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Principles of Commercial Law

Principles of Commercial Law

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Published by: khayalfaroosh on Sep 03, 2011
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In general, charterparties are contracts for the carriage of goods by sea
(sometimes called contracts of affreightment), that is, contracts for the
services of the shipowner and his equipment. They are of three types:

(a) Voyage charterparties

Here, a ship is chartered to proceed on a particular voyage or series of
voyages (a consecutive voyage charterparty), the freight payable being
either a lump sum or calculated in some way by reference to the size of
the cargo (for example, so much per metric ton). Since the shipowner has
in effect quoted a fixed price he includes in this a certain period for
loading/unloading (laytime) and a charge for keeping the ship waiting
beyond this time (demurrage), which in theory represents agreed
damages for breach of contract. The calculation and applicability of these
provisions can obviously involve large sums of money, the difference
between profit and loss on the voyage.

(b)Time charterparties

The ship is chartered for a particular period for use by the charterer,
often within stated geographical limits with a place for re-delivery. Hire
is calculated on a time basis. Although this may look like the hire of a
ship, it is, in fact, still the hire of the services of the shipowner and his
equipment. It is important to see that the distinction between voyage and
time charterparties is not merely a matter of fashion but has important
consequences for the allocation of the risks. To take a simple example,
suppose the charterer wishes to secure the use of a ship for a voyage
from Yokohama to New York. Under modern conditions, someone who
knows the capacity of the ship could make a pretty accurate estimate of
how long the voyage would take. Someone might charter the vessel for
this period. The effect of delaying the voyage would be quite different,
depending on whether it is a voyage or time charterparty. If the ship
takes another five days to reach New York under a voyage charterparty,
this is simply a loss to the shipowner; conversely, under a time
charterparty the shipowner will be paid for an extra five days. Here, it is
the charterer who needs protection against delay by the shipowner;
hence, a hallmark of the time charter is the ‘off-hire’ clause, under which
the charterer does not pay freight when the ship is not working for him,

Principles of Commercial Law


for example, because undergoing repair. Again, claims involving this
clause can be considerable.

Sometimes, a ship is chartered for a particular voyage, but to be paid for
on a time basis (a trip charter). This is predominantly a time charter. So
the allocation of risks and the payment provisions are those characteristic
of time charters. It is, however, a term of the contract that the voyage be
made (Temple v Sovfracht (1945)).

Conversely, a consecutive voyage charterparty, for example, for as many
consecutive voyages as can be completed within the period of 12 months,
is predominantly a voyage charterparty, that is, the scheme of payment
and allocation of risks is predominantly modelled on that of voyage

It is permissible and, indeed, common for a charterer to sub-charter the
ship and, not unusual, for the sub-charterer to sub-sub-charter. It is
important to remember that these transactions will be controlled by the
doctrine of privity of contract, so that a sub-charterer will only have
contractual rights against the charterer and not against the shipowner,
and so on, unless the transactions attract the effects of the Contract
(Rights of Third Parties) Act 1999. It is also common for the owner to
borrow money against the charter payments and, so, you will come
across many cases in which the owner has assigned to the bank the
payment which is due under the charter.

(c) Demise or bareboat charters

The third type of charter is the demise or bareboat charter, under which
the charterer actually hires the ship and employs the crew. This is
analogous to a lease of land. It is not a contract for the carriage of goods
by sea and is used for different purposes (for example, financing

Ademise charterer has possession of the ship and, it is probable that, in
appropriate cases, the rights of the demise charterer would be protected
by an action of specific performance. So, if the shipowner were to sell the
demised ship over the demised charterer’s head, it is likely that the
demise charterer would be protected. On the other hand, if the
shipowner sells a ship which is the subject of a voyage or time
charterparty over the charterer’s head, although this would clearly be a
breach of contract and give rise to a damages action by the charterer
against the original owner, it is not clear whether the charterer would
have any rights against the new owner, even if the new owner knew of
the charterer when he bought the ship. See the conflicting views
expressed by the Privy Council in The Strathcona (1926) and by Diplock J
in Port Line v Ben Line(1958).



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