CHARTER PARTIES

Charter party is derived from Latin words Carta Partita that means a divided
contract.

The charterparty is a legal contract of chartering or employing a vessel. It is a

important shipping document since it provides obligations, rights, duties,
liabilities, earnings, risks, costs and profits between the shipowner and the
charterer.
CHARTER PARTY:
A Charter Party or Charter is defined as a specific contract by which the owner of a
ship lets the whole or principal part to another person for the conveyance of goods
on a particular voyage to one or more places or until the expiration of a specified
time.
In short the charter party is the mere hiring of a ship. When a ship owner agrees to
carry goods by water and receives freight the contract is called a contract of
affreightment rather than a charter party.
While it is possible to have a charter party of less than the entire ship, as a general
rule a charter party deals with the full reach of a ship while a contract of
affreightment deals with carriage of goods forming only part of the cargo and
coming under a bill of lading.
The basic rules of law as applied to contracts are also used in determining the
validity of a charter. Generally, the law of the locality wherein the contract was
made determines what law governs the interpretations of the charter unless strong
circumstances to the contrary are shown.
Charter Parties are highly standardized and are grouped into three main classifications:
A. Voyage,
B. Time,
C. Demise or Bare Boat.

A. Voyage Charter
Here, the ship is hired to carry a full cargo on a single voyage.The ship remains under the
control of the owner as to manning and navigation.
B. Time Charter
Here again, the ship is manned and navigated by the owner but her capacity is let to the
charterer for a specified time. The time charter permits the charterer to have tonnage under
his control for a fixed period of time without undertaking long term financial commitments
of a ship owner or the responsibilities of ship management and navigation.
Sometimes the voyage and time form is combined as "one round trip to South America of
about eight weeks." Under such a form, ithas been held that the provision as to time
controls.
C. The Demise or Bare Boat Charter
Here, the charterer becomes in effect the owner pro hac vice ( "this time only," "for this one
particular occasion.“) by taking over the ship completely -mans, victuals and provisions assumes
the responsibility of her navigation and her upkeep. Having complete control, the bare boat
charterer also has the rather heavy responsibilities of an owner.
The most important distinction between the bare boat and the time and voyage charters is that
the demise charterer is regarded as the owner pro hac vice and as such qualifies as an owner for
the benefit of the limitation of liability statutes whereas the time and voyage charterers do not.
The test to distinguish a demise charter from a voyage or time charter is control. If the owner
retains control over the ship, merely carrying goods designated by the charterer, the charter is
not a demise. If the charterer controls the vessel and the master and crew are his, the charter is
a demise.
In short, demise is for the vessel, the other charter parties are for the use of the vessel. But the
problem of distinction is not particularly acute, since in actual practice the charter party usually
specifies which type it is by express stipulation.
Because of the highly specialized field of charter party law –most of the charter parties provide
for arbitration. Thus, construction of a charter does not come before a court too frequently.
1. It is a contract to carry specified quantity of cargo (normally full cargo) by a
named vessel between a named ports at an agreed freight rate.

2. The ship owner remains responsible for the operations of the ship and the cost
involved but the charterer sometimes pays for the stevedoring rates.

3. The contracts are normally drawn up using standard charter party forms amended
as required by alternations and additional clauses by the brokers representing each
party. The additions are called ‘rider clauses’ or ‘side clauses’. And the two parties
are referred to as owners and charterers. If the owners are not the actual owners
but a party already hiring ship from another party then they are called ‘Disponent
Owners’.

4. Charterers normally make arrangement for bringing cargo forward and for
payment of all discharging and loading cost in which case, C/P terms are called FIO
(Free In and Out).
In a voyage charter party the charterer assumes no responsibility for the operation
of the vessel but generally pays stevedoring expenses in and out. A statement to
that effect will be included in the charter party.
The master is particularly concerned with voyage charter parties because of the
laytime, dispatch and demurrage clauses and the necessity of tendering the Notice
of Readiness to load or discharge. In this type of charter the charterer contracts to
provide a cargo at a given rate per day. The charter is generally for bulk cargo,
stipulated in tons or cubic feet, for all or part of the carrying capacity of the vessel.
Laydays :
When the vessel on a voyage charter is in port, the expenses of the shipowner
continue. At the same time loading or discharging is controlled by the charterer,
who if not held to a definite number of days to complete this work, can make the
stay in port long and expensive for the shipowner. For this reason, the charter party
will specify a definite number of days for loading or discharging cargo; or it may
specify a certain number of tons per day to be loaded or discharged.
The days are called laydays (or laytime) and are stipulated in the charter party as
working days, weather working days, running days and excepted days. If the charterer
loads or discharges his cargo in less time than the number of laydays allowed, he earns
dispatch money at so much a day or part of a day saved. If he takes longer to load or
discharge than the number of laydays allowed, he must pay demurrage at so much a
day.
Both dispatch and demurrage may be the cause of much disagreement and argument in
which the vessel's logbook can play an important part.

Demurrage:
An equally important clause is the demurrage clause which states that if the charterer
does not complete loading or discharging in the laydays allowed by the charter party, he
must pay for the delay at the stipulated sum per day. Unless otherwise provided in the
charter party, demurrage starts from the time loading or discharging should have been
completed. All days are counted, whether or not cargo is worked, including Sundays,
holidays and days not worked due to bad weather or other reasons. Once a vessel is on
demurrage, it runs consecutively unless otherwise provided in the charter party.
1. It is a contract for the hire of a named vessel for a specified period of time.

2. The Charterer agrees to hire from the owners a ship which is generally named of their
required specifications for a period of time stated subject to agreed exclusions.

3. The period of Time Charter may be one voyage (Trip Charter) or upto several years (period
charter).

4. The charterers may use the vessel for any voyage that he wants within the trading area
agreed in C/P.

5. The Charterer pays for the ” commercial expenses” of the ship i.e. manning, repairs,
maintenance, stores, master / crew wages, hull & machinery insurance. provisions etc.

6. The time charterers usually use their own stationary, fly their own flag and paint their own
colours on the ship.
7. C/P contains a description of the ship including its speed and fuel consumption.
In case of non-performance with these specifications, the owner has to forfeit a
part of his hire charges.

8. In case the ship is unable to maintain the warranted speed or bunker

consumption as per C/P as a result of heavy weather or any other cause, it should
be clearly substantiated by entries in the log book.

9. Off-hire Clause : This gives the circumstances in which the payment of hire stops
during time lost to the charterer. Normally this comes into effect after the vessel
has been unavailable for a stated period of time. e.g 24 hrs & 48 hrs. e.g –
Machinery breakdown, crew strikes, dry-docking etc…

10. A dry dock clause makes the ship available to the owner without cargo, after a
stated period of notice. During the dry-docking, the ship is off-hire.
11. Deviation clause – If deviating for owners purpose, e.g – landing sick seamen, repairs, dry-
docking etc. The vessel is off-hire from the moment of the deviation until she is ready to resume
service in a position as favorable to the charterers as before.

12. Charterers are expected to re-deliver the vessel in the same good order as when delivered to
the charterer, fair wear and tear expected. In case this is not so then the charterer is liable for the
cost of its repairs. A Charterer can be given the option of ‘redelivery dirty’ in which case a
compensation will be paid to the owners.

13. An on-hire survey and a re-deliver survey are held before hire and before re-delivery
respectively.

14. The master is usually required to sign the Bill of Lading as presented to him by the charterer or
the charter party may give the charterer the right to sign them on his behalf.

15. Stevedore damages clause also called ‘ Grab Damage Clause ‘, This clause describes the
methods of survey to be held in case of damage caused to the vessel by the Stevedores and how
payment for repairs is to be made.
1. It is a leasing arrangement between the charterer and the actual owner in which
the charterer operates the ship as if it is his own for an agreed period.

2. The master and the crew are employed by the charterer and they are responsible
to him as if he were the owner.

3. Most often it is in the form of the BARECON standard charter party form.

4. May have a purchase option at the end of the contract.

5. Only capital cost are for the owners account. The charterer has a commercial and
technical responsibility of the vessel and all costs, except the capital cost.
Note – A Charterer of a Bare-Boat charter party has the infrastructure to
commercially and technically operate the ship but does not have the capital necessary
to actually own the ship.
Contract of Affreightment (COA) :

1. The main purpose of a contract of affreightment (COA) is to oblige a carrier to lift a

fixed or determinable quantity of cargo of a specified type over a given period of time.

2. Usually, the COA is not limited to one particular vessel, but operates as a series of
voyage charters.

3. Freight is payable on the quantity of cargo transported and the carrier bears the risk of
delay enroute.

4. Given the long term nature of the contract, a COA is almost always tailor made to meet
the specific needs of the parties concerned. These parties are the shipper or buyer of the
cargo who is often motivated by requiring certainty for the costs of transportation, and
the ship-owner who is concerned with providing assured long term employment and
flexibility for his owned or chartered in tonnage.
5. COAs enable the ship-owners to be flexible and allow the vessels to be fitted into a
pattern of trade that maximises laden as against ballast distances and allows such
arrangement to be concluded at very competitive rates of freight.

6. COAs contain very few standardised terms, other than the individual voyage charter
terms that govern each lifting once the vessel has been tendered for loading. The least
standardised part of the contract will be the shipping programme and nomination
provisions, and it is these provisions that are the most abused or contested over the
period of a lengthy COA.

7. It is also called “Tonnage Contract”.

8. Loading dates are specified and punctual performance is very necessary.

9. Each individual shipment is normally subject to the terms of a conventional charter

party.
Usual Clauses of Charter party:
It is open to the parties to include in a charter party or contract of affreightment any lawful
terms. But many such terms have now become more or less stereotyped and are known as
usual clauses of a charter party. The use of these laws depends upon its relative importance
some of such terms are:
Ready to Load:
Charter party usually contains a statement as t the position of the ship. In certain
circumstances such a statement may become the term of the contract. Any breach of this
term entitles the charter to repudiate the contract. For example, in Bentsen v. Taylor sons
and Co , a charter party dated march 29 descried the ship as now sailed or about to sale to
the United Kingdom, and that the ship after discharging homeward cargo, shall proceed to
load. But in fact she sailed to the United Kingdom on April 23. The parties then entered into
correspondence. The ship arrived and the charterers refused to load.
The court went on to hold that the main substance of the contract was the description of
the ship as now sailed or about to sail. The court then took a look into the subject and went
on to hold that the above said description is not a mere warranty and so the defendants had
the right to repudiate the contract. But their correspondence amounted to waiver such right
to repudiate and they were liable for their freight subject to their right to
recover such damages as they could prove that they had sustained by reason of the
breach of the condition. The court then looked into the clause that the ship is
expected ready to load at a given date. But the court went on to hold that this does
not mean that the ship must not be in such a position, it only means that there
must be a honest belief, founded on reasonable grounds, that the ship will be load
at that date. But the ship at that was not ready to load until a long time after wards
but a representation was made without any reasonable grounds for making it and
this was a breach of condition.
Similarly any statement as to the position of the ship may also be considered as a
condition. For instance the words that the ship was now in a port of Amsterdam
were held to be a warranty or condition precedent . A statement by the owner that
the ship is expected ready to load under this charter about July 1 1965 has been
held to be a condition.
Fit for Voyage:
Charter parties usually provide that ship shall be tight, staunch and strong and every
way fitted for the voyage. The court of Appeal has admitted in Hong Kong fir Shipping
Co Ltd v. Kawasaki Kisen Kaisha Ltd that it is difficult to distinguish whether such
statements are conditions or mere warranty. In this case a charter party provided that
the ship was in every way fitted for ordinary cargo services. The experience of the
voyage was different as the ship kept breaking down time to time. Actually this was
due to incompetence and inadequacy of the engine room staff. But it was held that
the statement as to the seaworthiness of the ship was not a condition and the
charterers were restrained from repudiating the contract.
Diplock LJ in Bentsen v. Taylor sons & Co said that stipulation as to the sea worthiness
of a ship is of complex nature. He said that The ship owners undertaking to tender a
seaworthy ship has, a result for numerous decisions as to what can amount to
unseaworthiness, become one of the most complex of contractual undertakings. It
embraces obligations with respect to every part of the hull and machinery, stores and
equipment and the crew itself. It can be broken by the presence of trivial defects easily
and rapidly remediable as well as by defects which must inevitably result in total loss
of the vessel.
Full and Complete Cargo:
Full and complete cargo means that the charterer undertakes to supply the agreed cargo
lest the ship owner may suffer loss of freight. In Heathfield Co Ltd v. Rodenacher, the
charterer refuses to load more than 2673 tonnes. But the full and complete cargo would
have been 2950 tonnes. The court held that the charterer aught to have loaded full
complete cargo and freight was payable accordingly. In another case, the charterer agreed
to load cargo not less than 6500 tones and not exceeding 7000 tones. The court laid down
that the words not less than 6500 tonnes' was a warranty given by the ship owner to the
charterer that that much quantity can be loaded and the words not exceeding 7000 tones'
was a binding condition preventing the ship owner from asking more quantity than 7000
tonnes. In this case the ship owner asked for more than 7000 tonnes and the charterer
was forced to bring than quantity. He brought that under duress and protest. Now the
ship owner claimed extra freight for that extra quantity. But the ship owner was not
allowed to recover the extra freight for that extra quantity.
The ship owner is also bound to provide sufficient space on board for full and complete
cargo. In Darling v. Recburn the ship owner loaded large amount of bunker coal than what
was required for that voyage and this reduced the space for full and complete cargo which
resulted in reducing the cargo. The ship owner was held liable for the expenses.
A clause giving protection to failure to load the cargo will apply only if the loading itself is
prevented and not where the party is unable to bring such goods to the port. Loading can be
prevented by strikes, frosts or other unavoidable accidents. In a decided case the goods could
not be brought to docks due to frost. The House of Lords held the charterer responsible for the
delay in loading as the frost has not prevented the loading but the bringing of the goods to the
docks.
King's Enemies' and Restraints of Princes:
The charter parties usually provide that the ship owner would not be liable in certain events.
For example there would be no liability on events arising out of act of god' or because of
national enemies'. Such perils or dangers are known as excepted perils. The words King's
enemies' mean the enemies of the country or the sovereign of the person who made the bill of
lading. All restraints or interruptions made by any lawful authority are considered as Restraints
of Princes'. The dangers from the sea pirates are not included in this category. In a decided case
a ship owner was justified in the non performance of a contract which involved the voyage
through turkey. It was obvious that the ship would be seized because of the war between Turkey
and Greece . In this case the war has already been declared but if there was only a mere
speculation that there would be a war, the charterer cannot be justified if he repudiates the
contract. A voyage, which involved the risk of the ship being sunk by the German submarines,
was held to be one that involves the risk of seizure or capture . If the intervention of the
restraint is due to the negligence of the ship owner, he cannot avail the exception of this clause.
Perils of Sea:
Charter parties also contain an exception in favour of the dangers of the sea, i.e., if the goods
are lost or damaged on account of a peril of the sea, the ship owner would not be held liable.
The term peril of the sea does not cover every accident or causality which may occur to the
goods in the ship. It must be a peril of the sea. The natural action of winds and waves is not
considered as perils of sea. There must be some causality, some which could not be foreseen as
one of the incidence of the adventure. For example the cargo in a ship was damaged due to the
collision of that ship with another ship which according to the House of Lords was a peril of the
sea.
In Hamilton, Fraser & Co v. Pandorf & Co , rice was shipped under a charter party which
contained the exception for the dangers and accidents of the seas'. During the voyage some
rats gnawed a hole in a pipe on board the ship which resulted in the seepage of sea water and
damaged the rice. Here the rice was damaged without the neglect of the ship owner or the
crew. The court held that damage was within the exception of perils of sea and the ship owners
were not held responsible for the loss. In this case if rats directly damaged the rice then it
would have amounted to the neglect of the crew and they won't be getting this exception
because there is no direct relation between sea and this accident. But here the sea water
damaged the rice and this was not a foreseeable accident. Similarly a damage caused by the
collision of two vessels due to the negligence of either of the vessels will not be a peril of sea.
The Uniform General Charter, or GENCON Charter Party, is a contract model of BIMCO
(Baltic International Maritime Council) for the charter of ships per voyage (voyage
charter). It is recommended for closed cargo in FIOS terms (free-in / out stowed) for
which there is no contract.

Charter per trip is the most commonly practiced on the market by charterers of spot
or regular cargo and, unlike Time Charter, the shipowner does not charge daily rental
of the ship, but a freight by MT or M3.

In the voyage charter, the charterer’s responsibility begins at the first port of
embarkation upon receiving the Notice of Readiness, and ends at the end of
operations at the last unloading port.

GENCON must be used with the CONGENBILL bill of lading, as one complements the
other. Shipowners, charterers and operators in general adopt the GENCON form
making logical changes and adjustments according to the negotiated conditions.