Importance of Ship Contract Clarity

Improperly drafted charterparties (shipping contracts) that are full of unclear provisions, might cause real damages. Lately, a charter row that ended up in London arbitration has highlighted the importance of checking contract wording when a ship is quickly re-fixed. Unnamed shipowner had chartered out a bulk carrier to the buyer of a cargo of baled straw, for carriage from Varna (Bulgaria) to Izmir (Turkey). But charterparty (shipping contract) ended when the charterer paid neither the freight nor the sale price and the ship was re-fixed to another cargo buyer. By that time bulk carrier had been loaded with baled straw and was nearing Izmir (Turkey). On the other hand, no notice of readiness (NOR) had been tendered by the shipowner. Later on, with shipowner’s instruction bulk carrier drifted 38 miles away from discharging port Izmir (Turkey) and pending remittance of freight. UK tribunal had to consider who should pay for various periods of delay. Case hinged on the charterparty (shipping contract) wording for when laytime could start: “after the vessel arrival at disch port”. Charterers did not dispute the shipowner’s right to lien on cargo (hold on to the cargo), but charterers said that shipowner could not claim for time running from when the bulk carrier began drifting off Izmir (Turkey). Charterers also claimed part of the delay was due to shipowner’s wrongful exercise of cargo lien, in that shipowners should not have refused orders to start the pre-discharge procedures, such as berthing and fumigation. Bulk carrier was too far away from discharging port of Izmir (Turkey). UK tribunal ruled that rights as to laytime depended on the ship having become an “arrived ship”. In other words, ship had to have reached a place where NOR (Natice of Readiness) could validly be tendered. So, in this cases, bulk carrier was nearly 40 miles away from discharging port. Charterer was correct that a right to lien on cargo did not mean that shipowner could refuse to do things which did not conflict with their continuing to hold on to the cargo. UK tribunal also concluded that the aggregate delay from when laytime had restarted was not due to any impediment by the shipowner, but to the charterer’s own failure to make arrangements for bulk carrier to berth and for discharge immediately after fumigation. Generally, it is a common practice for shipowners to promptly re-fix after charterers’ default.

Usually, instead of simply offering out the recap wording, shipowners might pause to consider whether changes are needed, especially in view of operational steps taken immediately beforehand and related precautionary wording. Shipowners should ensure that all provisions (especially freight, NOR, laytime and demurrage) suitably address the situation that has developed. Shipowners should always be alive to interaction between intended protective clauses, NOR (Notice of Readiness) provisions and the notion of an arrived ship and possible later challenge to exercise of a lien over the cargo.