Clauses and terms of a Voyage Charterparty

Deadweight cargo - this is a guarantee of the carrying capacity of the ship, without reference to any particular cargo proposed to be shipped, where reference to a particular cargo is made the guarantee will relate to the capacity to carry that cargo. If the vessel is chartered for a lump sum freight but is incapable of carrying the guaranteed capacity the charterer will be entitled to damages.

Now in position - is a stipulation as to the position of the ship, and is a condition of the contract, non-compliance of which means the charterer is entitled to treat the contract as repudiated and refuse to load.

Expected ready to load - this express provision, that the ship will be ready to load, is a condition. A breach of which allows the charterer to refuse to load. He is also entitled to damages unless the breach was caused by an excepted peril or if the venture has been frustrated.

Notice of Readiness. A Notice of Readiness is a communication to the charterer, shipper, receiver or other persons as required by the charter, that the ship has arrived at the port or berth, as the case may be, and is ready to load/discharge (Charterparty Definitions 1980).

The NOR must be given in accordance with the procedure in the Notice Clause or Laytime Clause in the C/P.

The NOR must be given within the ‘laycan’ period and before laytime can commence.

NOR usually be tendered during office hours from Monday to Saturday (but check the C/P for instructions). The C/P will normally state that laytime will commence a certain number of hours after NOR is given or accepted. If this is not stated, laytime will commence as soon as NOR is given. A few minutes delay in tendering on a Saturday morning could mean that laytime will not commence until Tuesday morning, even though cargo work starts earlier.

NOR usually need only be tendered at the first of two or more load ports, unless the C/P provides otherwise. Most modern charterparties contain an expressed provision making a written notice of readiness obligatory at all ports of loading and discharging.

NOR may (in common law) be oral, but for practical purposes (and because nearly all C/Ps require it) should be given in writing. Nor may be tendered by delivery of a printed form or letter, or by telex, fax or cable, unless the C/P provides otherwise.

NOR must be addressed to Charterers or their agent, not the owner’s agent.

Arrived ship – To determine whether the vessel has become an “arrived ship” within the C/P terms the master will need to know whether the C/P is a “port C/P” or a “berth C/P”. Which party bears the risk of delay following arrival of the vessel will depend on which type the C/P is. The agreed voyage is defined by the places named in the C/P for loading and discharging. If a port is defined as the place for loading, without stipulating a particular berth, the C/P is a port C/P. In this case the vessel becomes an arrived ship when:

· she has entered port limits;

· is fully at the Charterer’s disposal; and

· is fully ready to load in a place where ships waiting for berth in the port usually wait.

Sometimes doubt arises as to whether the ship is at the place where notice should be given. In such a case it would seem prudent to follow the advice given by the judge in the Timna Case: «I have considerable sympathy with the master in his predicament. It is a good working rule in such situations to give notice of readiness and to go on giving notices in order that when later lawyers are brought in, no one shall be able to say "if only the master had given notice of readiness, laytime would have begun and the owners would now be able to claim demurrage".( The Timna 1970). It would therefore be sensible, whenever in doubt, to serve notice of readiness on the charterers. If the charterer does not have notice, and is not otherwise aware of the readiness of the ship to load or discharge, laytime may not begin. When in doubt about Notice of Readiness – ASK.

The ship is in all respects ready to load – means the vessel is seaworthy and in every way fit to carry the particular cargo on the voyage contemplated by the Charterer. The vessel must be fully at the Charterer’s disposal, i.e. with derricks or cranes ready for operation, holds or tanks cleaned, prepared and surveyed, free pratique and customs clearance granted, etc. – unless the C/P allows otherwise, which it may do by the inclusion of a protecting phrase. At common law the duty to provide a seaworthy ship on presentation was absolute, i.e. no exceptions were allowed. However, most modern C/P forms have reduced the absolute obligation to a duty of exercising ‘due diligence’, i.e. doing everything which a prudent shipowner can reasonably do to make the vessel seaworthy without actually guaranteeing her seaworthiness.

Laydays – the period at the beginning of a charterparty during which the vessel must arrive at the location of loading. The last day of «laydays» is the cancelling day.

Cancelling Date - The fixing of a cancelling date in the charterparty merely gives warning to the shipowner that non-arrival by the cancelling date may go to the root of the contract so as to rescind. It does not relieve the shipowner of his primary obligation to proceed with all convenient speed to the port of loading, or of his secondary obligation, in the event of non-performance, to make reparation in money to the charterer for any loss sustained by him as a result of such non- performance.

Port - an area within which ships are loaded with and/or discharged of cargo and includes the usual places where ships wait for their turn or are ordered or obliged to wait for their turn no matter the distance from that area (BIMCO Charterparty definitions 1980). As she may safely get - where the charter expressly provides that a ship shall go to a safe port nominated by the charterer, he warrants that the port is safe. Also it must be a port from which she can safely depart. If it is not safe, the ship can refuse to obey the order e.g. insufficient water.

Safe Port - a port which, during the relevant period of time, the ship can reach, enter, remain at and depart from without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship (BIMCO Charterparty definitions). A temporary condition of danger will not make the port unsafe, provided that such condition will not last an unreasonable time. If the charterer nominates an unsafe port and the ship is damaged through going there, he will be liable for the damage, subject to the negligence of the master, i.e. the master knew the port was unsafe but insisted on going there. If the captain acted reasonably, the charterer is liable.

Safely as a laden ship - the ship is not bound to load part of the cargo in port and then take on board outside the port, the part of the cargo she could not safely load in the port, unless this practice is a custom of the port. If the ship is to load in a tidal harbour or river with a bar, and her loading is being completed at neap tides, the captain is not entitled to sail with less than a full cargo, though that is all with which, at the then state of the tides, he can get out. He must complete his cargo and wait for the spring tide that will enable him to leave.

Always afloat - is concerned exclusively with the marine characteristics of the port and requires that the vessel shall at all times be waterborne. It will not justify a vessel in declining to go to a berth where she cannot lie continuously always afloat, if she can do so partly before and after neap tides.

Vessel shall proceed - in the absence of express stipulations to the contrary, the owner of a vessel implicitly undertakes to proceed in that ship by a usual and reasonable route and without unreasonable delay. The route is normally the direct geographical route, but other routes are permissible where it can be proved in that case. A route may be a "usual and reasonable" although only followed by ships of a particular line and recently adopted. It is justifiable to deviate in order to save life or to communicate with a ship in distress or if it is involuntary, e.g. as a result of necessity. In the absence of an express clause, it is not justifiable if only to save property of others.

Deviation clause - clause allows the shipowner to proceed on a course other than "usual and reasonable" to save property.

Reaching the agreed destination - stated in the charterparty may be an area such as a river or port, or a precise place such as a particular berth, wharf, dock or mooring. An area may be stated with a proviso that, on arrival there the ship is to proceed to a particular port nominated by the charterer at a later date. The three main categories of stated destinations are those included in the following charterparties:

Berth Charter When a berth or wharf is named as destination, or is to be named later, the ship reaches the agreed destination on berthing alongside. Even where there is congestion in the port, bad weather or unfavourable tides etc., any risk of delay in going alongside falls on the shipowner, for laytime will not start to count until the ship is alongside the berth nominated by the charterparty.

Dock Charter When the charterparty names a dock as the destination, or provides for a dock to be named later, the ship becomes an arrived ship on entering the dock. The same principle applies if a quay or roadstead is named.

Port Charter When a port is named, the ship has reached the agreed destination when she has reached the place, within the commercial area of the port, where ships proposing to load or discharge her type of cargo usually wait, at the disposal of the charterers.

This position may be modified by using an expressed term such as "Ship to proceed to.... or as near thereto as she may safely get " This gives the shipowner an alternative contractual destination when an obstruction, which cannot be overcome by any reasonable means, makes it impossible to reach the agreed named destination, without waiting an unreasonable time. By reaching the alternative destination, the ship becomes an arrived ship for the purpose of satisfying the provisions of the laytime clause. Ice, blockades, congestion, tides, etc., could prevent the ship reaching the agreed destination, and with the above wording in the charterparty, laytime would count as soon as the ship reached an alternative destination allowed by the phrase: "as near thereto as she may safely get".

Cargo

Description - must be one reasonably complying with the terms of the charter.

Full and complete cargo - according to the custom of the port of loading. The charterer is under an obligation and is entitled to load the full cargo. Where the charterparty authorizes the loading of several types of cargo, the charterer may load a full cargo of any one, or more of them, even though this does not provide as much freight as expected, however he cannot choose to load goods that leave excessive broken stowage, he is obliged to fill up the spaces. The obligation to load is absolute and he is excused only where his failure to load is due to the fault of the shipowner, or where it is covered by an express provision of the charterparty, or where the charterparty is frustrated. The charterer cannot limit his obligation to the capacity named in the charterparty, but he must load as much cargo as the ship will carry with safety. Where the charterer fails to load a full and complete cargo, the shipowner may fill up with other cargo in order to minimize the damages, he may claim, and may delay for a reasonable time in so doing. The charterer is entitled to keep the ship in port during the laytime for as long as a full and complete cargo is not loaded, even if the cargo is deliberately with held by the charterer. The charterer must make and carry out arrangements for delivery of the cargo at the ship's side at the place of loading in time to load her within the agreed time after arrival and in ordinary circumstances nothing which prevents him from doing so will relieve him from his express or implied obligations to load in a fixed or reasonable time. In the absence of express provisions, the charterer will not be relieved from this obligation by causes preventing a cargo from being obtained such as:

· strikes (Grant v. Coverdale 1884);

· bankruptcy of merchants supplying cargo (Stephens v. Harris 1887);

· non-existence of cargo (Hills v. Sughrue 1846) or by causes preventing a cargo, when obtained, from being transmitted to the port of loading such as:

· ice (Grant v. Coverdale 1884);

· bad weather (Fenwick v. Schmalz 1868);

· railway delays (Adams v. Royal Mail Steam Co. 1858);

· Government orders (Ford v. Cotesworth 1868).

The charterer must perform his part of the operation of putting cargo on board, unless excused by express exceptions, the causes accepted being proved not merely to exist, but also directly involved in preventing the vessel being loaded. If the charterer proves that the usual and proper method of loading was prevented by excepted peril, the onus shifts to the shipowner to prove the existence of an alternative method.

Freight

Freight is the remuneration payable by Charterers to owners for the performance of the contracts, and may be called charterparty freight.

Freight must be paid, under common law, on delivery of the cargo to the consignee or his receiver at the agreed destination, in the absence of any term to the contrary. Freight is normally payable in accordance with the terms of a Freight Clause which stipulates the amount of freight, the time for payment and the method of payment. Freight is often payable under the C/P terms partially in advance, e.g. on loading or on the issue of B/L. Freight may depend in amount on the intaken weight of cargo, the outturn weight, the cargo volume, cargo value, or on some other stipulated basis.

Freight is not payable unless the entire cargo reaches the agreed destination, even if not the carrier’s fault, e.g. if the voyage is abandoned after a general average act. (Owners usually protect themselves by insuring against possible loss of freight, so that the freight insurers become a party to the ‘common adventure’ in General Average cases).

Freight is not payable where owners have breached the contract, but when cargo is delivered damaged, full freight is normally payable and a separate claim is presented by the cargo owners for damage.

If freight is payable in advance, it is collected by the port agent at the loading port before issue of a ‘freight paid’ bill of lading.

If freight is payable on discharge, it is collected by the port agent on presentation of an original bill of lading by the receiver.

Freight is not payable on delivery if cargo has lost its “specie”, i.e. changed its physical nature.

Freight may be of the following kinds:

· lumpsum freight;

· bill of lading freight;

· advance or pre-paid freight;

· pro-rata freight;

· ad valorem freight;

· backfreight; or

· deadfreight.

Lump sum freight not calculated on cargo carried, but on the voyage. To earn lump sum freight, either the ship must complete the voyage, or the cargo must be transhipped and delivered by the shipowner to its destination.

Bill of lading freight is freight calculated on shipped or intaken weights, as stated in a B/L and may be payable in advance or at destination.

Advance freight – is deemed to be earned as the cargo is loaded and may be the total freight or an agreed proportion of it, payable in advance at the loading port, the balance being payable on delivery of the cargo. It is not refundable if the vessel and cargo is lost. This type of freight is commonly required where cargo is shipped under a transferable B/L, as buyers of goods covered by a B/L often require a “freight paid” B/L. It is also often demanded by carriers of dry cargoes and is usual in the liner trade.

Pro-rata freight – is payable in common law where only part of the voyage has been completed, e.g. when the voyage is abandoned following an outbreak of war or an accident, and cargo is discharged at an intermediate port, or if the vessel had to leave port because of onset of ice.

Ad valorem freight is freight charged as a percentage of the value of a shipment, usually of high-value goods and is not normally used in voyage C/Ps, generally being confined to liner shipments. An ad valorem B/L is one on which the value of the cargo is recorded and under which the owner waives his right to limit his liability to the goods owner under the package limitation provisions in the contract, usually in return for the higher Ad valorem freight.

Back Freight - normal delivery at the port of destination may sometimes be prevented by some cause beyond the control of the master e.g.. a failure on the part of the cargo owner to take delivery. In such a case the master may and must deal with the cargo for the benefit of its owner by landing it, carrying it on, or transshipping it, as may seem best. The shipowner may then charge the cargo owner to cover the expenses thus incurred for his actions and efforts.

Deadfreight - the name given to the damages to which a shipowner is entitled for the charterer's breach of the contract in failing to load a full cargo. To sustain such a claim, the shipowner must prove that the charterer or shipper was aware that the vessel could carry more cargo and was given reasonable opportunity to provide the balance before the vessel left the loading port. If the charterer fails to supply a complete cargo, the shipowner is not only permitted to take reasonable steps to fill the ship with other cargo, he may be obliged to do so in mitigation of his damages for deadfreight. The shipowner is not entitled to deadfreight because, by the method chosen, less cargo can be loaded than by another usual method. Where the ship takes on board all she can ship, though in fact she loads less than a full cargo, the full facts have to be considered before arriving at a conclusion as to whether or not the charterer is liable for deadfreight.

Freight Payable - When there is no provision to the contrary, freight is payable on the delivery of the goods.

Loading/Discharging Costs. Gross Terms - the shipowner pays all the major costs of loading and discharging. The charterer has only the cost of delivery to the ship and the cost of heavy lifts loaded into the ship.

F.I.O. (Free In/Out) - the charterer pays the total loading and discharging expenses.

Laytime

Laytime is the time allowed to Charterers for cargo operations. Laytime is defined as the period of time agreed between the parties during which the owner will make and keep the ship available for loading/discharging without payment additional to the freight. Laytime should, in the interests of owners, start as soon as practicable. Laytime may be separate for load and discharge ports, or reversible (or ‘ all purposes’); the master should check the C/P. Laytime may be of three types:

1. Definite laytime – is stated in the C/P as a definite period of time, e.g. “6 (six) days…” or “48 running hours”.

2. Calculable laytime – is determined by making a calculation from information in the C/P, e.g. where a cargo weighing 20,000 tons is to be loaded at a rate of 10,000 tons per day, the laytime is 2 days.

3. Indefinite laytime – the C/P may state that the cargo is to be loaded with ‘customary dispatch” or “customary quick dispatch” or “as fast as the vessel can receive”.

Laytime can not start to count against Charterers until 3 conditions are fulfilled:

· The vessel has become an ‘arrived ship’ within the terms of the C/P;

· The vessel is in all respects ready to load/discharge; and

· Notice of readiness has been served on Charterers or their agent (or, in few cases, such as under the Shellvoy 4 C/P, when NOR has been received by Charterers or their agent.

Owner's Responsibility. The shipowner is quite free to exclude his liability for loss or damage to cargo in any way that he thinks fit with an express clause. In most charterparties the owner is responsible for loss or damage to goods only where the loss has been caused by the management of the cargo, or "personal want of due diligence" to make the ship seaworthy. The owner is not responsible for loss by any other cause, even neglect or from unseaworthiness of the vessel on loading or commencement of the voyage or at any time.

Other Clauses

Clause Paramount - identifies the wording of a clause to be inserted in the bill of lading the authority of the Hague Rules, or the Hague Visby Rules, or Hamburg Rules.

Lien Clause - Lien is the name given to the shipowner's right to retain possession of the goods carried on board his ship as security for payment of freight and other charges.

Cancelling Clause - may exist in a charterparty so that the charterer has the option, under the terms of the contract, of repudiating in certain circumstances.

General Average - money paid out by all involved in the contract for losses which arise in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and/or cargo. The amounts due are proportional to the interest that the participants had in the venture.

Indemnity - the shipowner maybe entitled, either by implication of law or by express agreement, to be recompensed by the charterer for loss caused by the charterer's actions. This recompense in monetary terms is based on the total freight due.

General Strike Clause - this clause is needed to explain the limits of the charterer's liability with regard to strikes. This exception only covers stoppages arising out of trade disputes.