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CER

RTIFIC
CATE
E IN CHAR
C RTER
RING
MODULE
E1

Intro
oductio
on, Marrket Context and Brokking
A
AUTHOR
R

Jefffrey Blum
Direcctor, Ma
aritime Educa
ation & Training
T
g Ltd
Visitin
ng Profe
essor,
Wo
orld Ma
aritime Univers
sity

Welcome to the free tria


al of Module 1 of
o Certificate in
n Chartering
We hope you enjoy the module and find it beneficiall. Once you ha
ave read throug
gh the contentss, if you are interested in
completing
g the rest of the
e course you can
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ydsmaritimeac
cademy.com/ch
h
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e or need more
e information, please
p
do not hhesitate to contact us on:
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edtrademarksofftheSocietyincorrporatedbytheLloyd'sAct1871bbythenameofLlloyd's

CONTENTS

Page No.
1.

THE BASICS OF CONTRACT LAW

1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10

Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Termination Of An Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
An Offer Must Be Distinguished From An Invitation To Treat . . . . . . . . . . . . . 5
Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Condition Or Warranty? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Commercial Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Innominate / Intermediate Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Stipulations as to Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.

WHAT IS A CHARTERPARTY?

15

3.

The Main Types of Charterparty

18

3.1
3.2
3.3
3.4
3.5
3.6
3.7

Voyage Chartering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Consecutive Voyages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Part Charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Time Charters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Bareboat or Demise Charters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Contracts of Affreightment (Coa) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Decision Whether to Time Charter or Voyage Charter a Ship . . . . . . . . 22

4.

A SHIPBROKERS ROLE IN NEGOTIATING AND FIXING


CHARTERPARTIES

4.1
4.2
4.3
4.4
4.5
4.6
4.7

24

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Owners Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Charterers Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Competitive Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Duties Of Brokers Towards Their Principals And Vice Versa . . . . . . . . . . . . 27
The Role Of Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
The Role Of The Broker Under Agency Law . . . . . . . . . . . . . . . . . . . . . . . . . 29

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4.8
4.9
4.10

Shipbrokers Remuneration: Brokerage/Commission. . . . . . . . . . . . . . . . . . . 29


Are Brokers Necessary?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Fixture Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.

SUBJECTS

5.1
5.2
5.3

Fixing On Subjects: Be Very Wary Of This: . . . . . . . . . . . . . . . . . . . . . . . . . 35


Subject Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Problems With Subjects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

6.

WARRANTY OF AUTHORITY

38

7.

FIRM OFFERS

39

7.1
7.2
7.3

The Fixture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
The Importance of Keeping Records During Negotiations. . . . . . . . . . . . . . . 41
Example of a Fixture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

8.

CHARTERPARTY FORMS

8.1
8.2
8.3
8.4
8.5
8.6

Types Of Charterparty Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44


Time Charter Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Bareboat Charter Forms (Demise) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Contract Of Affreightment Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
The Balance Between Owners and Charterers Interests in a
Charterparty Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Voyage Charters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

9.

SUMMARY/CONCLUSION

35

44

49

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1.

THE BASICS OF CONTRACT LAW

LEARNING OUTCOMES
After reading this module, you will be able to understand:

the basics of contract law and its importance to chartering;

the main types and the purpose of charter parties;

the different styles and uses of charter parties used in


different trades; and
a shipbrokers role in negotiating and fixing charter
parties.

A charter party is a contract between a shipowner or ship operator and a charterer. So


all the following general theory about the formation of contracts and the termination of
contracts also applies to charter parties.
A contract is an agreement between two or more parties (people, groups) who
promise to give and receive something from each other (in legal terms this is known as
consideration).
All contracts are agreements; however, there are many agreements which are not
contracts. For example, if an acquaintance promised to pay for the petrol in return for a lift
and later omitted to do so, you would not expect to take the matter to court. There was a
certain agreement between you but there was no contract.
Contracts are subject to the law of a certain country, usually and officially the place of
performance. However, because the place of performance of a shipping contract is likely
to be in at least two countries, the usual law which applies to charter parties is English
law, partly because that is the law traditionally associated with international transport and
international trade and partly because it is widely accepted as being the most universally
neutral law with little or no conflict of interest for either party.
All charter parties are bilateral contracts, that is, they are agreed to by both parties
the owners and the charterers but it is important to realise that it is extremely rare for
both parties to agree to be mutually bound by a blank form of charter party without any
amendments. Many owners and charterers frequently use proforma contracts as the basis
for future negotiations, i.e. previous fixtures which had been negotiated and all their terms
agreed upon, so that a new negotiation would only have to require agreement on basic
relevant changes such as rates of freight and demurrage or hire, lay/can dates, vessels
description (unless the same vessel is carrying the next cargo), cargos description and
quantity.

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The following points are considered to be essential to the formation of a legally binding
contract:

Offer and Acceptance

Consideration

Capacity

Legal relationships

Legality

Consensus ad idem (Agreement a meeting of minds).

1.1

OFFER

Every contract must start with an offer by one person to another, i.e. the offeror intends to
be legally bound by the terms stated, if accepted by the offeree.
I may offer to sell my car to you for 1,000, and, if the offer is accepted, I am legally bound
by the terms of my offer. I may not later increase the price or change the agreed terms.
1.2

ACCEPTANCE

Once a valid acceptance of an offer has been made and a contract is in existence, neither
party can escape from the terms expressed unless both parties agree.
Please note: Acceptance may only be made by the person to whom the offer was made,
unless the offer is made to the public at large.
For example:
An offer made to a specific person may be accepted by that person only.
Carlill v Carbolic Smoke Ball Co. (1892). In an advertisement, the company promised to
give 100 to anyone who purchased its remedy for influenza and who nevertheless caught
the illness within 14 days. The advertisement added that, in order to show good faith, the
company had deposited 1,000 with a bank to meet any claims. Mrs Carlill bought the
remedy, followed its instructions, caught influenza and claimed 100. The court awarded
Mrs Carlill 100 and held that:
An offer may be made to the world; it does not have to be to a specific person.
Although the general rule is that advertisements are not offers, the fact that 1,000 had
been deposited with a bank showed that it was a firm offer and legal relations were
intended.
Communication of acceptance may be implied by the conduct of the acceptor.

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Basics of Contract Law

TERMINATION OF AN OFFER

An offer can be terminated by the following events:


Refusal
The other party refuses to accept the offer.
Counter-offer
It may happen that the offeree does not wish to accept the terms of the offer made and
suggests changes to the conditions.
Revocation
Depending on the situation, the offeror may revoke or withdraw the offer at any time before
acceptance has been achieved.
Lapse of Time
For instance, if a person made an offer to buy perishable goods, such as bananas, it would
be reasonable to expect an immediate and prompt acceptance. However, when more
durable goods are on offer, a long period of time may be considered reasonable.
Death
Death by either party before acceptance terminates an offer, unless the acceptor does not
know of the offerors death and the dead persons personal representatives are capable of
performing the contract. This would not apply if the dead persons personal services were
needed.
1.4

AN OFFER MUST BE DISTINGUISHED FROM AN INVITATION TO TREAT

It is important to know which party makes the offer and which party accepts it. In the case
of goods on display in a shop, it has been decided that it is the customer who makes the
offer to purchase and the shopkeeper who accepts it. The price displayed on goods is not
the offer, it is only an invitation for the customer to make an offer and the amount shown
is an indication of an acceptable price.
Consider self-service shops. Goods were individually priced; the customer took them
off the shelf and placed them in a basket. When was the offer made and when was it
accepted?
1.4.1 Consideration
Consideration is merely the agreed price in a bargain. The price does not necessarily
have to be money but it must have monetary value. For example, a bookseller promises
to sell you the book and your consideration is the promise to pay the price. You could pay
the equivalent of that price by providing a service to that value (for example by cleaning
the windows of the shop) or by providing another commodity of that (or an agreed) value
in exchange this is known as barter trade or counter trade. For example, fertilizer is

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frequently sold to Vietnam in exchange for rice or coffee to the same value as the fertilizer,
instead of being bought in exchange for money.
If a person promises to give you 100 as a gift at the end of the month, the promise would
not be enforceable because it is a free gift. It has not been supported by a promise from
you to do anything in return.
1.4.2 Capacity
Usually any person can make a contract, although the law sometimes protects certain
classes. When a person is denied full contractual capacity, the purpose is to protect and
not to prohibit and any difficulty in enforcing the contract is usually experienced by the
party with full contractual capacity. This particularity applies to minors, drunks or mental
patients who have less than full capacity.
However, mental patients will be liable on contracts made during a lucid period (i.e. when
they are sane).
Please note: a mental patient whose property is under the control of a court may not make
a contract.
1.4.3 Legal Relationships
When dealing with offer and acceptance, it is essential to any contract that the parties
intend to create a legal relationship. This point can be particularly complicated when
dealing with social or domestic agreements.
For example: a married couple, who had decided to separate, reached the agreement
that the husband should take over the wifes ownership of the house once she had
completed the payment of the mortgage. Since the intention to be legally bound existed
between the two parties living apart and consideration had been provided, this decision
was approved.
1.4.4 Legality
There is a rule of law that no court action will arise from an illegal act. Consider, for
example:

Contracts to commit a crime.

Contracts to corrupt public life.

Immoral contracts.

Contracts which require either party to act against the law the court will not help the
guilty party.

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1.4.5 Consensus Ad Idem (Agreement)


If a party agreed to enter into a contract because of fraud, misrepresentation or mistake,
the contract may be considered void. What may appear superficially to be a valid contract
may be invalid, because consent was affected by one of these elements. There is no
consensus ad idem, i.e. no real agreement, if one party enters into a contract believing
that certain facts, which are important to the contract, are different from what actually
exists.
Originally contract terms were divided into two types: conditions and warranties.
All contract terms are important but some are more important than others. Contract terms
describe the obligations of the parties under the contract. Terms that are classified as
conditions are considered to be vital to the contract and of fundamental importance. Terms
which are classified as warranties are not as important. They are still obligations under the
contract but they are not vital they are of secondary importance.
1.5

CONDITIONS

Conditions have been described as obligations that go so directly to the root or substance
of the contract, or which are so essential to its very nature, that their non-performance
may be fairly considered by the other party as a substantial failure to perform the contract
at all.
1.6

WARRANTIES

Warranties have been described as terms which, although they must be performed, are
not so vital that a failure to perform them goes to the root or substance of the contract.
This becomes important when considering what remedies to apply. Because a condition is
a term that is vital to the contract, breach of a condition gives the innocent party not only
the right to damages (i.e. to seek monetary compensation) but also the right to repudiate
the contract, i.e. the right to refuse performance of their own obligations under the contract.
The innocent party can, however, choose (elect) to affirm the contract and claim only
damages. This is sometimes called innocent partys election. Because a warranty is not
so important, a breach will not justify a refusal to perform the contract. The only remedy
for breach of a warranty will be damages.
1.7

CONDITION OR WARRANTY?

Conditions are said to go to the root of the contract. This includes any term that is part of
the description of the thing sold. A condition can be a statement of fact or a promise. If the
statement of fact proves to be untrue, or if the promise is not fulfilled, the innocent party
may treat the breach as a repudiation and is then allowed to refuse further performance of
his side of the contract. The following are the tests that the courts use to ascertain whether
a term is a condition or not.
Relative importance to the parties (description of the subject matter).
The more important a term is to the parties, the more likely it is to be a condition.

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Glaholm v Hays (1841)


A ship was chartered to go from England to Trieste and load a cargo there, the vessel to
sail from England on or before 4th day of February next. The ship sailed from England
several days after 4th February and, on her arrival at Trieste, the charterers refused to
load the vessel and treated the contract as repudiated. It was held that the charterers were
entitled to be discharged from the contract. The court claimed to be looking at the intention
of the parties. They held that the term had been included in the contract in order to make
sure that the ship sailed from England on 4th February, at the latest. The only way to
ensure that this would happen was to make the term a condition.
The underlying idea is that the term is so vital to the contract that, unless it is fulfilled, the
other party does not need to fulfil his side of the bargain.
Consider the importance and distinguish from a cancellation clause (which is neither a
condition nor a warranty but an option).
1.8

COMMERCIAL CERTAINTY

In commercial contracts it is important that the parties (or their legal advisers) should be
able to know immediately and unequivocally what their rights are in the event of a breach
by the other party and to make their decisions accordingly. In certain types of commercial
contract, certain conditions will be essential if the business contract is to function properly.
This is especially true of commercial contracts in which one party depends on the next
party in a chain of events. If the term broken is a condition, then the innocent party knows
with certainty that the breach entitles him to terminate the contract immediately. The
innocent party is then free to continue the business transaction with another partner.
The Mihalis Angelos [1971] 1QB 64 (CA)
A contract for the charter of a ship stated that she should be ready to load on 1st July at
Haiphong, North Vietnam. The charterers tried to cancel the contract because their cargo
was not available due to American bombing of the railway line to Haiphong. Cancellation
was not allowed under the terms of the contract. However, unknown to the charterers, the
owners had no reason to believe that the ship would be ready on the date stated.
The court held that ready to load was a condition. The charterers were therefore entitled
to treat the contract as repudiated, irrespective of the consequences of the breach.
Knowing that a term will be a condition gives the advantage of commercial certainty. This
is balanced by the need to be fair and just in individual cases. Any breach of a condition
gives the right to terminate even if it is trivial and little or no loss has been suffered in
consequence. This makes the doctrine rigid and means that the legal remedy of repudiation
may be too harsh and out of proportion to the true consequences of the situation.
1.9

INNOMINATE / INTERMEDIATE TERM

The rules concerning conditions and warranties are extremely rigid and this can lead to
remedies out of all proportion to the original fault. For example, in one case, a buyer was
entitled to reject barrel staves, which were only one sixteenth of an inch narrower than
they should have been, even though they were still perfectly suitable for the purpose for

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which they were intended, i.e. for making barrels (Arcos Ltd v E A Ronaasen & Son [1933]
AC 470).
This seems to have disturbed the courts; they have therefore introduced a more flexible
solution, the innominate term. This is neither a condition nor a warranty. Innominate
means without a name. They are sometimes also called intermediate terms, i.e, terms
somewhere between warranties and conditions.
We can also say that this is only of any relevance when parties want to dispute the terms of
a contract, so that even if both parties agree that there has been a fundamental breach of
a condition but that both are prepared to continue to uphold the contract in a commercially
friendly manner, then they could easily agree that this breach has been of an innominate
term which they now jointly interpret to be breach of a warranty.
In the case of innominate terms, the remedy made available depends on the seriousness
of the consequences of the breach of the term in each particular case. This gives the
courts far more discretion and manoeuvrability.
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd 1962 (CA)
A ship was chartered for two years. Clause 1 of the contract described her as being in
every way fitted for ordinary cargo service. However, the engines were old and the ship
became unseaworthy after the first month of service under this charter. On the first voyage
under charter, she needed repairs for 18 weeks before she was rendered seaworthy. The
charterers were not obliged to pay hire for any period greater than 24 hours when the ship
was out of action due to repairs. They were also entitled to have the time lost by repairs
added to the charter at the end of the two years if they so chose.
Did the breach entitle the charterers to treat the contract as repudiated or did it only
entitle them to damages? The courts considered the nature of the term unseaworthy and
decided that it was itself a very flexible term. It could be breached in a very trivial manner,
e.g. by the lack of a nail in a wooden boat, by shortages in the medical supplies or by not
having two anchors on board, or it could be breached in a serious manner, thereby making
the ship unsailable. This made it very difficult to categorise the term as either a condition
or a warranty.
There are, however, many contractual undertakings of a more complex character that
cannot be categorised as being conditions or warranties. All that can be predicted is that
some breaches will give rise to an event which will deprive the party who is not in default
of substantially the whole benefit which was intended to be obtained from the contract,
whereas other breaches will not do so. The legal consequences of the breach of such
an undertaking depend on the nature of the event to which the breach gives rise and do
not follow automatically from a prior classification of the undertaking as a condition or
warranty, per Diplock LJ (Lord Justice Diplock).
The court was still using the basic test of whether the breach deprived the
innocent party of substantially the whole benefit of the contract very similar to
the test that was originally used to determine which terms were conditions. The court
held that the seaworthiness clause was an innominate term and that the charterers had
no right to terminate in this particular case. For the sake of clarity, if the vessel had been

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chartered for a much shorter period than 2 years, her unavailability for 18 weeks would
have gone to the root of the contract and the charterers would then have been entitled to
have considered the contract as being at an end, i.e. as having been repudiated by her
general and undisputed unseaworthiness for a substantial period of the charter. However,
since her unseaworthiness was for 4.5 months during a 24 months period, the court held
that this was not of sufficient proportion to permit the charterers to terminate the contract
and they were therefore obliged to continue to pay hire for the vessel for the entire 24
months period minus the 4.5 months when she was off hire.
Cehave NV v Bremer Handelsgesellschaft mbH The Hansa Nord 1975
In this case, the principle of the innominate term was challenged. It was argued that as the
SGA (Sale of Goods Act 1979) classified all terms in sales contracts as either conditions or
warranties, the common law must follow the statute and could not classify terms in sales
contracts as innominate terms.
The case concerns two contracts each for 6,000 tons of citrus pulp pellets on the standard
terms of GAFTA (Grain and Feed Trade Association). Clause 7 of those standard terms
provided that the shipment was to be made in good condition. The buyers paid for the
cargo and were given the shipping documents but, on delivery at Rotterdam, part of the
cargo was damaged by overheating. The buyers rejected the whole shipment but the
sellers refused to refund the money.
The court at Rotterdam ordered the whole shipment to be sold. It was bought at roughly a
third of the original price by a third party who resold it to the original buyers at that same
price. The buyers then used it for its original purpose cattle feed.
The GAFTA board held that the buyers were entitled to reject the shipment on the grounds
that
1.

the goods, though merchantable, were not merchantable under the Sale of Goods
Act;

2.

the goods were not shipped in good condition.

Note that the Sale of Goods Act no longer refers to merchantable quality. It has since
been amended to satisfactory quality by the Sale and Supply of Goods Act 1994 (see
14).
It was held in the Court of Appeal that the goods were merchantable, as they were still fit
for the purpose for which such goods are commonly sold, i.e. making cattle feed, even if
they were only saleable at a reduced price. Therefore, there was no breach of a condition
implied into the contract by the Sale of Goods Act.
The buyers right to reject the goods depended on the seriousness of the consequences
of breach. The consequences of the breach here were not serious the goods were still
useable for their original purpose. On the facts of the case, rejection of the goods was not
justified. The Court of Appeal rejected the argument that the Sale of Goods Act created
a statutory dichotomy which divided all terms in sale of goods contracts into conditions or
warranties.

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1.10 STIPULATIONS AS TO TIME


Bunge Corporation v Tradax Export SA [1981] 1 WLR 7111
In a contract for the sale of soya bean meal, the sellers were required to load goods on
board ship at a single US Gulf port to be named by them by 30 June 1975. The buyers
were to give the sellers at least fifteen consecutive days notice of the probable readiness
of vessels and of the approximate quantity required to be loaded. The buyers only gave
notice on 17 June. This meant that less than 15 days of loading time remained. The sellers
declared the buyers in default and claimed damages for repudiation of the contract on the
ground that the term 15 days notice was a condition.
The House of Lords held that the term was a condition by implication so that any breach
entitled the sellers to treat themselves as discharged from their obligations under the
contract. They stated that, in general, time is of the essence in mercantile contracts, in
particular in this case, where the sellers needed the information to know which port they
should nominate so that the goods would be available for loading on the ships arrival
at port. The Lords rejected the test of whether the innocent party has been deprived of
substantially the whole benefit of the contract, in favour of the existence of a condition
which then entitles the innocent party to repudiate. They held that this was too stringent
and that it could always be argued that there was the possibility of minor breaches.
Declaring such a term to be innominate would expose the parties to arguing whether the
supplier could cope with a delay of one, two, three, seven or however many days. This
would be too uncertain in a commercial environment, especially where other parties might
be reliant on terms being fulfilled properly.
A very recent case concerning a time-barred claim is WATERFRONT SHIPPING
COMPANY LTD v TRAFIGURA AG (THE SABREWING) [2007] EWHC 2482.
The vessel SABREWING was chartered on a Beepeevoy 3 form to carry a cargo of
unleaded gasoline from New York to Vancouver. The charterparty included a clause which
also provided that a claim by the owners would be time-barred unless a claim in writing
has been presented to Charterers together with supporting documentation substantiating
each . . . constituent part of the claim (including signed pumping logs) within 90 days of
the completion of discharge of the cargo carried hereunder.
The owners presented a claim for demurrage in the sum of US$114,887.40 together with
various supporting documents within the 90-day period provided by clause 23. However,
the supporting documents were not described on their face as pumping logs and were not
signed. The charterers refused to pay and the owners brought proceedings to recover the
demurrage. The charterers said that the claim was time-barred because the owners were
obliged to provide within the 90-day period.
(a)

pumping logs signed by a responsible officer of the vessel and by a terminal or


charterers representative; or

(b)

in the absence of a signature from a terminal or charterers representative, pumping


logs signed by a responsible officer of the vessel and a note of protest as to the lack
of countersignature on such pumping logs from a terminal or charterers representative.

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Demurrage time-bar clauses had to be complied with carefully and strictly. Importance was
also attached to requirements for signed documents. The commercial purpose of such
clauses was to achieve finality.
The owners failure to provide signed pumping logs by 14 November 2005 (being the
90th day) was not de minimis (i.e. was not of minimal importance). There was a real
commercial purpose and importance in requiring a signed pumping log to support a claim
for additional pumping time in excess of 24 hours, namely to prove that the owners had
maintained the required average pressure throughout the discharge and that the fault
lay with the terminal. The signature of a responsible officer of the vessel was important
to show that such a person was prepared to put his name to the document to confirm its
accuracy, to authenticate it and to prove its provenance.
The owners had failed to provide such precise documents within the time limit of 90 days
(or even at all).
Held by QBD (Comm Ct) (GLOSTER J) that summary judgment would be given in favour
of the charterers.
However, this SABREWING judgment was much criticised by
shipping practitioners and maritime lawyers as being contrary to
commercial practice. Fortunately, Steel J gave a completely opposite
judgment just six months later in the case ETERNITY.
Much of the recent case law and most disputes concerning time bars
focus on whether the necessary and correctly issued supporting
documents were submitted with the claim. While not expressly decided
until recently, it is implicit from earlier judgments that provided the
claim was divisible into its constituent parts, which can be identified
and quantified, a failure to provide documents which are relevant
to only a part of a claim does not mean that the entire claim is time
barred. This was the approach adopted in Transoceanic Co. Limited
v. Newton Shipping Limited [2001]. The Transoceanic case was
consistent with the overall the judicial approach to the commercial
construction of time bar clauses of resolving issues in such a way as
not to prevent an otherwise legitimate claim from being pursued.
This approach has, however, not been followed in Waterfront
Shipping Co Ltd v. Trafigura AG [2007]. The issue was whether
the totality of the demurrage claim was time barred or whether (in
the absence of signed pumping logs) only the excess pumping time
should be deducted from the claim, leaving a substantial balance of
demurrage due and owing.
The court ruled that the entire claim was time barred, justified by an
overtly legalistic approach to construction of the clause and the issue.
The apparent conflict between the decisions can, perhaps, be legally
justified by the fact that they reflect the diversity of the wording of time
bar clauses in use and each case is decided on the interpretation and
construction of a particular clause.

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However, it is at the expense of a commercially sensible approach


taken by the industry reflected in a number of other legal authorities.
Waterfront Shipping Co Ltd v. Trafigura AG stands out as being
against this line of authority and industry practice. The clause by
clause approach to the construction of time bar clauses prevents
useful commercial principles of construction, developed over time,
from operating for the benefit of the industry.
The law as it stands is now in conflict and this has created uncertainty
by allowing demurrage analysts to take advantage of this uncertainty
by adopting an approach to the analysis of the supporting documents
provided which best suits them at the time. As far as compliance is
concerned, the processing of demurrage claims needs to be done with
an awareness of this diversity of case law and by careful reference
to the time bar clause in the contract under which the claim arises
and the vigour with which these requirements can be applied. Advice
to the industry is that, in order to avoid disputes, one should put a
system in place to ensure that the documents comply exactly with the
requirements of the demurrage time bar provisions and support all the
amounts claimed.
We now have a very different judgment on a similar set of facts in the
case of The Petroleum Oil and Gas Corporation of South Africa
(PTY) Ltd. v. FR8 Singapore Ltd. (2008) 755 LMLN 1. However,
the owners demurrage claim was a secondary issue. The main
dispute was the charterers claim for approximately USD 8.3 million
for contamination of the gasoline and gas oil parcels carried on the
M/T ETERNITY from India and the UAE to South Africa. The court
upheld the claim on the grounds that the contamination resulted
from the owners failure to separate the vapour phases of the two
cargoes from the common inert gas line. This was due either to the
unsatisfactory state of the separation valves or to their incorrect
operation. The owners liability arose primarily from a failure to care
for the cargo.
Although the owners demurrage claim for USD 796,357 was a
secondary issue, the judgment is of particular interest to all the
demurrage analysts who have been puzzling over the outcome of the
Sabrewing case.
The charterers had contested the demurrage claim on the grounds
that the entire claim was time barred as the owners had failed to
provide an appropriately signed copy of the ships pumping log, both
at the discharge terminal and for the subsequent ship-to-ship (STS)
operation for the discharge of the balance of the cargo. The owners
had accepted that their failure to prove a pumping log signed by the
terminal representative prevented them from claiming for excess
pumping time at the terminal, but disagreed that the log was required
for the STS discharge or that the failure to provide a pumping log was
sufficient to time bar their entire demurrage claim under the terms of
cl. 20 of the BPVOY4 charter party.

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The judge, Mr. Justice Steel, agreed with the owners. The pumping
clause 19 of BPVOY4 applied to discharge at the terminal but not
to the STS operation. He said, As a matter of language it is wholly
inappropriate to describe an STS operation as involving a terminal.
Furthermore, only the excess pumping time at the terminal would be
barred by the owners failure to provide a correctly signed pumping
log.
The charterers had relied on the judgment in the Sabrewing case
to support their argument that the entire demurrage claim should be
barred. However, the judge rejected this very robustly: I confess that
I find the proposition that a claim put in on time but in respect of part of
which the accompanying documents are non contractual gives rise to
a bar to the entire claim is a commercially surprising construction.
He went on to add I am not persuaded that the clause requires the
Owners to submit only one composite claim (even though they would
usually do so and in fact they did so). In my judgment it was open
to the Owners to present a number of separate claims if so advised
and in those circumstances the lack of documentation for one or
more parts of the claim would not constitute a bar to the balance.
In my judgment it cannot have been the intention of the parties that
the choice to present a composite claim would give rise to a different
outcome.
So, until there is a similar case which proceeds to the Court of Appeal,
we have two deliberately conflicting judgments covering this important
contentious part of commerce and maritime law.
#~#~#~#~#

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2.

WHAT IS A CHARTERPARTY?

International chartering started with the Phoenicians in Carthage, when merchants


chartered vessels for Mediterranean and North European trading. In Ancient Rome there
was a vessel-chartering market of sorts dealing in Egyptian grain prices on arrival at Ostia
(Romes seaport). In other words, chartering ships is not a new concept.
The main difference compared to today is that, until the late 19th century, some masters
(i.e. captains) of vessels often had complete authority to fix cargoes and maximise earnings
for the owners in return for a profit-share agreement. Sometimes the masters owned the
vessels (as they still do on some coasters and Rhine barges today).
However, the master would conduct his own negotiations in person in whatever port his
ship was moored, draw up a contract with a merchant and tore it in half (one half for the
merchant, one for the master). This is the origin of the term charterparty an anglicised
version of the Latin words Carta Partita, meaning a document (Carta), which has been
divided or split (Partita). One of the halves was placed on board the ship and the other half
was kept by the trader. When the ship arrived at her destination, the receiver of the cargo
produced the shippers half of the document, thus proving that he was the rightful owner of
the goods.
The enormous growth of world trade in the 19th and 20th centuries led to faster steamships,
followed historically by ships powered by fuel and diesel. Ships were on increasingly longer
voyages away from their home ports and the ships masters were no longer able to conduct
their own negotiations. So the shipowners used shipbrokers to find the next cargoes and
negotiate the contracts for their carriage.
In any freight market there are essentially three potential market practitioners.
In simple terms, they are:
SHIPOWNER (also known as owner) Note that often owner is spelt in the plural as
owners even when only one owner is specified, i.e. many C/P clauses state, for example,
that owners are to arrange for bunker survey or owners are to appoint agents at load
port, etc. Usually in C/Ps the plural form is used.
The Shipowner owns the ships just like you might be described as owning a house or a
car. In other words, the Shipowner may own a ship outright with no mortgage (in which
case the vessel is paid off) or have a mortgage via a bank or government loan.
CHARTERER (also in C/Ps usually named in plural form as charterers) is the person who,
for the purposes of the C/P, controls the cargo. In the case of coal, he may own the mine
(eg BHP Billiton), or have bought the cargo from the mine owner under a spot contract or
long-term sales contract (eg Glencore.) In grain, it could be Bunge (who sometimes ship
grain from their own estates) or Cargill (who often buy grain from third parties). All you
need to remember is that, in simple terms, the charterer controls and provides the cargo
under the C/P.

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In any sale of a commodity there is a seller and a buyer. There are effectively two ways of
selling any cargo by sea:
(a) FOB (Free on board) the owner of the cargo brings the cargo to the quay and loads it
on to the vessel at his expense. When the cargo is on board (ie over the ships rail but in
practical terms loaded in the hold), the title (ownership) of the goods transfers to the buyer.
In this case, the FOB seller will be free of any liability or risk after he has placed the goods
on board, so he will not be responsible for chartering the carrying vessel the buyer will be
the charterer at his risk.
(b) CFR (Cost and Freight) or CIF (Cost, Insurance and Freight) the owner of the cargo
not only brings the cargo to the quay and loads it onto the vessel at his expense but will
also charter the carrying vessel and pay for the freight. He may also pay for the premium
for insurance of the cargo at sea and the insurance of the sea freight. In other words,
the owner (seller) of the cargo will charge his buyer the cost of cargo, the amount of the
insurance premium to cover an insurance policy for damage to or loss of that cargo during
its carriage and the cost of that carriage, payment of which is known as Freight.
In this case, the seller of the cargo will perform the chartering at his risk.
OPERATOR (can also be used in plural as operators) This name rarely appears in a C/P
except sometimes as a signatory. In a C/P, one can only have an owner(s) or charterer(s).
An operator is someone who is speculating on the direction of the freight market. In
shipowning terms, he will charter in tonnage at what he hopes are cheap levels before
the market rises and/or he will take in cargoes under the form of a C.O.A. (Contract of
Affreightment) at hopefully higher equivalent levels. In theory, the ships should always
have contracts to go in ballast (i.e. empty) to a port of loading and then carry that loaded
(we call this laden) cargo. In practice, vessels go out of position and expected dates of
cargo readiness change. So, depending on the size of operator (i.e. the number of ships
on time charter and number of cargoes under control), the operator may come into the
freight market either
1.

looking for a vessel from the market that will carry a spare cargo. In this case, if
a vessel is chartered in, then under that relevant C/P the operator will become
charterer(s) and the true owners of the chartered vessel will be the actual (or head
or beneficial) owners;
or

2.

looking for employment from the market for a spare vessel within his chartered fleet.
In any resulting C/P, the operator who has the vessel on period T/C (as charterers)
becomes the owner(s) for the re-let voyage or T/C trip. For the sake of clarity, the
operators who have become owners are sometimes called Disponent or Time
Charter owners and the original owners, who still own the ship and pay for its
upkeep and for the crew, are called Head Owners or Beneficial Owners.

These terms are often used in shipping conversations/correspondence and it can become
confusing, so it is important to be precise which type of owners are meant.
Good examples of operators are Cobelfret, Bocimar or Kleimar.

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NB: Operators can sometimes have limited financial strength, since effectively they are
performing a balancing act between chartering in and out. They may be less financially
secure than an owner who owns ships or a charterer who owns a coal or an ore mine.
Many operators, however, are very substantial. Some even move into buying vessels (eg
Bocimar) in such a case such operators are sometimes called Owner Operators.
All this may sound rather confusing. What you need to remember is that, in any
negotiation, the person who controls the vessel and charters her out to charterers is the
owner for the purposes of that C/P. The person who controls the cargo and charters in a
vessel is the charterer. The maintenance of the vessel and payment of the crew remain
the responsibility of the Head Owner under both voyage and time charters, regardless of
the number of times the vessel is subsequently re-let in a chain. In other words, if a grain
house charters a vessel and then re-lets her, that grain house will become the nominal
(Disponent) owner for the re-letting (i.e. the second C/P), even though their basic trade is
as a Grain House.

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3.

THE MAIN TYPES OF CHARTERPARTY

In order to meet the varying needs of the trader and shipowner, a number of different
methods of chartering a ship have evolved. The shipper of the goods is able to decide
which of the following methods is most appropriate to his needs at any given time.
3.1

VOYAGE CHARTERING

With a voyage or spot charterparty, the ship is employed on a single voyage, i.e. from a
certain load port or ports to a discharge port or ports in an agreed area.
The shipowner is responsible for all the expenses of running the ship and also the additional
voyage expenses, such as port charges and bunkers, apart from the cargo-handling costs,
which in dry bulk trades are usually paid for by the charterer. There are, however, clauses
in some of the charter parties regarding overtime costs when loading or discharging the
cargo, including who should benefit from overtime pay ~ the crew are the responsibility
of the owners, whilst the charterers are responsible for paying the stevedores, at least as
regards the charterparty contract.
With tankers, the problem of cost does not really arise because the shore pumps the cargo
into the ship and, therefore, the costs are effectively paid by the shipper. The ship uses her
own pumps to discharge the cargo, which is therefore a cost for the shipowner.
The freight is paid, either per tonne of cargo or as a lump sum, which is normally payable
either after the cargo is delivered (tankers) or on signing the bills of lading (dry cargo) or
a combination of both, eg 80% payable after signing the bills of lading and 20% payable
after (or upon right and true) delivery. With tankers, the use of Worldscale for freight
calculations means that the freight is not known until the discharge port is nominated.
The amount of cargo to be loaded is agreed in advance, the usual method is for the
charterer to provide a full cargo but, because the owner does not know at this stage
exactly how much cargo the ship can lift, it is usually described as a given tonnage with
a fixed percentage (5%) more or less in owners option (MOLOO) or in charterers option
(MOLCHOP or sometimes MOLCHOPT). To use the abbreviation MOLCO is considered
dangerous, because the handwritten version looks too similar to its opposite, MOLOO,
hence the use of MOLCHOP, so that there can be no confusion with MOLOO.
For example, 50,000 tonnes 5% MOLOO means that the owner can lift up to 50,000
tonnes plus 2,500 tonnes (5%) = 52,500 tonnes or can lift as little as 50,000 tonnes minus
2,500 tonnes (5%) = 47,500 tonnes. On arrival at the loading port, the master will declare
how much cargo the ship is able to load. If the charterer cannot provide this quantity of
cargo, he will be expected to compensate the owner for the loss of revenue resulting from
the lack of cargo. This money is known as dead freight and calculated in such a way as to ensure
that the owner is in the same position as he would have been if a full cargo had been loaded.
When the charterer is not certain whether there will be enough cargo to fill the ship, the
freight may be paid as a lump sum, which means that the charterer can load as much or
as little cargo as he wants. In this case, there is no contractual obligation to provide a full
cargo, so the question of dead freight will not arise.

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Dates are fixed; the charterparty will state, for example, lay/can 25/30th April. The
abbreviation lay/can means that the laydays start 25th April, cancelling date 30th April.
This means that the ship must arrive on or after 25th April and before 30th April. The
charterer can refuse to load if the ship arrives before the first date, in fact the cargo may
not be available. If the ship arrives after the cancelling date (or often after 16:00 on the
cancelling date), the charterer is at liberty to cancel the ship and find another vessel to
carry his cargo. This would prove to be a useful option if the freight rates had fallen since
the charter was fixed and if the charterer were therefore able to obtain a cheaper ship;
however, the converse is not necessarily the case: if a ship is late arriving and rates have
risen in the interim and if the charterer confirms that the ship is still wanted, then the owner
must proceed with the charter.
The owner calculates the cost of the proposed voyage by means of the voyage estimate
and compares it to the anticipated freight to decide whether the voyage will be profitable.
It is important that the owner knows how long the intended voyage will take, as the
calculations are based on income per day, hence a delay may make the difference
between a profitable or a loss-making voyage.
The amount of time the ship is expected to be in port, mainly for loading and discharging
the cargo, is agreed upon, and this is known as laytime. Should the ship be delayed in port
due to lack of cargo or other causes that could reasonably be said to be the charterers
responsibility, then the shipowner may be entitled to claim compensation in the form of
demurrage, which is payable by the charterer, who is in breach of the charterparty terms
and is therefore under an obligation to compensate the owner. Demurrage is the payment
of liquidated (pre-arranged) damages for keeping the ship in port for loading or discharging
purposes for a longer period than the agreed time. Demurrage rates are based on the
vessels Daily Running Cost or the Time Charter Equivalent. If the ship finishes earlier than
expected, the shipowner pays Despatch to the charterer at a daily rate which is usually half
the equivalent daily rate for demurrage but this only applies in dry cargo chartering. Note that
there is no Despatch in tanker chartering.
The owner always remains the carrier and when the master signs the bills of lading, they
are signed on behalf of the owner. This means that in the event of any claims for shortages
or other discrepancies in the cargo, the owner is responsible and not the charterer. The
exception to this is when the bill of lading states that certain cargoes are carried, for
example, on deck at charterers risk or at shippers risk or at merchants risk.
3.2

CONSECUTIVE VOYAGES

It is possible for a charterer to fix a ship for a series of round voyages. In such a case, each
voyage is considered a separate entity as far as freight and demurrage are concerned.
Clauses are available to protect the owner should fuel prices or other costs, e.g. war risks,
change during the contract.
3.3

PART CHARTERS

When one charterer is not able to provide a complete cargo, it is possible for the owner
to arrange a number of charters, and there will be a separate charterparty for each of the
different parcels which are carried. This type of charter is common in the parcel tanker
trade, most usually with liquid chemicals and vegoils. It is important, therefore, that these
charter parties are drawn up so that there is no conflict between the various interests

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involved. The calculation of demurrage and distribution of the payments between the
different charterers can be a complex problem with this type of agreement.
A variation of this in dry cargo chartering is known as a parcelling service. A charterer will
charter a ship for a particular voyage and then let out the space in the ship to a number
of different shippers.
3.4

TIME CHARTERS

There are two main types of time charter: (i) the period time charter, which, as its name
implies, is for a period of time, usually several months or years and (ii) the trip time charter,
which is for a single voyage only but under time charter conditions.
The time or period charter is where the charterer takes over the ship for a certain period of
time it could be as short as one month or as long as 20 years, although the latter is not
very common. The shipowner still operates the ship but, instead of earning freight per ton
carried, he is paid hire at an agreed amount either every calendar month or, much more
usually, every 15 days in advance, either as a lump sum or occasionally an amount per
deadweight ton per month.
The trip charter is usually for a single voyage; however, the division of responsibilities is
the same as those for a time charter and the usual time charter forms are used. These
charters may be used by shipowners where port delays are expected or during periods of
uncertainty over fuel prices and fuel availability.
The advantage of a trip charter as far as the charterer is concerned is the greater freedom
which this allows, because details of the voyage are kept off the market and therefore
trader competitors will not know the charterers load or discharge ports. The charterer is
able to select ports or indeed a trading area without having to agree to the details with
the owner, who is indifferent to any additional costs which may result from the charterers
choice of ports, as these costs will be met by the charterer.
The division of responsibilities is spelt out clearly in the different charterparty documents as
it forms the basis of the contract between the owner and charterer.
Examples of how the hire is calculated are taken from the BPTime and the NYPE forms.
3.4.1 BPTime 3
12. Subject as herein provided charterers shall pay for the use and hire of the vessel at the
rate of . . . per ton . . . on vessels total deadweight on . . . summer freeboard as assigned
at the date of delivery hereunder, per calendar month, commencing at and from the time
and date of its delivery hereunder, per calendar month, and continuing until the time and
date of its re-delivery to owners.
3.4.2 BPTime 3
8.1 Charterers shall pay hire per day or pro rata for part of a day from the time the vessel is
delivered to charterers until its re-delivery to owners in the currency and at the rate stated in
Part 1, Section h. All calculation of hire shall be by reference to Universal Time Coordinated
(UTC). [This means Greenwich Mean Time.]

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8.2 The first payment of hire shall be made on or about the date of delivery, paying the hire
in advance up to, but not including, the first day of the succeeding month. All subsequent
payment of hire shall be made monthly in advance on the first day of each calendar month
to the account stipulated in Part 1, Section i in funds available to owners on the due date.
If, however, in a given month the due date is a non-banking day in the United States (if hire
is to be paid in US Dollars) or in the country stated in Part 1, Section i, then the subject
months hire shall be paid on the next banking day.
3.4.3 New York Produce Exchange Form (NYPE)
Clause 4: The charterers shall pay for the use and hire of the said vessel at the rate of . .
. daily or . . . US Currency per ton on vessels total deadweight carrying capacity, including
bunkers and stores on . . . summer freeboard, per calendar month commencing on and
from the day of its delivery, as aforesaid, and at and after the same rate for any part of
a month; hire shall continue until the hour of the day of its re-delivery in like good order
and condition, ordinary wear and tear excepted, to the owners (unless vessel is lost) at .
. . unless otherwise mutually agreed. Charterers shall give owners not less than . . . days
notice of vessels expected date of re-delivery and probable port.
The charterer is responsible for employing the ship, finding the cargo and paying port,
canal, cargo handling, tank/hold cleaning and fuel costs. The management of the ship,
however, remains the responsibility of the owner.
A charterer may sublet the ship, i.e. operate her on the voyage market. In this case, he
becomes the disponent owner; this means that, although he does not own the ship, he is
entitled to the benefits that are obtained from trading her during the period of the charter.
The charterer is the carrier and the master signs the bills of lading on his behalf. Thus
any claims for cargo damage or shortage must first be met by the charterer, although the
charterer may subsequently claim reimbursement from the beneficial ( actual) owner.
Regardless of the number of sub-charters, the head or first charterer is always responsible
to the owner for the employment of the ship.
Examples of dry cargo time charter forms are the New York Produce Exchange form
(NYPE) and the BALTIME. The former is produced by the Association of Shipbrokers
and Agents, New York (ASBA) and considered to favour the charterer, while the latter is
produced by BIMCO and is considered to be more biased in favour of owners.
The newer GENTIME and LINERTIME Charter Parties are used less often.
Tanker forms include Shelltime 4 and BPTime 2 and 3.
3.5

BAREBOAT OR DEMISE CHARTERS

With this type of charter, the charterer both manages and operates the ship. The
shipowner, possibly a financial institution, virtually gives up control for a fixed period of
time. The charterer is the disponent owner responsible for both crewing and managing, as
well as employing, the ship.
The owner will receive the fixed rate of hire at regular intervals during the period of the
charter. There will also be agreements regarding drydocking and surveys in order for the
owner to ensure that the ship is being properly maintained.

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Bareboat or demise chartering is frequently used in ship finance where it may suit a bank
to own the ship, frequently because of tax advantages, but they do not want to get involved
in running her. They may also have re-possessed a ship, but in any case, because they
do not have the necessary knowledge or experience, they need to find an owner to run
the ship. At the same time, the disponent owner can manage the ship profitably but the
current market rates will not repay the full capital costs of the ship within the period of a
bank loan, so by bareboat chartering it may well be possible for both the bank and the
disponent owner to make a profit from the ship. There is frequently an option to purchase
at the end of the demise charter. Bareboat charters are often used within a shipowning
group for fiscal purposes. Charter parties used for this type of charter are BARECON
A (short-term 38 years) and BARECON B (longer term 815 or 20 years). These are
bareboat charter parties produced by BIMCO and are still used today, despite BIMCOs
revised version BARECON 2001.
3.6

CONTRACTS OF AFFREIGHTMENT (COA)

These are used when a shipowner or operator agrees to transport a given quantity
over a fixed period of time. Unlike other charter parties, no specific ship is named in the
charterparty. It is up to the owner or operator to provide ships as needed for the project.
With tankers, due to the sensitivity of port states regarding oil pollution, it is likely that the
contract will include specific requirements regarding the ships employed, which would
probably extend to the owner having to provide the charterer with a list of ships likely to
be employed in the contract. This type of contract gives the owner considerable freedom
to manage his fleet to the best advantage, even to the extent of chartering in ships if his
own fleet is engaged in more profitable employment elsewhere. This type of contract is
common with owners of small coasters employed in short voyages, as it saves having to
charter a ship for each movement. It is also used by government charterers for inter-nation
trades.
There are several standard documents for this purpose, one of which is the Volcoa
basically for dry cargo and the Intercoa. These forms are designed to be used in
conjunction with voyage charter forms for each voyage which is undertaken under the
COA.
3.7

THE DECISION WHETHER TO TIME CHARTER OR VOYAGE CHARTER A


SHIP

Different circumstances influence the selection of a particular type of charter by either an


owner or charterer.
The voyage charter is favoured by the trader with the one off cargo or by the utility
company or steel company who need to supplement a fleet of owned or time-chartered
ships. Voyage chartering is also used by traders who ship speculative cargoes; these
are cargoes where the final destination has not been fixed. The trader loads a cargo for a
port or range of ports. When the cargo has been loaded and the ship has left the loading
port, the trader sells the cargo; under this system, a cargo may change hands several
times during a voyage. It is important therefore that all the terms agreed upon during the
chartering fixture are clearly spelt out so that the eventual buyers of the cargo, who were
not involved in the original negotiations, will understand their responsibilities under both
the charterparty and the bill of lading.

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The Main Types of Charterparty

With a voyage charter, the owner undertakes to carry a cargo for a single voyage. At
the end of the voyage, the ship is available to carry other cargoes and the owner has
no assurance of further employment. The expectation is that the extra risk of the voyage
charter will produce higher rewards, although it does not always happen in practice. The
consequence of these expectations and the owners and charterers behaviour is that the
freight rates on the voyage charter markets are extremely volatile and the earnings per
day for a ship can double or halve within a short period, frequently within less than six
months.
To avoid this volatility, traders may use period time charters as a means of controlling
costs, as they are protected from the freight rate fluctuations which are a feature of spot
market trading.
The shipowner may also prefer period time charters for the greater security, which comes
from knowing that the ship has secure and profitable employment for a known period of
time which may be as long as several years.
Time charters may be used as part of the security for bank loans when financing a ship.
The second-hand price of a ship varies according to the freight rates, so she is not
considered sufficient security for the loan. Bankers like the secure earnings that a period
time charter with a reputable charterer provides when advancing loans to finance a ship,
even if the time charter does not extend for the full period of the loan. It is possible to
design a ship financing package to bridge the gap between current freight rates and the
high capital costs of new ships using both time and demise charters.
The decision on how to charter a ship is also based on the market perception of future
freight rates. When rates are low and likely to rise, owners will be looking for short-term
contracts in order to leave their ships free in order to obtain more profitable employment
when the rates have risen. In this situation, owners will therefore not accept time charters
other than trip charters, unless they are above the current spot market rate, something
which the charterers are not likely to concede. Conversely, when rates are high and the
perception is that they are likely to fall, owners will seek period time charters, to retain the
higher earnings for as long as possible, while the charterers want to keep their contracts
as short as possible. Thus period time charters are only seen when the market is in a
relatively stable position and both parties are willing to enter into long-term contracts.

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4.

4.1

A SHIPBROKERS ROLE IN NEGOTIATING


AND FIXING CHARTERPARTIES

INTRODUCTION

Chartering forms the most important method of employing a ship and there is a world-wide
network of brokers involved in chartering vessels. Traditionally, these brokers may work as
owners brokers, charterers agents or as competitive brokers. In London, this distinction is
not so clear, as most charterers put their business out through several brokers, so a large
charterer may employ a number of brokers. Owners frequently have the brokering function
in-house, hence the term house broker.
4.1.1 Broking Ethics
The motto of both the Baltic Exchange and the Institute of Chartered Shipbrokers is Our
Word Our Bond, which embodies a very strong code of ethics. The need for a code of
ethics comes from the fact that much of the business is based on word of mouth and is
only followed up later by written confirmation. The spoken word legally binds both principals
to each other via the broker or brokers this is a very powerful negotiating tool and is only
useable by approximately 5,500 brokers world-wide, comprising 2,000 members of the
Baltic Exchange and 3,500 Members and Fellows of the Institute of Chartered Shipbrokers.
The value of this code is that it makes it possible to transact business from a position of
trust, without which it would be very difficult to fix (i.e. contract) ships.
BIMCO also recommend to their members various principles of chartering.
There are three types of shipbroking activity:
1.

Dry Cargo

2.

Tanker

3.

Sale & Purchase.

Exclusive brokers have a luxury in this respect, as nobody can bypass them
theoretically.
A shipbroker should never forget to add his or her own commission before submitting any
buyers or owners offer and likewise deducting own commission when passing back any
counter-offer to the buyers or owners.
All vessels have to be registered with a Classification Society in order to trade. The records
held there show how a vessel is being maintained according to the required survey cycles
and any recurring problems will be evident. Also, if a vessel has a record of changing from
one Classification Society to another quite frequently during its life, this could indicate that
the maintenance may be poor.

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The inspection of the Class (classification) records gives the inspector of the actual vessel
some guidelines for any areas that may need to be especially considered when the
physical inspection of the vessel takes place.
The inspection of the vessels Class records and a physical inspection of the vessel would
normally be carried out by the buyers own technical staff but sometimes independent
surveyors are used.
It is most important for a broker to build up a network with other brokers who will give
support when dealing with clients. This is very much a people business and good contacts
(whom you know) are often more important than what you know.
Brokers should try not to rely on screen trading: make those phone calls and, whenever
possible, meet your contacts.
4.1.2 Duties of a Broker
Brokers are still (wrongly) considered by some principals as parasites. Yet they form an
essential part of negotiating and their skills are far more wide-ranging than simply having
the right contacts. The majority of brokers should be neither abused nor ignored by the
trading and legal professions; of course there are always some rotten apples to be avoided.
Conversely, many brokers would be well advised to take a good look at their principals.
The broker is the owners/charterers link with the market, so it is up to the broker to keep
their principals (i.e. the owners or charterers) informed about developments in the market,
even though the principal may not be planning any market operations at the moment. It is
this information that makes it possible for both parties to plan ahead.
To assist with this, most of the large brokers maintain a computer database giving the
current position and status of all ships in which they specialise. The charterers are
therefore able to check on the tonnage that is available before they enter the market. This
helps them to ensure that they can get a good rate, since there may be several owners
interested in their business.
It is the job of the owners broker to ensure that all charterers who may have a cargo from
an area where his ship could load know the position and the details of his vessel. This
entails contacting not only the charterers agents but the competitive brokers as well. The
function of the charterers broker is to ensure that all possible owners are aware of his
need for a ship in order to enable him to obtain the best possible rate.
In addition to the chartering function, brokers also have:
(a) Post-fixture departments: These departments are staffed with experts in the different
aspects of chartering. Their function is to resolve disputes between owners and charterers
and, if possible, eliminate the need to resort to arbitration or the courts.
(b) Research departments: In order to provide the sort of information needed by both
owners and charterers, many brokers operate research departments to keep up to date
with the latest developments in world trade. Many of these departments have a world-wide
reputation for their publications.

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4.1.3 Brokers Usually Work in One of Three Categories:


1.

Exclusive Brokers to Owners

2.

Exclusive Brokers to Charterers

3.

Competitive Brokers.

4.2

OWNERS BROKERS

They work exclusively for one or possibly several tramp shipowners. Their duty is to locate
the best possible cargo at the best possible freight rate for their owners vessels from a
port as near as possible to the load ports, where those vessels are scheduled to discharge
their previous cargoes. They work these vessels on either a voyage charter or a time
charter basis, whichever is more advantageous for their owners within the constraints of
the charterers requirements. Many brokers work as direct brokers for several owners and
use broking skills in their local geographic area and time zone to cover their local market.
Many owners have several direct brokers spread across the globe, each of whom reports
directly to the owner and each of them covers a different region and market.
4.3

CHARTERERS BROKERS

They will often work exclusively for (and sometimes even be owned by) one charterer, often
a large trading house or one of the oil majors, although these brokers will not necessarily
bear the same name as their parent company. They could well be independent brokers
who specialise in working for a number of charterers, in which case these charterers might
retain them on an exclusive basis. Some brokers also look after all the post-fixture work
for their charterers, thereby sometimes earning a retainer fee as well as the usual brokers
commission, which is 1.25% of the value of the total freight.
This exclusivity may perhaps apply only to the trading centre (i.e. city or country) where
the broker is situated eg exclusive for the UK or he may be totally exclusive on a worldwide basis. Such a totally exclusive broker will not have to share his exclusivity/work with
any other broker but an exclusivity which is restricted to one country or region may well
mean that a number of semi-exclusive brokers may be called upon by the trader to find a
suitable vessel. Some brokers who work in this way call themselves direct brokers, thereby
distinguishing themselves from those other brokers whom they approach in the course
of trying to locate the right vessel for their principals. Such brokers report directly to the
charterers rather than via a competitive intermediary.
BEWARE: They are also known as Charterers Agents: this name sometimes causes
confusion, since it also refers to those port agents who have been nominated by
charterers.
4.4

COMPETITIVE BROKERS

They work as independent brokers, trying to match many different cargoes with vessels
from many different tramp owners fleets. The majority of brokers work in this independent
way, because they feel that it does not restrict them to only one or a very few principals.
They used to be known as cabling brokers, which harks back to the days when brokers in
London, New York and the US West Coast would pass trade on to each other by cable at

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the close of each centres business working day. Their function was to compare the freight
markets of the two countries on a daily/overnight basis. Thus they reported on the cargoes
and vessels available, as well as on the fixtures reported done that day. Their work is
highly competitive and nowadays often involves working from home long after close of
normal business hours. A modern broker is no longer restricted by the days final cable.
Several of the larger broking houses in the main chartering centres in the world (London,
New York, Singapore, Hong Kong) in fact perform all three functions, having departments
within each office, which deal with owners or charterers on an exclusive or semi-exclusive
basis and also deal with the wider market on a purely competitive basis.
Other large broking houses have departments which specialise in particular fields, such
as certain geographical areas, or certain types of vessel, or servicing certain industries
(such as the oil offshore industry) or only handling trade which pertains to one particular
commodity. They feel that their specialisation sets them apart from the broker who is more
bound to one principal and that they do not have to fight as hard as the competitive broker
to attract custom.
However, in the climate of trade nowadays, very few brokers feel that they can rely on
any one principal or commodity or vessel type to make a living; thus many brokers spread
their net and may have a few semi-exclusive accounts, as well as some specialisations
and as much competitive work as they can muster. Brokers are wholly dependent on the
volume of trade in their market which of course is true of brokers in any field. Shipping,
as principally a service industry, is of course totally subject to the cyclical, political and
seasonal vagaries of the markets it serves. Baltic Exchange brokers in London are no
longer literally walking the Floor, as the Trading Floor no longer exists and has been
replaced by yet another wine bar or should that be whine bar?
International shipbroking markets are in three geographic areas:
(i)

the Americas represented by New York, with assistance from branch offices in San
Francisco and Vancouver;

(ii)

Asia Tokyo, Seoul, Shanghai, Hong Kong, Singapore, Sydney and Melbourne;
and

(iii)

Europe Piraeus, Oslo, Hamburg and Copenhagen for owners, Paris for charterers
(especially traders of soft commodities) and London, which is still the main centre of
international shipbroking, covering approximately 45% of all world shipping trades.
Whilst this is a reduction from the domination of handling 75% of world shipping
until 1992, London still covers more than most minor chartering broking centres
combined.

4.5

DUTIES OF BROKERS TOWARDS THEIR PRINCIPALS AND VICE VERSA

Brokers must be aware of the necessary application of basic agency law. Above all,
they must always work within their warranty of authority as defined by their principal
shipowner or charterer. Even if brokers take on the mantle of an agent of necessity, they
should always ensure that their principal ratifies their actions within time, otherwise the
brokers might find that they have become a principal, which will have several potentially
devastating effects:

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(i)

they will almost certainly not be able to afford to become that principal by providing
a vessel or a cargo;

(ii)

they might be accused of misrepresentation;

(iii)

they might not be able to defend their error;

(iv)

their action might invite an expensive law suit;

(v)

the result of such action could ruin the brokers financially;

(vi)

irrespective of any legal action, the brokers reputation would probably never
recover.

Awareness of rights and obligations of a broker:

4.6

A principal can ruin a brokers market by over-quoting his own ship or cargo, thereby
forcing the market against him by giving the impression of being desperate. A
principal who changes his mind mid-negotiation by back-trading will damage both
his own reputation and also his brokers future credibility.
There is a fine line between a broker giving advice and being perceived as interfering
with his principals business. This balancing act depends on experience and the trust
and needs of the principal.
It is wise for both brokers and principals to vet each other, if possible well in advance
of needing to work with each other.
Shipbrokers and their commission are nowadays protected by the Contracts (Rights
of Third Parties) Act 1999 under English law, which governs most charterparties.
There is a benefit with being associated with a professional institution such as the
Baltic Exchange or the Institute of Chartered Shipbrokers.
Unlike in the insurance market, in which initial full disclosure of all facts is a legal
duty, shipbrokers know that ethically it is vital to establish trust and to maintain a
good reputation in the market place.
Disclosure of too many facts too early could be abused by a principal, in which case
that principal could be shunned by the broking fraternity, if necessary world-wide.
Eventually news will spread to future charterers or owners.
THE ROLE OF BROKERS

Along the transportation chain, agents and brokers each have three main functions:
(i)

Provide information (of current, developing and projected markets);

(ii)

Be an effective and efficient intermediary (between two principals);

(iii)

Co-ordinate the negotiations to conclude a fixture.

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BROKERS can either act for one or for both principals, often working to bring them together
to their mutual agreement, whereas AGENTS usually only act for one principal. Brokers
tend to have no formal contract with their Principals but can rely on a contract which is
implied by their conduct. Agents, especially when they are brokers who work exclusively
for charterers or owners, do usually have a formal contract with their Principal.
4.7

THE ROLE OF THE BROKER UNDER AGENCY LAW

A broker (or agent) must always only work strictly within the specified authority given by the
principal, who may have very good financial reasons for not wanting to go beyond those
limits; or the principal may simply want to manipulate the market, either for this fixture or
for the next few fixtures . . .
A broker may be able to act beyond the principals authority but only if there is already a
very well-established relationship between principal and broker, who could then be acting
under the rules of Agency of Necessity.
A broker (who may also be known as an owners or a charterers agent) may work so
closely with the principal that he/she will be permitted to sign the contract (COA or C/P) on
behalf of that principal. However, great care must be exercised here, otherwise the broker
is in danger of committing himself/herself and thereby becoming a principal to the contract.
Therefore a careful broker will always sign for and on behalf of [name of principal owner
or charterer] as agent only and ideally will add by written authority.
This exposes the dangers of undisclosed agency:

The legal aspect

The practical aspect

Possibility of inviting lawsuits

4.8

Probability of an eventual claim being large enough to close a (small) broking


house.
SHIPBROKERS REMUNERATION: BROKERAGE/COMMISSION

Each shipbroking company traditionally earns brokerage or commission at the longestablished rate of 1.25% of the value of the freight, dead freight, demurrage, damages
for detention, hire and ballast bonus. (Commission on demurrage is not always paid
by US major oil companies.) This usual percentage rate of 1.25% may be altered by
mutual consent of all three groups of parties involved in the commercial transaction, i.e.
the owners, the charterers and all the brokers. Commission is payable to each broker.
An owner may give all his business to one exclusive broker in return for a smaller
commission (1%).
The only usual exception is brokers involved in the coastal trades, who generally do as
much work as a deepsea broker but, because the traffic is in much smaller vessels, the
value of the freight is correspondingly smaller, so these brokers usually earn 2.5% of the
value of the freight.

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Address commission is paid to the time charterer to cover the cost of managing the ship
while she is on charter. Traditionally, address commission (adcom) is taken by the trader
charterers on a voyage charter in order to cover the cost of their shipping departments,
which are frequently at a different physical address from the trading office, hence the
name. Such a commission is often hidden within the charterparty commission clause
as (e.g.) 5% commission to Joe Bloggs, Shipbrokers, for division with others. One of
those others might be the charterers, so for example, the division could be 1.25% to Joe
Bloggs (shipbrokers), 1.25% to Mary Smith (shipbrokers) and 2.5% address commission
to the charterers. The key point here is that the charterers do not want the buyers of their
commodities to know that they are taking additional profit this way, so it is also called a
hidden commission.
In deepsea tanker chartering, address commission is not always requested and depends
on the nature of the trade some traders want 4%, others 1% or 1.25%, or 2.5%. This
commission is usually deducted directly from the freight or hire, rather than the charterers
paying the full freight or hire to the beneficial owners and then waiting for those owners to
remit the commission back to the charterers.
The only party benefitting from such a protracted transaction would be the banks involved,
because they take a slice of the monies transacted as their fee.
Sale and Purchase (S&P) brokers traditionally earn 1% of the sale value of the vessel,
which might seem excessively generous until it is realised that this large amount must
cover (often many) months of broking work, including a lot of high telecommunication
costs, lawyers fees, surveys and possible travel expenses, as well as the time spent on
all those deals which never materialised. Of course, this last item is relevant to all brokers,
whose efforts are unrewarded unless there is a fixture or sale at the end of negotiations.
Sometimes brokers will agree to cut their own commissions in order to effect a sale (or a
charter), particularly in difficult markets.
4.8.1 Risk of Fraud
Some charterers may not want their identity to be revealed to the owner until the
negotiations have been completed. This may be for commercial reasons i.e. not allowing
a competitor to know that they are buying a cargo. This situation can cause difficulties for
an owner and in this situation the broker will refer to his principal as a first class charterer.
The use of this term can have implications as far as the broker is concerned should the
charterer prove to be less than first class. It is therefore important that the broker is careful
when making such statements.
One of the items in the Baltic Exchanges code of ethics (The Baltic Code) is that a broker
will inform the owner in writing if he has no specific or reliable knowledge of the charterer. In
this situation, the owner would be advised to fix subject to owners approval of charterer.
The broker would also advise the owner in writing to insist on freight BBB (Before Breaking
Bulk); this means that the owners can retain a lien on the cargo in the event of the freight
not being paid. The owner should also refuse a letter of indemnity unless provided with a
bank guarantee. BIMCO and the IMB (International Maritime Bureau) maintain registers of
good and bad charterers and shipowners.
One of the sanctions that the Baltic Exchange can have on owners, brokers or charterers
who disregard the code of ethics is to be posted on the Baltic. The name of the guilty party

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and the offence is put on the notice board in the Baltic Exchange as a warning for anyone
(i.e. any member) contemplating conducting any business with them.
4.8.2 Contracts (Rights of Third Parties) Act 1999
Until this recent Act came into force on 11 May 2000, brokers were at the mercy of the
party who usually pays all brokers, i.e. the shipowner. This is so even if the broker is a
charterers broker. Prior to this Act, a broker was a party mentioned in Charterparties but
was not a party to the charterparty. This subtle distinction gave unscrupulous owners an
excuse not to pay brokers, who were hitherto unable to sue under the contract (the C/P)
under which they had no rights.
The 1999 Act has created important changes to the rules regarding privity of contract, one
of the most fundamental areas of English contract law. The doctrine of privity of contract
has been described [in Chitty on Contracts, 26th Edition, 1321] thus:
a contract cannot (as a general rule) confer rights or impose
obligations arising under it on any person except the parties to it.
This was emphasised in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915 AC
847] in which Lord Haldane LC said:
In the law of England certain principles are fundamental. One is that
only a person who is a party to a contract can sue on it.
The basic premise of this rule has not changed, save as regards the rights of a third party
who would previously not have been protected.
Thus, a typical problem for a broker could occur when he or she acted as a charterers
agent when negotiating a fixture with a broker who represented the shipowner. If the fixture
were concluded, a clause would be included which would provide that a certain amount of
commission (usually 1.25%, as described earlier) would be paid to each broker involved
in the creation of the contract. Previously, if the owner then did not pay one or more of
these brokers, they were unable to sue under the contract, since they were not a party to
it, despite the inclusion of a clause specifically for the brokers benefit.
Brokers had therefore to resort to other methods of ensuring their remuneration would be
settled, such as using the only effective asset in a brokers armoury: word of mouth. It does
not take very long for rumours to be fuelled especially powerful if such rumours serve to
diminish the reputation of shipowners who depend on those same broking communities
for their vessels income.
However, great care had to be taken by the broker not to spread false rumours for fear
of being accused by the owners of slander (or of libel if the brokers told anyone in writing
about those owners).
Under the 1999 Act, Section 1 states that
(1)

Subject to the provisions of this Act, a person who is not a party to


a contract (a third party) may in his own right enforce a term of the
contract if

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(a)

the contract expressly provides that he may, or

(b)

subject to subsection

(2)

the term purports to confer a benefit on him.

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The strength of this Act for brokers is that they are now entitled to sue for their earned
commission provided per Section 1(3) they are expressly defined in the contract by
name, as a member of a class or as answering a particular description.
There is currently some discussion among brokers and their legal advisers that broker ABC
who, for reasons of confidentiality, for example, is included in a general bracket description
of 5% commission to be paid to broker XYZ, for division with others is still covered under
the new Act by being a member of a class or description, i.e. is a broker similar to broker
XYZ, who is specifically named in the contract.
This will have wider implications for undeclared or unspecified address commissions
for the charterers, who frequently shun any publicity which might alert their clients (the
receivers of the goods, for example) to this additional hidden profit.
There is much to commend this Act and brokers would be well advised to ensure that
they are included in charterparties by name or, failing that, by description if linked to other
named brokers.
The Act does allow these rights for brokers to be nullified by an express contractual
provision to the contrary, but since the contract has been negotiated and will be physically
created by those same brokers, the inclusion of such a clause would be most unlikely.
However, the Act does give the contractual parties the right not to pay commissions to
brokers who created it, if it appears that the parties to the contract did not intend the
term to be enforceable by a third party. So if both principals agree, without the brokers
knowledge, that they do not intend to reward the broker for bringing them together under
the terms of that contract, then the broker has little, if any, right to sue successfully for
earned commission. It may then become necessary for a court to decide what was the
intention of the parties and whether they were entitled to agree not to pay commission to
their broker.
This Act should do much to obviate the need for charterers to come to the unofficial aid
of their brokers, as hitherto. The Act should also considerably reduce the number of
legitimate commission claims, although these may not be completely eradicated because
of the regrettably haphazard manner in which some brokers construct charterparty clauses,
which will ultimately bind all parties, including themselves.
4.9

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ARE BROKERS NECESSARY?


They are indeed necessary if they act as a fast and efficient database, not as a mere
recycling post-box.
They facilitate negotiations at arms length, thereby helping their principals from
being perceived by the market as being desperate, which would inevitably drive the
market away from them. In other words, if a shipowner makes 200 telephone calls
to potential charterers, who of course discuss the market amongst themselves, they

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will collectively assume that that owner needs to fix a cargo very soon, therefore
the charterers will negotiate the freight much lower than if the owner had allowed
a broker to place the vessel in the market place and make a few discreet phone
calls.

Brokers specialist knowledge could save the principal both time (which is equal to
money) and disputes, possibly otherwise leading to an arbitration or a court case.
Beware the F & F broker, who simply wishes to Fix a cargo or a ship and then
Forget about any Post Fixture (or after sales) service!
It is always preferable to choose a broker who is qualified as a Member or a Fellow
of the Institute of Chartered Shipbrokers, although (unfortunately) it is not yet
compulsory within the profession to take ICS exams.
Port agents can be qualified shipbrokers too, thereby extending their knowledge and
giving a broader service to their clients.

4.10 FIXTURE NEGOTIATIONS


Obviously the basics of Contract Law offer and counter-offer apply:
For a contract to be valid, there must be
(i)

an offer;

(ii)

a clean acceptance of that offer;

(iii)

consideration (i.e. payment in some format of money, goods or service); and

(iv)

legality.

In tramp chartering, consideration means payment of freight. Freight can take the form of
a lump sum, or of pro rata per ton loaded (as evidenced in the bill of lading) or discharged
(the out-turned weight), or of advance freight, backfreight, distance freight or dead
freight.
Until such time as the offer has been fully and unconditionally accepted, there can be
no payment of consideration and therefore there is no valid contract. There are very few
charter fixtures which are the result of an immediate clean acceptance of an initial offer,
unless it is on the basis of so-called repeat business, in which case the merest of details
change, such as perhaps the name of the vessel or the lay/can dates or the amount of
freight to be levied, and otherwise all other terms, conditions and exceptions of the
previous charterparty dated . . . to apply.
However, the vast majority of charterparty contracts are the result of some (often many)
counter-offers, which are finally resolved in a mutually acceptable agreement.

If the shipowner is the first to initiate negotiations, this is called an offer;

If the charterer is the first to initiate negotiations, this is called a bid;

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Thereafter every counter-move made during the negotiations by either party is called
a counter-offer or usually a counter.

Prior to negotiations commencing, there is often an exchange of indications, in which case


the principal merely wishes to test the water on a certain point or points, often using the
broker as a thermometer.
If one party makes a counter-offer during negotiations to the other party, usually for reply
within a certain stipulated time, it will be made as a firm counter, in which case both parties
know that the offer has thereby bound himself not to offer the same vessel or cargo to any
other party prior to the expiry of the self- imposed time limit.
FOR A REPLY/COUNTER-OFFER TO BE VALID, IT MUST BE MADE IN GOOD TIME :
Even one minute late can result in the substitution of that owner or charterer by another
charterer or owner; so it is best to counter well within time, if possible, especially in a
volatile market.
If you know that it is not going to be possible for you (as principal) or your principal client
(if you are a broker) to reply in good time, the best (and the most courteous) safeguard is
to advise your counterpart that it looks most unlikely that you will be able to reply in time
and could you or your client please be granted an extension for the reply time.
It is not always easy to reply in good time: this could be due to the number of parties in a
broker chain, for example, or due to poor telephonic connections with certain countries.
Thus the number of counters should be kept to a minimum if these circumstances should
prevail.
Naturally, the negotiations should whittle down the contentious points as much and as
soon as possible: therefore it is the brokers skill and knowledge of his principals and/or of
the prevailing market which will facilitate this process.
NB: AN OWNER/CHARTERER CAN ONLY BE FIRM TO ONE CHARTERER/OWNER AT
ANY ONE TIME.

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5.

SUBJECTS

When a firm offer is made and accepted, it may be subject to something else happening
before negotiations can become a fixture, i.e. a legally binding contract . . . . This subject
(or proviso) is an indication that the main parts of the business have been agreed upon,
but there are still some details to be finalised.
Brokers should avoid peppering the main terms with too many subjects before the final
contract can be concluded as a fixture. However, some subjects (i.e. provisos) are
necessary, the important ones being:
1.

subject to owners approval of the charterers;

2.

subject to the charterers approval of the owners;

3.

subject to the cargo shippers or receivers approval of the owners or of the vessel;

4.

subject to the Board of Directors approval of the fixture;

5.

Subject To Enough Merchandise (i.e. cargo) being available known as STEM (or
strangely but most usually as subject STEM);

6.

subject details, i.e. there is no fixture until all the details have been agreed: (see
below);

7.

Subject open . . . subject to the vessel being available to be negotiated and fixed.

These subjects are to be declared by a given time or within a specific period after fixing
the main terms and the details.
Under English Law there is no fixture until all the subjects are lifted therefore, as far as an
owner is concerned, it is important that there is a time limit on the subjects.
5.1

FIXING ON SUBJECTS: BE VERY WARY OF THIS:

1.

The Institute of Chartered Shipbrokers, BIMCO and the Baltic Exchange disapprove
of this practice.

2.

It does not make for speedy culmination of negotiations, even though it might well
help charterers/merchants to conclude their trade in the interim.

3.

In an owners market, it does leave owners open to fix elsewhere if the charterers
cannot release the subjects in time.

4.

In a charterers market, this practice does allow charterers to look around for a better
(a bigger or smaller or earlier or later) vessel or a cheaper freight rate and have that
extra knowledge up their sleeves in case they fail on subjects with the first owners.
However, as above, they can only hold one vessel firm at any one time.

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5.

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(FIXED) SUBJECT (to) RECEIVERS APPROVAL: Sometimes a traders receivers


will insist on a certain type of vessel and will need to approve the vessel before it can
be chartered, either by the trader (if the sale of goods is on a CFR/CIF basis) or by
the receivers (if they purchase the merchandise on an FOB basis). Alternatively, the
trader (potential charterer) may not be aware that the cargo buyer (receiver) has a
dispute with this particular shipowner from a previous carriage of cargo and that the
receiver therefore refuses to accept any future cargoes to be carried by the owners
ships until the dispute is resolved ~ this prevents the trader from chartering a vessel
from that shipowner at that time.

For example, a dry cargo vessel may need to be fully geared up to a certain stipulated
SWL (Safe Working Load) capacity. Alternatively it may need to be Australian hold ladders
fitted or (Great) Lakes fitted. However, you should be aware that this information should be
made available in the owners initial offer, which includes a full description of the vessel.
Older vessels may even need to be described as having no wooden ceiling, to avoid
damage by the receivers grabs when discharging bulk cargo.
In the case of liquid cargo, a tanker may need to be approved by the receiver: for example,
whether that tanker has caused oil pollution in the recent past, or whether it is known to
have inefficient pumps and is therefore typically slow at discharging cargo, or even as
simple a question as what were the previous three cargoes carried; if they are incompatible
with the cargo to be carried, the vessel may be rejected unless or until it is warranted as
having been fully cleaned.
Of course, a broker should also be wary of proposing a single-skinned vessel to a principal
charterer wishing to carry liquid cargo to or from the United States since the OPA (Oil
Pollution Act) 1990 after the Exxon Valdez incident in US Alaskan waters in March 1989.
There is currently much talk of the advent of a similar EUROPA (European Oil Pollution
Act) to combat oil pollution in European waters, particularly after the Erika incident off the
northern coast of France in December 1999 and the Prestige off Galicia in northern Spain
in December 2002.
Nevertheless, the majority of charterers who request this have a genuine trading need to
do so and are therefore caught in somewhat of a Catch 22 situation.
Owners are of course aware of this and, depending on the state of the market, they will
either take the commercial decision to continue their negotiations with this charterer,
possibly because of traditional loyalties or because of the scarcity of other good and/
or high-paying charterers, or be aware of market forces and factors and seek alternative
employment elsewhere.
1.

(FIXED) SUBJECT STEM: (S.T.E.M. stands for Subject To Enough Merchandise).


Beware of charterers who may try to use this as a bargaining ploy in a weak (i.e.
charterers) market. Nevertheless, the majority of charterers do genuinely need to
confirm this with their suppliers and can only do so once they have a vessel firm in
hand.

2.

The origin of the word stem in this shipping context is from the time when sailing
ships had to wait for their cargoes and were not allowed to come alongside the berth
until all the cargo was available to be loaded. The bowsprit (also called the stem) of
the vessel, being the boom for the foresail and the most prominent front part of every
mercantile sailing ship, was the first part of the ship to arrive at the berth.

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FIXED SUBJECT DETAILS in London means precisely that: the vessel will not be
considered as having been fixed until all the details of the charter party clauses have been
agreed to. Fixing on main terms is merely the first stage in negotiations.
FIXED SUBJECT DETAILS in New York means that the main terms have been agreed
upon and that therefore the vessel has been fixed. It is up to the parties (and their brokers)
to resolve any disagreements or disputes in the best and most mutually satisfactory way,
as speedily as possible. Regrettably, this often leads to one party instigating proceedings
in arbitration or court in order to resolve what the rest of the world outside New York
considers is not yet a contract, so there is great conflict of law in this area. It is therefore
advisable to establish the ground rules before negotiations begin.
5.2

SUBJECT DETAILS

It is important to distinguish between details and terms. It is dangerous practice to leave


details to the end and discouraged by Intertanko and BIMCO. If agreement cannot be
reached on the details then there is no fixture. It is also possible, although considered
unethical, to reopen negotiations on the main terms if the subsequent details appear to
warrant it.
In the USA the position is different; under US Federal Law (or more usually New York State
law) the charter is considered fixed even if it is still subject to details and can only be set
aside if both parties withdraw. This is very important because New York interpretation of
the law is that the agreement of the main terms constitutes a fixture and therefore failure
to agree all the subsequent details means a breach of that contract, for which breach
proceedings will commence in court or arbitration.
It is therefore important that the subjects are clarified by suitable wording.
5.3

PROBLEMS WITH SUBJECTS

BIMCO have produced a warning in their bulletin regarding the abuse of subjects; they
quote experiences with charterers who:
1.

use the subjects to work and fix several ships at the same time, eventually
the cheapest ship;

2.

do not bother to check the suitability of the ship for the cargo, using the failure of the
subject as a pretext to get out of the ensuing difficulties;

3.

fix a ship with two days sub stem when they already have their own vessel and are
covering the possibility of finding better employment for their own ship.

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6.

WARRANTY OF AUTHORITY

When fixing a ship, the broker is deemed to be acting with the full authority of the owner
or charterer. It is therefore important that the broker obtains this authority before making
offers or counter-offers. Alternatively, the principal must ratify the brokers action within a
set time period.
If the broker does not have the authority, he may be sued by the person receiving or
accepting the worthless offer.
Such an action would be on the basis of breach of authority, either with or without
negligence.
In the case of a breach with negligence, the broker passes on or accepts/agrees an
incorrect offer, either by mistake or deliberately. Should the mistake be made by another
party and passed on by the broker, then it becomes a breach without negligence.
In both cases. the broker can be liable for damages but when it is without negligence, the
broker has the chance of recovery from the party who passed the incorrect information to
him.
Chartering is a fast moving business, it is always possible to make mistakes, so most
brokers will be covered by professional indemnity insurance against negligence. Before a
broker can trade on Londons Baltic Exchange, he must demonstrate that he is covered by
professional indemnity insurance.

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7.

FIRM OFFERS

When an owner makes an offer to a charterer or vice-versa, this is known as a firm offer.
A very important aspect of the ethics of shipbroking is the treatment of firm offers. The
code of ethics of the Baltic Exchange, of the Institute of Chartered Shipbrokers and of all
other sensible brokers prohibits the making or the holding of more than one firm offer at
one time.
When negotiating, it is not possible to hold two firm offers. When a broker acting on behalf
of the owner makes a firm offer, the ship cannot be offered elsewhere at the same time.
Equally a charterer cannot make an offer to two ships at once, otherwise he could be
obliged to provide two cargoes. All offers, therefore, have a time limit attached. It must be
clear in what place (or time zone) the time limit is to apply, e.g. 10 pm Tokyo time.
This system has advantages for both owners and charterers, as each party knows that the
other is interested in their business and that a contract or fixture will follow, provided they
can agree on all the terms. They also know that they are not in competition with another
party, i.e. the owner knows that the charterer is not talking to another owner and the owner
knows that his is the only ship which the charterer is fixing.
It is possible to offer a ship or cargo subject open or subject unfixed, thus indicating that
negotiations are being conducted with other parties. Many owners or charterers refuse to
do business on this basis.
7.1

THE FIXTURE

7.1.1 Voyage Charters


When a charterer requires a ship, they will instruct their brokers or several brokers, giving
details such as:
Cargo
Loading and Discharge Port or Ports (with tankers this is more likely to be a
geographical range) rather than a port
Freight (indications)
Type of charterparty and clauses
Dates
This is known as an invitation to treat.
The owner will make an offer via a broker; this will contain some or all of the following
information:
Ships name and previous name
Flag, Year of Build, Class
Description of vessel, including cargo-handling equipment
Last three cargoes
Cargo details and quantity including percentage more or less.
Loading and discharge ranges

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Freight rate, how to be paid, e.g. $ to owners bank in New York


Laydays/Cancelling, ETA . . . position
Demurrage
Name of charterparty and additional terms
Worldscale terms and conditions (tankers) or loading and discharge rates (dry cargo
ships) and laytime conditions i.e. SHEX or SHINC
Owners option to slow steam down to . . . knots
Commission
Time limit on the offer.
This offer will be passed to the charterers via the broker, and if passed verbally it will be
followed by a telex. The reason that the telex is still used (in countries where it is still valid
but unfortunately. no longer in the UK, Norway or Italy except to or from vessels) is that
it has an answerback facility and this will provide evidence of when the offer is received
by the other party. This is very important in a situation where it is necessary to establish
whether an offer was in time or not. An alternative method is to send a fax or an email
and then telephone the recipient to confirm receipt of the message.
The charterer can then reject, accept, counter, accept / except or accept on subjects.
The negotiations will continue with each side making counter-offers until the details
including terms are agreed and the charter will be agreed apart from the subjects . . . Note
that under English Law there is no contract until all the subjects are lifted.
When the subjects are finally lifted, the negotiated terms are collated into the
charterparty.
While waiting for the subjects to be lifted and before the charterparty is produced, the
broker will send a recap (recapitulation) message to both parties, detailing all the points
agreed by the parties. This is the point at which the owner and charterer check with their
notes and corrections, if any are made, to ensure that the charterparty reflects what has
been agreed.
In order to save time, a fixture may be made on the basis of last done. This means that
the terms and conditions that were agreed on a previous fixture will be repeated with
certain agreed exceptions. Thus it is important that both parties are clear about what this
means.
7.1.2 Time Charters
These are fixed in the same way. However the details required for the firm offer will be
different, and a time charterer needs to know a great deal more about the ship and her
suitability for his requirements. Thus a firm offer for time charter would look like this:
Reply by
For account of
Name and description of ship including speed and consumption (note that this has to be
realistic as it forms the basis of performance assessments) Delivery (when/where ready,
Dropping Outward Pilot (DOP), passing X)
Period/Trip
Redelivery (when/where ready)
Trading area, always within institute warranties, excluded countries
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Intended trade, excluded cargoes


Rate of Hire (daily or $ per dwt per month)
Ballast bonus
Cargo-handling equipment
Overtime
Where and how paid
Bunkers
Quantities and prices on delivery and re-delivery
Charterparty form
Commission
Subjects
7.2

THE IMPORTANCE OF KEEPING RECORDS DURING NEGOTIATIONS

A record of all offers, bids and counter-offers and the times when they are made should be
maintained. This is important because, in the event of a dispute, the courts may have to
decide on what the intention of the parties was at the time when the contract was agreed.
The record of times is important if either party considers that a counter-offer was out of time.
It is good practice to log all telephone calls and many offices have telephone monitoring
equipment that is used for this purpose.
7.3

EXAMPLE OF A FIXTURE

This is an example of a fixture which shows how the procedures were followed.
The owner was informed by his broker that a tanker charterer was looking for a VLCC to
load Oman/Gulf for Western discharge options. The broker also informed the owner that
one of his ships was in a suitable position and acceptable to the charterer.
The owners first offer to the charterer was:
Name, Flag, dwt 211,597
210,000 5% MOLOO 1 grade Crude Oil, No heat
1 SP Oman
1-2 SP UK Cont Gib/Hamb Range or CHOPT
1-2 SP EuroMed NEOBIG (Not East Of But Including Greece) excluding Falconara/
Fumicino/Ravena and Albania.
1-2 SP US Atlantic Coast if New York not north of George Washington Bridge,
excluding Florida.
1-2 SP US Gulf excluding Florida.
25/27th May 2007
Owners option to slow steam down to 12 kts weather and safe navigation permitting
Asbatankvoy
Freight US$ to owners designated bank in New York
GA & Arbitration London
General Average York Antwerp 2004
Conoco Weather Clause
FMC/USCG
Worldscale Terms and conditions rates to apply
Rate Extras Demurrage Worldscale 60 UK, Cont, Med
Worldscale 65 USA
Chevron War Risk clause, First 14 days owners account, rate as per date of CP,
(currently present time) any inclusions for charterers account.
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Commissions 1.25%
Reply 18.35 hrs
The time expired before a reply was made
7.3.1 The Reply Was as Follows
After enquiring whether the owner was still open, the charterer sent the following:
Name, 211597 dwt on 63 5 326 m LOA 48.2m beam
IGS/COW 98% nil slops 261698.5 cbm, 1646000 bbls 98%
Based on charterers or brokers information.
Please advise
BCM 162m
Derricks 2 x 15t
TPI 356 mt (full cond)
KTM 55.7m
Last three cargoes
Full cargo 210,000 mt 5% MOLOO no heat crude, max 2 grades within vessels
natural segregation.
1-2 ports AG including Oman
1-2 ports UK cont Gib/Hamb range or Charterers Option
1-2 ports Med excl Albania
1-2 ports Caribbean
and or 1 or 2 ports US Gulf
and or 1-2 ports US Atlantic Coast if New York not North of George Washington
Bridge
or 1-2 ports East coast Canada (Always Within Institute Warranty Limits)
25th-27th May 2007
Charterers CP
Worldscale 55 Cape/Cape
Demurrage 15,000$ per day pro rata
WS Hours
Freight US$ to owners account NY
Vessel to Arrive loading ports with clean ballast
Vessel to proceed loaded leg at 12 knots, weather and safe navigation permitting
Please advise maximum speed at 1 WS point per knot or pro rata
Owners warrant vessel is fitted with 2 bow chain stoppers compressors and
complies with OCIMF recommendations for loading discharging at SBM/SPM
Subject questionnaire satisfactorily answered
Subject suppliers and management approval
1700 London 16th or 1 hour after receipt of questionnaire whichever latest
7.3.2 The Owners Reply Was:
Accept/Except
 combination Caribbean US Gulf or Caribbean US Atlantic Coast
Maximum 2 discharge ports, always good rotation
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Speed about 12 kts, 13 max 1.5 pts per knot


Vessel to bunker after loading
No NE cert willing to get it
Freight taxes if any to charterers account
Chevron War Risk clause
1 SP Oman 25th/27th
1 SP AG Not North of Ras Tanura excl Iraq and Iran 25th/30th
Excluding Florida
Demurrage 25,000 US$ per day pr
7.3.3 The Charterers Reply Was:
Repeat except
1-2 Ports AG Not North of but including Ras Tanura incl Oman exc Iran Iraq
Delete safe
Discharge excluding Florida
Owners Combinations OK
If Falconara, Fumicino, Ravena any weather delays to count in full as used laytime
or demurrage if on demurrage
25/27 Oman
25/30 AG
Dem $16,000
Max 2 discharge ports excluding lighterage
Max 13kts at 1 pt WS per knot
Chevron War Risk clause
Bunkering after loading noted
7.3.4 The Owner Replied:
Accept/Except
Insert Safe
25/27 2400 hrs Oman
25/30 Ag
Demurrage 24,000$
About 12 kts
Freight taxes if any charterers account
Subs noon tomorrow
7.3.5 From Charterer
Safe, add qualification charterparty
Freight taxes for charterers account
USD 19,000
Subs 1,700
7.3.6 From Owner
USD 21,000
Subs 1,400
With the subjects lifted, the recap telex followed

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8.

CHARTERPARTY FORMS

The long history of chartering means that there are a large number of charterparty forms
in use, many of these are written for a specific trade and therefore deal with the customs
of the ports involved while others are suitable, with additional clauses, for any voyage.
There is a strong tradition in shipping to stick to tried and trusted forms, so many of the
charterparty forms are old and do not properly take into account the massive changes
brought about by the use of large bulk carriers or the latest tanker practices. They
therefore have to be modified by the inclusion of additional or side clauses. This leads to
complications and disputes over the meaning of these clauses, particularly where they
have been badly drafted which may be the case when they have been made up on the
spur of the moment. To alleviate this, organisations like BIMCO and Intertanko have drawn
up a number of charterparty forms to avoid the use of additional clauses.
8.1

TYPES OF CHARTERPARTY FORM

In dry cargo chartering members of BIMCO are expected to comply with the following:
An official charterparty form is a form that has been agreed and passed by an official body
such as BIMCO, these are distinguished from other forms which are not considered to be
as suitable for use, possibly because they unduly favour one or other of the parties involved.
The shipowner is advised whenever possible to use these forms because they are usually
well drafted and balanced forms.
The official forms may be described as:
a)

An agreed charterparty: this is a form which has been agreed between BIMCO or
another group of shipowners and charterers for the trade concerned, the terms must
not be altered in any way. The use of this form is compulsory for that particular trade.
Examples of agreed forms are Polcoalvoy and Sovcoalvoy.

b)

An adopted charterparty: if a charterparty has been agreed by two organisations, and


another organisation wishes to make use of it, they may then adopt the charterparty.
Thus BIMCO may adopt a charterparty agreed by the Chamber of Shipping of the
UK and a number of charterers. BIMCO members would then be expected to use this
document whenever possible.

c)

A recommended charterparty is used where no specific charterparty exists for a


particular trade and an organisation like BIMCO would recommend a particular
charterparty, such as Gencon, for use by its members in that particular trade.

In practice, the choice of form is dictated by the charterer and not by the shipowner.

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8.1.1 Dry Cargo Charterparty Forms


A wide range of different forms are used in dry cargo chartering. Some are general purpose
while others are for specific trades.
8.1.2 General Purpose Forms
Gencon, this is a general purpose voyage charterparty, which is considered fair to both
parties.
Universal Voyage charterparty 1984 (NUVOY 84)
Multiform, this is a general purpose charterparty issued by FONASBA, (Federation of
National Shipbrokers and Agents).
Some specialised charterparty forms in common use include:
Polcoalvoy
Sovcoal
Americanised Welsh Coal Charter (Amwelsh)
Australian Coal Charter
C Ore 7 (for iron ore)
Synacomex Grain
Centrocon
Sugar 77
8.2

TIME CHARTER FORMS

There are no specific charterparty forms for bulk cargo cargoes, common forms are:
New York Produce Exchange (NYPE 1993)
Baltime 1939 (revised 2001)
Gentime
Linertime
Boxtime 2004
BPTime 3
Shelltime 4
Supplytime 2005
8.3

BAREBOAT CHARTER FORMS (DEMISE)

Barecon 2001
8.4 CONTRACT OF AFFREIGHTMENT FORMS
Intercoa
Volcoa
These forms are not always used, frequently a letter is used stating the main terms of the
COA and then voyage charterparties are used for each voyage.
Note forms marked with an * are issued or recommended by BIMCO.

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8.4.1 Tanker Charterparty Forms


The number of tanker charterparty forms is less than for dry cargo, this is because there
is not the variety of cargoes that are found in the dry cargo trades. Therefore there is not
the same need for specialised charterparty forms.
In general the tanker charterparty forms are of three types:
a)

Those produced by the oil companies, which include:


SHELLVOY 6 (Produced by Shell)
SHELLTIME 4
BEEPEEVOY 4 (Produced by BP)
BEEPEETIME 3
EXXONVOY MOBILVOY 2005
TEXACOVOY and TEXACOTIME (although Texacos parent Chevron usually use
ShellVoy or ShellTime.)
VELAVOY
These charterparties were drawn up by the major oil companies and hence some
owners consider them to favour the charterer, although this is not necessarily the
case. When chartering to these companies, the tanker owner will almost certainly
be required to use the companies charterparty form although, in a good market, the
owner should be able to have some of the clauses to which he objects removed or
at least modified by incorporating additional or side or rider clauses. It should be
noted, however, that the oil companies are also shipowners and use their own forms
when their own vessels are chartered out: therefore in fact these forms are not as
biased as some owners think.

b)

c)

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Those charterparties produced by ASBA (Association of Shipbrokers and Agents,


USA)
(i)

The ASBATANKVOY this was formally the EXXONVOY 69 which was taken
over by ASBA. It is the most common tanker C/P form used by traders. This
C/P was not drafted very well and does not relate to current tanker practice,
hence most of the court cases in tanker chartering concern the Asbatankvoy. In
practice, whenever the Asbatankvoy is used, it is heavily modified by additional
clauses.

(ii)

ASBA II voyage, this was developed by Esso and previously known as the
STB. It is considered to be heavily biased towards the charterer. In practice it
is rarely used.

(iii)

ASBATIME time charterparty produced by ASBA. This is also rarely used.

The INTERTANKVOY and INTERTANKTIME were produced by Intertanko in Oslo.


These are considered to favour the owners and therefore are not in fact used.
INTERCONSEC is available for consecutive voyages. They do, however, provide
an example of well-drafted charterparties, which are fair to both sides. Students are
advised to study them for examples of good practice.

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8.4.2 Specialist Tanker Charterparties


These are for the specialist tanker voyages and include:
BISCOILVOY is used for vegetable oils, animal oils and fats
VEGOILVOY for vegetable oils
London Form and IMOL 78 are used for molasses. The London form is sometimes
used in small tanker products trades, it normally requires some additional clauses
GASVOY is a BIMCO charter used for LPG cargoes
CHEMTANKVOY is a BIMCO charter used for chemical cargoes
8.4.3 Additional Clauses
It is most unlikely that a charterparty would be agreed without any additional clauses, known
as rider clauses, being added. These clauses always take precedence over the printed ones
in the C/P. Although these clauses may be drafted by the owner or the broker to cover a
particular situation, there are a number of recognised clauses available. The advantage of
using such clauses is that they are well known and their meaning is usually understood.
This presents less risk of a dispute than would be the case if the clause has to be specially
drafted. INTERTANKO provide a book containing a large number of such clauses. The use of
recognised clauses is more common with tanker chartering than dry cargo chartering.
An important use for these clauses is in a situation where additional costs that are not
mentioned in the charterparty document are incurred. An example is in American Ports
loading bulk cargo where the owner will want to include Dumping and Trimming costs to
be paid by the charterer. With older ships, the cargo had to be trimmed, that is levelled off,
before the ship could proceed to sea. Although it is not as important now, these costs are
frequently included in the port costs and it needs to be spelt out who is to pay for them.
Other common examples are for weather delays e.g. the Conoco Weather Clause.
8.5

THE BALANCE BETWEEN OWNERS AND CHARTERERS INTERESTS IN A


CHARTERPARTY FORM

For many years the clauses in a bill of lading have been subject to statute law, the
defences that a shipowner may claim in order to avoid paying compensation for damage
to the cargo, which is entrusted to his care for the voyage, are limited by international
conventions. The latest of these conventions have been codified into the Hague Visby
rules and have been incorporated into English national legislation as the Carriage of
Goods by Sea Act 1971. The Hamburg Rules of 1978 became effective in 1992 and cover
the additional obligations of carriers under multi-modal transport. The purpose of these
rules is to protect the shipper, who may have little experience of the perils of the sea, from
a shipowner who could, and certainly did, make use of the monopoly powers which the
conference system provided in order to avoid any liability for damage to the cargo.
It remains to be seen how the new Rotterdam Rules will affect the market. They were
created on 23rd September 2009 with ratification from 16 countries; the requisite additional
4 countries (giving the minimum 20 countries for international regulations) included the
USA in October 2009 but to date the UK has not yet ratified the Rotterdam Rules. As most
(90% ?) charterparties are governed by English Law, the viability of the Rotterdam Rules
will probably have to wait until the UK (or at least England) ratifies them.

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Subjects

Module 1

The construction of charterparty forms, on the other hand, has always been left up to
the owners and charterers to agree, the assumption being that both shipowners and
charterers understood the complexities of chartering and could therefore be left to draw up
a charterparty without the need for any statutes to provide protection. The consequences
of this are that when a charter is being negotiated, the choice of charterparty form is one
of the first items discussed in the negotiations. When freight rates are high, then the owner
has a better chance to obtain what he considers to be a fair charterparty, or at least to
have the most objectionable clauses removed from the charterers preferred form. When
the market favours the charterer, then the charterer will be able to impose his favoured
form without any modification.
8.6

VOYAGE CHARTERS

Most charterparties are in three main parts:


(The ASBATANKVOY C/P and Gencon 1994 are used as examples in the following notes)
The student should make a point of reading the different C/Ps that are in common use, it
is only in this way that it is possible to become familiar with the way the different clauses
are drafted.
a)

The Preamble
This is just a general outline to the charterparty and includes:
1)

Place where the contract is made:


This is essential because, in the absence of a clause to the contrary, any
disputes arising under the charter will be settled according to the law of the
country where the contract is made. This is not usually the business abode
of the principals concerned but very often the country where the principal
broker carries out his business.

2)

Date of charterparty
This is the date when the negotiations are concluded i.e. all subjects are
lifted.

3)

Names and addresses of the contracting parties.

4)

The name of the ship: In chartering, the ships name is always on the
charterparty and no substitutions are allowed unless agreed.

b)

the Main Terms these are printed clauses which differ between varying types
of charterparty, depending on the trades for which they are used. Much of the
negotiation between owners and charterers is concentrated on which words to delete
from the printed clauses, to be replaced by Rider Clauses (see below).

c)

the details or Rider Clauses, which have been specifically agreed. If there is any conflict
with the printed words in the Main Terms, the Rider Clauses will always prevail. These
Rider Clauses can be very many or just a few, depending on the nature of the trade and
on the type of charter, the relationship between the parties and the necessity to alter the
printed clauses.

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Certificate in Chartering 2014

9.

SUMMARY/CONCLUSION

By now you will have a good idea of the importance of a strong grounding in contract law
in order to negotiate charter parties effectively. You have seen the basics of what is meant
by a contract, how it is created, how it can be breached and how it is concluded or closed.
You have also seen the necessity for extreme clarity when negotiating and when finally
drafting the contract, in order not to misinterpret what was agreed.
You can now realise the crucial essence of reading between the lines and therefore at
looking for what the parties intended, what they meant to have stated, what their custom
of trade would expect them to have agreed all of which might differ from what a lay
person (the so-called man on the Clapham omnibus or Joe Public) would understand by
the precise words in the contract. Those involved at the sharp end of any industry in our
case, the shipping industry must be acutely aware of the importance of misplaced words
or even erroneous letters in words.
We are also aware of the importance of trust, of reliance on the spoken word the motto
of both the Baltic Exchange and the Institute of Chartered Shipbrokers is Our Word Our
Bond.
Contract law incorporates many facets in shipping, this includes Charter parties and
booking notes, bills of lading and seaway bills, agency law, the international rules which
govern the carriage of goods by sea and many other general and specific documents,
which you will be studying in the next chapters of this course.

SELF-ASSESSMENT QUESTION

When negotiating a fixture, what are the key areas of


activity which a broker must ensure are understood by an
owner or charterer?

Certificate in Chartering 2014

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Whats next?
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