CONTRACTS IN THE MARITIME

INDUSTRY AND THE CLAUSES

COVERED UNDER IT

Tina Sharma
DIPLOMA IN CONTRACT DRAFTING
 CONTRACTS IN THE MARITIME INDUSTRY AND THE CLAUSES COVERED UNDER IT

INTRODUCTION
Maritime Industry is waterborne business/trade. It is about moving people or goods over
water from one place to another. Maritime industry has a huge impact over our day to day
lives. A huge chunk of products that we use on daily basis are usually imported overseas like
the fuel that powers our cars, electronics we use, coffee we drink, etc.1
We all are familiar with the laws that apply on land, like criminal law or civil law. However,
when it comes to events occurring in the water, especially in the oceans and seas, the above
laws do not apply. The specific law that deals with private maritime business or nautical
issues on open water is known as Maritime law.2 Maritime law is also popularly known as
admiralty law. It governs private waterborne shipping disputes or offences and other
Nautical Matters.3
In simple words, it is a set of rules and regulations that deals with matters related to ship
and sea. However, Maritime law is not limited to moving of goods or people over water. It
also includes how a company treats its employees, how the employees are paid and how
their protection is ensued while working onboard.

MARITIME LAW IN INDIA

There are a number of legislations in India relating to Maritime law, which have developed
from colonial times. The maritime industry in India is also governed by the rules framed by
IMO, that is Indian Maritime Organization.4

MARITIME CONTRACTS
Contracts are agreement enforceable by law and Contracts are an outcome of proposal,
acceptance, considerations and negotiations. Maritime Contracts are quite different from
general Contracts. Maritime Contracts is an agreement relating to the operations,
navigation, maintenance and repair or provisioning of a vessel.
Different types of Maritime contracts:

1
‘What is Maritime Industry’, Youth Maritime Collaborative [website],
https://www.youthmaritimecollaborative.org/what-is-maritime (accessed May 1, 2020).
2
Prathamesh More, ’10 types of Maritime Contracts: All you need to know about it’, iPleaders [website],
https://blog.ipleaders.in/10-types-of-maritime-contracts-all-you-need-to-know-about-it/ (accessed on May 1,
2020).
3
Julia Kagan, ‘Maritime Law’, Investopedia [website], https://www.investopedia.com/terms/m/maritime-
law.asp (assessed on May 1, 2020)
44
Prathamesh More, ’10 types of Maritime Contracts: All you need to know about it’, iPleaders [website],
https://blog.ipleaders.in/10-types-of-maritime-contracts-all-you-need-to-know-about-it/ (accessed on May 1,
2020).

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 CONTRACTS IN THE MARITIME INDUSTRY AND THE CLAUSES COVERED UNDER IT

§ Charter Agreements
A charter agreement is between two or more parties, known as charter parties,
relating to leasing of a vessel for fixed set of conditions. All the parties are bound by
the terms and conditions mentioned in the charter and it covers a variety of clauses
and possible situations that may arise.

There are four types of charter agreement in Maritime, that includes voyage charter,
time charter, bareboat charter and lump-sum agreements.

1. A voyage charter is a type of charter in which a vessel is leased for a particular

voyage. In this charter, charterer that has cargo to be shipped contact ship-
owners through brokers and arrange a ship for a particular voyage. . It can be
one-way voyage or round trip voyage. The agreement includes the ports from
where the cargo has to be picked and dropped, and restrictions on cargo, if any.
The payment of voyage charter can be done as per ton basis or on a lump-sum
basis. Many charterer hiring a ship for a single cargo prefer voyage charter
despite huge cost is because they are not tied down to the contract for a long
span of time.

2. A time charter is a time-based agreement. In this type of charter, the vessel is

leased out by the ship-owners to charterer for a fixed period of time and in this
type of agreement, the charterer is free to sail the vessel to any port and
transport any cargo, subject to legal restrictions. Even though, the ship is
controlled by the charterer. Still, maintenance comes under the purview of the
ship-owner. The time period of charter can range from a few days to a few years.
This is a long-term agreement and there is single rate of payment, known as
freight rate.5

3. A Bare-boat charter is not used in ordinary commercial practice. In type of

charter, the vessel is leased out for a particular period of time by the ship-owners
without any crew or provision. The charterer is responsible to take care of such
things.

4. A lump-sum charter is that charter, in which, the vessel is leased out by the ship-
owners for a particular quantity of cargo from one port to another at stated sum
of money to a charterer.

5
Ajay Menon, ‘Voyage Charter vs Time Charter’, marine insight [website],
https://www.google.co.in/amp/s/www.marineinsight.com/maritime-law/voyage-charter-vs-time-charter/
(accessed on May 1, 2021)

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 CONTRACTS IN THE MARITIME INDUSTRY AND THE CLAUSES COVERED UNDER IT

§ Wharfage and Dockage Agreement

The fee paid for using a wharf, structure on the dock shore where vessels are docked
to load and unload cargo or passengers is called wharfage. Whereas the fee paid for
using a dock, area of water for building, repairing, loading and unloading of vessels,
ships and ferries. Wharfage is must for all kinds of vessels, that is ships or ferries,
whether involved in carrying passengers or cargo, or involved in fisheries as wharf
aids in navigation.6

§ Ship Repair Contracts

Ship Repair Contracts involves maintenance, conversion, modification and minor or
major repairs in a vessel. Minor repair can be done by crew on board but major
repair requires the vessel to stop all kinds of commercial activities and are done by
repair yard. Ship repair is an expensive affair and hence, the contract is to be made
with utmost care. Ship-repairs take shorter duration. Most ship-repair work is done
within less than 90 days.7

§ Preferred Ship Mortgage

A preferred mortgage is a mortgage which is given status as a maritime lien. As such
it enjoys a certain priority in the event of default. In addition, the Coast Guard is
prohibited from making certain changes in documentation including, but not limited
to, change of vessel ownership, name, and hailing port without consent of the
mortgagee. For this reason many financial institutions require vessels which are
eligible for documentation to be documented and to have preferred mortgages
recorded against them. It is for the vessels that are over 26 feet of length.8

§ Seafarer’s Employment Contract

Maritime Labour Convention mandates the ship-owners to have a written
employment agreement with all the seafarers working on the ships. The payment of
wages to the seafarers shall match the standards of MLC. The contracts helps the
seafarer to be aware of his rights, working conditions, working hours, minimum
wages, etc. this agreement is required to be signed by both the parties, that is, the
ship-owner (employer) and the seafarer (employee).

6
‘Wharfage and Dockage’, Admiralty [website],
https://www.google.co.in/amp/s/admiralty.uslegal.com/jurisdiction-of-subject-matter-involved/wharfage-
and-dockage/%3famp (accessed on May 1, 2021)
7
‘Shipyard Contracts: New Construction vs. Ship Repair’, MDC Systems [website],
https://www.mdcsystems.com/shipyard-contracts-new-construction-vs-ship-repair/ (accessed on May 1,
2021)
8
‘What is preferred mortgage?’, Maritime Documentation Center [website],
https://maritimedocumentation.us/frequently-asked-questions/ (accessed on May 1, 2021)

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 CONTRACTS IN THE MARITIME INDUSTRY AND THE CLAUSES COVERED UNDER IT

§ Marine Insurance Contract

Marine insurance contract is that insurance policy which allow coverage against any
loss/damage, that is caused to the cargo, vessels, ships, etc. in which the goods or
passengers are transported from one port to another. It includes any kind of
forfeiture or harm made to the ship/cargo/shipment, and also any acts of natural
hazards that cause danger to ship and acts of sinking, burning, collision, theft,
navigation errors, war, etc.9 The ship-owners have to pay premiums to the insurance
company, which is usually a hefty amount.

§ Marine Salvage
Marine Salvage arises when the ship is in distress due to natural hazards like
hurricane, or localized attacks by the pirates or any technical danger. Marine salvage
is the process of recovering the ship and its cargo after a shipwreck or any other
maritime casualty. The contract is made between the manufacturing company and
the shipping company. The contract is made prior to the salvage operations between
the rescuer and the owner of the cargo for a fixed amount of money irrespective of
the amount of things recovered.10

§ Dredging Contracts
Dredging is the process of removing the silt and other material from the bottom of
sea and other water bodies. It is a routine process.11 It is done with the aim of
improving existing water features and aids in drainage, navigation and commercial
use. The contract is made between the dredging contract and the client who wants
to get it done for the sake of commercial purpose. It not only requires the technical
knowledge but also the maritime expertise.

§ Contract of affreightment
It is an agreement between the ship-owner and the charterer, wherein the ship-
owner agrees to transport the cargo for the shipper at a specified period. Under this
agreement, the charterer is obliged to pay the freight amount whether the goods are
ready for shipment or not.12

9
‘What is Marine Insurance?’, policybazaar.com [website], https://www.policybazaar.com/commercial-
insurance/marine-insurance/ (accessed on May 2, 2021)
10
Prathamesh More, ’10 types of Maritime Contracts: All you need to know about it’, iPleaders [website],
https://blog.ipleaders.in/10-types-of-maritime-contracts-all-you-need-to-know-about-it/ (accessed on May 2,
2020).
11
‘What is dredging?’, National Ocean Service [website], https://oceanservice.noaa.gov/facts/dredging.html
(accessed on May 2, 2020).
12
‘What is Contract of Affreignment? COA’, saloodo [website], https://www.saloodo.com/logistics-
dictionary/contract-of-affreightment/ (accessed on May 2, 2020).

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 CONTRACTS IN THE MARITIME INDUSTRY AND THE CLAUSES COVERED UNDER IT

§ Ship Management Agreement

A vessel has a huge number of crew/staff. However, they are not aware of the
technicalities of the vessel. Therefore, the ship-owner form a contract with the ship
management company to look after the vessel and its crew as they are well aware of
technical issues that may arise in the vessel. It is important for the ship-owners to
hire professionals to look after the technical affairs of the vessel as it is an expensive
affair and must be dealt by experts.13

13
Prathamesh More, ’10 types of Maritime Contracts: All you need to know about it’, iPleaders [website],
https://blog.ipleaders.in/10-types-of-maritime-contracts-all-you-need-to-know-about-it/ (accessed on May 2,
2020).