CARRIAGE OF GOODS BY SEA

Atty. Lissa Belle M. Villanueva

Contract of Carriage

TWO FORMS OF CONTRACT:

1. Charter-party
2. bill of lading
Contract of Carriage

CHARTER PARTY
contract between charterer and shipowner for
the hire of a ship
from latin term carta partita or divided
document
freedom of contract

standard forms are Gencon, Baltime

Contract of Carriage

KINDS OF CHARTER PARTY

1. demise or bareboat

2. time charter

3. voyage charter
Demise/Bareboat Charter
Shipowner completely and exclusively
relinquishes possession, command, and
navigation of the ship
charterer mans and equips the vessel, assumes
all responsibility for its navigation,
management and operation
Charterer acts as owner of vessel in all
important respects, owner pro hac vice
Anything short of complete transfer is time or
voyage charter
Time Charter
vessel is leased for a specific period of time
shipowners people continue to navigate and
manage the vessel
carrying capacity of the ship is taken by the
charterer for a fixed period of time
charterer controls the ports touched, cargo

loaded
Voyage Charter
ship is leased to carry full cargo on a single
voyage
Ship is manned and navigated by the
shipowner
Shipowner undertakes to provide a ship for the

carriage of specified goods on one or several

voyages between named ports
the objective is to move a shipload of cargo

from one point to another

Demise/Bareboat Charter
standard forms are the Barecon 89 and
Barecon 2001 (refinement of Barecon 89)

Issued by the Baltic and International Maritime

Council (BIMCO)
Demise/Bareboat Charter
Ship and charter

identify the owners, charterers and shipbroker

name of ship, flag, type, deadweight, class,

date of last special survey by classification
society, frequency of drydocking, insurance
value, other insurance cover, etc
Demise/Bareboat Charter
Delivery and cancellation
port and time of delivery
cancelling date
owner must give 30 running days
preliminary notice and 14 days definite
notice
charterer has option to cancel by
cancelling date
Demise/Bareboat Charter
Delivery and cancellation
Before and at the time of delivery, owner
must exercise due diligence to make the
ship seaworthy and in every respect ready
in hull, machinery and equipment for
service and properly documented.
Shipowner and charterer both appoint
surveyors to determine and agree in writing
on the condition of the ship on delivery and
redelivery.
Demise/Bareboat Charter
Delivery and cancellation
Shipowner considered to be in full
performance upon acceptance of ship by
charterer
Once the charterer accepts the ship, he
cannot claim for any representation or
warranty with respect to the ship
But charterer may claim for latent defects
which appear within 18 months (Barecon
89) or 12 months (Barecon 2001) from
delivery
Demise/Bareboat Charter
Delivery and cancellation
Upon delivery, charterer must make a
complete inventory of ships equipment,
outfit, appliances and all consumables
onboard, in conjunction with the shipowners
Charterer mustrovi pay for bunkers,
lubricating oil, ropes, provisions and
consumable stores on the ship at current
market rates of the port of delivery
Demise/Bareboat Charter
Operation and maintenance
During the bareboat charter period, the
ship, with all its equipment, is in full
possession and control and absolute
disposal of the charter
Charterer mans, supplies, navigates, fuels,
operates and repairs the ship
Charterer may repaint the ship with his own
color, fly a secondary flag
Demise/Bareboat Charter
Operation and maintenance
Charterer is the carrier under the bills of
lading issued by the master
Charterer may assign the charter or sub-
demise the ship with the owners consent
which shall not be unreasonably withheld
Shipowner must get the charterers consent if
the owner wishes to effect a new mortgage
on the ship during the charter period
Demise/Bareboat Charter
Operation and maintenance
Charterer may not:
1. change the name of the ship
2. change the registry of the ship
3. incur contract liens on the ship
Demise/Bareboat Charter
Operation and maintenance
Charterer must maintain the ship and its
equipment:
1. in a good state of repair, in efficient
operating condition
2. in accordance with good commercial
maintenance practice
3. in class and documented as at delivery
Demise/Bareboat Charter
Operation and maintenance
Charterer must maintain the ship and its
equipment:
1. in a good state of repair, in efficient
operating condition
2. in accordance with good commercial
maintenance practice
3. in class and documented as at delivery
4. and ensure that repairs are done within
a reasonable time
Demise/Bareboat Charter
Operation and maintenance
Shipowner may:
1. inspect the ship at any time, personally or
through a duly authorized surveyor, usually
with reasonable notice to the charterer
2. withdraw the ship at any time if repairs
are not done within a reasonable time and
exercise other legal options (because non-
repair could affect the insurance cover of
the ship)
Demise/Bareboat Charter
If new class requirements or compulsory
legal requirements require improvements,
structural changes or expensive new
equipment,what happens?
1. if costing > 5% of ships insured value
and contract is silent, arbitrators may
determine the appropriate change in the
rate of charter hire and ratio at which costs
shall be shared between the parties;
2. < 5%, charterer usually pays, same hire
Demise/Bareboat Charter
Insurance
Shipowner pays for marine and war risk
insurance
Charterer may agree to assume costs of
insuring the ship against marine, war and
Protection and Indemnity (P&I) risks or pay for
P&I risk cover only
Insurance policy is issued in the names of

shipowner and charterer jointly

Demise/Bareboat Charter
Demise charter hire is paid:
in advance on 1
st day of each month of

charter period from date and hour of delivery

to date and hour of redelivery
In the currency and at the place stated in the

charterpary
In cash and without discount
Demise/Bareboat Charter
If demise charter hire is not paid:
Beyond 7 running days, shipowner may
withdraw the ship (Barecon 89)
a lien on cargoes, sub-freights and bills of
lading freights belonging to the charterer shall
be constituted in order to secure all claims of
the shipowner under the charter (contract lien)
Demise/Bareboat Charter
Redelivery:
Upon expiration of charter period, ship must
be redelivered at a safe and ice-free port
specified in the charter
Charterer must give not less than 30 days

preliminary and not less than 14 days definite

notice of expected date, range of ports or
port of redelivery
Demise/Bareboat Charter
Redelivery:
Ship must be in the same or as good structure,
state, condition and class as at delivery, fair
wear and tear not affecting class excepted
Demise/Bareboat Charter
War, requisition, acquisition:
Unless owner consents, ship may not be
ordered to any port, voyage or used in any
service which would bring it within a danger
zone
Ship has liberty to comply with sailing or other
orders of flag state, war risk insurer, other
government (ex. EU)
Demise/Bareboat Charter
War, requisition, acquisition:
Where war breaks out (declared or
undeclared) between specified countries or
involving the flagstate, the owner or charterer
may cancel the charter. In which case:
1. ship must be redelivered
2. hire remains payable (Barecon 89, 2001)
Demise/Bareboat Charter
War, requisition, acquisition:
Where ship is requisitioned by government,
either for a fixed period or indefinitely, during
the charter period, the charter is not deemed
terminated or frustrated. Hire continues to be
payable
Demise/Bareboat Charter
War, requisition, acquisition:
Where ship is subjected to compulsory
acquisition, the charter terminates. Hire
remains payable up to the date of acquisition.
(Barecon 89, 2001)
Time Charter
Standard forms are the NYPE (New York Produce
Exchange) Time Charter and the Baltime form
Description of the Ship
Name, tonnage, class, horsepower, carrying
capacity, speed, fuel consumption
Speed warranty is usually under good
weather conditions
courts usually permit tolerance of 5% on
fuel consumption and half a knot on speed
Charterer has burden of proving failure to
meet undertakings
Time Charter
Charter period
Usually expressed in years, months, days or
combination, minimum, maximum with a
margin of tolerance
Ex. 1 year, 20 days more or less
Ex. 4 to 6 months
Time Charter
Trading limits
Usually defines the geographic area in
which charterer may employ the ship
Ship may engage only in lawful trade
Ship may carry only lawful merchandise
Between good and safe ports where she
can safely lie always afloat
Charter may limit the types of cargo that
may be carried or prohibit the carriage of
dangerous goods
Time Charter
Liberty to sublet (sub-charter)

Charterer is typically allowed to sublet the

ship but must give prior notice to shipowner
If ship is sublet or sub-chartered, charterer
remains liable for the due performance of
the charter
Time Charter
Delivery
Ship normally delivered at a specified time,
at a dock, berth or place where she can
safely lie always afloat
Upon delivery, ship must be seaworthy and
in every way fitted for ordinary cargo
service
Shipowners due diligence to make the ship
seaworthy upon delivery and to maintain the
ship in a thoroughly efficient state during
the charter period
Time Charter
Delivery and cancellation
Upon delivery of the ship, charterer is
required to take over and pay for bunkers
aboard at the current market price
Charterer may cancel the charterparty:
1. when the ship is not delivered by the
date specified in the contract, or
2. when notice of notice of readiness to
load is not given by a specified date in the
contract
Time Charter
Delay in delivery and cancellation
If shipowner gives notice to charterer that
the ship will be delivered at a later date
(i.e. there is delay):
1. the new date becomes the new delivery
date or readiness date
2. the charterer must give notice within a
specified period (ex. 48 hours) or
reasonable period whether or not he
will exercise his cancelling option
Time Charter
Period of Hire
The ship is on hire the minute it is placed at
the disposal of the charterer
Time Charter
Period of Off-Hire
The time-charterer is excused from paying
the charter hire for any period when the ship
is not fully at his disposal, as a result of the
occurrence of any one of the enumerated
events which falls within the shipowners
responsibilities.
Ex. An accident, a breakdown, deficiency of
crew, deficiency of stores, drydocking, strike,
detention or arrest
Time Charter
Period of Off-Hire
Charterer carries the burden of proving that
the off-hire clause applies although proof of
owners fault is not necessary
Usually activated after 24 or 48 hours has
elapsed since the triggering event
Time Charter
Payment of hire
Specifies the time, place, rate, currency and
method of payment of the hire
currency clause fixes the rate of
exchange between the currency of payment
and other relevant currencies
escalator clause provides for the
adjustment of hire to take account of
inflation in ship operating cost during the
charter
Time Charter
Payment of hire
Possessory lien on the cargoes of bill of
lading holders to secure payment of hire
and all sums due to the owner under the
charter
Lien on sub-freights also to secure rights of
shipowner
Time Charter
Payment of hire
prohibition of lien clause prohibits time
charterer from
1. incurring maritime liens that might take
priority over the right of shipowner and/or
2. from procuring supplies for the vessel on
the credit of the owner
 Maritime Liens
1. a. law costs due to the State
b. expenses incurred in the interest of creditors in
order to preserve the vessel
c. expenses incurred in the interest of creditors to
procure the sale of the vessel and the distribution of
proceeds of the sale
d. tonnage dues
e. light or harbor dues
f. Other public charges & charges of the same
character
g. Pilotage dues
h. Costs of watching & preservation from the time of
entry of the vessel into the last port
 Maritime Liens
2. Claims arising out of the contract of engagement of
the master, crew and other persons hired on board
3. a. Remuneration for assistance & salvage
b. Contribution of the vessel in general average
4. a. Indemnities for collisions or other incidents of
navigation
b. Damage caused to works forming part of harbors,
docks and navigable ways
c. Indemnities for personal injury to passengers or crew
d. Indemnity for loss of or damage to cargo or
baggage
Time Charter
Deductions from hire
Charter party may expressly allow or
prohibit deductions from future hire
payments
If allowed, the amount set-off may not
exceed the hire that would have been due
for the period when the charterer was
deprived of the use of the ship
Time Charter
Non-payment of hire
Often, shipowner may withdraw the ship
without noting a protest or any formality
when the charterer defaults in payment of
hire by:
1. non-payment
2. late payment, or
3. partial payment
Time Charter
Non-payment of hire
Anti-technicality clause requires shipowner
to give the charterer in default, a short
additional time (often 48 hours) to pay the
outstanding or unpaid hire in full, before
withdrawing the ship
Anti-technicality clause buys the charterer
some additional time so that the shipowner
may not withdraw the ship for the slightest
delay in payment of hire
Time Charter
Withdrawal of Ship/Vessel
Shipowner or his agent must give clear prior
notice of withdrawal to charterers or their
agents
Notice must be given within a reasonable
time from default in payment
Any voyage in progress at the time of
withdrawal must be completed and the
contracts of carriage covered by bills of
lading on such voyage must be performed
Time Charter
Withdrawal of Ship/Vessel
In practice, the ship is not actually withdrawn
but is ordinarily rechartered at the current
(often higher) market rate of hire
Shipowner may also waive his right of
withdrawal, either clearly or impliedly
Ex. If shipowner accepts late payment
Damages may sometimes be recovered also
if shipowner proves that non-payment
constitutes repudiation of contract
Time Charter
Employment and Agency
Charterer has authority to determine the
employment of the ship, selection of agents
at various ports of call, choice of route of
voyage
Usually, there is a provision that says the
charterer will indemnify the shipowner for
additional liabilities that he may be
exposed to as a result of the master
complying with the orders of the charterer
Time Charter
Employment and Agency
Charterer has no additional liability with
regard to the negligent navigation or
unseaworthiness of the ship
Time Charter
Signing of bills of lading
Charterer may order the master to sign bills
of lading.
In exchange, charterer has the obligation to
indemnify the shipowner in respect to
additional liabilities incurred by the
shipowner as a result of the issuance of the
bill of lading.
Time Charter
Redelivery
At the end of charter period, charterer must
redeliver the ship in a specified port or
range of ports, in the same good order as
when delivered, ordinary wear and tear
excepted.
Charterer must give advance notice of the
expected time and place of redelivery.
Upon redelivery, owner takes over & pays
for bunkers aboard at current market price
Time Charter
Redelivery
If redelivery is delayed, shipowner may
claim damages but cannot refuse to receive
the ship.
If redelivery is at a port other than as
specified, shipowner may claim payment of
hire which he would have earned had the
ship been redelivered at the specified port
or range of ports.
Time Charter
Redelivery
If redelivery is early (underlap), shipowner
may refuse redelivery and claim charter hire
until the end of the charter period.
Or, shipowner may accept redelivery and
claim damages for early redelivery.
Time Charter
Redelivery
If redelivery is late (overlap), shipowner
may claim charter hire until the end of the
charter period, as extended by any express
or implied margin of tolerance, and
damages for additional delay.
Here, damages is equal to the current
market rate of hire for a timecharter of
equal duration, if higher than contractual
rate
Sources
International Maritime and Admiralty Law by
William Tetley
Carriage of Goods by Sea by John F. Wilson
Lectures from International Maritime Law Institute,
2006
Legal Aspects of Ship Operation by Teresita San
Diego-Oblepias
Next Topic

Voyage Chater
Bills of lading
Hague Visby Rules