Liberty to Sublet a Ship Under a Time Charterparty

Liberty to Sublet a Ship Under a Time Charterparty

New York Produce Exchange Charterparty Form, lines 16 and 17: “16. Charterers to have liberty to sublet the vessel for all or any part of the time covered by this Charter, but Charterers remaining responsible for 17. the fulfillment of this Charter Party.”

The liberty to sublet is an important commercial feature of a time charterparty. It allows the head charterers to employ the ship through a further contractual arrangement, either by a sub-time charter or by a sub-voyage charter, while the head charter continues to govern the relationship between the shipowners and the original charterers. The clause gives flexibility to the charterers, but it does not transfer their obligations to the sub-charterers.

The central point is straightforward: the head charterers remain responsible to the shipowners for the performance of the head charter. A sub-charter may change the commercial employment of the ship, but it does not normally change the contractual parties to the original bargain. The shipowners have contracted with the head charterers, and the sub-charterers have contracted with the party above them in the charter chain.

Effect of a Sub-Charter on the Head Charter

A sub-charter does not, by itself, create a direct contractual relationship between the shipowners and the sub-charterers. The shipowners cannot sue the sub-charterers merely because a sub-charter exists, and the sub-charterers cannot sue the shipowners merely by relying on the head charter or the sub-charter. This follows the ordinary rule of contract law that rights and obligations are generally confined to the parties who have made the contract.

The express permission to sublet in the New York Produce form therefore should not be misunderstood as a release of the head charterers. The head charterers may place the ship into a sub-charter employment, but they remain liable if the head charter is not properly performed. Late redelivery, improper orders, unpaid hire, breach of trading terms, or any other default under the head charter remains a matter between shipowners and head charterers.

The same principle also means that the mere liberty to sub-contract does not ordinarily confer enforceable rights on sub-charterers under the head charter. Nor does it give shipowners a general right to enforce the sub-charter against the sub-charterers. The two contracts remain legally separate unless another contractual instrument, such as a bill of lading, creates a direct link.

Bills of Lading May Create a Direct Contractual Link

The position may be different when bills of lading are issued under the sub-charter. If both the shipowners and the sub-charterers become parties to the bills of lading, a direct contractual relationship may arise under those bills. In that situation, the shipowners may sue or be sued on the Bill of Lading (B/L)contract, even though they still have no contractual rights or liabilities under the sub-charter itself.

This distinction is essential in charterparty practice. The sub-charter remains one contract, the head charter remains another, and the bill of lading may become a separate contract of carriage. Rights arising under the bill of lading are not automatically the same as rights under the head charter. The shipowners may therefore be able to rely on bill of lading terms against cargo interests, but they cannot automatically import every protection or remedy from the head charter into the bill of lading relationship.

Liens for Hire, Freight, and Charter Money

The difference between rights under the head charter and rights under bills of lading was illustrated in Turner v. Haji Goolam, commonly discussed in connection with The Bombay. The ship had been time chartered with an option to sublet and was then sub-chartered for a round voyage. The head charter allowed bills of lading to be signed at freight rates directed by the charterers or their agents, without prejudice to the head charter. It also gave the shipowners a lien on cargoes for freight or charter money due under the head charter.

The difficulty arose because the bills of lading issued to the sub-charterers did not contain a lien for money due under the head charter. The shipowners attempted to exercise a lien on the sub-charterers’ cargo for hire due from the head charterers. That claim failed. The shipowners’ lien for time charter hire was a right against the head charterers under the head charter, not a right enforceable against the sub-charterers’ cargo unless the relevant bill of lading terms supported it.

The practical lesson is that a head charter lien does not automatically travel down the charter chain. If shipowners wish to protect themselves against unpaid hire by reaching freight, sub-freight, cargo, or bill of lading freight, the wording of the charterparty and the bills of lading must be examined closely. The legal route to recovery will depend on the contract in which the lien or assignment is actually found.

Shipowners’ Possible Responsibility as Bailees under Time Charterparty

Although a sub-charter does not itself create a direct contract between shipowners and sub-charterers, shipowners may still face non-contractual responsibility in certain circumstances. If the shipowners, through the master, crew, servants, or agents, have possession of cargo belonging to or controlled by sub-charterers, the shipowners may owe duties as bailees.

The principle is associated with cases such as The Pioneer Container, also known as The K.H. Enterprise. Where cargo is in the custody of the ship, the legal analysis may not be limited to charterparty contract. The shipowners may be exposed to claims connected with possession and care of the cargo, although they may also be able to rely on exceptions, limitations, Himalaya-type protections, or other terms in the contract under which the cargo is carried.

Authority of Sub-Charterers to Sign Bills of Lading under Time Charterparty

Where the head time charter expressly permits subletting, the sub-charterers will often have implied authority to sign bills of lading, either directly or through their agents, in a way that binds the shipowners. The reasoning is commercial as well as legal. If shipowners agree that charterers may sublet the ship, and impose no meaningful restriction on the form or terms of the subletting, they may be taken to have contemplated that sub-charterers would need normal bill of lading machinery to operate the ship commercially.

The Vikfrost is an important authority on this issue. The head charter contained a liberty to sublet and allowed a demise clause in bills of lading. The dispute concerned whether sub-agents of sub-charterers had authority to issue bills of lading on behalf of the master, including bills containing an English jurisdiction clause, even though the head charter itself was governed by Norwegian law and subject to Norwegian jurisdiction.

The court held that the sub-charterers and their agents had implied authority to issue such bills of lading. The authority arose from the head charter’s permission to sublet and from the practical necessity of allowing the sub-charterers to deal with bills of lading in the same commercial manner as the head charterers. A bill of lading clause requiring claims under that bill to be determined in England was not treated as inconsistent with the separate provision that disputes under the time charter had to be determined in Norway.

This does not mean that sub-charterers may impose any bill of lading term they wish. The authority is still shaped by the head charter, the sub-charter, the master’s authority, and the commercial context. However, where a ship is trading internationally and the head charter permits subletting, authority to sign through agents will often be a necessary part of the sub-charterers’ operational freedom.

Freight and Hire Under the Sub-Charter

Sub-charter freight and sub-charter hire can become important where shipowners seek security for sums due under the head charter. Whether shipowners can reach sub-freights, sub-hire, or bill of lading freight depends on the wording of the head charter, any lien clause, any assignment, any notice given, and the contractual structure of the bills of lading. The liberty to sublet does not itself give shipowners an automatic right to all earnings generated below the head charter.

In practice, charterparty drafting is therefore critical. A broad lien clause may assist shipowners, but its effectiveness will depend on the nature of the receivable being targeted and on whether the relevant legal steps have been taken. Equally, sub-charterers and cargo interests must distinguish between obligations owed under their own contracts and claims that shipowners may attempt to assert from the head charter level.

U.S. Law on the Liberty to Sublet a Ship under Time Charterparty

U.S. authorities take a similar approach to the basic effect of a sub-charter. Under the New York Produce form, the charterer may sub-charter the ship, but the charterer remains liable to the owner for proper performance of the head charter. The sub-charter does not normally create privity between the owner and the sub-charterer, and it does not alter the owner’s contractual rights against the head charterer.

In Dampskibs Akt. Thor v. Tropical Fruit Co., the head charter was for about three years, with redelivery to be made at a port in the United States, Atlantic or Gulf of Mexico. The charterer sub-chartered the ship on terms that were not identical to the head charter and that called for redelivery at a United States Atlantic port north of Hatteras. When the head charter was nearing expiry, the ship was in New Orleans without cargo. Instead of redelivering her, the charterer allowed a further voyage to Cuba and then to New York, which extended beyond the contractual period.

The owner recovered hire at the higher market rate for the overrun period. The court treated the additional Cuba voyage as an unreasonable overlap and held that, as a matter of law, the head charter had terminated at New Orleans at about the contractual expiry date. The sub-charter did not create a contract between the owner and the sub-charterer, and it did not vary the owner’s rights under the head charter.

U.S. decisions such as The Banes also confirm that a sub-charterer does not obtain a direct claim against the owner merely because the sub-charter exists, even where the sub-charter is on terms similar to the original charter. The same general principle appears in cases including Saxis S.S. Co. v. Multifacs International Traders Inc., Flat-Top Fuel Co. Inc. v. Martin, and Perez v. Cia Tropical Exportadora.

U.S. law has also recognised that, even without an express liberty to sublet, a charterer may sub-charter the ship unless the head charter specifically prohibits it. The Ely is commonly cited for the proposition that a sub-charter is lawful where the original charter contains no clause forbidding subletting. Later authority, including Hyundai Corp. v. Hull Insurance Proceeds of The Vulca, has also referred to the same broad principle, subject always to the actual wording of the charterparty.

Commercial Importance of Careful Drafting the Time Charterparty

The liberty to sublet is commercially useful because it allows the charterers to trade the ship, place her into market opportunities, service cargo commitments, or build a charter chain without needing to renegotiate the head charter each time. However, that flexibility creates legal separation between different contractual layers. Shipowners, head charterers, sub-charterers, bill of lading holders, and cargo interests may all be connected to the same physical employment of the ship, but their rights may arise under different contracts.

For shipowners, the main protection is that the head charterers remain liable. Shipowners should nevertheless ensure that lien clauses, bill of lading provisions, signature authority, sub-freight rights, and any restrictions on subletting are drafted clearly. For head charterers, the key risk is that a sub-charter arranged on inconsistent terms may leave them exposed to the shipowners even if the sub-charterers caused the practical difficulty. For sub-charterers, the key point is that their rights against the owner usually depend on bills of lading, bailment principles, or other direct legal links, not on the sub-charter alone.

The clause therefore strikes a balance. It permits charterers to sublet the ship for all or part of the charter period, but it preserves the shipowners’ contractual security by keeping the head charterers responsible for fulfilment of the charterparty. In time charter practice, that balance is essential: commercial employment may move down the chain, but legal responsibility under the head charter remains at the level where the original bargain was made.