UNIT I

MARITIME LAW AND THE SHIP

Chapter 1
MARITIME LAW, ITS NATURE AND DOMAIN
THE MEANING OF LAW
LAWS are rules and regulations ordered by governing authority of a state in order to:
- control the relationship between the state and the members, and
- control the relationship among members themselves for the purpose of establishing a peaceful
order in the society.
MAJOR CLASSIFICATIONS OF LAW

a. Municipal Law or Domestic Law refers to the body of rules that are applied for domestic or
internal orders of the state and its members. It embodies laws primarily governing the relationship
between individuals and government and the relationship between or among individuals
themselves. An example of Municipal Law is the Civil Code of the Philippines.
Rules and regulations relative to the duties and responsibilities of an individual member or groups
towards the government and among themselves are within the bounds of municipal law. Some
examples are administrative laws, taxation laws, criminal, etc.
b. International Law consists of rules governing foreign affairs of the country. The law is about the
relationship between the state and of international organizations and the dealings of the state with
other countries. An example of international law is the United Nations ( UN ) Law of the Sea.
Maritime Law is an international law.
Tetley (2000) clarifies the classic definition of international law from Mozley & Whitely’s Law
Dictionary. He cites that “international law is divided into two:
1. Public international law comprises the rights and duties of sovereign States towards each other
2. Private International law comprises the rights and duties of the private individuals of different
States towards each other, and is mainly involved with questions as to the particular law governing
their transactions”.
Tetley further defines international law as the legal principles governing relationship between
nations, more moderately, the law of international relations, embracing not only nations but also such
participants in international organizations, multinational corporations, non- governmental organizations
and even individuals ( such as those who invoke their human rights or commit war crimes )
He also defines International public law is one that refers to the law of nations, law of nature and
nations: interstate law and law between states. The terms “interstate law “and “law between states
“refer to being equivalent to nation or country.
Private international law refers to conflict of laws. Legal scholars frequently lament the name “private
international law” because it misleadingly suggests a body of law somehow parallel to (public)
international law, when in fact it is merely a part of each legal system’s private law.
MAJOR LEGAL SYSTEMS
a. Common Law System is based on written decisions of court cases made by the judges of courts
throughout the country.
b. Civil Law System is a body of rules which was developed to prevent the use of physical force
and avoid damage or injury against a party.

Plaintiff is the person who brings lawsuit against another.

Defendant is the person against whom a case is filed in court.

SUBDIVISIONS OF MUNICIPAL LAW

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A. Private Law speaks of rules concerning the rights and duties between individuals or groups of
individuals. Some examples of party or individual, or groups of individuals are companies,
corporations, associations, single proprietor, etc. In particular, private law embodies the law of
contracts, law of torts and law of personal property.

1. Law of Contracts

Contract is an agreement which the law recognizes. The agreement must have essential features
such as consideration, form, agreement itself, intention to create legal relation, time and legality.
Contract is usually formed between two parties:

a. Acceptor or Offeree. The one who accepts an offer

b. Offeror or Promisor. The one who promises to the offeree.

2. Law of Torts

Law of torts concerns rules that deal with civil wrongs committed by a person against another
person. By definition, a “tort “is a civil wrong which entitles a person who is injured by the wrong
doer to claim damages for his loss or injuries “tort “. The word tort originates from the French
language which means “wrong “, harm “or “injustice “.

3. Law of Personal Property

It embraces the laws concerning the “chose in possessions “and “chose in action”.
Chose in possession refers to the tangible removable properties, such as books, cars,
machinery, etc.
Chose in action refers to the properties which are not tangible ( i.e. shares of stocks in a
company or negotiable instruments such as bank notes, promissory notes, bills of
exchange, etc )

A. Public Law refers to the laws that govern the exercise of power by public authorities. It also
includes legal relations between the state and individuals. Contrary to private law, it involves
reactions between private citizen or organization and the government.

1. Criminal Law

It deals with crimes or offences against the state. The state initiates the prosecution of criminals.
The objective of a criminal proceeding is to satisfy the claim of the victim and to penalize the
offender

2. Administrative Law

It refers to the body of rules relating to the administration of government functions. It controls the
exercise of governmental power and authority. It deals with grievances resulting from government’s
actions or decisions.

3. Constitutional Law

It is a collection of laws that defines the powers, organization and responsibilities of central and
local governments of the country.

4. Taxation Law

It refers to the body of rules governing the imposition and collection of taxes by the state.

MARITIME LAW
The international Maritime Organization (IMO) defined Maritime Law as “the legal regulations
governing maritime shipping and relevant activities, the use of the sea and the exploitation of its
resources and the protection of the marine environment” (IMO Compendium of Maritime Laws (CML),
1993).

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Maritime law mainly concerns with the oceangoing trade or commerce and some laws adopted by
countries from international conventions affecting the use of maritime transportation while at navigable
waters. Some examples of maritime law are the US Shipping Laws, Philippine Merchant Marine Rules
and Marine Insurance Act of England, among others.
ORIGINS AND SOURCES OF MARITIME LAW
a. In England, maritime law was developed from the disputes that were resolved by special courts
attached to the Local High Admiral. English Admiraty laws spread to colonial America where vice-
admiralty courts were established
b. During the Roman eras, the maritime laws were not part of the Roman Laws because of its
international elements.
c. The source of maritime law today originated from the law of merchants on land also called “ lex
mercatoria” and from the law for merchants at sea, also called “lex maritima”.
d. Maritime law in most countries has a common maritime origin, which is the civil law tradition.
e. Today it is strongly influenced by common law, as well as by the rapid development of modern
merchant shipping regulations.
In general, most states developed their own maritime laws from the foregoing to serve as basis in
resolving disputes concerning ships, shipping and the use of the seas, which came out from the
following:
A. Legislations ( Statute )

Legislation or statute is enacted law. It is national law passed by the legislative body of the State.
The legislative body has the constitutional power to facilitate a state law
The national shipping law of the Philippines is statutory because the national legislative body
(upper and lower houses) enacted it. The Philippines has neither single code nor one general
statute as regards maritime laws.
B. International Maritime Conventions

International conventions, whether general or particular establishing rules expressly recognized by

the contracting states is a major component or part of the international maritime law.
Maritime convention means “ any international agreement relating to maritime matters, concluded
between two or more states in written form and embodied in a single instrument or two or more
related instruments, governed by international law “

C. Customs
These are generally accepted habits. In most countries, customs are traditionally considered as
sources of laws, including maritime laws. Generally, customs are absorbed in the rules of law. An
issue about a custom that has been determined judicially or adjudicated by the court becomes part
of formal law.
IMPORTANCE OF MARITIME LAW
The importance of maritime law has been evidenced by
1. The increase of international conventions concerning maritime affairs in the last century. The
International Maritime Organization (IMO) alone adopted thirty two maritime labor conventions for
the period 1920 to 1981 concerning seafarers’ work improvement and living conditions.
2. The United Nations (UN) conventions in the area of maritime transportation and trade which
developed and sponsored conventions adopting international rules concerning the conduct of
maritime trade.
3. Since the use of ships affect the trade, specialized agencies of the United Nations were involved in
development of maritime related conventions. These were the Shipping Committee of the United
Nations Conference in Trade and Development (UNCTAD), the International Maritime Organization
(IMO) and the International Labor Organization (ILO), UN Committee on International Trade Law
(UNICITRAL), and Committee Maritime International (CMI).

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The Philippines adopted many laws based on various international maritime conventions. Through the
legislative branch of the government, the Philippines enacted laws responding to the regulations set by
the international organizations.
Some examples of regulations based on international conventions are the local regulations prescribed
by the
1. Maritime Training Council of the Philippines (MTCP)
2. Maritime Industry Authority of the Philippines(MARINA)
3. Professional Regulation Commission (PRC)
4. Philippine Coast Guard (PCG)
They issued regulations following the standard requirements of documents and certificates for Filipino
seafarers based in International regulations set by the
1978 Standards of Training, Certification and Watchkeeping (STCW), as amended including 2010
Manila Amendments.
Former President Fidel V. Ramos ordered the creation of the Multi – Sectoral Task Force on Maritime
Development Technical Working Group (MTFMD – TWG) and placed it under the office of the
President during his administration.
The task force consists of the government agencies that have responsibilities in the development of
ports, shipping, maritime safety and maritime education in the Philippines. These are
1. the Philippine Coast Guard
2. the Maritime Industry Authority
3. the Philippine Ports Authority
4. the Coast and Geodetic Survey Department of the National Mapping and Resource Information
Agency which is under the Department of Environment and Natural Resources ( DENR )
5. the Philippine Merchant Marine Academy( PMMA )
6. and, the Commission on Higher Education of the Philippines.
Chapter 2

THE SHIP: ITS MEANING, REGISTRATION,

AND NATIONALITY

HISTORICAL DEVELOPMENT OF SHIPS

Early Evolution of Ships

1. In the early times, ships were used for transporting goods and people. The early types of ships
were in form of a sailing craft. The craft is a flat raft with short mast positioned so that a single
square sail could be hoisted.
2. The oldest considered ship was found between 2960-3908 BC and believed to have been built for
the funeral of Egyptian pharaoh, Cheops
3. From 1000 to 250 BC, the Phoenicians improved the Egyptian designs and built vessels of
approximately 30 meters to 100 meters in length. These ships were used in Mediterranean trade
(Grolier’s, 1995).
4. The Europeans built ships with the hull where the frame was a longitudinal keel (backbone), with
stem posts and athwart ship .The frame was covered with wooden planks coated with pitch.
5. In 450 BC, the Romans introduced the idea of decking partly their ships so that passengers and
crew will have shelters when they boarded the ship.
6. In about 250 BC, the Chinese came out with a different design by joining together two canoes by
using planking and built up the sides, bow and sterns to form a flat-bottomed wooded box. This is
called the Chinese “Junk where there was a hull without a keel ”
7. Later, the Japanese, Javanese and other eastern civilization built their own forms of Junk. The
Junks were superior to any Western vessels built before the 17 th century.
8. In 900 AD, the Viking’s long ships were introduced where the ship carried warriors in their
conquest for power and supremacy. The long ship carried 16-30 oarsmen on each side and had
large square sails.
9. Between the 13th and 15th centuries, the most advanced countries in Europe used the Caravel in
many economic and political explorations. The caravel is a small wooden vessel featuring lantern
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 or triangular sails with two decks and finer lines it was developed by the Portuguese fisherman and
was used until the end of the 15 th century. The great discovery by known navigators Ferdinand
Magellan and Christopher Columbus were made using Caravel ships.
10. In the 16th century, Spain built ships called Galleons which are a three – mast vessel used both as
warships and trade ships It was in 1755, during the time of the Galleons, that trade between
Manila and Acapulco was developed.
11. In the 19th century, larger ships with greater cargo capacity were in great demand due to the growth
of seaborne trade in newly discovered colonies. This gave way to the clipper ships, which were
especially slim lined sailing ships that ran regular routes between Europe, Americas, and China,
carrying passengers and cargoes.

1807 - The first steamboat powered by engine was successfully made by Robert Foulton

1819 - The US Ship “Savannah” is the first steamship to cross the Atlantic 1884 - The steam turbine
began after an English engineer; Sir Charles Alergon Parsons used the first-turbine –propelled
vessel. The steam turbine did not last long when oil was discovered as ships fuel.

1892 - Rudolf Diesel patented his invention of diesel engine (Grolier’s 1995).

Pre- War, Post War and Later Development of Ships

The use of oil as fuel triggered the developments of bulk shipments.

- Before the Second World War, very few ships were made for bulk shipments. Ships were smaller in
size, conventional and traditional types. The average speed of ships was between ten and twelve
knots. Most of the vessels during this period were made for general cargo (geared and ‘tenders). At
that time the ship had a large number of crew, long voyage, and long days in ports (due to manual and
semi-mechanized discharging and loading of cargoes.

- In the second-world war, the number of ships diminished because many of them were lost and
destroyed.

- After the war, US started massive shipbuilding to revitalize the industry to be assured of sufficient
fleets that can be utilized in times of conflicts with other nations. In 1945, the United Nations was
established by allied countries to help stabilize international relations and secure the foundation of
peace (UN, 1995). Thereafter, the trade was resumed and shipping activities slowly normalized.

- In the second half of the last century, trade increased considerably. The significant growth of trade
created impact on the shipping industries. The introduction of containerization or unitization of cargo
and the use of multi-modal transport system directly influenced the revolution of ships

- In the beginning of the 1960s. there was phenomenal growth in the breakbulk shipments and liner
shipping reached a point where shipowners could not supply the demand for the ships of the shippers
(Stopford,1998).

- Later, oil became prime commodity due to the massive industrialization that took place in Western
Europe, the United States and Japan in the Far East. The industrialization of Japan, USA, and
Western Europe created remarkable impacts on the technology and design of the ships. Before the
end of the 1960s, oil tankers with over 120,000 dead weight dominated the seas.

- In the final quarter of the 20th century, the growth of specialized ships was also noted. Ships that
were designed to carry special cargo gradually replaced the traditional cargo vessels. The decline of
the traditional cargo vessels gave way to the rise of container ships, heavy lifters, larger tankers, ro-ro
ships, off show vessels, large bulk carriers, etc.

- Changes in the mode of handling cargo were also noted. Cargo was shipped in a new variation of
traditional forms of container, unitized cargoes (which may be palletized), roll-on-cargo, bulk, loose
solid cargo, and unitized cargo replacing bulk (e.g pulp) and unitized cargo of heavier unit.

THE LEGAL DEFINITION OF A SHIP

Ships may be defined in accordance with their purpose. The following are some meanings of the word
“ship”.
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A. For Liability in Oil Pollution

When referring to pollution liability, the IMO through a Protocol to the International Convention on
Civil Liability for Oil Pollution Damage 1969, also called the Civil Liability Convention or CLC
(1984), defined the term ship as “any sea going vessel and seaborne craft of any type whatsoever
constructed or adopted for the carriage of oil in bulk as cargo, provided that a ship is capable of
carrying oil and other cargoes shall be regarded as ship only when it is actually carrying oil in bulk
as cargo and during any voyage following such carriage, unless it is proven that has no residues of
such carriage in bulk abroad”(Art.1)

B. Maritime Labor Convention

For the purpose of maritime labor convention, the term ship is defined as “any vessel mechanically
propelled and registered in territory for which the convention is in force; it is engaged in the
transport of cargo or passengers for the purpose of trade or engaged in a voyage at sea” (IMO
CML,1993).

C. For the Purpose of Ship’s Registration

If ship is to be registered, the meaning of ship refers to any “any self-propelled sea-going vessel
used in international seaborne trade for the transport of goods, passengers, or both with the
exception of vessels less than 500 gross registered tons” [United Nations Convention on
Conditions for Registration of Ships (UNCCRS), 1986, Art. 2].

D. In the Carriage of Goods Under a Bill of Lading

With respect to carriage of goods, the International Law Association or ILA (1924), through the
International Convention for Unification of Certain Rules of Law Relating to bills of Lading (Hague-
Visby Rules) agreed that the term ship referred to in a bill of lading means any “vessel used for
carriage of goods by sea” (Art1).

E. In Salvage Convention

The term vessel has been given more preference by the 1898 International Convention on Salvage
(ICS). It defined vessel as “any ship or craft or any structure capable of navigation” (Art. 1-b).

Brodie (1994) defined the word ship as a generic term that described it as a “floating vessel, which
is self propelled and capable of carrying cargo or passenger” (p161).

Based on the various definitions, it has been noted that a ship is also called a vessel. However, it
is not enough to know that a floating structure at sea is a ship that is also called a vessel.

GUIDE IN DETERMINING IF A FLOATING STRUCTURE IS A SHIP

Logically, not all floating objects or structures at sea is a ship. A ship has its own characteristics and
features? The special characteristics and features of a ship have been explained in the IMO
compendium of maritime laws. The guide in determining if a floating structure is a ship is as follows:

1. Floatation capacity. A ship has its floatation capacity partly due to a hollow construction. It is a
structure that is normally seen floating in sufficient depth of water.
2. The structure has the capability to move on through water and constructed for that purpose. It is
a built for moving in the water and not to be permanently afloat on a permanent specific area of a
sea.
3. The structure must be large enough to carry persons or goods. It must be designed according to
a minimum set of dimension. It is usually bigger than the ordinary floating structure seen in water.
4. The ship must be built for carrying out shipping government or private business.

In order to avoid confusion, the following structures are not considered as a ship:

1. Timber float
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2. Seaplane
3. Small boats (eg. Canoes, rowboats, small fishing-boats, bancas, etc.)
4. Hovercrafts (because it is covered by special law)
5. Fixed oil and gas drilling platforms permanently attached to the ocean floor.

SHIP’S APPURTENANCES

The integral components of a ship can be described as those items that form part of the ship. The
most integral parts of a ship are its bridge, propulsion and steering machinery. Ships appurtenances
are items, which are placed on board the ship for a long period for the purpose of operating it. These
are navigational equipment, spare parts, tools, etc.

WHEN DOES A SHIP CEASE TO BE CALLED A SHIP?

A ship ceases to be called a ship when its function is totally changed and has no further navigational
function. The change in function should be permanent in nature. One example of this change is a
passenger ship that is permanently moored at a berth of a port because it has been converted into
both a hotel and casino

If the ship’s navigational function ceases she loses all the characteristics of being a ship. The
principle applied in this case is a change of utilization. The ship is put to a different use. This however
does not apply to ships that are temporarily laid up for major repairs (dry dock) or while waiting for new
trade.

Another circumstance when a ship loses her status as a ship is when it is physically a total loss. The
ship’s classification is lost because she is irrevocable. It includes a ship that lost her physical
characteristics due to fire, sinking, and scrapping.

ACQUISITION OF A SHIP

The most common way of owning a ship is through a shipbuilding contract and by means of sale and
purchase.

Shipbuilding Contract is an agreement in written form for the building of a ship. It contains the
description of the ship to be built.

A shipbuilder is one who constructs or builds the ship. If the shipbuilder does not follow the agreed
description of the ship and builds a different one, the purchaser (person ordering the construction of
the ship) has a right to protest. He may demand for remedies or for the correction of the breach of the
contract. The written contract for the shipbuilding includes the following salient features:

1. Description of the ship ordered by the purchaser and to be built by the shipbuilder- The description
includes the main size of the ship, her speed, fuel consumption, load capacity, type, etc.
2. The deadline or the time when the ship shall be delivered to the purchaser.
3. Price for building- The price can be fixed in accordance with the agreements of the parties
(shipbuilder and purchaser). For example, the agreement between parties based on the results of
bidding made for this purpose or based on the cost of materials and labor or based on the price of
a ship that was built by the same shipbuilder for a certain buyer.
4. Insurance while the ship is under construction- This is usually charged to shipbuilder. He pays the
insurance against damages or losses caused by fire accident.
5. After the delivery of the ship, the builder is responsible for the defect or deficiency that may be
visible or hidden if it can be proven that such defect or deficiency comes from his fault (due to faulty
materials, poor workmanship etc.).

In a shipbuilding agreement, the contract is considered a sale. Therefore,

1. As long as the price has not been fully paid, the seller of the ship or the shipbuilder and the
purchaser thereof are considered as joint-owners of the ship.
2. Once the purchaser completes his payment, he becomes the full owner of the ship.
3. In Joint- Ownership, once any one of the parties goes bankrupt, the other party can get the
possession of the entire ship, provided said party has a majority share. Although this is practiced in
many countries, there are laws on sale and purchase of properties that may overturn or prevail over
this practice.

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In the sale of purchase of a ship, the commercial laws of a country provide rules on buying and selling
of a ship. A standard sale form may be designed to conform to the rules and regulations of the state.
Inspections of ships are provided in the form. The most important condition in the contract under the
purchase and sale form is the description of the ship. The name of the ship must be identified including
her class, shipyard/building and regular tonnage.

If the appurtenances or equipment/apparatus is included in the sale and purchase, this is expressly
stated in the contract. The seller is liable for any incorrect information supplied regarding the
description of the ship.

If the ship is described to have a speed of 14 knots and it turned out to have only 13, then this should
be corrected. The buyer usually pays a 10% deposit of the purchase price to the seller. The whole
price is not yet paid until after the buyer is assured that all the conditions regarding the description of
the vessel is satisfied after inspection.

THE NORWEGIAN SALE FORM

In the sale and purchase of a ship, one of the most widely-used forms in the world is the Norwegian
Saleform 1993, which is a revision of the previous form developed in 1987, as also amended. This
was adopted by the Baltic and International Maritime Council (BIMCO) in 1956. It underwent revisions
in 1987 and the most recent revision was made in 1993.

The form is a kind of Memorandum of Agreement or MOA between concerned parties. The front
portion initially contains an agreement portion in which the sellers agree to sell and the buyers agree to
buy the ship with specific description (detailed information). The information contains the following:

1. Name of the ship and classification society/class

2. Built and name of builder
3. Flag and place of registration
4. Call sign and the GRT/NRT
5. Registry number

There are 16 provisions or clauses in the MOA bearing the important terms and conditions of the
Agreement. The following are the subjects of agreement.

1. Purchase price
2. Deposit
3. Payment
4. Inspection
5. Notices, Time and Place of Delivery
6. Drydocking/Divers Inspection
7. Spares/bunkers, etc.
8. Documentation
9. Encumbrances
10. Taxes
11. Condition on Delivery
12. Name/marking
13. Buyers default
14. Sellers Default
15. Buyer’s representative
16. Arbitration

With regard to document agreement, the seller is obliged to provide the buyer with delivery of
necessary document in exchange for payment of the purchase price. The documents include as
follows: legal bill of sale, current certificate of ownership, confirmation of class, current certificate
regarding freedom from registered encumbrances; certificate to deletion of the vessel from the vessel’s
registry, and all other documents required by the authorities for the purpose of registering the vessel to
the new owner.

Buyer’s default refers to right of the seller to cancel the agreement should the deposit is not paid by
the buyer of accordance with their agreed terms and conditions.

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Seller’s default is the right of the buyer to cancel the agreement if the seller fails to give notice
readiness or fails to be ready to validly complete a legal transfer of ownership of the ship on the date
agreed by the parties.

Arbitration refers to the terms and conditions on the place where any dispute arising from the sale or
the interpretation of the contract needs to be resolved.

OWNERSHIP OF THE SHIP

“Ownership” whether referring to goods or a ship refers to possession of the absolute right to sell the
thing and the right to enjoy quiet and uninterrupted possession of it. These facets of true ownership
reflect the legal maxim which says that “no one can pass to another a title which is not his to give”.
Thus, the seller or vendor of anything can only pass to another person the rights which only he himself
possesses.

Since ships are also instruments by which their owners can incur liabilities to the parties, it is logical
that ships be required to have a nationality so that their owner’ obligations, duties, rights, liabilities and
immunities can be regulated and recognized by the state.

The evidence of a ship’s ownership basically depends on documents, such as entries in the port of
registry, or executed bills of sale or any stronger document that can displace them. Normally, the
evidence of ownership of a ship is its registration. Since the ship is a movable property, the possession
thereof does not imply ownership.

The transfer of a ship, as property can be proven by her registration in a special registry. In most
countries, all the contracts of vessels are registered in the Register of Mortgages. The public has to be
informed about the status of the vessel. The registries for foreign and domestic ships are different.
There are penalties imposed for not registering the ship’s sale or shipbuilding.

There are also cases when ships have more than one owner. Co-ownership are composed of three
types and these are as follows:

Sole proprietorship is the simplest form of a ship ownership, but very rare because of a large capital
and financial investments required in the acquisition of a ship. Here, the ship is owned by an individual
person, who owns and operates his own business without any partners.

He is solely responsible for the crewing, insurance, repair and maintenance, supplies and all other
needs of the ship. In practice, the single proprietor may hire an employee to take care of these
functions but all obligations and claims arising from any dispute caused from the operation of the ship
belong to the sole proprietor:

Shipowning Partnership. Since the liabilities under single ownership are unlimited, an individual finds
it difficult to invest singly in a shipping business. In most countries shipowning partnerships are very
common. There are many forms of shipowning partnership. Some of these are as follows:

Joint Ownership. In joint ownership, the ship is owned or shared jointly by two persons or
corporations with unity of title and no distinction of interest.

Part ownership or co-ownership. Under this form, the ship is owned by two or more persons or
corporations who have severally distinct shares in the ship but with an undivided interest in the whole.
They are considered as tenants in common with each other of their respective shares. The relations of
co-owners are regulated by express agreement and the management of the ship is delegated to a ship
manager who may or may not be a part-owner.

A corporation can be a shipowner under its corporate name and not under the names of each
individual shareholder in the company. Part owners are not necessary partners in a business. They
can be partners in individual ventures wherein the ship may be engaged from time to time, share in
profits or losses and responsible for the obligations incurred by the ship’s manager. However, in most
countries, ownership of a property such as a ship are governed by States’ laws or special laws.

In England, the merchant shipping act of1993 for the registration and ownership of a ship requires the
following:

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 The property in a ship shall be divided into 64 shares
 Not more than 64 persons shall be entitled to be registered at the same time as owners of any one
ship
 A person shall not be entitled to be registered as owner of a part of a share but any number of
person not exceeding five may be registered as joint owners of a ship or of any share or shares in a
ship; and
 Joint owners shall be considered as constituting one person only as regards the persons entitled to
be registered and shall not be entitled to dispose in severalty or any interest in a ship or in any
share in a ship in respect of which they are registered.
NATIONALITY OF A SHIP
Nationality of a ship is associated with the concepts of ownership, registration and Flag State. There
are laws and regulations that have to be followed to be accorded a nationality. There are conditions
that are prescribed by a state to accept a ship in the state’s registry
.
The Concept of Nationality of a ship is similar to the concept of an individual or a person and his
status in the independent political community. An individual has to be a national or a member of a
nation in order to enjoy certain rights and protection from such membership. Being a member of a
nation, however, corresponds to an obligation to follow the state’s rules and regulations. A newly born-
child, for example, is registered by his mother who is national of the state, with the registry of birth in
the municipality where the child was born. This act establishes the child’s nationality after birth.

Registration of the ship entitles her to a nationality which is that of the state. This is to explained in
the book of Berlngieri (1992), when he states that “the nationality of a ship is that of a state whose
register of ships, the ship is entered” (p.18).

Gaskell, Debattista & Swatton (1987) explain that “without a nationality, the ship will be and what kind
of protection is she entitled to be accorded with. Without special rules, a ship, while at sea, would find
itself a legal vacuum. To fill that vacuum, States give their ships a nationality” (p.19).

The nationality of a ship binds the ship to a state. The state conferring the nationality to a ship
simultaneously confers certain rights, privileges and some diplomatic protection when the ship is
calling to a foreign port. Both the ship and the state, however, have duties and obligations to perform
to each other. The principle of nationality, therefore, centers on the link between the ship and the state.

The international Laws on the Nationality of Ships are embodied in the 1958 Convention on the
High seas (also called the Geneva Convention) and the 1982 UN Convention on the Law of Sea
held in Montego Bay. Article 10 of the Geneva Convention requires each state to provide measures
for ships under its flag to ensure safety at sea. Some of the requirements are on the following aspects:

1. Construction, equipment and seaworthiness of ships.

2. Manning, labor conditions and training of crew.
3. Use of signals, maintenance communication and prevention of collision.
The condition further required compliance with the following:
4. Survey of ships by a qualified ship surveyor before registration and thereafter, at appropriate
intervals.
5. Keeping on board the ship, the latest charts, nautical publications and navigation.
6. Possession of appropriate qualification by shipmaster and officers on board pertaining to
seamanship, navigation, communication and marine engineering; and
7. Manning the ship with qualified and appropriate number of crew for operations of machinery and
equipment used onboard.

On top of the above, Article 5 of the Convention on the High Seas 1958 requires each state to fix the
condition for the grant of its nationality to ship, for registration of ship in its territory, and for the right to
fly the State’s Flag. Therefore, the Certificate of Nationality required by the Convention established the
link between the State and the ship flying its flag.

REGISTRATION OF SHIPS

Registration can be defined as an act of fulfilling the state’s conditions for the grant of nationality to a
ship. It is an official acknowledgement that a ship was able to comply with all the requirements set by
the state to be accorded a nationality.

10
The purposes of registration are as follows:

1. It is a documentary evidence of ownership in the register that can be presented to other authorities
and parties needing it.
2. It provides accurate record of measurement and tonnage of the ship.
3. It establishes the ship’s nationality and serves as a document of nationality that can be presented
to any government authority requesting for it. It gives the ship the rights, privileges and protections
accorded to a registered vessel.
4. It renders limitation and control of ownership of ship under a flag.
5. Records of registry make it easy to facilitate transactions concerning purchase, and mortgages of
ships.
6. Registration gives income to countries where ships are registered.
7. Small countries consider large ship registration as a kind of prestige and give them some strategic
importance.

A ship owner who fails to register his ship cannot escape from duties, fines, forfeitures, payment of
dues and punishment for offences committed onboard that may be imposed by the country that
discovers this kind of illegality. The UN convention on Laws of the Sea (UNCLOS 1982) adopted the
provision of the 1958 Geneva Convention regarding nationality, registration and flag state.

The Geneva Convention provides the forms of certificates and conditions for registration of ships and
grant of nationality should be determined by the government of each country, which ratified the
Geneva Convention.

However, in order to strengthen the link between the state and the ship flying its flag, the UN
conducted another convention in 1986 which is called UN Convention on Conditions for Registration of
Ships (UNCCRS). The 1986 convention granted the State the right to exercise effective jurisdiction
and control over the ships flying its flag and identify the accountabilities of ship owners and operators
regarding administrative

Under this Convention, the State of registration (the State in whose register of ship, a ship has been
entered) has the following duties and responsibilities:

1. To enter to its register of ships information about the ship and its owner or owners
2. To enter information about the ship’s operator when the operator is not the owner of the ship
3. To ascertain that a ship ‘flying its flag carries documentation including information about the identity
of the owner or owners, the operator or operators, or the person or persons accountable for its
operation.

The administration is required to keep a logbook of information on all ships and this logbook should be
retained for a reasonable period after the date of last entry, even though there has been a change in
the ship’s name. It should be made available for inspection and copying by persons having legitimate
interest in obtaining such information.

A certificate of registration should be issued by the State to the ship as evidence of registration.
However, this registration certificate is obtained only after the ship has already secured a document
called Identity Certificate (also called Certificate of Number).

The administration of the State issues the Certificate of Ownership after permanent registration of
the ship. The registration grants the ship her nationality and such nationality is that of the State’s which
granted the ship its registration.

The Certificate of Registry is sent to the owner of the ship upon registration. The main purposes of the
certificate are as follows:

1. For lawful navigation of the ship

2. For identification of the ship owner
3. As a prima facie evidence that the ship can claim the privileges under the State’s registry in which
the ship is registered
4. As a prima facie evidence that the ship can be subject to any resulting obligation arising from its
registration

11
The Certificate of Nationality or Registration is normally valid until the ship is scrapped or until there is
a change of ship ownership or nationality. There are countries which allow renewal of the Certificates
of Ownership/Registration. Ships that are chartered or leased from a foreign national are usually
granted only temporary registration and not a permanent one.

The validity of registration is good only for the charter contract. Thereafter, the ship is deleted from the
registry under any of the following circumstances:

1. When the charter or lease of the ship expires or terminates upon mutual agreement of the parties
to the charter
2. When the administration revokes approval of the charter/lease for cause and due process
3. When the Certificate of Registration expires and is not renewed anymore
4. When the ship suffers actual constructive loss.

The Certificate of Registry is surrendered in case the ship is constructively lost or is sold to a foreign
person or entity or the ship has been captured. It must be kept onboard at all times, but cannot be
used as security or guaranty to support a lien or claim. Any change must be notified to the Registrar.

The registrar may terminate a ship’s registration under any the following circumstances:

1. On application by the owner.

2. If the ship is no longer being eligible to be registered.
3. On registrar decision that it would be inappropriate taking into account any requirements of the law
to remain registered due to condition of the ship’s safety or the crew on board or to any risk of
pollution.
4. When imposed penalties on owners are not paid for a required period of time.

Upon termination of the registration, the owner of the ship normally receives a closure transcript.
Likewise, notification to any mortgagees of the closure of the registration should be ensured by the
registrar.

SHIP REGISTER (OPEN AND CLOSED)

Register refers the official list of the ships wherein other important information regarding the ships and
their owners or operators are recorded and kept by a competent state authority.

There are small ships, which are obliged by a state to be registered but not within the requirements of
the bigger ships. For these reason, a state also provides a register for small ships.

Register for small ships. This is established as a separate registry system in a country. Sometimes,
small fishing boats, yachts, and motorized bancas have different registers in a state.

Generally there are two types of registry. These are open register and the closed register.

Open Register refers to a type of registry wherein a state opens the registry of a ship to any
shipowner whatever his nationality; as long as he registers his ship with the state’s registry and
complies with conditions required by the state.

Closed register is a type of registry that gives restriction to foreign shipowners to register in the
country’s registry. In other words, a closed register is open only to the nationals of the country.

FLAG STATE ADMINISTRATION

Flag State Administration refers to the national maritime administration of the state that grants a
nationality to a ship. It is a government authority or agency that is established by the state of
registration in accordance with its legislation. It is responsible for the implementation of international
agreements concerning maritime transport and for the application of rules and standards concerning a
ship under its jurisdiction and control (UNCCRS), 1986, Art.2).

Most flag states have their own shipping laws that embody the national or domestic and international
regulations. The powers to regulate are vested by the state to government maritime agencies or
administration. In the Philippines, the following government maritime agencies or administration are
the:
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1. Maritime Industry Authority ( MARINA ) that provide the merchant shipping laws involving
registration of vessels and their commercial operations
2. Philippine Coast Guard (PCG) that is concerned with regulations about implementation, monitoring
and control of navigational safety and pollution prevention.
3. The Bureau of Customs and the Philippine Ports Authority that issue rules and regulations
concerning the arrival and departure of the ships in Philippine ports.

The aforementioned agencies are only three of the Philippine government’s maritime agencies, which
are under the Department of Transportation and Communication (DOTC). The DOTC is the agency of
the Philippines, which exercises supervision and control over all other government agencies in the
country providing transportation (land, water and air transportation) and communication services.

WHAT IS FLAG STATE?

The ship has to be registered or listed in a country under certain rules of the country. Once these rules
are fully complied with by the owner of ship, the state who is granting nationality to the ship is also
granting her the right to fly its flag.
The United Nations Convention of the Law of the Sea or UNCLOS (1982), states that “every State
shall issue to ships to which it has granted the right to fly its flag document to that effect” (Art.91). From
this concept, a Flag State can be defined as a State whose flag a ship flies and is entitled to fly
(UNCCRS, 1986, Art.2.2).

JURISDICTION OF THE FLAG STATE

The state whose flag the ship is entitled to fly its flag has to exercise jurisdiction and control over the
ship’s administrative, technical and social matter. Article 94 of UNCLOS (1982) particularly laid down
the following jurisdiction control and duties of the Flag State:

The Flag State shall maintain a register of ships.

a. A state whose port the ship is visiting
b. A state whose flag ship flies and entitled to fly
c. A state whose flag is flown whenever the ship visits its port
d. The right of the state to board a ship visiting its ports.
FLAG OF CONVENIENCE (FOC)
Some countries have the practice of accepting registration of foreign vessels in state’s registry
because it provides income. The shipowner takes advantage of this opportunity because oftentimes
these countries offer lower taxes from their ships’ income, low registration fees, freedom to hire foreign
crew, master and officer who accepts low salaries that reduces the costs of manning the ship. Another
reason could be that the country offering convenient registry has less rigid requirements for the safety
equipment to be placed on board or the surveying requirements are not too strict.
The shipowner finds it more convenient to register his vessels because the country is “open” and
flexible to many requirements that are strictly imposed by the laws of his own state. Once registered,
the ship is entitled to fly the flag of the state and the flag is literally called the “flag of necessity” or the
“Cheap Flag”.
Brodie (1994), describes Flag of Convenience as “registration of a ship in a country whose tax in the
profits of trading ships is usually low or whose requirements concerning manning or maintenance are
not stringent.”
THE SECOND REGISTER
Some countries introduce the concept of registering international vessels that have not been registered
with them before. For example, Country A opens its registry to all vessels that were not registered with
country A’s registry of ships before. This is closely similar to open registry.
The conditions for registration have to follow the country’s capitalization requirements which generally
require 60% ownership from a domicile or citizen of the country. There are some limitations with regard
to trading areas of the ship, manning of the ships and terms of employment.
Most countries that offer second registry require that ships registered under the country’s second
registry be allowed to hire foreign labor to fill positions of crew or officers except for the position of the
13
master. Likewise, the countries are particularly strict on the personnel’s compliance with the
competence and safety requirements stipulated in the Standards of Training, certification and
Watchkeeping (STCW) issued by International Maritime Organization (IMO).
With regard to registration of the vessel, only the true owner of the ship is required to register it. If the
ship is on bareboat charter (long period of hire), the owner of the ship and not the person who hires it
(charterer) is obliged to register the ship.
DIPLOMATIC PROTECTION OF A SHIP
The diplomatic protection that may be accorded to a ship depends on her nationality. For example,
when a ship was accorded a nationality by the Philippines, then, the Philippine government shall have
to extend assistance and diplomatic protection to the ships given the right to fly the Philippines’ flag,
whenever subject ships encounter problems or difficulties in another state.
In the same vein, when a ship violates the marine pollution rules set by an international organization,
the flag state has to investigate and act on the reported violation even if such offense was committed
or occurred in another’s state’s territorial waters (UNCLOS 1982, Art. 217-4).
Ships shall sail under the flag of one state only (Art. 92-1). A ship that sails under the flags of two or
more states “may not claim any of the nationalities of the subject states. This case would render the
ship “stateless” or without nationality” (Art. 92-1), therefore, legally unprotected by any state.
SHIP’S RIGHT OF INNOCENT PASSAGE IN THE TERRITORIAL SEA
UNCLOS (1982) clarifies the right of innocent passage of ships in the territorial sea of a state . The
word passage was first explained in the pertinent provision of the convention. Passage refers to
“navigation of a ship within the territorial seas of a state for the purpose of traversing that sea without
entering internal waters or calling at a roadstead or port facility outside internal waters or proceeding to
or from internal waters or call at such roadstead or port facility” (Arts. 18 a & b).
There are four basic components of a state’s territory. These are composed of fluvial, terrestrial,
aerial, and maritime. Based on these components, territorial seas have been defined as the seas
within the maritime territory of a State. As regards the passage of ship, UNCLOS further clarifies that
such passage should be continuous and expeditious. A ship could only stop and drop anchor when it is
incidental to normal navigation or when there are incidents of force majeure.
For foreign nuclear-powered ships carrying nuclear or other dangerous or noxious substances,
UNCLOS states that these ships have to carry onboard necessary documents required by international
agreements. They should exercise the required precautionary measures while passing through the
waters of a coastal state (Art. 23)
A passage is innocent if it is not prejudicial to the peace, good order or security of the coastal state
(Art. 19-1). In article 19.2, UNCLOS clarifies that a passage of a foreign vessel shall be considered to
be prejudicial to the peace, good order or security of the state under the following detailed
circumstances:
1. When there is any threat of use of force against the sovereignty, territorial integrity or political
independence of the coastal state, or if in any manner the ship violated the principles of
international law.
2. When the ship exercised or practiced weapons of any kind.
3. When there is any act committed as regards collection of information that would prejudice the
defense or security of the coastal state.
4. When there is any act of propaganda that affected the defense or security of the coastal state.
5. When there has been launching, landing or taking onboard of any aircraft.
6. When there has been launching, landing or taking onboard any military device.
7. When there has been loading or unloading of any commodity, currency or person contrary to the
customs, fiscal, immigration or sanitary laws and regulations of the coastal states.
8. When there has been an act of willful and serious pollution contrary to the pertinent provisions on
pollutions of the UNCLOS.
9. When any fishing activity has been undertaken.
10. When the vessel has carried out research or survey activities.
11. When there has been an act aimed at interfering with any system of communication or any other
facility or installation of the coastal states.
12. When the vessel conducts any other activity not having a direct bearing on passage.

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 Chapter 3
SURVEYS OF THE SHIP AND DOCUMENTS ABOARD
REQUIREMENTS FOR SHIP SURVEYS
The following are the general nature and frequency of the surveys required by the conventions:
1. Initial survey. This is required before a ship is put in service. It is conducted to ensure that the
arrangements, equipment and systems of a ship are in order. Usually, the details of complete
survey/inspection include the following areas or parts of the ship:

a. Arrangement, materials and scanting of the structure

b. Main and auxiliary machinery
c. Installations of radio
d. Installation of life-saving appliances
e. Boilers (inside and outside)
f. Arrangement control of discharge of oil including arrangement for retention of oil onboard
g. Fire safety system (appliances arrangements)
h. Navigational equipment, nautical publications, charts, etc.
i. Means of pilot embarkation
j. Provisions of lights, shaped and means of making sound signals and distress signals as required
by Collision Regulations (COLREG)

2. Periodical survey. This is done to inspect the structure, boilers, and other pressure vessel
machinery and equipment, including the outside of the ship’s bottom. It is normally conducted
within a period or after the anniversary date of the certificate of initial survey. It can also be
substituted to an annual survey.

3. Additional survey (as needed). This may be general or partial survey conducted according to
certain circumstances. It may be made after a repair resulting from an investigation of an accident
which happened involving the ship or due to a defect discovered which affects the safety of the
ship, her crew, and cargo.

4. Intermediate survey. This is usually required for tankers which reach a certain age (usually 10
years or older).

REQUIREMENTS AFTER THE SURVEY

Compliance with the survey requirements is only the beginning of a number of legal requirements for
the operation of a ship. Once the required surveys are completed, the master or owner of the ship is
obliged to see to it that the ship maintains certain conditions after the survey. as such, no change shall
be made in the structural arrangement, machinery, equipment and other installations or items covered
by the survey.
CERTIFICATES AND DOCUMENTS
Documents and certificates are required by authorities to be kept onboard a ship which are usually
issued by the designated Administration of the State. However, apart from the certificate of nationality
or registration, there are some documents issued by organizations or private firms that are authorized
by the administration of the State to issue such certificates or documents after the conduct of
inspection or survey. In other words, the government delegates to the private firms the responsibility to
issue certain documents or certificates.
The contents of the certificate and the format are usually prescribed pertinent convention. The different
certificates and documents carried aboard a ship depend on the category and class of the ship. A
passenger ship, for instance, keeps on board certificates and documents required for this type or class
of ship. If the ship is a chemical carrier, some of the certificates of documents it carries are different
from those of the passengers’ ships.
There are common certificates and documents which all ships should carry aboard. For example, all
types of ship should keep on board their Certificate of Registry or Ownership. Load Line Certificate and
Safety Management Systems Manual.
GENERAL LIST OF CERTIFICATES AND DOCUMENTS KEPT ON BOARD THE SHIP

15
 The Philippine Merchant Marine Rules and Regulations (1997) gives the following categories and
classes of ships:
1. Ship Categories
 Category 1 – Ship engaged in international voyage
 Category 2 – Ship engaged in coastwise voyage
 Category 3 – Ship engaged in bay, river, harbor, canal and lake operations
2. Classes of Ships
 Class A – Passenger Ship
 Class B – Cargo Ship
 Class C – Tankers
 Class D – Tugs and Dredgers
 Class E – Fishing Vessels
 Class F – Yachts
 Class G – High Speed Crafts
 Class H – Special Purpose Crafts
 Class I – Miscellaneous Ships
The following is the list of the documents and certificates prescribed by SOLAS, 1974 as amended:
1. For All Ships

 Certificate of Registry, required by the FAL Convention

 International Tonnage Certificate required by Article 7 of Tonnage Convention (1969)
 International Load Line Certificate, required by Article 16 of the 1966 Load Line Convention
 International Load Line Exemption Certificate, required by Article 6 of the 1966 Load Line
Convention
 Intact Stability Booklet, required by Regulation II-I/22 of SOLAS 1974
 Minimum Safe Manning Document, required by Article VI of STCW1978, as amended including
2010 manila amendment
 Derrating or Derrating Exemption Certificate, required by Regulation Technical Annex I of MARPOL
73/78
 Oil Record Book, required by Regulation 20, Technical Annex I, of MARPOL 73/78
 Safety Management Manual, as required by International Safety Management (ISM) Code
 Safety Management Certificate, pursuant to ISM Code
 Shipboard Oil Pollution Emergency Plan, as required by technical Annex I of MARPOL 73/78
 Garbage Record Book, as required by technical Annex V of MARPOL 73/78
 Garbage Management Plan, as required by Technical Annex V of MARPOL 73/78
 Ship Security Plan and Ship Security Certificate, as required by the ISPS Code
2. For Passenger Ships
Apart from the common documents and certificates enumerated above, all passenger ships must keep
on board a Passenger Ship Safety Certificate, as required by Regulation ½ of SOLAS 1974 (as
amended by GMDSS amendments).
In case the passenger ship falls within the exemption regulations of SOLAS 1974, an Exemption
Certificate is issued by the Administration of the State and this exemption document should likewise
be kept on board. A ship that has been granted an Exemption Certificate should also obtain a
Passenger Ship Safety Certificate. Therefore, the Exemption Certificate is only an addition to the
Passenger Ship Safety Certificate.
3. Special trade Passenger (STP) Ships
In addition to all common certificates and documents mentioned and enumerated for all ships, a Safety
Certificate for Special Trade Passenger Ship should be carried aboard this type of ship. This
requirement is pursuant to Rule No. 5 of STP Agreement of 1971. Likewise, a Special Trade
Passenger Ship Space Certificate should also be carried onboard this type of ship pursuant to Rule
No. 5 of the SSTP 1973.
4. Cargo Ships
Aside from all common certificates and documents enumerated for all types of ships, a cargo ship
should have on board the following documents/certificates:
16
  Cargo Ship Safety Construction Certificate, as required by SOLAS 1974, as amended by the
GMDSS amendments
 Cargo Ship Safety Equipment Certificate, as required by SOLAS 1974 GMDSS amendments
 Cargo Ship Safety Radio Certificate, as required by SOLAS 1974 GMDSS amendments
 Exemption Certificate (if ship fall within exemption) as required by the SOLAS 1974 Regulation ½
for cargo ships
 Document of Compliance with the special requirements for ships carrying dangerous goods, as
required by SOLAS 1974, as amended
 Document of Authorization for the carriage of grain (where applicable) as required by SOLAS 1974,
as amended
 Certificate of Insurance or other Financial Security in respect of Civil Liability for oil pollution
damage, as required by CLC of 1969, as amended.
5. Ships Carrying Noxious Liquid Substances in Bulk (NLS)
In addition to all required documents enumerated for all ships as well as those required for cargo
ships, any ship carrying NLS and chemical substances in bulk should keep on board an International
Pollution Prevention Certificate for the carriage of NLS in bulk and the Cargo Record Book, pursuant to
the pertinent provisions of the revised Technical Annex II of Marpol 73/78.
6. Chemical Tankers
Aside from all common documents and certificates listed for all ships and cargo ships, a chemical
tanker should carry on board either a Certificate of Fitness for the Carriage of Dangerous Chemical in
Bulk, pursuant to the BCH Code or an International Certificate of Fitness for the Carriage of Dangerous
Chemical in Bulk pursuant to IBC Code.
7. Gas Carriers
Apart from the common certificates and document listed for all ships and cargo ships, a gas carrier
should carry on board either a Certificate of Fitness for the Carriage of Liquefied Gases in Bulk,
pursuant to the Gas Carrier Code, or an International Certificate of Fitness for the Carriage of Liquefied
Gases in Bulk, required by the IGC Code.
Aside from the foregoing list of documents and certificates required for the different types of ships,
there are also a number of miscellaneous certificates required for special types of ships for special
types of operations. Some of these documents are as follows:

 Special Purpose Ships Safety Certificates, required for special purpose ships
 Diving System Safety Certificates for ships used for diving purposes
 Safety Certificate for mobile offshore drilling units.

ISSUANCE AND VALIDITY OF CERTIFICATES

The certificates and documents required by various international conventions to be kept onboard the
ships are issued by the administration of the State only after compliance with certain surveys and
inspections of the ship. The following are the specific survey requirements, including the corresponding
certificates or documents issued as well as the validity of the issued certificates:
1. International Stability Booklet
Regulation 22 of Chapter II-1 of SOLAS 1974 provides that all passenger ships and all cargo ships
having a length of 24 meters and above should be inclined on completion and the elements of their
stability determined. The master should have on board s Stability Booklet containing information on
the stability of the ship under varying conditions of loading. The administration should be furnished
a copy of stability information.
2. Cargo Ship Safety and Construction Certificate
Regulation 1/12 of SOLAS 1974 requires that an initial survey should be conducted on the ship
upon completion of the construction of the ship’s hull, machinery and equipment; completion of
construction of subdivision and stability, machinery and electrical installation; and completion of
constructions of fire protection, fire detection and fire extinction.
3. Cargo Safety Equipment Certificate
17
 An initial survey should be conducted on completion of the construction of subdivisions of stability,
machinery and electrical installations; completion of construction of fire protection, fire detection
and fire extension; and completion of construction of life-saving appliances and arrangement. After
the initial survey, a Cargo Ship Safety Equipment Certificate is issued to the ship. This certificate is
valid for 24 months (or two).
4. Passenger Ship Safety Certificate
The Passenger Ship Safety Certificate is issued after survey and inspection of completed
construction of subdivision of stability, machinery and electrical installations, life savings appliances
and arrangements, and radio communications system. The Passenger Ship Safety Certificate
should be supplemented by a Record of Equipment.
5. Cargo Ship Safety Radio Certificate
This requirement is for ships of 300 gross tonnage and above to be fitted with a radio installation,
including those used in life-saving appliances. A Cargo Ship Safety Radio Certificate is issued after
an initial survey has been completed on radio communications requirements. The period of validity
of certificate is for maximum of 12 months, the certificate is supplemented by a record of
equipment.
6. Minimum Safe Manning Document
Ship manning document or its equivalent is issued by the Administration of the State as evidence of
the minimum safe manning of the ship. It indicates the minimum safe manning requirements,
license, qualifications and STCW regulatory requirements per IMO Resolutions, MSC 36(43)
adopted on May 29, 1994
7. International Load Line Certificate
The load line certificate is issued to every ship that has been surveyed and marked according to
the International Convention on Load Lines, 1966. The certificate bears the load limits of a ship. No
ship can proceed to sea on an International Load Line Certificate.
The following are exempted from International Load Line Certification:

 Ships engaged on international voyage between near neighboring ports of two or more states
 Any ship which has features of a novel king from any of the provisions of the convention and the
application of which might seriously impede research into the development of such features and
their incorporation in the ship
 A ship that is required to take a single international voyage and not normally engaged in such kind
of voyage.

8. International Tonnage Certificate

An International Tonnage certificate is issued to every ship the gross and net tonnages of which
have been determined according to the regulations prescribed in Annex I of the International
Tonnage Convention of 1969. The content of the certificate is according to the outline and format
prescribed by the Convention. Determination of tonnages is carried out by the Administration of the
State or persons or organizations authorized by the State to perform said task.
9. Dangerous Goods Manifest or Stowage Plan
Ships carrying dangerous goods have onboard a special list of manifest for such goods. The list
should have classifications according to the classes of Dangerous Goods and their locations on
board ship are indicated. These goods are named with the correct technical names because trade
names alone are not allowed. There should be a correct description according to the goods
classification.

10. Document of Authorization for Carriage of Grain

This document is needed by a ship carrying substantial grain cargo. The document is issued by the
Administration or a person or organization recognized and authorized by the administration. The
document is evidence that the ship is capable of complying with the requirements of the
international convention. It should be accompanied by a Grain loading booklet to meet the
18
 requirements for intact stability and grain loading information. The document, the Grain Loading
Stability Data and attached plans are kept on board the ship so that the master can show them for
inspection by authorities at the Port of Loading. A ship is not allowed to load until this document is
satisfactorily complied with.
11. Document of Compliance with Special Requirement for Ships Carrying Dangerous Goods
The Flag State administration should provide its hip with an appropriate document such as the
evidence of compliance of construction and equipment as required by SOLAS 1974. The document
includes compliance with the following requirements:

 Cooling of under-deck cargo space either by fixed arrangement or spraying nozzle

 Provision to flood or designated under-deck cargo space
 Electrical equipment and wiring not fitted in enclosed cargo space, closed vehicle deck spaces and
open vehicle deck spaces
 Ro-ro cargoes not fitted with fixed fire detection and fire alarm system
 Adequate power ventilation in enclosed cargo space
 Water spray system
 Portable water extinguisher
 Insulation of machinery space
 Bilge pumping
 Personnel protection

12. Certificates for Masters, officers, or Ratings

Masters and officers’ certificates are endorsed by the issuing Administration after requirements
have been complied with. The original of each certificate, endorsement, documentary evidence and
evidence of qualification should be kept on board and be made available upon inspection. Photo
copies of the certificates are not acceptable.
Medical certificates are issued to those candidates or applicants who provide satisfactory proof of
the following:

 Their identity
 Meet the standards of medical fitness established by the state
 Hold a valid document attesting them to be medically fit
 Meet the age requirement
 Completed seagoing service
 Mandatory training requirements for certificates applied for
 Meet the prescribed standards of competence

13. Oil Record Book

The Technical Annex I of MARPOL 73/78, as revised in 2004 requires oil tanker of 150 gross
tonnage and above as well as all ships of 400 gross tonnage and above to keep an oil record book
on board the ship. The oil record book is composed of two parts, namely Parts I and II.
Part I of oil record book is applicable to all types of ships. It contains records of every operation
taken place in the ship for machinery spaces. Part II is applicable for oil tankers of 150 gross
tonnage and above and contains records of cargo/ballast operations.
14. Cargo Record Book
Ships carrying NLS should be provided with a cargo record book which shall be completed on a
tank-to-tank basis every time operations involving NLS substances take place within the ship. Each
entry in the book should be signed by the officer or officers in charge of the ship and each page is
signed by the mater of the ship.
15. International Pollution Prevention Certificate for the Carriage of Noxious Liquid Chemical
Substances in Bulk (NLS)
The NLS Certificate is issued either by the Administration or by any person or organization duly
authorized by the Administration. The Certificate is issued after the survey of the ship. The surveys
include an initial survey before the ship is put in service and this includes a complete inspection of
the structure, equipment, systems, fittings, arrangements and materials of the ship. All of these
19
 should comply with the requirements of Technical Annex II of MARPOL 73/78. Duration of the
certificate should not exceed five years.
16. Procedures and Arrangement Manual
Each ship carrying NLS in bulk should be provided with the Procedures and Arrangement Manual.
The manual identifies the physical arrangements and all operational procedures with respect to
cargo handling, tank cleaning, slops handling and cargo tank ballasting and deballasting to comply
with the requirements of Technical Annex II of MARPOL 73/78.

17. International Oil Pollution Prevention Certificate

The International Oil Pollution Prevention Certificate is used to all ships of 400 gross tonnage and
above as well as oil tanker of 150 gross tonnage and above. The Administration or a person or
organization authorized by it can issue the certificate. The Administration assumes all responsibility
for the Certificate. It is issued only after an initial survey has been conducted and before the ship is
put in service.
18. Shipboard Oil Pollution Emergency Plan (SOPEP)
This plan is required by technical Annex I MARPOL 73/78 for all ships of 400 gross tonnage and
above as well as for oil tankers of 150 gross tonnage and above. This plan consists of the
procedures to be followed by the master and other crew in reporting oil pollution incident. It
includes a list of authorities or persons to be contacted in times of accidents.
19. International Sewage Pollution Prevention Certificate
The International Sewage Pollution Prevention Certificate is required by the Technical Annex V of
MARPOL 73/78 for ships of 200 gross tonnage and above as well as ship of less than 200 gross
tonnage but carrying more than 10 persons. The certificate is good for a maximum period of five
years. It is issued only after the initial survey has been conducted prior to the ship. The purpose is
to ensure that the ship is fitted with a sewage treatment plant that will meet its operational
requirements. Periodical surveys at intervals are specified by the Administration but not exceeding
five years.
20. Garbage Record Book and Garbage Management Plan
A Garbage Record Book is required by Technical Annex V of MARPOL 73/78. It applies to all ships
of 400 gross tonnage and above as well as to all ships certified to carry 15 persons or more. Every
fixed or floating platform engaged in exploration and exploitation of the seabed is also required to
have on board this record book.
21. Ship Management Certificate, Safety management Manual, and document of Compliance for
ISM Code
The International Safety management Code requires shipping companies to prepare plans and
instructions for key shipboard operations and to make preparation in dealing with any emergency.
The procedures should be documented and complied in a Safety Management Manual. A copy of
the manual should be kept onboard the ship. Regular checks and audits are conducted by the
company to ensure that the manual is being complied with. The system itself is reviewed
periodically to ensure efficiency.

22. ISPS Code Ship Security Plan and Certificate

These documents are required by Chapter IX-2 of SOLAS 1974, as amended and the International
Ship and Port Facility Security Code (ISPS Code). All registered ships engaged in international
voyage should carry on board an International Ship Security Plan (SSP) duly approved by the
Administration of its flag State. Ships should also carry on board an International Ship Security
Certificate issued by the Administration of the flag State, which is a party to the ISPS Convention.
23. Certificate of Insurance or Other Financial Security

20
 This certificate or document is required by Article VII of the Civil Liability Convention of 1969, as
amended. Each ship carrying 2,000 tons of oil in bulk and over should have on board a Certificate
of Insurance or financial security that serves as guaranty of a bank or similar financial institution for
the liability of the registered shipowner on pollution damage. The amount is equal to the limits
prescribed by the Convention.
CONTROL AND INSPECTION OF CERTIFICATES VALIDITY
A ship that is in another contracting State is subject to the control of the officers designated by the
government of said State to verify the validity of contents of the various certificates on board the ship.
The certificates should be accepted by the officers as valid, unless there are clear reasons or grounds
for believing that the actual conditions of the ship of her equipment or installations do not correspond
with the particulars indicated in the certificates.

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 UNIT II
Chapter 4
CARRIAGE OF GOODS BY SEA AND THE CONTRACTS OF AFFREIGHTMENT

CONTRACT OF CARRIAGE OF GOODS AND THE CONTRACT OF AFFREIGHTMENT

The contract of carriage arises when a buyer and seller of goods concluded a sales contract, whereby
the seller agrees to deliver to the buyer specific type and volume of cargo. Either the buyer or the
seller looks for ships to transport the cargoes or seeks the services of a carrier.

The shipowner/operator undertakes the transport of goods by sea through either liner operation or
chartering.

Liner services provide transport of cargoes that are too small to fill in a single ship and need to be
grouped with others for transportation. This means that there could be hundreds of different cargo
owners as well as receivers of cargoes. In liner shipping, the carrier either posts or gives notice to the
public about the ship’s sailing schedules and the ports of call or destination.

Chartering a vessel is different. In charter trade, the vessel could be contracted out either on voyage
or time charter. Under long-term charter, or in spot charter market, the shipowner has to deal with one
party only - the charterer, who can subsequently sub-charter the same to a third party.

In liner shipping, the shipowner/carrier agrees to perform transport services to many customers in a
single voyage. In the case of voyage charter, the shipowner also agrees to undertake transport
services but such undertaking is provided to a single party. As regards time charter party, the
shipowner has very little influence in the operation of the ship.

The contractual obligation to carry goods by sea shall be between the charter and the shipper. The
carriage of the goods sea is usually covered by the contract of affreightment/contract of carriage,
which contains the terms and conditions, for the transport of goods.

IMPORTANT MATTERS ABOUT A CONTRACT

Here are some facts, matters, and terms embodied in a contract of carriage by sea:

1. A contract of carriage by sea, is concluded by a shipowner or carrier and the charter or shipper,
whichever the case maybe.
2. The broker or agent usually facilitates it for the two contracting parties.
3. The contract of carriage by sea is a written document where conditions and warranties are stated.
4. Conditions are important terms that are vital to the contract. A breach of condition will give the
aggrieved party the right to rescind (revoke or nullify) the contract and to recover damage or loss.
5. Warranties are less important terms in the contract. These are not vital to the contract. A breach
of warranty does not give the right to rescind or revoke the contract. The aggrieved party cannot
sue the opposing party for loss or damage.
6. The contract has implied and expressed terms .Implied terms in a contract are those, which have
not been agreed upon in writing but speak for themselves. In other words, the terms are obvious
and not necessary to be stated anymore in the written form. Express terms are those that are
specifically stated in the contract.
7. Contracts have exception clauses and riders that are usually inserted therein. Riders are important
terms that are added in the contract because these are not included in the regular contents of the
form.
8. The contract is subject to the laws of a country. Usually the law of the country wherein the contract
is made applies. Sometimes, the parties making the contract agreed on which law covers the
contract if both parties are making the contract in a foreign state.
9. A contract can be discharged, released or terminated from an obligation by performance of all its
terms and conditions by the parties concerned, by agreement between the parties to end the
contract, and by frustration or breach contract.
10. Frustration is a termination of a contract due to circumstances that are outside or beyond the
control of parties who executed the contract.

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11. Breach of contract is ending the contract or not fulfilling the important conditions thereof. The
contract must have important elements. Among the elements are as follow:

a. It must be entered into by two or more parties having legal capacity to enter into contract.
b. There must be an offer, acceptance and consideration (conditions and remuneration/payment).
12. The important matters that affect the validity of the contract are mistake committed at the time of
execution of the contract and misrepresentation or false statements of facts.
13. Mistake does not make the contract invalid if made without pure knowledge of the concerned party
who is executing the contract.
14. Misrepresentation is a serious offense if proven by a victim. The opposing party can be sue the
erring party for breach of contract.
15. Privity of a contract is an agreement between parties who directly execute the contract. For
example, a contract is executed by two parties: X or Y, Z is not a party to the contract between X
and Y but the contract between them affects Z. If something happens, Z has no right to sue either X
or Y as far the contract is concerned because z is not privy to the contract between them (X & Y).

CONTRACT OF AFFREIGHTMENT/CONTRACT OF CARRIAGE

The contract of affreightment and contract of carriage of goods are often interchangeably used.

Contract of affreightment can be defined as an agreement to perform transport services by ship or to

make a ship’s transport capacity available.

A contract of carriage is an agreement by which the shipowner/carrier, in return for the freight,
agrees to carry goods by sea or to furnish the services of a ship for the purpose of such carriage
maybe regarded as being a kind of contract of affreightment.

On one hand, the contract of carriage of cargo is more specific. The remuneration or payment for
carriage is in the form of freight. On the other hand, the contract of affreightment may include other
contract in which the entire ship is contracted whether by bareboat charter or time charter, where the
shipowner does not undertake to effect transport but a contract for the use of the ship.

PARTIES TO THE CONTRACT OF CARRIAGE OF GOODS

In order to fully understand the contract of carriage of goods by sea, it is very important to identify and
describe the different parties to the contract, as well as the rights and obligations of each party. In liner
shipping, the parties are as follows:

1. Carrier 2. Shipper

In chartering, the parties are as follows:

1. Shipowner 2. Charterer

The following are the definitions and characteristics of the parties to the contract of carriage of goods:

A. The Carrier

IMO defined carrier as any person who enters a contract of carriage of good by sea. The carrier’s
function may be exercised by persons, who may or may not be the legal owner of the ship such as
shipowner, charterer, freight agent, forwarding agent, and carriage contractors (IMO CML, 1993,p. 71).

A shipowner is an individual or a legal entity like a partnership or corporation. Normally, the owner
operates the ship but it is not always the case.

The charterer is a person or company who hires the ship from a shipowner for a period of time or who
reserves the entire cargo of a ship for the carriage of goods from a port or ports of loading to a port or
ports of discharge (Brodie, 1994, p. 35).
As a charterer, he can enter into another contract with a third party. The sub-charterer or the third party
will not become the carrier. The carrier could be a private carrier or common carrier.

A private carrier (a person or association of persons) is a carrier that has the right to carry or not to
carry goods/passengers, depending on his choice.
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 A common carrier, as defined by Brodie, is “a person or company advertising a service involving the
carriage of goods to and from ports on a particular route” (p.42). A common carrier is required by law
to accept all cargoes offered, except dangerous and to make a reasonable charge for their carriage.

B. The Shipper

Shipper is any person who enters into a contract of carriage with the carrier. He could be either the
buyer or seller of goods depending on the terms and conditions of sales or the INCO terms used.

INCO Terms are standard transport trade terms developed by the International Chamber of
Commerce (ICC). In International sale contracts, INCO terms make clear the obligations of the buyer
and seller with respect to the transport of goods.

The purpose of INCO terms is to provide a set of international rules for the interpretation of the most
commonly used trade terms in foreign trade (Inco terms, 1990, p.6).

The most familiar INCO terms are the FOB and CIF terms cost.

FOB means free on board while CIF means, insurance, and freight. If the sale is on FOB terms, the
seller has to put the goods on free on board the ship.

C. Consignee/Endorsee

Cosignee is the person named in the Bill of Lading to whom the goods are to be delivered
The consignee could be the buyer of goods but not necessarily so. There are cases when the Bill of
Lading has been transferred from one person to another by way of endorsement from the previous
holder.

Endorsee is the person to whom the Bill of Lading is endorsed by previous holder

Endorsee has also right to claim and receive the goods upon presentation of the Bill of Lading.

D. Agents and Forwarders

A ship agent is a person who represents the shipowner. He looks after the interests of the ship while
in ports and arranges pilotage, towage and berthing of ships. He may also sign and issue the Bill of
Lading and subsequently collect freight.

Freight forwarder on the other hand is the person hired by the shipper to arrange the carriage of
goods, including booking space, documentation and clearances.

A shipbroker could render services either to shipowner or charterer. When a shipbroker negotiates
the terms for the charter of the ship, he is a chartering agent. When he negotiates the terms for the
shipowner, he is reoffered to as owner’s brokers.

A shipbroker could also be a sale and purchase broker. He is the shipowner’s agent, when he is
attending to the requirements of the ship while the ship is at the port. He also attends to requirements
of the ship’s master and crew on behalf of the shipowner . He performs the functions of a loading
broker because he responsible in attracting cargo for the ship of his principal (shipowner).

E. The Shipmaster

In the contract of carriage, a shipmaster plays a very important role. In the 1978 IMO convention for
the Standard of Training Certification and Watchkeeping (STCW ’78), the word master has been
defined as a person having command of a ship.

As such, the master performs the following acts:

1. Commander of the vessel. He bears full responsibility for the safe management and navigation of
the ship. Therefore, the crew and passengers, if any, have to follow his orders, which are given for the
purposes of safety of life and property at sea. In cases of emergency, the master is duty-bound to take
24
all measures necessary to preserve the vessel, the persons and cargo on board. It is his obligation to
proceed to the port of designation without unreasonable deviation.
2. Representative of the shipowner. The master is the representative of the shipowner in terms of
seaworthiness of the vessel and as regards to ordinary matters connected with the navigation and
management of the vessel based on the contract of employment,
3. Superior of the crew. In some cases, the master signs the contract of employment, and can
assume the authority to replace one crew with another, or shift the crew from one function/post to
another. The same is true while the ship is at sea. The master has the right to extend the working
hours of the crew or require overtime services, He can also terminated any crew’s employment under
reasonable grounds.

FORMS OF CONTRACT

A. The Charter Parties

The term charter parties is derived from the words carta partita (divided document), which refers to
the ancient practice of writing out the terms of the contract in duplicate on one piece of parchment and
then dividing ir down the middle, thus, providing each party with a copy (Gaskell, et al, 1987, p. 176).

A Charter Party is an agreement or contract between a shipowner and charterer for the use or hire of
the entire ship.

There are three types of charter parties: the voyage party, time charter party, and the bareboat charter
party.

1. The Voyage Charter Party

Voyage Charter Party is one wherein a shipowner undertakes to carry specified goods in a named
vessel on one or two voyages. It is the charterer’s obligation to provide the agreed cargo and pay the
freight that is calculated according to the quantity of cargo carried. Some of the standard forms of
voyage charter parties are as follows:

a. Americanized Welsh Coal Charter

b. Centrocon Charter Party
c. Uniform General Charter (Gencon)
d. Baltimore Form C Grain Charter Party
e. Multi-Purpose Charter Party 1982 (Multiform 1982)

2. The Time Charter Party

The Time Charter Party is a document containing the terms and conditions of the agreements made
by the shipowner and charterer for the use of the ship for a period. A shipowner undertakes services
for a specific period; remuneration of which is called “hire.” This remuneration is calculated, based on
time and not on quantity of cargo carried.

Some of the standard forms of time charter parties are as follows:

a. Uniform Time Charter 1939 (Baltimore)

b. New York Produce Exchange Time Charter 1946 (NYPE)
c. New York Produce Time Charter 1981 (Asbatime)
d. NYPE 93
e. Deep Sea Time Charter (Linertime)

3. The Bareboat Charter Party

Bareboat Charter Party refers to one where the charterer shall be in possession and in control of the
vessel for the duration of the charter party. Consequently, the shipowner provides the ship and the
charterer provides the crew, bunkers, and pays all operating cost. The bareboat charter party is also
called demise charter party.

4. The Bill of Lading

A bill of lading is a document issued for the carriage of goods in “general ships.”
25
 General ships are those used in the liner trade which carries general cargo and sails regularly along
a certain line of ports.

Chapter 5
THE BILL OF LADING

DEFINITION OF THE BILL OF LADING

A bill of lading is a document signed and issued by a shipowner/carrier or his agent acknowledging
that goods have been received for shipment of shipped on board a particular vessel, which is bound
for a particular destination on which the goods are to be carried. In most cases, bill of lading is signed
and issued by the ship’s captain. The bill of lading is the receipt for the goods stating the terms on
which they are to be carried

COMMERCIAL BACKGROUND AND REASONS FOR THE USE OF BILL OF LADING

The contract of carriage is always preceded by sale/purchase contract. For vessel plying in the
international trade, it also follows that sale transactions are international in nature. It involves distance
sales, where the goods and payment cannot be exchanged simultaneously, as in direct sales.

Below is the procedure and documents related to the sale of goods and issuance of bill of lading and
letter of credits:

1. The buyer and seller conclude a purchase/sales contract providing for payment by documentary
credit. The purchase contract, for example, involves 10,000 tons of papers products at the price of
$1 million (United States) dollars. The buyer is Philippines Paper Products Corporation, which is
based in Manila and the seller is Swedish Manufacturing Company, which is based in Stockholm.
2. The buyer instructs his bank (also called the issuing bank) to issue a credit in favor of the seller
(also called the beneficiary). The issuing bank here is usually a bank where the buyer is based. In
this case, it is a bank in Manila.
3. The issuing bank asks the other bank (which refers to a bank in Sweden) to advise or confirm a
credit.
4. The advising or confirming bank informs the seller that the credit has been issued.
5. When the seller receives the confirmation and is satisfied that the buyer meets the terms
(according to the contract) the seller loads the goods.
6. The carrier issues a bill of lading upon receipt of goods.
7. The seller sends the bill of lading to the bank where the credit is available.
8. The bank checks the documents. If the documents meet the requirements of credit, the bank pays,
accepts or negotiates according to the terms of the credit.
9. The bank sends the documents to the issuing bank.
10. The issuing bank checks the documents. If they meet the requirements of the credit to the bank,
either the issuing bank:

a. effects payment in accordance with terms of the credit (to the seller if he sent the documents
directly to the issuing bank); or to the other bank which made the funds available in anticipating, or
b. reimburses in the pre-arranged manner the confirming bank that has paid or accepted or the
credit.

11. The documents are checked by the issuing bank and if found to have met the credit terms, these
documents are released to the buyer upon payment of the amount due (or upon the terms agreed
between him and the issuing bank.
12. In the meantime, the vessel performs the journey and freight is paid.
13. Upon arrival of the vessel, the buyer presents the bill of lading to the vessel as evidence of his
entitlement to claim the goods.
14. The goods are delivered to the buyer upon receipt of the goods. The buyer finally surrenders the
bill of lading to the carrier.

THE FUNCTIONS OF THE BILL OF LADING

A. As Evidence of a Contract of Carriage

26
 A bill of lading contains a promise to transport the goods. It acknowledges that the goods have
been delivered to the carrier for shipment to a stated destination and details or by reference the
terms of the contract concluded. The terms of the contract or the promise to transport goods shall
be in conformity with the booking note. In case no booking note is made, the bill of lading can be
considered as the evidence of contract previously agreed upon.

B. As Evidence of the Receipt of Goods

The carrier acknowledges that the goods have been received either on board a named vessel or
into the carrier’s custody for placing them on board a vessel. The bill of lading is a prima facie
evidence of the receipt of the goods as they are described in the document. It should enumerate
the goods according to the quantity description and shipping marks, packaging, as well as the
apparent condition of the goods in which they are shipped.

C. As Document of Title to the Goods

The bill of lading entitles the holder to receive the goods from the carrier upon arrival of the ship.
Possession of the bill of lading is equivalent to possession of the goods. The bill of lading also
entitles the holder to make any claim against the carrier for the loss of or damage to the goods. The
holder must present the bill of lading before delivery and surrender it afterwards.

TYPES OF BILL OF LADING

A. Shipped Bill of Lading

Shipped bill of lading, also referred to as “on board”,is a bill of lading whereby the carrier
acknowledges that the goods are loaded on board. Notes of any apparent defect in either their
goods or their packaging are indicated on the face of the bill of lading (if there is any).

B. Received for Shipment Bill of Lading

It states that the goods have been received into the carrier’s custody, which could be at a
warehouse or an inland container terminal. It does not confirm that the goods are on board the
vessel for a particular sailing. Occasionally, the shipowner’s agent issues the bill of lading and,
therefore, the goods are left to his custody prior to the arrival of the vessel.

C. Through Bill of Lading

Through bill of lading provides for the carriage to be partly performed by someone other than the
carrier. This is issued in case the voyage requires on-carriage with at least one transhipment. On-
carriage means that the carriage of cargoes goes beyond the port of discharge from the ship. A
through bill of lading may provide that the person who issued the bill of lading also takes charge of
the transport of goods throughout the voyage.

D. Combined Transport Document

Combined transport document is the document issued for the entire transport of goods
performed by different means of transportation (trucks, ship, rail,etc.) This also is described as the
Multi-Modal Transport Document (MTD

ELECTRONIC BILL OF LADING

Electonic Data Interchange (EDI) and other electronic means of communication such as the e-mail and
internet have been developed very rapidly and radically over the last few years. This development
affected the manner of trade transaction. Electronic communications are fast replacing paper
documents. The use of these communications, however, raised a number of legal issues. One of the
challenging issues is the replacement of traditional negotiable bill of lading with electronic equivalents.
.
The important provisions of the CMI rules (CMI Rules for the Electronic Transfer of Rights to Goods in
Transit, 1990) include among others the following:

1. The rules are applicable to parties who expressly agree to its application.
2. The rules provide detailed regulations relating to:

27
a. The form and content of the receipt message which in fact is the same information about the goods
as described on a bill of lading.
b. Terms and conditions of the contract carriage, the reference to which should be contained in the
message;
c. Right of control and transfer during transit;
d. Private key which is in a technically appropriate form such as a combination of numbers and/or
letters which the parties may agree to securing the authenticity and integrity of a transmission;
e. Carrier’s notification of the place and date of the intended deliver of goods; and
f. The option to receive a paper document widening the contract of carriage.

INTERNATIONAL CONVENTIONS

1. The Hague Rules (1924) covers only contract of carriage using bill of lading. It contains uniform
regulations, on what the bill of lading should include in the terms and conditions, as well as the
liability associated with the description of the cargo. It entered into force in 1931.

2. The Hague-Visby Rules (1968) applies to every bill of lading relating to the carriage of goods
between ports in two states .If the bill of lading is issued in a contracting State or if the carriage is
from a port in a Contracting State certain types of carriage are not covered by these rules. These
exemptions are the carriage of live animals and contract of carriage for deck cargo.

3. The 1978 UN Convention on the Carriage of Goods by Sea, better known as the Hamburg Rules.
It entered into force on November 1, 1992. The central provisions of the Hamburg Rules (1978) are
as follows:

4. Scope of Application-rules apply to maritime carriage but not those under charter parties, between
two states, either the port of loading ot he port of discharge must be convention State or those
States who ratified the convention.
5. Carrier liability is still based on fault negligence.
6. Exemption of liability is extended from the time the carrier received the goods until the delivery of
goods to the cargo owner.
7. Includes the shipper’s liability for information provided to the carrier that shall be contained in the
bill of lading as well as letters of guarantee.

8. for damage against the carrier? Under what function of the bill of lading does this case belong to?
9. The Comite Maritime International (CMI) developed rules on electronic bill of lading which is
adopted by many countries in 1990. What are the central issues embodied in the rules.
10. In a voyage charter party, a bill of lading can be issued. This means that the charterer as the
shipper needs the bill of lading but at the same time, he also contracted for the use of the ship.
How do the parties (carrier and charterer) facilitate this circumstance?
11. The Hamburg Rules is an outcome of the dissatisfaction of some countries over the Hague-Visby
rules when applied to the bill of lading. What is the central reason for dissatisfaction of some
countries over the provisions of the Hague-Visby rules?
12. Differentiate a waybill from the bill of lading.
13. Temporary storage facilities are provided in most port because certain problems relating to the bill
of lading. Cite example of a problem relating to the bill of lading that would require that goods
stored temporarily to the storage facility of the port.

RIGHTS AND DUTIES OF THE PARTIES TO THE CONTRACT OF AFFREIGHTMENT

DUTIES AND RIHTS OF SHIPOWNER/CARRIER

A. Duties and Rights Under Implied Terms
The following are implied in the bill of lading:
1. That the ship should be seaworthy. – Article of the Hague-Visby Rules stated that the carrier
shall; before and after the beginning of the voyage, exercise due diligence to:
a. Make the ship seaworthy;
b. Properly man, equip and supply the ship; and
c. Make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are
carried, fit, and safe for their reception, carriage and preservation.

28
2. That the ship should proceed with reasonable dispatch. – There is an implied undertaking that
the vessel will be ready to commence and complete the agreed voyage with all reasonable
diligence.
3. That the ship proceed without unjustifiable deviation. – It is also implied that it is the carrier’s
obligation to see to it that the ship carries out the agreed voyage, by the proper route, without
deviation.
Deviation can be defined as a departure from the prescribed or ordinary trading route. .
B. Under Express Terms
The express terms in the bill of lading are as follows:
1. Name and Nationality of Ship – the ship should be actually used for the fulfillment of the contract.
The ship must match the name and nationality to which she was chartered or contracted.
2. Whereabouts of the Ship – the whereabouts of the ship is of outmost importance to the shipper
and charterer to know the time the cargo can be loaded and the estimated time of arrival at the port
of the destination. Therefore, at the time of the contract a statement as to the whereabouts of the
ship is considered as a condition.
3. Tonnage and Ship Classification – the charterer should be certain as to the size of the vessel,
both in terms of the registered tonnage and the deadweight capacity.
SEAWORTHINESS
Seaworthiness of a vessel may be defined as a state of the vessel where it is in good condition, with
appropriate and adequate equipment and manned as such by master and crew and that normally the
cargo will be loaded, carried and cared for and discharged properly and safely in the contemplated
voyage.
Based on the provisions of Article 3 of Hague-Visby Rules, the equipment for seaworthiness has three
dimensions. These are as follows:
1. Physical Seaworthiness. – it means that the ship is physically able to perform the task. She is
staunch and strong, stable and in good repair (classified maintained).
2. Voyage Worthiness. – it means that the ship is capable of performing the voyage by being
properly manned and equipped to perform the contemplated voyage.
3. Cargo Worthiness. – it means that the ship is suitable for the cargo, to receive, carry and preserve
the cargo.
The factors which may constitute unseaworthiness are as follows:
1. Physical defect of the vessel relevant to the safety of the ship or cargo.
2. Employing incompetent officers or crew or those who lack proper certification.
3. Lack of proper documentation leading to the detention of the vessel and frustration of the voyage.
4. Sailing with insufficient bunkers, which constitute lack of diligence at the beginning of the voyage.
5. Poor stowage, which leads to instability of the ship.
6. Improper procedures for ballasting and cleaning.
When cargo is damaged or lost during the voyage, the carrier would typically argue that it was caused
by the negligence of the servants of the carrier in the navigation and management of the ship. If the
cargo owner has the following three options to defend himself from liabilities:
1. The carrier may try to prove that the vessel was in fact seaworthy; or
2. The carrier may accept that the vessel was not seaworthy but contest that such un seaworthiness
was not cause of damage or loss; or
3. The carrier may accept that the ship was not seaworthy but try to show that he has exercised due
diligence to make the ship seaworthy.
OBLIGATIONS OF THE CARRIER UNDER HAGUE-VISBY RULES
A. Obligations of the Carrier at the Commencement of the Voyage
1. Obligation to Exercise to Due Diligence
Under Hague-Visby Rules, “the carrier shall be bound before and at the beginning of the voyage in
exercise due to diligence to:

29
a. Make the ship seaworthy;
b. Properly man, equip and supply the ship; and
c. Make the holds, refrigerating and cool chambers and all other parts of the ship in which goods are
carried fit and safe for their reception, carriage and preservation.” (para. 1, Art.3).
The important points in the provision are the time of performance of the carrier’s duty and the extent of
the carrier’s obligation. In should be noted that the carrier is bound to make the ship seaworthy from
the period when loading commenced until the ship starts her voyage.
The second factor is the exercise of due diligence. The word “due” means “proper, reasonable and
deserved amount” while diligence may be explained as “attention to duties” (Cobuild’s English
Dictionary, 1997).
Combining this meaning, the carrier promises to pay all attention to his duties to provide seaworthy
vessel as can properly be expected of a carrier of goods by sea. This does not only cover the diligence
of the carrier himself but also those acting on his behalf or working under him such as the master and
crew of the vessel.
2. Duties of Proper and Careful Loading, Handling and Stowage
These duties are also imposed on the carrier. Though these procedures must be carried out according
to some standards or skill of the officers or crew, the carrier should perform these obligations properly
and carefully. “Carefully” means that reasonable degree of care is exercised in the performance of
such functions.
B. Information in the Bill of Lading
The carrier or is his agent or master of the ship shall issue a bill of lading on demand of the shipper.
Article 3, paragraph 3 of the Hague-Visby Rules requires that the documents must contain the
following information:
1. Leading marks that are necessary for identification of the goods;
2. Either the number of packages or pieces or the quantity or weight as the case maybe; and
3. The apparent order and condition of the goods.

CLEAN BILL OF LADING

Clean bill of lading means that there are no clauses inserted on the face of the document that would
be detrimental to the goods and packages being shipped.
Dirty or claused bill of lading means that the carrier does not agree with the statements made in the
bill of lading by the shipper and put some clauses or notation in the bill of lading.
A bill of lading which has no clauses or words inserted on its face is said to be “clean” and is prima
facie evidence that the goods were in apparent order and condition when perceived and shipped by
the carrier. It also implies that the carrier has conducted a reasonable inspection of the goods and that
no evident defect was found. But, the carrier has also the right to write clauses or insert words on the
bill of lading if he found that the goods are damaged or there is an evident defect or the quantity is not
correct.
Further, Article 34 of the Uniform Customs and Practice for Documentary Credits required the
following:
1. A clean bill of transport document is one which bears no superimposed clause or notation of the
good and/or packaging.
2. Banks will refuse transport documents bearing such clauses or notations unless the credit
expressly stipulates the clauses, which may be accepted.
3. Banks will regard a requirement in a credit for transport document to bear the clause “clean on
board” as complied with if such transport document meets the requirements of this Article and of
Article 27.
CLAUSED BILL OF LADING

30
If the carrier has reasonable grounds for suspecting that the particulars written in the bill of lading are
wrong or when there is no opportunity to check them, he needs not set them out in the Bill of Lading
(Gaskell, et als, 1987, p. 242). This is specifically provided in Article 3.3.3 of the Hague-Visby Rules.
Below are two examples to explain the above-mentioned provision:
1. A container was received by the carrier for shipment. The shipper declared that the container
contains 100 new washing machines. The carrier or his agent has no means of checking the actual
number of washing machine inside the container or see if the washing machines are new.
2. The shipment is 1000 bags of rice (50 kg each bag). Although the 1000 bags are counted and
tallied, there is no way to check the weight of each bag to confirm that they really weigh 50 kg.
In the above-given examples, the carrier should not specifically write the 100 new washing machines.
It should not write also the weight o the shipment as 50,000 kg in the bill of lading.
Another important issue related to this provision of the law is the extent of the carrier’s obligation to
inspect the goods. Reasonable inspection does not mean that the carrier has to inspect the goods in
detail. It simply means that the carrier or his agent should conduct external inspection of the packages
in which the goods are to be shipped or in cases wherein goods are not packed like lumber,
machinery, cars, etc.
In the given example above, the carrier’s obligation is to inspect the container as to number and its
condition, or the number and condition of the boxes of washing machines or the bags of rice.
LETTER OF INDEMNITY
Documentary Credit is defined as “a written undertaking given by the bank to a seller at the request
and in accordance with instruction of the buyer to effect payment up to a stated sum of money within
prescribed time limit and against stipulated document,” (ICC, 1978).
Therefore, clean bill of lading is extremely important and necessary in international trade transactions.
This is why a Master is sometimes pressed by the shipper to sign a bill of lading which is known to be
false in some particulars in return for the shipper giving him a Letter of Indemnity or “back letter” as
it is sometimes called (Holman, 1971).
First, the practice of issuing a letter of indemnity in exchange of a clean bill of lading can be considered
fraudulent. In fact it is the position of the International Chamber of Commerce (ICC) that “a carrier
accepting an indemnity in order to keep a transport document ‘clean’ is assisting the consignor in
withholding the material facts from the consignee” (UNCTAD, 1986). Therefore, this practice
constitutes fraud against the bank who is advancing the payment and against the consignee or the
buyer of the goods because it is intentionally misleading.
Another problem is when the goods, which at the time of receipt for shipment are not in apparent,
order and condition and the carrier will be in trouble. Of course, defect of the goods will be unveiled at
the port of destination and the consignee will claim for the damages.
OBLIGATIONS OF THE CARRIER DURING THE VOYAGE
It is an implied undertaking in the bill of lading that the ship shall proceed with reasonable dispatch on
her advertised or ordinary trading route. The Hague-Visby Rules provided for reasonable deviation that
shall not constitute breach of the rules on the contract of carriage (para. 4, Art. 4).
OBLIGATIONS OF THE CARRIER IN THE PORT OF DISCHARGE
The Hague-Visby Rulers provided that the carrier shall properly and carefully discharge the goods
carried (para. 2, Art. 3). The port of discharge is nominated in the bill of lading but if in cases where
there are risks or hindrances or difficulties in discharging, the carrier reserves the right to place the
goods at the consignee’s disposal or at any place deemed safe and convenient by the carrier.
CARRIER’S LIABILITY FOR DAMAGE OR LOSS TO CARGO
The Hague-Visby Rules (1978) subjected the carrier to all responsibilities and liabilities to loading,
handling, stowage, carriage, custody and discharge of cargo (Art. 2). Article 4 and Article 3 both used
the words “loss or damage”. Article 4 used the words “loss or damage or in connection with goods”
while in Article 3, “loss or damage to goods” are the words used.

31
The carrier is liable for the physical damage or loss of goods. Nevertheless, this liability is not limited to
the physical injury/damage but also for loss or damage to the party to the contract. Therefore, the
carrier may also be liable even if the goods are not damaged or lost, such as in cases of losses from
delays or errors in delivery.
Other cases, which are included in the Hague-Visby Rules for loss or damage, are as follows:
1. Shipper suffers loss because of breach of contract
2. Wrong statements in the bill of lading
3. Failure to take delivery of goods
4. Delivery to the wrong persons
PERIOD OF LIABILITY
The period of liability in the Hague-Visby Rules begins from the time the goods are loaded on to the
time they are discharged or what is called “tackle to tackle”.
In cases where damage or loss happens when the goods are in the warehouse or terminal, the carrier
is not liable..
It important to note that the cargo owner has to present his claim for damages within one (1) year from
the date of delivery or from the time of delivery.
BASIS OF LIABILITY
The carrier is responsible for loss or damage resulting from:
1. His actual fault or privity; and
2. Fault or negligence of his servants or agents
Liability under actual fault or privity occurs when the damage is caused by the fault of the carrier.
Actual fault of the carrier is easier to determine than the damage caused by privity. If a carrier is a
corporation or a company, actual fault or privity means the fault or privity of the senior official who is
the brain and is acting as the “alter ego” of the company.
Privity means knowledge that includes not only things that the owner knew but also things he should
have known. Under the rule, the carrier is vicariously liable; that is, he is liable for the fault or
negligence of his servants, agents or persons to whom he entrusted the performance of such
obligations.
EXEMPTIONS FROM LIABILITY
The list of situations which exempt the carrier from liability are enumerated in Article 4, sub-paragraphs
2(a) to 2(q) of the Hague-Visby Rules. They are as follows:
1. Act, negligence or default of the master, mariner, pilot or servants of the carrier in the navigation or
in the management of the ship.
2. Fire unless caused by the actual fault or privity of the carrier.
3. Perils, dangers ad accidents of the sea and other navigable waters
4. Act of God
5. Act of war
6. Act of public enemies
7. Arrest or restraint of princess, rulers or people or seizure under legal process
8. Quarantine restrictions
9. Strikes, lockouts or stoppage or restraint of labor from whatever cause, whether partial or general
10. Riots and civil commotion
11. Act or omission of the shipper or owner of the goods or his agents or representative
12. Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice
of the goods
13. Insufficiency of packing
14. Insufficiency or inadequacy of marks
LIMITATIONS OF LIABILITY UNDER THE HAGUE-VISBY RULES
The Hague-Visby Rules provided for the maximum amount of liability per package, unit or kilogram
weight of the cargo. The carrier’s liability for loss of damage to cargo is limited to Special Drawing
rights (SDR) 666.67 for each package or unit of cargo that is damaged or alternatively, 2 SDR per
32
kilogram of damaged or lost goods, whichever is higher. Obviously, this has nothing to do with the size
of the ship (The global limitation of liability is based on the tonnage of the ship).
The Rules also set limits for each individual claim before all the claims relating to one event are
aggregated for the purposes of the global limitation. This means that both limitations are applied and
the ultimate limit shall be enforced whichever is lower.
The problem arises with regard to the basis of the computation of limitation. Of course, if weight is not
available, limitation shall be based on the package or unit. In case of containerized cargo, what unit is
to be used? For example, a bill of lading contains the following statement: “1 container said to contain
100 typewriters”.
If the bill of lading gives a representation that 100 typewriters have been shipped, 100 could be used
as the multiplier to limit the liability. On the other hand, if the bill of lading contains the information: “1
container of typewriters,” then, the multiplier is 1.

Chapter 6
THE VOYAGE
UNREASONABLE DEVIATION
Deviation has been defined as a departure from the prescribed ordinary trading route. It could also be
defined as the voluntary substitution of the contracted voyage with another voyage.
The contracted voyage is one which has been expressly agreed, or in the absence of a specifically
prescribed route (which is normally not prescribed), the ordinary trading route for ships engaged in
similar circumstances.
DEVIATION ALLOWED BY THE HAGUE-VISBY RULES
The Hague-Visby Rules (1968) stated that “any deviation in saving or attempting to save life or
property at sea or any reasonable deviation shall not be deemed to be an infringement or breach of the
said Convention or of the contract of carriage, and the carrier shall not be liable for any loss or damage
resulting there from” (Art.4.4).
Correspondingly, the Hamburg Rules (1978) also provided that “the carries is not liable, except in
general average, where loss, damage or delay in delivery resulted from measure to save life from
reasonable measures to save property at sea” (Art.5.6).
Clearly, under the Hague-Visby Rules, a deviation for the purpose of saving life at sea is permissible (it
is even as obligation for the vessel). The same is true under the cited provision of the Harmburg Rules.
DEVIATION ALLOWED IN COMMON LAW
In common law, the deviation is justified when it is necessary for the safety of the adventure. A vessel
may, therefore, deviate in order to avoid threatening danger (hurricanes, icebergs, pirates, etc.) or
when, due to a breakdown, she is in urgent need of repair.
A deviation for repairs is still justifiable when the repair is needed to make the vessel seaworthy and
even if the need for repairs would mean that the vessel could be liable for the damage or delay.
DEVIATION ALLOWED BY A “DEVIATION CLAUSE”
It is common that contracts of carriage contain an “express deviation clause”. Courts normally permit
and uphold such clause, provided that the effect of the deviation would not render the whole
performance of the contract impossible or it would not destroy the commercial object of the contract.
If the deviation is not permissible, the effect of such non-permissible deviation is that carrier loses the
right to invoke the exemptions of liability from losses and damages cited to lose under UN convention
and the carriage of goods. However, in order for the carrier to lose that exemption the
claimant/complainant will have to prove that following:
1. That there was a deviation
2. That the deviation was unreasonable; and
3. The loss or damage was a result of the deviation
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EFFECTS OF UNREASONABLE DEVIATION

When the ship deviates from her proper route, the charterer has the right to sue him in court for breach
of contract. The charterer is discharged from terms and conditions of the contract and can claim
damages from the shipowner.
The defenses of the shipowner, such as act of god, the queen’s enemies inherent vive of goods,
defective packing and general average sacrifice against claims from cargo owners could not be
invoked when the ship departed from the proper route. The only defense for the shipowner is to prove
that the loss was likely to occur on the proper route.
A shipowner, who has deviated from the contracted route, has in effect, revoked the contract, and
therefore, cannot claim to be remunerated. With regard to the freight, the shipowner cannot claim the
contracted rate of freight under the charter party. He may, however, claim a reasonable sum if the
goods are safely delivered to the destination.
On general average, the shipowner cannot claim contributions from the charterer. On limitation of
liabilities, a shipowner cannot rely on any clause in the charter party entitling him to limit his liability
(Ivamy, 1989, p. 24).

STOPPAGE IN TRANSIT
There might be instances, when after receiving the cargo, the buyer becomes insolvent and the seller
instructed the shipowner/carrier to deliver the goods to him instead of the buyer. However, there may
also be a third party claiming the goods to stop them in transit.
In case there are two parties claiming the goods as a result of stoppage in transit, the shipowner is
placed in a very difficult situation. The case should be brought to court to determine the rightful
claimant. The shipowner wants to avoid the risk of giving on delivering the goods to the wrong person.
His only interest is on freight for the cargo.
DISCHARGE/DELIVERY AND PAYMENT
A. Discharge
At the end of the voyage is the discharge of goods and subsequent delivery to the consignee. Like the
loading port, the port of discharge is also nominated in the bill of lading.
The port of discharge is named in the contract. It is where the vessel is supposed to unload the
shipment prior to the delivery to the owner.
Sometimes there are clauses in the bill of lading that state that the goods may be discharged on the
quay and into lighters at the consignee’s risk and expense. Discharge operation depends on the
agreement made by the parties as well as the practices in the port discharge. In the provisions of the
Hague-Visby rules (1968), it is an obligation of the carrier to properly and carefully discharge the goods
carried. (art.3.2)
B. Delivery
Delivery means the actual passing of possession of the cargo to the consignee. Obligation of carrier to
deliver the goods is not imposed under the Hague-Visby rules. There are cases when the carrier gave
the information regarding the place and date of the vessel’s arrival where the consignee is ready to
receive the cargo immediately after discharge.
Delivery is made to claimant/consignee after presentation of a bill of lading. If a bill of lading is lost or
delayed, the goods may be delivered against a letter of indemnity issued by a bank.
C. Payment
After delivery of cargo, the shipowner/carrier is entitled to the payment of the freight for the carriage of
goods or hire for the use of ship.

34
The freight shall be payable after the carrier has performed his duty under the contract of the delivery
of goods. In time charter, hire is commonly paid at regular intervals, say, monthly. Delay in the
payment of hire entitles the owner to withdraw the vessel.
Ordinary, the carrier is not entitled to freight, if it has not delivered the goods. However, if he was
prevented from performing his duty, by acts of shipper, consignee or other bill of lading holder, the
freight becomes payable on discharge of cargo. When the vessel cannot reach the port of destination
due to the perils of the sea or other excepted perils, then, the carrier can either forward the cargo to
another convenient port or to bring back the cargo, and he can claim back freight.
Back freight is the “freight payable to a shipowner for the carriage of goods back to the port or to
another convenient port when the vessel is unable to reach the port of destination because of an
excepted peril or because the consignee fails to take delivery of the goods or provide instructions for
their disposal” (Brodie, 1997).
Even if the goods are damaged but the carrier is ready to deliver, the freight is still payable in full.
Claim for damages should not be deducted from the freight. If the delivery is short of place of
destination, the freight shall not be payable when it is due to the default of the cargo owner. If as a
result of initial unseaworthiness the cargo was discharged somewhere, the shipowner shall be
responsible for transshipment cost or carriage of the good in another ship to the intended destination.
Another case is when the goods are carried part of the way only and further continuation of the voyage
impossible. The consignee or cargo owner should accept delivery of goods at short of final destination.
Pro rata payment is acceptable if the cargo owner agreed to pay.

 of either freight or hire is made and subsequent delivery of goods is affected.

Chapter 7
The Voyage Charter
.
THE VOYAGE CHARTER PARTY

The voyage charter contract is also called the voyage charter party. It is a document or contract
between the shipowner and charterer containing the terms and conditions for the use of ship’s cargo
space for one or more than one voyage.

There are two major parties to the voyage charter contract. One party is the shipowner(or carrier)who
premises to undertake the carriage of a large quantity of good on the named vessel against
remuneration for one or more voyages between named ports. The other party is the charterer
(sometimes a shipper) who promises to deliver the named cargo to the vessel and to pay the
shipowner a remuneration (or freight) for that transport of cargo.

REASON/S WHY A VOYAGE CHARTER PARTY IS CONCLUDED

Voyage charter parties are concluded because the charter wants a specific type of vessel for a large
consignment of cargo. Although the charterer can make a consignment through a liner shipping
company (liner shipping provides fleet of ships regularly calling in various ports), voyage chartering is
preferred because of the following reasons:
1. The volume or quantity of cargo is too big, which cannot be accommodated by the ship;
2. The liner company does not have a ship that directly service ports, where the charterer
3. wants his cargoes to be loaded or discharged; and
4. Chartering a whole vessel for one or more voyage is less costly than contracting spaces on liner
vessel for large quantities of cargo.

CHARTERING PROCESS UNDER A VOYAGE CHARTER

The chartering process under a voyage charter is similar to the general chartering process discussed
in Chapter 5 of this book. The discussion in this portion only deals with some important points that are
distinct in the voyage charter.

The voyage charter parties are normally negotiated and concluded through a broker. In the voyage
chartering, the charterer looks for a broker who is an expert in dealing with contracts for the kind of
cargo that the charterer wants to transport. For example, if the cargo is a large shipment for coal, then
he looks for a broker who is an expert on constructing shipment for this type of cargo.
35
The broker Contacts the shipowner and gets the proposal or offer from him. The shipowner may also
have his own broker or agent. If he has, the charterer’s broker deals with shipowner’s agent/broker.
The negotiations could be through telephone, telefax, email or person to person. It takes sometime
until an agreement is reached and the contract is executed.

FREEDOM OF CONTRACT

The shipowner and the charterer can choose what form of voyage charter contract shall be used.
There are many forms available for variety of cargoes. There are forms for oil, grain, coal, salt, etc. A
number of these forms have been enumerated in chapter 5.

The most commonly used form in voyage charter is the GENCON charter form. The documentary
committee of the shipping chamber of United Kingdom approves this form. The GENCON is a code
name and an abbreviation for the words “general conference.”

Another example of voyage charter contract form is the RUSSWOOD. This is the code name for the
contract form used in consignment of timber (woods) form the former USSR. For grain trade, many
countries used the BALTIMORE charter form which is the code name given by the Association of
Shipbrokers and agents (USA) Inc. in New York. Parties may alter or make amendments or changes to
the terms or words written in the forms if they think of other words that are more suitable than the ones
written on the contract form.

THE CONTENTS OF A VOYAGE CHARTER CONTRACT

Some of the important provisions in the voyage charter contract are as follows:

1. Condition that the shipowner shall provide for the cargo. The details of the ship are described in the
contract.
2. Condition that the shipowner shall perform the preliminary voyage to the port of loading identified in
the contract with reasonable dispatch.
3. Condition that the shipowner shall provide statement of fact about the fitness of the ship for the
voyage.
4. Condition that the shipowner shall transport the goods to the identified destination.
5. Condition that the charter shall provide a full cargo.
6. Condition that the charterer shall pay the freight.
7. Condition on exception of liabilities.
8. Condition on canceling date.
9. Condition on the application of relevant rules of the Hague-Visby or Hague Rules (paramount
clause).

THE VESSEL .In the voyage charter party, the shipowner promises to provide a vessel to the charterer
for the carriage of goods. The description of the vessel includes the identity of the vessel, her carrying
cargo capacity and seaworthiness.

A. Identity of the Vessel

In identifying the vessel to be used in the carriage, the parties may agree to give the name of the
vessel. When the vessel is specifically named in the contract, the shipowner is legally bound to use
that vessel. He is not allowed to provide any other vessel for the voyage that is being contracted. He
has to use only the vessel that is named in the contract..

There will be no legal problem if the kind of the vessel that will be named later by the shipowner is very
clearly described in words. Problems come out when no further description of the vessel is written and
as the vessel arrives at the port of loading, she turns out to be unsuitable to the need of the charterer.

The other scenario is when the contract bears the name of the vessel and the words “or substitute” is
added. In this type of contract, the shipowner gives the particular name of the ship that will perform the
voyage but if in case the ship becomes unavailable for avoidable circumstances; a substitute vessel
shall perform the voyage. Again, the description of the substitute vessel shall be written clearly in
words in orders to avoid any problems with regard to the particular need of the charterer.

36
The terms in the contract pertaining to the vessel is an important condition of the contract and
deviation from the agreed terms shall mean a breach of contract, which entitles the injured party to
claim for damages and losses.

B. Cargo carrying capacity

The provision in cargo carrying capacity of the vessel is important to the charter. It is expressed either
in deadweight or cubic meter capacity or sometimes both. Accurate information about the cargo
carrying capacity of the vessel is important because the charter wants to be sure that the ship being
chartered can accommodate all his cargo.

Any misrepresentation (false statement of facts) on the part of shipowner about the cargo carrying
capacity of his ship would give the right to charterer to revoke the contract and claim for damages and
losses.

C. Seaworthiness

To be a seaworthy the vessel must have that degree of fitness which an ordinary, careful and prudent
owner would require his vessel to have at the commencement of her voyage, having regard to all the
probable circumstances of it” (Gaskell, et al., 1987, p. 187)

Seaworthiness means the vessel is fit to encounter the perils of the voyage. She is fit to carry her
cargo safely. The shipowner is responsible for a defect of the ships. He must prove that his ship is not
unseaworthy (e.g. seaworthiness includes lack of sufficient bunker fuel for the voyage).

If the charterer finds that the ship has a defect and unseaworthy before the beginning of the voyage
and that defect cannot be repaired within reasonable time, the charterer has the right to end or rescind
the contract. He can later on file a claim for damages or losses suffered because of unworthiness.

When the ship is unseaworthy when she sails but becomes unseaworthy while at sea due to certain
dangers or perils encountered, and charterer suffered losses and damages because of that kind of
seaworthiness, the shipowner is free from liability for any losses or damages that may be claimed by
the charterer.

THE CARGO

On the part of the charter, he is responsible for supplying the accurate description of the cargo to be
loaded on the ship. The description of the cargo includes the type of cargo and the quantity.

When the loading comes and the charterer delivers a cargo that is different from what has been
described in the contract, the shipowner has the right to reject or not accept the cargo for loading in his
ship. When the charterer fails to deliver the promised cargo at the loading port, the shipowner can sue
him for the breach of contract. He can claim damages from the charterer due to expenses that the
shipowner incurs in delivering the vessel at the agreed port.

Sometimes, a cargo that is not included in the contract is loaded on the ship without the shipowner’s
knowledge. When this cargo caused physical damages to the ship, the charterer is liable for claims
that may not be filed by the shipowner for damages and losses he suffered.

If the charterer delivers cargo that is less than the promised quantity, the charterer shall pay to the
shipowner for freight of the cargo not delivered. This is based on the principle of dead freight, wherein
the shipper or charterer for his failure to provide the quantity of cargo he promised to load on the
voyage charter party pays an amount of money to the shipowner.

THE FREIGHT

Freight is the amount of money paid by the charterer to shipowner for the carriage of cargo. Ivamy
(1989) defined freight in his book “as remuneration payable to the carrier or shipowner for the carriage
by the sea. When there are no provision to the contrary, freight is payable on the delivery of goods
and is calculated on the amount actually delivered” (p.257).

37
When the ships arrive at the port of discharge and the cargo is found damaged, the problems arise.
Normally, it is not always the fault of the carrier that the cargo is damaged. If the shipowner can prove
that damages are caused by negligence of the shipper or the charterer in packing the goods or failure
in giving sufficient information to shipper for handling the goods, the shipowner cannot be held liable
for damages.

TYPES OF FREIGHT

According to Ivamy (1989), the fallowing are the types of freight used in the chartering of ship:

A. Freight Payable Upon Delivery

Payments are made at the port of discharge unless other agreements are expressed in the voyage
charter party.

B. Lump Sum freight

Lump Sum is paid to the shipowner for the carriage of cargo upon completion of the voyage and
delivered at the destination. If the ship fails to fulfill this obligation and some are lost, questions may
arise.

If the loss is due to the peril of the sea or act of God, the shipowner is entitled to the whole freight
because he can be exempteded from any liabilities arising from such natural causes. The provisions
on exception clauses are usually included in the contract.

C. ADVANCE FREIGHT

Payments are made to the shipowner even if the cargo is not yet delivered to the shipper or charterer.
If freight is paid in advance, it cannot be recovered anymore even if the voyage is abandoned and if
the goods are lost before and after payment.

The place where payments shall be paid is more important to the charterer because if the vessel was
lost on voyage, he is not obliged to pay the freight. The vessel at the identified place where freight is
supposed to be paid discharge no cargo.

D. PRO RATA FREIGHT

This refers to the payments of freight proportionate to the part of the voyage accomplished or the part
of cargo delivered. The conditions for paying pro rata occurs when a portion of the total cargo is written
to be discharged at one named port and the rest at another named port.

E. BACK FREIGHT
It may be claimed by the shipowner from the charterer in situations such as when the master of the
ship was not able to deliver the cargo at the port of destination (e.g. there is a strike, war, or
emergency situation prevailing at the port of destination). The master decides to carry the cargo where
he thinks it is for the best interests of the cargo owner or the charterer. For the expenses incurred in
doing this, the shipowner can claim for back freight from the charterer or cargo owner.

F. DEAD FREIGHT

An amount of money is paid by the shipper or charterer to the shipowner for the charterer’s failure to
provide the quantity of cargo he promised to load on the voyage charter party.

CARGO DAMAGE

As discussed earlier, when the ship arrives at the port of discharge, there are instances when the
charterer discovers some damages on his cargo. If this damage is proven to be due to
unseaworthiness of the vessel at the commencement of the voyage, the shipowner can be held liable
under the US and ENGLISH Laws.

Even if the master or crew of the vessel causes the unseaworthiness, the shipowner normally bears
the liabilities rising from such negligence of his servants, under the principle of vicarious liabilities. It
38
appears, however, that the shipowner is liable for almost all kinds of omissions or negligence
committed by his servants (master and crew).

EXPENSES BORNE BY THE SHIPOWNER AND THE CHARTERER

The expenses borne by the shipowner are capital costs, maintenance, wages, supplies
loading/discharging costs, port dues, bunkers, etc.

The charterer pays the freight but sometimes bears the expenses for the overtime of crew that is
related to cargo handling at port. If the terms is “free in out” (FIO) which in an INCO term, the charterer
bears the expenses related to discharging and loading of cargoes at named port.

CHARTER PARTIES FOR CONSECUTIVE VOYAGES

The normal voyage under the voyage charter party is usually a single voyage. For example, the ship
loads at Port X and proceeds to Port Y for discharging, thus, completing the single voyage charter. It
does not happen all the time.

There are charter parties for consecutive voyages. The charterer and shipowner agree to have two or
more voyages within a certain period of time under one document. This happens when in the contract
it is stated that a named ship shall load cargo at port X and proceed to Port Y to discharge.

After discharging, the ship will return on ballast voyage (without cargo) to Port X for loading again then
proceed to Port Y to discharge. This is within a period of time.

There are also voyage charter parties for consecutive voyages wherein the shipowner and the
charterer agree to fix the chartering for a long period of time, say, one year. The shipowner provides
the ships, which shall perform the loading, discharging and transport of goods in various ports named
by the charterer within the agreed period of one year.

Chapter 8
CONTRACT FOR THE USE OF SHIPS
PRELIMINARY VOYAGE AND LOADING
INTRODUCTION
Fixtures are made for the employment of a vessel under a voyage charter after an order from the
charterer and offer from the shipowner and a series of counter offers. Most of the time, fixtures are
concluded even when the vessel is still sailing or carrying goods for the charterer. In this case, there is
a need to end the vessel to the port of loading, which is called preliminary voyage.
CANCELING DATE
Canceling date is the last date agreed in a voyage charter party or time charter party by which a ship
must be available to the charterer at the agreed place at the commencement of the contract. If the ship
is not available by that date, the charterer may have the option to cancel the
charter”(Brodie,1997,p.29). In short,it is the last date on which vessel must be ready to load.
Laydays means the days allowed by the shipowner to the voyage charterer in which to load and/or
discharge the cargo. In charter parties you will see the clause
Laycan is the combination of the laydays and canceling date.
Laycan is usually expressed in two dates. An example of the laycan clause is shown below:
Laycan – 30 July/08 Aug.
The above clause is an abbreviation of the term:
Laydays 30 July canceling 08 August.
What are the remedies available to the charterer, if delay does occur?
First, the charterer has the option to cancel the charter/ contract.
39
Second, he can claim damages for the loss. However, the shipowner should provide the charterer
information of the ship’s position and its prior obligations. Otherwise, he will be liable for damages.
Delay is unlikely to happen if the ship is fixed spot prompt or the vessel is already located in the
loading port and is ready to take cargo on board. Another instance which may give rise to claim for
damages is when the vessel is in another port and according to the contract, the ship should “proceed
with due dispatch”. If it is the case and the ship, after discharging at said port, is allowed by the
shipowner to perform unrelated voyage, the shipowner will be liable for any loss incurred by the
charterer.
EXCEPTION CLAUSE
To be exempted from the liability for claims due to delay, excepted perils should have occurred when
the ship is engaged in the chartered voyage. Additionally, the charter party should declare that certain
perils are always accepted.
NOMINATION OF LOADING PORT
In the order, which is usually placed by the charterer when he needs ships to be contracted, the
loading port must be specified. However, if the shipowner knows that there might be circumstances,
which could delay the ship while proceeding to the nominated loading port, the “near clause” is used in
the charter party, e.g. designated loading port is A. The charter party shall contain the words “proceed
to A or so near thereto as the vessel may safely get.”
Another clause or phrase is included in the contract in cases where the port designated is unsafe or
dangerous for ships to reach and remain due to weather, season, and political problems, war, etc. It is
the charterer’s obligation to nominate a “safe port” and therefore, he is liable for damages if the ship is
damaged in the nominated port.
A provision in TANKERVOY 87 charter party could help the charterer to avoid such liability. It stated
that “charterer shall exercise due diligence to ascertain that any ports or places to which they order the
vessel are safe for the vessel and that she can lie there always afloat and to ensure that any
transshipment operations at sea conform to standards not less than those set out in the latest edition
of ICS/OCIMF ship-to-ship transfer guide (Petroleum). Charter shall, however, not be deemed to
warrant the safety of any place and shall be under no liability on respect of any loss to prove the
exercises of due diligence as aforesaid” (Intertanko, 1987, p.1).
Other charter parties have incorporated clauses to qualify nominated port of loading/discharging.
Some examples are ;ice clauses, strike clauses and force majeure clauses. One good example of
strike clause can be found both in the amended Centrocon and Continent Grain Charter parties.
The strike clause of Continent Grain Charter Party expressed that “if the cargo cannot be loaded by
reasons of riots, civil commotion or of a strike or lockout of any class of workmen essential to the
loading of the cargo, or by reason of obstructions of stoppages beyond the control of charterer caused
by riots…. “In case of any delay by reason of before-mentioned causes, no claim for damages or
demurrage shall be made by charterers” [Sindicat National Du Commerce Exterieur Des Cereales
(Synacomex), 1990]).
Another example of strike and force majeure clause is the provision in the Sugar Charter Party, which
stated that “strikes or lockouts of men, or any incidents or stoppages on railway and/or any other force
majeure causes including government interference’s occurring beyond the control of the shipper or
consignee which may present of delay the loading and discharging the vessel are always
excepted”(Synacomex, 1990).
LOADING PROCESS
The loading process, like discharging depends on the agreement made in the contract though as a
rule, owners have to pay the cost of loading and discharging the cargo while the duty of the charterer
is to deliver the cargo free alongside at the port of loading and for consignees to take delivery from
alongside at the port of destination.
If the terms are under f.i.o. or free in and out, the charterer will take charge of loading or the
consignees to discharge the cargo for their respective accounts, which means free of expense to the
owners. This term leaves question such as: Who will bear the cost of stowage? To make it
easier,parties use f.i.o.s.t or free in and out, stowed and trimmed.

40
Generally, the shipowners are in favor of fixing their ships through f.i.o terms, especially when
stevedoring costs for loading and discharging tend to increase without prior notice. It is difficult for the
shipowners to monitor and be familiar with loading costs in all ports. Therefore, the ship agents are
nominated both at loading port and discharging port to protect the shipowner’s interest.
LOADING TIME
Loading time is a very important factor in the calculation or computation of freight or hire/voyage cost.
The longer the ship stays in port the higher cost incurs by the shipowner.
Of course, the shipowner’s would prefer to have the vessel to be sailing and carrying cargo instead of
staying in port and waiting. Port dues and other port charges, which are major components of cost, will
be higher and profitability is reduced. Therefore, loading time should be regulated and the shipowner
should be properly compensated for the time used in either loading/discharging including the delay in
either loading or discharging. So the parties to the charter party shall agree on the laytime.
LAYTIME
Laytime is the time agreed by parties during which the owner will make and keep the vessel available
for loading and discharging. Laytime could be separate for loading and separate for discharging or
combined for both.
The critical issue on laytime is when laytime begins to run. Below are the requirements for laytime to
start counting:

1. The ship must be an “arrived ship”;

2. The ship must be ready to receive cargo with adequately cleaned cargo holds; and
3. The ship must give notice of readiness upon arrival.

WHEN IS A SHIP AN “ARRIVED SHIP”?

As defined by Brodie (1997) an “arrived ship” means the requirement of the voyage charter before
laytime can commence. Where the charterer has nominated a berth or dock, the ship must have
arrived at that berth or dock. When a port is nominated, the ship must have arrived at the port,
although various legal decisions have defined differently a port in this context in cases where there is
no berth available and the ship is obliged to wait.
When the charterer nominated a berth in the charter party, the owner bears the risk of waiting if the
berth is not yet available. He has to bear the cost of waiting as contrasted when a port is nominated
wherein the charterer bears the risk of waiting.
An important document relating to an arrived ship is the NOR or notice of readiness. In a berth
charter party. Arrival of the ship and commencement of laytime and the readiness to load coincide.
LENGTH OF LAYTIME
After knowing the time when laytime is to commence, another important factor is how long shall
laytime be allowed. There are ways to determine laytime period. These are as follows:

1. A Particular Number of Days

Example:
72 running hours SHINC

Which means:
72 running hours, Sunday & Holidays included

2. Loading Rate

Example:
500 metric tons per day, or
125 metric tons per day per hatch

There are many abbreviations of terms and description used in determining loading time, the most
common are as follows:

WD Working Days
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 WHD Working Hatch Per Day
WWD Weather Working Days
WP Weather Permitting
SHEX Sundays and Holidays Excluded
SHINC Sundays and Holidays Included
Other terms such as clear days, running days and consecutive days are also commonly us
EXCEPTION FROM LAYTIME/TIME NOT COUNTED
The time lost caused by some circumstances, which are specifically mentioned in the charter party, is
not to be counted as laytime. These exemptions are as follows:

1. Interference in loading which the shipowner or his representatives is responsible. Examples: a) a

crane broke down; b) inavailability of the ship’s personnel;
2. Strike, lockout or other restraint of labor, of pilot or tug personnel;
3. Stoppages on the vessel’s orders;
4. Time waiting for next high tide or daylight to proceed on inward passage from waiting place to a
loading or discharging berth;
5. Waiting time for pilot or tugs in order to move; and
6. Moving from waiting place to loading berth.

Laytime and exceptions to laytime are all stipulated in the charter parties. When the laytime is used up,
the ship goes on demurrage.
DEMURRAGE
Demurrage is the agreed amount payable to the owner with respect to delays of the vessel beyond
laytime. In short, demurrage is paid when actual loading/discharging time exceeded laytime.
DESPATCH
If the situation is reversed and actual loading time is shorter than laytime, then the shipowner will pay
the charterer, a bonus “despatch money.”
Despatch rate is always fixed at half the demurrage rate. The provision in the charter parties
sometimes has the phase “despatch on all time saved or despatch on loading time saved.”
Despatch on all time saved means that dispatch money shall be payable from the time
loading/discharging is completed to the expiry of the laytime including periods excepted from laytime.
Example:
laytime for five working days to end 1700 hours Monday
Loading time finished 1200 hours Friday

If despatch is on all time saved, despatch money shall be computed for 67 hours.

On the other hand, dispatch could be on loading time saved which means that dispatch money shall be
payable from the time of completion of loading or discharging to the expiry of the laytime excluding
periods accepted from laytime.
In our example above, if dispatch is loading time save, then, despatch rate shall be multiplied by 12
hours only. An assumption is also made that Saturday is not a working day.

Chapter 9
CONTRACT FOR A TIME CHARTER
REASONS WHY A TIME CHARTER IS CONCLUDED
1. The cost of maintaining and manning the ship is high and the charterer hires a ship because he
has the advantage of controlling the ship and saving from the costs of maintaining and manning
her. Likewise, he controls the ship without actually spending big amount of money to either
purchase or build a ship of his own.

42
2. Sometimes, a shipping company hires a ship on charter because it needs additional ships
immediately to substitute other ships in the fleets. The shipping line may also charter some ships to
add to new liner routes. In this way, the shipping line did not spend much money to purchase new
ship or ordered for new shipbuildings, which takes two or three years.
3. If a shipping line is interested in new venture, which requires specially-built ships and these ships
are not available in his fleet, it hires a ship on charter party. This gives the shipping line the
advantage of obtaining a ship that is suitable for the specialized trade needed by the joint venture.
He also avoids spending much amount of money to buy new ship.
From the three reasons given above, it becomes clear that the major reason for hiring a ship on a
time-charter basis is to reduce costs.
THE STANDARD FORMS OF TIME CHARTER PARTIES
Time charter parties use standard forms. For tankers, the oil companies such as shell, Caltex, Mobil,
etc. have their own forms. For dry cargo trade, the most commonly used are the Baltime (19390, New
York Produce Exchange (1946) and liner time.
In charter market, it is commonly considered that contents of Baltime (1939) clauses are “friendly to
shipowner”; whereas those of the New York Produce Exchange (1946) are “friendly to charterers”. The
clauses in the time-chartered parties’ forms are numbered and these provide the vital terms and
conditions of the charter. The clauses, however, also reveal the characteristics of the time charter
parties.
DESCRIPTION OF A SHIP IN THE TIME CHARTER PARTY
In the time charter party, a preamble “is included. A preamble is an opening statement in the time
charter contract. This is found in the first portion and comes before the clauses (statement of
condition), which are actually numbered.
The preamble contains the description of the vessel. The description contains important information
about the vessel that is fixed on the charter. This information includes the identity of the ship (e.g.
name of the vessel, the flag she carries); the classification of the vessels; deadweight; consumption of
fuel; speed (laden/in ballast), etc.
The seaworthiness of the vessel under standard time charter party is implied (not expressly written in
the contract). This means that the shipowner is obliged to make the vessel seaworthy at the beginning
of the time charter. This obligation is ensured prior to the beginning of the voyage. Prior to delivery, a
survey is made on this condition.
The description of the ship is important to a time charter because the capacity of the ship determines
his earnings. Based on the description of the characteristics of the ship, the charterer can calculate the
cost of using the ship. For example, if the speed in knots is given and the type of engine used and fuel
are described, the charterer would be able to compute the fuel consumption and operating expenses
the vessel’s speed is a warranty in the time charter party.
The most common disputes between the charter and the shipowner are those pertaining to the
description of the vessel, especially when it comes to the deadweight, speed and fuel consumption.
The deadweight information must be exact as much as possible because the income of the charterer
comes from the cargoes that he will carry through the vessel.
The cargo may either be owned by the charterer or by a third party. A misunderstanding of the
deadweight bears considerable reduction to the income of the charterer. If the deadweight is declared
by the shipowner to be 25,000 but in reality it is 20,000 only, the charterer would be unable to load
about 5,000 tons.
In case of speed and fuel consumption, the vessel that is declared by the shipowner to consume 25
tons instead of 30 tons means loss to the charterer. The misdeclaration is possible because the
particulars of the description are only estimated. In the estimation, the word “about” usually appears in
the contract.
A sample portion of the form of the time charter illustrating the description of the ship is shown below.
Notice that the blank parts of the sample have to be filled out by the shipowner. The ship’s description
should conform to the requirements or needs of the charterer.
The sample shows a portion of the contents of New York Produce Exchange form (1981) that is
popularly used as a contract for the time charter. The speed is knots and the deadweight capacity in
43
the form are both preceeded by the word “about” [about(blank) knots; about (blank) long/metric ton
deadweight].
THE PERIOD OF TIME CHARTER
The period of a time charter varies from three months up to three years up to ten years. The period
may also refer to a trip, usually “round trip” crossing the oceans. Example of the round trip period of is
“trans-pacific round trip”. The term “without guarantee” is added to the period.
The estimated duration of the trip may or may not be indicated in the time charter party. If the
estimated period appears in the contract, the word “about” is placed before the number of years or
months (as the case may be). The word “about” here means the charterer may “end” or terminate the
contract before the period stated expired or even after the period expired, provided that it is within
reasonable time.
Example:
The contract is concluded between the shipowner and the charterer. The period defined is “about one
year”. The question is: when can the charterer end or terminate the contract?
The end or termination of the contract means the charterer will return the ship to the owner (also called
redelivery of vessel) at an agreed port. In our example of “about one year” the charterer can return the
vessel to the shipowner perhaps a few days before (e.g. two days) the one year period end or two
days after the one year period expired.
Underlap is the term used by charterers when the vessel is returned or redelivered to the shipowner
before the expiration of the agreed period.
Overlap is the term used when the charterer redelivers to the shipowner the vessel after the agreed
period expired.
OBLIGATIONS OF CHARTERER TO PAY HIRE
“Hire” refers to the payment for the hire of the ship. Hire or charter hire is the money paid for the hire
of the ship. When the vessel is delivered by the shipowner to the charterer on agreed time, place and
seaworthy condition, the vessel is said t o be “on hire”.
Although it is the obligation of the charterer to pay hire, there are circumstances when he has the right
to suspend (not pay) the owner. The condition for non payment of hire is stated in the “ off hire” clause
of the time charter party.
By definition, the off hire is a period during the contract for hire when the charterer’s obligation to pay
hire to shipowner is suspended for the time being in view of some circumstances. This means that
under those circumstances, the ship has been temporarily unused by the charterer, resulting in some
expenses. These expenses shall be borne by the shipowner and the charterer shall not pay the hire of
the vessel during the period when the vessel was not used for the reasons contracted for.
Not all circumstances entitle the charterer to claim for “off hire.” Specifically, some conditions allowable
to suspend the payment of hire are as follows:
1. Loss of time from deficiency and/ or default of officers or crew
2. Deficiency of ship’s stores
3. Fire or breakdown of machinery
4. Damages to hull resulting in temporary repair
5. Grounding of the ship
6. Detention by average accidents to ship or cargo unless resulting from defect of cargo
7. Deviation of the vessel that is contrary to the order or direction of the charterer.
ESCALATION CLAUSE
There are times when the shipowner incurred additional or increased expenditures in operating the
ship. In order to avoid suffering from losses, the parties to the contract insert in the charter party a
clause that protects the shipowner from unexpected losses. The clause is called escalation clause.
DELIVERY OF THE SHIP
Delivery of the ship means placing of a ship by the shipowner at the disposal of the time charterer at
the beginning of the period of the charter, usually specifying the time and place agreed upon.
44
Before the delivery of the vessel, the independent ship surveyors set jointly by the charterer and the
shipowner do a survey or check-up. They spend for this survey. The surveyors check the conditions of
the ship (hull, machinery, equipment, gears, bunkers, holds, tanks, etc.).
Findings are noted. Survey certificate on the condition and state of the vessel is issued by the
surveyor and signed by them. They also issue delivery certificate to charterer stating or confirming
the date and time when the vessel iss delivered. These documents become important documents
because the charterer assessment of payments of hire is based on the data put in the survey.
REDELIVERY OF THE SHIP
The redelivery or return of the ship is written in the charter contract. It is a clause in the contract that
obliges the charterer to return the vessel to the shipowner in the same good order and condition as
when the vessel was delivered by the shipowner to the charterer in the beginning of the hire period.
The procedure in the redelivery of the ship is similar to the procedure in the delivery.
Any damage to the vessel, which was not repaired by the charterer upon delivery of the ship, entitles
the shipowner to claim damages and possible loss of profit only and not to repairs to be carried out
before delivery. After the delivery the shipowner cannot claim from the charterer payment for hire for
the time lost for the repair. With regard to the date of redelivery, if the margin is not indicated in the
contract (e.g. margin is 25 days more or less) and a dispute appears, the court usually implies for the
margin.
THE BUNKERS CLAUSE
This is a clause in the contract of the time charterer stating the quantity of fuel that is to be kept on
board at the time of delivery of the vessel by the shipowner to the charterer and when vessel is
returned or redelivered by the charterer to the shipowner. The charterer pays the required quantity of
bunker fuel to the shipowner at the time of delivery of the ship. The charterer on board vessel
maintains the same quantity during the time of redelivery. The costs of bunker is paid by the shipowner
to the charterer.
THE SUB-CHARTERING AGREEMENT
There is a clause in the time charterer party that gives freedom to the charterer to “sublet” the vessel
on time charter to another party during the contract period. This is called the sub-chartering clause.
Sub-chartering clause is allowing a third party to use the vessel that is hired on time charter party by
the charterer from the shipowner. Under the sub-chartering system, the charterer who has a contract
with the shipowner remains responsible for all the obligations written down in the contract between him
and the shipowner.
The contract between the charterer and the sub-charterer is a contract between the two of them. The
shipowner is not a party to the contract between them (charterer and sub-charterer). Thus, obligations
of the sub-charterer are legally bound between him and the charterer only.
The shipowner has the right to limit the cargo to be carried by the charterer. The goods must be
“lawful” and not prohibited to be carried by any law (e.g. unlawful merchandise are drugs, cocaine,
dangerous goods which failed to comply with safety measures issued by IMO, etc.)
Safe ports means also safe berth. If the ship suffers damage because of unsafe berth, the charterer is
liable to the shipowner, unless there are provisions in the contract that counters the liability.
EXPENSES BORNE BY THE CHARTERER AND THE SHIPOWNER
A. Charterer’s Expenses
The clauses of the standard time charter party give the details of the expenses borne by the charterer
and the shipowner. On the part of the charterer, the following expenses are normally for his account.
1. Bunkers/fuel (considered as the most expensive)
2. Port charges (pilotage, tonnage, tug assistance, etc.)
3. Port dues (harbor dues, canal dues, state taxes, etc.)
4. Cargo handling charges (stevedoring, cargo handling equipment rent in port, etc.)
5. Commission of Agents
6. Consular Charges that are not Relating Crew of the Ship
7. Water for Boiler
45
8. Fumigation of Vessel Due to Cargo Carried
9. Special Fitting Facilities for the Cargo (dunnage, shifting boards, etc.)

Shipowner’s Expenses
On the other end, the expenses that are usually borne by the shipowner in time charter party are as
follows:
1. All Provisions and Wages/Salary of Crew
2. Necessary Stores (the engine room, deck, cabin, etc.)
3. Maintenance of Vessels (hull, machinery, equipment, etc.) for the duration of time charter party.
4. Other Expenses Related to Crew (consular, fumigation of vessel due to sick crew, etc.)
5. Lubrication Oil, Paints, Water
6. Insurance of Vessel (hull, machinery, loss of hire, etc.)
RELATIONSHIP BETWEEN THE MASTER AND THE CHARTERER
In the time charter party, the master and the crew of the ship remain the employees of the shipowner.
The shipowner agrees to pay for their wages, salaries, benefits and all provisions. Although this is the
status of the master’s and crew’s employment, they are to be under the order of the charterer during
the period of time charter contract.
This relationship is provided in the employment and indemnity clause of the time charter contract.
Under this clause, the charterer is not entitled to give orders concerning the navigation or management
of the ship. It is the duty of the master to act
For specification, here are some of the most important duties and responsibilities of the master under
time charter party:
a. The captain prosecutes his voyage with due dispatch;
b. He gives all customary assistance with ship’s crew and boat’s;
c. He supervises the cargo handling performance by the charterer;
d. He signs the bills of lading for cargo after confirming them with the mate’s receipt or tally clerk’s
receipt;
e. He supervises the conduct and performance of his crew;
f. He keeps full and correct records of deck and engine logs of all voyages under charter period;
g. He sees to it that cargoes are properly ventilated; and
h. He notifies the charterer immediately of any damages to cargo or vessel made by stevedores.
BILLS OF LADING UNDER TIME CHARTER PARTY
The charterer often loads and stows cargo that is owned by a third party. Since the charterer does not
own the cargo, the cargo owner has the right to ask for the receipt of the cargo when loaded and
stowed on board. The clause in the time charter party provides that when a cargo is loaded on board,
the master should issue a receipt to the owner of the cargo. This is the bill of lading document, which is
demanded by the cargo owner.

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 Chapter 10
THE BAREBOAT CHARTER
MEANING OF BAREBOAT CHARTER
A bareboat charter is a contract for the lease of vessel for an agreed period, during which the charter
acquires many of the rights of the owner (Maclachan, 1996 F-9). Bareboat charter is also called
demise or demise charter.
A simpler definition of bareboat has been given by Brodie (1994)), when he described that “bareboat
charter means to hire or lease a ship for a period of time during which the ship owner provides only the
ship, while the charterer provides the crew together with all stores and bunkers and pays all operating
costs”(p. 13).
GENERAL CHARATERISTICS OF BAREBOAT CHARTER
Generally, a bareboat charter party has the following characteristics:
1. The ship owner has no obligation to equip and man the ship. It is the charter’s obligation to do so.
2. The vessel to be put on fire is a naked vessel or a brave vessel.
3. The charterer supplies the manning of the vessel including the vessel’s equipment. He is
responsible for the fulfillment of contract with the master and the crew of the ship.
4. Bareboat charter is usually contracted for a long period of time and often subject to financing and
sales arrangements.
5. The bareboat charter may trade the vessel for his own account as long as it has been written in the
contract. The contract usually sets the limits of the trading areas, the time and the cargo to be
carried.
PRINCIPAL TERMS / CONDITIONS OF BAREBOAT CHARTER
Most of the clauses under the bareboat charter are almost similar to the time charter. The rights and
obligations of the charter and ship owner under the bareboat charters are within the conditions stated
in the contract. This concern the delivery and redelivery of the ship, trading limits and survey
requirements and other clauses.

OTHER SPECIFIC OBLIGATIONS OF THE CHARTERS

1. Maintenance and Operations of the Ship and Equipment.
2. Establishment and maintenance of financial responsibility or with respect to oil or other
pollution damages.
3. Insurance, repairs Classification Clause.
RIGTHS OF THE OWNERS
The owner shall have the rights at any time to inspect or survey the vessel. He can also instruct his
agents to carry out these rights for him in order to insure the condition of the vessel and satisfy
themselves that the vessel is being properly repaired and maintained.
Owners have also the right to require the vessel to be dry docked for inspection if the charterers are
not dry-docking her at required classification intervals. Inspection of the vessel’s logbook if there is
damage due to accidents or any casualties arising from the accident is also permissible.
REQUISITIONS FOR HIRE AND COMPULSORY HIRE
Requisition for hire is a circumstance when the vessel on hire by the charterer is requested by a
competent authority (e.g government) to be hired from the charterer during the period when the ship is
still on bareboat charter.
Compulsory hire happens when the vessel is acquired or has been taken from the charterer by a
competent authority (e.g government) by force or is compulsorily. In this case, the real owner
47
(shipowner) is deprived of ownership. For this reason too, the bareboat charter party is terminated at
the time of the compulsory acquisition. The charterer has the right to stop the payment of hire to the
shipowner after the compulsory acquisition of the vessel.
RELATIONSHIP BETWEEN THE MASTER OF THE SHIP AND THE CHARTERER
Under the bareboat charter, the charterer provides the manning and equipment of the ship. Therefore,
the charterer is the direct employer of the master of the ship and his crew. The charterer has vicarious
liability for any negligent act committed by the master and the crew of the ship, as long as the
negligent act is within the scope of their employment or the negligent act is found to be work
connected
BARECON’S 89 FORM
For bareboat charter parties, the charterers, usually use the Barecon 89 form designed by Baltic and
International Maritime Council (BIMCO). There are two mandatory parts of the form. These are Part I
and Part II. Part I contains the information about the ship to be chartered and the charterer. Part II
contains the provision or terms and conditions of the contract.
The optional parts are Parts III, IV and V. Part III is applicable only if the vessel is a new building. Part
IV is applicable if there is provison for hire purchase agreement. Part V only applies for vessels that
are registered in a bareboat charter registry. The use of the optional forms should first be expressly
agreed and stated in Part I of the form.
UNIT III
Ancillary Contracts
.Chapter 11
THE PILOTAGE SERVICES

PILOTAGE SERVICE
Pilotage
Any task performed on the ships by the pilots shall be considered as pilotage service.
CONCEPTS OF THE PILOTAGE DISTRICT AND PILOTAGE GROUND
The water within the boundaries of the port is oftentimes declared as a pilotage district grounds.
Pilotage grounds are those areas within the pilotage district where the port allows the ships or
watercraft to pass.
Pilotage district by definition refers to those areas within the jurisdictional or territorial boundaries of
the port, where ships, barges, watercrafts are allowed to enter to undertake activities, under certain
regulation prescribed by the State, through the government entity (normally a Port Authority).
The pilotage ground is the specific area of the navigable water within a pilotage district where the
ships are being piloted.
In some countries, the pilot is issued a license by a local authority to conduct a ship or render
assistance to the master of a ship outside the pilotage district. This happens when a country is an
archipelago like the Philippines, where many pilotage districts are declared by the state. The presence
of thousands of islands and their sea areas usually become the main reasons why many pilotage
districts are declared.
THE DEFINITION OF PILOT
A pilot can be defined as a person possessing the navigational skills, experience and license to
conduct a ship within the waters of the declared pilotage area of a particular port in a port district. A
pilot in the pilotage operation is normally not an employee of the ship. A pilotage company could
employ him, or the port authority or a member of pilotage association granted license by the
government to render pilotage services.
However, the master of a ship could be considered as a pilot if he has previous accreditation from the
authority of the port where his vessel is calling at, attesting to the master’s familiarity and experience in
navigating within pilotage areas of the given port.
The following are definitions of pilot in accordance with the areas of operations:

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A. Harbor Pilot

A harbor pilot is a person possessing the navigational skills and experience and who is familiar
with the navigational waters of a particular harbor. He is appointed and licensed by an authorized
government agency or authority to pilot a vessel engaged in domestic or foreign trade within the
boundaries of the harbor areas

B. Coast Pilot

A coast pilot is a person possessing the navigational skills, experience and appropriate license to
act as pilot on vessel engaged in foreign and coastwise trade while subject vessel is moving
outside the pilotage district toward another pilotage district within the country.

C. Canal Pilot

A canal pilot is person possessing the navigational skill experience and appropriate license to
conduct a ship engaged in foreign and domestic trade while such ship is navigating within the
pilotage area of a canal.

D. River Pilot
A river pilot is a person possessing the navigational skill, experience and appropriate license to
conduct a ship within the pilotage area of a river port.
REGULATION AND CONTROL OF PILOTAGE SERVICE
Pilotage is usually strongly regulated and controlled by the government of the state. The authority to
regulate and supervise is vested to the harbor authority or to any government agency mandated by the
State to perform such tasks. In the Philippines, for example, the authority to regulate and supervise the
pilotage services is mandated by the State to the Philippines Ports Authority.
Presidential Decree No. 857 (1975) stated that “PPA has the power to control, regulate and supervise
pilotage and the conduct of pilots in any port district.” (Art. IV, Sec. 6.a.viii). By this order, PPA
subsequently issued Administrative Order No. 13-77 (General Port Regulations) on September 2, 1997
whereby specific regulations governing the policies under pilotage are well defined. In 1985, PPA
issued another regulation governing pilotage services and the conduct of pilots and pilotage fees in the
country. All these are embodied under PPA Administrative Order No. 03-85.
In England, the Secretary of State for Transport has powers over pilotage. The functions are delegated
to a pilotage commission. In the Netherlands, the port authority of every port has power over pilotage.
In practice, a pilotage authority, which is a government agency, tasked by the State to supervise
pilotage and the conducts of pilots is given the responsibility and authority to hire and train pilots in the
port. This responsibility is sometimes transferred to a private entity. In the Philippines, for example, the
Port Authority transfers the responsibility to directly render pilotage services, which is vested to the
Philippine Ports Authority by the state, to the United Harbor Pilots Association of the Philippines
(UHPAP).
When the government authorizes a pilotage group, and association, or a company to directly render
pilotage services in the pilotage districts, such authorization is accompanied with strong regulatory and
supervisory powers on the part of the government. This is because the discharge of pilotage
responsibilities is inherent on the government. This means that the authorized government agency is
supposed to perform the functions of pilotage services. Since the functions are delegated to the pilot’s
associations of delegated responsibilities..
CATEGORIES AND POLICIES OF PILOTAGE SERVICES
Pilotage services are generally divided into two categories. These are called general or common and
related or special services.
A. General or Common Services
As the name denotes, the services belonging to this category are the ones commonly performed or
rendered by the pilots for the ships calling in the port. General or common services are described
as follows:
1. Entrance Service – In a port, a boarding station is normally designated by the pilotage authority to
meet an entering vessel. At the boarding station, the pilot boards the vessel and conducts it to the
49
 pilotage water ground until the ship is safely moored or docked at a berth or anchorage, whichever
is the docking area assigned to the hsip. The service performed by the pilot for this activity is called
entrance service.
2. Departure Service – When the vessel has completed its operations (i.e., loading or discharging of
cargo to or from the port) at the berth or anchorage to which she is assigned to dock or moor, the
pilot has to board subject vessel once more. This time, the pilot assists in the undocking or
unmooring of the vessel from the berth or anchorage. After which, the pilot conducts the vessel
through the pilotage area back to the pilot landing station. At the pilot land station, he disembarks
from the vessel and the master takes over the conduct of the ship from the pilot before proceeding
to the next port or call. The type of service performed by the pilot is called departure service.

B. Related or Special Services

Related or special pilotage services are those, which do not belong to the common or general. The
master, depending on the circumstance attendant to his ship and cargo requests them.

The following are some examples of special or related service performed by the pilot:
1. Shifting of ship from one berth to another. – Conducting the ship when the ship’s main engine is
at standby for contingency use. The pilot uses only the winches of the ship while moving her within
the pilotage area.
2. Ship to ship manoeuvre. – Conducting the ship when the ship is alongside another ship. The
ship’s main engine is at standby for contingency use.
3. Dead ship docking and undocking or mooring or unmooring. – The engine is dead and the
pilot conducts the vessel by relying on outside forces (such as tugboat services).
4. Channeling through straits. – Conducting the ship when the strait is too narrow. The pilotage
service is hired to navigate only on the particularly difficult portion of the strait.
5. Shifting of the vessel upon order of the port authority from berth to anchorage areas during
typhoon. – This is done to prevent possible damage to immediate dock facilities. Likewise, at the
anchorage area, the vessel has more space for maneuvering during inclement weather.
6. Bow out docking. – Some vessels request for bow out docking due to the position of the cargo on
board. It is also convenient for the ship to exit from the port, when this type of docking is done.
There may be other special or related services, which are performed by the pilots in other ports.
This basically depends on the regulations issued by the port or harbor authority.
COMPULSORY AND NON-COMPULSORY PILOTAGE
A. Compulsory Pilotage

It is common practice in many countries that the port or harbor authority defines and declares any
area of the water in any port as a pilotage district. In addition to this right, it may order any vessel or
classes of vessel to be under pilotage while navigating in a declared pilotage district. The master of
such vessel shall comply with the requirement. Thus, while being moved within any area, which is
part of pilotage district, a vessel avails of pilotage services. This policy is called compulsory
pilotage policy.

Compulsory pilotage service is commonly defined as a policy of the port or pilotage authority
wherein a ship is required to be under the services of a pilot who is licensed to conduct the ship
while moving within the declared pilotage area or ground of the pilotage district. Not all ships are
required to avail of the pilotage services in a port where compulsory pilotage is a policy.

In many countries where ports implement the policy of compulsory pilotage vessels which are not
engaged in commercial undertakings, are exemptions. These are non-commercial ships used by
the national or local government, ships of foreign governments which are entitled to courtesy, and
warships.

In England, her majesty’s ships are exempted from compulsory pilotage Royal Fleet Auxiliaries or
merchant ships manned by civilian crew and operated by the Ministry of Defense to supply Royal
Navy ships with fuel, food, stores and ammunition are also exempted (Gaskell et al, 1987, p. 349.)
In the Philippines, all ports (government and private) implement the policy of compulsory pilotage.
This took place when Executive Order No. 1088 was approved by then President Ferdinand
Marcos before the EDSA revolution in 1986. There are, however, a few exemptions from
compulsory pilotage. These are the presidential yacht, Ang Pangulo; the training ships owned by
Philippine maritime schools; all Philippine Navy and Coast Guard vessels; and pleasure crafts

50
B. Non-Compulsory Package

Non-compulsory pilotage or voluntary pilotage happens when the port authority does not require
the master of the ship to avail of the services of the licensed pilot of the port. The imposition of
compulsory pilotage depends on the pilotage authorities’ determination and decision as to whether
the ports under its jurisdiction shall be subject to compulsory pilotage. The authority determines the
size, the type of the ship and the local condition of the port in deciding if the compulsory pilotage
shall be imposed.
RIGHTS AND RESPONSIBILITIES OF THE PILOT AND THE MASTER
The master and the pilot have the responsibilities to consult each other with regard to their respective
duties. In relation to these responsibilities, the pilot has the right to ask information from the master
concerning the ship’s beam, rigs, anchors, draught, communication system, equipment and cargoes.
This is to enable the pilot to assess the viability of conducting the ship to a safe berth.
The master, on the other hand, is responsible in supplying the pilot with appropriate information, which
is deemed necessary to facilitate the self-movement of the ship within the pilotage area. If the
appropriate information is not supplied and the pilot has doubts with regard to the ship’s capability to
safely berth at the port, the pilot has the right to refuse boarding the ships.
The master has to ensure that consultation was made with the pilot on board regarding details of the
conditions of the port. The pilot in return has to give his advice and information requested by the
master. Details of the discussions are those pertaining to use of equipment and gears of the ships,
such as mooring lines, communication systems, anchors, etc. Likewise, the pilot and the master has to
discuss if tugs are needed, agreed on speed of the vessel to be used, disembarking procedures to be
done for the pilot, and other related matters that would ensure that the ship shall be moved safely
within the port.
In accordance with a given schedule, a pilot on duty is responsible to report alongside the vessel
normally within the required period of time. The usual practice requires the pilot on duty to be at the
required place within one hour from the warning of signal. The pilot is entitled to the assistance of the
crew when conducting the ship. The crew of the ship has to properly inform the pilot of any detail that
may deter the safe movement of the ship within the pilotage area.
The pilot shall be responsible for the direction of a vessel from the time he assumes his work as a pilot
thereof, until he leaves it anchored or berthed safely. He is responsible for giving lawful order or
command while on board the ship. This command shall be promptly obeyed by the officer-in-charge of
any other vessel, which the pilot may be consider as impediment to the safe maneuvering of the vessel
under his pilotage control. The responsibility of the pilot for these particular activity only ceases at the
moment the master neglects or refuses to carry out his order.
RELATIONSHIP BETWEEN THE MASTER AND THE PILOT
In connection with the duties and responsibilities of the pilot, most countries have established that
even when a pilot on board is conducting the ship, the master of the ship retains his command of the
ship. The master exercises his authority and powers to counter command the orders of the pilot on
board. The master can exercise this authority if he has reasons to believe that the pilot’s commands
shall cause dangers for the ship and her cargo.
The Pilotage Commission in the United Kingdom explained the relationship between the master of the
ship and the pilot on board when it stated that “the conduct of a ship must not be construed to
commanding of a ship. “The former refers to an action while the latter pertains to power. The master of
the ship delegating the power to control and conduct the ship for navigational reason is not an
abandonment of authority pilot” (IMO CML, 1993, p. 160).
If the pilot refuses to obey the master, the master has the authority to order the return of the pilot
ashore and request for another pilot to render assistance o him. However, the master has to express
his authority and power with civility and prudence.

LIABILITIES OF THE PILOT AND THE MASTER

Pilot providing services to a ship sometimes encounter operational accidents causing damage to a
vessel, or to life and properties due to some circumstances or fault. In practice, the pilot rendering
51
services to a ship is liable for damages to the vessel, property at port and cargo, if the appropriate
authority found that the damage is due to his negligence or fault.
The pilot can be excused from liabilities if force majeure or natural calamities caused the accident.
However, his clearance can be granted only if it is found that the pilot exercised due diligence to either
prevent or reduce the damage. In practice, the accidental-related liabilities involving tugs and pilotage
services go to the account of the shipping company or the shipowner.
The limitation of the pilot’s duties to the conduct of the ship and rendering assistance services only to
the shipmaster give way to the clarity of pinpointing the liabilities of the pilot. Since the master can
counter command the order of the pilot while on board, it appears that the pilot becomes the temporary
employee of the ship while performing his services. Under this circumstance, the principle of “vicarious
liability” can be invoked by the pilot from the shipowner or charterer
Relatively, in the Philippines, the liabilities of the pilot were defined by the Philippine Ports Authority,
when it mandated that any damage caused to a vessel or to life or to property by reason of negligence
of the pilot regardless of whether pilotage is compulsory or non-compulsory shall be borne by the
shipping company or the shipowner or the charterer (Administrative Order No. 13-85, 1995). In the
International Convention Relating to the Limitation of the Liability of Owners of Seagoing Ships of
1957, however, if the master is found to be in the wrong position, he is entitled to limit his liability even
if the damage was caused by his own negligent acts (Art

 Pilotage is a person possessing the navigational skills, experience and license to conduct a ship
within the waters of the declared pilotage area of a particular port in a port district
 Two major categories of pilotage services are general or common and special or related
services. General services are the ones commonly rendered by the pilots for the ships. Special or
related services are those not belonging to common or general services.
 Compulsory pilotage service is a policy of the port or port authority wherein the ships are
required to be under the services of the pilots who are licensed to conduct the ships while moving
within the declared pilotage grounds of the pilotage districts. Non-compulsory pilotage is not
mandatory but voluntary in nature.
 The master retains his powers of command and authority over the ship even when the pilot is on
board and conducting the ship. The master has the authority to counter command the orders of the
pilot if the master has reasons to believe that the orders of the pilot would endanger the safety of
the ship and her cargo.
 The pilot can be held liable if it can be proven that his own negligence or fault causes the damage.
On the other hand, if the master is found to be at fault, he can be held liable. He is, however,
entitled to limit his liabilities pursuant to the Convention on the Limitation of the Liabilities of Owners
of Seagoing Ships, Brussels, in 1957.

Chapter 12
TOWAGE, SALVAGE AND STEVEDORING SERVICE CONTRACTS
Towage, salvage and stevedoring are three kinds of services that supplement the completion of the
carriage of goods and contract for the use of ships. Although these services are ancillary or
supplemental in nature, the contracts for these services are important to the ship and her cargo. Ships
are sometimes delayed in a port because she has to wait for a towage service to be rendered.
In developing countries, most ships stayed in the port for several days because stevedoring services
are not yet completed. In some unfortunate circumstances, salvage operations become inevitable and
the master of the ship has to make contract for salvage. Since the contracts entail considerable costs,
ship owners masters and charterers have to exercise due care in contracting
In the port, it is common to see big ships pulled or pushed by one or two boats. The ship is called the
“tow” and the small boat is called the “tug”. The act of pushing or pulling or towig a ship by one or two
or more watercrafts or smaller boats for the purpose of controlling and directing the safe movement of
the ship is called towage.
Towage or the act of towing is more formally defined as any condition in connection with the holding,
pushing, moving, escorting or guiding or standing by the hirer’s vessel and the expression of “to tow”
“being towed” and “towage” shall be defined likewise [UK Standard Condition for Towage and Other
services(UKSTC),1986,Art.1.b.ii]

52
In regard to the definition of tow, the UK Standard Condition for Towage and Other Services further
described that it “includes any vessel, craft, or object of whatsoever nature (whether or not coming
within the usual meaning of the word “vessel”), which the tugowner agrees to tow or to which the
tugowner agrees at the request express or implied of the hirer to render any service at whatsoever
nature other than towing (UKSTC,1986, Art.1.b.ii).
The contract of towage may be written or verbal. If the master deemed it reasonable to contract
towage for the ship for safety reasons, he has the implied authority to engage a tug or tugs services. In
most cases, the conditions and the terms are usually put in writing and if reasonable, the shipowner or
the charterer (as the case may be) is bound by provisions of the contract.
In most countries, it is commonly practiced that the tugowner supplies the form of towage contract to
the hirer. The hirer is usually the shipowner or the representative of the shipowner or the master of
vessel. The master represents the owner of the vessel when executing the contract.
Unlike in the contract for the use of ships, there is no international standard form of contract used for
towage services. Some countries formulated the UK Standard Conditions for Towage and Other
Services.
There are also forms of contracts for towage, which were introduced by the Baltic and International
Maritime Conference (BIMCO). These are called the Towhire and the Towcon forms of contract (IMO
CML,1993,p.162).
Under normal conditions, towage services are not compulsory or mandatory, which means that the
government or port authority does not require the ship to avail of the towage services at the port.
Towage services become compulsory when the following conditions are present:
1. The approaches to anchorage or berth or the port facilities or the water space of the berth are too
limited which make the ship difficult to maneuver by herself safely.
2. There is a strong current and wind factor that affects the velocity of the vessel’s speed.
3. There is inclement weather and the tropical depression or typhoon is present within the immediate
vicinity of the port.
4. The vessel has a mechanical defect due to engine trouble or malfunctioning of navigational
equipment, which puts her at risk in maneuvering by her.
In the conditions described above, the tug assistance is necessary for the purpose of ensuring that the
ship can move within the protected water of the port in a safe manner. When tug assistance is not
compulsory in the port, the master can request for tug assistance, if he observes that the vessel for the
purpose of ensuring her safety needs the tugs.
It is, however, advisable that the master has prior knowledge of the port regulations pertaining to the
services, in order to prepare and be ready with the necessary document upon arrival at the port.
The Rates
Tug assistance rates are usually regulated and prescribed by a government. In most countries, the
port authority or any maritime government agency, which was ordered by existing laws of the state to
regulate ancillary services, executes this function.
In the Philippines, the Philippine Port Authority prescribes the rates for ancillary services and this
includes the tug services. The rates are based on the BHP capacity of the tugs where a fixed charge
base (minimum of hire on the basis of hours) is prescribed. The shipping company and tugowner
agree on rates in case the government does not prescribe applicable rates for tug services in the ports
(PPA AO 03-85,1985).
Liabilities of Tugowners
The liabilities of the parties, which include those of the owners of the tugs, depend on the contents of
the contract they executed. This means that the parties concerned expressed in the written contract
what they would cover in case unfortunate circumstances happened in the act of towering the ship.
There are contracts, which favor the tugowner.
Logically, contracts designed by tugowners contain only limited liabilities for them. Many clauses of
exemptions from liabilities and indemnities are expressed in the contract. Very often, the exclusion
would state that the tugowner is not liable for the loss and damage done by the tug. Any claim that
may arise from third parties may also beincluded in the contract in favor of the tugowner.

53
In UKSTC (1986), the tugowner is exempted from the liabilities for damages down by the tug from any
cause including negligence or unseaworthiness of the tug (Gaskell et al., 1987). The exemption from
liabilities is illustrated in the following case:
TOWHIRE AND TOWCON CONTRACTS COMPARED TO UKTC
A. The UKSTC
The UKSTC contract is different from the Towhire and Towcon forms.
The UKSTC deals more the liabilities of the tugowner, The Towhire and Towcon forms deal with
agreements on physical description of the tug (i.e., gross registered tonnage, flag of registry,
breadth, length, towing drafts, etc). There are also some information concerning the date and place
of departure of tug, the payments for hire and other details.

The UKSTC forms are basically designed for towage in ports. The provisions of UKSTC are mostly
not applicable for ocean towage. An example of ocean is the towage for oil platforms (which
means, towing from almost any losses, damages or other claims

As regards liabilities, the towowner is liable to the tugowner in case the tug owner incurred liabilities
to a third party. In effect, the tug owner is exempted from almost any losses, damages or other
claims, including, of consequences of force measure (IMO compendium of Maritime Law, 1993, p.
163). Below are the specific exceptions of tag owner under UKSTC according to the compendium:

1. Damages done by the tag or suffered by the tow or any cargo or other thing on board the tug;
2. Damages done by the tag or suffered by the tow or any cargo or other thing on board the tow;
3. Damages cause by delay or detention;
4. Damages done by or suffered by any object or property;
5. Loss tugs or the tow;
6. Loss of any cargo or property on either the tug or the tow;
7. And any claim arising from the third parties

B. The Tow Hire Contract

Unlike in the UKSTC, in the tow hire contract, the risks are divided between the tug owner and the
tow owner (owner of the tow). The tow con spade in the basis of daily hire towage agreement. The
tow owner has the right to cancel the hire of tug before departure but the owner should make a fee
for such act to tug owner.

The tug owner is allowed to withdraw the contract under the following conditions:
1. Port delay beyond 21 dates;
2. Failure of tow owner to pay hire within seven days of each due dates payments provided that notice
to withdraw is serve to the tow owner 48 hours to the specified date of withdrawal. The port
expenses on pilotage fees are paid by the tow owner;
3. Both the tug owner and towowner are bound to exercise ”due diligence” to make their vessels sea
worthy. If there are unavoidable circumstances that a tug owners promise tug boat cannot be
disposed of, the tug owner is allowed to provide a substitute tug.
4. The tug owner will pay for all personal claims made by his employer (e.g tug officer, crew). The tug
owner is liable to loss and damages to tug and loss and damages by tug to third parties whereas,
the tow owner is responsible for his own vessel and employees; and
5. For damages and losses the third parties, liabilities are borne by whoever should by the third party
for negligence.

C. The Tow Con Contract

The provisions of tow con are almost similar to those of tow hire. The only difference is the
payment for the hire of the tug. The tow con hirer pays a lump sum. This is paid under each stage
of payment and cannot be subjected to change. The lump sum is final and has to be paid under the
agreed period.

SALVAGE CONTRACT
Salvage Contract refers to a written agreement which confers a benefit by saving, or helping to save
a recognized subject of salvage when in danger. The situation is such that the subject of salvage is in
54
a dangerous situation from which it cannot be freed and release without aid or assistance. The act of
salving must be voluntary and due to pre-existing obligations and for the interest of the salvers (Gaskel
et al., 1987). The process of salvage operations is done “when any act or activity is undertaken to
assist a vessel or any other property in danger in navigable waters or in any other water whatsoever”
(ICS, 1989, |Art.1). The contract of salvage must be voluntary and parties who are performing the act
of salvage must have no pre-existing duty to help a distressed.
The subjects of salvage must be a maritime property such as ship, apparel cargo or wreckage. This is
clarified because not all property in the waters is maritime property. For example, buoys and
unmanned structures are not maritime property.
The salvers (parties performing the salvage operations) should be saving the lives of person
endangered on the ship but the reward is based on properties saved. Generally, the action of salvage
is based on the principle that something must be saved more than life.
The principle mentioned above was explained in Chorler and Giles shipping laws when the authors
quoted Brett MR (1983) who stated that “for saving of life alone, without saving the ship. Freight of
cargo, salvage is not recoverable”. (Gaskel et al, 1987, P.430). Thus, the property and life must be
saved from the real danger.
Difference between salvage and towage
Salvage reward is naturally greater than towage service fees. For these reason, tug officers and crew
usually want to convert a towage service contract into a salvage contract. Both actions (to salve and
tow) have one element in common- to render assistance to the ships.
In principle and practice, these two services are different there circumstances when towage services
are converted into salvage services. This happens, e.g., when an accident makes it impossible for the
tug to render assistance to the ship. The contract for towage is terminated in this instance.
However, despite the situation, if the officer and crew of the tug decided to rescue the ship, which
places the tug and its crew at great danger, then the towage is converted into salvage. The tug, in this
case, is performing a service which is beyond the normal towage undertaking.
From the example, two important conditions can transform a contract of towage to salvage, and these
are as follows:
1. There is a danger on the part of the tow. The tug owner and the hire did not anticipate this danger
when they concluded the towage contract.
2. The tug performed a task to assist the ship and place her to safety. The act performed by the tug
place the tug at a very risky position. The duties and responsibilities undertaken by the crew of the
tug are not within the normal coverage of their contracted towage services.
STEVEDORING SERVICES CONTRACT
Stevedoring is a service, which involves the acts of handling the cargoes either to or from the ship or
vice versa. In most countries, laborers working on the transfer of cargo from dock
Since the Spanish times to the present, Philippine laborers who work particularly on the transferring of
cargo while on board the ship are called stevedores, whereas, laborers who work only on the dock or
the quay or the apron of the pier or the wharf called arrastre (PPA , 1981, AO 10-81, Art. 1). Thus,
there are two groups of laborers rendering cargo handling services in the Philippine ports- the arrastre
and the stevedores.
Since most countries employ only the group of workers to handle cargo both on board the ship and on
dock, workers are generally called as either stevedores or dockworkers, whichever term is
traditionally used in the particular port. For the purpose of generality, however, the word “stevedore” in
this book shall mean those workers doing the cargo handling work or activities both on board the ship
and at dock, during the cargo loading and discharging operations to and from the ship in the port.
PARTIES TO STEVEDORING CONTRACT
In the ports that are classified as comprehensive ports, everything is owned and operated by the state.
Therefore, the cargo handling equipment and gears, manpower and port facilities are owned and
provided by the government through a port authority. These ports are common in African countries
such as Liberia, Tanzania, Ethiopia, etc. The port of Singapore before it went into privatization was a
comprehensive port. Everything in the port was owned by the State.
55
On the other end, there are countries where the government contracts out operations and
management of port services and facilities to private operator in the form of cargo handling contract.
Under this set up, the port is called a landlord port because the government owns and provides the
port land areas, facilities and infrastructures to private operators who are given license to operate the
port and provide basic port services to its users.
The government, however, exercises strong regulatory and supervisory authority and power over the
private port operators. The port in the Philippines, Netherlands and Latin America are examples of the
landlord ports.
In countries where the government owns everything in the port, the government normally, has a
contract with port labor union, who directly supplies stevedores. Thus, the stevedoring contract is
executed between the court authority and the ship owner or charterer.
If the government contracts out the operations and management of the port to a private operator and
the ship owner are charterer. In this case, it is the private operator who signs a labor agreement with
the port labor union. Regulations governing the terms and conditions of the contract however, are
issued by the port authority to ensure that minimum conditions of the terms of employment are fully
stipulated in the contract to protect the interests of the laborers.
LIABILITIES OF EMPLOYERS OF STEVEDORES
In the above situations, the liabilities of the stevedores depend on the contract itself. The stevedore is
not a party to the contract of carriage such as the bill of lading. The contract, as explained earlier in
this book, is between the carrier and the shipper. The question is: can the stevedore limit his liability
under the Hague and Visby rules, similar to that of the carrier which is supposed to be his employer?
According to a paper written by TayBeng Kim (1978), over the years, carriers try to protect their
servants, agents and independent constructors such as stevedores from loss or damage caused by
these servants. Some laws permit a carrier to provide an exemption from liability for both the carrier
aforementionedservants.
What if the stevedore is negligent and cause damages and losses to cargo owners? Who shall be
responsible for this kind of omission? Under the carriage of Goods by Sea Act (COGSA), 1971 of UK,
which is practiced by many countries, the stevedores are servants of the carriers/ shipowners or
charterers as the case may be, while they are doing their cargo handling work. This being the case,
the principle of vicarious liabilities should be applied by the shipowner or charterer to cover the loss
and damages done to the cargo owner by the stevedores working on board the ship.
“The employer is also vicariously liable to third parties for the loss or damage caused to them by the
acts , omissions or defaults of his employee which are committed in the course of his employment. The
nature of the wrong committed is immaterial and the employer’s liability depends upon a specific state
of mind and his own state of mind is innocent, such as fraud”(Khim, 1978, p.11).
It is implied term of the contract of employment that an employee takes upon himself if the risks are
incident to his work. Thus, the duty to exercise reasonable care is supposed to be undertaken by the
employer. Once this is delegated to his employee, the employer becomes vicariously liable. If the
employer is remiss of his duty to exercise due care in the provision of safe and proper systems of
work, including materials, accessories, adequate supervision and safe working place, which cause
injury to an employee (stevedore), the employer is liable to such injury, loss or damage to his
employee.
In the Philippines, responsibilities and liabilities for damages and losses to cargoes handled by
stevedores or dockworkers are solely borne by the licensed cargo handling companies (PPA 1981, AO
10-81, Art. VI). Other rules pertaining to labor responsibilities. And liabilities are integrated in the
Arraste-Stevedoring contract executed between the Port Authority and the cargo handling operator.
The terms and conditions, as regards, liabilities and obligations between the carrier/shipping and the
cargo handling operator are separately stipulated in the service contract between them.

UNIT IV

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 Chapter 13
COLLISION

THE TERMS “COLLISION” AND “ALLISION”

Collision means any accidents involving two or more vessels, which causes loss or damage to cargo
carried by these two ships or damages to the ships themselves. Collision therefore involves physical
contact involving two or more ships.
Allision refers to a contact of a ship with the bottom of the sea or between the ship and other
structures IMOCML,1993, p.167).
INTERNATIONAL CONVENTIONS ON COLLISION REGULATIONS
One of the most important conventions that embodied uniform regulations on collision of ships was
held in Brussels, Belgium on September 23, 1910. This was the International Convention for the
Unification of Certain Rules of Law with Respect to Collision Between Vessels.
When the UN established the Inter-Government Maritime Consultative Organization (IMCO) in
1958, it sponsored an international convention on Collision regulations based on the 1910 Brussels
convention. The Collision regulation was adopted in 1972 under IMCO.
While IMCO was busy with the above activities, a French-based private maritime organization called
Comite Maritime International (CMI) appointed an international working group to prepare a set of
rules covering all aspects of collision damages. An international conference was held in Lisbon,
Portugal in 1985 on this topic. This was followed by a series of meetings. Finally, in 1987 the CMI
Rules of Assessment of Damages in Collision Case 1987 came out.
The rule was also called Lisbon Rules and adopted by countries who were parties to that convention.
In 1981, before IMCO’s name was changed to the International Maritime Organization (IMO) in
1982, an amendment was made on the collision regulations. When IMO came into being in 1982,
another series of amendments were made on the collision regulations. These were in 1987, 1989 and
1993 (Focus on IMO, 1997). Countries who were parties to the convention have to enforce the
regulations in their national legislations.
THE GENERAL RULES ON COLLISION
There are three possible liabilities resulting from collision. These are criminal, disciplinary or civil. With
regards to the penal or disciplinary actions on the master or any person in service of the ship, the
proceedings must be undertaken by the judicial or administrative courts of either the flag state or the
state of which such person is a national (International convention on High Seas, 1958, Art. 11).
The 1910 International Convention on Collision Rules, however, generally established the uniform
rules to be applied after a marine accident. The 1910 Collision rules and the national laws applied by
member- countries following these international rules were both based on the general principle of the
law of torts.
The law of torts has been discussed in Chapter 1 of this book. It is based on the principle that a person
shall apply general duty of care to persons and properties closely affected by his conduct. Any person
who breaches this duty shall, therefore, pay his victims for damages or losses the victim suffered.
Liability in torts normally requires an element of fault or blame on the part of the wrong doer or tort
teaser. The plaintiff must show that the act was committed either intentionally or negligently (Marsh,
et al., 1987, p.112).
In articles 3, 4, 5 and ² of the 1910 Collision convention, the fault and liabilities under collision are
summarized as follows:
1. If one vessel is at fault, liabilities shall be borne by the vessel, which is found to be at fault.

If two or more vessels are found at fault (also called both to blame collision), liabilities shall
be borne by each of the vessel in proportionate to the degree of the faults established to
have committed by each of them.

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2. If found equal, liabilities then shall be shouldered equally by erring parties. Liabilities are applied
even in cases when a pilot on board conducts the vessel.
3. If neither the ships is at fault, the collision is considered as force majeure (due to natural act). In
this case both ships have to carry their own losses.

ILLUSTRATIONS OF BOTH TO BLAME COLLISION

It is easy to for the claimants to pinpoint liabilities if there is only one vessel that is found to be at fault.
Much confusion arises when two or more vessels are found to be at fault. For the purpose of clarity,
the following are examples of liabilities on both to blame collisions.
Example:
Ship X collided against Ship Y and both are found to bee at fault. The fault of Ship X is greater than the
fault of Ship Y. the rule to be applied is the rule on proportionate share of liabilities. Suppose in our
case to total claims for damage is P 100, 000.00; Ship X liabilities is fixed at 60% of the total damage
(due to the greater degree of fault) and Ship Y is at 40%. The computation of sharing of losses would
be at follows:

Total losses is fixed at……………….P 100, 000.00

Ship X losses is fixed at 60%..............P 60, 000.00
Ship Y losses is fixed at 40%..............P 40, 000.00

If Ship X and Ship Y are found to be equally at fault and losses are equal to P 100, 000, the rule
footing shall be applied. Thus, in our case, if Ship X suffered losses of P60, 000 and Ship Y suffered
losses at P40, 000. The computation of equal footing would be as follows:
Total losses of X & Y = P 100, 000
Ship X losses----- --P 60,000
Ship Y losses------ -P 40,000

P 1000,000 / 2 = P 50,000 (equal contribution)

Ship X has to shoulder the P50, 000 and ship Y has to bear the other P50, 000
In the US, there is slightly different rule because the US did not accept the Collision Convention rules
of 1910. The US follow the principles of single liability and the cross liability. For the single liability,
the losses are added together then divided by the fraction of fault on each ship.

Thus, applying the principle of single liability in our example, if Ship X losses is P60,000 and Ship Y
losses is at P40,000, the computation would be:

P60,000 + P40,000= P100,000/ 2=P50,000

Both Ship X and Y have to pay P50, 000 each. However, Ship Y pays his actual losses of P40, 000
plus P10, 000 contributions.

For cross liability, both ships, in accordance with the fraction of fault, cover the proportion of loss of
each other. In our example, Ship Y pays P10, 000 to Ship X to cover the half of ship X’s losses. On the
other hand, Ship X covers P20, 000 of Ship Y’s damages. Ship Y pays P10, 000 to Ship X.

LIABILITY FOR PERSONAL INJURY

The ships are severally and jointly liable to third parties if there are personal injuries and if they are
found to be both at fault. However, similar to the claims for ship’s losses, the degree of fault of each
ship has to be established first. The national judicial systems of the country where the case is being
tried shall be followed. In general, the ship-owner is entitled to limitation of his liabilities. The
contribution to the losses and personal injuries suffered by third parties are strongly anchored on the
national laws of the state.

LIABILITIES ON CARGO

In general, the liabilities of the owner of carrying vessel on damages to cargo on board shall depend
on the contract of carriage or the contents of such contract. The 1910 convention, however, generally
established the uniform rules to be applied on claims against liabilities by claimants after a marine
accident.

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Also, as mentioned earlier in this chapter, the US has a slightly different rule because the US did not
accept the Collision Convention rules of 1910. In our previous example, the rule that has been applied
is as follows:

If Ship X collided against Ship Y and the damage is estimated at 100%, the ship, which seriously
affected damaged to the cargoes and had caused greater damage to the ships issued in court. The
victims, however, can sue both of them while the ship being sued can claim for contribution from the
other ship.

Our example further shows that, the cargoes carried by Ship Y have been damaged more that those
carried by Ship X. The cargo owners of Ship Y usually file the suit against Ship X. In this case, Ship Y
has the chance to reduce or limit his liabilities. If at 100% damage assessment, the fault of Ship X was
fixed at 40% but was able to limit or reduce it by 10%, then his share of the liabilities would only by
30% of the total liabilities to be paid. Therefore, Ship X would pay first the 100% damages to cargo
owners, Then Ship X would claim for contribution from Ship Y that is fixed at 30% of the 100% total
assessed damage.

VICARIOUS LIABILITY

The liability of an employer for tortuous act of his servant in the course of his employment is called
vicarious liability (the law sometimes call the employee as servant). Under Article 11 of the Athens
Convention (1974) and its protocols (1976 and 1990), if an action is brought against a servant or agent
of the carrier of the performing carrier arising out of damage covered by the convention, such servant
or agent if he proves that he acted within the scope of his employment, shall be entitled to avail himself
of the defenses and limits of liability which the carrier or the performing carrier is entitled to invoke.

In our case, the master and crew of the vessel have contracts of employment with shipowner/carrier.
Therefore, as servants of the shipowner/carrier, he is responsible for the act committed by the servants
provided it is within the scope of his employment. The shipowner/carrier will have to bear the
obligations to pay the claims of the victims under the principle of vicarious liabilities.

It is noted that the shipowner remains liable for the negligent act of his crew as long as the negligent
act is committed within the scope of his (crew) duties and responsibilities. If the crew acts outside the
scope of his authorization of employment, then the shipowner is not liable for his act and the crew
bears the consequences of such negligent act alone. “Outside the scope of his authorization of
employment” means those acts, which are personal and not work connected (e.g. physical injuries
made by a crew against co-crew member due to a personal quarrel between them).

CONTRIBUTORY NEGLIGENCE

Contributory negligence arises when tortuous damage is suffered by the fault of the victim. Under
Article ² if the Athens Convention (1974) and its protocols (1976 and 1990), if carrier proves that the
personal injury or death of a passenger of the loss or of the damage to his luggage was caused by the
negligence or the fault of the victim, the court may exonerate or free the carrier wholly or partly from
his liability in accordance with the provision of the law of the court.

In most countries, the court reduces the total damage from the assessed amount damaged contributed
by the fault of the victim. In the UK, the court will reduce the damage by an amount proportionate to
the plaintiff’s share of responsibility (Marsh et al., 1997, p. 117). For example, the damage is assessed
at 100%. The plaintiff is found to be at fault for the accident by as much as half of the assessed
damage. The total damage to be paid by the defendant shall be only 50% of the 100% assessed
damage.

Total assessed damage P 200,000.00

Damage caused by the Plaintiff (50%) P 100,000.00
Damage to be paid by the Defendant (50%) P 100,000.00

DUTY OF THE MASTER TO ASSIST

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The master and the officer-in-charge of the vessel have the general duty to assist any person in
danger in sea, although in all countries, the law of the state would require the mariners to assist the
other ships who sent signal of distress. The master of a ship upon receipt of a distress signal has to
proceed with appropriate speed to help the person in distress.

He becomes free from the obligation under the following circumstances only:

1. It is practically unreasonable to render assistance to a vessel in distress.

2. There are other ships that are already rendering assistance.
3. The master received proper information that his ship’s assistance is not needed anymore.

DUTIES OF THE MASTER AND OFFICERS IN CHARGE OF THE SHIP

After collision, the master of the ship involved in the marine accident or the officer-in-charge of the ship
is obliged to do the following:

1. Exchange his names and the name of the vessel.

2. Inform the name of homeport of his vessel, ports for which the vessel is bounded to proceed.
3. Standby and render assistance to the other vessel, provided that it will not pose further the danger
to his vessel.

DAMAGE AND DEFENSES ON COLLISION

The 1910 convention likewise generally established the uniform rules to be applied on claims against
liabilities by claimants after a marine accident. Losses resulting from collision include damages to
property, personal injury and financial losses. In principle, only damages, which are reasonable
foreseeable, can be recovered.

If the damage is caused by the events as circumstances beyond the control of the defendants,
damage shall be borne by the owner or the persons who suffered from such events/consequences.
The defenses from claims for damages are usually under the following reasons:

1. Inevitable accident is present when the defendant can prove that it was not his attention to commit
the act or it happened because something beyond his control was not seen before hand
reasonably.
2. Act of God refers to the accident that happened because of natural phenomenon and no human
error involved.
3. Consent means that there is evidence that a person who is injured or who lost the properties
consented or agreed to an operation or action done by the defendant that resulted in the loss or
damage.

Chapter 14

SALVAGE

DEFINITION OF A SALVAGE OPERATION

The process of a salvage operation is done when any act or activity has been undertaken to assist a
vessel or any other property in danger in navigable waters or in any waters (ICS, 1989).

Rewards are legally given to parties who performed the salvage operations.

However, there are factors that have to be present to be entitled to the rewards.
These are as follows:
1. The item being salvaged is recognized as a subject of salvage. The vessel’s description must be
one that is described in Chapter 14 of this book.
2. The subject of salvage has been exposed to a degree of danger.
3. The salver (person performing the salvage operation) must be a volunteer. He must not have prior
legal obligations to perform salvage activity.
4. The salvage operation must be a successful one.

WHO CONCLUDES THE SALVAGE CONTRACT

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“The master of the ship has the authority to conclude contract for salvage operations in behalf of the
owner of the vessel” (ICS, 1989, Art. ^). With regard to the rewards, anybody can claim for salvage
rewards provided that he met the conditions prescribed in the subject convention.

Cost Guard or Port Authorities personnel and government pilots who are given permanent duties and
responsibilities within the scope of their employment to perform salvage operations are generally not
entitled to rewards. However, these government personnel can claim for rewards, if salvage operations
are not within the scope of their permanent functions.

A tug master or his crew can claim for salvage reward under certain conditions.

First, if they can prove that the act of salving is not within the scope of their tug assistance duties and
responsibilities.

Second, the act put them in a degree of danger that was not expected.

DUTIES OF THE SALVER AND MASTER OR SHIPOWNER

The following duties of the salver are laid down in article 8 of the 1989 Salvage convention. These are
as follows:

1. To carry out salvage operations with due care.

2. To exercise due care in carrying out salvage operation in such a way that damages to environment
could be either prevented or minimized.
3. To seek assistance from other salvers, when needed.
4. To accept the assistance of other salvers when reasonably requested by a master or an owner of
the ship or property in danger.

On the other hand, the duties of the master or the shipowner are as follows:

1. To cooperate fully with the salver during salvage operations.

2. To exercise due care in cooperating during salvage operations to prevent damages to environment
or reduce such a kind of damage.
3. When the vessel or other property has been brought to a place of safety, the master or owner must
accept redelivery when reasonably requested by the salver to do so.

CRITERIA FOR FIXING DANGER

Article 13 of the 1989 Salvage Convention further gives the following criteria for fixing the rewards to
salvers:

1. According to the value of salved vessel and other country.

2. Skills and efforts by the salvers in preventing or minimizing danger to environment.
3. Measure of success obtained by salver.
4. Nature or degree of danger.
5. Skills and efforts in salving the vessel, other property and lift.
6. Time used and expenses and losses incurred by salvers.
7. Risk of liability and other risk met by the salver or his equipment.
8. Promptness of services rendered.
9. Availability and use of vessel or her equipment intended for salvage operations.
10. State or readiness and efficiency of the salved equipment and value thereof.
The country, which is a party to the convention, may enact a national law regarding the payment of
the reward depending on the above criteria. The rewards shall be free from interests and
recoverable legal costs that may be incurred. The rewards shall not exceed the value of the salved
vessel and other salved properties.

If the salver has carried out salvage operations with respect to a vessel which by itself or its cargo
threatened damage to the environment but failed to earn a reward under conditions laid down in
article 13 9 described above), special compensation must be given to the salvers by the owner of
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 the vessel. The amount of compensation must be equivalent to some percentage of expenses
incurred by the salvors.

THE “NO-CURE, NO PAY” PRINCIPLE

The “no-cure, no-pay principle” refers to the principle that rewards are not given to salvors if the
salvage operation is not successful.. Although this seems to be unfair for salvors, the principle
encourages them to do their best to succeed so that rewards can be given to them. If salvage
operations are successful, the salvor has an incentive in the form of exercising maritime lien on the
salved ship and cargo.

Lien refers to the legal right to retain control on the property of another until a claim or debt relating to
the property is settled or paid to a claimant. The salvor can have control over the salved ship and
properties, until after the cargo owners and the shipowner pay them for their rewards.

LLOYD’S OPEN FORM OF SALVAGE AGREEMENT

The most frequently used form of contract for salvage operation is the Lloyd’s Standard Form of
Salvage Agreement, which is also called Lloyd’s Open Form or LOF. The first page of the form
emphasized the principle of “no cure, no pay.” The Committee of Lloyd’s first issued this form in 1892.

Lloyds is not an insurance company. It is a club with a Board and statutes, etc. and has a market for
insurance based in London. The most recent revision of Lloyd’s Standard Form of Salvage agreement
was made in 1990. The rules that are written in the form conform to the rules of International Salvage
Convention of 1989.

Chapter 15
GENERAL AVERAGE
The principle of general average dates back the Roman law, which particularly centers on the law of
“jettisoning”.
Jettison is the throwing over board of cargo to lighten the ship so as to save the ship, her crew and
the remaining cargo from a peril (Brodie, 1994, p.103).
Later, rules were drafted by private committees (International Law Association or ILA, then by the
Comite Maritime International or CMI ). The York-Antwerp Rules were adopted by a number of
countries despite the absence of conventions among countries on the adoption on this rule. The rules
are commonly integrated in the national laws in the countries. In the contract of carriage,YAR
provisions are also included by means of a clause (general average clause).
DEFINITION OF GENERAL AVERAGE
The idea of general average is based on sacrifice that is not common in nature. This sacrifice must be
done intentionally for reasons of common safety and common benefit. An act concerning general
average is one that means “partial loss” to all participants of a common maritime adventure for the
purpose of saving the interests from total loss.
General average act here refers to “when and only when extraordinary sacrifice or expenditure is
internationally and reasonably made or incurred for the common safety for the purpose of preserving
from peril the property involved in the common maritime adventure” (YAR,1974,RULE A)
The participants or interest to the general average are the shipowner, the cargo owners, the recipient
of freight (time charterer or shipowner himself) and third party owners for containers or LASH barges
or other equipment.
IMPORTANT CONDITIONS OF GENERAL AVERAGE
It is the master of the ship who decides the act of general average. Before an act is considered to be
general average, some conditions must be attached to it and these are as follows:
1. There must be danger

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 The act must be decided because there is an emergency situation or a peril. The word peril means
“danger”. The peril must be true or real and substantial. The act must be done to preserve the ship
from this danger.

2. The act must be extraordinary

The word extraordinary denotes “highly unusual” (New Lexicon Dictionary of Basic Words, 1989).
This means the act mostot be common. It should be an act that is not incidental or normally done to
an ordinary voyage or the kind on which the ship is engaged (Gaskell, et al, 1996).

3. The act must be for common safety

The extraordinary act must be done for the common safety and benefits of the parties or
participants to the adventure. General average, therefore, is not applicable if there is only interest
or participant to the adventure. It is only applicable when the interest of the more than one
participant to the adventure is in danger in the common adventure. General average is not
applicable when saving a ship that is in ballast and not under charter (Particular average is applied
in this case).

4. The act must be voluntary and intentional

It should be carried out internationally or voluntarily and not inevitably. Inevitable act refers to an
act that is sure to happen.

5. The act must be reasonable

Even if the action is not successful, there is general average if the actions which have been taken
by the master, are appropriate and right for common safety and benefit of the participants.

6. Time of loss

There is general average if the loss incurred was during the common maritime adventure.
EXPENSES AND SACRIFICES IN GENERAL AVERAGE
An act considered as general average act should result in loss or damage to the ship or loss of freight
or loss or damage to cargo carried by the ship. These are the direct consequences to the act and are
fully covered under Rule C of the YAR. Indirect consequences resulting from the act are not covered in
the general average. Examples of the indirect consequences are subsequent voyage delay,
demurrage, business opportunity losses, etc.
The rule in YAR detailed the circumstances and components of expenses and sacrifices that may be
permissible within the scope of general average. Some of the rules are as follows:
1. Jettison of cargo carried in accordance with recognized customs of the trade
2. Damages to ship and cargo by water by jettisoning of cargo
3. Damages to the ship and cargo or wither of them by water while extinguishing fire on board ship
4. Loss or damage sustained by cutting away wreck or parts of the ship which had been previously
carried away or lost by accidents
5. Costs of handling or discharging cargo (fuels or store, costs of storage, insurance incurred,
reloading and stowing of cargo)
6. Wage and maintenance of crew and other expenses bearing up for and in port of refuge provided
that they are reasonably incurred during the prolongation of the voyage when the ship entered a
port of refuge
7. Damage to cargo in discharging caused in the act of handling, discharging, storing, reloading and
stowing when these are admitted as general average.
8. Loss freight arising from damage to or loss of cargo either when caused by general average act or
when the damage to loss of cargo is so made good
9. Costs of temporary repair affected to a ship at a port of loading call or refuge for the common safety
or damage caused by a general average sacrifice.
With regard to the above component, the sacrifices and expenses have to comply with the important
conditions of the general average acts in order to make good in general average

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ADJUSTMENT AND SETTLEMENT OF GENERAL AVERAGE
Termination or end of the adventure takes place after the completion of the discharge of the general
average act.it could be in the final port of destination or in a port, which is not a final destination but
where the ship abandoned (Maclachlan, 1998).
In practice, declaration of general average is required under the completion of the domestic law and
customs of the port of the country where the maritime adventure is ended. The declaration is supposed
to be made by the master of the ship.
After a declaration, the adjustment of general average is made. The term adjustment refers to the
calculation of loss by an average adjuster. In this case, the adjustment means all calculations on the
contributions to be made by the parties who had an interest in the adventure. Likewise, after the
declaration, representative of various parties normally visit the ship of the maritime adventures,
including their insurance agents and surveyors.
WHO SHALL CONTRIBUTE?
When the act is considered for general average, expenses and sacrifices made shall be borne
proportionately by the benefiting parties. The parties are the shipowner, receiver of freight, the cargo
owners and third parties who owned containers or LASH-barges or other equipment
BASIS OF CONTRIBUTION
Determination of the value of the contribution under general average is explained by Rule letter “G” of
YAR. The general average shall be adjusted with regard to both loss and contribution on the basis of
values at the time and place when and where the adventure ends (i.e., end of the voyage).
AVERAGE ADJUSTER AND ASSESSMENT OF CLAIMS
In most cases, the shipowner demands for the contribution in general average. However, anyone
among the parties involved in the adventure can make a demand. An average adjuster is an expert
whose services are used by insurance underwriters to calculate complex maritime insurance claims. In
the case of general average he is the person appointed by the shipowner to determine the contribution
due from all the parties to the voyage (Brodie 1994, p.10).
The voyage adjuster prepares the calculation of the general expenses including the value of the
property of each of the participants and the amount due. He informs the parties in the adventure about
the details leading to the costs and shipowner’s demand for contribution.
The average adjuster also assesses the contributory values of requiring several documents from
concerned parties. The documents may include the ship reports and records from the masters, survey
reports on the machinery and hull of the ship, survey reports on cargo lost or damaged by the general
average sacrifice, and all other written evidences of involving the declaration general average.
SETTLEMENT OF GENERAL AVERAGE
A. Lien and Security of Cargo

Cargo in his possession is a security for the shipowner. He has lien over the cargo in his
possession. This serves as insurance for the shipowner to obtain from cargo owners their
contributions to the general average. In practice it takes several months before general contribution
assessment is completed. For this reason, the shipowner usually exercises his lien by requiring
cargo owner to submit security to him for the release of their cargo while the final adjustment is
being undertaken.

B. DUTY OF THE MASTER

The master of the ship shall see to it that he has obtained from the cargo owners the required
securities before delivering the cargo to them. Commonly acceptable general security is in the
forms of general average bond, general average deposits general average guarantee and
sometimes cash.

C. GENERAL AVERAGE BOND AND VALUATION FORM

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 The shipowners normally send general average bond to cargo receiver or owner before delivery of
the goods. The bond contains the contract between the shipowner and the cargo owner/receiver,
which provides that the latter would pay the required contribution. Together with this average bond
is a valuation form indicating the contributory value. The cargo receiver should duly sign all these
documents and the master has the duty to check these papers.
GENERAL AVERAGE AND CARRIER’S FAULT
Sometimes the general average act is caused by the negligence of the shipowner or the carrier. In this
case it becomes unfair for innocent parties to shoulder or bear the losses without seeking indemnity
from the party who is at fault. For this reasons Rule D or YAR established that the innocent party can
claim for indemnity from the carrier or the party at fault in general average, provided that:

1. It is covered in the contract of affreightment; or

2. There is a law ordering this particular liability of the shipowner or carrier that was issued by the
state where the general average is declared.
In view of the above rules, it becomes difficult for the shipowner to shoulder alone the total costs of
sacrifices or expenditures for the general average act. The shipowner has to seek remedy to recover
from the general average even when the carrier is at fault or found negligent. A clause is normally
inserted in the contract of carriage exempting the carrier from this kind of single liability.
In 1897, the US law did not recognize the principle of right of general average of the carrier due to
negligence despite its being included in the exemptions in the contract of carriage exempting the
carrier from this kind of single liability.
In 1897, the US law did not recognize the principle of right of general average of the carrier due to
negligence despite its being included in the exemption in the contract of carriage of goods. In order to
remedy this problem, the shipowner provides a clause in the bills of lading which was tested and
admitted in the US law 1912. This clause is called Jason Clause. The clause was later on amended to
become New Jason Clause. This clause is inserted in all bills of lading in the US ports as a protective
measure for the shipowner to claim recovery from general average expenditures or losses even
when the carrier is found negligent or at fault.
THE US LAW AND THE NEW JASON CLAUSE
In the 1897, the US law did not recognize the principle of right of general average of the carrier due to
negligence despite its being included in the exemptions in the contract of carriage of goods. In order to
remedy this problem, the ship owner provided a clause in the bills of lading which was tested and
admitted in the US law in 1912. This clause was called the Jason clause.
The clause is inserted in all bills of lading in the US ports as a protective measure for the ship owner to
claim recovery from general average expenditures or losses even when the carrier is found to be
negligent or at fault.

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