Disputes between Shipowners and Charterers - Case Study Example

Chartering Decisions Name Unit Course Supervisor Date of submission Abstract The hire of ship/vessel is guided by legislations that relate to time charters. Owners of a ship place it to the charterers who are free to operate the vessel for own purpose as stipulated in the legal contracts. In the operation of the commercial vessel, there are responsibilities that the ship owner is supposed to bear, on the other hand the charterer is responsible for expenses that relate to his/her operations and is mandated to indemnify the ship owner against foreseeable liabilities. NYPE’93 and SHELLTIME 4 have provisions that guide the legal relationship between the ship owners and the charterers. The various clauses in NYPE’93 and SHELLTIME 4 help in addressing disputes that may arise between the Owners and Charterers. Introduction Global trade is an area that laws and standards are applied to legislate business contracts between different parties. Over 90% of the global trade is carried by sea (Mackinnon 2009, p. 186), with such enormous trade being through the sea it denotes the importance of rules to legislate the trade in relation to carriage of goods and time. It is due to the importance that the issue of charters between ship owners and charterers comes to light in covering the physical, human, cargo and safety aspects. In a charter, the main parties to the charter include the shipowners and the charterers who make an agreement regarding a ship (Schelin 2002, p. 9). This paper identifies possible disputes between shipowners and charterers and possible solutions to the disputes with reference to NYPE’ 93 and SHELLTIME 4. Withdraw for late or non-payment of hire In a time charter, the owner places his ship to the charterer for specified time, and the charterer is at liberty to use the vessel for the purposes as outlined in the contract (Wilson 2004, p.85). As the Charterer is obligated to control the vessel, there expenses that he has to cater for and indemnify the owner of the ship against liabilities that may arise from the commercial operations. In the process of the commercial control of the vessel, disputes are likely to occur in the event if payments are not made on the due date or in the agreed amounts. NYPE 93 clause 11(a), states that payment should be made on the due date. Failure by the charterer to avail the funds at the agreed date , clause 11(a) further dictates that the owner is at liberty to remove the vessel from the charterer and will not be obligated to any responsibility arising thereof. The dispute of irregular payment may arise due to negligence of the banker, thus to address the issue the cluase11 (b) of NYPE’ 93 obligates the owner to give the charterer a grace period that dictates clear banking days. A notice to rectify the failure should be issued and if payments are made within the days the days, the payment is deemed regular, and thus the ship-owner cannot withdraw the vessel. Further, in case of disputes arising from failure of timely or insufficient payment SHELLTIME 4 Clause 9 (a) provides that the owners are supposed to notify the charterers of the default and within seven days charterers should settle the payment including the accrued interest. Failure to pay, the owners are at liberty to withdraw the vessel. In relation to interests arising from unpaid amounts that are due, SHELLTIME 4 Clause 9 (b), provides that the interests start accruing from the day of default up to date the payment is made at rate of 1% per annum. However, prior to the withdrawal, Carter and Burke (2002, p. 12) noted the owners are mandated to issue a preliminary notice of failure to the charterers. If a disagreement on the deductions ensues, the amount in dispute should be taken in escrow, and the issue should be referred for arbitration. During the time, no party has right to withdrawal of the disputed amount (FONASBA 2001, p. 3). Disputes are also likely to happen in relation to the last payment of the hire in case the vessel is on a voyage towards the delivery port. In such a situation Clause, 11(c), the owners, and the charterer need to agree on the payment on the estimate of the time and to put into consideration the bunker onboard. Safety of the vessel and crew Disputes between the owners and charterers can arise in relation to the determination of who to be held liable due to damages that may arise to ports that may be unsafe. The safety of a port depend on myriad of factors that may relate to the type of ship, the navigational aids and any factor that may be used to neutralize a hazard (Kassem 2006, p. 21). However, if the aids are not adequate to neutralize the hazard a port can be considered unsafe and obligates the shipmaster to stop the ship from entering such a port. The definition of the safety of a port is broad and depended on different factors. Due to the relativity of the definition, a dispute in relation to safety of a port is likely to arise. According to Kassem (2009, p.41) safety of a port, is pinned on a relevant time when the ship is using it, and this may vary due to different factors. It thus becomes difficult to define a port clearly as being safe. However, the law does not necessary require that a port should be safe at every time the vessel arrives. Thus, there are conditions that may delay entry to the port (Wilson 2004, p. 102). NYPE 1993 Clause 5 stipulates that the chartered vessel be employed in lawful trade between safe places and safe ports excluding as the chartered may direct. NYPE 93, Clause 12 denotes that vessel shall be loaded and discharged at safe berth that the charterer or the agent may direct. In determination of the safety of ports or berth, Mackinnon (2009, p. 189) stated a promissory obligations should be created in which the chartered is given the mandate to nominate a berth for the chartered vessel. SHELLTIME 4 clause 4 (a) also legislates on the time the vessel should be hired, safety should include carrying merchandise that is lawful. In relation to safety, clause 4 (a) provides that the charterer can order the vessel to any part of the world provided that the owner consents to that, in such cases, charterer should pay insurance premiums that result to such orders. SHELLTIME 4 Clause 4 (c) provides that in ordering, the charterer shall use due diligence to nominate the safe places. Speed and consumption In chattering decision about a vessel, efficiency plays a great role as it determines the success of the business that the charterer is to undertake. In the preamble of the charter, the details, that relate to the vessel specifications, are laid down. In most cases, issues that relate to the capacity the vessel can carry, the speed, and the fuel consumption, are regarded to be highly important (Davies & Dickey 2004, p. 273). In different jurisdictions, the specifications play a critical role in determining the capability of the vessel in the course of the charter. These specifications are treated as warranties (Wilson 2004, p. 85). In New York, arbitrators term the specifications as continuing and that the vessel is to maintain them in through the agreed contractual time while in English courts they are regarded as mere warranties relating to the state of the vessel (Wilson 2004, p. 85). These specifications make it of great importance in calculating the hire payment. For instance, in case of breach of the speed and the consumption warranty, the charterer can apply to treat the vessel as off-hire (Hill 2003, 176). However, there are situation that chartered vessel consumption is below the minimum allowed in the specification. This is a unique area of dispute, and it is arguable whether the owners of the vessel are entitled to claim for the ‘under’ consumption. The common English law legislates that the consumption and speed of time charter should apply to the specified duration in cases whether the vessel is partly, fully or in ballast. The computation of the speed and consumption should be from the pilot station to the pilot station through all the sea passages the vessel passes while on hire. SHELLTIME 4 Clause 24 (a) provides for the guaranteed speed by the owners and consumption of the vessel. Therefore, in cases where the vessel is ordered at speed that is not like the ‘guaranteed speed’ provided by the owner, there may arise the dispute of decrease in the vessel hire. Such dispute that if it arises, the charterer can raise the issue of decease of hire. The dispute thus arises in the determination of the speed that is to be used in the calculation of the decrease of hire. Clause 24 stipulates that in such a dispute, maximum speed should be used instead of the average speed that the vessel attained. Clause22 (b) (i) provide exclusion for the above calculation in cases of adverse weather conditions such as the case where reduction of speed is deemed crucial due to safety issues either due to poor visibility or in cased of congested waters. An exemption may also be provided in cases where winds are recorded to exceed a force of 8 on Beaufort Scale for time exceeding 12 hours. Therefore, the owners and charterers should review speed and consumption of the vessel at appropriate time determines the vessel's speed. In case of speed having been below the guaranteed speed and in absence of the exclusion weather factors, the hire is supposed to be reduced in relation to computation process as laid down in Clause 24 of SHELLTIME 4. Dry docking during the course of the charter Clause 22 of the SHELLTIME 4 states that in case dry docking is carried out in the port that is nominated by the charterers, the vessel is deemed to be off hire commencing the time vessel arrives at the port until the dry docking is completed. The implication for this is that upon completion of the dry docking, hire amount should be paid on completion of the dry docking. Clause 22 (c) of the SHELLTIME 4 provides that in case the ship owners have the option to select a port of dry docking the vessel then becomes off-hire from the time the charterers release the vessel up to the time the vessel is ready for loading. This may be the cause of the dispute between the parties in relation to the charterer raising issue of the time that could have been taken to sail instead of dry docking brought about by the owner (Falkanger, Bull, & Brautaset 1998, p. 6). In a case of such dispute, it is upon the charterers to credit the owner with the sailing time the vessel could have taken had it not gone to the dry-docking. NYPE 1993 Clause 17 stipulates that should be suspended until the ship is brought back in the same equidistant position and resumption of the voyage thereafter. The provision of clause 19 of NYPE gives the owner the mandate to place the vessel in drydocking at time and place that is convenient. This should be mutually agreed between the owners and the charterers in order to avoid foreseeable disputes (Wilson 2004, p. 93). Disputes regarding relating to ship master The principle parties to a charter include the owners and the charterers. It is through the charter that the charterer is given the mandate to run the vessel and being discretion to sublet it as provided in clause of 18 NYPE 9. However, the authority to use the vessel seems to be complicated by the position of the shipmaster who has to work under legal orders of the charterer but is employed by the shipowner (Schelin 2002, p. 9). The issue of the legal orders becomes a source of dispute as it is apparent difficult to determine the legality of an order. NYPE 93 Clause 8 (a) mandates the master to carry out all voyages and should give customary assistance. The clause provides that the master should be under the directions of the Charterers. Conclusion This paper has identified the common areas of disputes and pointed clauses from m NYPE’93 and SHELLTIME 4 o address the disputes. Global business depends on the sea greatly for the transportation of goods to reach the customers. To ensure streamlined processes in the industry, ship owners and the charterers are guided by provisions in charter that seek to address the common probable disputes that may arise in the process of the charter such disputes relate to safety of the vessel, the speed and fuel consumption, dry docking and issues that relate to ordering of the ship master. These are areas of eminent disputes; however, the application of the provisions in NYPE’93 and SHELLTIME 4 provide a framework for amicable solutions of the arising disputes. References Carter, L. and Burke, F., 2002. Reason in law, 6th ed. United States: Longman. pp. 12-19. Davies, M. and Dickey, A. 2004. Shipping Law. Sydney: Lawbook Co., pp. 265-280. Falkanger, T., Bull, H. and Brautaset, L. 1998. Introduction to Maritime Law. Oslo: Tano Aschehoug, pp. 3-11. FONASBA. 2001. Time Charter Interpretation Code 2000. The Federation of National Associations of Ship Brokers and Agents, pp. 1-4. Hill, C, 2003. Maritime Law. Bodmin, Cornwall: MPG Books, pp. 174-182. Kassem, A. 2006. The Legal Aspects of Seaworthiness: Current Law and Development. University of Wales, pp. 14-68. McKinnon, A. 2009. Administrative Shortcomings and their Legal Implications in the context of safe ports. Australia and New Zealand Legal Journal, 23 (1), pp. 186-205. New York Produce Exchange Form (NYPE). 1993. Time charter. Association of Ship Brokers and Agents (U. S.A), Inc. SHELLTIME 4. 2003. Time Charter. London. Schelin, D. 2002. The Charterer’s Right to Order the Master. The Swedish Maritime Code, 9-20. Wilson, J. 2004. Carriage of Goods by Sea. London: Pearson Longman, pp. 85-115. . Read More