Valid Contract

Valid Contract

For a contract to be valid, there must be:

  1. Offer
  2. Clean Acceptance of that offer
  3. Consideration (i.e. payment in some format of money, goods or service)
  4. Legality

In tramp chartering, consideration means payment of freight. Freight can take the form of :

  1. Lump Sum
  2. Pro rata per ton loaded (as evidenced in the bill of lading) or discharged (out-turned weight)
  3. Advance Freight
  4. Back- Freight
  5. Distance Freight
  6. 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 ship 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.

Offer Vs. Bid

  • 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 shipbroker 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 ship or cargo to any other party prior to the expiry of the self-imposed time limit.

Counter-Offer Must Be Made In Good Time

During charterparty negotiations, even one minute late can result in the substitution of that owner or charterer by another charterer or owner; so it is best to counter well within time, if possible, especially in a volatile market.

If you know that it is not going to be possible for you (as principal) or your principal client (if you are a shipbroker) to reply in good time, the best (and the most courteous) safeguard is to advise your counterpart that it looks most unlikely that you will be able to reply in time and could you or your client please be granted an extension for the reply time.

It is not always easy to reply in good time: this could be due to the number of parties in a broker chain, for example, or due to poor telephonic connections with certain countries. Thus the number of counters should be kept to a minimum if these circumstances should prevail.

Naturally, the negotiations should whittle down the contentious points as much and as soon as possible: therefore it is the shipbroker’s skill and knowledge of his principals and/or of the prevailing market which will facilitate this process. An Owner/Charterer Can Only Be Firm To One Charterer/Owner At Any One Time.