Chartering Disputes

Chartering Disputes

There will inevitably be disagreements between Shipowners and Charterers from time to time, although most discrepancies will be resolved amicably and with a minimum of trouble and cost. A few conflicts may cause much more difficulties. These difficulties may be that outsiders well versed in commercial law will need to be contacted in to provide independent settlement.

In such circumstances, it is crucial to establish the legal code that will apply, since laws vary from country to country, and different judgments might be reached on the identical set of cases depending on the jurisdiction that is to apply. 

The place of residence of the Contracting Parties (Shipowners and Charterers), the place where the Contract (Charterparty) was created, or specific reference to a particular Place or Applicable Law may each have a bearing on where a disagreement should be evaluated, discussed, and settled. Therefore, Charterparty or other shipping contracts should stipulate the legal code that is applicable for the reference of any conflicts that may arise, for example, English Law to apply. Furthermore, Charterparty or other shipping contracts should stipulate, the format of any legal hearing. In other words, Charterparty or other shipping contracts should define whether conflicts are to be referred to Court or Maritime Arbitration.

Global shipping is conducted in the English language. In England, a wide-ranging and adaptable commercial legal code has evolved. Many Shipowners and Charterers prefer English law in times of conflict. Therefore, it is common to encounter, for instance, a Greek Shipowner and an American Charterer resolving a dry cargo Charterparty dispute before a London Arbitration based on English law. 

There are important arbitration centers in New York (The Society of Marine Arbitrators) and Paris (Arbitration Facilities of the International Chamber of Commerce). However, by far the immense number of shipping disagreements are conducted in London under the terms of English law. Consequently, considerable Protection and Indemnity Clubs (P&I) Clubs were established in London. 

London Maritime Arbitrators Association (LMAA), and a considerable number of lawyers that are specializing in shipping disputes are based in London. Therefore, shipping companies from the world over look to London and English law for guidance on the drafting of shipping contracts and for settling disagreements.

VOYLAY Rules and Time Charter Interpretation Code 2000 have been drafted to assist interpret some of the more common causes of disputes under Charterparty Forms. VOYLAY Rules help in cutting through the confusion that covers the perennial problem of Laytime Calculation. Time Charter Interpretation Code 2000 (FONASBA) removes the mystery of some common areas of conflict in Time Charters. Unlike the Voylay Rules, Time Charter Interpretation Code 2000 does not concern itself with one topic but covers several different scopes. VOYLAY Rules and Time Charter Interpretation Code 2000 are at the bottom of the page. 

 

English Courts

A shipping dispute that is to be resolved in the English Courts would be referred to a judge in the Commercial Court in the first instance, the Commercial Court being part of the Queen’s Bench Division of the High Court, in London. Usually, the dispute will end with judgment at that stage, although it may be possible to appeal against the verdict to the decision of a panel of judges sitting in the Court of Appeal and, similarly, against their judgment, to the highest Court in England, the House of Lords. Appealing is pricey and likely to be time-consuming, nevertheless, as a consequence of which, most parties selecting English law to opt-in their contract for any disputes to be referred to Maritime Arbitration in London.

 

Maritime Arbitration

Most diligent London-based Maritime Arbitrators are full members of the London Maritime Arbitrators Association (LMAA). London Maritime Arbitrators Association (LMAA) is an association in London. Maritime Arbitrators’ backgrounds are remarkably diverse. London Maritime Arbitrators Association’s (LMAA) members publish around 500 Arbitration Awards per year. London Maritime Arbitrators Association’s (LMAA) members are receiving around 4,000 appointments per year, presumably more than all other Maritime Arbitration Centers added together. Maritime Arbitration disputes cover a broad range of subjects, including Charterparty, Bill of Lading (B/L), Sale and Purchase (S&P), Ship Operation, Cargo Trading, and Shipbuilding contracts.

In some jurisdictions, Maritime Arbitrators may in effect be able substantially to disregard any system of law. On the other hand, London Maritime Arbitrators Association (LMAA) members and other English arbitrators are bound to and consistently apply English commercial and maritime law. 

Today, English commercial and maritime law are so highly developed as to be widely regarded and applied as if it were the international law of commerce and shipping. English commercial and maritime law continues to develop to meet changing needs mainly due to the possibility of appealing decisions Arbitration Awards, especially in cases where the commercial public interest is involved. 

Under the English Arbitration Act (1950), as amended by the Arbitration Act (1979), appeals are restricted, but those that are granted are heard in the Commercial Court whose judges have great experience in commercial and maritime arbitration, a factor that often facilitates equitable compromise in disputes of this nature.

Originally, arbitration was designed as a distinctly non-legal way of solving disputes and the arbitrators preferred and selected were men with a commercial background rather than with legal qualifications. It was believed that men with a commercial background would lend a fairer and less straight-laced mind to the disagreements on hand and interpret the provisions of the applicable Charterparty Forms or other commercial agreements without being strictly concerned with the legal niceties and sheer accuracy or non-accuracy of the terminology used in the Charterparty Forms’ wording. 

Centrocon Arbitration Clause stipulates the appointment of men engaged in the shipping and/or grain trades and who are members of the Baltic Exchange. However, over the years, the procedure of arbitration has gradually assumed a legal flavor.

When a Charterparty Form stipulates for each party (Shipowners and Charterers) to appoint their arbitrator, if contracting parties (Shipowners and Charterers) are unable to agree an umpire be mutually nominated, it might be assumed that there is a tendency toward the arbitrators being advocates for their appointers. Nevertheless, this is a misconceived idea since an arbitrator is a private judge ruling impartially between the contracting parties (Shipowners and Charterers) whether sitting as sole arbitrator or a member of a larger tribunal.

The concept of arbitration must not be underestimated. Originally, arbitration may have been intended to have a non-legal flavor. Arbitration must retain something of the judicial since arbitration is after all an alternative. Arbitration might be the only alternative in the lack of an amicable resolution between the contracting parties themselves, to court proceedings. Although the agreement to arbitrate any dispute may originally be an oral agreement between the contracting parties (Shipowners and Charterers), it is advisable for the arbitration agreement to be included in writing either as an express clause in the Charterparty Form though it is unlikely that a court of law would grant a stay of proceedings in favor of arbitration.

Generally, Arbitration Clauses incorporate a Time Limit within which appointments of arbitrators should be made and the leading case of Ion (1971) provides a court ruling as to what happens when an Arbitration Clause provision of three (3) months Time Limit (Centrocon) conflicts with the twelve (12) months (Clause Paramount – Hague Rules) provisions which applied to the same Charterparty Form. The Hague Rules time limitation period prevailed.

Arbitration Clause in a Charterparty Form can be binding upon the innocent holder of a Bill of Lading (B/L) issued under a Charterparty Form is dependent totally upon the incorporating words in the Bill of Lading (B/L), which, if sufficiently comprehensive, could entitle a Shipowner or Carrier to compel a Bill of Lading (B/L) Holder to arbitration under an Arbitration Agreement or vice versa.

Arbitration Agreement to be binding and to have the protection afforded by the United Kingdom’s Arbitration Acts (1950-1979), must be in writing and should be explicit in arbitration terms. 

An Arbitration Agreement must be precise, unambiguous, and clear in its terms and wording. Therefore, an Arbitration Clause with wording such as “Arbitration, if any, to be held in New York” is not a binding agreement to arbitrate. It merely agrees to arbitrate in a certain stipulated place if there is an agreement to arbitrate at all is a significantly different thing. 

The UK Arbitration Act defines an Arbitration Agreement as a “written agreement to submit present or future differences to arbitration, whether an arbitrator is named or not”. How broad in scope the agreement to arbitrate is, depends again on the actual wording of the clause. If Arbitration Clause incorporates such words as “all matters in difference” the scope is remarkably comprehensive, however, the more typically used wording in Maritime Contracts (Charterparty Forms) is “disputes arising out of the contract” would by its face value sense exclude a dispute as to whether the contract was ever entered into in the first place.

The inclusion of an Arbitration Clause in a Charterparty Form does not automatically exclude the jurisdiction of a Court of Law to try disputes. 

Despite being a party to an Arbitration Agreement, an aggrieved party in Maritime Contracts (Charterparty Forms) is not barred from taking legal action through the law. Courts have discretionary power to decide whether Courts will stay proceedings in favor of arbitration or whether Courts will try the issue.

Even if the Court stays proceedings in favor of arbitration, Court intervention may become inevitable as a means of enforcing any Arbitration Award that may eventually be made, or to set aside an Arbitration Award when there may have been misconduct of an arbitrator or the Arbitration Award has been for some reason improperly secured, or simply there has been an Error on the Face of the Arbitration Award. To elaborate on this last phrase an error of law on the face of the Arbitration Award has been described as some legal proposition contained in the Arbitration Award, or documents incorporated into the Arbitration Award, which is the basis of the Arbitration Award and which can be said to be erroneous. Nevertheless, the error must appear on the face of the Arbitration Award otherwise the Courts have no discretionary power to set it aside.

 

Who may be appointed as a Maritime Arbitrator? 

Undoubtedly, not a madman, an idiot, an infant, or an outlaw can be appointed as Maritime Arbitrator. These are well-identified disabilities. 

A competent arbitrator is an individual of sufficient skill in the arbitration under disagreement and is not restricted legally or naturally from giving proper judgment. 

The type of individuals may be limited and specified as clearly it is in the Centrocon Arbitration Clause where the idea is to appoint individuals versed in the shipping and/or grain trades. It is essential that an arbitrator must be impartial and have no bias, interest, or leaning towards one or the other party. This is a ground for disqualification. Furthermore, if an arbitrator becomes a witness in the arbitration, this is also the ground for disqualification.

The procedure to be followed in Arbitration Proceedings in Chronological Order:

1- Arbitrators must be appointed by the contracting parties to the dispute and accept the appointment. 

2- Arbitrators may wish to meet with the contracting parties to the dispute informally before an official hearing. 

3- The case goes to a hearing, the time and place being the choice of the arbitrators unless otherwise specified. Alternatively, if the contracting parties prefer, the case may be resolved on Documents Alone.

Each contracting party’s lawyer may be present at the official hearing, at their option, provided sufficient notice is given to the opposing party. All evidence must be completely heard and the arbitrators have the absolute right to decide whether evidence is admissible or not. Great care should be exercised since the wrong admission of evidence could be such a fundamental mistake as to lead eventually to the setting aside of the Arbitration Award. 

After the conclusion of the official hearing, the arbitrators must prepare the Arbitration Award which is the document incorporating the Arbitrators’ Decision. The Arbitration Award is final and for this reason must be clear, unambiguous, and decisive.

The referring of a dispute to arbitrators is known as the Reference. A distinction should be made between the costs of the Reference and the costs of the Arbitration Award. These costs are at the discretion of the arbitrators. 

The costs of the Reference include all those general and special expenses incurred in the course of inquiries either by the contracting parties or by their legal advisers. 

The costs of the Arbitration Award are the remuneration and expenses due to the arbitrator and which he has a right to demand as a condition precedent to his delivering his Arbitration Award. The party which is unsuccessful bears all the costs. Nevertheless, the arbitrator may, at his discretion change this and may, for instance, direct that each party bears his costs. In other words, each party pays the costs of the Reference and half the costs of the Arbitration Award.

Arbitration Act (1979) abolished the Case Stated procedure originally introduced by Arbitration Act (1950). Furthermore, Arbitration Act (1979) removed the right to have an Arbitration Award set aside because of an Error of Fact or Law on the face of the Arbitration Award. This was a long-standing right under the Common Law. It was due to the strength of this right that Maritime Arbitrators have traditionally given the Reasons for Arbitration Award in a separate document for the information of the contracting parties, not to be considered as an official part of the Arbitration Award itself.

Arbitration Act (1979) introduced a new procedure of Appeal exclusively concerned with an Error in Law. To some extent also there is still limited latitude given to an Arbitrator or either of the parties, if, during the arbitration proceeding a challenging question of law arises, to apply to the High Court for an answer. Nevertheless, the question must be of real importance substantially affecting the rights of one or both parties and one which might potentially mean substantial savings on the parties’ costs.

When the Arbitration Act (1979) first became effective, it was assumed that an appeal from an Arbitration Award would be the exception rather than the rule but it soon became clear that it was the other way round. In arbitration cases, losing parties rushed to appeal. The consequence of this was that it has now become hard to get leave to appeal. The preponderance of applications has been turned down. Therefore, it is crucial to regard the Arbitrators as the final arbiters, especially so if the contracting parties jointly expressed their wishes to that effect in the wording of the Arbitration Agreement, unless the results were so clearly wrong that, in the interests of justice they have to be corrected. 

For a judge to reverse the decision of an Arbitrator on purely technical points of little significance to the real issues, was not what the drafters of the legislation had in mind. One approach proposed was that if, for instance, the Charterparty Clause in dispute was a one-off contract that was unlikely to arise again, leave to appeal should be denied unless the Arbitrator was so obviously wrong in his decision that it would be inequitable not to disturb Arbitrator’s Arbitration Award.

One section of the Arbitration Act (1950) which has remained unaffected by the Arbitration Act (1979), authorizes relief in particular circumstances when one contracting party has strictly raised against the other the Time Bar, due to the failure by the other party to appoint the arbitrator within the time allowed. Possibly, this is a feature of what Lord Denning indicated when he said the law was about justice and not strictness. 

If to stand firm on the Time Bar would cause the other party undue hardship, then the Court is empowered to extend the time at its discretion. The Time Bar cannot be applied absolutely and strictly if to do so would result in undue hardship, whether the time bar itself is regarded as completely extinguishing the claim or as simply barring the remedy.

 

Arbitration Award Interest 

Arbitrators are cloaked with the same authority as any commercial judges and are given ample discretion, provided that it is just and equitable to do so. Interest is in effect compensation for an individual who is being kept from his money. 

What should be the Arbitration Award Interest Rate? Should Arbitration Award Interest Rate be the lending or the borrowing rate? In other words, should the party be remunerated because he has had to borrow money to meet a commitment that he would not have had to borrow had he been timely paid the capital sum due to him or because he has been deprived of the opportunity to timely invest the capital sum due to him and thus earn interest?. In the Wallersteiner v Moir case (1975), a reasonable rate of interest should be the minimum lending rate plus 1% to arrive at a reasonable borrowing rate.

In the Tehno Impex case (1981), the Arbitrator’s discretionary power concerning Arbitration Award Interest includes even situations where the principal sum has been paid before or after the arbitration has been started or before or after the Arbitration Award has been made. Therefore, it seems that Arbitrators have the power to Arbitration Award Interest where, for example, the respondent has paid up only at the eleventh hour before the Arbitration Award was made. Any doubt as to the correct rate of Arbitration Award Interest should be resolved in the light of any aspects relevant to the currency in which the Arbitration Award itself is made. Furthermore, Arbitrators are more qualified than judges to Arbitration Award Interest since Arbitrators are commercially minded people.

The processes and practices for Maritime Arbitration in London have become positively developed and have been codified into the London Maritime Arbitrators Association (LMAA) Terms. Especially, London Maritime Arbitrators Association (LMAA) Terms (1987) boost speed and early hearings, the power of Maritime Arbitrators to order the provision of security for costs, and to order rectification of a contract in certain cases. Furthermore, there is now a codified Small Claims Procedure to simplify smaller cases. Small Claims Procedure limits costs to a fixed, mediocre sum, whilst Conciliation and Mediation procedures are also possible.

London Maritime Arbitrators Association (LMAA) recommends a particular Arbitration Clause for insertion into Maritime Contracts (Charterparty Forms). London Maritime Arbitrators Association (LMAA) recommended Arbitration Clause is at the bottom of the page. 

London Maritime Arbitrators Association (LMAA) recommended Arbitration Clause does not refer to the Small Claims Procedure. However, contracting parties are not prevented from editing the Arbitration Clause. For example, “all disputes up to a value of $100,000 are to be dealt with under the terms and conditions of the London Maritime Arbitrators Association (LMAA) Small Claims Procedure (1989)“. 

 

Protection and Indemnity Clubs (P&I Clubs)

There are several types of Protection and Indemnity Clubs (P&I Clubs), although by far the biggest and financially strongest sector is Shipowners’ Protection and Indemnity Clubs (P&I Clubs). Shipowners’ Protection and Indemnity Clubs (P&I Clubs) are mutual and non-profit making organizations that deliver Insurance Cover for Shipowners and Ship Operators which is complementary to the insurance cover placed on the insurance market.

There is no exact dividing line between the insurance cover afforded by insurance companies and that provided by Protection and Indemnity Clubs (P&I Clubs).

Traditionally, Protection and Indemnity Clubs (P&I Clubs) provide one-quarter (1/4) of a Shipowner’s collision insurance liability. Generally, Lloyds underwriters and insurance companies insure ships and cargoes, whilst Shipowners’ Protection and Indemnity Clubs (P&I Clubs) insure Shipowners’ liabilities.

Two of the factors which contributed to the formation of Shipowners’ Protection and Indemnity Clubs (P&I Clubs):

1- Extra risks that Shipowners had to bear following the acceptance of the Hague Rules

2- Unwillingness of insurance underwriters to accept more than three-quarters (3/4) of Shipowners’ liability for damage done to another ship in a collision

Consequently, Shipowners associated together on a mutual basis, forming the directing boards of the Protection and Indemnity Clubs (P&I Clubs), whose administrators are mainly professional legal partnerships with legal experience. 

Protection and Indemnity Clubs (P&I Clubs) Calls (Subscriptions) are paid yearly based on the tonnage entered and on the record of the Shipowner concerned. A high claims record should mean that the Calls (Subscriptions) will be levied at a higher rate than for an entered Shipowner with a low claims record. If forecasted claims are higher than expected, Supplementary Calls (Subscriptions) will require to be levied to enable the Protection and Indemnity Clubs (P&I Clubs) to pay their way.

Protection and Indemnity Clubs’ (P&I Clubs) Protection feature would deal with issues such as: 

  • One-quarter (1//4) of the Shipowner’s collision liability
  • Personal Injury
  • Crew Liabilities
  • Damage to Piers
  • Removal of Wrecks

Protection and Indemnity Clubs’ (P&I Clubs) Indemnity feature would deal with issues such as: 

  • Loss of or Damage to Cargo
  • The proportion of General Average (GA)
  • Customs’ Fines

Furthermore, Protection and Indemnity Clubs (P&I Clubs) protect Freight, Demurrage, and Defence. This would be concerned with the enforcement of legal proceedings for collection of freight and hire; conduct of actions and arbitrations, and general legal advice to Club Members.

 

Charterers Protection and Indemnity Clubs (P&I Clubs) 

Some Protection and Indemnity Clubs (P&I Clubs) seek to attract Ship Charterers and Ship Operators as members. On the other hand, specialized Charterers Protection and Indemnity Clubs (P&I Clubs) exist to provide a scope of services for Charterers such as Defence Cover and Liability Cover.

Defense Cover: for costs and expenses incurred in asserting or defending court actions or arbitrations 

Liability Cover: indemnity for liabilities towards Shipowners, Disponent Shipowners, and Cargo Owners under Voyage and Time Charterparties.

 

Professional Indemnity Insurance

Professional Indemnity Insurance is a third club type that exists for the benefit of Shipbrokers and Ship Agents. Professional Indemnity Insurance provides services for members acting in the exercise of their profession as agents in Chartering, S&P (Sale and Purchase) of ships, Port Agency, Freight Forwarding (FF), Liner Agency, Travel Agency, Air Booking, Bunker Broking, and Ship Management companies. Professional Indemnity Insurance is available from  ITIC (International Transport Intermediaries Club). ITIC (International Transport Intermediaries Club) 

is based in London. ITIC (International Transport Intermediaries Club) was established by the merger of the TIM (Transport Intermediaries Mutual) and CISBA (Chartered and International Ship Brokers and Agents Club).

Professional Indemnity Insurance Cover is developed to assist in the recovery of Brokerages and Port Disbursements (PD). Professional Indemnity Insurance Cover indemnifies members against errors, omissions, and negligence, including breach of warranty of authority. Similar insurance cover may be obtained on the Lloyds Market and from a few insurance companies. It is mandatory for members of the Baltic Exchange and for company members of the Institute of Chartered Shipbrokers (ICS) to have satisfactory Professional Indemnity Insurance Cover.

 

Unkonwn Charterers and Unkonwn Ship Operators

The preponderance of Charterers, Ship Operators, Shipowners, Shipbrokers, and Ship Agents are honest and decent. The functioning of shipping markets depends to a significant extent upon mutual trust.

Unscrupulous Shipowners, Ship Operators, Charterers, or Traders may have the chance to exploit the trust of other shipping market players. Therefore, Shipowners encountering previously unknown charterers and charterers uncertain about the credentials of a new shipowner must investigate the other party’s backgrounds from BIMCO (Baltic and International Maritime Council), Baltic Exchange, or the International Maritime Bureau (IMB), and Shipping Market. 

 

Professionalism in Shipping Market

In Shipping Market, Shipbrokers should learn from experience to arm themselves with knowledge, at the same time Shipbrokers should gain a reputation for integrity. If all this can be associated, Shipbrokers should obtain a professional qualification, such as that offered by the Institute of Chartered Shipbrokers (ICS) in London. Shipbrokers should analyze and make a plan to achieve these goals.

Shipbrokers must acquire knowledge, not only of day-to-day shipping market events but also of more basic data. Shipbrokers should be members of various bodies, either individually or as an employee of a corporate entity. Shipping Market Organizations involved in dry-cargo shipping incorporate: 

1- Institute of Chartered Shipbrokers (ICS): offers both individual and corporate memberships. Individual members pass through examination and leading to fellowship status which qualifies the individual to be termed a Chartered Shipbroker.

2- Baltic International Maritime Council (BIMCO): open to shipping companies. Baltic International Maritime Council (BIMCO) provides valuable expertise and facilities to the international shipping community.

3- The Baltic Exchange: The Baltic Exchange is a membership organization for the maritime industry, and freight market information provider for the trading and settlement of physical and derivative contracts. Today, The Baltic Exchange is open to associates who do not necessarily attend daily and who may be residents outside the United Kingdom.

4- International Maritime Bureau (IMB):  International Maritime Bureau (IMB) is a specialized department of the International Chamber of Commerce.   International Maritime Bureau’s (IMB) primary duty is to protect the integrity of international trade by seeking out fraud and malpractice. International Maritime Bureau (IMB) fights crimes related to maritime trade and transportation, especially piracy and commercial fraud, and in protecting the crew members of ships. International Maritime Bureau (IMB) is one of the shipping police forces to protect its members.

5- Protection and Indemnity Clubs (P&I Clubs): are independent, not-for-profit mutual insurance associations, providing cover for its shipowner and charterer members against third-party liabilities arising out of the use and operation of vessels. Each Protection and Indemnity Club (P&I Club) is owned by its shipowner and charterer members. Protection and Indemnity Clubs’ (P&I Clubs’) operations and activities are overseen by a BOD (Board of Directors), or committee, elected from the membership. The day-to-day operations of the Protection and Indemnity Clubs (P&I Clubs) are conducted by experienced directors who are appointed by and report to their Club board.

6- Professional Indemnity Clubs: Professional Indemnity Clubs are becoming more and more important for such as Shipbrokers and Ship Managers. ITIC (International Transport Intermediaries Club) is the leading provider of professional indemnity insurance to the marine sector. Globally, ITIC (International Transport Intermediaries Club) provides professional indemnity insurance for the world’s major shipbroking companies.

Furthermore, Shipbrokers should read as much as possible. Besides reading shipping newspapers such as Tradewinds, and Lloyd’s List, Shipbrokers should read industrial and international news to be prepared for its impact on the shipping world.

Shipbrokers should build up a library of Chartering Books that are directly relevant to Shipbrokers’ business activities. Shipbrokers should always keep alert for new books or new editions of existing Chartering Books. Furthermore, Shipbrokers should follow up HandyBulk Chartering Lessons. (www.handybulk.com/chartering-lessons)

Some of the Shipping Organizations listed above, such as the Baltic International Maritime Council (BIMCO), publish regular magazines as part of their membership whilst others, such as Lloyd’s of London Press, publish reports on maritime matters such as current law cases.

In daily trading and particularly in the drafting of Charterparty Forms, Shipbrokers should have a Charterparty Library. Charterparty may help Shipbrokers, however, there is little substitute for experience and for having the ability to incorporate what has been learned from knowledge, experience, and wide-reading into adapted Charterparty Clauses.

Eventually, Shipbrokers should work and practice in an efficient, encouraging office environment which brings us to the critical subject of Shipbrokers’ Office Organization.

 

Shipbrokers’ Office Organization

There are some Shipbrokers’ Offices with low overheads which regularly produce a high income and turnover with limited Chartering Team Members. On the other hand, there are over-employed Shipbrokers’ Offices, which perform poorly. It is not that employees in either group work significantly harder than in the other, although personal motivation is an important factor. The major difference comes down to Shipbrokers’ Office Organization.

In the dry-cargo market, Shipowners, Charterers, Traders, Ship Operators, Shipbrokers, and Ship Agents may require different organization types. Accordingly, it is challenging here to do more than to generalize, except to note that with computerization, many of the labor and time-demanding duties can now be tackled far more effectively. 

In Shipowners’ Office Organization, office employee numbers can be related to the number of ships at sea to evaluate whether or not office management is being kept to reasonable proportions. Apparently, with a small fleet of ships, office employees per ship will likely be at a higher ratio than is required for a bigger fleet. With a large fleet, effective management from the top of the organization may be weakened unless uncompromising reporting methods are laid down and adhered to. One way of exercising effective management is to create teams of supervisors operating separate fleets within the whole, thereby doing away with departmentalization that would otherwise be required and which tends to create unnecessary rivalries, rather than to build up a more healthy, competition amongst internal fleets, which is to be encouraged. Whether departmentalized or divided into fleet units, the activities require a range of ship-management duties, such as operations, chartering, port captaincy, technical, insurance, storing and provisioning, and accountancy.

In Shipbrokers’ Office Organization, the size of the office depends on the number of clients that Shipbrokers serve. The more clients, the more Shipbrokers. The more Shipbrokers, the more backup employees such as those engaged in Post-Fixture and Accounting positions. Essentially, computers have eliminated secretarial assistance in the more technically advanced Shipbrokers’ Offices. However, there are still two (2) major areas of difficulty tending to prevent a truly thorough computerized system in Shipbrokers’ Office Organizations. The first is the hardship of preparing Charterparty Forms, almost all Charterparty Forms are based on an old-fashioned printed text that is repeatedly amended during Chartering Negotiations, calling for accuracy of precise deletions and insertions when drafting Charterparty Forms. Secondly, Junior Shipbrokers are still employed for feeding computers with the data. 

In some cases, Shipowners prefer to conceal from the general market the availability of some or all of their ships, or more efficient Shipbrokers prefer to work on an exclusive basis. The last thing that any Shipbroker wants is for Charterers and Shipowners to communicate directly, as this will diminish the need for Shipbroking Services.

In Charterer’s Office Organization, the office management depends very much on the size and type of Charterer. Charterers’ Ship Chartering Department may be an extremely small and maybe minor part of the organization as a whole. In many such organizations, the principal role is in marketing their products. Likewise with traders, where the major share of profits is to be made in prosperous buying and selling of products rather than in freight activities. Some Charterers realize the requirement to be efficient in chartering as in all other corporate activities and hire qualified Shipbrokers to perform these duties. On the other hand, some Charterers outsource Chartering Department and rely heavily on external Shipbroking Services. The In-House Chartering Department will tend to be more highly staffed than outsourcing.

 

Shipbrokers’ Mistakes

It is astonishing that for such a professional and long-established activity as the international shipping, Charterparty Clauses are often poorly drafted and open to miscellaneous interpretations. For example:

1- Poorly Drafted Time Charterparty Example: 

“This time charter is for 20 months, with Charterers’ option of a further 12 months, to be declared minimum 3 months prior expiration of the first period. Plus or minus 1 month in Charterers’ option on final period”.

It is clear that no later than 17 months into the Charterparty period the Charterer has to declare whether the option to extend the charter by a further 12 months is to be exercised or not. It is also clear that having declared that option, the Charterer can redeliver the ship somewhere between 31 and 33 months after delivery to Time Charter.

What is not clear is what happens if the Charterers do not declare the extension option. It is almost impossible to redeliver a ship after exactly 20 months unless the ship is kept idle for some time following completion of her discharge immediately previous to the expiration of 20 months. This might mean leaving the ship idle for some days, if not weeks. Yet on the face of it, that is what the clause requires the Charterers to do. There is no 1 month more or less to be applied to the straight 20 months period. This may be legally implied. Equally, it may not. It is an example of a Poorly Drafted Time Charterparty Clause.

2- Poorly Drafted Voyage Charterparty Example: 

“The cargo to be loaded at Shanghai (China) and discharged at Bangkok (Thailand) and Port Kelang (Malaysia)”.

The Charterers ordered the ship first to Port Kelang (Malaysia) and then to Bangkok (Thailand) to discharge, lightening at Port Kelang (Malaysia) down to Bangkok (Thailand) draft. 

The Shipowners insisted on discharging first at Bangkok (Thailand), lightening locally at Kohsichang (Thailand), and then completing discharging at Port Kelang (Malaysia), because this geographic rotation would save them extra steaming and bunker consumption.

In this case, no mention was made in the charterparty of discharging in geographic rotation, nor was there any clause making discharge port rotation in Charterers’ or Shipowners’ Option. This is another example of a poorly drafted Charterparty Clause. 

There is no legal precedent in English Law that indicates who was right or wrong, but advice ranged from discharging in the order as shown in the charterparty to reference to standard Chartering Books which refer to the “reasonable, direct route”. 

 

Wrong Charterparty Form 

There are many Charteryparty Forms available. Shipbrokers should be careful not to mix items from totally different types of Charteryparty Forms.

In the case of MV Jordan II (2003), it was heard by the UK Court of Appeal and decided in the Shipowner’s favor. Since there is the possibility that this case may go to the House of Lords the outcome may yet be reversed.

MV Jordan II (2003) case revolves around some damage caused to a steel cargo because of poor stowage. The Bill of Lading (B/L) incorporated the Hague-Visby Rules:

Hague-Visby Rules Article III Rule 2 states: “The carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”.

Hague-Visby Rules Rule 8 states: “Any … agreement in a contract of carriage relieving the carrier or ship from liability for loss or damage … arising from negligence, fault or failure in the … obligations provided in this Article… shall be null and void…”

Although the cargo was steel products the parties had chosen to use the STEMMOR 1983 Voyage Charterparty Form: 

STEMMOR 1983 Voyage Charterparty Form Clause 3 states: “Freight to be paid at … $3.3 per metric ton. F.I.O.S.T. – lashed / secured / dunnaged…”

STEMMOR 1983 Voyage Charterparty Form Clause 17 states: “Shippers/Charterers/Receivers to put the cargo on board, trim and discharge cargo free of expense to vessel…”

Deputy High Court Judge Nigel Teare QC held that neither the shipper nor receiver of a steel cargo nor the voyage charterer were entitled to sue the Jordan II’s Shipowner for alleged damage due to poor stowing and handling. Applying the precedent of Pyrene v Scindia (1954), Deputy High Court Judge Nigel Teare QC ruled that the Hague-Visby Rules (Article III Rule 2) require “proper performance’ of loading, stowing, and carriage by the carrier”, which only applies if the Shipowner had agreed to undertake those functions. The Appeal Court unanimously upheld that decision. The Courts were asked for a preliminary ruling in principle, in advance of the main claim. If the Parties (Shipowner and Charterer) had agreed, the Charterer would pay for the services, was the Shipowner still liable for “defective loading, stowage, lashing, securing, dunnaging, separation and discharge”, and responsible for “proper performance” of the loading or discharging operations?. They had to decide what the Parties (Shipowner and Charterer) had agreed in the Charterparty Form and Bill of Lading (B/L), and whether Hague-Visby still applied. 

MV Jordan II was voyage chartered on STEMMOR 1983 Voyage Charterparty Form. Islamic Solidarity Shipping voyage chartered the MV Jordan II to TCI Trans Commodities to carry 5,500 tons of galvanized steel coils from India to Spain in December 1997.

STEMMOR 1983 Voyage Charterparty Form Clause 3 states: “Freight to be paid per metric ton FIOST (Free In and Out, Stowed and Trimmed) lashed/secured/dunnaged”.

STEMMOR 1983 Voyage Charterparty Form modified Clause 7 states: “Charterers to have full use of all vessel’s gear to assist in loading and discharging”, but only “supplementary to the shore gear”. Shore winchmen and crane men were “to be used at all times”.

MV Jordan II was voyage chartered on STEMMOR 1983 Voyage Charterparty Form. STEMMOR 1983 Voyage Charterparty Form was developed for the carriage of bulk ore. 

STEMMOR 1983 Voyage Charterparty Form Clause 17 retained its original wording: “shipper/charterer/receiver were to load, trim and discharge the cargo free of expense to the vessel”.

 

Cargo Trimming is defined as leveling off the top of the bulk cargo pile. Cargo Trimming is appropriate for bulk cargoes. However, how was Cargo Trimming supposed to apply to steel coils? The charter was subject to English law and incorporated the Hague-Visby Rules.

In the case of MV Jordan II (2003):
Shipper (Seller of the Cargo): Jindal Iran and Steel Company Limited
Receiver (Purchaser of the Cargo): Hiansa S.A.
Charterer: TCI Trans Commodities
Shipowner: Islamic Solidarity Shipping Company Jordan Inc

Islamic Solidarity Shipping Company Jordan Inc is the Shipowner of the MV Jordan II. By a charterparty on the STEMMOR 1983 form dated 4 December 1997 at Hamburg the owners chartered the vessel to TCI Trans Commodities A.G. for a voyage from Mumbai in India to Barcelona and Motril in Spain. Jindal Iran and Steel Company Limited and Hiansa S.A. are respectively the sellers and purchasers of 435 steel coils. The goods were shipped from Mumbai aboard the MV Jordan II as evidenced by two (2) Bills of Lading (B/L) on the Congenbill form, both dated 2 January 1998, which were issued on behalf of the Shipowners at Mumbai. The Bills of Lading (B/L) contained or evidenced contracts of carriage to Motril, in Spain. The Bills of Lading (B/L) named Jindal Iron and Steel Company Limited as the shippers and Hiansa S.A. as consignees.

Shipper (Seller of the Cargo): Jindal Iran and Steel Company Limited; the Receiver (Purchaser of the Cargo): Hiansa S.A.; and Charterer: TCI Trans Commodities, subsequently started proceedings against Islamic Solidarity Shipping Company Jordan Inc, alleging damage in transit. TCI Trans Commodities sued under the charterparty. 

Jindal Iran and Steel Company Limited and Hiansa S.A. sued as Bills of Lading (B/L) Holders. Islamic Solidarity Shipping Company Jordan Inc argued it was not liable for the cargo operations, either under the charter or the Bills of Lading (B/L) which were on the Congenbill form and incorporated the charter terms. According to the claimants, Clause 3 was inconsistent with Hague-Visby Rules (Art III R8) and so did not transfer the proper performance obligations from the Shipowner to the cargo interests. Islamic Solidarity Shipping Company Jordan Inc responded that Clause 3 and Clause 17, taken together, transferred both obligations to pay, and to ensure the operations were properly carried out. The judge decided that if Clause 3, with the FIOST provisions, was read with Clause 17, the wording clearly showed the parties intended to transfer to the Charterer the Shipowner’s common law responsibility for performance. The judge stated that “the obligation to trim”, was intended to mean responsibility for lashing, stowing, and dunnage. These were transferred to TCI Trans Commodities, as Charterer, so it could not sue under the charter, while Jindal Iran and Steel Company Limited and Hiansa S.A. could not claim compensation under the Bills of Lading (B/L) so long as the damage was not caused by the Carrier. The parties had agreed to be governed by English law, under which, according to Pyrene v Scindia, Hague-Visby Rules (Art III R2) only applied to the Carrier if Carrier had agreed to carry out the specified functions relating to the cargo.

Jindal Iran and Steel Company Limited, Hiansa S.A., and TCI Trans Commodities appealed against the judge’s interpretation of the Charterparty, and the effect of Hague-Visby Rules (Art III) on the Bills of Lading (B/L). They contended that although in the case of bulk ore, Clause 17 would have transferred all cargo work obligations to the Charterer, the word trim could not be taken to apply to manufactured steel.

The Appeal Court judges rejected this argument. The Appeal Court judges agreed with the judge that while FIOST was only a who is to pay provision, the word Free simply means at no cost to the Shipowner, it must be read with Clause 17, which determined the transfer of responsibility. Although trim was inappropriate, the rest of Clause 17 showed the Charterer was to load and discharge the cargo. 

The Appeal Court judges stated that the parties had put their minds to what is required to stow the steel coils, namely, the obligation to lash, secure, and dunnage. Contracting parties intended to transfer the obligation to the Charterer, and there was no other wording to suggest they did not mean this to happen. 

As to Hague-Visby Rules (Art III), judges confirmed that Pyrene v Scindia, later confirmed by the House of Lords in Renton v Palmyra, was binding in English law. So the effect of the Bills of Lading (B/L) was not invalidated by Rule 8. Hague-Visby Rules (Article III R2) do not compel the Shipowner to be responsible for the loading and unloading or for the way other parties carried out the work. Hague-Visby Rules (Article III R2) simply compels the Shipowner to load and unload properly if the Shipowner undertakes those functions and the Shipowner could contract out of them.

 

VOYLAY Rules 2013 (Voyage Charter Party Laytime Interpretation Rules 2013)

Laytime and Demurrage are fundamental to Tramp Shipping. Specialist terms which have evolved over the years have been extensively analyzed by legal commentators and frequently tested in the courts. This has resulted in subtle distinctions where a choice of term or use of language can advance or delay the commencement of laytime and mean the difference between demurrage starting on Friday afternoon or the following Monday morning. The Laytime Definitions for Charter Parties 2013 (Laytime Definitions) have been developed to provide practitioners with a set of meanings of commonly-used words and phrases. The objective is to help reduce disputes about party intentions in a market where fixtures are often concluded based on a recap message and listed amendments, without the exchange or return of draft contracts. The Laytime Definitions are available for incorporation into charter parties or possibly used as an agreed reference for dispute resolution. In addition, they can be used as an educational resource to assist industry entrants and others wishing to develop an understanding of the contractual and legal complexities surrounding laytime and demurrage. 

In 1976, the Comité Maritime International (CMI), the private international organization for maritime legal interests, began work on a project to reduce charter party disputes by developing definitions of commonly-used terms, starting with laytime provisions. A Working Group comprising representatives from BIMCO, CMI, the UK Chamber of Shipping, and FONASBA, developed the Charter Party Laytime Definitions 1980. However, the Definitions failed to attract support and were rarely incorporated into charter parties. In response to a highly critical report about contractual arrangements in the shipping industry issued by the United Nations Commission on Trade and Development (UNCTAD) in 1990, the Definitions were revised and issued as the Voyage Charter Party Laytime Interpretation Rules (Voylayrules) 1993. Since the publication of Voylayrules, important developments and changes have taken place in case law and commercial practice. A review was therefore put in hand to determine whether the content remained relevant together with the need for any changes, including new or additional provisions, required to meet contemporary trading arrangements. The resulting Laytime Definitions for Charter Parties 2013 were adopted by BIMCO at the Documentary Committee in Paris in May 2013 and have been similarly endorsed by each of the sponsoring organizations. Accordingly, the provisions are issued as a joint document.

The Laytime Definitions have been restored to the original 1980 concept and developed as definitions. This is an important change from Voylayrules 1993 which was issued as a self-standing code of rules and differed in several significant respects from generally accepted principles and practice such as the decision to combine three variations of “Weather Working“ day into a single Rule. 

The sponsoring organizations agreed that the previous radical approach had been a factor contributing to the limited use of Voylayrules and that a fresh approach was required in the development of updated provisions that would be used in the markets. It was therefore agreed to revert to definitions, setting out statements of meaning, and that the content should reflect contemporary market needs based on the current state of English law. As a result, substantive and editorial amendments have been made to a number of the Voylayrules provisions, separate explanations given once again to different forms of “Weather Working” day and new definitions introduced including “Always Accessible” and “Whether in Port or Not”. 

The term “Strike”, which was introduced in Voylayrules, has been deleted because the scope and effects are often given their meaning in the underlying charter party. The term “In Writing” has been removed as unnecessary given that many, particularly BIMCO, charter parties include a clause covering the issue. 

The use of abbreviations has, for the most part, been avoided. In many cases, there is no generally accepted meaning and while parties may understand their exchanges, abbreviations and acronyms can be capable of more than one interpretation. The Laytime Definitions use abbreviations only in respect of Whether in Berth or Not (WIBON) and Whether in Port or Not (WIPON) which are widely understood. 

 

Difference between VOYLAY Rules 1993 and VOYLAY Rules 2013

The following notes comment on the updated provisions and highlight changes from or amendments to VOYLAY Rules 1993

Preamble: The provisions relate only to laytime and demurrage issues and apply when any or all are expressly incorporated into a charter party or other contract of affreightment. It is for parties to determine the scope of application either limited to certain agreed and identified provisions or by incorporation in extenso. 

List of Definitions:

1. PORT has been amended to reflect the wider concept of port area explained in The Johanna Oldendorff (1973) with reference now made to “places outside the legal, fiscal or administrative area”. The term “offshore facilities” has been added to the illustrative, but non-exhaustive, list of cargo handling areas.

2. BERTH consistent with the amendment to PORT, the restrictive reference to “place within a port” has been replaced by an open-ended list of cargo handling locations. 

3. REACHABLE ON ARRIVAL this term has been the subject of considerable litigation over the years. The revised text is based on the current position that delay due to bad weather or congestion or both is a breach of charterers’ obligations. The potentially disputatious qualification “in the absence of an abnormal occurrence”, included in Voylayrules, has been deleted. 

4. ALWAYS ACCESSIBLE the provision has been treated by the authorities as synonymous with “Reachable on Arrival” in the context of getting into a berth but the position on departure has been less clear. The term has therefore been set out separately with the second sentence covering the position on departure requiring charterers to enable the vessel to leave safely and without delay. 

5. LAYTIME this is unchanged. 

6. PER HATCH PER DAY and

7. PER WORKING HATCH PER DAY or PER WORKABLE HATCH PER DAY Laytime counting by reference to hatch calculations continues to be used, albeit to a limited extent, in some parts of the world. The provisions have been retained unchanged. 

8. DAY in contrast to Definitions No 9 and 10, an unqualified DAY is now described as a period of twenty-four consecutive hours. 

9. CALENDAR DAY is new and covers a period of twenty-four consecutive hours running from 0000 to 2400 hours. 

10. CONVENTIONAL DAY is new and has been included in recognition of the fact that a period of twenty-four hours with laytime counting is likely to start at any point during a Calendar Day. 

11. WORKING DAY the meaning has been brought into line with English law. 

12. RUNNING DAYS or CONSECUTIVE DAYS the provision is unchanged. 13. RUNNING HOURS or CONSECUTIVE HOURS this is new and reflects practical usage, particularly in tanker charter parties. 

14. HOLIDAY this is the (unchanged) mirror image of Definition No 11 WORKING DAY. 15-18 WEATHER WORKING in contrast to the single provision in Voylayrules covering three alternative forms of Weather Working provisions, separate meanings have been restored in line with English law decisions. 

15. WEATHER WORKING DAY deductions for bad weather are calculated by reference to the length of an interruption during a vessel’s normal (or notional if waiting on a turn) working hours bear to a period of 24 hours. Thus, a two-hour stoppage during an eight-hour working day is pro-rated to six hours (or four hours in the case of a twelve-hour working day) and the time is then added to the end of laytime. No deductions are made for rain occurring outside normal working hours. 

16. WEATHER WORKING DAY OF 24 CONSECUTIVE HOURS the actual duration of an interruption for bad weather at any time on a working day during or outside normal working hours and including periods on a turn, is added to the end of laytime. 

17. WEATHER WORKING DAY OF 24 HOURS this is an artificial day made up of twenty-four working hours. An eight-hour working day is equal to three calendar days’ laytime but with laytime suspended for stoppages due to bad weather during working hours or during working hours when work was contemplated. 

18. (WORKING DAY) WEATHER PERMITTING this has the same meaning and interpretation as Definition No 16 Weather Working Day of 24 Consecutive Hours. 

19. EXCEPTED or EXCLUDED the content is unchanged 

20. UNLESS SOONER COMMENCED has the effect of bringing forward the commencement of laytime if work begins before the contractual start of laytime. 

21. UNLESS SOONER COMMENCED, IN WHICH CASE ACTUAL TIME USED TO COUNT the commencement of laytime remains per charter party provisions but time used in any prior period will count against laytime. 

22. UNLESS USED time used during excepted periods is set against laytime. 

23. TO AVERAGE LAYTIME the provision is unchanged. 

24. REVERSIBLE LAYTIME the provision is unchanged. Reversibility applies between loading ports and discharging ports but not between loading ports or between discharging ports. 

25. NOTICE OF READINESS this is unchanged. 

26. TIME LOST WAITING FOR BERTH TO COUNT AS LOADING OR DISCHARGING TIME or AS LAYTIME the basis is unchanged in principle, subject to minor editorial improvements. Where a vessel is unable to berth but cannot tender Notice of Readiness at a waiting place, time lost will count against laytime or, on expiry, as demurrage. Once a berth is available, laytime or demurrage ceases to count until the vessel is at a place where Notice of Readiness can be given and resumes per charter party provisions. 

27. WHETHER IN BERTH OR NOT (WIBON) or BERTH OR NO BERTH relates to delays due to congestion (but not on account of weather). A change has been made. Under Voylayrules, laytime or demurrage ceased once a berth became available and would not resume until the vessel was at the berth. This meant that the owner would have to bear the risk of any intervening delay, even if not otherwise contractually responsible. An adjustment has therefore been made so that time will always run per the underlying charter party provisions. 

28. WHETHER IN PORT OR NOT (WIPON) this is new. It will enable an owner to give Notice of Readiness from any recognized waiting place “off the Port” if unable to proceed to the usual waiting place. 

29. VESSEL BEING IN FREE PRATIQUE has been amended to address the position in Voylayrules potentially restricting time counting arrangements and possibly conflicting with underlying charter party terms. The content has been streamlined with the reference to Custom House entry removed as formalities vary considerably from one state to another. The provision now relates only to compliance with port health requirements. 

30. DEMURRAGE to avoid conflict with the position of many charter parties, the Voylayrules provision that “Demurrage shall not be subject to laytime exceptions” has been qualified by “unless specifically stated in the Charter Party”. 

31. DESPATCH MONEY or DESPATCH this is unchanged. 

32. DESPATCH ON ALL WORKING TIME SAVED or ON ALL LAYTIME SAVED this is unchanged. 

33. DESPATCH ON ALL TIME SAVED this is unchanged. 

 

 

Incorporation of VOYLAY Rules:

VOYLAY Rules’ provisions have been developed for incorporation into Charterparties. There are several possible means of achieving this objective depending on the type of contractual arrangements (for example single or consecutive voyage charters or a contract of affreightment) and whether the intention is to apply the provisions in full or only those selected by the parties. While other methods might be equally effective, the following alternatives are suggested: 

1- Clause for incorporation by reference: “The Laytime Definitions for Charter Parties 2013 (Laytime Definitions) are incorporated into this contract in full. In the event of any conflict between this contract and the Laytime Definitions, the provisions of the Laytime Definitions shall prevail to the extent of such conflict.” If it is agreed to incorporate only certain of the Definitions, the text can be modified to read: “Definition Numbers [identify selected provisions] in the Laytime Definitions for Charter Parties 2013 (Laytime Definitions) are incorporated into this contract. In the event of any conflict between this contract and the Laytime Definitions, the provisions of the Laytime Definitions shall prevail to the extent of such conflict.” 

2- Incorporation using a cut and paste addendum setting out the full text of all or of those selected Definitions which the parties have agreed to apply. The incorporation clause should clearly state that the agreed Laytime Definitions prevail in the event of any conflict with the underlying charter party provisions. 

3- Application to individual words or phrases in the body of the Charterparty where the intention is to remove any doubt about the parties’ intended interpretation of one or more specific terms. In such an event, the text of the relevant Laytime Definition(s) can be inserted as the agreed meaning. 

 

VOYLAY Rules 2013 (Laytime Definitions For Charterparties 2013)

1. PORT shall mean any area where vessels load or discharge cargo and shall include, but not be limited to, berths, wharves, anchorages, buoys, and offshore facilities as well as places outside the legal, fiscal, or administrative area where vessels are ordered to wait for their turn no matter the distance from that area. 

2. BERTH shall mean the specific place where the Vessel is to load or discharge and shall include, but not be limited to, any wharf, anchorage, offshore facility, or other location used for that purpose. 

3. REACHABLE ON ARRIVAL shall mean that the charterer undertakes that an available loading or discharging Berth be provided to the Vessel on arrival at the Port which the Vessel can reach safely without delay. 

4. ALWAYS ACCESSIBLE shall mean that the charterer undertakes that an available loading or discharging Berth be provided to the Vessel on arrival at the Port which the Vessel can reach safely without delay. The charterer additionally undertakes that the Vessel will be able to depart safely from the Berth and without delay at any time before, during, or on completion of loading or discharging. 

5. LAYTIME shall mean the period agreed between the parties during which the owner will make and keep the Vessel available for loading or discharging without payment additional to the freight. 

6. PER HATCH PER DAY shall mean that the Laytime is to be calculated by dividing the quantity of cargo by the result of multiplying the agreed daily rate per hatch by the number of the Vessel’s hatches. 

Therefore: 

Laytime = Quantity of Cargo / (Daily Rate x Number of Hatches) = Days

Each pair of parallel twin hatches shall count as one hatch. Nevertheless, a hatch that is capable of being worked by two gangs simultaneously shall be counted as two hatches.

7. PER WORKING HATCH PER DAY or PER WORKABLE HATCH PER DAY shall mean that the Laytime is to be calculated by dividing the quantity of cargo in the hold with the largest quantity by the result of multiplying the agreed daily rate per working or workable hatch by the number of hatches serving that hold. 

Therefore: 

Laytime = Largest Quantity in One Hold / (Daily Rate Per Hatch x Number of Hatches Serving that Hold) = Days

Each pair of parallel twin hatches shall count as one hatch. Nevertheless, a hatch that is capable of being worked by two gangs simultaneously shall be counted as two hatches. 

8. DAY shall mean a period of twenty-four (24) consecutive hours. Any part of a Day shall be counted pro rata. 

9. CALENDAR DAY shall mean a period of twenty-four (24) consecutive hours running from 0000 hours to 2400 hours. Any part of a Calendar Day shall be counted pro rata. 

10. CONVENTIONAL DAY shall mean a period of twenty-four (24) consecutive hours running from any identified time. Any part of a Conventional Day shall be counted pro rata. 

11. WORKING DAY shall mean a Day when by local law or practice work is normally carried out. 

12. RUNNING DAYS or CONSECUTIVE DAYS shall mean Days that follow one immediately after the other. 

13. RUNNING HOURS or CONSECUTIVE HOURS shall mean hours that follow one immediately after the other. 

14. HOLIDAY shall mean a Day other than the normal weekly Day(s) of rest, or part thereof, when by local law or practice work during what would otherwise be ordinary working hours is not normally carried out. 

15. WEATHER WORKING DAY shall mean a Working Day or part of a Working Day during which it is or, if the Vessel is still waiting for her turn, it would be possible to load/discharge the cargo without interruption due to the weather. If such interruption occurs (or would have occurred if work had been in progress), there shall be excluded from the Laytime a period calculated by reference to the ratio which the duration of the interruption bears to the time which would have or could have been worked but for the interruption. 

16. WEATHER WORKING DAY OF 24 CONSECUTIVE HOURS shall mean a Working Day or part of a Working Day of 24 consecutive hours during which it is or, if the vessel is still waiting for her turn, it would be possible to load/discharge the cargo without interruption due to the weather. If such interruption occurs (or would have occurred if work had been in progress) there shall be excluded from the Laytime period during which the weather interrupted or would have interrupted work. 

17. WEATHER WORKING DAY OF 24 HOURS shall mean a period of 24 hours made up of one or more Working Days during which it is or, if the Vessel is still waiting for her turn, it would be possible to load/discharge the cargo without interruption due to the weather. If such interruption occurs (or would have occurred if work had been in progress), there shall be excluded from Laytime the actual period of such interruption. 

18. (WORKING DAY) WEATHER PERMITTING shall have the same meaning as WEATHER WORKING DAY OF 24 CONSECUTIVE HOURS. 

19. EXCEPTED or EXCLUDED shall mean that the Days specified do not count as Laytime even if loading or discharging is carried out on them. 

20. UNLESS SOONER COMMENCED shall mean that if turn-time has not expired but loading or discharging is carried out, Laytime shall commence. 21. UNLESS SOONER COMMENCED, IN WHICH CASE ACTUAL TIME USED TO COUNT shall mean that actual time used during turn-time shall count as Laytime. 

22. UNLESS USED shall mean that if Laytime has commenced but loading or discharging is carried out during excepted periods, actual time used shall count as Laytime. 

23. TO AVERAGE LAYTIME shall mean that separate calculations are to be made for loading and discharging and that any time saved in one operation is to be set off against any excess time used in the other. 

24. REVERSIBLE LAYTIME shall mean an option given to the charterer to add together the time allowed for loading and discharging. Where the option is exercised the effect is the same as a total time being specified to cover both operations. 

25. NOTICE OF READINESS shall mean the notice to the charterer, shipper, receiver, or other people as required by the Charter Party that the Vessel has arrived at the Port or Berth, as the case may be, and is ready to load or discharge.

26. TIME LOST WAITING FOR BERTH TO COUNT AS LOADING OR DISCHARGING TIME or AS LAYTIME shall mean that if no loading or discharging Berth is available and the Vessel is unable to tender Notice of Readiness at the waiting place then any time lost to the Vessel is counted as if Laytime were running, or as time on Demurrage if Laytime has expired. Such time ceases to count once the Berth becomes available. When the Vessel reaches a place where she can tender Notice of Readiness, Laytime or time on Demurrage resumes after such tender and, in respect of Laytime, on expiry of any notice time provided in the CharterParty. 

27. WHETHER IN BERTH OR NOT (WIBON) or BERTH OR NO BERTH shall mean that if the designated loading or discharging Berth is not available on arrival, the Vessel on reaching any usual waiting place at the Port, shall be entitled to tender Notice of Readiness from it and Laytime shall commence per the Charterparty. 

28. WHETHER IN PORT OR NOT (WIPON) shall mean that if the designated loading or discharging Berth and the usual waiting place at the Port are not available on arrival, the Vessel shall be entitled to tender Notice of Readiness from any recognized waiting place off the Port and Laytime shall commence per the Charterparty.

29. VESSEL BEING IN FREE PRATIQUE shall mean that the Vessel complies with port health requirements. 

30. DEMURRAGE shall mean an agreed amount payable to the owner in respect of delay to the Vessel once the Laytime has expired, for which the owner is not responsible. Demurrage shall not be subject to exceptions that apply to Laytime unless specifically stated in the Charter Party. 

31. DESPATCH MONEY or DESPATCH shall mean an agreed amount payable by the Shipowner of the Vessel completes loading or discharging before the Laytime has expired. 

32. DESPATCH ON ALL WORKING TIME SAVED or ON ALL LAYTIME SAVED shall mean that Despatch Money shall be payable for the time from the completion of loading or discharging until the expiry of the Laytime excluding any periods excepted from the Laytime. 

33. DESPATCH ON ALL TIME SAVED shall mean that Despatch Money shall be payable for the time from the completion of loading or discharging to the expiry of the Laytime including periods excepted from the Laytime.

 

Time Charter Interpretation Code 2000

FONASBA (The Federation of National Associations of Ship Brokers and Agents) produced Time Charter Interpretation Code 2000.

Where any of this code conflicts with any of the terms of the relevant time charter, those of the latter shall prevail to that extent, but no further.

In commercial practice, many aims and objectives for standardization are often frustrated by the laws in different jurisdictions and where the legal understanding and interpretation may differ one from the other. The main jurisdictions applicable to maritime disputes are:

1- The Common Law countries mainly England and the USA. 
2- The Civil Law countries such as France, Germany, Italy, etc. 

The endeavor is not going to be the alter-ego of the Laytime Definitions for Voyage Charters; nor is this an attempt to create new charter party clauses, but merely a Code of how to interpret existing charter party clauses as well as to assist disputing parties where charter parties are silent or non-determining. There is a vast difference between definition and interpretation, but in some ways and sometimes they may compliment one another. For example, nobody in shipping needs a definition of what speed and consumption are or mean, but how should one deal with a speed claim, if any? The chief objective of the Code is to try to eliminate many often occurring and avoidable maritime charter parties’ disputes in the field of the Time Charter. 

 

1. Speed and Consumption:

The following is to apply to any dry cargo time charter not containing a performance clause, and to any combination carrier when engaged in dry cargo trading:

The speed and consumption warranties of the time charter are to apply for its duration and whether the vessel is fully, partly loaded, or in ballast, and shall be computed by the pilot station to pilot station on all sea passages while the vessel is on hire, excluding:

1a- Any day on which winds of Beaufort Wind Scale 4 or above are encountered for more than six (6) consecutive hours;

1b- Any time during which speed is deliberately reduced for reasons of safety, or on charterers’ orders to steam at economical or reduced speed, or when the vessel is navigating within confined waters, or when assisting vessels in distress;

1c- Any complete sea passage of less than 24 hours duration from pilot station to pilot station;

1d- Periods in which time is lost on charterers’ instructions or due to causes expressly excepted under terms of the time charter;

1e- Periods when the vessels’ speed is reduced because of hull fouling caused by charterers’ trading orders.

When specific figures have been agreed to for the vessel in the ballasted condition there shall be taken into consideration as shall agree on specifics for reduced or economical speed and consumption, when computations are made.

The mileage made good during qualifying periods shall be divided by the warranted speed and compared to the time spent. Any excess is to be treated as off-hire. If the word ‘about’ precedes the speed and consumption, the same will be understood to mean ½ knot less in the speed and 5% more in the consumption, not be cumulative.

As to consumption, the recorded qualifying periods, as above shall be multiplied by the warranted consumption on the qualifying days and compared to the actual consumption. In case of any excess, the charterers are to be compensated by the owners for such excess in cost to the charterers calculated at the prices at the last port bunkers were supplied during the time charter, or those at delivery whichever is applicable. Such an amount may be deducted from the hire.

The immediate financial consequences of a speed deficiency shall be set off with any savings caused by under-consumption.  

The computations shall be made sea passage by sea passage. The vessel’s speed and consumption shall be reviewed at the end of each twelve months, or other lesser period as appropriate. 

If in respect of any such review period it is found that the vessel’s speed has fallen below the warranted speed, hire shall be reduced by an amount equivalent to the loss in time involved at the rate of hire. And if in respect of any review period it is found that the vessel’s consumption has exceeded the warranted consumption, the additional costs shall be borne by the owners. 

The foregoing is without prejudice to any other claims that a party may have on the other. 

 

2. Withdrawal for Late Payment/Non-Payment of Hire:

Except where otherwise specifically permitted in the provisions of the charter party, the charterers shall have no right to make arbitrary deductions from hire which shall remain payable punctually and regularly as stipulated therein. Nothing in the charter party shall, however, prejudice the charterers’ right to make any equitable set-off against a hire payment due provided that the calculation is reasonably made bona fide and that it is in respect of a claim arising directly out of their deprivation of the use of the vessel in whole or in part. 

Except as provided herein, the owners shall have a right of permanent withdrawal of their vessel when payment of hire has not been received by their bankers by the due date because of oversight, negligence, errors, or omissions of charterers or their bankers. In such cases before effecting a withdrawal of the vessel, the owners shall put the charterers on preliminary notice of their failure to pay to hire on the due date, following which the charterers shall be given two clear banking days to remedy the default. Where the breach has been cured the payment shall be deemed to have been made punctually. 

For a payment of hire made in due time, but insufficient in amount, the owners shall be permitted a reasonable time to verify the correctness of a deduction. If thereafter, there is found to be disagreement on the amount of the deduction, then the amount in dispute shall be placed in escrow by the charterers and the matter referred to immediate arbitration per the terms of the charter party’s arbitration clause. In that event, there shall be no right of withdrawal. 

Except as provided heretofore, withdrawal of the vessel may be made by the owners, which shall be without prejudice to any other claim they may otherwise have on the charterers.

3. Off-hire:

Any period qualifying as off-hire under terms of the charter party shall be allowed to the charterers for any time lost more than three consecutive hours for each occurrence. 

In addition to matters referred to as off-hire in the charter party, shall be included time lost to the charterers caused by interference by a legal, port of governmental authority, resulting in the charterers being deprived of their unfettered use of the vessel at any given time during the currency of the charter party, or in the vessel being prevented from leaving the jurisdiction contrary to charterers’ requirements. 

4. Deviation:

All periods of off-hire due to deviation shall run from the commencement of the loss of time to charterers, deviation or putting back, and shall continue until the vessel is again in a fully efficient state to resume her service from a position not less favorable to the charterers than that at which the loss of time, deviation or putting back occurred. 

5. Legitimacy of the Last Voyage:

In the absence of any specific provision in the time charter relating to redelivery and orders for the final voyage, the following shall apply: 

Charterers undertake to arrange the vessel’s trading so as to permit redelivery within the period and permissible redelivery area as contained in the charter party. As soon as the charterers have arranged the final voyage they shall immediately so inform the owners giving a realistic estimated itinerary up to redelivery time. The owners shall notify the charterers within two working days thereafter as to whether they agree or disagree with charterers’ estimate. Should they disagree and consider the vessel will overlap the maximum period, they shall nonetheless allow the voyage to be undertaken at the time charter rate of the charter party without prejudice to their ultimate right to compensation for additional hire at the market rate should an overlap subsequently have proven to have occurred, and should the market rate be higher than the charter party rate of hire.  

 

London Maritime Arbitrators Association (LMAA) Arbitration Clause

After consultation with the LMAA (London Maritime Arbitrators Association), BIMCO (Baltic and International Maritime Council) has adopted and is recommending the following amended arbitration clause, which the LMAA (London Maritime Arbitrators Association) recommends for future use in place of the present LMAA (London Maritime Arbitrators Association) Clause: 

(a) “This Contract shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this Contract shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. 

The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced. 

The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its arbitrator and give notice that it has done so within the 14 days specified. If the other party does not appoint its arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement. 

Nothing herein shall prevent the parties from agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator. 

In cases where neither the claim nor any counterclaim exceeds the sum of US$50,000 or such other sum as the parties may agree, the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced. 

(b) Notwithstanding (a) above, the parties may agree at any time to refer to mediation any difference and/or dispute arising out of or in connection with this Contract. 

In the case of a dispute in respect of which arbitration has been commenced under (a), above, the following shall apply:-

1- Either party may at any time and from time to time elect to refer the dispute or part of the dispute to mediation by service on the other party of a written notice (the “Mediation Notice”) calling on the other party to agree to mediation. 

2- The other party shall thereupon within 14 calendar days of receipt of the Mediation Notice confirm that they agree to mediation, in which case the parties shall thereafter agree on a mediator within a further 14 calendar days, failing which on the application of either party a mediator will be appointed promptly by the Arbitration Tribunal (“the Tribunal”) or such person as the Tribunal may designate for that purpose. The mediation shall be conducted in such place and accordance with such procedure and on such terms as the parties may agree or, in the event of disagreement, as may be set by the mediator. 

3- If the other party does not agree to mediate, that fact may be brought to the attention of the Tribunal and may be taken into account by the Tribunal when allocating the costs of the arbitration between the parties. 

4- The mediation shall not affect the right of either party to seek such relief or take such steps as it considers necessary to protect its interest.

5- Either party may advise the Tribunal that they have agreed to mediation. The arbitration procedure shall continue during the conduct of the mediation but the Tribunal may take the mediation timetable into account when setting the timetable for steps in the arbitration. 

6- Unless otherwise agreed or specified in the mediation terms, each party shall bear its costs incurred in the mediation and the parties shall share equally the mediator’s costs and expenses. 

7- The mediation process shall be without prejudice and confidential and no information or documents disclosed during it shall be revealed to the Tribunal except to the extent that they are disclosable under the law and procedure governing the arbitration. “

Note: The parties should be aware that the mediation process may not necessarily interrupt time limits.