Legal Aspects of Charter Parties – Basic Issues

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Legal Aspects of
Charter Parties
– Basic Issues
By: Alex Pinto, Director,
Richards Hogg Lindley
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Legal Aspects of Charter Parties – Basic Issues
• The structure of Charter Parties
• Major concepts of Admiralty & Maritime Law

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• A Charter Party - is a contract between a ship owner and a charterer
• Bill(s) of Lading – Its functions
• Dominant document?
44
Types of Charter Parties
• Fixture Notes
• Voyage Charters
• Time Charters
• Bareboat Charters

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Types of Charter Parties
• Common features
• Dissimilar aspects
6
Descriptive Assurances/
Warranties -
Breach consequences:
• Implied correctness
• Conditions
• Cancellation
• Damages
Key Factors/ Concepts:

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Safe Port(s)
Definition by Sellers LJ in The Eastern City [1958]
“a port will not be safe unless, in the relevant period of time the particular ship can reach
it, use it, and return from it without, in the absence of some abnormal occurrence, being
exposed to danger which cannot be avoided by good navigation and seamanship”
• NAABSA
• Charterer’s warranty of safety – “The Ocean Victory” 2013
• Timing of safety assurance
88
Safe Port(s)
Unsafe condition – natural origins or manmade origins
• Ignoring the evident danger consequences for vessel
• Vessel’s option – Compliance/ Non Compliance
• Claim entitled to:
ophysical damage
oCost of avoiding or minimising damage
oDamages for detention

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• LAYCAN & Cancelling Date
• Time Charter – Voyage Charter
• NOR Tendering
• Absolute right to cancel and when does it accrue?
• Ship’s obligation of despatch
• Charterer’s right to claim damages – when does it arise?
• Moving markets
1010
Deviation
Definition: “a deliberate and unjustified change in the carrying out of the contract, whether
geographical or contractual, which is not what had been contractually agreed upon”
• Obligation in common law – from a geographical and performance
perspective
• Scaramanga v Stamp 1880 – permits deviation to save life and if required for
safe prosecution of the venture Timing of safety assurance
• Hague /Hague Visby allows deviation to even save property and any
reasonable reason

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Deviation
Additional clauses incorporated to minimise the strict rule
Eg. Gencon 94 Clause 3:
Deviation Clause
“The vessel has liberty to call at any port or ports in any order, for any purpose, to sail without
pilots, to tow and/or assist Vessels in all situations, and also to deviate for the purpose of saving
life and/or property.”
• Deviation liberty now more prevalent if suitable wording incorporated like terms allowing
the ship to call at ports in any order on the passage
• Wording of Deviation all important – Stag Line Ltd v Fascolo Mango & Co. Ltd. 1932 example
“in any order for bunkering and other purposes” deemed not to include riding repair team
disembarkation as not connected to contracted voyage.
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Deviation
• When ship owner found to be in breach it means owner cannot rely on exception
Clauses in CP/BL. i.e. cannot limit liability or claim demurrage under usual clauses
incorporated in CP.
• Exception - can try rely on common law exceptions like Act of God if can prove loss
would have occurred even if deviation did not take place.
• Current terns find courts more lenient – The Kapitan Petka Vivoda 2003 where it was held
that a carrier could reply on his COGSA package limitation under the Hague Visby Rules
despite the fact the carrier was guilty of deviation from the contract by carrying the
cargo on deck without authorization

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War Risk & Civil Commotion clauses
Included to protect both parties who could be exposed to risk of civil disturbances; war;
revolution which change trading conditions.
Gencon form war risks include:
“any blockade or any action which is announced as a blockade by any government or by any
belligerent or by any organized body, sabotage, piracy and any threatened war, hostilities, war-like
operations, civil war, civil commotion or revolution.”
• Conditions usually include hostilities involving Permanent Members of Security Council;
other specific nations; requisitioning
• Sets out the rights and obligations when vessel, cargo and crew are exposed to such
risks
• Cancellation option to both parties
• Modern trends includes Piracy and Epidemics
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Concept of Frustration
Lord Radcliffe commented in Davis Contractors v Farenham UDC [1956]
“Frustration occurs whenever the law recognizes that without default of either party a contractual
obligation has become incapable of being performed because the circumstances in which
performance is called for would render it a thing radically different from that which was undertaken
by the contract. Non haec in foedera veni; It was not this that I promised to do.”
• As different from Termination
• Can be subdivided into 3 segments viz. shipping:-
o Delay involved
o Illegality development
o Performance impossibility

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Delay:
Example:
The Evia 1982 – in Shatt
al Arab – blocked and
trapped by closure of
water way
Illegality:
Example:
Change of law
following USA
imposition of sanctions
on Iran making voyage
illegal
Performance impossibility:
Example for Ship: ATL or CTL -
ECOR & time factor - which
alters nature of intended
contract.
Example for cargo: USA
sanctions on Iran for crude oil
cargo and the TTC / PTC was
for cargo ex Iran
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• It is a principle not to be lightly invoked to relieve one party of their contractual
obligations.
• One has to show that the incapability arises because the circumstances at the time
would render performance radically different from that which was undertaken by the
contract and for which the contract made no or no sufficient provision.

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Key Factors/ Concepts
Concept of Frustration Summary:
So, a charter is automatically as a matter of law (and without election of
either party) brought to an end by frustration when, as a result of an
extraneous event outside the control of either party and beyond the
scope of the express terms of the contract allocating risk and responsibility.
• Liner trade position on alternate vessel – who is carrier?
• Charterer’s absolute obligation and exceptions
• Question of fact per case
1818
Maritime Law
General Average
• Definition of General Average
• The sacrifice or expenditure must
be extraordinary
• The act must be intentional or
voluntary and not inevitable
• There must be peril
• The action must be for the common
safety and not merely for the safety
of part of the property involved
• Examples of general average
situations
• Sacrifice
• Adjustment of general average
• General average and salvage

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1919
Maritime Law
Salvage
• How does salvage arise?
• The ingredients of salvage
• Voluntariness
• Danger
• Success
• The Lloyd’s standard form of
salvage agreement
• The Master’s authority to enter into
salvage
• Salvage arbitration and litigation
• Pro rata payment of the salvage
award
• The International Convention on
Salvage 1989
• Special Compensation P&I Club
Clause (Scopic)
2020
Maritime Law
Towage Contracts
• Towage and Salvage
• Wreck Removal

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Maritime Law
• Collisions
• Damages Claimable
• Method of settlement
between parties
• Both to Blame Collision Clause
• Time Bar
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Legal Aspects of Charter
Parties – Basic Issues
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Important Clauses in Charter Parties – Time Charters
Delivery of vessel:
Laydays important as owner obliged to present vessel in ready condition within those days
Common law implied undertaking to provide seaworthy vessel at commencement of TTC/PTC.
NYPE 46 states:
“vessel on her delivery to be ready to receive cargo with clean swept holds and tight, staunch and
strong and in every way fitted for the service”
PTC /TTC usually also includes an express undertaking to provide seaworthy vessel at
commencement of charter

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Delivery of vessel:
It is absolute but does not cover whole period of charter, so most charter parties including
NYPE 46 include further wording:
“and maintain her class and keep the vessel in a thoroughly efficient state in hull, machinery for
and during the service”
• Not an undertaking but an obligation to ensure all maintenance done in a timely
fashion and with due care and skill. Tip top condition not expected.
• Under Common law charterer cannot refuse delivery of a ship on basis of vessel being
unseaworthy unless it goes to the essence of the contract.
• But charters usually contain clauses that allow for refusing to take delivery in certain
specific circumstances.
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Redelivery of vessel:
• Usually this covers a place or port or range of ports for the vessel to be returned to the
owner.
• What happens if redelivery elsewhere?
• Owner’s claim and mitigation costs / Owners fault
• Redelivery condition expected?
• “redelivery should be reasonable considering the trade” Wye Shipping Co Ltd v
Compagnie Du Chemin De Fer Paris Orleans 1922

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Important Clauses in Charter Parties - Time
This clause usually also sets out the time for the PTC or TTC to run –
• Trip Time Charter are usually in days/months WOG – 2 months could easily become 75
days or 40 days and owner would have to accept that flexibility unless one can
demonstrate the charterer knowingly misquoted the expected duration. Even there
congestion and weather factors need to be factored in.
• In Period Time Charters too there is flexibility but within reason.
• Examples – 5 days as okay on TC for 4 to 6 months – The Demoncritos 1975
• Effect of word “about” this implies a leeway of 4-5% or two weeks per year the charter
period.
• Where the margin is agreed in words like say “14 days more or less in CHOPTION” or “50
days min /max” then the judiciary avoid applying any further margin.
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• Failure to redeliver on time gives owners the right to claim damages – The
Achileas 2008
• Any off-hire days during the charter can be added to extend the hire period on
the basis the Charterer may have lost use of the vessel – The Kriti Akti 2004
• Damages are calculated basis:
o market rate for relevant period if that is higher
o if lower or same then at existing hire rate
• If vessel redelivered earlier – then damages owners can claim difference up to
expected time of redelivery if rate has fallen.

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• Last voyage v illegitimate voyage!
• Unpredictable markets in the last few decades has made these issues a prickly
subject
• An illegitimate last voyage is one “if performed would result in late redelivery after
expiration of the charter period” – The Gregos 1995
• All about reasonable expectation of the duration. If reasonable and no breach of
contract occurs due to charterer’s fault then owner can only claim existing hire.
• However, if owner feels orders are unreasonable then owners can refuse orders and
request new orders and if none come forth can treat the charter as ended and
seek new employment and then claim any damages. – The Diane 1975
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• However, if owners go along and perform the voyage they still retain their right to claim
damages for the excess period.
• Early redelivery - it is usual for an owner to either accept the ship back, get a
replacement charter and claim damages
Example of last voyage clause Shelltime 4:
“If at the time this charter would otherwise terminate in accordance with clause 4 the vessel is on
a ballast voyage to a port of redelivery is upon a laden voyage, charterers shall continue to have
the use of the vessel at the same rate and conditions as stand herein for as long as necessary to
complete such laden voyage and return to a port of redelivery as provided by this charter, as the
case may be.”
• Wording is therefore important

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Payment of Hire:
• Hire is the most important consideration component in a Charter Party contract for
owners.
• It is usually payable every 15 days in advance thus enabling owner to operate their
vessel instead of engaging any other method to finance the operations.
• It is usual for parties to include a clause in the contract permitting the owner to
withdraw the vessel from the charter is charterers fail to hire on time.
• Hire needs to be paid in cash (The Chikuma 1981) – immediately realizable and not
by cheque or by other instruments that might be dated or realizable some days
later (than the due date) is not a real payment.
• If payment is not forthcoming in time an owner might withdraw his vessel from the
charter
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Anti-technicality Clauses:
• As observed by Mance J in “The North Sea” - 1997, a withdrawal or cancellation
clause is a forfeiture clause and caution must always be exercised in any attempt
to extend the application of such clauses.
• “The Qatar Star” – 2010 is an additional prompt to owners to use great caution
when considering the withdrawal of their vessel from charters’ service as courts are
likely to construe anti technicality clauses in a manner favourable to the charterers
• Practical problems arising from non-payment of hire and withdrawal of vessel
• Duty to cargo under B/L contract
• Contractual lien on cargo
• Arresting charterer’s assets

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Off Hire:
If a vessel is not in full working status, it is causing a loss primarily of time to the charterer. The
Charterer’s requirement to pay hire is suspended.
Clause 15 of the NYPE 46 states:
“that in the event of the loss of time from deficiency of men or stores, fire, breakdown or damages to
hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, drydocking
for the purpose of examination or painting bottom, or by any other cause preventing the full working of
the vessel, the payment of hire shall cease for the time thereby lost; and if upon the voyage the speed
be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost,
and the cost of any extra fuel consumed in consequence thereof, and all extra expenses shall be
deducted from the hire.”
Some clause include the words “or by any cause preventing the full working of the vessel” or “or
any other cause whatsoever preventing the full working of the vessel”
Similar clauses appear in all trade CPs. known as “net loss of time clauses”.
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Off Hire:
• These are clauses/terms reduce the owner’s entitlement to hire, which puts the
onus of proof on charterers to show they are entitled to put the vessel off-hire.
• It is meant to give Charterers relief when they are prevented from using the
vessel in certain specified situations – eg. main engine breakdowns at sea when
steaming causing delay as opposed to undergoing routine engine repairs in
port which do not affect cargo operations.
• Similarly for crane breakdowns only net time is used to calculate off-hire.
• The examples show the charterer must show that vessel suffered an off-hire
occurrence and then show that time has been lost as a result to them.

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Off Hire:
• One also has “Period off-hire clauses” incorporated in Charter Parties, which
state the start and end period of off-hire.
• The start period is when the deficiency is noted and then end period is when the
vessel is fully working again.
• So in the examples in the above slide the vessel would be off-hire for the entire
period
• Other off-hire clauses include a provision that the ship cannot be placed off-hire
until say
• 24 hours or 48 hours (sometimes consecutive) after the off-hire event is triggered.
Such clauses given the owners an opportunity to rectify the problem before it
goes off-hire.
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Off Hire:
Pro rata off-hire clauses often found where vessel geared
The Marika M – 1981 judgement and the Intertanko 80 Clause 20 which states:
“Hire shall cease to be payable from the commencement of such deviation [for repairs] until the
time when the vessel is again ready to resume her service from a position not less favourable to
charterers than that at which the deviation commenced.”

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S&P key items for Charterer in calculating his likely profit.
The NYPE 46 states “…and capable of steaming, fully laden, under good weather conditions
about …knots on a consumption of about …tons of …best grade fuel oil…”
The NYPE 93 reads “Speed about …knots, fully laden, in good weather conditions up to and
including maximum force … on the Beaufort wind scale, on a consumption of about …tons of …”
• A Warranty of sorts
• Breech must go to root of contract – container vessels crucial
• Lorentzen v White Shipping 1943- held at the date of the charter and not continuing
• “about _ Knots on about __ mts IFO …” The Al Bida – 1987 – 0.5 knots & mt allowance
• Weather routing services
• When does it apply- at the beginning or continuing?
Performance, Speed & Consumption (S&C)
3636
• NYPE states in Clause 8 - “ … and charterers to load, stow and trim the cargo at their
expense under the supervision of the captain”
• Risk ?
• if wording changed to “ … and charterers to load, stow and trim the cargo at their expense
under the supervision and responsibility of the captain”
• Risk changes
• Discharge ?
• Custom of trade practices also prevail
• Inter Club Agreement – provided both entered in P&I Clubs – allocation of
responsibility between parties
Duty to Cargo

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• Bareboat Charters
• Effectively a lease
• Owner demises control and
possession to the charterer
• Not a contract of carriage
• Demise charterer (DC)
responsibilities
• Owner’s role – mortgage
repayment / insurance?
• Owner’s not entitled to exercise lien
on cargo for unpaid hire
• Form of charter useful for DC
without capital investment
• Used frequently for known long
term contracts
• Purchase option
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• Downturn and mortgage banks
• SPV Hire Purchase arrangements -
whether they fall under Admiralty law
• UK Law Sale of Goods Act 1979 does not
strictly apply to S&P of ships and
registration
• Some registries allow Demise Charterers
to register the vessel.
• Registration necessary to ensure
protection under international law.
• Hague Visby Rules consider BB Charterer
to be carrier
• Salvage entitlements
• Maritime liens aspect – insurance aspects
Bareboat Charters

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• Is the consideration payable to the
Carrier, usually the owner, for carrying
the cargo by sea under a fixture note
or voyage charter.
• Freight :
• Per weight
• Per Cubic
• Per Value
• Lumpsum
• Payment under common law –
deemed earned on delivery of goods
at destination
• Dilemma this can create – port rules?
Important Clauses in Charter Parties – Voyage Charters
Freight
4040
• Position can be changed in the freight payment clause by mutual agreement
• The Loma - 1983 – Owners introduced a clause which said “freight to be considered
earned on shipment”
• The Dominique – 1989 the clause stated “freight shall be pre-paid within 5 days of
signing and surrender of final bills of lading, full freight deemed to be earned on signing bills
of lading, discountless less non-returnable, if vessel and or cargo lost or not lost”
• Bills signed – ship arrested – owners unwilling to continue voyage – Charterers
argued freight never earned and owners repudiated CP before 5 days period
expired – Owner’s interests argued 5 days is merely facility – signature is trigger for
earing - House of Lords held in favour of owners /assigned bank “freight deemed
earned on signing”
Freight

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Similarly in Karin Vatis – 1988 Court held freight terms “95% of freight to be paid within 3 banking
days after completion of loading and surrender of signed bills of lading, vessel and/or cargo lost or not
lost, balance freight to be settled with 20 days after completion of discharge and Owner’s presentation
of laytime statements for load/discharge port”
meant even though ship and cargo lost thereafter, cargo to pay balance 5% freight.
Variations seen:
“freight deemed earned on shipment, ship and cargo lost or not lost”
“freight 85% payable in 5 banking days of sailing and balance with 30 days after completion of
discharge and Owner’s presentation of laytime statements for load/discharge port. Freight deemed
earned on after safe arrival”
Implications of these clauses –
No right to equitably off-set freight against short delivery unless there is express agreement
Freight
4242
• Payment to owner by Charterer arising from the charterer loading less than the
contracted to load quantity
Example: 10,000mt MOLOO – 9,000mt is minimum if instead only 8,000mt loaded
then charterer will still need to pay basis 9,0000mt and 1,000 is deadfreight
• Lumpsum freight – fixed sum owners entitled to despite quantity loaded by
charterer subject to maximum loadable per vessel’s capacity
Deadfreight

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• Many disputes arise between charterers
and owners on these issues.
• Laytime is the figure in terms of time that
has been agreed for cargo operations
at the load and discharge port. Laytime
will not start running until some clear
requirements have been complied with.
• The arrived vessel – fit and ready to
receive or discharge cargo
• NOR tendering
• Calculation of laytime – depend on the
clauses in the voyage CP and the SOF
• Demurrage – liquidated damages –
importance of setting this properly
• Calculation depends on exclusions terms
in CP; rate of demurrage; requirements
supporting demurrage claim
• “Once on demurrage, always on
demurrage” – meaning and exceptions
Laytime, Demurrage and Despatch
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• Despatch – reward payable when Charterer completes loading and or unloading in a
quicker time than the agreed laytime.
• Usually half the Demurrage rate
• Laytime reversible?
• Time bar
• Detention charges v Demurrage
Laytime, Demurrage and Despatch

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• A right to hold on to possession of someone
else’s property against a debt owed by
that person.
• Shipping liens are more complex.
• Common Law lien – dependent on having
possession of property.
• Equitable Liens – exist when possession lost
but which can be snuffed out once
property sold to party with no notice of lien.
• Contractual Lien – as laid out in contract.
• Maritime Lien – special not dependent on
possession or ownership passing to third
party
• Maritime liens aspect – insurance aspects
Important Clauses in Charter Parties
Liens
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Legal Aspects of Charter Parties – Basic Issues

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