real Common Danger. An interest that was never in peril cannot be compelled to contribute to a General Average (GA).
2- The danger must be a real one. If the Ship Master believed that the ship was on fire and caused steam to be turned into the hold to extinguish it and the ship was never in fact on fire, it was held that the consequential damage to the cargo was not a General Average Loss.
3- The Danger must not be due to the default of the party claiming the contribution. For example, if the cargo is thrown overboard because the cargo is dangerous, the cargo owner cannot claim for General Average (GA) contribution.
4- There must have been a voluntary and reasonable sacrifice of the property in respect of which General Average (GA) contribution is claimed. For example, the cargo is thrown overboard to lighten the ship in stormy weather.
5- The interest called upon for General Average (GA) contribution must have been saved.
In the General Average (GA) case, the extra expenditure incurred to avert the danger must be extraordinary.
General Average (GA) contribution is made by all who have benefited from a General Average Act. General Average (GA) parties may be:
1- The Charterer in respect of Freight payable under the Bills of Lading (B/L), if the Charterer uses the vessel as a general vessel to carry cargo.
2- The Shipowner in respect of the Ship and the Freight payable under the Charterparty, if any, and, if not, under the Bill of Lading (B/L).
3- The Cargo Owner in respect of the Cargo.
4- The Container Owner, if any containers are not owned by the Shipping Line or the Cargo Owners. In other words, leased-in containers.
General Average (GA) Process
In the General Average (GA) case, the liability is enforced by the Shipowner on behalf of all interested parties, by exercising the lien over the cargo. If the Shipowner fails to exercise the lien on cargo, the Shipowner may be sued by those entitled to General Average (GA) contribution. Commonly, a General Average (GA) Clause is inserted into a Charterparty (contract of carriage) that incorporates the York-Antwerp Rules.
York-Antwerp Rules are a standard set of rules relating to the General Average (GA). The York-Antwerp Rules have been revised several times. The York-Antwerp Rules do not constitute a complete or self-contained code. York-Antwerp Rules need to be supplemented by the general Common Law provisions which are applicable to the Charterparty (contract of carriage). For example, the Carriage of Goods by Sea Act 1971 (Article V) expressly provides that nothing therein “shall be held to prevent the insertion in a Bill of Lading of any lawful provision regarding General Average.”
York-Antwerp Rules established a uniform method for the calculation of General Average (GA) contribution. York-Antwerp Rules are the most significant source of a General Average (GA). Most Charterparties (contracts of carriage of goods by sea) include the York-Antwerp Rules.
The Shipowner has to declare General Average (GA). General Average (GA) parties pay their share (Average Bonds and Average Guarantees). Average Bonds and Average Guarantees have to be obtained from Cargo Owners before they can take delivery of their goods.
General Average (GA) Insurance
All prudent traders should make sure their Cargo Insurance covers General Average (GA). Finally, Average Adjusters are appointed to calculate the precise share that each of the interested parties must pay. In the General Average (GA) case, the extra work that the Ship Agent has to undertake when General Average (GA) is declared. Therefore, the Ship Agent’s extra expenses have to be included in the total General Average (GA) Expenditure.
What is Amended Jason Clause?
Amended Jason Clause should be inserted in all Bill of Lading (B/L) for voyages to and from the United States. The need for an Amended Jason Clause arises because of an important difference between American law and English law.
In American law, the Harter Act 1893 (Section 3) stipulates that if the Shipowner exercises due care to make the ship seaworthy, neither the Shipowner, the ship, the Ship Agent, nor the Charterer is liable for damage or loss arising from faults or errors in navigation, or in the management of the ship.
After the Harter Act was enacted, it was presumed that since the Harter Act exempted the Shipowner from liability for losses arising from Negligent Navigation, the Shipowner was entitled to recover in General Average (GA) for the ship’s sacrifices which had minimized the greater loss for which the Shipowner was now relieved from the liability. Nevertheless, in the Irrawaddy (1897) case, the Supreme Court of the United States stated that the exemption in the Harter Act 1893 did not entitle the Shipowner to claim a contribution for a General Average (GA) loss due to the negligence of the Shipowner’s Servants. Therefore, it became customary to insert a clause in Bills of Lading (B/L) for ships trading to and from the United States, expressly declaring that the Shipowner could recover in General Average (GA) in the event of negligence, provided that due diligence had been exercised to make the ship in all respects seaworthy. This is known as the Jason Clause. The original Jason Clause has been amended several times and the one in use is now commonly known as the Amended Jason Clause.
What is Safe Port?
In most Voyage Charterparties or Time Charterparties, the most general restrictions upon the places to which a ship may trade is that of requiring the ship to be ordered to Safe Ports or Safe Berths. According to the English courts, Safe Ports or Safe Berths must cover both Geographical and Political safety. T
In the Eastern City (1958) case, Sellers L.J. defined the Safe Port. Sellers L.J. expressed that, for a port to be safe, the particular ship must be able to: “Reach it, use it, and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship”.
If the ship is unable to do this, the port may be unsafe even if the nature of the danger materializes from political elements rather than physical elements.
Most of the Time Charterparties and Voyage Charterparties incorporate an Express Warranty on the part of the Charterer that the ship will only be ordered to Safe Ports. In Time Charterparties, such a term may, in most cases, be Implied (Implied Warranty), even in the absence of Express Warranty terms. If a Voyage Charterparty is silent about the port, it is more complicated.
If a Voyage Charterparty includes any port within a geographical range, the Charterer is still required to nominate a port that may not be particularly named, the position is likely to be similar to that of a Time Charter. Therefore, the Charterer may be held to warrant the safety of the port that the Charterer nominates. However, this is not an absolute rule.
If a Voyage Charterparty includes a single named port, it is extremely uncertain, in the absence of Express Warranty terms, that the Shipowner is accepting an obligation to go to that port and must therefore satisfy himself that it is a Safe Port. In this case, it is hard to see how a warranty of safety on the part of the Charterer could be implied into the Charterparty. Identical arguments may be applied when the Charter names more than one port if this is by reference to an Express List of Port Names, rather than a generic range of ports. Even though the Charterer would still have to nominate the actual port, the Charterer could only do so from the expressed list to which the Shipowner may be taken to have agreed.
Safe Port Period
If the warranty of Safe Port is specified, it is crucial to determine the time at which the warranty is given and the period to which the warranty relates.
In the Evia (1982) case, a ship under a Time Charterparty, which stipulates the Time Charterer to order the ship to Safe Ports only, was ordered by the Charterer to steam to Basrah. The ship arrived at the Basrah port on the 20th of August 1979, and discharging operation was completed on the 22nd of September 1979. However, the ship was unable to leave the port as a consequence of the outbreak of large-scale hostilities between Iran and Iraq. The Shipowner claimed damages from the Charterer.
House of Lords held that there would be judgment for the Charterer. Although the war was an event that was capable, in principle, of rendering a port unsafe, at the time the nomination was given, the war had not been declared between Iran and Iraq and the Charterer had been entitled to nominate the port. House of Lords considered whether or not the safe port warranty was a continuing warranty applying from the time when the port was nominated to the time when the ship had completed the call. Lord Roskill held that there was no justification for such an argument. The warranty of Port Safety was given by the Charterer at the time when the Charterer nominated the port and related to the prospective safety of the port at the time when the ship was expected to be there. Therefore, it did not matter if the port was unsafe at the time it was nominated, provided it would be safe at the time when the ship needed to use the port. Consequently, in this case, it did not matter if the port subsequently became unsafe.
What if the real circumstances change between the time of safe port nomination, and thus the warranty, and the time when the ship arrives at the port? Lord Roskill stated that if a prospectively safe port subsequently became unsafe due to changed circumstances, the Charterer had a secondary obligation to give Fresh Orders so that the ship could steam to a Safe Port.
The fundamental issue of how the doctrine could be applied to Voyage Charters was expressly left open. Where the Charterer has no right to nominate an Alternative Port, any such implied secondary obligation would be inconsistent with the express terms of the Voyage Charterparty so that if the named port became unsafe, it could be argued that the Voyage Charterparty had become frustrated.
In both Voyage Charterparties and Time Charterparties, an additional problem will arise if the Charterer becomes obliged to nominate an alternative port, but the Bill of Lading (B/L) does not include provisions entitling the ship to deviate in the changed circumstances which have occurred. Consequently, it can be noticed that the position remains unclear.
LEGAL ASPECTS OF CHARTER PARTIES
1- Legal Aspects of Time Charter Parties
2- Legal Aspects of Voyage Charter Parties
3- Legal Aspects of Bareboat Charter Parties
What is Ship Seaworthiness?
When it comes to the obligation of providing a seaworthy vessel, one must exercise caution in differentiating between the absolute warranty under common law and the duty to act with due diligence as per the Hague-Visby Rules. Furthermore, it is crucial to distinguish between the shipowner’s responsibility to furnish a ship that is seaworthy at the outset of the journey and their responsibility to stow and take care of the cargo after the voyage has commenced. The duty of seaworthiness also entails a rigorous obligation to ensure that the vessel can carry the cargo supplied by the charterer, as was the case in Stanton v Richardson (1874). Not every issue will necessarily render the vessel unseaworthy. As AL Smith LJ pointed out in The Vortigern (1899), the vessel must be fit for the voyage at the time of departure, which, in most cases, is sufficient to take it to its destination port, although there is no implicit warranty that the vessel will remain seaworthy throughout the journey. Evidence of unseaworthiness may become apparent after the voyage has commenced, as was the case in the Hong Kong Fir Shipping dispute, where recurrent breakdowns and crew incompetence in dealing with engine issues were indications of unseaworthiness at the outset of the journey.
In the case of London Arbitration 6/92 LMLN 321, a shipment of bagged coffee was infested with insects despite the holds being free from insects during loading. This resulted in a delay in the discharge while the ship underwent fumigation, and the owners claimed demurrage due to the delay. The charterers argued that the infestation could have been prevented if the vessel had not encountered engine problems ten days into the journey, which caused the delay. The vessel was chartered under the Gencon Charterparty Form, and according to Clause 2, the owners would only be liable if the vessel was unseaworthy. Since there was no evidence of the cause of unseaworthiness, the tribunal declined to infer that any breakdown constituted unseaworthiness. Therefore, the owners prevailed in their demurrage claim.
In the case of The Star Sea (1996), the Court of Appeal determined that the judge was justified in ruling that the vessel was unseaworthy due to the captain’s incompetence regarding the use of a particular fire extinguishing system. Any prudent ship owner would not have allowed the vessel to sail if they were aware of the captain’s debilitating lack of knowledge.
The obligation of seaworthiness may be restricted or eliminated under common law, which is not the case under the Hague-Visby Rules. However, if such a limitation is intended, it must be explicitly stated in the clearest terms. The courts presume that an exemption clause does not apply to unseaworthiness unless explicitly specified. In case of any ambiguity, the courts will interpret it against the shipowner.
The seaworthiness obligation applies equally to Time Charter Parties as to Voyage Charter Parties.
In situations where the shipowner is responsible for violating the absolute obligation to provide a seaworthy ship, and therefore cannot exclude liability, they can still limit their liability under the regulations of Section 185 of and Schedule 7 to the Merchant Shipping Act 1995 (previously known as Section 503 of the Merchant Shipping Act 1894).
Ships’ Descriptive Warranties
The ship’s descriptive particulars that are recorded in the charter must be precise at the moment the charter is executed. The shipowner is obligated to furnish a vessel that conforms to the characteristics stated at the time of the charter’s execution. However, it is implicit that the owner will not make modifications to the ship’s characteristics following the execution date, which would result in services being rendered to the charterers that are meaningfully distinct or less valuable than those that were contracted for.
In the event that a breach of the description term is identified upon delivery, the charterers may only terminate the charter if either the term represents a fundamental condition, or the misrepresentation is of such magnitude as to strike at the root of the charter.
Descriptive warranties include speed and fuel consumption, named ship, statements as to class, and cubic and deadweight capacity.
When a particular vessel is engaged for a charter, the validity of the agreement is contingent upon the vessel’s existence. If the vessel is reported as lost or deemed a constructive total loss, the charter is considered frustrated. This entails that the charter is automatically terminated and ceases to exist.
If a breach of a descriptive warranty occurs, the charterers have the right to claim damages. Additionally, under specific circumstances, the breach may authorize the charterers to consider the contract as terminated, and consequently, to terminate the charter.
In the scenario where the shipowners provide a misdescription of the ship, and the charterers are put in a disadvantageous position due to the ship’s actual state differing from the description provided, the charterers have the right to claim damages.
Under specific circumstances, the charterers may possess the right to terminate the charter in addition to the right to claim damages. This would occur when the shipowners fail to fulfill their obligation to furnish a ship that conforms to the described characteristics, and their failure can be considered a repudiation of the charter. However, the charterers are not obligated to terminate the charter, and may instead elect to affirm it either through explicit communication or by their actions. In such cases, they retain the right to claim damages.
1- LEGAL ASPECTS OF TIME CHARTER PARTIES
We will now examine specific clauses and features, using the Baltime and New York Produce Exchange (NYPE) Time Charter Party Forms as examples.
Time Charter Party Frustration
Unforeseeable circumstances that cause a delay or make it impossible to perform a charter party can release the parties from their contractual obligations. This legal concept is commonly known as the “frustration of the commercial purpose of the adventure” but it is merely a specific application of the broader principle that a contract becomes impossible to perform due to unforeseen and unavoidable circumstances, without fault from either party, may no longer be binding.
Time Charter Party Frustration may arise from:
1- Ship Delay
2- Subsequent Change in the Law
3- Impossibility of Performance
1- Ship Delay
Ship delay refers to an unforeseen event, for which neither party is at fault, that causes a delay so significant that fulfilling the contract at a later time would no longer achieve the contract’s purpose.
In the case of Jackson v Union Marine Insurance Co. (1874), the chartered vessel was stranded on rocks, and the charterers terminated the charter before the ship was refloated. The court determined that the necessary repairs would take an unreasonably long time, and thus, the charter was frustrated. However, in The Angelia (1972), a lack of transportation caused a delay in the availability of phosphate rock for loading, which existed at the time the charter was agreed upon. The charterers canceled the contract on the grounds of frustration, as no cargo would be available before the end of the frustrating event. The court held that the delay was not sufficient to frustrate the charter based on the available evidence.
The doctrine of frustration does not apply if the time charterer has the right to use the vessel for a purpose specified in the time charter, even if it is not the exact purpose desired by the charterer. The delay must be severe enough to invalidate the entire contract. The determination of frustration is based on the reasonable estimate a businessman would make regarding the length of time the vessel’s services would be unavailable to the charterer. In the case of Port Line v Ben Line Steamers (1958), a charter party of 30 months was not frustrated when a vessel was requisitioned for a period of 3 to 4 months.
2- Subsequent Change in the Law
If a change in the law of the country where the contract was meant to be fulfilled makes the contract void, both parties are released from their obligations. In Rolli Brothers v Companie Naviera (1920), a change in Spanish law meant that paying the full charter freight was illegal, and only the amount allowed by Spanish law was recoverable. When frustration occurs, the contract ends automatically, and both parties are released from any further liability under the contract. However, if the freight was paid in advance, it cannot be returned if frustration supervenes.
The Law Reform (Frustrated Contracts) Act of 1943 governs the rights and liabilities of parties to time charters and bareboat charters. However, this Act does not apply to contracts such as bills of lading or voyage charters, and the rights of parties to such contracts are determined by common law principles.
3- Impossibility of Performance
If a contract depends on the continued existence of a specific person, thing, or set of circumstances, it is generally understood that if performance becomes impossible due to the absence of that person, thing, or set of circumstances, and neither party is at fault, the parties will be released from any further obligations under the contract. In Joseph Constantine SS Line Ltd v Imperial Smelting Corporation Ltd. (1942), an explosion on board a ship was deemed to have frustrated the charter party.
If unforeseen events occur, which are not the fault of either party, and the performance of the contract becomes indefinitely impossible, and there is no agreement to be bound regardless, frustration will ensue, even if the parties had planned for a long interruption. If one party claims that the frustrating event relieves them of further contractual liability, proving that the impossibility was not due to their fault may be significant. The fact that a charter becomes more burdensome or expensive for one party alone is not sufficient to constitute frustration. It must be more than simply burdensome or costly; it must be impossible to continue the contract and bind the parties.
What is Ship Deviation?
In every sea carriage contract, whether specified in a voyage charter party or otherwise, deviation from the voyage route is not permitted. If no route is specified, the “usual route” will be followed, which is typically the direct geographical line, unless there is evidence that ships usually take a different route.
Under Common Law, the ship deviation was permissible to save human life, answer distress signals related to endangered life, or save the deviating ship or cargo.
The Hague and Hague-Visby Rules also allow deviation to save property, as opposed to life, and reasonable deviations. Express stipulations in the charter party, such as liberty or deviation clauses, can justify departure from the usual route. A clause allowing the shipowner to call at any ports only applies to ports that would be passed in the ordinary course of the named voyage in their geographical order. The addition of the words “in any order” allows the shipowner to deviate from the geographical order.
In the case of Stag Line v Foscolo Mango & Co. (1932), a clause in the bill of lading granted “liberty to call at any port in any order for bunkering or other purposes all as part of the contractual voyage.” The vessel had engineers on board to test newly installed machinery and deviated to drop off the engineers after their tests had been completed. Before the vessel returned to the contractual route, it was wrecked. The court held that the deviation was not covered by the clause. The words “other purposes” referred to calls at a port for a purpose related to the contractual voyage, and the engineers were taken on board independently of any purposes connected to the contract voyage.
If there is an unjustifiable deviation, the shipowner cannot rely on the exception clauses in the charter party and can only rely on the exceptions available under common law, such as an Act of God or loss by the Queen’s enemies, if they can prove that the loss would have occurred even if no deviation had taken place. A shipowner cannot rely on any clause allowing them to limit their liability or claim demurrage in case of unjustifiable deviation.
Ship Speed and Fuel Consumption in Time Charter
The description of a vessel’s speed and fuel consumption in a charter party would generally only entitle the charterer to damages or compensation, rather than being considered a fundamental breach of contract that would allow the charterer to cancel the contract. The main question for courts and lawyers is when the warranty of speed and consumption applies: at the time of signing the charter or at the time of delivery, and whether it is a continuing warranty throughout the charter period.
In the Lorentzen v White Shipping (1943) case, the warranty was held to apply only at the time of the charter, not as a continuing warranty. However, in the Apollonius (1978) case, the court disagreed and held that the warranty applied to the time of delivery. Despite this, the Lorentzen view has generally prevailed, and if charterers want to claim that the speed or consumption at the time of delivery was not as warranted, they should accuse the owners of a breach of the obligation to deliver the ship “in every way fitted for service.”
The assessment of speed and performance claims in arbitration is uncertain and depends on the individual arbitrators’ methods. However, there are court-approved interpretations of certain words and expressions in speed descriptions/warranties. For example, “about” referring to the number of knots means a margin of half a knot, and “good weather conditions” are said to be winds of Beaufort Scale 4 or less.
Arbitrators differ in their methods of assessment, with some preferring to ask whether the vessel made the charter party warranty of speed on days with good weather conditions, while others consider whether the average speed of the entire voyage, taking into account weather conditions and currents, was reasonable in relation to the charter party description. The latter is considered more equitable since it takes all relevant factors into account.
In The Gas Enterprise (1993) case, the court confirmed that if the owner intended to warrant a ship’s performance only in good weather conditions, they should have clearly stated so. The warranty should apply to all voyages, whether cargo-laden or in ballast. To determine whether there has been a breach of the speed or consumption warranty, the vessel’s deck log books for the voyage in question should be reviewed, supplemented by weather data from a reputable weather routing organization.
War Clauses in Charter Parties
During times of war, revolution, or similar disturbances, the crew, vessel, or cargo may be at risk, and in order to clarify the rights and obligations of the parties involved, it is common to include a special war risk clause in the charter party. A war cancellation clause allows both parties to cancel the charter agreement if the freight market has completely changed due to war between specific countries or if further trading with the vessel is prevented due to requisition or similar action. War cancellation clauses are typically found in long-term charter parties or contracts of affreightment.
A war risk clause is usually present in all charter agreements and defines war risk. In the Gencon form, war risks include “any blockade or any action which is announced as a blockade by any government or by any belligerent or by any organized body, sabotage, piracy, and any threatened war, hostilities, war-like operations, civil war, civil commotion, or revolution.” This definition encompasses not only actual war and war-like operations but also the threat of war and war-like operations. It is essential to establish the respective parties’ rights and obligations when the crew, vessel, and cargo are exposed to a war risk.
Determining whether a zone is dangerous is a matter of fact in each case. In Ocean Tramp Tankers Corporation v Sovfracth V/O (1963), during the Suez Canal crisis of 1956, the charterers directed a vessel, chartered under a charter party containing a war clause, to Port Said and allowed it to remain in the canal. The court determined that the zone was dangerous, and the charterers breached the clause stating that the vessel “would not be ordered nor continue in a place which will bring her within a zone that is dangerous.”
Ship Delivery in Time Charter
The owner of a ship being chartered out has the obligation to ensure that the ship is seaworthy at the time of delivery. This is an absolute undertaking, and even if it is not expressed in the charter party, it is an implied undertaking recognized by the Common Law of England. However, this obligation to ensure seaworthiness at the time of delivery is not a continuing undertaking.
The charterer does not have the right to refuse delivery of a ship because of alleged unseaworthiness unless that unseaworthiness is so fundamental that it would nullify the overall benefits that the charterer had the right to expect from the performance of the contract. A canceling clause is included in the charterer’s favor, which allows them to cancel the contract if the owner does not deliver a seaworthy ship at the right place and time. If the charterer discovers that the ship is unseaworthy but not seriously, they must give the owners an opportunity to remedy it if the canceling period has not yet been reached.
The owner has an obligation to maintain the ship in a thoroughly efficient state for the period of the service, but this obligation is not absolute. The owner is expected to take reasonable steps to ensure that any required maintenance is done as soon as reasonably possible and with due care and skill.
It is essential to differentiate between the undertakings of seaworthiness at the time of delivery and the obligations to maintain, which are not absolute. If the owner fails to deliver a seaworthy ship, it is considered a breach of contract and entitles the charterer to cancel the contract. However, the charterer’s right to cancel is not dependent on a breach of contract by the owner but on whether the owner delivers a seaworthy ship at the right place and time.
Ship Redelivery in Time Charter
In a time charterparty, there may be a requirement for the charterer to redeliver the vessel on a specific date, which is known as an absolute obligation. This obligation becomes a breach of contract if the charterer fails to redeliver the vessel by the specified date unless the delay is due to the fault of the owner. However, if the charter is for a stated period, such as 8 months or 3 years, there may be some flexibility provided by the courts in terms of a margin for re-delivery. The length of the margin will depend on the length of the charter. Even if the word “about” is not included in the charterparty, the courts may still apply a margin. For example, in the Democritos (1975) case, a margin of 5 days was set for a 4- to 6-month charter.
What is Final Voyage in Time Charter?
It is widely acknowledged that charterers face significant challenges when attempting to meticulously plan their voyages during prolonged charter periods. It is a daunting task to ensure seamless coordination between the vessel’s redelivery and the charter party stipulations. Generally, if a charterer dispatches a vessel on a final voyage with a reasonable expectation of adhering to the agreed-upon redelivery time, but the vessel is ultimately delivered late, the shipowner can only claim additional hire at the contract rate, as opposed to the market rate fluctuations, as demonstrated in the Dione (1975) case. However, this “legitimate last voyage” rule is only applicable if the charterer does not breach the contract and causes further delays that would result in the vessel arriving well beyond the expiration of the charter period.
It is essential to note that the validity of the final voyage is evaluated based on when the vessel sets out on the voyage, rather than when the order was placed. Consequently, if unforeseen events make it impossible to redeliver the vessel on time between the time of the order and the commencement of the last voyage, the charterer would be in breach of the contract, even if the circumstances were beyond their control, as illustrated in the Democritis case (1976).
Illegitimate Final Voyage in Time Charter
If the charterers deliberately dispatch the vessel on a final voyage that is expected to exceed the redelivery date, along with the margin, in any sensible calculation, the owners may opt to decline to set sail and request alternate orders. In the event that such orders are not provided, they may consider the charter terminated, seek other employment, and make a claim for damages.
Should the owners permit the vessel to embark on such an illegitimate voyage, they do not relinquish their right to claim damages. They will be entitled to the charter party rate until the redelivery date, along with the margin (if any), and the prevailing market rate thereafter, until the actual redelivery. This entitlement is subject to the proviso that the market rate is higher, as stated in the Dione (1975) case. Even if the market rate happens to be lower, the owner will still be entitled to the charter party rate until the actual redelivery. This is contractually reinforced in the NYPE form by Clause 3.
Ships Early Redelivery in Time Charter
The innocent shipowner possesses the theoretical option of either accepting the ship’s return and seeking damages or enforcing the charterer’s contractual obligations. In the majority of instances, it is expected that the owner would opt for the former course of action. The owner would likely not receive much sympathy from arbitrators or a court if they attempted to compel the charterer to fulfill the entirety of the contract.
The Court of Appeal established in The Peonia (1991) case that when parties do not explicitly agree on a margin, an implied margin will be assumed if there is only a rigid fixed re-delivery date. The court interpreted the term “further option to complete the last voyage” as being limited to an illegitimate final voyage. This term does not imply that an unlawful voyage can or should be legitimized.
The parties can, however, agree to include a “completion of last voyage clause,” which is valid for both legitimate and illegitimate final voyages. Such a clause may be found in the Shelltime 3 form (Clause 18). The court held in The World Symphony (1991) that the “round voyage” referred to in Clause 18 was, in the case before the court, a combination of a cargo-laden and a ballasted voyage. Thus, even if this combined voyage could not reasonably be completed by the contractual redelivery date, it was legitimate, as permitted by the express liberty in Clause 18. The Court of Appeal dismissed the owners’ appeal against this decision in 1992.
Shipowners and charterers can now generally regard the following as the current rules, as formulated to date by English case law, taking into account, particularly the House of Lords’ decision in The Gregos (1995) case:
- A precise redelivery date can be modified by an expressly agreed margin of tolerance. If the parties have not expressly agreed to such a margin, the courts will apply one, the amount of which will vary depending on the length of the charter period.
- The charterer, in the absence of specific provisions, must issue a lawful order (lawful at the time it was made) for the final voyage.
- The charterer must redeliver within the charter period, including any tolerance (whether express or implied).
- An owner can refuse to execute an illegal final voyage. Alternatively, the owner may decide to perform it while preserving the right to seek damages for the charter’s breach due to late redelivery. Furthermore, the owner can demand that the charterer provide a substitute order for a lawful voyage (if it is still possible). Failure to do so would result in the shipowner terminating the charter.
- If, after issuing a lawful order, the practical circumstances change before the voyage begins, and it becomes clear that the intended final voyage cannot be completed within the charter period, the shipowner may refuse to comply with the order.
- The damages for late delivery are as follows: 6 (a) regardless of any liability for breaching the charter party, the charterer must pay the contractual hire up to the actual redelivery; 6 (b) if the voyage continues beyond the redelivery date (the latest permitted by the margin), and the market rate is currently higher, the owner is entitled to additional damages equal to the difference between the contractual and market rates for the additional days that the charterer used the vessel. If the market rate has fallen below the charter party rate, no loss will have been incurred.
Ship Withdrawal for Non-Payment of Hire in Time Charter
Charter hire is a type of agreement where the payment for the use of a ship and the services of its crew is made in advance by the charterer. This payment is the consideration given by the charterer in exchange for the privilege of using the ship and its crew.
Ship Hire Payment in Cash: The terms “Baltime” (Line 49) and “NYPE” (Line 58) refer to standard forms of maritime contracts commonly used in the shipping industry. These contracts include provisions that have been interpreted by courts to grant the party entitled to payment the right to immediate use of the funds, regardless of how they were transferred, with no additional conditions attached. This interpretation was demonstrated in a court case involving the ship named “The Chikuma” in 1981, which was reported in Lloyds Report 371.
Punctual And Regular Payment of Ship Hire: The NYPE (New York Produce Exchange) time charter form includes the phrase “…failing punctual and regular payment…” as a preamble to the words that grant shipowners the authority to remove their vessel from the charterer’s service. However, this right to withdraw is only available if explicitly reserved; there exists no common law right to withdraw. The case of “The Laconia (1997)” firmly established the law governing withdrawal. The right to withdraw was triggered as soon as the hire installment became overdue, and the default committed could not be rectified by simply making a late payment, unless, of course, the shipowners agreed to accept such a payment.
When is Ship Hire Payment Late?: As per The Laconia (1997) case ruling, the time when the cash was supposed to be submitted to the designated bank for crediting to the named account was critical.
In The Laconia (1997) case, the payment for the vessel’s hire was expected to be received by the owner’s bank by 3 P.M. on a Sunday. However, even by the opening of banking hours on Monday morning, the payment had not been received.
In the Afovos (1980) case, the owners dispatched a notice of withdrawal via telex at 16:40 hours on the day the payment was due, which was well before midnight, by which time the charterers were legally permitted to make the payment without incurring any default accusations. Sending a telexed notice of withdrawal before the payment has genuinely expired is deemed improper.
Ship Hire and Anti-Technicality Clauses: It is acknowledged that the strictness of legal regulations surrounding withdrawal can be tough on the charterer. As a result, these clauses have been introduced, granting the charterers an additional 48-hour grace period within which to make the payment before withdrawal proceedings are initiated. The clause includes a notice stating that if the hire is not paid within 48 hours, the owners will withdraw their vessel.
In The Pamela (1995), the mechanics of the anti-technicality clause were analyzed. The High Court was asked to review a decision made by London arbitrators who were tasked with determining whether a telex dispatched by an owner’s broker to the charterers’ office, which was received 19 minutes before midnight on a Friday when the office was closed for the weekend and the machine was therefore unattended, constituted the requisite 48 hours’ notice as required by the charter party’s anti-technicality clause. The arbitrators determined that it did not constitute notice and that notice would only be effective from the time the charterer’s business opened on the next working day. The Court supported this viewpoint and stated that common business sense dictated that a charterer could not reasonably be expected to pay attention to a telex message received so far outside of customary business hours.
Furthermore, the Court noted that a message sent in accordance with an anti-technicality clause must be expressed in clear and unambiguous terms, serving as an unmistakable ultimatum that the default must be remedied within 48 hours, or withdrawal will be initiated.
There are several circumstances under which the shipowner may lose the right to ship withdrawal:
- The shipowner may relinquish their right if they behave in a way that leads the charterer to believe that the charter can continue after the payment default has occurred.
- The shipowner may agree to accept a late payment.
- The shipowner may fail to act promptly and reasonably after the default, although the owners must be given a reasonable amount of time to seek legal counsel, which may involve communicating with lawyers in another country, as in The Scaptrade (1981) case.
- If there is a history of late payments, the shipowner may only be permitted to take withdrawal action if they provide clear advance notice before the payment is due that timely payment is required.
Set-Off Against Ship Hire Payments: Judicially established is an equitable right of set-off against hire payments, as was decided in The Nanfri (1978) case, despite the absence of any expressed contractual right of set-off in the charter party itself. For a charterer to be granted this equitable right, they must quantify their loss by a reasonable assessment made in good faith and then deduct the quantified sum. It is incumbent upon the charterer to demonstrate compliance with these requirements. The outlined position clearly favors charterers over owners. There are some who argue that there should be no set-off against ship hire, as there is none against freight unless the charter party expressly provides for it. In The Leon (1985) case, it was established that a precondition of the right of set-off is that the breaches complained of must have an impact on the charterer’s use of the vessel.
The Aditya Vaibhu (1993) case serves as further evidence of a charterer’s ability to set off ship hire in equity. In this case, the charterer deducted a sum that represented their loss arising from a 14-day delay due to the shipowner’s failure to properly clean the holds. While the owners did not contest the charterer’s right to deduct, they did object to the deduction exceeding the amount of hire payable for those 14 days. The charterer argued that all losses and expenses, including wasted time, resulting from the shipowner’s failure or breach could be deducted.
The Court determined that the charterer could only deduct an amount equal to the hire that would have been earned during the period of deprivation of the ship’s use and not any other consequential losses.
Cargo Responsibility in Time Charter
The wording of the NYPE (New York Produce Exchange) form, specifically Line 78 of Clause 8, states that “charterers are to load, stow and trim the cargo at their expense under the supervision of the Captain.” However, this leaves ambiguity as to where the responsibility for the discharge process lies, unless the word “discharge” is explicitly added in. Without this addition, the question of responsibility would likely be determined by what is customary in the relevant trade where the charterer is utilizing the vessel.
Even if the Carriage of Goods by Sea Act 1971 were incorporated, it would not clarify the division of responsibility between the owner and time charterer for loading, stowing, trimming, and discharging processes. The act does not intend to dictate who is responsible for each process, as these provisions are left to the parties to agree upon freely.
The absence of clear guidelines on the division of responsibility prompted the creation of the Inter Club Agreement. While jointly authored by the clubs, the agreement is not binding on their members, although the clubs recommend it amongst themselves. The agreement provides a fair and equitable mechanical division of responsibility between the shipowner and charterer for the settlement and/or contribution to cargo claims. Nowadays, the agreement is frequently incorporated into the charter party by way of a rider clause, making it binding on the two principal parties. This saves significant legal expenses that would be incurred in the absence of the agreement.
Regarding the Baltime charter party, clause 4 (lines 34 and 35) mandates that the charterers undertake and pay for the tasks of loading, trimming, stowing, and unloading. The judicial interpretation of these terms implies that the charterers bear the responsibility, whereas the common law might have placed that responsibility on the owners. This contractual clause effectively transfers the responsibility to the charterers.
One could argue that the inclusion of the phrase “under the supervision of the Captain” does not grant any additional rights beyond what is already established by the common law. The Master, who bears the responsibility for the safety of the ship and crew and is tasked with ensuring that the ship is seaworthy for a cargo-laden voyage, inherently possesses the right to oversee the stowage process. If the Master observes that the charterer is stowing in a manner that endangers the safety and seaworthiness of the vessel, he has the right to intervene.
Therefore, these words do not effectively shift the responsibility back to the owners. However, it is probable that if the Master actively intervenes in the stowage process and this intervention results in loss or damage to the cargo, the owners would be held responsible, rather than the charterers.
One recognized means of transferring the loading and stowage responsibility back to the owners is to append the word “responsibility” after the term “supervision”. This approach circumvents the narrow interpretation of the term “supervision” imposed by the courts, as exemplified by the leading case of Courtline v Canadian Transport (1940).
Inter-Club New York Produce Exchange Agreement (1996 – Amended 2011)
This Agreement, the Inter-Club New York Produce Exchange Agreement 1996 (as amended September 2011) (the Agreement), made on 1st September 2011 between the P&l Clubs being members of The International Group of P&l Associations listed below (hereafter referred to as “the Clubs”) amends the Inter-Club New York Produce Exchange Agreement 1996 in respect of all charterparties specified in clause (1) hereof and shall continue in force until varied or terminated. Any variation to be effective must be approved in writing by all the Clubs but it is open to any Club to withdraw from the Agreement on giving to all the other Clubs not less than three months’ written notice thereof, such
withdrawal to take effect at the expiration of that period. After the expiry of such notice, the Agreement shall nevertheless continue as between all the Clubs, other than the Club giving such notice who shall remain bound by and be entitled to the benefit of this Agreement in respect of all Cargo Claims arising out of charterparties commenced before the expiration of the such notice.
The Clubs will recommend to their Members without qualification that their Members adopt this Agreement to apportion liability for claims in respect of cargo which arise under, out of or in connection with all charterparties on the New York Produce Exchange Form 1946 or 1993 or
Asbatime Form 1981 (or any subsequent amendment of such Forms), whether or not this Agreement has been incorporated into such charterparties.
Scope of Application
1- This Agreement applies to any charterparty which is entered into after the date hereof on the New York Produce Exchange Form 1946 or 1993 or Asbatime Form 1981 (or any subsequent amendment of such Forms).
2- The terms of this Agreement shall apply notwithstanding anything to the contrary in any other provision of the charterparty; in particular the provisions of clause (6) (time bar) shall apply notwithstanding any provision of the charterparty or rule of law to the contrary.
3- For the purposes of this Agreement, Cargo Claim(s) means claims for loss, damage, shortage (including slacking, ullage, or pilferage), over carriage of, or delay to cargo including customs dues or fines in respect of such loss, damage, shortage, over carriage or delay and include:
3a- any legal costs claimed by the original person making any such claim;
3b- any interest claimed by the original person making any such claim;
3c- all legal, Club correspondents’, and experts’ costs reasonably incurred in the defense of or in the settlement of the claim made by the original person, but shall not include any costs of whatsoever nature incurred in making a claim under this Agreement or in seeking an indemnity under the charterparty.
4- Apportionment under this Agreement shall only be applied to Cargo Claims where:
4a- the claim was made under a contract of carriage, whatever its form,
(i) which was authorized under the charterparty; or
(ii) which would have been authorized under the charterparty but for the inclusion in that contract of carriage of Through Transport or Combined Transport provisions, provided that
(iii) in the case of contracts of carriage containing Through Transport or Combined Transport provisions (whether falling within (i) or (ii) above) the loss, damage, shortage, over the carriage, or delay occurred after the commencement of the loading of the cargo onto the chartered vessel and before completion of its discharge from that vessel (the burden of proof being on the Charterer to establish that the loss, damage, shortage, over carriage or delay did or did not so occur); and
(iv) the contract of carriage (or that part of the transit that comprised carriage on the chartered vessel) incorporated terms no less favorable to the carrier than the Hague or Hague Visby Rules, or, when compulsorily applicable by operation of law to the contract of carriage, the Hamburg Rules or any national law giving effect thereto; and
4b- the cargo responsibility clauses in the charterparty have not been materially amended. A material amendment makes the liability, as between Owners and Charterers, for Cargo Claims clear. In particular, it is agreed solely for the purposes of this Agreement:
(i) that the addition of the words “and responsibility” in clause 8 of the New York Produce Exchange Form 1946 or 1993 or clause 8 of the Asbatime Form 1981, or any similar amendment of the charterparty making the Master responsible for cargo handling is not a material amendment; and
(ii) that if the words “cargo claims” are added to the second sentence of clause 26 of the New York Produce Exchange Form 1946 or 1993 or clause 25 of the Asbatime Form 1981, apportionment under this Agreement shall not be applied under any circumstances even if the charterparty is made subject to the terms of this Agreement; and
4c- the claim has been properly settled or compromised and paid.
5- This Agreement applies regardless of the legal forum or place of arbitration specified in the charterparty and regardless of any incorporation of the Hague, Hague-Visby Rules, or Hamburg Rules therein.
6- Recovery under this Agreement by an Owner or Charterer shall be deemed to be waived and barred unless written notification of the Cargo Claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo or the date the cargo should
have been delivered, save that, where the Hamburg Rules or any national legislation giving effect thereto are compulsorily applicable by operation of law to the contract of carriage or to that part of the transit that comprised carriage on the chartered vessel, the period shall be 36 months. Such notification shall if possible include details of the contract of carriage, the nature of the claim, and the amount claimed.
7- The amount of any Cargo Claim to be apportioned under this Agreement shall be the amount borne by the party to the charterparty seeking apportionment, regardless of whether that claim may be or has been apportioned by application of this Agreement to another charterparty.
8- Cargo Claims shall be apportioned as follows:
8a- Claims arising out of unseaworthiness and/or error or fault in navigation or management of the vessel:
save where the Owner proves that the unseaworthiness was caused by the loading, stowage, lashing, discharge, or another handling of the cargo, in which case the claim shall be apportioned under sub-clause (b).
8b- Claims arising out of the loading, stowage, lashing, discharge, storage, or another handling of cargo:
unless the words “and responsibility” are added in clause 8 or there is a similar amendment making the Master responsible for cargo handling in which case:
save where the Charterer proves that the failure properly to load, stow, lash, discharge, or handle the cargo was caused by the unseaworthiness of the vessel in which case:
8c- Subject to 8a and 8b above, claims for shortage or over carriage:
unless there is clear and irrefutable evidence that the claim arose out of pilferage or act or neglect by one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.
8d- All other cargo claims whatsoever (including claims for the delay to cargo):
unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim
9- If a party to the charterparty provides security to a person making a Cargo Claim, that party shall be entitled upon demand to acceptable security for an equivalent amount in respect of that Cargo Claim from the other party to the charterparty, regardless of whether a right to apportionment between the parties to the charterparty has arisen under this Agreement provided that:
9a- written notification of the Cargo Claim has been given by the party demanding security to the other party to the charterparty within the relevant period specified in clause (6); and
9b- the party demanding such security reciprocates by providing acceptable security for an equivalent amount to the other party to the charterparty in respect of the Cargo Claim if requested to do so.
10- This Agreement shall be subject to English Law and the exclusive jurisdiction of the English Courts unless it is incorporated into the charterparty (or the settlement of claims in respect of cargo under the charterparty is made subject to this Agreement), in which case it shall be subject to the law and jurisdiction provisions governing the charterparty
Ship Off-Hire in Time Charter
In specific and well-defined circumstances, a vessel that has been hired under a Time Charter party may become “off-hire”. The language used within the off-hire clause holds paramount importance, as it is only through a careful examination of the exact wording that one can ascertain whether an “off-hire event” has taken place – that is, an event that has deprived the charterer of the use of the ship, thereby allowing them to declare the vessel “off-hire”.
Ship Off-Hire Clauses in the Baltime and NYPE Charter Parties:
Ship Off-Hire Clause in Baltime Charter Party
(a) In the event of dry docking or other necessary measures to maintain the efficiency of the vessel, deficiency of men or owner’s stores, breakdown of machinery, damage to hull or accident, either hindering or preventing the working of the vessel and continuing for more than 24 consecutive hours, no hire to be paid in respect of any time lost thereby during the period in which the vessel is unable to perform the service immediately required. Any hire paid in advance is to be adjusted accordingly.
(b) In the event of the vessel being driven into port or anchorage through the stress of weather, trading to shallow harbors or rivers or ports with bars, or suffering an accident to her cargo, any detention of the vessel and/or expenses resulting from such detention to be for the charterers’ account even if such detention and/or expenses, or the cause by the return of which either is incurred, be due to, or be contributed to by, negligence of the owners’ servant.
Ship Off-Hire Clause in NYPE Charter Party (Clause 15)
That in the event of the loss of time from deficiency of men or stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accident to ship or cargo, dry docking for the purpose of examination or painting the bottom, or by any other cause preventing the full working of the vessel, the payment of hire shall cease the time thereby lost; and if upon the voyage speed be reduced by a defect in/or breakdown of any part of her hull, machinery, or equipment, the time so lost, and the cost of any extra fuel consumed in consequence thereof, and all extra expenses shall be deducted from the hire.
The fundamental principle of interpretation dictates that the delay must “pertain to the efficiency of the vessel and prevent it from functioning at full capacity.” This can manifest in various ways, with the most obvious being physical damage to the vessel, such as an engine or boiler malfunction, grounding, or fire.
Two examples of events that were not subject to off-hire provisions are The Aquacharm (1982) and The Mareva AS (1977). In the former, the vessel was denied permission to transit the Panama Canal due to its excessive cargo load. While this resulted in a delay of nine days and necessitated the discharge and reloading of some cargo, the Aquacharm remained fully functional throughout. Similarly, in the latter case, the cargo on board had become too wet to unload due to unsecured hatch covers. The court held that this delay did not impede the vessel’s efficiency as a whole.
In another instance involving the vessel RIJN (1981), marine growth had accumulated on the hull while the ship was in port at the direction of the charterers. The charterers argued that this constituted a defect in the hull, and therefore fell under the off-hire clause. However, the court ruled that marine growth was a defect on the hull and not in the hull, and therefore did not qualify as an off-hire event. Additionally, the court noted that the drafters of the off-hire clause likely intended to limit the list of qualifying events.
Before activating the off-hire clause, the charterer must demonstrate that time was actually lost as a direct result of the vessel’s inefficiency. For example, a delay caused by fumigation would not be considered lost time for the charterer if the vessel would have been in port anyway. Additionally, the NYPE off-hire clause does not reference the time at which the vessel is restored to full efficiency, while other clauses may specify a period of time during which payment of hire shall cease. This can sometimes work against the owner’s interests if the ship is only partially disabled.
It is important to note that partial inefficiency can have the same impact as total inefficiency. For example, if one crane on a vessel breaks down but the remaining two can perform all the necessary tasks, an assessment would need to be made of the time actually lost. The burden of proving that the off-hire clause applies to a particular circumstance falls on the charterer.
The right to go off-hire does not affect the charterer’s right to damages for breach of contract. In The Ira (1995), the court ruled that dropping off the pilot at Piraeus after completing dry-docking did not constitute lost time for the charterer. The burden was on the charterer to prove the off-hire event and its causative effect, as well as to demonstrate that actual time was lost.
In The Berge Sund (1992), the vessel was initially deemed off-hire due to an unforeseen cleaning requirement between cargoes. However, this decision was overturned on appeal, as cleaning was considered part of the service provided by the owners to the charterer. Each off-hire clause must be analyzed on its own wording.
2- LEGAL ASPECTS OF VOYAGE CHARTER PARTIES
The charterer for a voyage does not bear the same extent of responsibilities as a charterer for a period; rather, the former employs the vessel as a carrier for his or another party’s cargo, transporting it between specified ports. Nonetheless, it is surprising how many voyage charterers assume that they are free from any liabilities, particularly when they transport their own cargo.
It is worth noting that the law regarding the rights and liabilities of each principal party is uniform, regardless of the nature of the cargo being transported, whether it is dry, bulk, packaged, liquid, hazardous, or weighty. While there are many distinct commercial charter agreements that cannot be discussed in this brief section, it is essential to recognize that while specific trades may have their unique practices and provisions, all voyage charter agreements, whether in oil or dry trades, are subject to the same fundamental legal principles.
What is Laytime in Voyage Charter?
One of the most frequent sources of disputes arising from a voyage charter’s performance concerns Laytime and/or Demurrage. Laytime denotes the duration that the charterer has to load or unload the vessel without incurring any additional charges beyond the freight fee for the actual transportation of the goods. How the laytime is computed is determined by prior agreement between the parties. It may be a reasonable rate of discharge, such as 5,000 tons per day. Laytime will not be a continuous period but will have certain excepted periods, again agreed upon by mutual consent, such as Sundays, Public Holidays, or periods of adverse weather. It will also have a specified commencement time. This laytime “clock,” as it is sometimes metaphorically referred to, usually starts after a reasonable interval following the Master’s tendering of the notice of readiness indicating that his ship is prepared to load or unload, such as when the Notice of Readiness (NOR) is presented after noon, during office hours, on one-day laytime, the laytime will commence at 0800 hours on the following working day.
Safe Port (SP) in Voyage Charter and Time Charter
When a voyage charter is established for specific ports, it is presumed that the ship owner has ensured that the ports are safe and appropriate for the ship and its cargo quantity.
If a charter party, whether it’s a voyage or time charter, expressly specifies that the ship should go to a safe port or berth designated or ordered by the charterer, the charterer must nominate or order a safe port and warrants that the port or berth is safe. If the port is not safe, the ship may refuse to obey the order. If the ship complies with the order, the shipowner is entitled to recover for damage suffered by the ship resulting from the reasonable compliance of the master with the order.
A Safe Port (SP) is a port where a vessel can load, discharge, and lie while afloat, unless it is agreed that she may lie safely aground, without requiring more than ordinary prudence and skill to avoid exposure to danger.
In The Eastern City (1958) case, Lord Justice Sellars stated that a port will not be safe unless, during the relevant time frame, the specific ship can reach, use, and return from it without being exposed to unavoidable damage, caused by any abnormal occurrence, with the help of good navigation and seamanship. In that case, the vessel was instructed to go to “one or two safe ports in Morocco,” but the charterer directed the vessel to Mogador, where it dragged its anchor and went aground two days after arrival. This was not solely due to the storm, as Mogador had little shelter, was susceptible to sudden weather changes, and was unsuitable for ships the size of the Eastern City. Thus, there was a breach of the safe port obligation.
The safety of a nominated port is evaluated at the time the order is given. The charterer is not liable if a port that appears to be safe when nominated becomes unsafe later. A port is not safe if it is likely to become unsafe before the ship arrives. In The Evia (1982) case, the vessel was ordered to transport cement from Cuba to Basrah. Basrah was safe and likely to remain so at that time. Evia arrived in July but was unable to berth until August 20. The discharging was completed on September 22, which was the date when the Iran/Iraq conflict broke out, and the Shatt-el Arab waterway was closed. As a result, Evia was trapped. It was held that there was no breach of the safe port obligation.
This case appears to indicate that the port must be prospectively safe at the time of nomination, that is to say, it must be safe at the time of arrival. Thus, it need not be safe at the time of nomination, nor does it need to be safe before arrival; however, it should be likely to be safe at the time of arrival. Conversely, if the port is unsafe at the time of nomination, the charterer is in breach of their primary obligation to nominate a safe port. If the nominated port ceases to be prospectively safe between nomination and arrival, the charterer is in breach of their secondary obligation to nominate another prospectively secure port.
If the charterer provides for the nomination of a port or berth but is silent as to its safety, it may be considered that a warranty that the port(s) or berth(s) are safe will be implied.
Whether a port is safe or not is a matter of fact and degree and must be determined with reference to the particular ship concerned, assuming that it is properly manned, equipped, navigated, and handled without negligence and in accordance with good seamanship. A port that would otherwise be unsafe may become safe if the charterer gives the owner sufficient warning of the dangers of the port to enable the vessel to avoid them
What is Demurrage in Voyage Charter Paties?
This is a payment of penalty at a fixed rate which is imposed, by agreement in the charter party, upon the charterer for failing to complete their duty of loading or discharging within the agreed laytime period. This payment is known as liquidated damages as it is unalterable and not capable of being specially assessed. Therefore, the term “penalty payment” seems more appropriate than “damages”. If, on rare occasions, there is no stipulation in the charter party regarding a demurrage rate, the owner could claim damages for detention as compensation for the ship’s detention. This would be an unliquidated amount subject to assessment under the ordinary rules of Breach of Contract under English Law.
Unlike laytime, demurrage is a continuous period. Once laytime has expired and the vessel has entered the demurrage period, the period runs without interruption until the charterer has finally completed their duty. This legal principle is summarized in the expression “Once on demurrage, always on demurrage.” The only exception to this strict rule is if the parties have agreed that periods excepted from laytime should also be excepted from the demurrage period. In such a case, the parties’ intentions will be respected under the basic rule of freedom of contract.
Unliquidated damages, which are not agreed upon between the parties when entering into the contract and arise from specified breaches, are assessed under the rules laid down in Hadley & Baxendale (1854). The plaintiff is entitled to damages for loss which was an obvious consequence of the breach, i.e., the loss which must have been in the contemplation of the reasonable person entering into the contract, as well as any special loss of which the defendant was made aware by the plaintiff when entering into the contract.
An example of a situation where damages for detention may be more appropriate than demurrage is illustrated in the case of Nolisement (Owners) v Bunge y Born (1917). In this case, the vessel had completed loading 19 days before the expiration of the laydays, but the charterers held the ship for a further three days before presenting bills of lading to the master because they were unable to decide on the port of discharge. The court held that, instead of simply reducing the amount of despatch money, the charterers should pay damages for detention for two days. One day is considered a reasonable time to wait for the presentation of bills of lading.
When does the Ship Master present a Notice of Readiness (NOR)?
When determining the ship’s arrival in a legal context, it is important to distinguish between a port charter party and a berth charter party. A berth charter party involves consigning the vessel to a specific berth within a port, and the notice of readiness can only be presented once the ship is berthed, even if it has to wait to do so. On the other hand, a port charter party only specifies the port or ports that the ship is to proceed to, so a test must be established to determine the exact point within the port area that the ship should have reached in order to be considered “arrived.” The modern “Reid Test,” outlined in The Johanna Oldendorff (1973), establishes that the ship should have reached an anchorage within the port where ships customarily wait for the type of berth they have been nominated for, and should be immediately and effectively at the disposal of the charterer.
The charter may include an exclusion clause that aims to exempt liability for demurrage. In The John Micholas (1987), a typed addition to a charter in the Pacific Coast Grain form provided by clause 62 stated that “Charters shall not be liable for any delay in… discharging… which delay… is caused in whole or in part by strikes…” The vessel came on demurrage at the discharge port and was then delayed for 26 days due to a strike by port workers. It was concluded that clause 62 did relieve the charterers from liability for demurrage.
It should be noted, however, that such clauses will be interpreted according to the ordinary rules of contractual construction, as established in The Forum Craftsman (1991) by Hobhouse J. Unclear or ambiguous clauses will not be effective. In The Kalliope A (1988), the vessel was chartered for the transportation of a shipment of shredded scrap from Rotterdam to Bombay but was affected by congestion both during and after laytime. The charterers attempted to be excused from paying demurrage by relying on a clause in the charter that stated that “unavoidable hindrances which may prevent… discharging… always mutually excepted.” It was determined that the clause was not sufficiently clear to exempt the charterers from liability during periods when the vessel was on demurrage.
Notice of Readiness (NOR) in Voyage Charter
The Linardos case in 1994 discussed the issue of the “black and white effect” of the principle that a valid notice of readiness cannot be given unless the vessel is truly ready to load. The charter party in question contained provisions stating that time lost due to unfulfilled load readiness requirements should not count and that an independent marine surveyor’s certificate was required to certify that the holds were clean and dry before a notice of readiness could be accepted. The vessel tendered the notice of readiness, but the surveyor failed her on load readiness due to water and rust in the hatches, and it took a further 20 hours before the hatches were declared clean. The Commercial Court held that the basic principle could be varied by express provisions in the charter party, and the NOR could be validly tendered even if the hatches needed a final cleaning prior to the mandatory passing as fit by an independent local surveyor.
In the Mexico 1 case in 1990, the ship carried two part cargoes for discharge at Luanda, and the NOR for cargo B was invalid when tendered as it was over-stowed by Cargo A. The court held that the NOR was invalid and could not automatically become valid when cargo B became accessible. The master must then re-tender his NOR (Notice of Readiness).
In the Petr Schmidt case (Galaxy Energy International Limited v Novorossiysk Shipping Company) in 1997, the court distinguished between a NOR which was “ineffective” because it purported to offer a ready ship when it was not ready, and a NOR which was ineffective solely because it was given outside stipulated hours. In the latter case, no fresh NOR need to be given, and the originally tendered NOR could become effective at the commencement of the stipulated range of hours.
Who Pays for Waiting Time in Voyage Charter?
Regarding who pays for waiting time in a voyage charter, it depends on the charter party’s wording. If the owner wants to be compensated for every minute for which the ship is kept waiting after the carrying voyage is completed, then they must include words in the charter party such as those found in the printed Gencon form. These words protect the owner independently of whether or not the ship has legally arrived, provided that the reason for the delay is waiting for a berth. In The Darrah case, waiting time was agreed to count as laytime, and the charterer was allowed to deduct laytime excepted periods from the time lost waiting, which was considered equitable.
Port Congestion in Voyage Charter
One noteworthy legal precedent for all shipbrokers dealing with voyage charter parties, particularly those concerning tanker voyages, is The Laura Prima (1982) case. This case, above all recent disputes, confirmed an uncertain viewpoint regarding the party responsible for waiting costs. Specifically, it established that if a berth is occupied, waiting costs fall on the charterer. However, if the berth is unoccupied, and any delay in reaching it is caused by a factor beyond the charterer’s control, then time will run against the charterer. The Laura Prima case featured the use of the Asbatankvoy charter party form, which includes Clause 6 which states, “Where delay has caused a vessel getting into berth after the notice of readiness for any reason over which charterer has no control such delay shall not count as used laytime.” Additionally, Clause 9 of the charter party contains the following provision: “The vessel to be loaded at the risk and expense of the Charterers, provided the loading is done with dispatch, the Charterers having the entire responsibility for proper loading and trimming of the cargo.”
“The ship shall load and discharge at any safe place or wharf or alongside vessels or lighters reachable on arrival which shall be designated and procured by charterers”.
The circumstances of The Laura Prima case were as follows: the vessel arrived at its customary anchorage to load and gave notice of readiness. However, due to port congestion, there was no available berth for 9 days. The charterers objected to paying demurrage for the delay, arguing that the situation was beyond their control and thus they were not responsible for it.
The House of Lords resolved the apparent conflict between Clause 6 and Clause 9 by stating that the berth referred to in Clause 6 was the same berth that the operator was obligated to designate and make reachable upon the ship’s arrival under Clause 9. Because the operator had not fulfilled this duty, they were not entitled to the benefit under Clause 6.
Despite being a leading case, the Laura Prima decision has not had as wide an impact as might have been anticipated. Some cases that have come before the courts since then have been decided based on different reasoning than that adopted by the House of Lords in the Laura Prima case. For example, in The Notos, the charter party specified that the vessel was to load a cargo of crude oil and then proceed to a designated submarine line for delivery as ordered by the charterer. However, the vessel was unable to discharge at the designated line due to existing swells and another ship discharging there. The court found that the failure to nominate the discharge location should not be entirely fatal, and the primary cause of the delay in reaching the only berthing location was swell, which was beyond the charterer’s control due to prevailing weather conditions. It is noteworthy that The Notos case differed from the Laura Prima case in that there was only one designated location for discharge.
WIBON (Whether in Berth or Not)
There has long been judicial uncertainty regarding the legal implications of the “whether in berth or not” (WIBON) provisions in a charter party. The question at hand is whether these provisions have the power to transform a berth charter party into a port charter party. Recently, a case involving the vessel Kyzikos, chartered on a Gencon form and containing the language “time to count whether in berth or not,” shed some light on this issue.
The ship was assigned to a specific berth, but due to fog, was unable to access it even though the berth was available. The matter was referred to arbitration as a laytime dispute, and the arbitrator found that the WIBON provision had the effect of converting the “berth” charter into a “port” charter. As a result, time started running against the charterer from the moment of arrival, except for the few hours of “notice time.”
The charterers appealed the decision to the High Court, arguing that the WIBON provision did not create primary obligations and therefore could not transfer the owner’s duty from carrying the cargo to a specific berth to simply carrying it to a port. The case eventually made its way to the House of Lords, where the charterer emerged victorious. The final ruling stated that if a berth was available upon arrival but the named ship was unable to reach it due to fog (rather than congestion), the master could not rely on the WIBON provision to tender notice of readiness in advance of berthing. The provision did not impact delays resulting from navigational difficulties.
Canceling Clause in Voyage Charter and Time Charter
This is a provision found in both Voyage and Time charter parties, to which comments apply equally regardless of the type of charter. It is important to understand that the provision operates in favor of the charterer, whether or not the ship’s delayed arrival is the owner’s fault. This means that the right to cancel, whether or not there is a fault, is absolute. Therefore, it is futile for the shipowner to argue that the delay was due to a peril excepted by the charter party, as the exception clause only applies to the carrying voyage, as seen in the Smith v Dart (1884) case.
However, the charterer is not entitled to exercise the right to cancel until the canceling date has been reached. In other words, the charterer cannot cancel in anticipation of the ship’s inability to meet the canceling date, even if it is obvious that the ship will not be able to do so. This is the law regarding the canceling clause itself, as established in The Madeleine (1967) case. Nevertheless, it should be noted that the charterer always has an alternative remedy in this situation, based on an implied duty that the Common Law imposes on a shipowner, which is to ensure that the vessel proceeds to its loading port with reasonable despatch. However, this course of action is only applicable in cases where there is a failure to proceed with reasonable despatch, thus involving “shipowner fault.”
Freight Payment in Voyage Charter Parties
The principle that the payment of freight is due upon the delivery of the cargo at the port of discharge is strictly enforced by the courts. It is worth noting that the obligation to pay freight and to deliver the cargo concurrently is the general norm, but the parties are free to negotiate and agree upon any terms they choose for the calculation, earning, and payment of the freight. The general rule applies only when there are no alternative arrangements in place. It is important to keep in mind that the full amount of freight is payable even in cases where the cargo has been delivered in a damaged state. However, if the goods are lost or destroyed, the freight will not be payable since it will not have been earned. The destruction of the merchantable character or commercial identity of the cargo has the same effect on the right to freight as the total destruction of the goods themselves.
The case of Asfar v Blundell (1896) provides a striking example of this principle. In this case, a ship carrying a cargo of dates sank in the Thames. The ship was later recovered, but the dates were found to be unfit for human consumption. The argument was put forward that since there had been no total loss of the dates, there could be no total loss of the freight on them. However, Lord Esher MR rejected this argument, stating that although the argument may be clever from a chemical perspective, it is not applicable in the realm of business. His Lordship held that the test should be whether, as a matter of business, the nature of the thing had been altered.
This example is significant because it illustrates the narrow interpretation of the test. While goods may be damaged to the point where they are no longer of merchantable or satisfactory quality under a sale of goods contract, they may still be considered merchantable in a commercial sense as goods of their kind.
In The Caspian Sea (1980) case, the vessel was chartered with freight payable upon delivery. The cargo consisted of ‘Bachaquero Crude’, which is typically free of paraffin. However, upon discharge, the oil was found to be contaminated by paraffinic products from residues of a previous cargo. The Court ruled that the owners of the cargo would be entitled to freight if the delivered product could be described in commercial terms as ‘Bachaquero Crude’ that was sensibly and accurately described. The arbitrators were tasked with determining whether ‘Bachaquero Crude’ meant ‘paraffin-free crude’ – in which case the owners would not be entitled to freight – or ‘crude from Bachaquero region which in its natural state contains no paraffin’ – in which case the owners would be entitled to freight unless the cargo was so contaminated that it could not be described even as ‘contaminated Bachaquero Crude.’
Dead Freight (DF) in Voyage Charter Parties
If a charterer fails to fulfill their contractual obligation to provide a full cargo, the shipowner has a valid claim for dead freight, which refers to damages incurred due to the unused space. The charterer is required to pay the freight for the space that was not utilized.
At common law, there is no lien on the goods that were actually carried on the ship for such damages. However, it is possible for such a lien to be granted through the usage or explicit agreement of the parties involved.
3- LEGAL ASPECTS OF BAREBOAT CHARTER PARTIES
Bareboat Charter is a charter in the nature of a “lease” by which the shipowner grants the entire control and possession of the ship to the charterer. Bareboat Charterer takes over all the responsibilities for the vessel. Bareboat Charterer employs a crew and provisions bunkers and runs the ship as his own. Bareboat Charterer is the “disponent owner” and could be regarded as the lessee of the ship. The Bareboat Charterer takes over almost all of the shipowners’ functions except for the payment of capital costs.
Sometimes a second-hand sale has been disguised as a bareboat charter with an option to buy in order to avoid taxation. Bareboat charters usually cover a certain period of time, sometimes a very long period, and are often connected to a purchase option after the expiration of the charter period or during the charter period. Whether or not the charter amounts to a bareboat must turn on the particular terms of the charter. The question depends on whether the shipowner has, by the charter, parted with the whole possession and control of the ship.
In Baumwoll Manufactur Von Carl Scheibler v Furness (1893) case, a charter party provided for the hire of a ship for 4 months for the charterer to find the ship’s stores and pay the master and crew, insurance and maintenance of the ship to be paid by the shipowners who reserved power to appoint the chief engineer. The master signed bills of lading in respect of goods shipped by shippers who were ignorant of the charter party. The Court held that the charter amounted to bareboat because the possession and control of the ship were vested in the charterers. The shipowner was not liable for the loss of the goods.
A bareboat charter is a contract for the hire of a chattel and is governed by the general principles of the common law relating to contracts of hire. There will therefore be implied an undertaking that the ship is on delivery as fit for the purpose for which she is hired as reasonable skill and care can make her. The shipowner has no lien at common law for freight due under the charter since the possession of the bareboat ship is in the charterer, and the master of a bareboat ship is the servant of the charterers, not the shipowners. The Bareboat Charterer is bound by a salvage award and it is on his behalf that the master signs bills of lading.
The shipowner is not allowed to interfere in any way with the management of the ship except in so far as the terms of the charter party permit it. The owner is only entitled to be paid hire. If the ship earns a salvage award the Bareboat Charterer is entitled to it.
One special use of bareboat chartering that is commonly met with today occurs when a bank or other financial institution comes into possession of a ship. Such a shipowner has a financial rather than an operational interest in the ship and bareboat chartering is one way of protecting that financial interest while at the same time having the vessel operated profitably by someone more skilled in that task. A bank that is considering lending money to a shipowner might wish to secure its loan by buying the ship in question and leasing it back to the borrower by a bareboat charter party.
Bareboat Charterers have an interest in ships that are very like the interest of shipowners and some countries, such as Panama, recognize this fact by allowing Bareboat Charterers to register the ships which they have chartered.
Bareboat Charter Parties are typically carried out using standardized forms. BIMCO’s BARECON A states that “the vessel shall during the charter period be in the full possession and absolute disposal for all purposes of the charterers and under their complete control in every way.” Before the vessel is delivered, the owners are obligated to exercise due diligence, and the vessel must be returned in the same or comparable structural state and class as it was when delivered, with the exception of fair wear and tear that does not affect class. The charter assigns all rights and responsibilities associated with operating the ship to the charterers while prohibiting the charterer from creating mortgages, encumbrances, and liens to protect the owner’s interests. Both the owners and charterers have an insurable interest in the vessel, and it is crucial for the owners that the ship is fully insured.
Time Bars in Ship Chartering
All legal systems have statutes of limitations that establish the time limits within which civil claims must be filed. It is the responsibility of the claimant to ensure that their writ is issued within the designated time period.
Statutory Time Bars
The Limitation Act 1980 establishes the general time limits for civil claims. Under a charter party, the claimant has six years from the date of the breach to bring an action in the UK. However, it is important to note that other countries may have shorter limitation periods. For example, in France, the limit is one year, and in Spain, it is six months. If the charter is governed by English law but the defendant is based in another country, the laws and regulations of that country may also be relevant. Therefore, if the charterers are Spanish, the owners must be aware of the Spanish six-month limit and cannot rely on the English six-year limit, which only applies to the charter party. The Limitation Act also includes provisions for situations in which an extension of time to bring an action may be granted.
Contractual Time Bars
Charter parties typically include a clause specifying the time period within which a claim must be brought. In some cases, the arbitration clause stipulates that a shipowner or charterer must bring a claim within 9 months of final discharge. However, if the vessel carrying the goods sinks and the cargo is never discharged, the 9-month clause is irrelevant, and the six-year limitation period applies. This was the ruling in the case of Denny Mott and Dickson Ltd. v Lynn Shipping Co. Ltd. (1963), where the court held that the words “final discharge” did not refer to the date when the cargo should have been discharged, and the claim was not time-barred.
In a consecutive voyage charter with an arbitration clause that specifies “within 9 months of final discharge,” the time limit refers to the final discharge under the voyage in question, rather than the completion of discharge of the last cargo carried under the charter party.
If a charter party requires a claimant to appoint an arbitrator within a certain time period, the nominated arbitrator must be informed within that period; otherwise, the claim is time-barred. This was demonstrated in the case of Tradax Export S.A. v Volkswagenwerk A.G., where the failure to notify the appointed arbitrator resulted in the claim being time-barred.
What is the difference between Bareboat Charter and Demise Charter?
Bareboat charter and demise charter are often used interchangeably, as they both refer to the same type of charter arrangement. In this type of charter, the shipowner leases the vessel to the charterer for a specified period, transferring control, possession, and management of the ship to the charterer. During the charter period, the charterer assumes the role of the shipowner, responsible for the vessel’s operation, including crewing, maintenance, insurance, and other operational expenses.
Despite being essentially the same concept, the terms “bareboat charter” and “demise charter” can sometimes emphasize different aspects of the arrangement:
- Bareboat Charter: The term “bareboat charter” highlights that the vessel is leased without crew, equipment, or provisions. It emphasizes the charterer’s responsibility for providing and managing the crew, equipment, and supplies necessary for operating the vessel during the charter period.
- Demise Charter: The term “demise charter” focuses on the transfer of possession, control, and management of the vessel from the shipowner to the charterer. It implies a more complete transfer of rights and responsibilities to the charterer, who effectively steps into the shoes of the shipowner during the charter period.
In the practice of maritime law, both terms describe the same type of charter arrangement, where the charterer takes on the full responsibility for operating the vessel and bears the associated costs and risks. Regardless of the terminology used, it is essential for parties entering into a bareboat/demise charter agreement to clearly define their rights and obligations in the contract to ensure smooth operations and avoid potential disputes.
In the realm of ship chartering, shipbrokers must exercise caution to ensure that a lease agreement between ship owners and charterers is accurately categorized. If the ship owners lease the vessel along with their crew members, this arrangement is known as a Demise Charter. Conversely, if the ship owners lease the vessel without crew members, this is referred to as a Bareboat Charter. In the field of shipping law, it is not uncommon for legal practitioners to employ the terms Bareboat Charter and Demise Charter interchangeably
For what purposes may a ship deviate from the contract voyage
(a) under Common Law
(b) under Hague-Visby Rules?
Under both Common Law and the Hague-Visby Rules, a ship may deviate from the contract voyage under certain circumstances. It is important to note that deviations can lead to the carrier losing certain rights and protections provided by the contract of carriage.
(a) Under Common Law:
- Saving life: A ship may deviate from the contract voyage to save human life, whether it involves the crew, passengers, or individuals from another vessel.
- Saving property: A ship may deviate to save property, such as when attempting to salvage another vessel or its cargo.
- Necessity: A ship may deviate due to necessity, which can arise from various reasons like safety, extreme weather, war or political reasons, or other unexpected events that might make it dangerous or impossible to follow the agreed-upon route.
- Express agreement: If the parties have expressly agreed on a deviation in the contract, the ship may deviate accordingly.
(b) Under the Hague-Visby Rules:
The Hague-Visby Rules, also known as the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, provide additional scenarios under which a ship may deviate from the contract voyage:
- Article IV Rule 4: A ship may deviate to save life or property at sea.
- Reasonable deviations: The Hague-Visby Rules recognize that a carrier may have to deviate for reasons not expressly mentioned in the Rules. In such cases, the carrier can still maintain protection under the Rules if the deviation is deemed reasonable.
It is important to understand that the carrier must provide a valid justification for any deviation, and any deviation without a reasonable cause may result in the carrier being held liable for any loss or damage to the cargo. Additionally, carriers should be aware of any specific provisions or agreements in the contract of carriage that may affect their rights and liabilities when deviating from the contract voyage.
What margin does the phrase “about” recognize in connection with the speed in a speed and consumption dispute?
In maritime contracts, the term “about” is often used in connection with the speed and consumption of a vessel. It is meant to provide a margin of flexibility or tolerance when dealing with the performance of the ship, acknowledging that there can be variations in factors like speed and fuel consumption due to changing conditions at sea.
However, there is no fixed or universally accepted margin that the term “about” represents, and it may be interpreted differently in various jurisdictions or in specific contracts. The margin is typically subject to negotiation between the parties involved and might be clarified in the contract itself, or it could be left to the interpretation of an arbitrator or a court in case of a dispute.
In general, the term “about” is intended to give some leeway to account for reasonable deviations in the performance of the vessel, considering factors like weather conditions, currents, and other variables that might affect the speed and consumption. It is important for parties entering into a maritime contract to clearly define and agree on the acceptable margin for the term “about” to avoid potential disputes or misunderstandings.
What is the definition of a Safe Port (SP) in Ship Chartering?
In ship chartering, a safe port is a crucial concept that refers to a port where a vessel can enter, berth, load or discharge cargo, and leave without encountering any risks or dangers that cannot be avoided or mitigated through the exercise of good navigation and seamanship.
A safe port should meet the following criteria:
- Accessibility: The port should be accessible without significant risk or hazard to the vessel, its crew, or its cargo. This includes having navigable channels with adequate depth, considering the vessel’s draft, as well as being free from obstructions or hazards such as underwater rocks or reefs.
- Shelter: The port should provide shelter and protection from adverse weather conditions and natural elements such as wind, waves, and currents. It should also have suitable berthing or anchorage facilities to ensure the vessel can safely moor or anchor.
- Facilities and services: The port should be equipped with adequate facilities and services for loading, discharging, and handling cargo, as well as provisions for the vessel’s needs, such as bunkering, fresh water supply, and waste disposal.
- Political and security stability: The port should be situated in a politically stable environment, free from hostilities, civil unrest, or other security risks that may pose a threat to the vessel, its crew, or its cargo.
- Compliance with the ship’s requirements: The port should be suitable for the specific vessel and its operations, taking into account factors such as the vessel’s size, type, and cargo.
It is the responsibility of the charterer to nominate a safe port for the vessel’s call, and the shipowner has the right to reject a port nomination if it is deemed unsafe. A breach of the safe port warranty by the charterer may lead to liability for any damages or losses that the shipowner incurs as a result of the vessel calling at an unsafe port.
When entering into a charter party agreement, both the shipowner and the charterer should pay close attention to the safe port clause, as it plays a significant role in ensuring the smooth operation of the charter and protecting the interests of both parties.
The safe port clause should be clearly defined and should outline the responsibilities and obligations of the charterer in nominating a safe port, as well as the rights of the shipowner to reject a nomination if it is deemed unsafe. The clause should also specify any agreed-upon consequences for breaching the safe port warranty, such as indemnity or compensation for any losses incurred due to the breach.
In addition to the safe port warranty, the charterer, and shipowner should also be aware of any relevant regulations or guidelines that may affect the vessel’s call at the nominated port. This includes local port regulations, environmental rules, and any international conventions or requirements that may apply, such as the International Ship and Port Facility Security (ISPS) Code or the International Safety Management (ISM) Code.
When faced with a dispute or claim related to the safe port warranty, parties may seek resolution through various means, such as arbitration or litigation, depending on the terms of the charter party agreement and the applicable law. It is essential for both the shipowner and the charterer to have a solid understanding of their rights and obligations under the safe port clause and be prepared to address any potential disputes or issues that may arise during the performance of the charter.
The concept of a safe port in ship chartering is of paramount importance to ensure the safety of the vessel, its crew, and its cargo, as well as to protect the interests of both the charterer and the shipowner. By clearly defining the safe port clause in the charter party agreement and adhering to the relevant regulations and guidelines, parties can work together to minimize risks and ensure the successful completion of the charter.
In Time Charter Party, What margin does the phrase “about” recognize in connection with the speed in a speed and consumption dispute?
In a time charter party, the term “about” is frequently used in connection with a vessel’s speed and consumption, providing a margin of flexibility when assessing the ship’s performance. It is important to note that the specific margin the term “about” represents may vary depending on the context and negotiation between the parties involved.
Although there is no universally accepted or fixed margin, it is common for the industry to consider a range of approximately 0.5 knots (speed) or around 5% (consumption) as a reasonable margin when using the term “about.” This range is meant to accommodate slight variations in performance due to factors such as weather, sea conditions, or other variables that could affect the vessel’s speed and fuel consumption.
It is crucial for parties entering into a time charter party to clearly define and agree upon the acceptable margin for the term “about” in the context of speed and consumption. This will help prevent potential disputes or misunderstandings that may arise during the performance of the charter. If the contract does not specify a margin, it may be left to the interpretation of an arbitrator or court in case of a dispute.
What is the Statutory Time Bar under the English Limitation Act 1980?
The Statutory Time Bar under the English Limitation Act 1980 refers to the legally prescribed time limits within which a party must bring a claim or initiate legal proceedings in relation to a specific type of dispute. If a claim is not brought within the applicable time limit, the party loses the right to pursue the claim, and the defendant can raise the expiry of the limitation period as a defense.
The purpose of the limitation periods is to encourage timely resolution of disputes, provide legal certainty to parties, and prevent the pursuit of stale claims where evidence may have deteriorated or become unreliable over time.
The Limitation Act 1980 sets out different limitation periods for various types of claims, some of which include:
- Contract claims: A six-year limitation period applies to actions founded on a contract, including both simple contracts and contracts under seal. The time starts running from the date the cause of action accrued, which is usually when the breach of contract occurred.
- Tort claims: For claims based on torts, such as negligence or nuisance, the limitation period is generally six years from the date the cause of action accrued. In personal injury claims, the time limit is three years from the date of injury or the date of knowledge of the injury.
- Claims for breach of trust: The limitation period for actions based on a breach of trust is generally six years from the date the breach occurred.
- Claims to recover land: A twelve-year limitation period applies to actions to recover land or rent. The time starts running from the date the right to recover the land or rent first accrued.
- Claims in relation to deeds: For actions based on a specialty debt (i.e., a debt acknowledged in a deed), the limitation period is twelve years from the date the cause of action accrued.
It is essential to note that there are exceptions, extensions, and specific rules for different types of claims, which can affect the applicable limitation period. Legal advice should be sought in each case to determine the appropriate limitation period and ensure that a claim is not time-barred.
Under Time Charter, if the Final Voyage exceeds the agreed period and the market rate is below the charter rate in the Time Charter agreement, what payment may the shipowner demand?
Under a time charter, if the final voyage exceeds the agreed period (also known as the “redelivery” date), the shipowner may be entitled to claim damages for the overrun. This situation is commonly referred to as “overlapping” or “overlapping hire.” The payment that the shipowner can demand depends on the difference between the agreed-upon charter rate and the market rate at the time of the overrun.
In such a scenario, where the market rate is below the charter rate in the time charter agreement, the shipowner would typically be entitled to claim damages based on the agreed charter rate, as it is higher than the prevailing market rate. The shipowner can demand payment for the additional time the vessel is used beyond the agreed period, calculated using the higher charter rate specified in the agreement.
However, it is crucial for both parties to review the specific terms of their time charter agreement, as the contract may contain provisions that address the situation of an overrun, such as liquidated damages clauses, specific penalty clauses, or other arrangements that may alter the calculation of damages in case of an overrun. Additionally, any disputes related to the overrun or damages calculation may be subject to arbitration or legal proceedings, depending on the dispute resolution provisions in the charter agreement.
What is the difference between Ship Seaworthiness and Ship Cargoworthiness?
Ship Seaworthiness and Ship Cargoworthiness are two distinct but related concepts in maritime operations, which refer to the overall safety and suitability of a ship for its intended purpose. Here’s a breakdown of the differences between the two:
- Ship Seaworthiness: Seaworthiness refers to the condition of a ship in terms of its structural integrity, stability, and overall safety to undertake a voyage in the intended sea conditions. It includes the ship’s ability to withstand the stresses of the voyage and protect its crew and cargo from hazards. Factors determining seaworthiness include:
- Hull and superstructure integrity
- Proper functioning of essential systems, such as propulsion, steering, and navigation
- Adequate life-saving and firefighting equipment on board
- Compliance with applicable maritime safety regulations and classification society standards
- Sufficient crew training and competency
- Properly maintained and operational communication systems
- Ship Cargoworthiness: Cargoworthiness, on the other hand, refers to a ship’s suitability to safely carry, store, and transport its cargo without causing damage or loss to the cargo or the vessel. Factors determining cargoworthiness include:
- Proper and safe stowage of cargo, considering factors like weight distribution and securing measures
- Compatibility of the cargo with the ship’s design, features, and equipment
- Adequate cargo handling equipment and systems, such as cranes, derricks, and conveyors
- Proper ventilation, temperature control, and humidity control systems for sensitive cargo types
- Compliance with applicable cargo-related regulations and guidelines, such as the International Maritime Dangerous Goods (IMDG) Code for hazardous materials
- Competent crew trained in cargo handling and stowage procedures
While seaworthiness focuses on the ship’s ability to safely navigate and withstand the rigors of the voyage, cargoworthiness emphasizes the ship’s capability to safely handle, store, and transport its cargo. Both aspects are critical for the safe and efficient operation of a ship, and failure to meet either requirement can lead to significant legal, financial, and safety consequences for shipowners, operators, and charterers.
What are the Examples of Charter Parties?
Charter parties are contracts between the shipowner and the charterer that define the terms and conditions of hiring a vessel for the transport of goods or passengers. There are various types of charter parties, each suited to different situations and requirements. Some examples include:
- Voyage Charter Party: This type of charter party specifies that the vessel is hired for a single voyage between two ports. The charterer pays the shipowner based on the amount of cargo transported, usually calculated as a freight rate per ton or unit of cargo.
- Time Charter Party: In this arrangement, the charterer hires the vessel for a specific period of time, during which the shipowner provides the crew and covers the operational costs of the vessel. The charterer pays the shipowner a daily hire rate and is responsible for the cost of fuel, port fees, and other voyage-related expenses.
- Bareboat Charter Party (Demise Charter Charter Party): In this type of charter party, the charterer takes full responsibility for the operation of the vessel, including the provision of crew, insurance, and maintenance. The charterer pays the shipowner a fixed hire rate for the duration of the charter and assumes all operating costs.
- Contract of Affreightment (COA): This is an agreement between the shipowner and the charterer for the transport of a series of shipments over a specified period. The charterer commits to providing a certain volume of cargo, and the shipowner agrees to provide the necessary vessels to carry it. The terms and conditions of each shipment are typically outlined in a separate voyage charter party.
- Trip Time Charter (TCT): This is a hybrid between a voyage charter and a time charter, where the charterer hires the vessel for a specific trip, usually between two ports or a round-trip voyage. The payment terms and responsibilities are similar to those in a time charter.
- Single Voyage Charter Party: This is a variation of the voyage charter party, where the vessel is hired for a one-time, single voyage to transport a specific cargo between two specified ports. The terms and conditions are similar to those in a standard voyage charter.
- Baltime Charter Party: This is a standardized time charter party agreement, often used for the short-term hire of bulk carriers and tramp vessels. The charterer pays a daily hire rate for the vessel, while the shipowner provides the crew and covers operational expenses.
These examples represent some of the most common types of charter parties used in the shipping industry. Each type serves a specific purpose and has its own set of terms and conditions to cater to the unique needs of the parties involved.
What is the most popular Charter Party?
It is difficult to determine the single most popular charter party, as the choice of charter party often depends on the specific requirements and preferences of the shipowner and charterer involved. The popularity of a charter party can vary based on the type of vessel, cargo, and trade route.
However, some of the more widely used and well-known charter party forms are:
- GENCON 1994: This is a widely used general voyage charter party form, applicable to various types of cargoes and vessels. GENCON is often chosen for its simplicity and adaptability, making it suitable for a wide range of shipping transactions.
- NYPE (New York Produce Exchange): The NYPE form is another popular time charter party agreement, initially designed for the dry bulk trade but now used for a variety of vessel types and trades. The NYPE form is known for its comprehensiveness and versatility, providing a solid foundation for negotiations between shipowners and charterers.
- BARECON: This is a standard bareboat charter party form used for the chartering of vessels on a bareboat or demise basis. BARECON is a popular choice for long-term charters, as it provides a clear and comprehensive framework for the parties involved.
- BALTIME 1939: This is a standardized time charter party agreement frequently used for the short-term hire of bulk carriers and tramp vessels. BALTIME is popular for its flexibility, as it can be adapted to suit the requirements of various types of vessels and cargoes.
These charter party forms are commonly used and recognized within the shipping industry, but it is essential to remember that the most suitable form depends on the specific circumstances and needs of the shipowner and charterer in each individual case.
What is the most common Charter Party Form used in Voyage Charter?
In the context of voyage charters, the most common and widely used charter party form is the GENCON (General Charter Conditions) charter party. The GENCON charter party was first introduced in 1922 and has undergone several revisions since then, with the most recent version being GENCON 1994.
The GENCON charter party is popular because it is a simple, adaptable, and flexible form that can accommodate various types of cargoes and vessels. It sets out the general terms and conditions for the charter, including the responsibilities of both the shipowner and the charterer, freight rates, laytime and demurrage, loading and unloading operations, and other relevant details.
While the GENCON charter party is the most common form for voyage charters, it is essential to note that other specialized charter party forms may be more appropriate for specific cargo types or trade routes. Examples of such specialized forms include ASBATANKVOY for tanker voyages, FERTICON for fertilizer shipments, and COAL-OREVOY for the carriage of coal and ore cargoes. The choice of the most suitable charter party form depends on the specific circumstances and requirements of the parties involved in the chartering process.
What is the most common Charter Party Form used in Time Charter?
In the maritime industry, the most common Charter Party Form used in Time Charter agreements is the NYPE (New York Produce Exchange) form. This standard form, initially introduced in 1913, has undergone several revisions, with the latest version being NYPE 2015. The NYPE form provides a comprehensive framework for the terms and conditions of a time charter agreement between the shipowner and the charterer, covering aspects such as the duration of the charter, the hire rate, and the responsibilities of each party.
Why is it called a Charter Party?
The term “charter party” is derived from the Latin word “charta partita,” which means “divided paper” or “divided document.” Historically, a charter party was a written contract between the shipowner and the charterer, and it was created by writing the agreement’s terms and conditions on a single sheet of paper. This paper was then cut or torn into two parts along an irregular, jagged line. Each party would retain one half of the document.
The unique shape of the tear or cut made it easy to verify the authenticity of the contract. If there was ever a dispute or a need to confirm the terms, the two parties could bring their halves together, and if they matched, it would confirm that the documents were genuine and belonged to the same agreement. This practice of matching the two halves gave rise to the name “charter party” for such contracts.
Nowadays, charter parties are no longer physically divided, but the name has persisted in the maritime industry to refer to contracts that establish the terms and conditions for the chartering of a vessel.
What are the risks of Charter Parties?
Charter parties involve various risks for both shipowners and charterers. Some of the common risks associated with charter parties include:
- Financial risks: Market fluctuations may lead to changes in freight rates, fuel costs, and currency exchange rates, affecting the profitability of the charter for either party.
- Performance risks: The ship’s performance (e.g., speed and fuel consumption) may not meet the agreed-upon standards, leading to disputes and additional costs.
- Legal and regulatory risks: Non-compliance with applicable laws and regulations (such as environmental, safety, or customs regulations) can result in fines, penalties, or delays for both parties.
- Demurrage and despatch risks: Delays in loading or unloading the cargo can lead to demurrage charges (if the ship is delayed) or despatch payments (if the ship is ahead of schedule), impacting the financial outcome of the charter.
- Operational risks: Ship breakdowns, crew issues, or accidents can cause delays, off-hire periods, or even termination of the charter.
- Force majeure risks: Unforeseen events like natural disasters, wars, or political unrest may disrupt the voyage or lead to the closure of ports, causing delays and additional costs.
- Counterparty risks: The other party may default on its contractual obligations, such as paying hire or providing cargo, leading to financial losses or disputes.
- Cargo-related risks: Damage, loss, or contamination of cargo during loading, unloading, or transportation can result in claims, disputes, or financial losses.
- Charter party wording risks: Ambiguous or poorly drafted clauses in the charter party can lead to misinterpretations and disputes between the parties.
- Insurance risks: Insufficient or inappropriate insurance coverage may not adequately protect the parties against various risks, leading to financial losses.
Both shipowners and charterers can mitigate these risks through careful selection of their counterparties, thorough due diligence, clear and well-drafted charter party agreements, and maintaining open communication throughout the charter period. Additionally, obtaining appropriate insurance coverage and seeking professional advice from maritime lawyers or brokers can help minimize potential risks.
How to manage and mitigate risks associated with Charter Parties?
Managing and mitigating risks associated with charter parties involves proactive planning, open communication, and diligent monitoring throughout the charter period. Some key strategies to manage and mitigate these risks include:
- Thorough due diligence: Conduct extensive research on potential counterparties to assess their financial stability, reputation, and track record in the industry.
- Clear and well-drafted agreements: Ensure that the charter party agreement is clear, well-drafted, and unambiguous, with all clauses and terms properly defined to avoid misinterpretation and disputes.
- Legal and professional advice: Seek advice from experienced maritime lawyers, brokers, and consultants to ensure that the charter party agreement complies with relevant laws and regulations and adequately addresses potential risks.
- Appropriate insurance coverage: Obtain sufficient and suitable insurance coverage for various risks, including hull and machinery, protection and indemnity (P&I), and cargo insurance, to protect both parties against financial losses.
- Regular communication: Maintain open lines of communication between the shipowner and the charterer to promptly address any issues that may arise during the charter period.
- Monitoring performance: Closely monitor the vessel’s performance, including speed, fuel consumption, and cargo handling, to ensure compliance with the agreed-upon terms and identify potential issues early on.
- Crew training and management: Invest in proper training and management of the crew to ensure compliance with regulations, maintain safety standards, and minimize operational risks.
- Ship maintenance and inspections: Ensure that the vessel is well-maintained and regularly inspected to reduce the risk of breakdowns, delays, and off-hire periods.
- Contingency planning: Develop contingency plans for various scenarios, such as alternative ports or routes, to minimize the impact of unforeseen events on the charter.
- Risk management procedures: Implement a comprehensive risk management framework to systematically identify, assess, and manage risks throughout the charter period.
- Dispute resolution mechanisms: Clearly define dispute resolution procedures in the charter party agreement to facilitate the resolution of disagreements and minimize the potential for escalation.
- Market research and analysis: Continuously monitor the shipping market and relevant economic indicators to make informed decisions related to chartering and better anticipate market fluctuations.
By adopting these strategies, both shipowners and charterers can proactively manage and mitigate risks associated with charter parties, reducing the likelihood of disputes, delays, and financial losses.
What is Charter Party Chain?
A Charter Party Chain refers to a series of interconnected charter party agreements involving multiple parties in the shipping industry. This chain is formed when a vessel is sub-chartered multiple times by different charterers before it reaches the final end-user or consignee.
For example, a shipowner might enter into a time charter agreement with Charterer A, who then decides to sub-charter the vessel to Charterer B for a specific voyage or period. Charterer B, in turn, might further sub-charter the vessel to Charterer C, and so on. Each link in the chain represents a separate charter party agreement between two parties.
A Charter Party Chain can become complex, as each party in the chain has its rights, obligations, and liabilities under their respective charter party agreements. These multiple agreements may have different terms and conditions, creating a complicated web of interconnected responsibilities.
The main challenge in a Charter Party Chain is managing the various relationships, communications, and legal aspects between the involved parties. Disputes, delays, or breaches of contract at any point in the chain can have a domino effect, potentially impacting all parties involved. To avoid complications and ensure smooth operations, parties in a Charter Party Chain should maintain clear communication, establish well-defined contractual terms, and promptly address any issues that arise.
How are Charter Parties negotiated?
Charter parties are negotiated through a structured process involving various stages and key participants. The primary parties involved in the negotiation are the shipowner (or their representative) and the charterer. However, other professionals, such as shipbrokers, maritime lawyers, and consultants, may also participate in the process to provide guidance and advice. The negotiation process typically follows these steps:
- Establishing requirements: Both the shipowner and the charterer need to determine their respective requirements, such as the type of vessel needed, the cargo to be transported, the intended route, the duration of the charter, and any specific terms or conditions they wish to include in the agreement.
- Identifying potential counterparties: Shipowners and charterers search for potential counterparties who can meet their requirements, usually with the help of shipbrokers who have access to market information and a network of contacts in the industry.
- Initial communication and negotiation: The shipowner (or their representative) and the charterer (or their representative) initiate communication, typically through a shipbroker, to discuss the proposed charter’s terms and conditions. This may involve the exchange of offers and counteroffers, along with the negotiation of various aspects, such as the hire rate, laytime, and demurrage.
- Fixing the main terms: Once both parties agree on the main terms, a provisional agreement, known as a “fixture,” is reached. This fixture outlines the key elements of the charter, including the vessel’s details, the cargo, the route, the duration, and the financial terms.
- Drafting the charter party agreement: With the main terms agreed upon, a draft charter party agreement is prepared, usually based on a standard form, such as the NYPE for time charters or the GENCON for voyage charters. The draft agreement is then reviewed and negotiated by both parties, often with the assistance of maritime lawyers or consultants, to ensure it accurately reflects their intentions and complies with relevant laws and regulations.
- Finalizing the agreement: Once both parties have agreed on the draft charter party’s terms and conditions, the final agreement is signed by authorized representatives of the shipowner and the charterer. This signed agreement represents the legally binding contract between the two parties.
- Post-fixture follow-up: After the charter party is signed, the parties remain in close communication to ensure the smooth execution of the agreement. They coordinate various operational aspects, such as the vessel’s arrival at the loading port, cargo handling, and documentation. Any issues that arise during the charter period are addressed and resolved by the parties, often with the help of shipbrokers or other professionals.
Throughout the negotiation process, the shipowner and charterer need to be aware of market conditions, legal requirements, and industry best practices to ensure they reach a mutually beneficial agreement. Effective communication, collaboration, and the involvement of experienced professionals are key to successful charter party negotiations.
Where can I find a Charter Party Form?
We kindly suggest that you visit the web page of BIMCO (Baltic and International Maritime Council) and ASBA (Association of Ship Brokers and Agents) to obtain the original Charter Party forms and documents. www.bimco.org and www.asba.org