Master of Laws (LLM)
Postgraduate Diploma in Laws
Postgraduate Certificate in Laws
Carriage of goods
by sea
Module B: Time charter
parties
Academic year 2021–22
M. Özdel
LWM05B
This Study Guide was prepared for the University of London by:
̆ Dr Melis Özdel, LLB, LLM, PhD, Advocate (Turkey), MCIArb, Specialism Convenor
for Graduate Maritime Law Studies at University College London (UCL); Lecturer in
Maritime and Commercial Law, UCL; Director, UCL Centre for Commercial Law.
The University of London gratefully acknowledges the contribution of A.D. Hughes
BCL, MA (Oxon), Barrister (LI), former Director, External Programme in Laws, University
of London; formerly Sub-Dean of the Faculty of Laws and Senior Lecturer in Laws at
King’s College London, in the preparation of the first edition of this Study Guide.
This is one of a series of Study Guides published by the University. We regret that
owing to pressure of work the author is unable to enter into any correspondence
relating to, or arising from, the Guide.
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Contents
Contents
Chapter 1: Introduction..........................................................................................1
1.1 Carriage of goods by sea.........................................................................................1
1.2 The course.................................................................................................................. 3
1.2.1 Introduction to the Study Guide................................................................ 5
1.3 Introduction to Module B......................................................................................6
1.4 How to use this Study Guide............................................................................... 7
1.4.1 The examination............................................................................................8
1.4.2 Preparation for the course..........................................................................9
1.4.3 Allocating your time.....................................................................................9
Chapter 2: Nature of time charters, description of ship, delivery date
and cancelling clauses......................................................................................... 13
Introduction...................................................................................................................13
2.1 Nature of time charters........................................................................................13
2.2 Description of the ship........................................................................................ 14
2.2.1 Identity............................................................................................................ 14
2.2.2 Speed and fuel consumption................................................................... 15
2.2.3 Effect of clause paramount....................................................................... 16
2.2.4 Other characteristics...................................................................................17
2.3 Delivery date and cancelling clauses.............................................................. 18
2.3.1 Laycan.............................................................................................................. 19
Chapter 3: Charter period and redelivery.......................................................... 21
Introduction.................................................................................................................. 21
3.1 Charter periods and tolerances......................................................................... 21
3.1.1 Non-calendar-based time charters.........................................................22
3.2 Redelivery, overrunning the final terminal date........................................22
and early redelivery
3.2.1 Effect of giving orders for an illegitimate last voyage..................... 25
3.2.2 Option to complete last voyage...............................................................26
3.2.3 Off-hire periods............................................................................................26
Chapter 4: Hire, remedies for non-payment, ‘off-hire’ clauses,
deductions from hire and liens on freight and sub-freight.......................... 29
Introduction..................................................................................................................29
4.1 Mode and time of payment.............................................................................. 30
4.2 Off-hire clauses...................................................................................................... 32
4.3 Deductions from hire..........................................................................................36
4.4 Owners’ liens on freight and sub-freight..................................................... 37
4.4.1 Nature of lien................................................................................................ 37
Chapter 5: Employment and indemnity............................................................41
Introduction.................................................................................................................. 41
5.1 Orders as regards employment.........................................................................42
5.1.1 Master’s duty of compliance.....................................................................43
5.1.2 Owner’s right to indemnity......................................................................43
5.2 ‘Master to sign bills of lading as presented’................................................ 44
i
Carriage of goods by sea: Module B
Notes
ii
Chapter 1: Introduction
Chapter 1: Introduction
1.1 Carriage of goods by sea
Carriage of goods by sea has been the backbone of international trade
since ancient times. This age-old yet sophisticated commercial activity
remains to this day of importance to traders selling and purchasing
goods across territorial borders for profit. The business of carriage
of goods by sea is obviously risky. A cargo carried aboard a ship may
arrive late or in damaged condition, or it may not even arrive at all. Due
to bad weather conditions, a chartered ship may stay at anchor for days
before the cargo can be loaded or discharged.
The risk of sea carriage has, over the centuries, given rise to a great
number of disputes between carriers and various other parties who
have an interest in the vessel and her cargo. These parties include:
•
a charterer of the ship under a voyage or time charter party
•
a shipper of cargo aboard the vessel
•
a ‘lawful’ holder of a bill of lading in respect of part or all of the
cargo to whom the rights to receive the cargo, or part of it, and to
sue the carrier in contract have been transferred
•
a person named as a consignee in a sea waybill or ship’s delivery
order in respect of part or all of the cargo to whom the rights to
receive the cargo, or part of it, and to sue the carrier in contract
have been transferred.
In essence, the law of carriage of goods by sea is concerned with how
the risks of sea carriage are allocated between owners and charterers,
as well as between carriers, whether owners or charterers themselves,
and cargo interests (whether shippers of cargo or lawful bill of lading
holders, who have the right to receive part or all of the cargo carried).
Although the law of carriage of goods by sea also draws on the laws
of agency, tort and bailment, the disputes between these parties are
generally contractual in nature. For this reason, it is generally possible
for the parties to allocate the risks between each other by contract
provisions. Where a contract between the parties is silent as to the
allocation of a particular risk, the common law rules apply in principle
to the question of allocation of that risk.
There are two common forms of contract of carriage, namely charter
parties and bills of lading. Apart from these, a contract of carriage of
goods by sea may be contained in or evidenced by various other types
of transport document, such as sea waybills, ship’s delivery orders and
multimodal transport documents. Although carriage of goods by sea is
a commercial activity, allocation of the risk of sea carriage is not always
based on freedom of contract. A set of standard conditions of liability,
the Hague-Visby Rules (which are scheduled to the Carriage of Goods
by Sea Act 1971) may apply by force of law to a contract of carriage
covered by a ‘bill of lading or any similar document of title’ (this issue is
discussed in Module D).
1
Carriage of goods by sea: Module B
A number of issues arise from these various contracts of carriage. These
issues include:
•
Will the carrier be able to claim the payment of agreed freight (or
keep it if it has already been paid in advance)?
•
Will the shipper, or bill of lading holder, be able to claim any
damages if the cargo covered by the relevant bill of lading has been
lost, damaged or delayed?
•
If a chartered ship has to wait at anchor for days before the cargo
can be loaded or discharged because the port is congested and no
berth is available, can the shipowner pass any of the cost arising
from the delay on to the charterer? Nothing illustrates more
graphically the old saying ‘time is money’ than the sight of a large
cargo ship lying idle outside a busy port!
The negotiating process generally takes the form of adapting one of
the many available standard forms of contract to accommodate the
variables of the transaction at hand.
•
Shipping lines and frequent shippers will probably have their own
forms of bills of lading.
•
Large-scale charterers, such as the major oil companies, have their
own standard voyage charter parties (e.g. SHELLVOY 5) and time
charters (e.g. SHELLTIME 4).
•
Many commodity traders have their own standard forms of charter
party (e.g. NORGRAIN, NIPPONORE, NUBALTWOOD) and the forms
issued by:
•
BIMCO (the Baltic and International Maritime Conference), such
as: ‘BALTIME 1939 (as revised 2001)’ and ‘Gencon’
•
the Association of Shipbrokers & Agents (USA) Inc (ASBA), such
as NYPE 93 and NYPE 2015 (the New York Produce Exchange
form)
are very widely used.
Many of these are reproduced in the appendices to the recommended
textbook (Wilson), and the Guide will direct you to those parts that
repay detailed study.
The reliance on standard forms has had a profound influence on the
way the courts approach this area of the law. The great modern master
of commercial law, Lord Diplock, in The Maratha Envoy [1978] AC 1,
pointed out that what he aptly called the ‘exegesis’ by the courts of
standard terms enables the parties to know exactly what they are
agreeing to and provides legal certainty at the negotiating stage.
The courts should not – and generally do not – regard a hard bargain
as going to the merits of the case, to be taken into account in doing
‘justice’. ‘The only merits of the case’, said Lord Diplock, ‘are that parties
who have bargained on equal terms in a free market should stick to
their agreements.’
Many other judges have emphasised the need for certainty in this area
of the law. Lord Bridge of Harwich referred in The Chikuma [1981] 1 WLR
315 to the ‘overriding importance’ that the meaning and legal effect of
common form clauses should be certain and well understood, so that
2
Chapter 1: Introduction
whichever party seeks legal advice the answer will be the same, and
neither will be tempted to ‘embark on long and expensive litigation in
the belief that victory depends on winning the sympathy of the Court’.
Combined with the need for certainty is a desire on the part of the
courts to reach solutions which accord with the understanding and
expectations of businessmen. As Lord Goff of Chieveley put it in The
General Capinpin [1991] 1 Lloyd’s Rep 1: ‘clauses must be construed
from the objective point of view of reasonable persons in the shoes of
the contracting parties’. In that case, the deciding factor in choosing
between rival interpretations of a novel form of wording in a laytime
clause (see Chapter 6, Introduction, for the meaning of ‘laytime’) was
that the meaning chosen was:
the reaction of commercial men (i.e. the arbitrators), who must
have been well aware of the practical consequences of their
decision, and who must also have been well aware how charterparties are negotiated and how they are likely to be understood
by practical men in the trade.
1.2 The course
It will be apparent from what has been said so far that the course looks
at the problems arising both:
•
where a ship is chartered for the carriage of cargo under a time or
voyage charter party and
•
where the relations between the shippers (or other cargo interests
such as subsequent holders of the bills of lading) and the carriers
are in issue.
Voyage charter parties are the most basic, and historically the oldest, of
the contracts for the use of a ship to carry goods by sea.
For that reason you will study voyage charter parties in this module,
along with the underlying common law principles governing:
•
the sea carrier’s liability
•
the scope of exemption clauses
•
two important areas of law which are inseparable from voyage
charter parties:
•
the law relating to laytime and demurrage (i.e. how much time is
allowed for loading and unloading the cargo, and what are the
financial consequences of exceeding the contractually allotted
time (known as ‘laytime’)
•
the principles governing the payment of freight.
As the name suggests, voyage charter parties are concerned with
the carriage of goods on a particular voyage. Since the Second World
War there has been a tremendous growth in the use of time charters
(i.e. taking a vessel on hire for a period of time during which – in the
classic form of time charter – the charterers will expect to make a
succession of voyages). The legal problems raised by time charters
differ considerably from those of voyage charter parties, which are
considered in Module B.
3
Carriage of goods by sea: Module B
In Module C you will study the three functions of bills of lading in
English law as:
•
evidence of the terms of the contract on which the goods are
carried
•
a receipt indicating the quantity of goods carried and their
condition
•
a document of title that enables the shipper to transfer the right
to obtain delivery of the goods at their destination and to sue the
carrier in contract to the consignee.
Students of commercial law generally, and in particular those who are
familiar with the law of international sales, will be aware of the vital role
that bills of lading play in international trade.
Finally, in Module D you will study the international conventions
governing bills of lading, namely:
•
the Hague-Visby Rules, which have become part of English law
through the Carriage of Goods by Sea Act 1971 (which we will refer
to as COGSA 71)
•
the Hamburg Rules (i.e. the United Nations Convention on the
Carriage of Goods by Sea 1978)
•
the Rotterdam Rules (i.e. the United Nations Convention on
Contracts for the International Carriage of Goods Wholly or Partly
by Sea 2008).
These conventions were prompted by the dissatisfaction of cargoowning nations with the regime of carriers’ liability typical of English
law, which was seen as being weighted unfairly in favour of the carriers.
Through the eyes of some developing countries, the Hague-Visby
Rules were believed to tip the balance too much in favour of carriers.
This prompted a search for a convention giving more protection
to cargo interests, and shortly afterwards the Hamburg Rules were
adopted in 1978. However, it would be difficult to argue that the entry
into force of the Hamburg Rules was a step towards the promotion
of harmonisation and certainty; the Hamburg Rules failed to replace
the Hague-Visby Rules, and therefore brought about even more
fragmentation to the international law on the carriage of goods by sea.
The existing conventions on carriage of goods by sea fall short of
responding to many changes, such as the rise of door-to-door carriage.
On 11 December 2008, the United Nations General Assembly finally
adopted a resolution relating to the United Nations Convention on
Contracts for the International Carriage of Goods Wholly or Partly by
Sea (the Rotterdam Rules), and on 23 September 2009 the rules were
formally opened for signature. For the rules to enter into force, they
need to be ratified by at least 20 states; the rules have not yet entered
into force.
Although the Hamburg Rules are not part of English law, they can
nevertheless have a significant practical impact where shipping to and
from developing countries is concerned and will require careful study.
With the passage of many years already since the Rotterdam Rules
were opened for signature, it is doubtful whether they will ever enter
4
Chapter 1: Introduction
into force. Nonetheless, the Rotterdam Rules also require careful study
because of the significant changes that they would bring to the law of
international carriage of goods by sea if they were to enter into force.
1.2.1 Introduction to the Study Guide
This Study Guide acts as a focal point for the study of Carriage of
goods by sea, a University of London Postgraduate Laws Programme.
It is designed to guide you through the various important elements
of the subject and, in particular, the difficult areas that you need to
master for the examination. As well as guidance with regard to the
sources in which you will find the information you require to develop
your knowledge of the subject, you are given learning outcomes and
activities for each chapter, which you should complete before moving
on to the next area of study. Some feedback and advice as to how to
approach your answers is also given (to help you to know whether you
need to spend more time on a particular topic). You should try hard to
resist the temptation to look at the feedback before working out the
answers for yourself. Without lectures or seminars to attend, only you
can decide how your available study time will be spent: you must use
the time sensibly and constructively.
Aims and outcomes of the course
Course aims
The primary aims of this course are to enable you to:
•
learn the principles of law governing sea carriers’ liability at common law,
voyage charter parties, time charters and bills of lading and other types
of transport document, namely sea waybills, ship’s delivery orders and
multimodal transport documents
•
gain a deeper understanding of the process of judicial interpretation of these
contracts
•
widen your knowledge of shipping and commerce
•
develop your powers of legal reasoning.
These skills will be important both for the examination and in your future career.
Course outcomes
By the end of the course, and having completed the Essential readings and
activities, you should be able to:
•
interpret the relevant statutes, conventions and contractual terms
•
explain the principles and concepts derived from decisions
•
focus on critical analysis
•
apply legal principles to hypothetical dispute situations
•
distinguish between the principles applicable to different sets of
circumstances.
The Study Guide does not purport to be a comprehensive statement of the law.
Its function is to highlight the materials that will help you on your way to a better
understanding of the subject and will enable you to perform to the best of your
ability in the examination.
5
Carriage of goods by sea: Module B
1.3 Introduction to Module B
The subject matter of Module B is the law relating to time charters. It
is covered in Chapter 4 of Wilson, with the exception of the topics of
cancelling clauses and liens on freights and sub-freights, which are
to be found in Chapters 3 and 13, respectively. Charters by demise
(or ‘bareboat charters’), which operate as a lease of the ship and give
the charterer possession and complete control for the duration of the
lease, are excluded from the syllabus.
Under a time charter, in return for the payment of hire, the owners
put the ship together with the master and crew at the charterers’
disposition to perform whatever services the charterers require within
the limits implied by the law or set by the agreement. The master takes
instructions from the charterers except on matters of navigation.
By comparison with the voyage charter parties dealt with in Module A,
time charters are a modern phenomenon. They differ fundamentally
from voyage charter parties in their commercial and legal structure.
Under a voyage charter party, the owners bear some of the major
financial risks of the adventure, notably the risk of delay in finding
employment for the ship on completion of the current voyage.
However, in a time charter it is for the charterers to find continued
employment for the ship. As long as the charterers do not become
insolvent, the owners will continue to receive the hire even if the ship
lies idle.
Charterers have implied obligations to:
•
nominate safe ports
•
indemnify the owners against the consequences of carrying out the
charterers’ instructions (except where the agreement places the risk
on the owners).
Apart from this, the legal structure of time charters owes little to
common law principles and depends almost entirely on the terms of
the agreement between the parties.
Can the owners withdraw the ship if an instalment of hire has not been
paid? No – unless the charter permits this (which it invariably will) and
then only subject to any conditions laid down in the charter.
Can the charterers withhold (or claim back) payments of hire if the ship
cannot provide the services that the charterers require? No – unless the
charter provides that the ship is to be ‘off-hire’ in the events which have
happened.
The one major intervention by the courts in recent times has been
to establish principles governing the owners’ remedies when the
charterers continue to use the services of the ship beyond the
contractual date for ‘redelivery’ – the so-called final terminal date.
For obvious legal and commercial reasons, most time charters are
concluded by incorporating standard forms (BALTIME 1939 (as revised
2001), NYPE 93, NYPE 2015, SHELLTIME 4, etc.) to the circumstances of
the particular agreement. This results in many of the reported cases
dealing with the interpretation of standard clauses and so placing a
high premium on certainty.
6
Chapter 1: Introduction
Knowing the main features of the standard forms will help you to
understand how time charters work and will often lighten the task
of reading the cases. Reference to the standard forms and the courts’
interpretation of them will often provide effective ammunition for
arguments on the meaning of non-standard clauses appearing in an
examination problem and add polish to your answers.
The texts of BALTIME 1939 (as revised 2001), NYPE 93 and SHELLTIME
4 can be found in the appendices to Wilson, and the text of a sample
copy of NYPE 2015 can be found on the web at www.bimco.org (note
registration is required with the site to access the sample). You should
devote some effort to learning the principal operative clauses. In this
Study Guide, reference will be made principally to NYPE 93 and NYPE
2015, and the sometimes contrasting provisions of BALTIME 1939 (as
revised 2001) and SHELLTIME 4.
The responsibility of the time charterers and shipowners towards cargo
and cargo interests will be discussed in Module C at 2.4 and Module D at
2.2.
Learning outcomes for Module B
By the end of this module, and having completed the Essential readings and
activities, you should be able to:
•
decide the meaning and effect of time charter clauses dealing with the issues
stated below
•
discuss whether the solutions adopted by the courts strike a proper balance
between the conflicting interests of the parties
•
explain what breaches by the owners will relieve the charterers of the
obligation to continue with the charter
•
advise whether the charterers have made use of the services of the ship
beyond the agreed redelivery date (or sought to do so) and explain the
financial consequences if they do
•
advise on the charterers’ obligations with regard to the payment of hire
and the remedies open to the owners if the charterers fail to perform those
obligations in accordance with the charter
•
advise whether an event has occurred that puts the ship off-hire
•
explain the charterers’ responsibilities if the owners suffer loss by carrying out
the charterers’ instructions.
1.4 How to use this Study Guide
This course requires a systematic and methodical approach. The
subject is intellectually demanding, and you will not have the lectures,
tutorials or group pressure from other students that you would have
were you to complete the course internally. In any case, postgraduate
study is extremely demanding because there is substantial reading
to be done. Furthermore, those of you from civil law jurisdictions and
non-lawyers will need to devote even more time to the subject because
of the different way of learning a common law subject. However, with
determination, commitment and planning you should be able to
complete the course successfully – with the help of this Study Guide.
Each of the four modules of this Study Guide (Modules A–D) is selfcontained, but they must be studied and examined in the sequence A,
B, C, D.
7
Carriage of goods by sea: Module B
Follow the guidance given in the learning outcomes and attempt the
activities at each stage before you proceed any further. In order to
remember the cases (of which there are many), it is advisable that you
devise a method that is suitable for you. As you may have experienced
in your previous studies, the human memory is enhanced if the
principles of cases are noted in clear and succinct notes either by using
a card system or another clear form of note taking. It also helps to note
details such as names of ports involved and type of cargo.
Psychologists suggest that mind maps have a more long-term effect
on learning than a linear method of note taking. This method can be
used in addition to the short notes you should have made. When you
have completed your study of a chapter, make a specific design, based
on the shape of brain nerves, on a large piece of paper. Place the title
of the topic in the middle of the sheet and design branches in a form of
brain nerves (hence ‘mind map’) in which you print sub-concepts with
the relevant authorities on sub-branches and a few words about what
each concept and authorities are concerned with.
For help see The Mind Map Book (BBC Active, 2009) by Tony Buzan, who
invented this method of learning, or you can find a sample of a mind
map on the internet.
To make your revision interesting you may use a variety of colours for
different sub-headings and relevant designs according to the theme
of a case. These visuals will enhance and trigger your memory. With a
glance at the principles and cases written on such a revision sheet, your
brain will easily register the contents and you can go back to your other
longer notes should you need to refresh your memory.
Although such a method may at first seem time consuming, once it is
done it will be a valuable way of strengthening your memory and will
save you time later in your revision. Repetition is key in all learning.
1.4.1 The examination
Important: The information and advice given in the following
module is based on the examination structure used at the time
this Study Guide was written. However, the University can alter
the format, style or requirements of an examination paper without
notice. Because of this, we strongly advise you to check the
instructions on the paper you actually sit.
Your understanding of the material covered by the syllabus for this
module will be assessed by an unseen written examination of 45 minutes’
length, with reading time. To the extent that there are any prerequisites
for this module, knowledge of the materials covered in them may be
necessary to answer the questions on the examination for this module.
The questions are designed to cover important points from each
module of the syllabus, as you will see in the examples of examination
questions given. You must practise and master the technique of
answering full examination questions once you have completed each
module of the Study Guide.
In the case of practical problem questions, the examiners are looking
for your ability to identify and state the issues involved. Look at what
you are asked to do, for example whom you will have to advise, so that
8
Chapter 1: Introduction
your mind is directed to the relevant facts and issues. The advantage
of practical questions is that you are given the boundaries of what
you need to focus on. Deal with each of the issues involved by stating
the principles (supported by relevant authorities or statutes), then
applying the principles to the facts given. Present a clear and orderly
structure: you should not start your answer by giving the advice, which
should be given at the end of each issue after you have presented your
arguments.
Essay questions, however, may be tricky: you will have to find the
boundaries from the words used in the question (which will help you
to structure your answer and find the limits of that question). However,
they must be read carefully. Make clear to the examiner what you have
understood from the question and provide a short framework for your
answer. Some essay questions are statements designed to provoke and
thus stimulate and encourage your critical analysis and debate. Such
statements may not necessarily be true. You have to be imaginative
and use your lateral thinking skills. You must have read adequately
from the sources given. You should avoid writing everything you know
about the subject of the question. Remember that your answer must
have:
•
a beginning (how you are going to approach your answer)
•
a middle (where you set out the detail of your argument supported
by authorities)
•
an end (your conclusion, in which you summarise your answer
briefly).
Original but relevant analysis is highly rewarded.
1.4.2 Preparation for the course
Bear in mind that the reading required for any postgraduate course
is substantial. For this subject, in particular, you are required to study
a considerable number of important decisions. But you are guided
on how to proceed and which sources to pay more attention to than
others. It is therefore extremely important to start with enthusiasm and
a system in order to complete, at the very least, all Essential reading. The
Useful further reading will help you to complete the picture. It will all
become clear to you at the end. Remember, though, that you will not
be able to do all your reading at the last minute, but gradually, while
making clear notes. Your revision from your clear notes will be time
efficient. Do not leave questions unanswered and always complete the
learning activities. Be disciplined and use your time constructively.
1.4.3 Allocating your time
It is impossible to say with great precision how much time you should
set aside for studying Carriage of goods by sea because you will all
have individual learning rates depending on your circumstances,
fluency in English and any prior study of law. Furthermore, some topics
of the syllabus require considerably more time than others.
However, as a full-time Postgraduate Laws student you are expected
to spend approximately 120 hours studying and preparing for the
examination for each module of this course. It is advisable to set aside a
9
Carriage of goods by sea: Module B
specific amount of time each week to study each course, increasing the
amount in the six weeks before the examination.
Some topics of the syllabus will require considerably more time than
others. My best advice is that you should allocate a specific amount of
time each week for the study of the course with a view to completing
your study of all topics in the syllabus so as to leave ample time for
revision before the examination.
Reading
The Study Guide refers you to various reading resources. These are
divided into Essential reading and Useful further reading.
Essential reading
The essential basis for your study is:
•
Wilson, J.F. Carriage of goods by sea. (Harlow: Longman, 2010) 7th edition
[ISBN 9781408218938] (referred to throughout the course as ‘Wilson’).
Your reading of this text must be supplemented on every topic by study of the
judgments in the leading cases. Summaries of some of the leading cases can be
found in:
•
Rogers, A., J. Chuah and M. Dockray Cases and materials on the carriage of goods
by sea. (London: Routledge, 2016), 4th edition [ISBN 9781315749754].
These are the core textbooks at the time of writing. Both of these books are
supplied in PDF format via the Online Library. To access copies go to the Online
Library and visit the e-book resources at: http://onlinelibrary.london.ac.uk/
resources/e-books. In due course, we may start using different editions, or
different textbooks altogether. Details of any change in supplied textbooks will be
provided on the VLE.
Summaries of some cases can also be found in:
•
Martin-Clark, D. Case notes, available online at www.onlinedmc.co.uk.
The Study Guide will indicate which cases are important for an understanding of
each topic.
In addition to the core textbooks essential reading is derived from a variety of
journal and electronic sources:
•
A lot of the case law and primary sources of law are available in the Online
Library, which you can access through the Student Portal. The journal archives
of Lexis Nexis and Westlaw are key in this respect.
•
PDF scans of some other readings can be downloaded from the course area of
the eCampus (also sometimes referred to as the virtual learning environment
or VLE).
•
Other material may be freely available on the internet via the websites of
government departments or organisations operating in the field.
At the time of writing all of the Essential reading should be available to you.
10
Chapter 1: Introduction
Useful further reading
The essential reading listed in this Guide is just the minimum that you need to
study and understand in order to pass the course. If you want to increase your
chances of achieving a good pass, you need to go beyond that minimum. You will
not be able to research every topic exhaustively, and you are not expected to, but
you should try to read further on the topics that you find particularly important or
interesting.
Please note that the University cannot undertake to provide you with all the
items of further reading that we list in this Guide. However, scans of some further
readings are available to download from the eCampus and you should also be
able to find material through the Online Library and other free online resources.
There are several ways to identify useful further readings. For example, you
could try looking up case reports, articles or other documents mentioned in
the essential reading. And the internet is a hugely valuable research tool. Just
entering some key words about a concept, notion, doctrine or principle into
Google or another standard search engine should help you to identify the titles of
interesting articles which you may then be able to find in the Online Library.
The following textbooks are useful further reading for the course:
•
Schofield, J. Laytime and demurrage. (Abingdon: Informa Law from Routledge,
2016) 7th edition [ISBN 9781138892026].
•
Coghlin, T., A.W. Baker, J. Kenny, J.D. Kimball and T.H. Belknap Time
charters. (Abingdon: Informa Law from Routledge, 2014) 7th edition
[ISBN 9780415833660].
•
Treitel, G. and F.M.B. Reynolds Carver on bills of lading. (London: Sweet &
Maxwell, 2012) 3rd edition [ISBN 9780414048522].
•
Cooke, J. et al. Voyage charters. (Abingdon: Informa Law from Routledge, 2014)
4th edition [ISBN 9780415833608].
•
Eder, B. et al. Scrutton on charterparties and bills of lading. (London: Sweet &
Maxwell, 2015) 23rd edition [ISBN 9780414051188].
Statutes and conventions
•
Carriage of Goods by Sea Act 1971.
•
Carriage of Goods by Sea Act 1992.
•
United Nations Convention on the Carriage of Goods by Sea 1978 (the
Hamburg Rules).
•
United Nations Convention on Contracts for the International Carriage of
Goods Wholly or Partly by Sea 2008 (the Rotterdam Rules).
11
Carriage of goods by sea: Module B
Notes
12
Chapter 2: Nature of time charters, description of ship, delivery date and cancelling clauses
Chapter 2: Nature of time charters,
description of ship, delivery date and
cancelling clauses
Introduction
In this chapter you will gain an overview of the principal obligations
undertaken at the making of a time charter. Those aspects that require
more detailed consideration are dealt with in the following chapters.
The most important issue here is to determine whether a particular
statement or undertaking has the character of a condition of the
contract or is merely an innominate term. As we saw in Module A,
Chapter 2, the significance of the distinction is that any breach of
condition, however slight, by one party gives the other party the
option of refusing further performance – always assuming that this
course of action is a practical possibility – whether or not the breach
causes loss. There is also a right to sue for damages in respect of any
actual loss, whether or not the option of refusing further performance
is exercised. Where an innominate term is broken, the option to
refuse further performance only arises if the breach is serious enough
to deprive the other party of substantially the whole benefit of the
contract.
Learning outcomes
By the end of this chapter, and having completed the Essential readings and
activities, you should be able to:
•
identify breaches by the owners of terms relating to the description and
characteristics of the ship let
•
explain, by reference to authority, whether a term that has been broken is a
condition or an innominate term and, if the latter, whether the charterers have
the right to refuse to continue with the charter
•
derive an argument on principle from the authorities if the given case does
not fall within existing precedents.
2.1 Nature of time charters
Essential reading
•
Wilson, pp.85–88.
In the classic phraseology, ‘the Owners agree to let and the Charterers
agree to hire the vessel from the time of delivery for a period of’ (see
NYPE 93 and NYPE 2015, clause 1). Except in a demise or ‘bareboat’
charter, no proprietary interest passes (see NYPE 2015 and NYPE 93,
clause 26: ‘Nothing herein stated is to be construed as a demise of the
vessel to the Time Charterers’) and words such as ‘let’ and ‘delivery’ are to
that extent inappropriate.
13
Carriage of goods by sea: Module B
‘Delivery’ is defined (NYPE 93, clause 2) as the placing of the vessel ‘at
the disposal of the Charterers ready to receive cargo and tight, staunch,
strong and in every way fitted for ordinary cargo service’ – in other
words, seaworthy (on delivery, see also NYPE 2015, clause 2).
The general structure of a time charter is that the charterers agree to
pay the hire and certain other outgoings, notably bunkers; in return,
the owners (through the master) are obliged to perform the voyages
directed by the charterers with due despatch, subject to agreed trading
limits and the reservation to the master of matters of navigation (see
NYPE 93, clauses 5, 8 and 26; NYPE 2015, clauses 5, 26 and 1(a) and (b)).
It is for the parties to build on this framework. Those obligations that
would be implied by the common law into a time charter (e.g. for the
owners to provide a seaworthy vessel and for the charterers to nominate
safe ports) are largely overtaken by the express terms of the charter.
2.2 Description of the ship
Essential reading
•
Wilson, pp.88–90.
•
Misrepresentation Act 1967.
•
Reardon Smith v Hansen-Tangen, The Diana Prosperity [1976] 1 WLR 989.
•
Isaacs v McAllum [1921] 3 KB 377.
•
French v Newgass (1878) 3 CPD 163.
•
The Apollonius [1978] 1 Lloyd’s Rep 53.
•
Losinjska v Valfracht, The Lipa [2001] 2 Lloyd’s Rep 17.
•
Georgian Maritime v Sealand, The North Sea [1999] 1 Lloyd’s Rep 21.
•
BS&N v Micado, The Seaflower [2001] 1 Lloyd’s Rep 341.
•
The Aegean Dolphin [1992] 2 Lloyd’s Rep 178.
•
The Leonidas [2001] 1 Lloyd’s Rep 533.
•
The Al Bida [1987] 1 Lloyd’s Rep 124.
•
The Leonidas [2001] 1 Lloyd’s Rep 533.
•
Ark Shipping Company v Silverburn Shipping Ltd [2019] EWCA Civ 1161.
2.2.1 Identity
The preamble to NYPE 93 identifies the ship and lists certain features of
the ship, such as:
•
name
•
flag
•
age
•
capacity
•
speed
•
fuel consumption.
In NYPE 2015, both the preamble and Appendix A provide certain
features of the ship.
The shipowner’s description of the vessel can be a term or a
representation of fact. Where the shipowner’s description is only a
14
Chapter 2: Nature of time charters, description of ship, delivery date and cancelling clauses
representation of fact that turns out to be untrue, the charterer’s
remedies will be mainly based on the Misrepresentation Act 1967. The
remedies for misrepresentation are rescission and/or damages. In the
case of fraudulent and negligent misrepresentation, the charterer can
claim for both rescission and damages (see the Misrepresentation Act
1967, s.2(1)). In the case of innocent misrepresentation by the shipowner,
the charterer can either rescind the charter party or ask for damages in
lieu of rescission (see the Misrepresentation Act 1967, s.2(2)).
It is in the best interests of the charterer to ensure that all the
statements about the vessel’s description are express terms in the
charter party. This is because the Misrepresentation Act 1967 does not
apply in the case of a misrepresentation by a third party and also in
cases where the misrepresentation does not induce the charterer to
enter into a charter party with the shipowner.
Where the shipowner’s description of the vessel is a term of the
charter party, this raises the question of whether such a term is to
be interpreted as a condition, innominate term or warranty. Recent
cases suggest that English courts are inclined to treat such terms as
innominate terms (see The Aegean Dolphin). Nonetheless, a term will be
held to be a condition, inter alia, in cases where:
•
it is so designated in the charter party or if the consequences of
its breach, that is, the right of the innocent party to treat itself as
discharged, is provided for expressly in the charter party
•
it has been so categorised as a result of a previous judicial decision
•
the nature or subject matter of the contract or the factual
circumstances of the case lead to the conclusion that the parties
must have intended that the innocent party would be discharged
from further performance of their contractual obligations if the
term was not complied with (see The Seaflower, para.42).
In the leading case of The Diana Prosperity [1976] 1 Lloyd’s Rep 621,
the charter of a tanker under construction referred to the vessel as
‘Yard No. 354 at Osaka Zosen’ (Zosen meaning ‘shipbuilding’). The work
was in fact carried out at the yard of a subsidiary company of Osaka,
where the vessel was No. 004. The market having fallen, the charterers
sought to escape from the agreement by arguing that the vessel did
not comply with its contractual description, so that, by analogy with
the law of sale of goods, the owners were in breach of condition. This
argument was rejected by the House of Lords: the words ‘Yard No.
354 at Osaka’ were intended merely to identify the subject matter of
the contract, which they did, and did not amount to a contractual
description with which the owners were bound to comply.
2.2.2 Speed and fuel consumption
The preamble to NYPE 93 and Appendix A of NYPE 2015 make provisions
for precise technical information to be given with regard to the vessel’s
speed and fuel consumption. Such statements have consistently been
taken to be warranties (i.e. contractual undertakings) (see The Apollonius
[1978] 1 Lloyd’s Rep 53 and The TFL Prosperity [1984] 1 Lloyd’s Rep 123).
(‘Warranted’ in this context means ‘guaranteed’, as in insurance law, and
does not refer to the distinction between conditions and warranties
15
Carriage of goods by sea: Module B
under the Sale of Goods Act 1979.) In The Aegean Dolphin, a cruise ship
was chartered under a time charter party, which contained a provision in
relation to the required speed of the passenger cruise ship. In that case,
the ship’s inability to satisfy the required speed made her completely
unsuitable for the service, and this breach was held to go to the root
of the contract, entitling the charterers to terminate the charter party.
The charterers needed the ship to perform the intended cruises, and
the shipowners were aware of the charterer’s particular commercial
objective when entering into the charter party.
In time charters, it is common for parties to exclude the warranty in
respect of voyages after the vessel has been waiting in warm water ports.
The commercial justification for the exclusion is that the vessel’s hull can
become seriously fouled by barnacles due to delays in warm water.
The provisions with regard to the vessel’s speed and fuel consumption
have also been taken to refer to the time of delivery (The Apollonius).
Failure to maintain the stated performance throughout the charter
may be compensated by a deduction from hire (see NYPE 93 and NYPE
2015, clause 17). Unless the charter so provides (see SHELLTIME 4,
clause 3), there is no undertaking as such that the level of performance
will be maintained.
It has not been necessary for the courts to determine the precise status
of undertakings with regard to speed and fuel consumption, but they
have all the hallmarks of innominate terms.
Statements as to speed and fuel consumption are often qualified by ‘abt’
(about) (e.g. BALTIME 1939 (as revised 2001), Box 11). In The Lipa [2001]
2 Lloyd’s Rep 17, the added description clause concluded ‘All details
“about” – all details given in good faith without guarantee’. In a dispute
about the vessel’s performance, the arbitrators thought that it would be
contrary to common sense and business efficacy to hold that ‘without
guarantee’ relieved the owners of any legal obligation with regard to
the vessel’s performance. They concluded that, whereas ‘about’ in itself
implied a 5 per cent margin, ‘without guarantee’ should be read as
giving a warranty subject to a 10 per cent margin (see The Al Bida).
This pragmatic approach was undoubtedly influenced by the courts’
reluctance to regard statements in the charter about the vessel’s
characteristics as devoid of contractual force (e.g. The TFL Prosperity), but,
on appeal, was rejected by Andrew Smith J, who held that the owners
had given no warranty: they had merely made bona fide representations.
On these issues, see also BIMCO’s Slow Steaming Clause for Time
Charter Parties (2011) at: www.bimco.org (note registration with the
site is required to access the clause).
2.2.3 Effect of clause paramount
A warranty of the vessel’s performance may be indirectly modified by
the inclusion in the charter of a so-called clause paramount (i.e. a clause
incorporating the Hague Rules, the Hague-Visby Rules or legislation
such as the US Carriage of Goods by Sea Act into the charter (see NYPE
93, clause 31(a) and NYPE 2015, clause 33(a)). Thus, in The Leonidas
[2001] 1 Lloyd’s Rep 533, the owners could avoid liability for breach
of a warranty that the ‘vessel will perform a laden passage at 11 knots
16
Chapter 2: Nature of time charters, description of ship, delivery date and cancelling clauses
weather and safe navigation permitting’ where the failure to achieve
that speed fell within one of the COGSA exceptions to carrier’s liability.
2.2.4 Other characteristics
Statements are made with regard to:
•
flag
•
class
•
tonnage
and other matters.
There is some authority for saying that the owners are under an implied
obligation not to change the flag (M Isaacs & Sons Ltd v William McAllum
& Co Ltd [1921] 3 KB 377, at 386, on the rather dubious ground that the
discipline and morals of the crew might be affected: the assumption
appears to be that the nationality of the crew follows the flag and
that a ‘foreign’ crew would be less reliable). However, it is not implied
that class will not change (French v Newgass (1878) 3 CPD 163 (CA)),
although the statement of class at delivery is probably a condition
(Routh v Macmillan (1863) 2 H & C 750).
The owners warrant that critical internal dimensions are accurate. (In
The TFL Prosperity [1984] 1 Lloyd’s Rep 123 (HL) the free height of the
main deck was 5 cm less than stated at one crucial point, making it
impossible to load Mafi trailers double-stacked with 40 ft containers as
the charterers intended.)
Statements with regard to the quantity of bunkers on board at delivery
are not conditions and the charterers are not entitled to refuse to take
delivery because of a shortage: see The North Sea [1999] 1 Lloyd’s Rep
21 (CA), where the judgment of Hobhouse LJ contains much useful
information about the various abbreviations used in relation to fuel,
such as HFO, IFO and MDO, and other acronyms such as DLOSP.
However, the provision in a ‘majors’ approval clause’ (i.e. a requirement
for confirmation by major oil companies that the vessel was acceptable
to them) that the tanker owners guaranteed to obtain Exxon approval
within 60 days was held to be of such importance that failure entitled
the charterers to terminate the charter (see The Seaflower [2001] 1
Lloyd’s Rep 341 (CA)). The importance of the term to the parties was
shown by the inclusion in the charter of an option to terminate it, or
to continue with a reduction in hire, if one of the existing approvals
was lost during the currency of the charter and not reinstated within
30 days. The case provides a good illustration of the sort of arguments
that can be deployed by counsel – and examination candidates – in the
conditions/innominate terms debate.
17
Carriage of goods by sea: Module B
Activities 2.1 to 2.3
Activity 2.1
Read again NYPE 2015, clauses 5, 26 and 1(a) and (b), and SHELLTIME 4, clause 1.
Is there a difference of emphasis? If so, how do you account for it?
Activity 2.2
If a statement with regard to the vessel’s performance is given ‘without guarantee’
must the owners have reasonable grounds for their belief in the accuracy of the
information?
Activity 2.3
Explain the difference in effect between conditions and innominate terms.
Which terms with regard to the description and characteristics of the vessel are
conditions? Which terms might be?
Feedback: page 20.
2.3 Delivery date and cancelling clauses
Essential reading
•
The Mihalis Angelos [1971] 1 QB 164.
•
Smith v Dart (1884) 14 QBD 105.
•
The Madeleine [1967] 2 Lloyd’s Rep 224.
•
The Niizuru [1996] 2 Lloyd’s Rep 66.
•
Universal Bulk v Andre [2001] 2 Lloyd’s Rep 65.
•
The Democritos [1976] 2 Lloyd’s Rep 149.
•
The North Sea [1999] 1 Lloyd’s Rep 21.
•
The Ailsa Craig [2009] EWCA Civ 425.
Clearly, the charter must define the date and time at which the ship is
to be at the charterers’ disposal and the charterers’ obligation to pay
the hire commences.
This is referred to as ‘delivery’ of the ship to the charterers.
The same problems arise as with voyage charter parties. If a precise
date and time cannot be given when the fixture is made, the shipowner
must give an estimate. As long as the estimate is made honestly and on
reasonable grounds, the shipowner’s obligation is discharged (see The
Mihalis Angelos).
The shipowner does not guarantee that the ship will arrive by the
stated date and is not in breach by the mere fact that the ship arrives
late. However, if the estimate is not made honestly and on reasonable
grounds, the shipowner is in breach of condition and the charterer may
cancel the charter party.
Charter parties usually contain a clause giving the charterer an option
to cancel if the ship is not delivered by a stated date (see BALTIME 1939
(as revised 2001), Box 22 and clause 21). The exercise of the option is
not dependent on the shipowner being in breach or in any way at fault
(see Smith v Dart). Where a ship is not delivered by the cancelling date,
this is not of itself sufficient to hold the shipowner in breach, although
18
Chapter 2: Nature of time charters, description of ship, delivery date and cancelling clauses
the charterer can opt to cancel the charter party pursuant to the
cancelling clause (see The Democritos).
However, there is no ‘anticipatory’ right to cancel if it becomes clear,
before the cancelling date, that the ship will not be in a position to
load until after the cancelling date (see The Madeleine). Where a charter
party requires the charterer to nominate a delivery port, the charterer’s
nomination of a delivery port can be a condition precedent to their
right to cancel on the cancelling date (see The North Sea). However, in
The Ailsa Craig, the Court of Appeal held that the charterers’ failure to
nominate a delivery port did not prevent them exercising the right to
cancel the charter party. The charterers’ nomination of a delivery port
was not expressly made a condition precedent to their right to cancel
and the court refused to imply a provision into the charter party to that
effect. Any such implication or construction of the charter party would
be entirely pointless, given that both at the time when the charter
party was entered into and at the time when the cancelling date was
extended both parties knew that the vessel was undergoing repairs in
Greece. Hence, the court held that the time for the charterers to make
a nomination never arrived and that the charterers had the right to
cancel the charter party under the cancelling clause.
2.3.1 Laycan
The interval between the delivery date and the cancelling date is
known as the ‘laycan’ or ‘laycan spread’ and charter parties may provide
for notice to be given for narrowing the laycan as the dates approach.
Whether this requirement is a strict contractual condition or not
will depend on the construction of the clause in the context of the
particular charter party (see The Niizuru and Universal Bulk v Andre).
Activity 2.4
A charter party states a delivery date of 20 April and a cancelling date of 10 May.
What is the charterer’s position if it becomes clear on 27 April that the ship will
not be delivered until 15 May?
What should the shipowner do if the charterer gives notice of cancellation on 27
April?
Feedback: page 20.
Reminder of learning outcomes
Having completed this chapter, and the Essential readings and activities, you
should be able to:
•
identify breaches by the owners of terms relating to the description and
characteristics of the ship let
•
explain, by reference to authority, whether a term that has been broken is a
condition or an innominate term and, if the latter, whether the charterers have
the right to refuse to continue with the charter
•
derive an argument on principle from the authorities if the given case does
not fall within existing precedents.
19
Carriage of goods by sea: Module B
Feedback to activities: Chapter 2
Activity 2.1
NYPE 2015 is an ‘owners’ form, reflecting the fact that the bargaining power of owners
and charterers is generally well balanced. SHELLTIME 4 is a ‘charterers’ form derived
from the generally superior bargaining position of a major oil company.
Back
Activity 2.2
On statements without guarantee, consider the Misrepresentation Act 1967, s.2(1).
Back
Activity 2.3
On conditions and innominate terms, refer to Hongkong Fir Shipping Co Ltd v
Kawasaki [1962] 2 QB 26 (especially the judgment of Diplock LJ) and the authorities
cited in the text.
Back
Activity 2.4
The charterer does not have the right to cancel: nothing indicates that the delivery
statement was not made honestly and on reasonable grounds and the cancelling
date has not arrived. A purported cancellation is therefore a repudiatory breach: the
shipowner may accept it, thereby terminating the charter party, or reject it. In this
second case, the shipowner runs the risk of being in breach if the ship cannot later
perform the contract (see The Simona).
Back
20
Chapter 3: Charter period and redelivery
Chapter 3: Charter period and
redelivery
Introduction
The volatile nature of the charter market is graphically shown by the
case of Western Bulk Carriers v Li Hai Maritime, The Li Hai [2005] 2 Lloyd’s
Rep 389. Because the ship was of a type that is much in demand for
carrying Chinese imports of raw materials, the market rate of hire had
risen in a few months to more than twice the charter rate. Premature
termination of the charter cost the owners over $2 million in damages.
In economic conditions such as these, charterers have a strong financial
interest in using the ship for the longest possible period of time at the
charter rate of hire. The owners have an equally strong and opposite
interest in seeing that any time overrun beyond the charter period is
paid for at market rates.
In this chapter you will deal first with the ways in which charter periods
are defined and what tolerances are allowed. This enables the latest
date for redelivery in accordance with the charter – the so-called ‘final
terminal date’ – to be calculated.
Second, you will study the legal position if the charterers’ orders result –
without any fault on their part – in the ship’s services being required after
the charter period has expired in order to complete the final voyage.
Third, it is necessary to look at the effect of standard clauses giving the
charterer an option ‘to complete last voyage’.
Finally you will consider the impact on calculation of the charter period
of the ship’s being off-hire for part of the original charter period.
Learning outcomes
By the end of this chapter, and having completed the Essential readings and
activities, you should be able to:
•
calculate the final terminal date under stated time charter provisions
•
advise whether a period of overrun must be paid for at the charter rate or the
market rate of hire
•
explain the effect of the charterers giving orders for a voyage that cannot
reasonably be expected to be completed before the final terminal date
•
advise on the effect of an option to complete last voyage
•
advise whether the charter period will be extended on account of time when
the ship was off-hire.
3.1 Charter periods and tolerances
Essential reading
•
Wilson, pp.90–94.
•
The Lendoudis Evangelos II [1997] 1 Lloyd’s Rep 404.
•
The Gregos [1995] 1 Lloyd’s Rep 1.
21
Carriage of goods by sea: Module B
The most straightforward type of time charter is for a period defined
by reference to the calendar (e.g. ‘90 days’, ‘six months’). These are
commonly qualified by use of the word ‘about’. See, for example, The
Peonia (below), where it was accepted that this would cover an overrun
of 14 days on a 12-month charter, but not one of five weeks. The
courts recognise the charterers’ difficulty in arranging voyages that fit
neatly into the charter period: if no margin or tolerance is expressed,
a reasonable margin will be implied (Watson v Merryweather (1913)
18 Com Cas 294), but if a margin is stated no further tolerance will
be implied (see The Gregos, where the period of hire was ‘about 50,
maximum 70 days’). For the period covered by the margin, the charterer
is entitled to use the services of the ship at the charter rate of hire.
As in The Peonia, it is common practice for the charter to state
minimum and maximum periods at the charterer’s option, for example:
•
‘about minimum 10 months maximum 12 months time
charter, Exact duration in Charterer’s option’
•
‘six months fifteen days more or less in Charterer’s option’
(see The World Symphony (below)).
The acronym MOLCOPT is often used for ‘more or less in charterer’s
option’. The period of tolerance counts as part of the charter period (see
The Kriti Akti (below)), but no further margin is implied.
3.1.1 Non-calendar-based time charters
It has become increasingly common in recent years to make use of
the legal framework of time charters for what are effectively voyage
charter parties in shipping terms, namely trip charters (e.g. ‘one round
trip UK–West Africa’). Here the duration of the charter is determined by
the length of the voyage and the question of tolerances does not arise.
In The Lendoudis Evangelos II the agreement was for ‘one time charter
trip duration 70/80 days without guarantee’, thus combining the two
concepts of trip and calendar:
•
The charterer’s obligation with regard to the statement of duration
was merely to make the estimate in good faith.
•
The owner had no remedy when the trip took 102 days, the
estimate having been made in good faith.
Activity 3.1
Does the owner who makes an estimate of the duration of the charter trip
‘without guarantee’ have to show that the estimate was made on reasonable
grounds?
Feedback: page 27.
3.2 Redelivery, overrunning the final terminal date
and early redelivery
Essential reading
22
•
Wilson, pp.92–94.
•
London and Overseas Freighters Ltd v Timber Shipping Co SA, The London Explorer
[1971] 1 Lloyd’s Rep 523.
Chapter 3: Charter period and redelivery
•
The Peonia [1991] 1 Lloyd’s Rep 100.
•
Chiswell Shipping Ltd v National Iranian Tanker Co, The World Symphony and
World Renown [1992] 2 Lloyd’s Rep 115.
•
The Ambor [2001] CLC 138.
•
Torvald Klaveness A/S v Arni Maritime Corp, The Gregos [1995] 1 Lloyd’s Rep 1.
•
Petroleo Brasileiro v Kriti Akti, The Kriti Akti [2004] 1 Lloyd’s Rep 712.
•
The Archilleas [2007] 1 Lloyd’s Rep 19.
•
The Paragon [2009] 2 Lloyd’s Rep 688.
•
The Aquafaith [2012] 2 Lloyd’s Rep 61.
•
The Golden Victory [2005] 1 Lloyd’s Rep 443.
•
The New Flamenco [2017] UKSC 43, [2017] 2 Lloyd’s Rep 177.
•
El Makdessi v Cavendish Square Holdings [2015] UKSC 67.
The terms of the charter decide what the date for ‘redelivery’ is. Though
inaccurate, this is the name traditionally given to the latest date to which
the charterer is entitled to make use of the services of the ship at the
agreed rate of hire. The expression ‘final terminal date’ was coined by
Bingham LJ in The Peonia as a more accurate alternative. It is clearly in
the commercial interest of the charterer to ensure that the final voyage
under the charter ends as closely as possible to the final terminal date, in
order to avoid having to pay hire for a ship that is lying idle.
However, if the final voyage overruns the final terminal date there can
be significant financial implications for the owner, such as:
•
loss of a new fixture
•
delay in taking advantage of a favourable market.
It is not likely to be a question of unscrupulous charterers tempted
to push their luck: the charterers’ planning may have been entirely
reasonable and realistic but events beyond the charterers’ control
may cause the voyage to overrun (e.g. the only shipping channel is
blocked by the grounding of another ship). The extent of the charterers’
responsibility in this situation has exercised the courts for some time
and views have changed.
Originally, the solution was found by drawing a distinction between
a ‘legitimate’ last voyage and an ‘illegitimate’ last voyage. If the
overrunning last voyage was, when ordered, reasonably expected to be
completed by the final terminal date, the voyage was legitimate. The
charterer was entitled to complete the voyage, paying only the charter
rate of hire during the period of overrun even if the market had risen.
If, however, it was not reasonable to expect the voyage to be
completed in time, the voyage was illegitimate and the charterer was
liable in damages – that is, to pay hire at the market rate during the
period of overrun if the market had risen.
This simple solution was based on the understanding that the overrun
was not a breach of the charter if the last voyage was legitimate in the
above sense. This was the interpretation put upon the House of Lords’
decision in The London Explorer until 1991. Then, however, the Court of
Appeal held, in The Peonia, that:
23
Carriage of goods by sea: Module B
•
This view was not that of a majority of the House of Lords.
•
The true view is that the charterers are in breach of the charter
by the mere fact of using the services of the ship beyond the final
terminal date and will be liable in damages in all cases unless
excused by the terms of the charter.
Therefore, if the final voyage overruns the final terminal date, the
charter party continues until actual redelivery and the charterers
will be required to pay hire at a contractual rate also for the overrun
period. In addition, the charterers will be liable for damages (being the
difference between the charter rate and the market rate if the market
rate is higher than the charter rate) for the period between the final
terminal date and actual redelivery, even in cases where the overrun
of the last voyage is not caused by the charterers’ fault. In relation to
assessment of damages in the case of late redelivery, the charterer is
not, in principle, liable to the shipowner for lost profits arising from the
shipowner’s loss of a follow-on fixture (see The Archilleas).
In The Paragon, the charter party provided that:
The Charterers hereby undertake the obligation/responsibility
to make thorough investigations and every arrangement in
order to ensure that the last voyage of this Charter will in no
way exceed the maximum period under this Charter Party. If,
however, Charterers fail to comply with this obligation and the
last voyage will exceed the maximum period, should the market
rise above the Charter Party rate in the meantime, it is hereby
agreed that the charter hire will be adjusted to reflect the
prevailing market level from the 30th day prior to the maximum
period [d]ate until actual redelivery of the vessel to the Owners.
Holding that the provision did not provide a genuine pre-estimate
of recoverable damages, the court struck down the provision as a
penalty (which is usually considered to be unenforceable under English
law). However, the decision in The Paragon should now be treated
with caution following the Supreme Court decision in El Makdessi
v Cavendish Square Holdings. There, it was held that penalty clauses
were no longer considered to be unenforceable where they had a
commercial justification.
If the vessel is redelivered early, the shipowner has the option to accept
this as repudiation and claim for damages or affirm the charter party
to claim the hire due as a debt. Under English contract law, it is for
the innocent party to decide whether to accept the breach. However,
the innocent party is not entitled to affirm the contract, if the party in
breach proves that:
•
the innocent party had no legitimate interest in completing the
contract, as opposed to accepting the breach as repudiation, and
•
the innocent party cannot perform their contractual obligations
without the cooperation of the party in breach.
In The Aquafaith, it was held that time charter parties are contracts
that could, in principle, be performed by owners without charterers’
cooperation. Furthermore, the owners were held to have a legitimate
interest in electing to affirm the charter party. Considering the
charterers’ fragile financial position, it was reasonable for the owners
24
Chapter 3: Charter period and redelivery
to affirm the contract in order to obtain quickly an arbitration award
to recover the hire due as a debt, as opposed to claiming for damages,
which would require assessment of expert evidence on market rates, as
well as the owners’ duty to mitigate their losses.
If the shipowner accepts the early redelivery as repudiation and claim
for damages, damages can be assessed by taking into account events
that occur after repudiation but prior to the assessment of damages, if
doing so is necessary to prevent over-compensation of the shipowner
(see The Golden Victory).
In the case of the owner’s acceptance of the early redelivery as
repudiation, the amount of damages will be largely based on the
question of whether there is an available market for a substitute
charter. If there is an available market, the owner will be expected to
mitigate his/her loss by chartering the vessel. In the absence of an
available market, if the owner sells the vessel, the consequential benefit
of the sale will not be taken into account when assessing damages, see
The New Flamenco.
3.2.1 Effect of giving orders for an illegitimate last voyage
The House of Lords in The Gregos brought clarity to this area of the law
by deciding the following points of principle:
•
The legitimacy of last voyage orders is to be judged as with any
orders at the time when the service called for is to be performed
(i.e. at the time when the voyage is to be undertaken, not the time
when the order is given).
•
If the voyage could reasonably have been expected to be
completed before the final terminal date when the order was given,
but events between then and the start of the final voyage (such
as the grounding of another vessel in the Orinoco river, as in The
Gregos) make it impossible for the last voyage now to be completed
before the final terminal date, the owners can require the charterers
to give fresh orders. Alternatively, the owners can comply with an
illegitimate order and reserve their right to claim damages.
•
The position is thus the same as with any other order for a service
that the owners are not obliged to provide, such as orders for a
voyage to an unsafe port.
However, Lord Mustill preferred to avoid the language of primary and
secondary obligations used in relation to the safety of nominated ports
in The Evia (No 2) (see Module A at 5.4) and to refer only to continuing
primary obligations.
The Gregos also decided that the giving of an illegitimate order is not a
repudiation of the contract, though it was assumed to be a breach: only
insistence on an invalid order may show an intention no longer to be
bound.
Finally, it was decided that the obligation to make timely redelivery is
not a condition, but an innominate term.
Activity 3.2
Why is the obligation to make timely redelivery not a condition of the contract?
Feedback: page 27.
25
Carriage of goods by sea: Module B
3.2.2 Option to complete last voyage
As in The Peonia itself, time charters may give the charterers an option ‘to
complete last voyage’. As interpreted in The Peonia, such a clause refers in
principle to the situation in which a legitimate last voyage unexpectedly
overruns through no fault of the charterers and enables them to complete
that voyage at the charter rate of hire. However, if clear words are used the
option may have the effect of allowing the charterers to extend the period
of the charter by the time needed to complete whatever voyage the ship is
engaged upon at the final terminal date, even if that is an illegitimate last
voyage (see The World Renown).
Activity 3.3
Would the decision in The World Renown have been different if the (revised)
SHELLTIME 4 form had been used?
Feedback: page 27.
3.2.3 Off-hire periods
In The Kriti Akti the charter provided that time when the ship was off-hire
could be used by the charterers at their option as an extension of the
charter period. It was held that the time off-hire became part of the basic
period and the charterers could also exercise their ‘15 days more (or less)’
option in addition to including the off-hire time.
Reminder of learning outcomes
Having completed this chapter, and the Essential readings and activities, you
should be able to:
26
•
calculate the final terminal date under stated time charter provisions
•
advise whether a period of overrun must be paid for at the charter rate or the
market rate of hire
•
explain the effect of the charterers giving orders for a voyage that cannot
reasonably be expected to be completed before the final terminal date
•
advise on the effect of an option to complete last voyage
•
advise whether the charter period will be extended on account of time when
the ship was off-hire.
Chapter 3: Charter period and redelivery
Feedback to activities: Chapter 3
Activity 3.1
See The Lendoudis Evangelis II, where it was held that the words ‘without guarantee’
imply only that the estimate is made in good faith, and the principle of The Mihalis
Angelos [1971] 1 QB 164 concerning ERL statements (see Module A at 5.2) was
distinguished.
Back
Activity 3.2
It will rarely, if ever, make commercial sense to withdraw the ship because of the
commitments entered into by the charterers (see Lord Mustill in The Gregos).
Back
Activity 3.3
See clause 19 of SHELLTIME 4, which is certainly in narrower terms. See also The
Ambor [2001] CLC 138, where the charterer gave an order for a final voyage that could
not reasonably be completed by the final terminal date. The owners refused to comply
with the charterers’ order. Peter Gross QC, sitting as a deputy judge, held that, unlike
clause 18 of SHELLTIME 3, clause 19 of SHELLTIME 4 did not have the effect of making
legitimate orders that otherwise were illegitimate.
Back
27
Carriage of goods by sea: Module B
Notes
28
Chapter 4: Hire, remedies for non-payment,‘off-hire’ clauses, deductions from hire and liens on freight and sub-freight
Chapter 4: Hire, remedies for
non-payment, ‘off-hire’ clauses,
deductions from hire and liens on
freight and sub-freight
Introduction
The principal commercial risk for owners who let on time charter is that
the charterers will become insolvent leaving hire unpaid. It is essential
therefore for proper provision to be made in the charter for:
•
hire to be paid regularly and punctually
•
the owners to have the right to withdraw the services of the ship if
there is any default in making punctual payment.
In this chapter you will study first the kind of provision that is typically
made for payment and for withdrawal for non-payment, including the
so-called ‘anti-technicality’ clauses.
Second, time charters invariably make provision for the ship to be ‘offhire’ if certain specified events occur that temporarily at least deprive
the charterers of the services to which they are entitled. You will need
to study how standard off-hire clauses have been interpreted and
applied by the courts.
Third, you will study the extent of the charterers’ right to make
deductions from hire payments in respect of claims that do not put the
ship off-hire.
Finally, you will study the meaning and operation of clauses giving
the owners a so-called ‘lien’ on freight and sub-freights – that is to say,
the right, on failure by the charterers to pay the hire, for the owners to
intercept payments due to the charterers.
Learning outcomes
By the end of this chapter, and having completed the Essential readings and
activities, you should be able to:
•
advise whether the hire has been paid in accordance with the given time
charter provisions
•
advise whether the owners have complied with an anti-technicality clause
and whether they have the right to withdraw the ship
•
advise whether the ship is off-hire on given facts
•
explain the extent of the charterers’ right to make deductions from hire (apart
from when the ship is off-hire)
•
explain the operation of owners’ liens on freight and sub-freights.
29
Carriage of goods by sea: Module B
4.1 Mode and time of payment
Essential reading
•
Wilson, pp.94–96 and 102–8.
•
Mardorf Peach v Attica, The Laconia [1977] AC 850.
•
A/S Awilco v Fulvia SpA di Navigazione, The Chikuma [1981] 1 WLR 314.
•
Scandinavian Trading Tanker Co v Flora Petrolera Ecuatoriana, The Afovos [1983]
1 WLR 195.
•
The Scaptrade [1983] 2 AC 698.
•
Schelde Delta v Astarte, The Pamela [1995] 2 Lloyd’s Rep 249.
•
Western v Li Hai, The Li Hai [2005] 2 Lloyd’s Rep 389.
•
The Astra [2013] EWHC 865 (Comm).
•
Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2015] EWHC
718 (Comm); [2016] EWCA Civ 982.
•
The Brimnes [1972] 2 Lloyd’s Rep 465.
•
The Nanfri [1978] 2 Lloyd’s Rep 132.
•
The Mihalios Xilas [1979] 2 Lloyd’s Rep 303.
•
The Caravos Liberty [2019] EWHC 3171 (Comm).
Hire is invariably made payable in advance:
•
every calendar month (SHELLTIME 4, clause 9)
•
every 30 days (BALTIME 1939 (as revised 2001), Box 20 and clause 6)
•
every 15 days (NYPE 93 and NYPE 2015, clause 11(a)).
Various expressions are used to describe the mode of payment:
•
‘immediately available funds’ (SHELLTIME 4, clause 9)
•
‘funds available to the Owners on the due date’ (NYPE 93 and NYPE
2015, clause 11(a))
•
‘in cash’ (BALTIME 1939 (as revised 2001), clause 6), in the specified
currency, usually US dollars.
Even if cash is the stated method of payment, transfer between banks
is intended.
The ancient common law rule that a debtor has until midnight at the
end of the due date to make payment applies: the charterers are not in
default until 00.01 on the following day, unless the charter specifies a
time as well as a date (The Afovos). No period of grace is implied by the
common law. If the due date falls on a non-banking day payment must
be made by the last preceding banking day (The Laconia).
In principle, a breach of the duty to make punctual payments of hire
cannot be cured by a late payment. However, if the owners accept a
late payment without protest, they may be taken to have accepted that
payment as if it had been made in time. The owner’s previous acceptance
of late payments of hire may also in some cases give rise to an estoppel.
Whether the owners represent that they will accept late payments by
accepting late payments in the past is a question of fact (The Laconia).
30
Chapter 4: Hire, remedies for non-payment,‘off-hire’ clauses, deductions from hire and liens on freight and sub-freight
Modern time charters invariably provide that if hire is not paid
punctually, the owners may withdraw the ship. Such clauses are
applied strictly – there is no scope for equitable relief (The Scaptrade).
Many standard forms contain a so-called anti-technicality clause. This
is a clause requiring the owners to serve a notice of default before the
ship may be withdrawn:
•
either generally (SHELLTIME 4, clause 9)
•
or in specified cases (NYPE 93, clause 11(b) and NYPE 2015, clause
11(b) and (c)).
The anti-technicality notice should be served timely. In The Caravos
Liberty, it was held that the owners were not entitled to serve an antitechnicality notice in respect of an earlier period of hire, see [2019]
EWHC 3171 (Comm).
Notice served prematurely (e.g. at 23.00 on the due date) will be
ineffective (The Afovos).
In practice ‘withdrawal’ will usually mean continuation of the charter
under a without-prejudice agreement that will, if the withdrawal was
justified, result in the substitution of a higher rate of hire from the time
of withdrawal (The Afovos). Unless otherwise expressly provided in the
charter party, the owners do not have a right to temporarily withdraw
the vessel (The Nanfri and The Mihalios Xilas).
In The Astra, the vessel was time-chartered on the NYPE 1946 form.
Clause 5 of that form provides that the charterer is to pay hire in
advance and that ‘failing the punctual and regular payment of hire…
the Owner shall be at liberty to withdraw the vessel’. Flaux J in The Astra
took the view, obiter, that clause 5 of this form was a condition, inter
alia, because provisions as to time are generally considered to be of the
essence in commercial contracts. In so doing, Flaux J did not follow the
obiter view of Brandon J in The Brimnes that clause 5 of that form was
not a condition, but an intermediate term with a contractual option to
withdraw in the event of the charterer’s failure to make punctual and
regular payment of hire. In The Brimnes, the charter party was also on
the NYPE 1946 form, but it did not contain an anti-technicality clause.
One of the reasons for Flaux J in The Astra to take an opposite view
would appear to be based on the fact that the charter party in The Astra
contained an anti-technicality clause.
However, Popplewell J in Spar Shipping AS v Grand China Logistics
Holding (Group) Co Ltd took the obiter view that timely payment of hire
was an innominate term. He did not follow the decision of Flaux J in
the Astra, arguing, inter alia, that a withdrawal clause had the effect of
making timely payment of hire a sufficiently serious breach and that
it should thus be treated as a condition. This issue is now finally laid to
rest following the Court of Appeal decision in Spar Shipping, where the
court followed the decision of Popplewell J, endorsing his view that the
obligation to make complete and punctual payment of hire was not a
condition.
31
Carriage of goods by sea: Module B
Activities 4.1 to 4.3
Activity 4.1
An instalment of hire payable in cash is due on 1 March. The required sum is
transferred to the owners’ account on 28 February, but under local banking law
the owners will be charged a fee if they draw on the money in the first three
working days. Are the charterers in default?
Activity 4.2
Do you consider that the House of Lords was right to refuse equitable relief
against withdrawal for late payment?
Activity 4.3
The Josephine was chartered under an agreement which provided that 48 hours’
notice would be given by the owners before withdrawing the ship for nonpayment of hire. An instalment of hire was due on Friday 1 June: as it had not
been received by 22.00 hours the owners then telexed to the charterers ‘Please be
notified of withdrawal of The Josephine’. Is the withdrawal valid?
Feedback: page 38.
4.2 Off-hire clauses
Essential reading
32
•
Wilson, pp.96–100.
•
Vogemann v Zanzibar (1902) 7 Com Cas 254.
•
Hogarth v Miller [1891] AC 48.
•
Canadian Pacific (Bermuda) Ltd v Canadian Transport Co Ltd, The HR Macmillan
[1974] EWCA Civ J0211-1; [1974] 1 Lloyd’s Rep 311.
•
The Aquacharm [1982] 1 Lloyd’s Rep 7.
•
The Berge Sund [1993] 2 Lloyd’s Rep 453.
•
The Laconian Confidence [1997] CLC 300.
•
Hyundai v Furness Withy, The Doric Pride [2006] 2 Lloyd’s Rep 175.
•
The Athena [2013] EWCA Civ 1723.
•
The Marika M [1981] 2 Lloyd’s Rep 622.
•
The Trade Nomad [1999] 1 Lloyd’s Rep 723.
•
The Bridgestone Maru [1985] 2 Lloyd’s Rep 62.
•
The Mareva AS [1977] 1 Lloyd’s Rep 368.
•
The Apollo [1978] 1 Lloyd’s Rep 200.
•
The Roachbank [1988] EWCA Civ J0309-2; [1987] 2 Lloyd’s Rep 498.
•
The Mastro Giorgis [1983] 2 Lloyd’s Rep 66.
•
The Saldanha [2011] 1 Lloyd’s Rep 187.
•
The Captain Stefanos [2012] 2 Lloyd’s Rep 46.
•
The Eleni P [2019] 2 Lloyd’s Rep 265.
•
The Apollonius [1978] 1 Lloyd’s Rep 53.
•
The TS Singapore [2009] EWHC 933 (Comm).
•
NYK Bulkship (Atlantic) NV v Cargill International SA, The Global Santosh [2016]
UKSC 20.
Chapter 4: Hire, remedies for non-payment,‘off-hire’ clauses, deductions from hire and liens on freight and sub-freight
In principle, the charterers take the risk that they will not be able to
employ the ship profitably. The hire must be paid even if the ship
cannot provide the services that the charterers require for reasons
beyond the owners’ control.
In practice, all time charters provide for suspension of the charterers’
obligation to pay hire if certain events happen, usually referred to as
‘off-hire’ clauses.
Since off-hire clauses form an exception to the charterers’ primary
obligation to pay the hire, it is for the charterers to show that the
conditions for suspension of hire are satisfied. As Staughton LJ said in
The Berge Sund, at 459, the only general rule that can be laid down with
regard to off-hire clauses is that ‘one must consider the wording of the
off-hire clause in every case’.
Read the first sentences of NYPE 93, clause 17 and NYPE 2015, clause
17, for a typical list of off-hire events. You will see that hire is to cease
in the event of loss of time from the occurrence of these events ‘for the
time thereby lost’. See also clause 11(A) of BALTIME 1939 (as revised
2001). This type of off-hire clause is described as a ‘net loss of time
clause’. In essence, such off-hire clauses provide that, when certain
events happen, no hire is payable for the time lost to the charterer as
a result of such events (see, for instance, The Apollonius). In the context
of these off-hire clauses, ‘loss of time’ means the period of time during
which the ship is prevented from working (i.e. loss of a period of
service). Loss of time is not taken to refer to the period of time by which
the progress of the charter service has been delayed (see Vogemann v
Zanzibar and The Athena). What needs to be considered is how much
time is lost during the performance of the service that is immediately
required of the vessel (see The Athena and The TS Singapore).
In order to displace this rule, there must be an express provision to
that effect in the charter party. In The Trade Nomad, the charter party
contained a provision stating that:
On each day and every occasion that there is a loss of time…
due to… repairs… breakdown… of machinery, boilers…
collision… preventing the efficient working of the vessel… the
vessel shall be off-hire from the commencement of such loss of
time until she is again ready and in an efficient state to resume
her service from a position not less favourable to Charterers
than that at which such loss of time commenced.
This or similar provisions are interpreted restrictively by the courts (see
The Trade Nomad). Hence, where a vessel loses her turn for a berth as a
result of grounding, the time lost while waiting for a berth after she is
refloated is not an off-hire event (see The Marika M).
•
It may be difficult to establish how much time has been lost and
some judges have suggested that it is more straightforward to
base the suspension of hire on the period of the inefficiency (e.g.
Lord Denning MR in The HR Macmillan). For a period of inefficiency
clause, see The Bridgestone Maru.
Leaving aside net loss of time clauses and period of inefficiency clauses,
the off-hire clause in a charter party can alternatively be a ‘period offhire clause’ (see, for instance, BALTIME 1939 (as revised 2001), clause
33
Carriage of goods by sea: Module B
11). Such clauses provide that hire is not payable for the duration of
the off-hire event. Hence the off-hire begins with a specified event and
ends with another specified event. In the case of partial inefficiency of
a vessel that falls within the off-hire clause, the vessel will be treated
as off-hire throughout the period as if there was full inefficiency (see
Hogarth v Miller).
The crucial question is whether the ship is unable, for one of the
specified reasons, to provide the service required by the charterer at
that particular time. A breakdown of the ship’s engines while she is
berthed will not deprive the charterers of the service of loading or
discharging the cargo, and a breakdown of the ship’s cranes will not
deprive the charterers of the service of completing the voyage, so that
hire will continue to be payable in both cases (see Hogarth v Miller and
The HR Macmillan).
A need for normal tank cleaning or a delay caused by the need to
lighten the ship in order to enter a harbour or pass through a canal are
not periods of inefficiency and the ship is not off-hire (The Berge Sund,
The Aquacharm).
Many off-hire clauses refer to ‘detention’ of the ship for various reasons.
It is settled that detention does not mean that the ship is prevented
from moving, but rather that she is prevented from proceeding in the
way necessary to provide the service required. Thus in Vogemann v
Zanzibar the ship was ‘detained by average accident’ while putting into
a port for repairs and while being repaired.
In The Doric Pride, the ship was held to be ‘detained by authority’ when
ordered by the US Coast Guard to wait for inspection outside New
Orleans as part of increased security measures in the wake of 9/11. It
was immaterial that she was theoretically free to proceed elsewhere. A
proviso in the off-hire clause that the ship was not to be off-hire where
detention was ‘occasioned by…calling port of trading’ did not assist the
owners: the risk of detention as a first-time caller to the US fell within
the owners’ area of responsibility, as it related to the ship’s status, not
her employment. See also The Mareva AS, in which the off-hire clause
provided that:
…in the event of the loss of time from…detention by average
accidents to ship or cargo…or by any other cause preventing
the full working of the vessel, the payment of hire shall cease for
the time thereby lost.
In that case, the cargo was wet damaged owing to leakage through
defective hatch covers. Because of this damage, discharge operations
took 15 days longer than usual. It was held that this delay was not an
off-hire event, as there was no detention in the present case.
In addition to listing particular off-hire events, the off-hire clause
may refer to ‘any other cause’ preventing the full working of the ship,
but these words are given a limited meaning and do not extend to
delay caused by unexpected and unforeseeable interference by port
authorities (see The Laconian Confidence).
34
Chapter 4: Hire, remedies for non-payment,‘off-hire’ clauses, deductions from hire and liens on freight and sub-freight
In The Mastro Giorgis, the vessel was held to be ‘off-hire’ while under
arrest as the wording of the off-hire clause was sufficient to cover the
case of detention by the arrest of the vessel. The time charter party was
on the NYPE 1946 form. In a very recent Supreme Court decision in The
Global Santosh the question of whether the vessel was off-hire while
under arrest also arose. The charter party contained the following offhire clause:
Should the vessel be captured or seizured [sic] or detained or
arrested by any authority or by any legal process during the
currency of this Charter Party, the payment of hire shall be
suspended until the time of her release, unless such capture or seizure
or detention or arrest is occasioned by any personal act or omission or
default of the Charterers or their agents... (emphasis added)
Cargill, the time charterer, sub-voyage chartered the Global Santosh.
The seller of the cargo, Transclear, was at the end of the charter party
chain. Their buyers, IBG, incurred discharge port demurrage under the
sale contract. In order to secure payment of the demurrage, Transclear
arrested the cargo (and also the vessel). Cargill withheld hire for the
period when the vessel was under arrest, but the shipowners denied that
the vessel was off-hire, arguing that the arrest was occasioned by the act
and/or omission of Transclear and IBG, and that these parties should be
treated as the ‘agent’ of Cargill. It was clear that Cargill enjoyed the ‘right’
of directing the vessel as to where and when to discharge the cargo
and that Transclear and IBG were the agents of Cargill in the context of
exercising that right. However, not everything that Transclear and IBG
did could be regarded as the exercise of a right or the performance of
an obligation under the time charter. Consequently, the Supreme Court
refused to hold that Transclear and IBG were Cargill’s agents when doing
the particular acts that caused the arrest of the vessel.
More recently, the courts have also been asked to interpret off-hire
clauses with a view to deciding if piracy events are off-hire events. In The
Saldanha, the time charter party was on NYPE 93 (see clause 17 of that
form). It was held that detention of the vessel by Somali pirates could not
be brought within the off-hire clause. The wording of the off-hire clause
in NYPE 1946, clause 56 is different from that in NYPE 93, clause 17. In The
Captain Stefanos, the time charter party was on NYPE 1946. The reference
to ‘capture/seizure’ in the off-hire clause of that form was held apt to
cover the piracy event and the vessel was held to be off-hire.
A similar line was also taken in The Eleni P, where the off-hire clause
provided: ‘Should the vessel be captures [sic] or seized or detained or
arrested by any authority or by any legal process during the currency
of this Charter Party, the payment of hire shall be suspended for the
actual time lost, unless such capture or seizure or detention or arrest is
occasioned by any personal act or omission or default of the Charterers
or their agents’.
35
Carriage of goods by sea: Module B
Activities 4.4 to 4.6
Activity 4.4
Re-read BALTIME 1939 (as revised 2001), clause 11(A). Which is the dominant idea
– time lost or period of inefficiency?
Activity 4.5
The Zanzibar suffers damage while on a voyage from Hamburg to the US. She
puts in to Cobh (in Ireland) for repairs, which are completed on 22 March, and she
reaches the point in the voyage at which the accident occurred on 31 March. The
off-hire clause provides that in the event of loss of time from detention by accident
preventing the full working of the vessel, hire shall cease for the time exceeding 24
hours thereby lost. Is The Zanzibar off-hire from 22 March to 31 March?
Activity 4.6
If the off-hire clause in The Laconian Confidence had said ‘any other cause
whatsoever’, would the result have been different?
Feedback: pages 38-39.
4.3 Deductions from hire
Essential reading
•
Wilson, pp.100–102.
•
Federal Commerce v Molena Alpha, The Nanfri [1978] 2 Lloyd’s Rep 132.
•
The Leon [1985] 2 Lloyd’s Rep 470.
•
Western v Li Hai, The Li Hai [2005] 2 Lloyd’s Rep 389.
•
The Aliakmon Progress [1978] 2 Lloyd’s Rep 499.
Standard forms of time charter may make express provision for
deductions to be made from the hire in respect of matters that do not
put the ship off-hire – see clause 11 in BALTIME 1939 (as revised 2001);
NYPE 93, clause 17; NYPE 2015, clause 17. The difficult question is the
extent to which deductions may be made without an express provision
in the charter.
It is established that the principle of Dakin v Oxley (1864) CBNS 646
– that claims against the owner may not be offset against the freight
under a voyage charter party (see Module A at 7.1) – does not apply
to hire under a time charter (see The Nanfri). The dilemma for the
charterers, however, is that an unjustified deduction will mean that
there is a failure in punctual payment of the hire that will expose them
to the risk of ‘withdrawal’ of the ship. The deductions must be in respect
of some matter which relates to the use of the vessel, that is to say, a
claim that the charterers have been deprived of the use of the vessel or
prejudiced in their use of it. Thus, a deduction could be made in respect
of failure to load cargo, but not for failing to comply with the charterers’
orders to take on bunkers at a particular port, or for claims in respect
of loss or damage to cargo (see The Leon, The Li Hai and The Aliakmon
Progress). Any deduction must be by ‘a reasonable assessment made in
good faith’ (see The Nanfri).
36
Chapter 4: Hire, remedies for non-payment,‘off-hire’ clauses, deductions from hire and liens on freight and sub-freight
Activity 4.7
An instalment of hire is due on 1 April. The charterers know that the owners plan
to put the ship into dry dock for seven days in mid-April. Must the charterers pay
the instalment of hire in full?
Feedback: page 39.
4.4 Owners’ liens on freight and sub-freight
Essential reading
•
Wilson, pp.303–9.
•
Tradigrain v King Diamond Shipping, The Spiros C [2000] 2 Lloyd’s Rep 319, at
323; [2000] EWCA Civ J0713-11 at pp.3, 4.
•
The Bulk Chile [2012] EWHC 2107 (Comm).
•
The Cebu (No 2) [1993] QB 1.
•
Alpha Marine Corp. v Minmetals Logistics Zhejiang Co. Ltd (MV Smart) [2021]
EWHC 1157 (Comm).
In most cases the charterers’ purpose in chartering the ship will be to
trade by entering into sub-charters. The typical scenario is that O lets the
ship on time charter to T who enters into a voyage (sub-) charter with
V. At common law O has no claim against V if T becomes insolvent and
hire is unpaid. It is therefore important for the owners to include a clause
such as BALTIME 1939 (as revised 2001), clause 17 giving the owners a
‘lien’ upon all cargoes and sub-freights belonging to the time charterers
and any bill of lading freight for all claims under the charter (see NYPE
93, clause 23 and NYPE 2015, clause 23). In The Cebu it was held that the
word ‘sub-freights’ in the lien clause could be taken to refer to sub-hire.
Consequently, the shipowner in that case could not intercept sub-hire
due to the time charterer. In NYPE 2015, the lien clause (clause 23) is
now different. It has been extended to cover sub-hires from sub-time
charterers.
4.4.1 Nature of lien
Whereas a lien upon cargo is a right to retain possession until paid, in
relation to (sub-) freights it means the right to intercept the money
due to the charterer by giving notice to the debtor to pay the money
directly to the owners. If the debtor has already paid when notice is
given, the lien is lost: the debtor cannot be made to pay twice. The
position is succinctly stated in The Spiros C, where the owners sought
to exercise the right against the bill of lading holders and the issue was
whether the freight had already been paid ‘as per charter party’ (see
Module C, Chapter 2).
This line of thinking was also followed by the Court of Appeal in The
Bulk Chile. The shipowner is entitled to intervene to receive freight
before payment is made to the time charterer even in cases where the
time charterer is not in default of its payment obligations (see Alpha
Marine).
37
Carriage of goods by sea: Module B
Reminder of learning outcomes
Having completed this chapter, and the Essential readings and activities, you
should be able to:
•
advise whether the hire has been paid in accordance with the given time
charter provisions
•
advise whether the owners have complied with an anti-technicality clause
and whether they have the right to withdraw the ship
•
advise whether the ship is off-hire on given facts
•
explain the extent of the charterers’ right to make deductions from hire (apart
from when the ship is off-hire)
•
explain the operation of owners’ liens on freight and sub-freights.
Feedback to activities: Chapter 4
Activity 4.1
Yes. See The Chikuma. ‘Cash’ has the same meaning as ‘immediately available funds’
and requires that the owners have unrestricted access to the money.
Back
Activity 4.2
In commercial matters certainty is more important than ‘fairness’: the owners must
be able to know immediately whether they can give notice of withdrawal. See The
Scaptrade [1983] 2 AC 698.
Back
Activity 4.3
No. See The Pamela. Not only is the notice premature (the charterers have until
midnight on 1 June to pay) but it does not specify why The Josephine is being
withdrawn. However, the decision in The Pamela has been criticised in The Li Hai
[2005] 2 Lloyd’s Rep 389, at 405–6, as being ‘formulaic’ and inconsistent with the
general law on notices laid down in Mannai v Eagle Star [1997] AC 749. Certainly,
charterers could be expected to realise what the notice was about.
Back
Activity 4.4
The two work together, with the period of inefficiency setting the outer limits. There can
be no time lost without inefficiency, but inefficiency may not necessarily cause time to
be lost, as where two working cranes are sufficient and the fact that the third crane is
out of action has no effect on the loading operation (compare The HR Macmillan).
Back
Activity 4.5
No. This was ‘the natural meaning’ of the clause (Vogemann v Zanzibar). It is indeed
difficult to say that the ship is ‘detained’ when she is proceeding on the course
necessary to complete the voyage. Note the special provision suspending hire until the
ship has reached an equivalent position in NYPE 93, clause 17 and in NYPE 2015, clause
17.
Back
38
Chapter 4: Hire, remedies for non-payment,‘off-hire’ clauses, deductions from hire and liens on freight and sub-freight
Activity 4.6
Yes, it would then have covered interference, however unreasonable and
unforeseeable: see the decision of Rix J in The Laconian Confidence. In The Laconian
Confidence, Rix J also stated that: ‘the qualifying phrase “preventing the full working
of the vessel” did not require the vessel to be inefficient in herself; a vessel’s working
may be prevented by legal as well as physical means and by outside as well as internal
causes’.
On the interpretation of the word ‘whatsoever’ see also The Mastro Giorgis, where the
words ‘any other cause whatsoever preventing the full working of the vessel’ were held
to cover arrest of a vessel by cargo receivers at the discharge port.
Where a cause preventing the full working of a vessel is totally extraneous, the word
‘whatsoever’ will not be apt to cover such a cause and the vessel will be off-hire (see
The Apollo). However, different considerations arise in the case of a combination of
causes. Where the immediate cause is extraneous, it will be necessary to look behind
the immediate cause to find the underlying cause. If the underlying cause is not
extraneous, the word ‘whatsoever’ will be apt to cover such a combination of causes
(as was the case in The Mastro Giorgis, where the reason for the arrest was damaged
cargo). However, in The Roachbank, the word ‘whatsoever’ is interpreted narrowly.
Back
Activity 4.7
Yes. There is no right to deduct for prospective off-hire periods: see authorities cited in
The Li Hai, at 396–98.
Back
39
Carriage of goods by sea: Module B
Notes
40
Chapter 5: Employment and indemnity
Chapter 5: Employment and indemnity
Introduction
All time charters must define the limits on the charterers’ power to
direct how the ship shall be operated. The master and crew continue to
be employed by, and to be servants of, the owners, but the commercial
operation of the ship is for the charterers to decide. BALTIME 1939 (as
revised 2001), clause 9, states:
The Master shall be under the orders of the Charterers as
regards employment, agency or other arrangements.
NYPE 93, clause 8 provides that the master shall be under the orders
and directions of the charterers as regards employment and agency.
NYPE 2015, clause 8 now makes this obligation subject to ‘Slow
steaming clause’ (clause 38).
Your first task is to study the leading cases on the scope of these
provisions.
Many aspects of the adventure will be dealt with in specific provisions
– for example, that the owners are responsible for insurance but the
charterers must pay for bunkers (including those on board at delivery)
and outgoings such as port and canal dues.
The process of cargo handling, including stowing, trimming,
dunnaging and tallying, will usually be stated to be at the charterers’
risk and expense but under the supervision (but not responsibility)
of the master. Such transfer of legal responsibility will be effective
even if bad stowage causes the ship to be unseaworthy (see Module
A, Chapter 3) and the charter incorporates the Hague-Visby Rules,
under which the carrier has a non-delegable duty to provide a
seaworthy ship (see Compania Sud American Vapores v MS ER Hamburg
Schiffahrtsgesellschaft mbH & Co KG [2006] 2 Lloyd’s Rep 66).
These aspects do not require further study.
The remaining matters that you need to consider in this chapter are:
•
the master’s position if the orders given by the charterers appear to
be of questionable validity
•
the extent of the owners’ right to be indemnified by the charterers
for loss arising out of compliance with the charterers’ orders
•
the master’s position in relation to the signing of bills of lading.
Learning outcomes
By the end of this chapter, and having completed the Essential readings and
activities, you should be able to:
•
advise whether particular orders given by charterers are orders as to employment
•
explain the nature of the master’s duty of compliance with the charterers’ orders
•
advise whether the charterers will be obliged to indemnify the owners against
the consequences of compliance with a particular order
•
explain when the master may refuse to sign bills of lading presented by the
charterer.
41
Carriage of goods by sea: Module B
5.1 Orders as regards employment
Essential reading
•
Wilson, pp.108–11.
•
Larrinaga Steamship v The King [1945] AC 246.
•
Whistler v Kawasaki, The Hill Harmony [1999] 2 Lloyd’s Rep 209.
•
Kuwait Petroleum v I&D Oil, The Houda [1994] 2 Lloyd’s Rep 541.
•
The Island Archon [1993] 2 Lloyd’s Rep 388.
•
The Erechthion [1987] 2 Lloyd’s Rep 180.
•
Action v Bottigliere, The Kitsa [2005] 1 Lloyd’s Rep 432.
•
Hyundai v Furness Withy, The Doric Pride [2005] 2 Lloyd’s Rep 470.
•
The Aquacharm [1982] 1 All ER 390.
•
The White Rose [1969] 1 WLR 1098.
•
The Greek Fighter [2006] EWHC 1729.
•
Midwest Shipping v DI Henry (Jute) [1971] 1 Lloyd’s Rep 375.
•
The Kos [2012] 2 Lloyd’s Rep 292.
•
The Coral Seas [2016] EWHC 1506 (Comm).
•
The Wehr Trave [2016] EWHC 583 (Comm).
•
The Tai Prize [2020] EWHC 127 (Comm).
Employment refers to the employment of the ship (i.e. what voyages she
is to undertake and what cargoes to carry). Time charterers are under
the same obligations to nominate safe ports and to load non-dangerous
cargo as voyage charterers (for this, see Module A, Chapter 5).
The charterer’s right to give orders and directions under the time charter
party can be restricted by the parties’ agreement. However, any such
contractual restriction should be specifically agreed and be clearly stated
in the charter party, see The Wehr Trave.
It is well-established that employment does not cover matters of
navigation. For example, in Larrinaga v The King the St Nazaire Sea
Transport Officer gave directions for the ship to proceed to Quiberon
Bay to join a convoy for escort on the off-survey voyage to Cardiff. The
result was that the Crown, as deemed time charterer, was not liable for
damage suffered in complying with the order since navigation is the
sole responsibility of the owner.
Until the decision in The Hill Harmony, the scope of the term ‘navigation’
was unclear, but in that case the House of Lords, reversing the Court
of Appeal, held that navigation referred only to matters of seamanship
and did not extend to choice of the route to be followed. The owners
were not entitled to follow a slower and more expensive route than the
one required by the charterers.
The traditional references to ‘agency and arrangements’ in employment
clauses are to such matters as appointment of ship’s agents in her ports
of call and other matters ancillary to the charterers’ commercial use of
the ship.
42
Chapter 5: Employment and indemnity
Activity 5.1
The Lucy May has been chartered for one round trip, UK to Nigeria. On arrival at
the Nigerian port, The Lucy May is too low in the water to cross the bar and is
ordered by the harbour master to proceed to an outlying island anchorage to
lighten. As she approaches the anchorage, The Lucy May sustains damage by
striking a submerged obstacle.
Are the charterers liable to indemnify the owners?
Feedback: page 46.
5.1.1 Master’s duty of compliance
The master has an overriding responsibility for the safety of the ship,
crew and cargo. They would be neglecting their duty if they followed
the charterers’ orders blindly and unthinkingly. Accordingly, if the
master has doubts about the validity of the orders, they may take a
reasonable time to consider the position. See The Houda, where it was
initially unclear, following the Iraqi invasion of Kuwait, whether the
body giving orders was legally entitled to do so. The same would apply
if there are doubts about the safety of a nominated port, or a proposed
cargo. See also Midwest Shipping v Jute.
5.1.2 Owner’s right to indemnity
Standard forms of time charter may provide that the charterers will
indemnify the owners against the consequences of complying with the
charterers’ directions: see BALTIME 1939 (as revised 2001), clause 9.
Alternatively, as with NYPE 93, the express indemnity may be restricted
to certain matters (NYPE 93, clauses 9(b), 13(b) and 30(b)). See also
NYPE 2015, clauses 9, 13 and 31.
It is now settled by The Island Archon that there will also be an implied
right of indemnity against loss caused by carrying out the charterers’
orders, not only where the orders were improper, but also in cases
where the charterers were entitled to give the orders in question.
However, it is important to note the limits of the indemnities. The
owners will not be indemnified against the cost of:
•
heavy weather damage or other expenses of ordinary navigation,
such as the cost of lightening to pass through the Panama Canal
(The Aquacharm)
•
a break in the chain of causation, as in The Nogar Marin [1988] 1
Lloyd’s Rep 412, where the master’s failure to clause the mate’s
receipt was the effective cause, not the charterers’ order. See
also The White Rose: there, a vessel was ordered to load at a US
port under a time charter party. A stevedore arranged by the
time charterers was injured when he fell into an unfenced hold.
Consequently, the shipowners were exposed to substantial
liabilities under Minnesota law. The shipowners were held not to
have a right of indemnity, as they could not establish an unbroken
chain of causation between compliance with the order and the loss
suffered.
Otherwise, the test is whether, on the true construction of the charter
party, the risk is one that the owners have agreed to bear. In The Island
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Carriage of goods by sea: Module B
Archon itself, the so-called ‘Iraqi system’ of bogus claims for cargo
shortage and damage was not generally known when the charter
was entered into, so that it could not be inferred that the owners had
agreed to bear the loss. It would have been different if the ‘system’ had
been notorious at that time. Consequently, the shipowners do not have
a right of indemnity to recover their losses arising from the risks that
they have assumed at the time of entry into the charter party (see The
Greek Fighter). On the issue of assumption of risk, see also the Supreme
Court decision in The Kos. There, it was held that the shipowner was
entitled to indemnity in relation to its losses arising from the discharge
of the cargo that was aboard the vessel when it lawfully withdrew the
vessel for non-payment of hire by the time charterer. In support of
this, the court further held that the shipowner had not expressly or
impliedly agreed to bear such losses.
Recently, Phillips J in The Coral Seas said, at para.15:
…as a general rule a shipowner has an implied right of indemnity
against a time charterer in respect of the consequences of
complying with the charterer’s orders as to the employment of the
ship, even if the orders were ones the charterer was contractually
entitled to give. However, …such indemnity does not extend to the
usual perils of the voyage in respect of which the owner must be
taken to have accepted the risk.
As was pointed out in The Doric Pride, at 477, the scope for implied
indemnity may be less in a single-trip time charter than in a traditional
time charter for a longer period, since the trading range will be narrower.
There, by agreeing to a trip charter from the US Gulf to South Korea the
owners accepted the risk of being detained for inspection by the US
authorities as ‘an ordinary incident of trading’ at that range of ports.
Where charter parties incorporate standard forms or wording contained
in international carriage conventions, such as the Hague-Visby Rules,
particular care should be taken when considering implying terms. This
is mainly because there may be specific provisions for what indemnities
should apply under the relevant charter party.
Activity 5.2
The Ella Rose is ordered by time charterers to carry a cargo to India. On arrival at
the nominated port, The Ella Rose has to wait for three weeks before she can berth
and discharge the cargo. By reason of waiting in tropical water, her hull becomes
fouled. A wait of two weeks would have been normal and would not have led to
fouling.
Advise the owners whether they are entitled to an indemnity in respect of the
cost of de-fouling the hull.
Feedback: page 46.
5.2 ‘Master to sign bills of lading as presented’
Essential reading
44
•
Krüger v Moel Tryvan [1907] AC 272.
•
Orinoco Navigation v Ecotrade, The Ikariada [1999] 2 Lloyd’s Rep 365.
•
The Garbis [1982] 2 Lloyd’s Rep 283.
Chapter 5: Employment and indemnity
It is for the charterer to draw up bills of lading as part of their
commercial use of the ship. NYPE 2015, clause 31(a) provides that the
master shall sign bills of lading or waybills for cargo as presented in
conformity with mate’s or tally clerk’s receipts. Clause 31(b) states that
bills of lading or waybills shall be without prejudice to the charter
party and that the charterers shall indemnify the owners against the
consequences of any inconsistency between the bills and the charter
party.
The indemnity would be implied in any event (Krüger v Moel Tryvan).
The master may refuse to sign bills that are not in conformity with the
charter party, or which contain unusual terms, but their failure to reject
a non-conforming bill does not deprive the owners of the indemnity
(ibid). In practice, bills of lading are often signed by others as agent
for the master. Even the charterers may sign in this way, as NYPE 2015,
clause 31(a) recognises.
Activity 5.3
The bill of lading presented to the master states that freight and other terms
are as per charter party. There is a space for the date of the charter party to be
inserted, but it has been left blank.
Should the master refuse to sign?
Feedback: page 46.
Reminder of learning outcomes
Having completed this chapter, and the Essential readings and activities, you
should be able to:
•
advise whether particular orders given by charterers are orders as to
employment
•
explain the nature of the master’s duty of compliance with the charterers’
orders
•
advise whether the charterers will be obliged to indemnify the owners against
the consequences of compliance with a particular order
•
explain when the master may refuse to sign bills of lading presented by the
charterer.
45
Carriage of goods by sea: Module B
Feedback to activities: Chapter 5
Activity 5.1
Is the harbour master’s order one as to navigation or employment? See The
Erechthion, where a distinction is suggested between the order to proceed to the
anchorage, given on the charterers’ behalf by virtue of the nomination of this port
(employment), and an order by the pilot as to precisely where the ship should anchor
(navigation).
Back
Activity 5.2
See The Kitsa. Fouling was a foreseeable and foreseen risk of lying inactive at a warm
water port and the arbitrators were entitled to conclude that the owners had agreed to
bear it.
Back
Activity 5.3
If the charter party requires the master to sign bills of lading as presented, the answer
is no: see The Ikariada. The master can only refuse to sign those bills of lading that are
‘manifestly’ inconsistent with the charter party and/or that contain extraordinary terms.
However, different considerations arise if the charter party contemplates that the bill of
lading to be issued thereunder will have a particular content, such as the details of the
charter party for incorporation purposes. In such cases, the master will have the right to
refuse to sign a bill of lading if the charter party also states that the bill of lading to be
issued thereunder will contain the charter party details: see The Garbis.
Back
Sample examination questions
Question 1
It is said that ‘the shipowner is always entitled to rely on an indemnity from the
charterer, if they comply with instructions given by the charterer in the course of
a charter party’.
Discuss.
Feedback: page 48.
Question 2
On 1 March, Canadian Pacific (CP) chartered The MV Hudson Bay from Lorenzo
under a time charter in the NYPE form for a period of 18 months, expected ready
to load on 10 March. The charter also provided that the speed of the ship was
11 knots and if the ship was not ready to load by 15 March, the charterer could
cancel the charter. Hire of $12,000 per day was payable in cash on the first of each
month punctually, failing which the shipowner was entitled to withdraw the ship.
The off-hire clause provided:
In the event of loss of time from (inter alia)…breakdown of machinery or
equipment, damage to hull, grounding, drydocking…or by any other cause
preventing the full working of the ship, payment of hire shall cease for the time
thereby lost.
Before arrival on the expected date, the ship experienced loss of speed due to an
earlier grounding and arrived on 16 March to commence loading. The charterers
instructed loading to commence immediately. On leaving the loading port,
The MV Hudson Bay ran aground again and went for repairs in dry-dock for 15
days; then she proceeded to the discharge port but the port authority stopped
discharge in order to inspect the containers on the ship, which were suspected to
contain dangerous chemicals. The rumour was that this might be an act of
46
Chapter 5: Employment and indemnity
terrorism and the investigation would take about five days. During this time, one
of the ship’s twin cranes, which were occasionally used, was being repaired.
Hire had been duly paid on 1 March. On 1 April, the charterers’ bank had received
telex instructions to pay the owners’ bank, but the owners claimed payment
was not received even on 2 April. The ship was eventually released by the port
authority and hire was received and accepted on 5 April. On 1 May the owners
withdrew the ship because – due to inter-banking arrangements – interest could
not be credited on the hire which had been paid with deductions on the ground
that the ship was not fully efficient, as the charterers alleged.
In view of the favourable market rate for this type of ship, the owners were able to
find another fixture without difficulty.
Advise Canadian Pacific.
Feedback: page 48.
Question 3
The Good Hope is chartered under a time charter for 12 months, 15 days more or
less at charterer’s option, to A at a rate of $35,000 per day. The estimated date of
readiness to load given by the shipowners is 1 August. A has a right to cancel the
charter party on 14 August if the ship is not ready to load. There is an exception
clause in the charter party exempting the shipowners from liability where delay
in arrival has been caused by matters beyond their control. The charter party also
includes an off-hire clause providing:
In the event of loss of time from…breakdown of machinery…the payment of hire
shall cease until the ship is again in an efficient state to resume her services.
The Good Hope is delayed in discharging the cargo under her previous fixture to a
different charterer due to unexpected strikes of tugs in port, and it is not certain
whether she will be ready to load A’s cargo until 18 August. A has heard about
it and because he is anxious to comply with the terms of the sale contract that
requires delivery of the cargo by 20 August, he gives notice of cancellation to the
shipowners on 31 July. As he cannot easily find another ship at the same daily hire
rate to transport his cargo, he charters one at the spot market for $40,000 per day.
He now claims the difference in the hire rate as damages from the owners of The
Good Hope.
In fact The Good Hope arrives at the agreed port on 14 August and is chartered
to B on the same terms as in the charter with A. During the voyage, the ship’s
engine breaks down and she is towed to the nearest port for repairs. The towage
to port has taken five days and the repairs another five days. To return to the place
where the breakdown occurred she has taken three days. When she arrives at the
discharge port, she is not allowed to use her cranes because the port does not
allow any means of discharging other than the shore cranes. As a result discharge
has taken twice as long, namely 10 days.
At the end of 12 months of the charter, B orders the ship for a last round voyage,
which would take 28 days to be completed, as he considers that taking into
account the off-hire period he is entitled to this extra time. The shipowners refuse
to comply with the order.
Advise the owners of The Good Hope on their position under both charter parties.
Feedback: page 48.
47
Carriage of goods by sea: Module B
Advice on answering the questions
Question 1
Essay questions are often designed to provoke disagreement. The key word here is
‘always’: you should concentrate on the situations and cases in which the owner will
not be indemnified.
Back
Question 2
After getting a mental picture of the parties and the voyage, list the issues for
consideration:
•
Owners missed the cancelling date, but charterers waived their rights by ordering
the master to load.
•
Dry-docking – a clear off-hire event, so 15 days are off-hire (precise dates not
stated).
•
Inspection and investigation – normal security measure, so off-hire for ‘any other
cause’.
•
Repair of cranes – irrelevant as not required at the time.
•
Note that there appears to be no anti-technicality clause in the charter, but
although payment has not been made ‘in cash’ (not earning interest), withdrawal
is premature as it was done before midnight on the due date. Were the charterers
justified in making deductions from hire?
See the main text for the relevant cases on these points that you should bring in to your
answer.
Back
Question 3
Separate your answer into two distinct parts. First, the charter to A: the only point is
that there is no anticipatory right to cancel, so that A is in breach, not the owners, and
A has no claim for damages.
Second, the charter to B: engine breakdown is an off-hire event, but The Good Hope
is off-hire for 10 days, not 13, since she was in an efficient state again after 10 days.
Compulsory use of (slower) shore cranes is not an off-hire event on the quoted clause.
Last voyage orders: the charter period can be extended by 15 days (MOLCOPT), but
unless the charterers can ‘find’ another 13 days, the last voyage orders were rightly
declined.
Off-hire periods can be added, but only if the charter so provides (not stated here). As
the off-hire period is in any event only 10 days, the charterers must fail.
See the main text for the cases to be cited on the above points.
Back
48