Legal ,Commercial , Shipping contracts, Hague rules

Commercial Contracts
Charter Parties/Hague Rules/Hague Visby Rules/COGSA’25
EXTRA MASTERS
Capt. Pankaj Kapoor

All commercial contracts must satisfy the four
basic Ingredients of every contract
 Offer
 Acceptance
 Consideration
 Legality
All contracts are negotiated under the principle of LIASSEZ FAIRE

OFFER
Offer and acceptance are the most important essential for making a valid contract. Offer &
subsequent acceptance result in a definite promise.
The party who is making the offer called offeror and,
the party to whom is made for offer called the offeree.
You can make an offer to a particular individual, or a group, to the world at large, or the
general public. But it is offered to whom who is entitled to accept.
Invitation to treat
The offer must be distinguished from the invitation to treat. The invitation to treat is not a
contractual offer as it is just an invitation that one party has given to the other party. For
example, the display of goods in shops, supermarkets, and self-services stores to a
customer is an invitation to a consumer.

(Offer)
Invitation to treat
The offer must be distinguished from the invitation to treat. The invitation to
treat is not a contractual offer as it is just an invitation that one party has given
to the other party. For example, the display of goods in shops, supermarkets, and
self-services stores to a customer is an invitation to a consumer.
In the case of “Fisher v Bell” there was a flick-knife displayed in a shop. Under
“Restriction of Offensive Weapons Act” a case was filed against the
shopkeeper.Court ruled that, It did not constitute an offer to sell. But it is just an
invitation to the customer to make an offer. In this case, the shopkeeper is not
legally bound to sell goods to the customer at the displayed price. Based on this
rule, a display of products in a supermarket or self-service store is an invitation
to treat. There is no contractual offer formed.
SSENTIAL ELEMENTS OF A VALID CONTRACT (Sec.10)
1.Offer & acceptance.
2.Intention to create legal relationship.
3.Consensus - ad - idem.
4.Consideration.

(Acceptance)
Acceptance
Indian Contract Act 1872 defines acceptance as “When the person to whom the
proposal is made signifies his assent thereto, the offer is said to be accepted. Thus the
proposal when accepted becomes a promise.”
An offer can be revoked before it is accepted.
The offer has to be accepted unconditionally by the offeree to whom the request is
made, and only then would it amount to acceptance.
When the offer is accepted it becomes a promise.
Example
 ‘R’ offers to buy T’s house for USD 400,000 and ‘T’ accepts such an offer. Now, it
has become a promise.
 When an offer is accepted and it becomes promise it also becomes irrevocable.
There are no legal obligations created by merely giving an offer.

(Types of Commercial contracts in Shipping)
SOME OF THE COMMERCIAL CONTRACTS IN SHIPPING ARE
• Charter Parties
• Marine Insurance
• Seafarers Employment Agreements
• Collective Bargaining Agreements
Etc…..

(Charter Parties)
TYPES OF CHARTER PARTIES
Voyage Charter Party
Time Charter Party
Bareboat or Demise Charter Party
Hybrid Charter Party

(Voyage Charter Parties)
VOYAGE CHARTER PARTY
 This is a charter party for the carriage of a full cargo at an agreed and stipulated
rate per ton known as freight.
 It is a frequently used charter party of which there are many varieties, and most
commodities and trades have their own particular type to suit their purposes.
 Shippers of large quantities of bulk cargo have their own charter parties with
special titles such as “Grain", " Coal Charter Party", "Baltimore Grain Charter
Party", etc.
 Shipowner pays for cost of crew/fuel/port & pilot charges/insurance and
maintenance charges
 Vessel may be chartered for a specific voyage or a series of voyages

(Some terms of a Voyage Charter Parties)
Laycans: is the period or the window during which the vessel must present
herself at a particular place or location for loading her designated cargo
Laydays: Are the number of days fixed for loading or discharging or in the
case of “Reversible Laydays” total number of days allowed for both loading
& discharging together.
Demurrage: is the extra time taken by charterer for loading or discharging
beyond what is allowed under charter party. As charterer has used moe time
than what is allowed, he pays a certain pre-agreed amount to the shipowner
known as Demurrage.
Despatch: If the charterer completes either loading or discharging before
the expiry of the time allowed under charter party, then he is rewarded by
the shipowner. This is called Despatch and usually is “half of agreed amount
of demurrage” and appears as the abbreviation “DHD” in charter party viz:
demurrage half despatch

Condition: This is very strong term in a Charter Party and any breach in the
fundamental condition entitles the suffering party to repudiate the contract.
WARRANTY: Is not a very strong term in charter party . A breach of warranty can
at the most attract a claim for compensation but not repudiation of entire
contract.
INNOMINATE TERMS: are those terms which are not as strong as a conditions. A
severe breach could result in converting them into a condition and minor breach
could result in converting them into a warranty.
LIEN: Ship owners right of lien over cargo for payment of freight

(NOR)
Notice of Readiness: A Master is expected to tender NOR when both the following
conditions are satisfied namely (1) vessel is an arrived ship (2)Vessel is ready in all
respects to either load or discharge her cargo.
In the case of M/V Arundel Castle vessel was voyage chartered by the Owners under
the terms of an amended Gencon 94 form and pursuant to a fixture recap.
Clause 15 of the recap stated;
‘NOR to be tendered at both ends even by cable/telex/fax on vessels arrival at
load/disch ports within port limits’.
In addition clause 6(c) of the Gencon 94 charter party provides:
‘If the loading/discharging berth is not available on the vessel’s arrival at or off the
port of loading/discharge, the vessel shall be entitled to give notice of readiness
within ordinary office hours on arrival there… Laytime or time on demurrage shall
then count as if she were in berth and in all respects ready for the loading/
discharging provided that the Master warrants that she is in fact ready in all respects.’

(NOR)
The vessel arrived at the load port of Krishnapatnam, where she was unable to
proceed direct to the berth due to congestion. Under instructions the vessel anchored
at a location directed by the port authority and tendered the NOR.
The owners brought a demurrage claim against charterers which the charterers
disputed on the grounds the NOR tender was not valid as it was by all accounts
outside port limits. The case proceeded to arbitration.
The Arbitration Award
The main question was, was the vessel within port limits when the NOR was tendered.
The arbitrators identified the port limits by referring to the admiralty chart of the
relevant area. It was clear that the vessel was anchored outside of the geographical
limits of the port, therefore outside ‘port limits’.
The arbitrators awarded in favor of the charterers and held that the NOR was invalidly
tendered as it was not given within port limits as required under clause 15 of the
fixture recap which prevailed and took precedent over clause 6(c) of the Gencon 94.

(NOR)
The Owners appealed the Arbitration decision on the grounds of the definition of an
‘arrived ship’ arguing that ‘port limits’ should include areas where vessels are customarily
requested to wait no matter how far the distance. Referring to the case of Johanna
Oldendorff as set out by the House of Lords, where Lord Reid said:
‘Before a ship can be said to have arrived at a port she must, if she cannot proceed
immediately to a berth, have reached a position within the port where she is at the
immediate and effective disposition of the charterer. If she is at a place where waiting
ships usually lie, she will be in such a position unless in some extraordinary proof of
which would lie in the charter’.
The High Court Appeal Decision
The court dismissed the appeal upholding the position outlined in the Johanna
Oldendorff that the vessel must have reached a place within the port limits to be classed
as an ‘arrived’ ship. The court further noted that usual waiting places may not always be
defined as within port limits

(NOR case law)
In The Agamemnon [1998] was ordered for Baton
Rouge . Vessel arrived at SW pass where vessels
customarily wait and tendered NOR, i.e. before the
vessel had actually arrived at the port. NOR was
declared as invalid, notwithstanding that the vessel
was otherwise ready and in all other ways fit to
load/discharge cargo. As NOR was considered
invalid it could not serve to trigger the
commencement of laytime.

BILL OF LADINGS: This is one of the most important document in International
Transportation of goods. It has three functions namely
 They are documents of Title
 They are an evidence of a contract
 They are receipt for goods
This clause provides instruction to Master for signing Bills of Ladings.
Paramount Clause: This clause specifies the rules which govern the carriage of
cargo.

 Safe Port/Berth : As a commercial operator of the vessel it is
charterers duty to designate a safe port/safe berth. A safe port/berth is
defined as any port/berth where a vessel can enter , stay & depart
without any extraordinary efforts.
 New Jason Clause : Under this clause the owners are entitled to
recover from cargo owners in the contribution towards General
Average.
 Cessers clause : Whenever a Shipper and charterer are two different
persons then the shipper is allowed to absolve himself from all future
liabilities as soon as all his dues are cleared.

(Time Charter Parties & Clauses)
A TIME CHARTER party is when a vessel is hired for a specified period of time for
example 3 months,6 months ,one year etc.
Money earned by owners is termed as “Charter Hire” or “Daily Hire”. Usually the
charter hire is paid in advance for 15 days or 30 days depending on the terms of
the charter party.
Costs of fuel/port & Pilot dues are incurred by the charterers
CLAUSES OF TIME CHARTER PARTY
CONDITION: Already explained under Voyage charter party
WARRANTY: Already explained under Voyage charter party clauses
INNOMINATE TERMS: Already explained under Voyage charter party
SAFE PORT/BERTH : already explained under Voyage Charter party

 BIMCO 2020 Marine Fuel Sulphur Content Clause for Time Charter Parties
Since 1st January BIMCO recommends that all charter parties must have this
clause which provides that charterers must ensure that all bunkers supplied by
them must adhere to the "Sulphur Content Requirements" . This means any
Sulphur content and related requirements as stipulated in MARPOL Annex VI (as
amended from time to time) and/or by any other applicable lawful authority.
Also the Charterers shall indemnify, protect, defend and hold harmless the Owners
from any and against all losses, damages, liabilities, delays, deviations, claims,
fines, costs, expenses, actions, proceedings, suits, demands arising out of the
Charterers’ failure to comply with this subclause (b), and the Vessel shall remain on
hire throughout.

SEAWORTHY: Under a time charter owner has to ensure that the ship is never
sent out to sea in a unseaworthy condition.
Very Famous case law is that of THE STAR SEA
Three ships, the Star Sea, the Centaurus and the Kastora were beneficially owned by the
Kollakis family. Each was registered under a one-ship company, which in the case of
the Star Sea - was Manifest Shipping Ltd. A group insurance cover had been renewed for
another year over the 40 vessels in the fleet.
A year before this insurance policy was renewed, there was a fire in the engine room of
the Centaurus. The ship became a Constructive Total Loss (CTL). Within two months from
the first incident, the Kastora ship also became a CTL due to an engine room fire. A
surveyor appointed by the managers of the vessel, found the dampers in poor condition.
The directors of the claimants and the managing companies were aware of these facts.

Deficiencies in the Star Sea’s emergency fire pump were found in January 1990 by a port
authority surveyor who had inspected her after her arrest by cargo claimants. During
repairs of the fire pump, the chief engineer cut a suction pipe passing through the
forepeak ballast tank to a non-return valve in the ship’s side. Thought the repairs to the
pump were completed prior vessels departure the pipe section was not replaced. Absence
of this pipe affected the ship’s seaworthiness. On May 27th 1990, the Star Sea sailed from
Nicaragua bound for Zeebrugge with a full cargo of bananas, mangoes and coffee. Two
days later, as she was approaching the Panama Canal, a fire started in the engine-room.
The fire caused such an extensive damage to the vessel that she was declared as a CTL.
Owners claim for CTL was rejected by the insurers and the matter was referred to court.
Insurers defence were under Sections 17 (UBERRIMAE FIDEI) and Section 39(5)
(SEAWORTHINESS). Both their defences failed as under section 17 the underwriters were
unable to prove that the claim was fraudulent and under Sec 39(5) no evidence of privity
could be attributed to the directors / managers/owners.

Another recent recommendation of BIMCO is to insert a COVID 19 clause for Time
Charter Parties
BIMCO COVID-19 Crew Change Clause for Time Charter Parties 2020
In addition to any other right to deviate under this contract, the Vessel shall have
liberty to deviate for crew changes if COVID-19-related restrictions prevent crew
changes from being conducted at the ports or places to which the Vessel has been
ordered or within the scheduled period of call. Any deviation under this clause shall
not be deemed to be an infringement or breach of this contract, and Owners shall
not be liable for any loss or damage resulting therefrom.
During the period of such deviation the Vessel shall:
(i)* remain on hire, but at a reduced rate of hire of USD ……….. per day. In the
absence of an agreed amount, fifty per cent (50%) of the hire rate shall apply. The
cost of bunkers consumed shall be shared equally between Owners and
Charterers

DELIVERY/REDELIVERY CLAUSE : this provides the date /time/location where
the vessel has to be delivered to charterers and redelivered back to the owners
SALVAGE CLAUSE: provides the share of owners and charterers in the event of a
salvage. Usually it is 50/50.
OFF HIRE CLAUSE: This provides for circumstances under which a vessel will go
off hire

Both to Blame Collision Clause
(3)Carrier pays 50,000 to Non Carrier
(4)Cargo COLLISION
Owner pays
50,000 to
carrier (2) Non Carrier pays full
amount to Cargo Owners
(1)Cargo Owner Suffers loss of $100,00
CARRIER NON CARRIER

(Bareboat & Demise Charter)
BARE BOAT or DEMISE CHARTER:
In this type of charter, the bare vessel is handed over to the charterer for a fixed
time. These charters are usually for a long time and are sometimes followed by
purchase of the vessel on completion of the charter. It is the charterer’s
responsibility to operate the ship / employ Master and crew and at times even
change the funnel of the vessel.

(Hybrid Charter Parties)
These charter parties are a mixture or a combination of other charter parties for
example single voyage from point A to point B with an addition of one month (a
combination of Voyage & time)

COGSA’25
(Carriage of Goods by Sea Act)
 COGSA stands for Carriage of Goods by Sea Act 1925 and is hence
known as COGSA ‘25
 As India was under British Rule at that time,any act passed in UK was
automatically applicable to India too
 COGSA – UK was a result of recognition of Hague Rules by the UK
parliament
 Various countries have their own Carriage of Goods Act. They are all in
line with the Hague or Hague Visby rules.
In order to understand COGSA , it is important to have a fair idea of
Hague or Hague/Visby rules

COGSA’25
(Hague Rules)
A convention known as "International Convention for the Unification of Certain
Rules of Law relating to Bills of Lading” was held in Hague in 1924
It is popularly known as “Hague Rules”
The purpose of these rules was to establish minimum standards upon commercial
carriers of goods by sea.
The Hague Rules represented first attempt by the international community to find
a workable and uniform way to address the problem where shipowners regularly
used to exclude themselves from all liability for loss or damage to cargo under
common law. The objective of the Hague Rules was to establish a minimum
mandatory liability of carriers

COGSA’25
(Hague Rules)
SOME SALIENT FEATURES OF HAGUE RULES
1. "Goods" were defined as goods, wares, merchandise and articles of every
kind whatsoever except live animals and cargo which by the contract of
carriage in stated as being carried on deck and is so carried.
2. "Carriage of goods" covers the period from the time when the goods are
loaded on to the time they are discharged from the ship

COGSA’25
(Hague Rules)
3."Contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar
document of title, in so far as such document relates to the carriage of goods by sea, including any bill
of lading or any similar document as aforesaid issued under or pursuant to a charter party from the
moment at which such bill of lading or similar document of title regulates the relations between a
carrier and a holder of the same
Contract of Sale
Contract of Carriage
Endorses B/L in the name of Buyer
shipper/
seller
shipowner consignee/
buyer
Issues B/L

COGSA’25
(Hague Rules)
4. The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to:
(a) Make the ship seaworthy.**
(b) Properly man, equip and supply the ship.
(c) Make the holds, refrigerating and cool chambers, and all other parts of the
ship in which goods are carried, fit and safe for their reception, carriage and
preservation.
5. The shipper shall be deemed to have guaranteed to the carrier the accuracy at
the time of shipment of the marks, number, quantity and weight, as furnished by
him, and the shipper shall indemnity the carrier against all loss, damages and
expenses arising or resulting from inaccuracies in such particulars. The right of
the carrier to such indemnity shall in no way limit his responsibility and liability
under the contract of carriage to any person other than the shipper.

COGSA’25
(Hague Rules)
6. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:
(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation
or in the management of the ship.
(b) Fire, unless caused by the actual fault or privity of the carrier.
(c) Perils, dangers and accidents of the sea or other navigable waters.
(d) Act of God.
(e) Act of war.
(f) Act of public enemies.
(g) Arrest or restraint or princes, rulers or people, or seizure under legal process.
(h) Quarantine restrictions.
(i) Act or omission of the shipper or owner of the goods, his agent or representative.
(j) Strikes or lockouts or stoppage or restraint of labour from whatever cause, whether partial or
general.

COGSA’25
(Hague Rules)
(k) Riots and civil commotions.
(l) Saving or attempting to save life or property at sea.
(m) Wastage in bulk or weight or any other loss or damage arising from inherent
defect, quality or vice of the goods.
(n) Insufficiency of packing.
(o) Insufficiency or inadequacy of marks.
(p) Latent defects not discoverable by due diligence.
(q) Any other cause arising without the actual fault or privity of the carrier, or without
the actual fault or neglect of the agents or servants of the carrier, but the burden of
proof shall be on the person claiming the benefit of this exception to show that
neither the actual fault or privity of the carrier nor the fault or neglect of the agents
or servants of the carrier contributed to the loss or damage.

COGSA’25
(Hague Rules)
7. Any deviation in saving or attempting to save
life or property at sea or any reasonable deviation
shall not be deemed to be an infringement or
breach of this Convention or of the contract of
carriage, and the carrier shall not be liable for any
loss or damage resulting therefrom

COGSA’25
(Hague Rules)
8.Goods of an inflammable, explosive or dangerous nature to the shipment
whereof the carrier, master or agent of the carrier has not consented with
knowledge of their nature and character, may at any time before discharge be
landed at any place, or destroyed or rendered innocuous by the carrier without
compensation and the shipper of such goods shall be liable for all damage and
expenses directly or indirectly arising out of or resulting from such shipment. If
any such goods shipped with such knowledge and consent shall become a danger
to the ship or cargo, they may in like manner be landed at any place, or
destroyed or rendered innocuous by the carrier without liability on the part of
the carrier except to general average, if any

COGSA’25
(Hague/Visby Rules)
An convention for amendment to Hague rules was held in 1968 in Visby. This
came to be known as Hague/Visby rules.
India has not officially recognise Hague / Visby rules but has given effect to it by
enacting and amending COGSA ‘25.
Hague / Visby rules are more or less exactly same except for a few differences.
Some of the differences between Hague and Hague visby rules are
1. Limits of Liability has changed to 666.67 SDR* per package or 2 SDR/KG which
ever is more. By doing so Hague/Visby rules now recognise loss both by
number as well as by weight. This was not so in Hague rules.
2. Hague Visby for the first time recognised container trade by reference to Art
IV (5)(c)

COGSA’25
By checking the “Schedule” under COGSA 25,one would notice that most of the
Hague/Visby rules have been copied/pasted.
COGSA 25 is nothing else but Hague/Visby rules designed and drafted for Indian
circumstances.
Application of Rules -- Subject to the provisions of this Act, the rules set out in
the Schedule (hereinafter referred to as “the Rules”) shall have effect in relation
to and in connection with the carriage of goods by sea in ships carrying goods
from any port in India to any other port whether in or outside India.

COGSA ‘25
One major difference is the definition of GOODS under COGSA 25 which are
defined as
“Goods” includes any property including live animals as well as containers,
pallets or similar articles of transport or packaging supplied by the consignor,
irrespective of whether such property is to be or is carried on or under deck.
It is important to note that COGSA permits live animals, containers and carriage
on deck

COGSA ‘ 25
Just Like Hague/Visby rules COGSA also does not
demand Absolute warranty of seaworthiness by
providing that absolute warranty is not to be
implied in contracts to which Rules apply – There
shall not be implied in any contract for the carriage
of goods by sea to which the Rules apply any
absolute undertaking by the carrier of the goods to
provide a seaworthy ship.

COGSA ‘ 25
Another interesting aspect of both COGSA and Hague/Visby rules is the
conclusive nature of Bills of Ladings after transfer.
Both provide that
Such a bill of lading shall be prima facie evidence of the receipt by the
carrier of the goods as therein described in accordance with paragraph 3
(a), (b) and (c). However, proof to the contrary shall not be admissible
when the bill of lading has been transferred to a third party acting in
good faith.

COGSA ‘25
 The Shipper shall be deemed to have guaranteed to the carrier the accuracy
at the time of shipment of the marks, number, quantity, and weight, as
furnished by him, and the shipper shall indemnify the carrier against all loss,
damages and expenses arising or resulting from inaccuracies in such
particulars. The right of the carrier to such indemnity shall in no way limit his
responsibility and liability under the contract of carriage to any person other
than the shipper.
 Notice for loss or damage to the goods to be given within three days of
discharge
 Suit for loss or damage to be filed within one year of discharge

COMMERCIAL CONTRACTS
EXTRA MASTERS
Thank you

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