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International Ship Chartering Course Not
International Ship Chartering Course Not
When applicable:
• The HVR apply only to international voyages i.e. the Bill of Lading
must concern the transportation of cargo to another country.
• These Rules explicitly exclude deck cargo and the carriage of living
animals.
• The Rules apply automatically in the following cases:
- When the Bill of Lading was issued in a signatory state to the HVR.
- When cargo loading takes place in the port of a signatory state,
and,
- When the two contracting parties have inserted in the Bill of Lading
a clause declaring that the contract of carriage has been made
under the HVR.
Obligations of the carrier under the HVR
• The liability of the carrier in respect of the cargo carried under the HVR is
limited to 666.76 SDR per unit or package, or 2 SDR per kilo of gross
weight, whichever is higher.
• The maximum limit is 2,000 SDR per metric ton.
• The above limitation does not apply in cases where the nature and the
value of the cargo have been advised to the carrier and the value of the
cargo is mentioned in the Bill of Lading.
• Different limitations of liability apply to containers.
• Time Bar: One year from the date of delivery of the cargo ( or from the
date it ought to have been delivered).
Brief description of the Hamburg Rules HR
A. When applicable
B. Carrier’s liability
• The double criterion applicable to HVR still applies here but the limits of
liability are higher ( 835 SDR per package instead of 666.67 SDR in HVR
and 2.5 SDR per kilo instead of 2.0 SDR in the HVR).
• The carrier is responsible for delays in the delivery of the cargo up to two
and a half times the freight rate for the parts of cargo in delayed delivery.
• The carrier loses his limitation of liability in cases of willful misconduct and
gross negligence with knowledge that damage might occur.
• Time bar for claims is double to that of HVR, two years instead of one,
from the date the cargo was delivered (or it ought to have been
delivered).
The Rotterdam Rules RR
The Rotterdam Rules are not yet in force and their eventual entry into force is
expected to significantly change the legal landscape of carriage of goods
by sea.
RR are the second attempt in four decades to bring changes to the widely
adopted HVR following pressure from shippers, charterers and receivers in
view of the limited success of the HR.
The RR bring radical changes to the status of port terminals by allowing for
direct action against them. At the same time they regulate the electronic
means of e-Commerce and incorporate environmental protection
parameters.
The RR – although being more friendly to door to door transport – are not a
multimodal convention.
RR continued..
CONTRACT TERMS,
NEGOTIATIONS AND THE
CONSEQUENCES OF
BREACHES UNDER THE
Ship chartering is a negotiations’ based procedure
between the cargo and the ship side.
• Implied are called the terms which are not written but considered to be
mutually known, understood and accepted by the contracting parties.
• For example the need for the vessel offered to be in a seaworthy condition
on arrival and before sailing is an implied term.
Charterparty terms can be distinguished according of the
severity of consequences of breaching them in the
following three categories..
• Representations
• Warranties
• Conditions
A vessel can be unseaworthy for a variety of reasons involving, but not limited to, the
following:
• Ship safety including aspects of technical safety ( hull and/or machinery aspects
including equipment onboard)
• Legal and administrative efficiency ( i.e. compliance with international and national
legislation, flag bylaws etc)
• Sufficient supplies (fuel, stores, provisions, fresh water and spare parts) for the
execution of the voyage.
• Appropriate manning according to flag requirements with duly certified officers
according to international requirements, and
• Suitable spaces onboard for the safe storage of the cargo during voyage (cargo
worthiness).
Lack of any of the above can lead to un-seaworthiness claims by various parties.
Attention I drawn on the last bullet where unsuitable cargo loading spaces can lead not
only to the rejection of the vessel/ cancellation of the C/P but also to claims for
consequential damages.
In contrast to English Common Law provisions which demand the
vessel to be in seaworthy condition throughout the voyage, the
HVR allow for an interrupted obligation of the owners.
• The Hague Visby Rules (Carriage of Goods by Sea Act in the UK) have
replaced the above onerous obligation of the owners with the duty to
display ‘’due diligence’’ for maintaining the vessel in seaworthy condition.
• According to these provisions a ship must be in seaworthy condition on
arrival at the loading port and before departure ( for the loaded leg of the
voyage), therefore the obligation is not continuous anymore but
interrupted.
• In case of an event rendering the vessel unseaworthy the owners are
under obligation to display ‘’due diligence’’ to restore the vessel to
seaworthy condition.
• As previously said breaches to the innominate term ‘’seaworthiness’’
require arbitration or Court interpretation regarding the severity of
consequences for the owners.
Any reference to court decisions raises the
question of the ‘’burden of proof’’.
• Interestingly there are more parties than the charterers which may
become involved in seaworthiness – related claims ( e.g. shippers,
receivers, cargo interests, P+I clubs etc).
• As a general rule the burden of proving the lack of seaworthiness will be
for the party claiming the un-seaworthiness of the vessel.
• In doing so the claiming party must a. Prove the un-seaworthiness, b.
Prove the extent of damages it has suffered as a result and also c. Prove
the causal relationship between the lack of seaworthiness of the vessel
and the damages incurred.
• The owners, on the other hand, will have to prove in Court that they have
exercised ‘’due diligence’’ in their efforts to restore the vessel in
seaworthy condition.
SECTION THREE
REASONABLE DISPATCH,
DEVIATION AND SOME
OBLIGATIONS ON THE
SIDE OF THE
CHARTERER UNDER THE
HVR
The obligation of the owners to execute the voyage
with ‘’reasonable dispatch’’.
• According to English Common Law voyage delays related to vessel repairs
following weather damage and delayed sailing due to unusually adverse
weather conditions are considered as reasonable and will not trigger
claims under this heading.
• Under the HVR reasonable is considered any delay in the execution of the
voyage as a result of actions which would take an average, prudent ship
owner on the same ship and voyage acting under the same circumstances.
• It is evident the judges in this occasion are given the widest possible
discretion, bound only perhaps by previous court cases.
• As in the cases of seaworthiness, voyage delays are also innominate terms
requiring court interpretation regarding the extent of consequences for
the owners.
Deviation from the ‘’proper’’ route is only
allowed under HVR when found ‘’reasonable’’.
• In theory ‘’ proper route’’ is the one described in the C/P which in practice
is seldom – if ever - the case.
• Thus one is lead to the ‘’usual route’’ i.e. the one mentioned in maritime
guides and publications. Failing that, one is left with the direct
geographical route.
• Only intentional deviation qualifies as deviation from the voyage route
thereby suggesting that unintended deviations do not count as such.
• Under the HVR deviations from the route are justified provided they fall in
one of the following two cases: A. Saving of life at sea, or attempted saving
of life or property, and B. Whenever such deviation is reasonable.
• The reasonableness of such a deviation will always be judged by the court
as the consequences of unjustified deviation are considerable.
Consequences of unjustifiable deviation.
• That means that the carrier cannot benefit from limitation of liability
provisions in the contract.
• Under the HVR in cases where the charterer has rescinded the contract of
carriage demanding compensation, the carrier may claim reasons to avoid
liability under IV.2, or to limit such liability under IV.5 or claim a time bar
of such claims once one year has passed.
Liability of the charterer from undeclared
loading of dangerous cargo.
VOYAGE CHARTERS
The main forms of ship charter are the
following..
• Time charter: Is the charter contract under which a vessel is chartered for
a specific time period under specific terms.
• The loading operation, i.e. the stage during which the charterer/shipper
has to load the vessel with a full and complete cargo usually plus or minus
5%. (Failure to comply with this obligation leads to the obligation to pay Deadfreight i.e.
freight for the cargo which was not loaded).
• The discharging operation in one or more ports where any deviation from
the contractually agreed laytime will be monitored and dealt with (in way
of demurrage, or dispatch) .
Main characteristics of a Voyage Charter
• It is the simplest and the most frequent type of ship charter whereby the
charterer pays the freight rate (usually per ton, or lumpsum) and
demurrage (only in cases where the contractually agreed laytime is
exceeded).
• The ship owner pays for all the expenses of the voyage including bunkers
and agency charges.
• Freight is payable before, or after cargo loading.
• Freight is usually prepaid during cargo loading, upon sailing from the load
port, or a few days after sailing.
• Freight can also be paid later before breaking bulk (BBB), during
discharging, or within a specified number of days after discharge.
Voyage charter in a nutshell
• The C/P specifies the arrival of the fixed ship within specific laydays. In
case the ship arrives to the loadport late – and the charterers feel unable
to grant an extension – the charterers have the right to declare the
contract null and void.
• The vessel tenders a Notice of Readiness (NOR) on arrival which should
trigger the boarding of cargo surveyors to verify the suitability of the ship’s
cargo spaces for the cargo to be carried.
• Upon surveyor’s satisfaction and issuance of a certificate the charterers
must normally accept the NOR.
• After NOR is accepted the pilot boards the vessel for berthing .
• Time starts to count according to the individual C/P provisions only after
NOR is accepted by the charterers.
• In all cases the time taken for the vessel to sail from the roads to the berth
allocated does not count as laytime (it is considered part of the voyage).
Voyage charter in a nutshell continued..
• With the term ‘’laytime’’ the C/P makes reference to the agreed time
during which the charterer must complete the loading and unloading
operations of the vessel.
• In case laytime is exceeded the charterer is in breach and is under
obligation to pay demurrage i.e. extra charges for keeping the vessel
occupied beyond the agreed time.
• The daily rate for demurrage is specified in the C.P. No proof of any
damages is necessary for a demurrage claim.
• In case laytime is not used in its entirety, in dry cargo only, the owners may
be obliged to pay ‘’dispatch’’ money to charterers for freeing the vessel
earlier.
• Customarily Dispatch=1/2 Demurrage
Freight payment in Voyage Charters
• The money must be paid into the bank account indicated by the owners at
the time specified in the C/P.
• Freight is not considered as paid unless the money is credited to the bank
account of the owners (more about this matter under the time charter
discussion later).
There are two contracts which run in
parallel during the carriage of goods by sea.
• The second contract is between the carrier and the receiver of the cargo
as manifested by the Bill of Lading (BoL). The BoL is proof of the type and
quantity of the cargo loaded and in some cases of the value of the cargo.
• The BoL is a title to the ownership of the cargo onboard and as such it
allows for the transfer of such ownership before cargo is delivered in a way
similar to cheques.
SECTION FIVE
TIME CHARTERS
The basics of a time charter
• A time charter contract involves the undertaking of the time charterer to
pay during the contract period for the hire, the bunkers and the port
expenses of the vessel.
• A time charter starts (along with the obligation for freight payment) with
the delivery of the vessel – which can take place anywhere – and stops
with the redelivery – which can also take place anywhere, although many
owners prefer it to take place in a port.
Once the vessel is delivered into T/C and for the duration of the charter
period the time charterers are under obligation to pay hire by the due
dates to the owners.
• Such events are described in the C/P and can be different from one
contract to another.
• The key parameter in off hire is the loss of time, which is expected in
contracts where vessel remuneration is time linked.
T/C basics continued..
• The transfer of the commercial management of the vessel to the time
charterer upon delivery means that this party acquires – in exchange for
the hire it has undertaken to pay - full control on the activity of the vessel
and freedom to order it to load and discharge wherever it requires.
• The time charterer is free to use the vessel for its own transport needs, or
to trade it as a lawful owner would in the open market, or take part in
Contracts of Affreightment (CoAs about which see later in this section).
• The vessel must be redelivered to her owners within the time prescribed
in the C/P.
• In case the time charterers wish the vessel to be redelivered earlier
(underlap) they need to inform the owners in writing and the latter are
under obligation to take the vessel back first and then discuss
compensation.
• In case the vessel’s redelivery takes place later than the contract dates
(overlap) this is considered a breach of a warranty and the daily hire of the
vessel will need to be agreed anew.
Early and delayed redelivery in T/C
• In case of an underlap redelivery - i.e when time charterers advise owners
in writing that they wish to redeliver before the contractual date – the
owners will have to take the vessel back and try to reach a commercial
agreement for the residual part of the T/C.
• Failing this, the parties will need to take the matter to court or arbitration
procedure for a resolution of the dispute.
• In such cases the state of the relevant freight market is taken into account
(higher, lower, or the same as at the time when the vessel was chartered)
and the subsequent employment of the vessel in order to subtract such
earnings from the time charterer’s obligation to compensate.
• Similar reasoning is applicable in cases of overlap delivery where the
question arises, which must be the daily rate for the extra time take to
redeliver.
Issues surrounding the legitimacy of the
last voyage in overlap redelivery.
• In view of serious consequences for the owners (e.g. missing the laycans
for another time charter) in cases of possible abuse of time charterer’s
right to order the vessel at will during the contractual T/C period, this
matter has a rich history of admiralty court rulings.
• The courts have sought ways to make sure that the order on the part of
the time charterers for the last voyage was given in belief that the vessel
would be redelivered within the contractual dates (legitimate last voyage).
• The two options lead to different possible outcomes for the owners.
Overlap redelivery issues continued..
Legitimate last voyage order
In order that the last voyage is legitimate the time charterer must be in belief
that it will not be conducent to a delayed redelivery in three different
points in time, i.e.
• At the time when the order was given,
• At the time when the execution of the order starts, and
• During the time when this last order is executed.
• (House of Lords, The Gregos, 1994). With this court decision the phenomenon of a
last voyage order which is legitimate at the time it was given and illegitimate
during its execution is eliminated, given the impossibility of refusal to execute the
voyage on the part of the owners due to already undertaken responsibilities to
third parties via signed and released Bills of Lading.
Owners’ options in overlap redelivery.
• In case the order of the last voyage is legitimate the owners are under
obligation to execute and the charterers must compensate the vessel with
the contractual rate until redelivery.
• This is also applicable in cases where the market rate is lower than the
contractual rate.
• In cases where the prevailing market rate is higher than the rate of the
contract the time charterers are under obligation to pay additional
compensation to the owners equal to the difference between contractual
and market rate.
Owners’ options in overlap redelivery
continued…
In case of a illegitimate last voyage order the owners have the right to refuse
execution offering at the same time an alternative to charterers.
• If the time charterers insist on their illegitimate last voyage order the
owners can consider it as repudiatory breach of contract, proceed to a
new chartering contract and sue the charterers for damages resulting
from repudiation.
• Alternatively, the owners can agree to the execution of the illegitimate last
order demanding the contractual rate until the end of the time charter
period with additional compensation equal to the difference between
market and contract rates on top of the contractual rate for the extra time
taken (only in case the market rates are higher than the contract rates).
Owners’ right to withdraw vessel from T/C
• The Owners' have the right to withdraw the vessel for late payment of
hire, subject to giving the charterers timely notice when hire is late and
reserving their right to withdraw.
• All the owners have to prove is that hire has not been paid by the due
time - regardless of intention or negligence of the time charterers – and
that the charterers have been duly notified as above.
• Later hire payment than the due date does not correct the charterer’s
breach and consequently does not affect the owners’ right to withdraw,
except in the following two cases:
The owners declare in writing that they consider the delayed payment as
timely and accepted, or
There is no notice – within a reasonable time period from them to
charterers – refusing the delayed payment.
• Acceptance of part-payment of hire from the owners does not affect their
right to withdraw the vessel.
The anti-technicality clause
• This clause aims at the protection of the charterers from errors and
omissions on their side for delayed hire payment which could easily lead
to losing the vessel under time charter possibly with serious commercial
consequences.
• According to this clause the owners undertake the obligation to notify
charterers in writing about their intention to withdraw due to non-
payment of the hire giving them time (usually 48 hrs) to proceed with the
payment, while guaranteeing that the vessel will not be withdrawn before
the date notified.
• The wording of the letter – which must not be delivered earlier than the
midnight of the due date of the payment – must make clear beyond any
doubt that the vessel will be withdrawn unless payment is received within
the notice period.
• The charterers are not under obligation to be privy of the contents of such
letter unless it is delivered during working days/hours.
SECTION SIX