Transport Abhinayan Basu JASN06 International Law on Shipping and Trade Lund University

1. Transport Abhinayan Basu JASN06 International Law on Shipping and Trade Lund University September 2012

2. International sale involves several contracts • Sale contract • Charterparty (C/P) • Bill of lading (B/L) • Letter of credit

3. Order of Existence of the Contracts Once sale contract has been made a vessel has to be found. Who finds the vessel? Different types of sale: • CIF (cost, insurance, freight) - seller • C&F (cost and freight) - seller • FOB (free on board) - buyer Except in the case of small cargoes that can be shipped in containers on a liner vessel, a charterparty is necessary. Usually a charterparty is a contract for the use of a whole ship.

4. FOB

5. CIF 5

6. Order of Existence of the Contracts • A charterparty is a contract with the owner or someone who assumes the responsibilities of the owner, • whereby the owner agrees to carry a cargo from A to B (Voyage C/P), or • whereby he makes his vessel available for a certain period of time (Time C/P) • to enable the carriage of the goods to be performed. • Once the cargo has been shipped a bill of lading is issued, usually by or on behalf of the master as agent of the owner.

7. Types of charterparties • All C/Ps involve some degree of control by the owner. Taking these in the order of least control to most control: • Demise Charter or Bareboat Charter • Not a contract of carriage but in reality a lease of a ship. • Charterer pays for: • Crew • Fuel • Insurance • Repairs • The charterers’ only obligation is to redeliver the vessel at the end of the C/P period. There is often a purchase option at the end. Demise charters are rarely for less than a year; and can be as much as 20 years. • When demise charters are used: • Requisition in time of war • Asset finance • Balance sheet considerations (up to seven years; used by oil companies)

8. Types of charterparties • Time Charter • Contract with the owner to make his vessel available for a certain period of time; e.g., 4 to 6 months • Charterer pays hire • Owner provides and pays for • Crew • Insurance and other running costs • Charterer provides and pays for • Fuel (except for domestic consumption) • Loading and discharging costs • Port charges • Pilotage • The charterer can, subject to any time charter limits, send the vessel where he wants. • Accordingly there is always an employment and indemnity clause

9. Types of charterparties • Voyage Charter • Contract with the owner to carry a cargo from A to B; e.g., “one safe port US Gulf to one safe port Amsterdam Rotterdam Antwerp range” • Charterer pays freight • Owner provides and pays for • Crew • Insurance and other running costs • Fuel • Port charges • Pilotage • Loading and discharging costs (maybe) • Charterer provides and pays for • Loading and discharging costs (maybe) • Demurrage

10. Types of charterparties • Hybrids • Consecutive voyage charters • Contracts of affreightment • Trip time charters • Sub-charters • Person who assumes the role of owner

11. Formalities • None needed • Negotiations always conducted over telephone, by fax and/or email • If c/p signed at all it is signed invariably after the event, to record an arrangement already made • When agreement reached “recap” is sent e.g., “all other terms as per NYPE 93” or“all other terms as per fixture of …..”

12. Potential problems • Has an agreement been reached? • Courts will fill in gaps – implied terms – not rewrite agreement between parties • Court will find no contract if matters purportedly agreed made the contract unworkable • Important matters remain to be agreed - no such thing in English law as an agreement to agree • What are the terms of the agreement? • No signed c/p – looking at the negotiations – fixture recaps and telex exchanges • Signed c/p is conclusive – only look for implied terms • Who are the parties? • Law of agency, bills of lading

13. Warranty • True warranties (i.e. that only sound in damages) are comparatively rare and are not found in charterparties. • The use of the expression "warrant", e.g. where the C/P says that the owners warrant a certain speed on a certain consumption is therefore misleading. (Warranties of this sort are invariably found in time charters; almost never in voyage charters.) • In marine insurance contracts a warranty means something entirely different. A breach of warranty entitles the insurers to withdraw cover or it results in the cover not applying in the first place.

14. Condition • Any breach entitles the charterer to claim damages and if he elects to do this to treat the contract as discharged by repudiation

15. Innominate term • Any breach entitles the charterer to damages. In addition he may be entitled to treat the contract as discharged by repudiation; but only if the breach is serious; so serious as to substantially deprive the charterer of the benefit of the contract. • In the case of a condition the remedy depends on the nature of the term broken, whereas in the case of an innominate term the remedy depends on the nature of the breach. • The modern tendency is to treat contractual terms as innominate terms. • e.g. The Hong Kong Fir [1962] case which decided that the seaworthiness obligation is not a condition but an innominate term. • Similarly in sale of goods cases the tendency is to restrict rather than expand the category of strict conditions. The Hansa Nord [1976]

16. The Contract of Affreightment Common Law Principles of General Application Obligations of the Carrier Seaworthiness Care for the Cargo No Deviation To Deliver Without Delay Obligation of the Cargo Owner Not to ship Dangerous Goods To pay agreed freight

17. Seaworthiness Suitable for the contract of carriage: hull, machinery, all operational parts for particular voyage – sea conditions, weather, etc. Cargo worthiness ISM Code Undertaking is absolute, but not condition or warranty Depends on seriousness of breach

18. Care of Cargo Not an implied term Arises independently of contract Carrier bailee of cargo, tortious liability In case of loss or damage, carrier’s liability determined by specific contractual provisions (e.g. Art III, r 2 of the HVR) Exemptions Act of God Queen’s Enemies Inherent Vice Insufficiency of Packing

19. Deviation Justified if to save life/safety of ship/cargo Not to salvage property Scaramanga v. Stamp Deviation for repairs should be reasonable In the case of Burns v. Cassels, where the distressed vessel could have put to a nearer port for repairs, going to a farther port was held to be a deviation Unauthorised transhipment has been held to be deviation Hoskyn v. Silver Liner Ltd (Silvercypress)

20. Deviation as a Condition Exception clauses do not apply to protect owner in respect of events after the deviation. In J Thorley v. Orchis Steamship Ltd, cargo was damaged through negligence during its discharge, but the shipowner was not allowed to shelter behind the exception clause covering the incident, because the ship had abrogated the carriage contract by a deviation earlier in the voyage.

21. Aftermath of Deviation (Freight) Hain Steamship Co v Tate & Lyle Ltd [1936] 2 11 ER 597 (HL) Lord Atkin at p 602: “I venture to think that the truth is that the departure from the voyage contracted to be made is a breach by the shipowner of his contract, but a breach of such a serious character that however slight the deviation, the other party to the contract is entitled to treat it as going to the root of the contract and to declare himself as no longer bound by any of its terms . . .” Supported by Lord Wilberforce in Photo Production Ltd v Securicor Transport [1980] AC 827

22. Delay See Cargo Carriers Corp v Citati [1957] 2 QB 401 at 426 Delvin J: “Where time is not of the essence of the contract – in other words, when delay is only a breach of warranty – how long must delay last before the aggrieved party is entitled to throw up the contract? The theoretical answer is not in any doubt. The aggrieved party is released from his obligations when the delay becomes so long as to go to the root of the contract and amount to a repudiation of it.” He adds; “There must be a delay so great as to frustrate its commercial purposes”

23. Dangerous Goods Implied undertaking not to ship dangerous goods without notice – strict liability Dangerous goods cover cargo with capacity to endanger ship – eg, wet wheat or copper concentrate, as in Health Steele Mines v. The Erwin Schroder

24. Standard Forms (Voyage) Salient Features: Identifies contracting parties, agreed voyage, vessel etc. Expected time of arrival – If fixed, then a condition Preliminary voyage must be prosecuted with due or reasonable dispatch Flexibility clauses “On or about” Cancellation clause by charterer

25. Statement about Ship Found in the beginning of the c/p Modern tendency is to treat them as innominate terms Tonnage, Carrying capacity, Dwt or cubic capacity Speed and consumption Ownership Flag and Nationality Class Name of vessel Present position

26. Freight Freight must be earned – destination No freight payable when goods lost or destroyed Damaged cargo – full freight But in Asfar v Blundell, Dates – “pulpy and fermenting mass unfit for human consumption” No set-off Advance Freight, irrecoverable in English law Dead Freight

27. Freight When is freight payable? In advance – on signing of bills At destination or on delivery Application of lien Specification of currency Does freight include cost of loading and discharging Handling charges at destination

28. Performance Preliminary voyage Loading operation and stowage The voyage itself The discharge operation

29. Voyage to Loading Port Specified in charter Charterer nominates “Or so near thereto as she may safely get” The rules are: The charterer need not consult the owner or his commercial convenience. The charterer may delegate the nomination to the bill of lading holder or to a third party. The charterer must nominate within a reasonable time If the charterer does not nominate within a reasonable time he is liable in damages. The owner cannot however take matters into his own hands and select the port himself. Once the port has been selected and nominated the selection becomes an election. The position is as if the nominated port had been written into the charter at the outset. The only restriction is that the charterer cannot select and nominate in such a way as will result on the c/p being frustrated. The charterer cannot nominate an "impossible" port.

30. Voyage to Loading Port It is necessary to draw the distinction between impossibility at the time of nomination and impossibility at the time of loading. at time of nomination: An impossible nomination is a bad nomination and must be replaced by a good one. The obligation to renominate depends on an implied term in the charter that the charterer must not nominate in such a way as to deprive the owner of his right to earn freight Supervening impossibility loading – contract frustrated. discharge – position probably the same. Any contract may be frustrated even if part performed. In any event the c/p contains "so near thereto…”; also war, strikes and ice clauses. Refusal to nominate a port amounts to a repudiatory breach, ditto inability to nominate one. Similarly failure to nominate within a non-frustrating period of delay

31. Voyage to Loading Port Position of vessel to be specified To proceed with reasonable dispatch or damages Breach can lead to damages but not rescission Cancelling clause - charterer can repudiate on said date but no damages

32. Safety of vessel is paramount “Or so near thereto as she may safely get and be always afloat” Degree of safety Sellers J in The Eastern City: “A port is safe if in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship” When must a port be safe? The Evia At time of nomination, must be prospectively safe Safe ports

33. Laytime • Need for specificity • Not “as fast as can” or “according to custom of the port” • Loading rate may be given e.g., 3000 tonnes per day • Stipulation as to running days • weather working days, holidays, etc.

34. Commencement of Laytime Vessel must be “arrived ship” Vessel must in fact be ready to load NOR must have been given Laytime will not commence in the absence of a valid NOR Notice is essential The Happy Day [2002] Lloyds Rep 487 – premature NOR given for discharging but missed tide and could only discharge the following day. Court of Appeal invoked doctrine of waiver.

35. Commencement of Laytime “If a charterer uses a vessel, known to be ready at the time of use, which has been tendered to him by a valid notice of readiness, or by an invalid notice whose invalidity is known, he must expect time to run against him subject to any express contrary agreement”–The Front Commander [2006] 2 Lloyds Rep 251 at 259.

36. Port Limits • Exercise of control • Exceptions: • Time lost in waiting for berth to count as loading or discharging time • “Whether in berth or not” (WIBON Clause) Only where berth is not available, not unreacheable. Effect of this clause is to convert a berth to a port charterparty, Roskill LJ.

37. Laytime Demurrage – charterer exceeds allotted time (recoverable without proof of loss) Once on demurrage always on demurrage Despatch – Charterer is well within allotted time Detention – Unliquidated damages to be paid by charterer for delay due to documentation, e.g. customs clearance

38. Laytime Courts will not interfere with stipulations as to laydays unless unconscionable Where no clause owner can recover unliquidated damages - detention

39. Beginning of Laytime Arrived ship Berth charterparty Vessel only becomes an arrived ship when it enters the specified berth –The Mass Glory [2002] 2 Lloyds Rep 244 Dock charterparty Only when it enters a specified dock –Thorman v. Dowgate Ss & Co [1910] 1 KB 410 Port charterparty Geographical Administrative Commercial

40. Port Charterparty The Johanna Oldendorff criticized the Aello [1961] AC 135 The commercial area was that part of a port “where a ship can be loaded when a berth is available albeit she cannot be loaded until a berth is available”

41. Port Charterparty Vessel must be within geographical and legal area Immediately and effectively at disposal of charterer Must anchor at place where ships usually lie while waiting for a berth The Johanna Oldendorff [1973] 2 2Lloyds rep 285, Maratha Envoy [1977] 2 All ER 849

42. Actual Readiness to Load • Owner to comply with all requirements – • Position • Port health • Documentation • Charterer is entitled to all the holds free of contamination • Vessel not ready if discharge not complete

43. Availability of Cargo Charterer has to make cargo available – absolute obligation Must meet cargo specification or owner can rescind “Full and complete cargo”

44. Loading and Discharging Operations Terms of Operation Cargo to be brought alongside in reach of ship’s tackle (Alongside Rule) FIO, FIOS, FIOST - Charterer’s liability

45. The Voyage Obligation of owner to proceed with reasonable dispatch Terminates when vessel becomes an arrived ship Laytime begins to run again

46. Discharging Operation Discharge is joint operation Owner – from hold Charterer – alongside Subject to modification Owner to deliver per bill of lading to consignee Obligation of owner to deliver or store at consignee’s expense

47. Failure to Receive After stated period owner can auction to recoup freight or other charges Owner needs to be mindful of misdelivery