Charter-Party: A Nucleus of Maritime Trade

Pradeep Jain, Nalini Mishra | August 2015

In the maritime trade, vessel is the nucleus of the maritime trade to transport cargo from one place to other. The contract which is known as the charter-party A contract of affreightment in writing, by which the owner of a ship or other vessel lets the whole, or a part of her, to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.

Like other contracts, charter-party also contains terms and condition defining rights and obligation of the parties. There are various standard forms of the charter-party like GENCON charter-party 1994, NORGAIN 89, OREVOY, issued by the Baltic and International Maritime Council (“BIMCO”) for the carriage of ore. GENCON 94, issued by BIMCO is the widely accepted form of charter-party.

COMPOSITION OF A CHARTER-PARTY

Charter party must contain following terms without any vagueness:

The name and tonnage of the vessel;
The name of the headowner, disponent ower, if different from head owner and charterer;
The names of the letter to freight and the freighter;
The place and time agreed upon for the loading and discharge;
The price of the freight;
Laytime period, rate of the demurrage or indemnity in case of delay/ early and period within which it is payable;
Governing Laws and place of arbitration;
Force majure along with exclusion clauses;
Appointment of shipping agents;
Such other conditions as the parties may agree upon.
Such other conditions as the parties may agree upon.

TYPES OF CHARTER-PARTIES THE VOYAGE CHARTER-PARTY:

In this type of the charter, the charterer hires the vessel for one or more specified voyages. The ship-owner controls the vessel and provides the equipment and manning and Bill of Lading issued by the master under the authority of the Owner;

THE TIME CHARTER-PARTY:

It is hired for the definite time period by the charterer. The ship-owner maintains control of the ship and the employees on board the ship. He is paid a “Hire” which is calculated on a daily basis and is usually payable in advance.

THE DEMISE OR “BAREBOAT” CHARTERPARTY:

The demise charter-party is also known as bareboat party. In this type of charter-party, for the duration of the charter the ship owner passes possession and control of ship to the charterer and he is no longer responsible for equipping the ship or employing the crew or insuring the vessel as in a voyage or time charter-party.

POINTS TO NOTE

Extreme care must be exercised in covering all features of the charter-party. Each word must be evaluated and considered. In addition, the following general categories must be reviewed by the interested party:

The relative advantages and disadvantages of time, voyage and bare boat charter;
The statements concerning the ship, her characteristics, position and situation- which may be implied if not express warranties;
The time and place of delivery and redelivery whether measured by time or voyage;
Provisions concerning safe ports and berths;
Liability as between owner and charterer for damage to goods or to the ship;
Warranty of seaworthiness of the ship, express or implied;
Deviation;
Payment of hire and cesser of hire;
Responsibilities of owner and charterer as to loading, unloading and demurrage;
The creation of liens both by the owner for freight and on the ship by the action of the charterer;
The type of bill of lading to be issued and by whom-the owner or charterer;
The so called cesser clause by which the nonbare boat charterer attempts to be relived of liability to cargo upon being shipped and freight paid;
The effect of the incorporation of the terms of the charter into the bill of lading from the viewpoint of the owner, charterer and the shipper;
Strikes, war, ice, frustration and related problems which threaten the venture embodied in the charter.

CHOOSING THE RIGHT CHARTER PARTY

Each charter party brings with it a separate set of obligations and rights, with some favouring owners and others the charterer. The relative strength of these two players in the negotiating tussle will determine on whose shoulders more of the burden will fall.

MAJOR DISPUTES ARISING UNDER CHARTER-PARTY

Commencement of laytime;
Arrival of ship;
Seaworthiness of ship and failure of gears or non-functioning of agreed gears of the vessels;
Responsibility of freight and timing of payment;
Obligation of Charterer and ship-owner;
Demurrage/ dispatch;
Issuance of Bill of lading;
Governing laws and arbitration clauses.

HOW TO TAME THE DEVIL KNOWN AS DEMURRAGE

It is said that vessel earn when she sails and become liability when stand idle. In majority of cases, it is not possible to load or discharge the cargo within stipulated time i.e. allowed laytime due to the reasons both within and beyond the reasonable control of the parties like unavailability of berth, unavailability of cargo, malfunctioning of equipment or issue arising of letter of credit, bad weather, closure of port due to orders of the authority etc. and here devil known as demurrage creates disharmony and cause disputes between the parties which blame other party for it and consequently wants to pay for it and if don’t agree then it leads to the expensive arbitration and here a well though drafting of the charter-party decides the fate of the winning and losing party and therefore a slight mistake and casual approach may lead party to a big loss in the form of demurrage and cost of litigations. And that is why charter party must be drafted carefully to tame devil known as demurrage.

About Author

Pradeep Jain

Pradeep K Jain is the Managing Partner at Singhania & Co., Mumbai Office, and an expert in Maritime and Corporate Law.

Nalini Mishra

Nalini Mishra - Senior Associate