Ship Charterparty Termination Consequences

It is obvious that the parties’ respective rights and obligations will depend to a large extent on whether the contract of carriage ended by reason of frustration or repudiation. In the latter situation, one party in practice, usually cargo owners will be entitled to claim substantial damages. For present purposes, however, the important point is not how the contract came to an end, but the fact that it has terminated. owners’ contractual obligations to carry the goods and deliver them at destination have therefore ended.  Although owners’ contractual obligations no longer exist, owners still remain in possession of the cargo. They therefore assume certain obligations by reason of the fact that they are in possession of another party’s goods. Cargo owners’ rights to claim possession will also survive, as they exist independently of the continuation in force of the contract of carriage. In such a situation, owners become involuntary ‘bailees’ or custodians of the cargo. In the event of the termination being due to owners’ breach, it is likely that the courts would impose on owners the more onerous duties of a common carrier. It is beyond the scope of this paper to examine the complexities of the law of bailment, save to say that it is considered that owners’ duty will be to take reasonable care of the goods on board, but that they are entitled to recover all expenses reasonably incurred in doing so. Furthermore, if the contract has come to an end through frustration, the carrier can require cargo owners to take delivery of the cargo and to pay any costs incurred by owners in discharging such cargo. It is a nice question whether owners are entitled to assume that the party presenting an original bill of lading is necessarily entitled to the cargo. Such an assumption is legally justified when the bill of lading contract is still in existence, but that is not the situation here. It is arguable that there are strong policy reasons why owners should be protected, if they deliver the goods in accordance with the terms of the now defunct bill of lading, notwithstanding that those terms have been discharged by frustration. Finally, what if the ship is withdrawn from charterers’ service for late or non-payment of hire, at a time when she is already laden with cargo pursuant to bills of lading which, as mentioned above, remain fully binding? It is clear that the holders of such bills of lading continue to be entitled to a number of rights against the carrier, but it is not the task of this paper to examine those rights. Instead, let us briefly look at whether owners have any rights to be remunerated, if the ship is delayed, for example while the cargo on board is removed by charterers. This question came before the courts for the first time in ENE Kos Ltd v Petroleo Brasileiro SA [2010]. Following withdrawal owners ordered charterers to remove the cargo from the vessel. In these circumstance, are owners entitled to remuneration outside the contract and/or to recover expenses incurred? It was accepted that owners had a duty to care for the cargo while it continued to be on board the vessel. Were they entitled to reasonable remuneration for doing so? There was no request for a new contract once the vessel was withdrawn. As there was no element of accident, emergency or necessity, remuneration which had not been expressly or impliedly agreed, could not be due. Owners, therefore were not entitled to hire at the market or contract rate for the days before they sailed away. Expenses incurred by owners in taking care of or preserving the cargo during actual cargo operations could be recovered.