3â Charterparties

3â Charterparties

Charterparty contracts of affreightment are most commonly used for large quantities of cargo, which may require the use of the entire vessel. We will examine the two main types of charterparties, the voyage charter and the time charter, and the obligations of the parties in these types of contracts.

(a)â Voyage charterparty

As mentioned earlier, the voyage charterparty is not subject to any statutory regimes governing carriage of goods by sea, but parties are free to incorporate such rules as they see fit. Most commonly the voyage charterparty will be regulated by the use of a standard form contract, which is particular to the type of goods being shipped.38

There are four main stages of the voyage charterparty:

(1) the preliminary voyage to the specified port of loading;

(2) the loading operation: this stage covers both the loading and the stowage of the goods;

(3) the carrying voyage to the port of discharge;

(4) the discharging operation.

The preliminary voyage and the carrying voyage will be the responsibility of the ship-owner, whereas the loading and discharging operation will be a shared operation between the ship-owner and the charterer. The charterparty may contain specific clauses as to which party shall bear the risk of loss or damage during a particular stage of the voyage. If the charterparty is silent on the issue of risk, in such cases the risk will lie on the party responsible for the stage where the loss or damage occurred. It is usually straight-forward to identify when one stage ends and the other stage begins, the area of most contention tending to centre on when the ship becomes an ‘arrived ship’ for

38 See, e.g., Gencon 1994.

248 Carriage of goods by sea

the purposes of laytime. The following sections will examine each of the four stages in the voyage charter.

(b)â Preliminary voyage

(i)â Nomination of port of loading

The charterer is under an obligation to nominate a port or berth. This may be fixed, for example, ‘Le Havre’; alternatively, the charterer may reserve the right to nominate a port from a range of ports in the same geographic area. Once the nomination is given, the ship-owner is under an obligation to proceed to the specified port. The charterer is under an obligation to make a nomination either within a specified time or a reasonable period of time. Failure to make a nomination within a specified time does not entitle the ship-owner to withdraw the vessel, but if the delay is extensive this may result in frustration of the contract. The ship-owner may also be entitled to damages caused by the delays. In Zim Israel Navigation Co. Ltd v. Tradax Export SA (The Timna),39 it was held that the charterers were in breach of their obligation to give orders for the first discharging port, and as a result they were liable in damages from the time when the orders should have been given to when they were in fact given. Once the charterer has nominated a port or berth he cannot change his nomination.40

(ii)â Voyage to port of loading

In the absence of an express stipulation in the contract, at common law the ship-owner is under an obligation to proceed to the port of loading with all reasonable dispatch. The charterer may claim damages for any losses incurred as a result of any delays, however he may not terminate the charter unless the delay is so extensive as to amount to frustration of the contract. In Evera SA Commercial v. North Shipping Co. Ltd,41 the plaintiffs chartered a vessel from the defendants which was already engaged on another charter. The wording of the charterparty stated that the vessel was ‘now due to arrive in UK to discharge about August 30, estimating fourteen days to discharge, expected ready to load under this charter-party about September 27, 1953’ and ‘the said steamship … shall with all convenient speed sail and proceed to Fort Churchill’. The vessel was delayed and could not arrive in Fort Churchill as it was ice-bound. The plaintiffs cancelled the charter and brought a claim for damages. It was held that the wording of the charterparty imposed an absolute obligation on the defendants to ensure that the vessel would arrive on or about the expected date.

39[1971] 2 Lloyd’s Rep. 91.

40Anglo-Danubian Transport Co. Ltd v. Ministry of Food [1949] 2 All ER 1068.

41[1956] 2 Lloyd’s Rep. 367.

from the United States to Liverpool/Birkenhead. As there was no berth free on the vessel’s arrival, the port authority ordered the vessel to anchor at Mersey Bar, which was seventeen miles from the dock but still within the administrative limits of the port. The ship-owners tendered the notice of readiness to load, however the charterers argued that laytime could not commence as the ship was not an arrived ship for the purposes of loading. Lord Reid stated:

On the whole matter I think that it ought to be made clear that the essential factor is that before a ship can be treated as an arrived ship she must be within the port and at the immediate and effective disposition of the charterer and that her geographical position is of secondary importance. But for practical purposes it is so much easier to establish that, if the ship is at a usual waiting place within the port, it can generally be presumed that she is there fully at the charterer’s disposal.

I would therefore state what I would hope to be the true legal position in this way. Before a ship can be said to have arrived at a port she must, if she cannot proceed immediately to a berth, have reached a position within the port where she is at the immediate and effective disposition of the charterer. If she is at a place where waiting ships usually lie, she will be in such a position unless in some extraordinary circumstances, proof of which would lie in the charterer.49

The test laid out in the The Johanna Oldendorff has been much criticised, as it remains uncertain whether it covers the situation where a ship may be directed by the port authorities to wait at an area which is outside the port area. It is argued that the test should be whether the ship-owner has done all he can to bring the ship as close as possible to the congested port to wait for a berth to become free so loading can commence.

Q12 In a voyage charterparty, when is the ship deemed an ‘arrived’ ship? Why is this important?

(iv)â Shifting risk

The ship-owner will try to shift the risk of delays on to the charterer using various mechanisms, one being the WIBON clause, meaning time to count whether in berth or not. Therefore, when the vessel arrives in the port the ship-owner can tender the notice of readiness to load even if there is no berth available. The courts tend to construe the application of these clauses quite narrowly so that they can only apply in situations where the vessel is delayed as a result of no available berths.

(v)â Readiness to load

Before the commencement of laytime, the ship must be deemed an ‘arrived’ ship for the purposes of loading the goods, the master of the ship must have tendered a notice of readiness to load to the charterers, and the vessel must

49 Ibid. 535.

be physically ready to load. In some cases the master will tender a notice of readiness to load without the vessel actually becoming an arrived ship. Such notices will be invalid, even if the ship then proceeds to berth for the purposes of loading with the co-operation of the charterer; laytime will not commence and the ship-owners will be unable to claim demurrage in the circumstances.50

However, in Flacker Shipping Ltd v. Glencore Grain Ltd (The Happy Day),51 the charterers accepted the invalid notice and acted upon it without reservation, and it was held that this could amount to waiver. Potter LJ stated:

In my view the circumstances of the case and the demands of commercial good sense are such that the court should be reluctant to apply or adopt doubts expressed in obiter dicta … so as to arrive at a result whereby, despite the fact that the vessel has arrived, NOR has been tendered and the unloading operation commenced without any reservation expressed in respect of it, the charterers are free of any constraints upon the time which they take in unloading and, despite delays for which they would otherwise be liable for demurrage, they are in fact entitled to despatch.52

(vi)â Actual readiness to load

When the notice of readiness to load is tendered, the vessel must in fact actually be ready to load. Once in berth the vessel must have cleared the holds of any previous cargo so that loading can commence and all equipment necessary for loading must be in working order.

(vii)â Laytime

One of the most important clauses in a voyage charterparty is the laytime clause. Laytime is the length of time for which the ship will be at the charterer’s disposal for the purposes of loading and unloading of the cargo. The amount of laytime allowed will be expressly stipulated in the charterparty. If the charterer exceeds the allocated laytime he will be liable for damages to the ship-owner, either in the form of demurrage or damages for detention. There are competing interests, as the ship-owner will want the vessel loaded as swiftly as possible so that he can remain on schedule, whereas the charterer will negotiate for a greater amount of laytime in case any unforeseen circumstances arise which may result in delays to the loading. Laytime will be paid for by the charterer in the freight that is quoted.

Laytime can be expressed either as a specific number of days or hours (e.g., ‘five working days’), or alternatively it can be expressed as a fixed rate of loading (e.g., 200 tons per day). If the charter makes no provision for laytime then it will be what is customary for that particular port. In Van Liewen v. Hollis Bros & Co. Ltd (The Lizzie),53 it was stated by Lord Atkinson:

If by the terms of the charterparty the charterers have agreed to discharge the chartered ship within a fixed period of time, that is an absolute and unconditional engagement for the non-performance of which they are answerable, whatever be the nature of the impediments which prevented them from performing it, and thereby causing the ship to be detained in their service beyond the time stipulated. If no time be fixed expressly or impliedly by the charterparty the law implies an agreement by the charterers to discharge the cargo within a reasonable time, having regard to all the circumstances of the case as they actually existed, including the custom or practice of the port, the facilities available thereat, and any impediments arising therefrom which the charterers could not have overcome by reasonable diligence54

Laytime is usually expressed using the terms ‘days’ or ‘running days’, which means an uninterrupted twenty-four-hour period. Some charterparties may state ‘Sundays and holidays excepted’ or ‘working days’ or even ‘weather working days’. In Reardon Smith Line Ltd v. Ministry of Agriculture, Fisheries and Food,55 Lord Devlin summarised the meaning of some of these terms:

Day: a continuous period of 24 hours which runs from midnight to midnight. Conventional day: a period of 24 hours which starts from the time when a

notice of readiness expires or in accordance with its instructions.

Working day: a period of 24 hours, a day for work as opposed to a day for religious observance or for play or rest.

Weather working day: a day where cargo could be loaded (or discharged) without interference from the weather.

Today, most charterparties will make provision for laytime to be calculated using a daily rate of loading and unloading, e.g., 100 tons per weather working day. Laydays will then be stipulated by dividing the amount of cargo to be loaded by the daily rate.

(viii)â Suspension of laytime

In the absence of any fixed laytime, the charterer will be excused from failing to load if there are circumstances that arise which are beyond his control.56 If laytime is stipulated in the charterparty then the charterer will bear the risk of any supervening events. In Budgett v. Binnington,57 a cargo was shipped under a bill of lading in which the laytime was for a specified number of days; neither the bill of lading nor the charterparty contained any exception for strike action. During the discharge of the goods a strike took place and did not end until after the expiry of the laytime. It was held that, as the laytime was fixed, the consignees were liable to pay demurrage.

Q13 What is meant by laytime? In what circumstances would laytime be suspended?

54 Ibid. 251.â 55â [1963] AC 691.

56Hick v. Raymond and Reid [1893] AC 22.

57[1891] 1 QB 35.

(ix)â Completion of loading

The vessel will be at the charterer’s disposal for the agreed period of laytime. The ship-owner cannot force the charterer to hasten the loading process. However, once the loading process is completed the charterer cannot detain the vessel even if there is laytime left to run. In Owners of The Nolisement v. Bunge and Born,58 the vessel completed its loading with nineteen laydays left to run. The charterers delayed the departure of the vessel for three days as it took that time to decide on a port of discharge. The court held that the charterer was liable for two days’ damages for detention.

(x)â Demurrage

If the charterer fails to load the cargo within the agreed laytime, this will amount to a breach of contract. Breach in these circumstances will entitle the ship-owner to claim damages, with demurrage being calculated as an agreed rate per day. The courts tend to apply the maxim ‘once on demurrage, always on demurrage’, meaning that if the parties intend that demurrage should not be payable in certain circumstances this needs to be expressly stated in the contract. In Marc Rich & Co. Ltd v. Tourloti Compania Naviera SA (The Kalliopi A),59 the vessel was chartered for a voyage from Rotterdam to Bombay. The wording of the charterparty stated that the vessel could give notice of readiness whether in berth or not and that ‘the act of God, restraint of Princes and Rulers … and all and every other unavoidable hindrances which may prevent the … discharging … always mutually excepted’. On arrival at Bombay, the master tendered the notice, however, due to congestion there was no free berth available. The shipowner claimed demurrage, but the charterer argued that the clause operated so as to relieve them from having to pay. It was held that while the clause could be read so as to exclude liability for demurrage, where the vessel was already on demurrage, the clause could not cover these circumstances.

A breach of failure to load within the specified laytime does not entitle the ship-owner to rescind the contract but to claim damages only. The charterer, however, may not keep the ship indefinitely on demurrage; when the delay is such as to frustrate the contract, the ship-owner can terminate the contract.60

(xi)â Damages for detention

If there is no agreed rate of damages stated in the charterparty then the charterer will be liable for damages for detention in the event that laytime is exceeded. Damages will be assessed in relation to actual losses suffered, as well as subject to the limitations of remoteness and mitigation.

58 [1917] 1 KB 160.â 59â [1988] 2 Lloyd’s Rep. 101.

60 Universal Cargo Carriers v. Citati [1957] 2 QB 401.