Charter by Demise

A charter by demise is a contract for the hire of a chattel and is governed by the general principles of 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 owner has no lien at common law for freight due under the charter since the possession of the demised ship is in the charterer; and the master of a demised ship is the servant of the charterers not the owners. The demise charterer is bound by a salvage award and it is on his behalf that the master signs bills of lading. The owner 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 demise charterer is entitled to it. One special use of demise 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 demise 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 which 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 demise charter party.