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The term "charter party" stands for the contract between the owner of a vessel and the charterer, which is the one that takes over the vessel for a certain amount of time or voyage. When there is an agreement or contract to carry some goods or provide a ship for carrying the same, a document called charter party contains the contract of affreightment. By this document the ship owner lets the ship for the purpose of carrying the cargo or undertakes to carry the full cargo on the ship.
As defined in the Black’s Law Dictionary, a charter party means a contract by which a ship or a principal part of it, is lead by the owner especially to a merchant for the conveyance of goods on a predetermined voyage to one or more places; a special contract between the ship owner and charters, especially for the carriage of goods etc
The contract of affreightment may be either in the form of bill of lading or charter –party. A bill of lading is a pure and simple contract to carry the goods whereas a charter party involves the complete hiring of the ship itself. In simple terms, if a ship is booked by a shipper for his exclusive use for a voyage or a for certain period of time, that is called a charter party.
Different Kinds of CharterCharter parties can be broadly classified into two kinds, namely, Voyage charter parties and Time charter parties. Time charter parties are also know as charter parties by demise because the ship is leased out to the charterer for the time being. Whether a charter party is voyage charter party of time charter party depends on the intension of the parties that will be shown in their contract. There is yet another kind of charter party known as Port, berth or dock - charter party.
Voyage Charter PartyAccording to Black’s Law dictionary, a voyage charter is a charter under which the ship owner provides a ship and crew, and places them at the disposal of the charterer for the carriage of cargo to a designated port. The voyage charterer may lease the entire vessel for a voyage or a series of voyage or may lease only a part of the vessel (by space charter party)
Under a voyage charter the vessel is let out to the charterer for a specific voyage. The ship owner will be paid ‘freight’ which will cover its costs, including fuel and crew, as well as its profit. Legally, freight is a special type of payment, as the usual rule of set off will not apply to it. A set time, ‘lay time’, will also be provided for the loading and discharging operations. If these operations exceed the permitted lay time, the ship owner will be compensated by ‘ demurrage’ at the rate set down in the charter. For its part, the ship owner owes the charter the duty of proceeding with reasonable dispatch on the charter party voyage, or voyages, in the case of a consecutive voyage charter.
A voyage charter differs from time charter in many respects, but primarily in that it is a contract to carry specific goods on a defined voyage or voyages, the remuneration of the ship owner being a freight calculated on the basis of the quantity of cargo loaded or carried or sometimes a lump sum freight.
A Voyage charter party usually carries a cancellation clause that gives the charterer the right to cancel the charter if the ship is not as his disposal at the port of loading at the specified time. The charterer would have to fix a cancellation date before exercising this right.
Time Charter PartyA time charter party is also known as charter party by demise. Morgan defines time charter as “a contract for the hire of a ship or charter party for a specified period of time; the charter pays for the bunker fuel, fresh water, port charges etc in addition to the charter hire.”
According to Blacks law dictionary, “charter for a specified period, rather than for a specific task or voyage; a charter under which the ship owner continues to manage and control the vessel but the charter designates the ports of call and the cargo carried. Each party bears the expenses related to its functions and for any damage it causes.” Also termed as catch-time charter.
A charter by demise operates as a lease of the ship itself, to which the services of the master and the crew may or may not be superadded. The charterer becomes for the time being the owner of the vessel; the master and crew become his servants and through them the possession of the ship is in him.
Under a charter not by demise the ship owner agrees with the charterer to render services by his master and crew to carry the goods that are put on board his ship by or on behalf of the charterer. In this case it was held that the ownership and also the possession of the ship remained with the original owner through the master and crew though the charterer has the temporary right to have his goods loaded and conveyed in the vessel.
Port, Berth Or Dock Charter – PartyA charter party that simply states the port at which the ship shall be made available is called “port charter party”. Where the ship is to be made available at the specified at the specified loading spot in a port or dock, it is called berth or dock charter party. In such a case the obligation of the charterer is to bring the ship at the specified berth or dock. If that place is not in a position to receive the ship due to some congestion or some other cause, the waiting period would go to the ship owners account.
In the case of a port charter party, it is enough for the ship owner to bring the ship to the area of the port where ships usually wait for berth and from where it can be put at charterer. Such area is designated as the commercial area of the port. There have been difficulties in identifying the commercial areas of a port. But the house of lord held that the emphasis has been not on distance from the loading place but upon the fact that the ship should be at the disposal of the charterer.
Usual Clauses of Charter partyIt is open to the parties to include in a charter party or contract of affreightment any lawful terms. But many such terms have now become more or less stereotyped and are known as usual clauses of a charter party. The use of these laws depends upon its relative importance some of such terms are:
Ready to LoadCharter party usually contains a statement as t the position of the ship. In certain circumstances such a statement may become the term of the contract. Any breach of this term entitles the charter to repudiate the contract. For example, in Bentsen v. Taylor sons and Co , a charter party dated march 29 descried the ship “as now sailed or about to sale to the United Kingdom”, and that the ship after discharging homeward cargo, shall proceed to load. But in fact she sailed to the United Kingdom on April 23. The parties then entered into correspondence. The ship arrived and the charterers refused to load.
The court went on to hold that the main substance of the contract was the description of the ship as “now sailed or about to sail”. The court then took a look into the subject and went on to hold that the above said description is not a mere warranty and so the defendants had the right to repudiate the contract. But their correspondence amounted to waiver such right to repudiate and they were liable for their freight subject to their right to recover such damages as they could prove that they had sustained by reason of the breach of the condition. The court then looked into the clause that the “ship is expected ready to load” at a given date. But the court went on to hold that this does not mean that the ship must not be in such a position, it only means that there must be a honest belief, founded on reasonable grounds, that the ship will be load at that date. But the ship at that was not ready to load until a long time after wards but a representation was made without any reasonable grounds for making it and this was a breach of condition.
Similarly any statement as to the position of the ship may also be considered as a condition. For instance the words that “the ship was now in a port of Amsterdam” were held to be a warranty or condition precedent . A statement by the owner that the ship is “expected ready to load under this charter about July 1 1965” has been held to be a condition.
Fit for VoyageCharter parties usually provide that ship shall be “tight, staunch and strong and every way fitted for the voyage”. The court of Appeal has admitted in Hong Kong fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd that it is difficult to distinguish whether such statements are conditions or mere warranty. In this case a charter party provided that the ship was “in every way fitted for ordinary cargo services”. The experience of the voyage was different as the ship kept breaking down time to time. Actually this was due to incompetence and inadequacy of the engine room staff. But it was held that the statement as to the seaworthiness of the ship was not a condition and the charterers were restrained from repudiating the contract.
Diplock LJ in Bentsen v. Taylor sons & Co said that stipulation as to the sea worthiness of a ship is of complex nature. He said that “The ship owners undertaking to tender a seaworthy ship has, a result for numerous decisions as to what can amount to unseaworthiness, become one of the most complex of contractual undertakings. It embraces obligations with respect to every part of the hull and machinery, stores and equipment and the crew itself. It can be broken by the presence of trivial defects easily and rapidly remediable as well as by defects which must inevitably result in total loss of the vessel.
Full and Complete CargoFull and complete cargo means that the charterer undertakes to supply the agreed cargo lest the ship owner may suffer loss of freight. In Heathfield Co Ltd v. Rodenacher, the charterer refuses to load more than 2673 tonnes. But the full and complete cargo would have been 2950 tonnes. The court held that the charterer aught to have loaded full complete cargo and freight was payable accordingly. In another case, the charterer agreed to load cargo not less than 6500 tones and not exceeding 7000 tones. The court laid down that the words ‘not less than 6500 tonnes’ was a warranty given by the ship owner to the charterer that that much quantity can be loaded and the words ‘not exceeding 7000 tones’ was a binding condition preventing the ship owner from asking more quantity than 7000 tonnes. In this case the ship owner asked for more than 7000 tonnes and the charterer was forced to bring than quantity. He brought that under duress and protest. Now the ship owner claimed extra freight for that extra quantity. But the ship owner was not allowed to recover the extra freight for that extra quantity.
The ship owner is also bound to provide sufficient space on board for full and complete cargo. In Darling v. Recburn the ship owner loaded large amount of bunker coal than what was required for that voyage and this reduced the space for full and complete cargo which resulted in reducing the cargo. The ship owner was held liable for the expenses.
A clause giving protection to failure to load the cargo will apply only if the loading itself is prevented and not where the party is unable to bring such goods to the port. Loading can be prevented by strikes, frosts or other unavoidable accidents. In a decided case the goods could not be brought to docks due to frost. The House of Lords held the charterer responsible for the delay in loading as the frost has not prevented the loading but the bringing of the goods to the docks.
‘King’s Enemies’ and ‘Restraints of Princes’The charter parties usually provide that the ship owner would not be liable in certain events. For example there would be no liability on events arising out of ‘act of god’ or because of ‘national enemies’. Such perils or dangers are known as excepted perils. The words ‘King’s enemies’ mean the enemies of the country or the sovereign of the person who made the bill of lading. All restraints or interruptions made by any lawful authority are considered as ‘Restraints of Princes’. The dangers from the sea pirates are not included in this category. In a decided case a ship owner was justified in the non performance of a contract which involved the voyage through turkey. It was obvious that the ship would be seized because of the war between Turkey and Greece . In this case the war has already been declared but if there was only a mere speculation that there would be a war, the charterer cannot be justified if he repudiates the contract. A voyage, which involved the risk of the ship being sunk by the German submarines, was held to be one that involves the risk of seizure or capture . If the intervention of the restraint is due to the negligence of the ship owner, he cannot avail the exception of this clause.
Perils of SeaCharter parties also contain an exception in favour of the dangers of the sea, i.e., if the goods are lost or damaged on account of a peril of the sea, the ship owner would not be held liable. The term peril of the sea does not cover every accident or causality which may occur to the goods in the ship. It must be a peril “of” the sea. The natural action of winds and waves is not considered as perils of sea. There must be some causality, some which could not be foreseen as one of the incidence of the adventure. For example the cargo in a ship was damaged due to the collision of that ship with another ship which according to the House of Lords was a peril of the sea.
In Hamilton, Fraser & Co v. Pandorf & Co , rice was shipped under a charter party which contained the exception for ‘the dangers and accidents of the seas’. During the voyage some rats gnawed a hole in a pipe on board the ship which resulted in the seepage of sea water and damaged the rice. Here the rice was damaged without the neglect of the ship owner or the crew. The court held that damage was within the exception of perils of sea and the ship owners were not held responsible for the loss. In this case if rats directly damaged the rice then it would have amounted to the neglect of the crew and they won’t be getting this exception because there is no direct relation between sea and this accident. But here the sea water damaged the rice and this was not a foreseeable accident. Similarly a damage caused by the collision of two vessels due to the negligence of either of the vessels will not be a peril of sea.
4.0 Persons Bound By The Charter PartyApart from the ship owner and charterer, the following persons are bound by a charter party.
4.1 Part owner of Shares in shipAny part owner of a ship may object to its employment in any particular way, though such employment is under a charter made by a managing owner appointed by himself. In such a case that part owner will neither share the profits nor be liable for the losses of such voyage.
4.2 PurchaserThe purchaser or assignee of a partial interest in a ship under charter is bound by the charter in existence, but is not liable for expenses or losses on charters that were completed before his purchase.
4.3 Mortgagor or MortgageeA mortgager in possession has by statute the powers of an ordinary owner, except that he must not materially impair the value of the mortgagee’s security. Any charter that does not impair his security therefore binds the mortgagee out of possession, and the burden of proving that a charter is of such a nature is on him.
But the mortgagee is not bound by a charter, entered into by the mortgagor after the mortgagee, which does impair the mortgagee’s security – e.g. a charter to carry contraband of war to a port of a belligerent power at a time when insurance against the risk of capture is impossible.
Insurer or UnderwriterAn underwriter on a ship, by acceptance of notice of abandonment of a ship, becomes entitled to freight earned by her subsequently but does not become entitled to the benefits or liable to the obligations of any pending contract of affreightment.
A charter party is a very vast and prospective topic to research upon. The problem which I faced during the research was the lack of books by Indian authors in this regard. The issues of charter parties are discussed in Carriage of Goods by Sea Act, 1925 and the (Indian) Bills of Lading Act, 1856. Besides, the Merchant Shipping Act, 1958 also touches this topic. I think more express provisions should be made in the Sale of Goods Act in this regard. This being a project of special contracts, I found it very difficult to relate the project to the Sale of Goods Act.
1. Sir Alan Abraham Mocatta and Sir Michael J. Mustill and Stewart C. Boyd, Scrutton on Charterparties and Bills of Lading, 19th Edition, Sweet and Maxwell.
2. Avtar Singh, Law of Carriage – Air, Land & Sea, 4th Edition, Eastern Book Company.
3. Simon Baughen, Shipping Law, 3rd Edition, Cavendish Publishing Ltd.
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ISBN No: 978-81-928510-0-6