Dry Cargo Chartering

Chapter 4
Chartering Contracts

Instructor: George Lambrou FCIArb, Solicitor Advocate

Partner, Thomas Cooper
SL 2015, G. Lambrou
 What is a Charterparty?

 A contract
 The terms of which are found:
 on the standard forms (NYPE, Gencon, Shelltime)

 Specially typed clauses

 Fixture re-cap

 Previous Charterparties

 Course of dealings between the parties

 Anything else which is expressly incorporated (international

conventions)
 Implied terms

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 Electronic Charterparty Handling

The New York Arbitration Convention

The Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, New York, 10 June 1958

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 Electronic Charterparty Handling

Article IV
1. To obtain the recognition and enforcement
mentioned in the preceding article, the party
applying for recognition and enforcement shall, at
the time of the application, supply:
(a) The duly authenticated original award or a duly
certified copy thereof;
(b) The original agreement referred to in article II or a
duly certified copy thereof.

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 Electronic Charterparty Handling

 Name and Domiciles

 Check that this is 100% correct.

 Company in good standing

 Company search

 Do they exist?

 Any Baltic Exchange announcements?

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 How to make sense of all the terms?

 Golden Rules of contractual interpretation under English Law

 Try to read all the clauses together if that is possible and

consider the contract as a whole.

 Only where there is a direct contradiction of terms, a specially

typed clause will be considered more important than a
standard clause

 You cannot consider what was deleted from the standard

contract

 You cannot go behind the plain words of the contract by

considering the parties negotiations.

 If the word is in the contract, it is there for a reason.

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 Breach of contractual terms- consequences

 Contractual remedies – what did the parties agree should

happen?

 Breach of contractual terms

 Damages –the aim is to indemnify the victim.
 To put the injured party is “to be placed in the same position
as if the contract had been performed.
 What would have happened if there was no breach?

 Entitlement to terminate the contract? Does the breach go to

the root of the contract?
 Specific Performance – not a single reported case
 Injunction – to maintain the status quo

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 The Cancelling Date

Gencon 92 Clause 1 – Owners and Charterers agree that the

vessel is at X port and expected ready to load at about the
date in box 9.

 An implied term that the vessel will sail from X port within a
reasonable time [Tarrabochla v Hickle (1856) 1 H & N 183]
 Expected ready to load is an undertaking on the part of the
Owner that at the date the C/P was agreed, he honestly and
on reasonable grounds expects the vessel will be ready to load
at the date in box 9
 Held to be a condition – “The Mihalis Angelos” (1971) *
{modification to para 2.1 of the book}

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 The Cancelling Date

 Clause 9 of Gencon 94 – the Cancelling Clause –

Charterers have the right to cancel the charterparty if the
vessel is not ready to load by the cancelling date.
 The contractual right to cancel only accrues when the
date has expired and not before.
 If charterers exercise their contractual right, there is no
breach of the C/P and therefore no right to damages.
 But neither do they need to prove breach of contract or
demonstrate loss.

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 The Cancelling Date - summary

 If the vessel is intentionally delayed or was never ever

going to make the cancelling date and Owners know or
should have known this, Charterers might be able to
terminate the contract based breach of the implied terms
and breach of Clause 1 – but difficult (“reasonable
grounds”, facts known or ought to have been known…) If
successful can claim damages.

 Charterer’s contractual right to cancel will accrue on

expiration of the cancellation date. Quick and easy but no
damages are available.

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 The Safe Port

 Implied term the Charterers must direct the vessel to a safe port
 Almost always an express term in the C/P. For example:
 “Load one safe port Ventspils” in a voyage charter contained a
warranty by charterers as to the safety of Ventspils [the
Archimidis (2008)]

 In a time charter, trading was limited to “safe ports, safe berths

and safe anchorages and places” applied as a warranty of
safety in respect of St Petersburg even though Owners
expressly agreed to a voyage “via St Petersburg” [The Latanita]
(2007) Commercial Court]

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 Why Charterers say these should not be
interpreted as Safe Port Warranties
 Such warranties are intended to protect owners from the
being directed to an unsafe port during a charter.
 They enable owners to refuse to follow orders to proceed to an
unsafe place, and to recover damages from charterers if they
proceed to an unsafe port and suffer loss as a result.
 It is not obvious that owners should be entitled to this
protection when they expressly contract to send their vessel
to, or via, a named port, which is what happened in The
Livanita and The Achimidis.
 It seems reasonable to expect owners to make their own
enquiries about the safety of a port before contracting to send
their vessel there.
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 What the Court held:

 Going back to our Golden Rules of contract:

 The words "safe port" appears in both cases and so, it must
have meaning.


 The only meaning of those words that makes sense is that

Charterers were giving a safe port warranty

 Even if, there was no commercial reason for them to have done
so.

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 What is a "safe port"?

" 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"-
"The Eastern City" [1958]

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 The Eastern City

 The vessel was chartered for a winter voyage from

"one or two safe ports in Morocco" to Japan.

 The charterers ordered the ship to load at Mogador,

where she was driven onto rocks next to the
anchorage by a strong gust of wind.

 It was held by the Court of Appeal that the port was

unsafe because it was exposed to sudden gales in
winter which tended to cause ships to drag their
anchors in unreliable holding ground in the
anchorage area.

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 When is a port unsafe?

It follows that a port will be unsafe if

it is always unsafe for any vessel, or

sometimes unsafe for any vessel, or
always unsafe for the particular vessel, or
sometimes unsafe for the particular vessel.

Conversely, a port will be safe if the particular vessel

on charter will only be exposed to danger through
negligent navigation or seamanship

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 The Ocean Victory [2013]

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 The Ocean Victory [2013]

 A Capesize bulk carrier on 10-year bareboat charter from

Ocean Victory Maritime Inc. to Ocean Line Holdings Ltd.
 The charter provided that the vessel was to be employed
"between good and safe ports".
 The bareboat charterer, Ocean Line Holdings Ltd, time
chartered the vessel to Sinochart, who agreed to employ her
"via safe anchorage(s), safe berth(s), safe port(s)".
 Sinochart sub-chartered the vessel to Daiichi for a trip time
charter "via safe port(s) safe anchorages(s) South Africa".
 On 24 October 2006, while trying to leave the Japanese port of
Kashima in a severe gale, part-laden with an iron ore cargo, the
vessel encountered force 9 winds and heavy swell. The vessel
was set down on the end of a breakwater and then driven
aground, before breaking up.

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 The Ocean Victory [2013]

 The claimants submitted that Kashima was an

unsafe port
 Charterers, submitted that Kashima was not unsafe,
and, even if it was,
 that the casualty was caused by negligence of the master in
leaving the port when he did and/or by negligent navigation.
 Kashima could not described as unsafe simply because its
systems did not guard against every conceivable hazard, and
that the pertinent consideration as whether there had been "a
reasonable" level of safety.
 They pointed out that no vessel had ever before been trapped
by a combination of wind and swell in the way that happened
to Ocean Victory.

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 The Ocean Victory [2013]

Court Held: had been unsafe for the vessel

• the storm that affected the port on 24 October 2006 was not abnormal,
because an abnormal occurrence was one that was unrelated to the
prevailing characteristics of the port.
• the danger facing Ocean Victory related to two prevailing characteristics
of Kashima: the vulnerability of the berth to long swell; and the
vulnerability of the Kashima Fairway to northerly gales caused by a local
depression.
• The judge accepted that it might be rare event for those two events to
occur simultaneously, but observed that it could not be a surprise if they
did so, and that in any event the key point was that they flowed from
features of the port.
• “reasonable safety” rejected. Safety subject to good navigation and
seamanship

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 The Ocean Victory [2013]

Court Held:
• Charterers liable for $137.7 million which
comprised
• $88.5 million for the loss of the vessel,
• wreck removal costs of $34.5 million,
• $12 million in SCOPIC costs pursuant to LOF 2000, and
• $2.7 million in lost hire.

• Who had to pay? The sub time charterers (time trip

charterers).

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 What is a "safe port"?

"the relevant period of time“

Question
What if the port is safe when Charterers order the
vessel to go there, but unsafe when the vessel
arrives? “The Evia 2”
Answer: the port must be “prospectively safe”.

2.2 book “It is important to note that the

undertaking of safety is for the point at which the
ship arrives at the port and not the time of
nominating the port” - well, almost….
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 What is a "safe port"?

"the particular ship"

Example
If, 10,000 ships use the port without any problem but
only your vessel suffers damage - is that a safe port?

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 What is a "safe port"?

"in the absence of some abnormal occurrence"

Question

Would an earthquake be an abnormal occurrence?

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 Would these make a port “unsafe” ?

• An obstruction in the port

• Temporary absence of navigational aids
• War
• Blockade

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 Would these make a port “unsafe” ?

• A legal system with no effective remedy to arrest–

The “Greek Fighter” [2006]
• Combined with a genuine risk of unlawful seizure

• An outbreak of Ebola

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 Descriptive Warranties and the
Consequences of Breaches

Must be correct at the time the charter is fixed

Implied term that the owners will not alter the ship
substantially to detriment charterers

Shelltime Clauses 1 & 24

NYPE lines 4-11

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 Descriptive Warranties and the
Consequences of Breaches

 Name
 Class
 Flag
 Present position
 Speed & Consumption
 Capacity

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 Descriptive Warranties and the
Consequences of Breaches

 So what if the Owners get it wrong?

Remember
Condition
Warranty
Innominate term

Does the breach go to the root of the contract?

Where the charterers deprived of substantially the entire benefit
of the contract?

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 War Risks and Similar Clauses

The Gencon War Risks clause (20 b)

Gives a broad discretion to the master and Owners but also

gives Charterers the option to nominate another port

….[If] it be considered by the Master or Owners in his or their

discretion dangerous or impossible for the Vessel to reach any
such port of loading or discharge—the Charterers shall have
the right to order the cargo or such part of it as may be
affected to be loaded or discharged at any other safe port of
loading or of discharge within the range of loading or
discharging ports respectively established under the
provisions of the Charter Party
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 Frustration of a Contract

 Impossibility of performance –
 Physical - CTL or loss
 Legal - chartered for a specific cargo is banned

 Supervening Illegality of the contract - sanctions

 Delay – must be a very long delay

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 Voyage Charterers

 Freight

An absolute right with no deductions

But how to make sure you get paid?

Deadfreight – the balance of the minimum due to owners

“20,000 mt 10% MOLOO”

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 Laytime

 The arrived ship

 The Johanna Oldendorff

 The ship must be ready an in a fit condition to receive

cargo
 “I am ready at the moment you want me, whenever that may be, and any
necessary preliminaries on my part to the loading will not be such as to
delay you”
 Contrast readiness of the ship, and readiness of the cargo (during
discharge)

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 Laytime

The Notice of Readiness – must contain two statements:

 The ship has arrived

 at its destination

 The ship is ready in

 all respects to load
or discharge at the
time the NOR is given

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 Laytime

Calculating Laytime & Demurrage

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 Detention

Loss which is different in character from the loss of

use of the vessel

A different kind of loss, a different measure of

damages

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 What is a Time Charterparty?

 A contract for a taxi

 The driver (master) goes where the charter
(customer) directs but the driver decides questions of
safety.
 The driver (master) is employed by the owners of the
taxi, not by the customer (charterer), but he works
for the charterer
 The customer (charterers) pay for
road tolls and parking (port fees)
But charterers pay for fuel.
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 Time of Delivery

 NYPE – lines 13-14

The time of delivery marks start of the time charter

 NYPE- lines 53 (clause 4) – and when hire commences

 Clause 14 – the cancelling clause

and creates an implied obligation to exercise reasonable
diligence to deliver the ship by the relevant date.

Not an absolute obligation

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 State of the Vessel on Delivery

 NYPE – line 22
“ready to receive cargo with clean-swept holds and
tight, staunch, strong and in every way fitted for the
service”.

Baltime form requires by lines 25 and 26 that the

ship is “in every way fitted for ordinary cargo
service”

 A condition precedent – if vessel not in this state, Charterers

can refuse to take delivery
 Or, Charterers can claim damages or terminate (when?) if not
in that state on delivery
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 State of the Vessel on Delivery
However what about

Clause 24 Clause Paramount – incorporates the Hague Rules ?

Article III, rule 1 of the Hague Rules) requires the owner to exercise due diligence “before
and at the beginning of the voyage” to make the ship seaworthy; to ensure she is
properly manned, equipped and supplied; and to make the cargo spaces fit for the
reception of cargo.

• Charterers can still cancel under the cancellation clause if vessel delivered in an
unseaworthy condition, but Owners will not be in breach unless they failed to exercise
due diligence.

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 Delivery

 NYPE Clause 5 – the Notice of Readiness – may only be

tendered under the NYPE form if the vessel is in the state
described at line 22 AND at the agreed place of delivery

 If not in a seaworthy condition charterers may

 Reject the vessel
 Accept and claim damages. Acceptance is not a waiver of the right
to claim damages.

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 Obligation to Maintain the Vessel

 NYPE Lines 37-38

Duty to maintain, but no absolute obligation to keep the vessel in

perfect condition throughout every minute of the charter period.

a) an obligation to keep up a prudent programme of

inspections and surveys, replacements and renewals
(preventive maintenance); and
b) (b) in the event that the ship, its machinery or equipment
becomes inefficient during the charter period, an
obligation to take reasonable steps within a reasonable
time to effect repairs (remedial maintenance).
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 Obligation to Maintain the Vessel

 the question whether the owners have exercised reasonable

diligence in maintaining the ship must depend to some
extent on whether the charterers’ use of the ship has
allowed the owners a reasonable opportunity to carry out
maintenance

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 Redelivery

Redelivery

Must be redelivered at the agreed place or range of

places (DLOSP or port)
Hire accrues until redelivery – even if redelivery is
late.

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 Redelivery

 “In like good order and condition”

Why is this here? Would you accept this term from

your taxi driver?

 An obligation to indemnify Owners for the cost of

repairing damage caused as a direct result of
following Charterer’s orders

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 Redelivery

 Can Owners refuse redelivery of a damaged vessel

and continue to charge hire?

“Charterer before redelivery, shall make all such

repairs and do all such work… at its expense and time”.

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 Redelivery

“Ordinary wear and tear excepted”

 Will depend on the trade for which the vessel is employed

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 Redelivery

 Charterers must redeliver within the agreed period of

time

 “ 8 months, 10 days more or less, in Charterers

option”

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 Illegitimate Final Voyage

An Illegitimate Last Voyage is one “if performed would result in late

redelivery after expiration of the charter period” – The Gregos [1995]

If the ship is redelivered late after a legitimate last voyage, Owners can
only claim hire (not damages)

If, by any reasonable calculation the voyage cannot be completed in time,

Owners may refuse orders and request new orders (like the taxi driver that
is getting off work)

Or, they can accept the order but claim damages (not hire) for the overrun
days.

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 Measure of Damages for Early Redelivery

WHAT IS THE MEASURE OF DAMAGES FOR THE EARLY AND WRONGFUL

TERMINATION OF A CHARTERPARTY?

 Basic principle: What is the basic principle?

 To be put in the same financial position as if there was no breach

 How to determine this:? Must compare the innocent parties financial

positon if had been performed vs position following termination.

 The innocent party’s position after termination will be assessed by

reference to the market:
- the innocent owner will recover no more (and possibly no less) than if he
had promptly re-chartered the vessel in the market.
- the innocent charterer will recover no more (and possibly no less) than if he
had chartered in another vessel in the market.

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 The “Elena D’Amico” [1980]

 FACTS: the owners wrongfully terminated a time

c/p with about one year remaining. The charterers
did not charter in a substitute vessel for their own
commercial reasons.
 HELD: even though they did not charter in a
substitute vessel on the market, the charterers were
entitled to recover the difference between the charter
and market rates for the balance of the c/p duration.
The charterer’s decision was their independent
business decision which did not arise out of the
transaction and therefore was irrelevant to the
assessment of damages.
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 Measure of Damages for Early Redelivery

 The Basic Rule: Contract Rate less Market Rate for

the balance of the charter party period
 Starting-point: what would the owner have earned
under the charterparty for the balance of the
charter period
 Charter rate x unexpired charter period
 Then make various deductions

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 Measure of Damages for Late Redelivery

 Where charterers fail to redeliver the vessel at the

end of the agreed charter period and the market
rate of hire at the time exceeds the charter rate, the
owners are entitled to damages compensating them
for loss of opportunity to take advantage during the
period of the overrun.
 The normal measure of damages is the difference
between the charter and market rates during the
period of overrun.

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 Measure of Damages for Late Redelivery

 But which market? Long term or short spot market

for balance of period?
 It will be for a market rate for a similar period of
time as the breached charterparty
 What about lost follow on fixture? “The Achilleas”
 The HL rejected the owners’ claim to recover any
losses incurred by reference to its chartering
arrangements on the basis of the “orthodox”
remoteness approach - ie: it was a loss “not
unlikely” too have occurred
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 Payment of Hire and Withdrawal

 The charterers’ obligation to pay on or before the

due date is an absolute one. it is enough to
constitute default that payment has not in fact been
made: neither deliberate nonperformance nor
negligence in performing the contract is required.
 If hire is not paid punctually, then under clause 5,
the owners are to have the right to withdraw the
ship. The right to withdraw is a right to terminate
the charter
 the relevant date is the date Owners have free
access to the funds- not when funds are sent.
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 Anti –technicality clause

The Astra

“. . . Referring to hire payment(s), where there is

any failure to make ‘punctual and regular payment’
due to oversight or negligence or error or omission
of Charterers' employees, bankers or agents,
Owners shall notify Charterers in writing
whereupon Charterers will have two banking days
to rectify the failure, where so rectified the payment
shall stand as punctual and regular payment.”

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 Dangers of Withdrawal

 Must comply strictly with the anti technicality

clause
 Must wait for the full period of time
 Must not delay to issue notice
 Must wait until midnight
 Failure to comply may lead to wrongful repudiation
of the C/P and substantial claims for the balance of
the charter period

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 The Practicalities of Withdrawal

 Is cargo still on board the vessel?

 What about obligations under the Bills of Lading?
 Who will pay port expenses and port dues?
 Suez canal fees?
 Costs of discharging?
 What is the value of bunkers on board?

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 Non Payment of Hire

 Remedies include:

 Arrest of bunkers
 Arrest of accounts – such as Rule B

 Arbitration
 Secton 28 US Code Section 1782 in aid of arbitration

 Do a deal with Sub Charterers?

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 Liens

 Clause 18 NYPE
 A lien is a right to possess someone else’s property against a
debt owned by that person.
 The lien is security – not a transfer of title
 Common Law possessory lien –such as NYPE Clause 18 -
requires actual possession of the cargo and is lost of cargo given
up
 Contractual lien – binds only those who are parties to the
contract - must be made with the owners of the cargo – not
always the Charterers who have not paid hire
 Bills of Lading – contract between Owners of vessel and owners
of cargo – will usually contain a lien clause

 G. Lambrou
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 Liens

Practical considerations

 Does the vessel need to keep trading?

 Vessel as free storage facility?
 Discharge into warehouse?
 What does local law say? Will the vessel be arrested for
wrongfully failing to delivery cargo to lawful holders of bills
of lading – who have paid for the goods?
 What if Charterers are bankrupt? What does the law of the
Charterers’ country say?
 Can Owners arrest unpaid freight? Sub freight? Are the
C/Ps back to back?
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 Offhire

 Clause 15 of NYPE 46

 All time charters contain an off-hire clause, excusing the

charterers from having to pay hire while the ship is
prevented from performing the charter service

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 Offhire – First General principle

the burden is on the charterers to show that the off-hire

clause operates in the relevant circumstances

“ the cardinal rule… in interpreting such a charter-party

as this, is that the charterer will pay hire for the use of
the ship unless he can bring himself within the
exceptions. I think he must bring himself clearly within
the exceptions. If there is a doubt as to what the words
mean, then I think those words must be read in favour of
the owners because the charterer is attempting to cut
down the owners’ right to hire.” Royal Greek
Government vs Ministry of Transport
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 Offhire – Second General principle

the off-hire clause does not depend on any

breach of contract by the owners

“Off-hire events are not necessarily a breach of

contract at all. So one should not be too
surprised if one finds that [the off-hire clause]
leads to a different answer than would ensue in
the case of a claim for damages for breach of
contract.” The Ioanna 1985

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 Offhire

 start by asking whether the full working of the ship has been
prevented

In The Aquacharm [1982] 1 Lloyd’s Rep. 7, Lord Denning, M.R., said

“We are to inquire first whether the ‘full working of the vessel’ has
been prevented. Only if it has, do we consider the ‘cause’.”

 A ship is prevented from working when she is

prevented from performing the next operation that
the charter service requires of her

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 Offhire

 If the vessel cannot sail, and

 charterers order her to proceed to discharge port?

 Charterers order discharge at the berth where the vessel is?

 Defective hatch covers on a ballast voyage?

 Defective hatch covers causing wet cargo, thereby causing

discharge to be delayed by 15 days?
 Unable to discharge because fighting fire in the hold?

 What if only part of the vessel is not working?

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 Net Loss of Time vs Period Off Hire

 NYPE is a net loss of time – must show there was an event

which triggers the off hire clause AND a loss of time

 Period Off Hire these stipulate the start and end of the period
so Charterers do not need to show loss of time. Period starts
with the deficiency, and ends when that deficiency is remedied

“In the event of loss of time from deficiency of men [etc.] … the
payment of hire shall cease until she be again in an efficient state
to resume her service.”

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 Performance, speed and consumption

 NYPE Clause 15
 Weather routing vs Master’s logs
 Definition of “good weather” “wave, wind etc>
 What is the warranty exactly?
 What does “about” mean?
 Are lines 9 – 10 deleted?

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 Responsibly for cargo

 NYPE Clause 8 - standard position – Charterers are at risk for

loading, stowing, trimming cargo

 If words “and responsibility” … of the Captain – position is

reversed and Owners are at risk

 The Inter Club Agreement

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 Bareboat Charters

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