Charterparty Subjects are basically conditional acceptance of the terms agreed between the Shipowners and Charterers.
When a firm offer is made and accepted, it may be subject to something else happening before negotiations can become a fixture, i.e. a legally binding contract. This subject (proviso) is an indication that the main parts of the business have been agreed upon, but there are still some details to be finalized.
Shipbrokers should avoid peppering the main terms with too many subjects before the final contract can be concluded as a fixture. However, some subjects (provisos) are necessary, the important ones being:
- Subject to Shipowners’ approval of the Charterers;
- Subject to the Charterers’ approval of the Shipowners;
- Subject to the cargo Shippers’ or Receivers’ approval of the owners or of the vessel;
- Subject to the Board of Directors’ approval of the fixture;
- Subject To Enough Merchandise: i.e. cargo being available – known as STEM (or strangely but most usually as subject STEM);
- Subject Details (Sub Details), i.e. there is no fixture until all the details have been agreed: except in US LAW;
- Subject Open. Subject to the vessel being available to be negotiated and fixed.
These ‘subjects’ are to be declared by a given time or within a specific period after fixing the main terms and the details.
Under English Law there is no fixture until all the subjects are lifted therefore, as far as an owner is concerned, it is important that there is a time limit on the subjects.
Charterparty Fixing on Subjects
- The Institute of Chartered Shipbrokers, BIMCO and the Baltic Exchange disapprove of this practice i.e. Fixing on Subjects
- Fixing on Subjects does not make for speedy culmination of negotiations, even though it might well help charterers/merchants to conclude their trade in the interim.
- In an shipowners’ market, Fixing on Subjects does leave shipowners open to fix elsewhere if the charterers cannot release the ‘subjects’ in time.
- In a charterers’ market, this practice does allow charterers to look around for a better (a bigger or smaller or earlier or later) vessel or a cheaper freight rate and have that extra knowledge up their sleeves in case they fail on subjects with the first owners. However, as above, charterers can only hold one vessel firm at any one time.
- Fixing on Subjects – RECEIVERS’ APPROVAL: Sometimes a trader’s receivers will insist on a certain type of vessel and will need to approve the vessel before it can be chartered, either by the trader (if the sale of goods is on a CFR/CIF basis) or by the receivers (if they purchase the merchandise on an FOB basis). For example, a dry cargo vessel may need to be fully geared up to a certain stipulated SWL (Safe Working Load) capacity. Alternatively it may need to be Australian hold ladders fitted or (Great) Lakes fitted. However, you should be aware that this information should be made available in the owners’ initial offer, which includes a full description of the vessel. Older vessels may even need to be described as having no wooden ceiling, to avoid damage by the receivers’ grabs when discharging bulk cargo.
- FIXED SUBJECT STEM: (S.T.E.M. stands for Subject To Enough Merchandise). Beware of charterers who may try to use this as a bargaining ploy in a weak (i.e. charterers’) market. Nevertheless, the majority of charterers do genuinely need to confirm this with their suppliers and can only do so once they have a vessel firm in hand.
- The origin of the word “STEM” in this shipping context is from the time when sailing ships had to wait for their cargoes and were not allowed to come alongside the berth until all the cargo was available to be loaded. The bowsprit (also called the ‘stem’) of the vessel, being the boom for the foresail and the most prominent front part of every mercantile sailing ship, was the first part of the ship to arrive at the berth
Fixed Subject Details in London Vs New York
Fixed Subject Details in London means precisely that: the ship will NOT be considered as having been fixed until all the details of the charter party clauses have been agreed to. Fixing on Main Terms is merely the first stage in negotiations.
Fixed Subject Details in New York means that the Main Terms have been agreed upon and that therefore the vessel has been fixed. It is up to the parties (and their shipbrokers) to resolve any disagreements or disputes in the best and most mutually satisfactory way, as speedily as possible.
Regrettably, this often leads to one party instigating proceedings in arbitration or court in order to resolve what the rest of the world outside New York considers is not yet a contract, so there is great conflict of law in this area. It is therefore advisable to establish the ground rules before negotiations begin.
It is important to distinguish between details and terms. It is dangerous practice to leave details to the end and discouraged by Intertanko and BIMCO. If agreement cannot be reached on the details then there is no fixture. It is also possible, although considered unethical, to reopen negotiations on the main terms if the subsequent details appear to warrant it.
In the USA the position is different; under US Federal Law (or more usually New York State law) the charter is considered FIXED even if it is still subject to details and can only be set aside if both parties withdraw.
This is very important because New York interpretation of the law is that the agreement of the Main Terms constitutes a fixture and therefore failure to agree all the subsequent Details means a breach of that contract, for which breach proceedings will commence in court or arbitration. It is therefore important that the subjects are clarified by suitable wording.
Charterparty Fixed on Subjects
During the negotiation of a charterparty, one party presents offers, and when the other party unconditionally accepts these offers, an “agreement” is formed. If all other elements of the contract are established, this agreement becomes a legally enforceable “contract.” It is important to note that a conditional acceptance does not create an agreement because the terms of the original offer are not acceptable to the other party. Thus, there is no mutual understanding of the terms being negotiated. In the absence of such understanding, there can be no agreement.
In certain situations, one party may appear to “accept” the terms proposed by the other party, but this acceptance is contingent upon additional conditions. Such acceptance is referred to as conditional. During initial negotiations, the phrase “subject to contract” may be used, indicating that the parties have informally agreed on general issues but have yet to formalize the agreement, most likely through a written contract. This early agreement is only provisional because there is no binding contract in place, providing both parties the freedom to escape any obligations since they have not yet come into existence or are legally binding.
Either party involved in a charterparty negotiation can impose conditions. In some cases, these conditions are designed to enhance their bargaining power or allow them to explore better options elsewhere, while in other cases, they serve as a delaying tactic. For example, a Charterer can use a “subject stem” to search for a ship at a lower freight or hire rate. Under English law, the presence of a “subject” condition renders the entire agreement invalid. However, under American law, if the main terms have been agreed upon and only procedural details are pending (with the charter being subject to agreement on these specific details), the contract is considered enforceable.
A “subject” condition during charterparty negotiations can be seen as a prerequisite for a firm contract. If this condition is not met, the charterparty does not come into existence. The significance of the event to which the final agreement is subject is crucial. If the event holds minor importance, the agreement may still be considered binding regarding the substantial or essential terms. This appears to be the approach followed in the United States.
The process of negotiating and finalizing a charter involves two stages. Firstly, the main terms are agreed upon, including the cargo, freight, ports of loading and discharging, loading and discharging rates, and the charterparty form to be used. Following this, other details still need to be settled.
“Subjects” can limit the enforceability of a charter. BIMCO (Baltic and International Maritime Council) often cautions against charterers misusing “subjects” as they can greatly affect the shipowner, particularly in unfavorable freight markets. Below are explanations of various “subjects,” but it is important to be mindful of owners’ concerns regarding charterers’ misuse of these conditions.
BIMCO (Baltic and International Maritime Council) recommends adhering to certain principles in chartering and shipbroking practices when using “subjects.” It is generally advised that the parties imposing these “subjects” clearly specify and limit their scope. In fact, considering the different approach taken by American courts, it is preferable to agree on a ship being chartered subject to precisely defined “details” to ensure that the main terms can form the foundation of an enforceable contract.
In practical chartering, it is essential to recognize that the party imposing a “subject” restriction or qualification may do so for their own bargaining advantage, intending not to be bound by a firm contract.
What does “ON SUBS” mean in Ship Chartering?
In the context of ship chartering, the phrase “on subs” refers to a contractual stage during the negotiation of a charter party agreement, specifically, when an agreement has been tentatively reached but is still subject to further conditions or approvals, hence the term “subjective”, often shortened to “subs”.
What does “SUB STEM” mean in Ship Chartering?
The charter is conditional upon the charterer obtaining cargo for the agreed loading period. “Stem” is an abbreviation of “subject to enough merchandise”. Both the charterer and the shipowner are relieved of their obligations if the cargo cannot be obtained.
When it comes to ship chartering, “subject to enough merchandise” means that the agreement to charter a ship is contingent on the availability of a sufficient amount of cargo. This condition is usually included in negotiations, when a charterer isn’t certain about the volume of cargo that will be available for shipping at a particular time.
For instance, if a company dealing in agricultural products wants to charter a ship to transport grain, but it’s not harvest time yet and they aren’t sure how much grain they will have, they might agree to a charter “subject to enough merchandise”. This means that if they don’t have enough grain to make the charter profitable or feasible, they can back out of the agreement without penalty.
It’s crucial to have these conditions spelled out clearly in the charter party, which is the legal document that outlines the agreement between the shipowner and the charterer. It includes all the terms and conditions of the charter, including the price, duration, and any conditions that might allow either party to withdraw from the agreement.
Lifting Charterparty Subjects
“Charterparty Fixed on Subjects” refers to an agreement or contract made between a ship owner and a charterer. The term ‘Fixed on Subjects’ means that both parties have agreed on the fundamental terms of the contract, but some minor details are still under negotiation or need to be confirmed. These pending details are commonly referred to as “subjects”.
Subjects might include, for instance, the receipt of necessary approvals from regulatory authorities, agreement on exact loading or discharge ports, or obtaining certain financial assurances. They may also pertain to ship inspections or specific performance requirements.
Once these subjects are lifted, i.e., the details are confirmed or the conditions are met, the charterparty is considered “fully fixed”, meaning that the contract is final and binding.
Here’s an example to illustrate this in a sentence:
“The charterparty for the oil tanker was fixed on subjects, with remaining discussions focusing on finalizing the discharge port and confirming the delivery dates.”
Note that the process of fixing charterparties on subjects requires careful negotiation and legal advice, as the specifics can have significant implications for both parties involved. Therefore, it’s recommended that both the ship owner and the charterer engage qualified legal advisors or brokers to ensure their interests are well protected.
Just to simplify it, “Charterparty Fixed on Subjects” is a term used in the shipping industry. A charterparty is a legal contract between the owner of a ship and the person who hires (or charters) the ship. When a charterparty is “fixed on subjects”, it means that the main terms of the contract are agreed upon, but there are still minor details (“subjects”) that need to be finalized. These could be things like getting approval from a regulatory body or deciding on the exact ports for loading and unloading cargo.
Once these details are finalized, the contract is said to be “fully fixed”. This means the contract is final and both parties must adhere to it.
For example, you could say: “We’ve agreed on the main points of the ship charter contract, so it’s now fixed on subjects. We just need to decide on a few more details to make it fully fixed.”
In the context of shipping and maritime trade, “lifting charterparty subjects” refers to the process of removing or satisfying conditions, often referred to as “subjects”, that have been put in place in a charterparty agreement.
A charterparty is a legal document between the owner of a vessel and the charterer, who wishes to rent the vessel for a certain period of time or for a particular voyage. This contract includes various terms and conditions, some of which may be classified as “subjects”. These are conditions that need to be met before the contract is fully executed or becomes “firm”. Subjects might include financing approval, inspection results, or obtaining necessary permissions or documentation.
When all subjects have been satisfied – that is, when all conditional events have occurred or been waived – the subjects are said to be “lifted”. This is an important milestone in charterparty negotiations, because once subjects are lifted, the charterparty becomes fully legally binding. Prior to this point, either party can typically withdraw without penalty if the conditions aren’t met.
Therefore, “lifting charterparty subjects” is essentially about finalizing the agreement, removing any outstanding conditions, and moving forward with the charter. This process often involves negotiation and communication between both parties, as well as various third parties such as brokers, banks, inspectors, and regulatory authorities.