Charter Parties and Their Legal Framework - Essay Example

Charter Parties and Their Legal Framework The distinction that may be made between a charter and a normal carriage of goods by sea is that under a charter, a ship owner puts his entire vessel at the disposal of the charterer for a designated period of time, which may be inclusive of more than one voyage for the purpose of transport of goods by sea.1 The charterparty represents the major contract under which ships are engaged for commercial purposes. The Charter party clearly sets out the terms and conditions under which the hire and transport of goods under the charter party will be carried out and spells out rights and obligations of the two parties to the contract. Private carriage of goods by sea is a charterparty and is only subject to general maritime law for breach of contract, with very little application of statute law or international conventions. As a result, it is a purely private contractual agreement between two parties and relief available under the contract will be governed by the specific terms and conditions laid out in the contract regulating the charterparty. A Bill of Lading is also a contract for the transport of goods, however it regulates the carriage of goods, while charterparties are contracts for the hire of the ship or its services.2 An oral agreement to charter is also binding, however in general, the parties set out the terms in a written contract and include a supersession clause, by which their written agreement supersedes all previous agreements. Charter parties may be of various kinds, such as (a) Bareboat, which is the hire of the ship itself and payment is made for such hire (b) Time charterparties, where the services of the boat/ship are hired for a specified length of time and payment is the hire (c) Voyage charterparties, where the services of the ship are hired for more than one voyage and the payment is the freight3. However, while charter parties are for private purposes, public transport of goods by sea is carried out through the use of a Bill of Lading and is subject to the Hague Visby Rules which regulates the carriage of goods by sea. While charter parties are not generally governed by the Hagur Visby Rules governing the carriage of goods by sea, they will apply if incorporated into the contract, or if bills of lading regulates the relations between the carrier and the bill holder.4 In the case of Bunge Corp v Republic of Brazil5 the bill of lading incorporated the terms of charterparty, which included a COGSA clause that in case of a conflict, the COGSA should prevail. Therefore in this case, the Hague Visby Rules applied and a clause that had been written into the Charter absolving the charterer from all liability was held to be null and void, and the charterer was held liable in accordance with the international law for the carriage of goods. Most charter parties use Bills of Lading because the advantage to international trading under this feature is that those charterers who act as carriers will be responsible under the law as carriers and will therefore exercise care and caution in the transport of cargo, as a result of which there will be fewer claims for damages. Since most charter parties use Bills of Lading, it is important that the parties clearly and specifically spell out whether or not the Hague Visby rules will apply, because non responsibility clauses, notice of suit clauses, etc which are valid in a charterparty and regulate the relations between the two parties, will be overruled when the Rules apply, especially Article 3(8) of the rules. As a result, if a Bill of Lading incorporates the terms and conditions of a charterparty in its entirety, then any of the terms and conditions which are in contravention of the rules will be invalid against a Bill of Lading holder who is not one of the parties to the charter party contract. A charter party which does not incorporate the Hague Visby rules will then be governed purely by the contractual terms of the charterparty. One of the areas where legal problems have arisen with charter parties is in the case of repudiation of charters where a breach of contractual provisions takes place. The generally accepted principle where repudiation of charters is concerned is that if one party brings forward a repudiation which is accepted by the other which is the injured party, it releases both parties from their primary obligations under the contract and entitles the injured party to recover damages against the repudiating party to compensate for any financial losses that may have been suffered6. An injured party may not however recover losses against the repudiator for losses that he could have avoided by taking reasonable commercial steps to mitigate losses, for example by obtaining alternative employment for the vessel. A breach of a charter contract will however give rise to damages for breach of contract, which is to be assessed as of the date when the breach occurred, although in some cases, courts have shown themselves to be willing to depart from this rule. For example, in the case of Sally Wertheim v Chicoutimi Pulp Company7 there was a delay in delivery of goods, although the goods were received and the contract was not repudiated. The buyer however made a claim for damages which was based upon the difference in market price of the goods at the place of delivery when they should have been delivered as opposed to when they were actually delivered. Applying the rule for breach of a charter party, the damages should have been assessed as of the date when the breach took place. However in its assessment of the case, the Court found that if such damages were allowed, it would result in a much larger profit for the buyer than what he would actually have received had the delivery not been late. In this case the date rule was waived and the Court ruled against the buyer. Another such example is the case of Maredelanto Compania Naviera SA v Bergbau-Handel GmbH8 wherein a voyage charterparty was fixed to sail to Haiphong and load a cargo which was to be delivered in Europe. A clause in the contract by the owners stated that the ship was expected to be ready to load by about July 1, 1965. There was also a clause included which provided for cancellation of the contract by the charterers if the vessel was not ready to load by July 20, 1965 and such an option to cancel was to be exercised 48 hours before the vessel’s expected landing at the port of arrival. On 17th July 1965, the ship was still at Hong King discharging cargo and the owners cancelled the contract on 17th July, a full three days before the specified deadline of 20th July. The owners treated this cancellation as a breach of contract and claimed damages. The judgment on the case held that since the ship would anyway not have reached the designated port on time and the cancellation of the contract would have been inevitable, the owners did not suffer any loss and would at best have been eligible for nominal damages. However, the important aspect to note is that according to Davies LJ, “one must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed.”9 The date of repudiation of contract was also an issue in the recent case of Golden Strait Corporation v Nippon Yusen Kubishka Kaisha10 where the charterers were allowed to reduce damages payable to the owners for their repudiation of a charter from four years to a lesser period, on the basis of the onset of the Gulf war. However, in a dissenting opinion in the case Lord Bingham pointed out that contracts are made to be performed, not broken; as a result it should be more advantageous to keep to contractual terms rather than break them. He held that allowing such reduction in damages undermined the certainty of contract principle.11 In the absence of international conventions to regulate Charterparties as is the case with the international carriage of goods, it therefore becomes all the more important to ensure that the certainty of contract principle is not violated in charterparties and the assessment of damages from the date of breach is maintained. 1419 words Bibliography Books: * Drobnig, 1981.“International Encyclopedia of Comparative Law”, Matrinus Nijhoff Publishers * Tetley, 2003. “International maritime and Admiralty Law” Lloyds of London Press Ltd * Timmermans, Wim Albert, 1990. “Carriage of goods by sea in the practice of the USSR Maritime Arbitration” Matrinus Nijhoff Publishers Cases Cited: * Bunge Corp v Republic of Brazil 353 F Supp 65, 1973 AMC 1219 * Golden Strait Corporation v Nippon Yusen Kubishka Kaisha (2007) UKHL 12 * Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (the Mihalis Angelos) (1971) 1 QB 164 * Sally Wertheim v Chicoutimi Pulp Company (1911) AC 301 Read More