For a contract to be valid, there must be
- an offer;
- a clean acceptance of that offer;
- consideration (i.e. payment in some format of money, goods or service); and
In tramp chartering, consideration means payment of freight. Freight can take the form of a lump sum, or of ‘pro rata’ per ton loaded (as evidenced in the bill of lading) or discharged (the ‘out-turned weight’), or of advance freight, back- freight, distance freight or dead freight. Until such time as the offer has been fully and unconditionally accepted, there can be no payment of consideration and therefore there is no valid contract. There are very few charter fixtures which are the result of an immediate clean acceptance of an initial offer, unless it is on the basis of so-called repeat business, in which case the merest of details change, such as perhaps the name of the vessel or the lay/can dates or the amount of freight to be levied, and otherwise “all other terms, conditions and exceptions of the previous charterparty dated … to apply”. However, the vast majority of charterparty contracts are the result of some (often many) counter-offers, which are finally resolved in a mutually acceptable agreement.
- If the shipowner is the first to initiate negotiations, this is called an offer;
- If the charterer is the first to initiate negotiations, this is called a bid;
- Thereafter every counter-move made during the negotiations by either party is called a counter-offer or usually a ‘counter’.
Prior to negotiations commencing, there is often an exchange of indications, in which case the principal merely wishes to test the water on a certain point or points, often using the broker as a thermometer. If one party makes a counter-offer during negotiations to the other party, usually for reply within a certain stipulated time, it will be made as a firm counter, in which case both parties know that the offer has thereby bound himself not to offer the same vessel or cargo to any other party prior to the expiry of the self- imposed time limit.