We have assisted many ship operators not only with the drafting of their charterparty forms but also with the formulation and construction of out-house technical management and commercial/operations agreements.
Our services include assisting with purchase options and effecting transfer of ownership. Advising upon the required H&M, P&I and FD&D insurances. Acting on behalf of bareboat charterers in disputes both up and down the contractual chain.
We have a high volume of chartering clients and provide a cradle-to-grave service, looking after all legal aspects of pre-fixture acceptance of terms and post-fixture disputes. This involves everything in the nature of FD&D as well as cargo claims brought either by receivers or occasionally by sub-charterers or disponent owners.
Principal Areas of Dispute
Aside from the payment of time charter hire or freight and demurrage, the principal areas of dispute may be summarised as follows:
A. LIABILITY FOR CARGO DAMAGE
To assess third party cargo risk, we look at the Bills of Lading to identify whether we are concerned with ‘owner’ or ‘charterers’ bills, i.e which party is issuing or signing and under what capacity (as "Charterer" or "for and on behalf of the Master" etc.). In such cases, there is often an interaction with the NYPE Interclub Agreement.
B. BREACH OF THE SAFE PORT WARRANTY
Safe port warranties are common in all forms of charterparties. These may extend to encompass ports, berths, wharves, docks, anchorages etc. Although some charters (such as SHELLTIME 4) contain very restricted warranties, these may be overridden by unqualified language as to “safety” in the covering COA or recap, so that an absolute undertaking is imposed after all. Therefore, the risk of liability for damage or delay to the vessel is ever present where Charterers are fixing for trading within “safe ports” (or some equivalent shorthand such as SP/B).
The Classic Definition of Safety from the EASTERN CITY (1958):
"A port will not be safe unless, in the relevant period, 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."
See further detail in the note below.
C. DAMAGE TO SHIP CAUSED BY CARGO
The liability of charterers for damage to ships tank’s steel or coatings caused by cargo has recently undergone clarification in four important cases, with two in the Court of Appeal and one in the Supreme Court.
- GIANNIS NK (1994) 2 Lloyd's Rep 171
- ORJULA (1995) 1 Lloyd's Rep 654
- BERGE SISAR (2001) 1 Lloyd's Rep 663 (Supreme Court)
- BALTIC FLAME (2002) 2 Lloyd's Rep 203 (Court of Appeal)
The latter two cases were handled by Head of Law Russell Ridley of RR&CO.
The effect of these decisions is to simplify the shipowner’s rights to sue for both physical damage repair costs and loss of hire. The position can now be summarized as follows:
- Under English common law there is a term implied into contracts of carriage that the Shippers will not load ‘dangerous goods’ without the shipowner’s knowledge and agreement prior to shipment.
- The phrase 'dangerous goods' has been given a broad meaning and is not confined to goods of an inflammable or explosive nature such as acids, explosives, arms and ammunition, but has been defined by the Supreme Court as simply a cargo that is ‘likely to cause damage or delay’.
By way of example, we have handled cases of damage to ship's tanks in all principal areas:
- LPG - contaminated with free water (semi pressure), H2S.
- Naphtha - contaminated with free water, H2S.
- MTBE - incompatibility (as it is an oxygenate and aggressive to some types of coating).
We have also handled cases in relation to damage to pumps where the above commodities are laden with foreign particulate matter such as rust or sand etc. and cases where free water has damaged pumps in LPG, especially if freezing occurs.
- It has further been decided by the Supreme Court that the obligation upon the Charterer not to ship dangerous goods creates a strict liability. The obligation does not depend upon the Charterer having knowledge of the dangerous nature of the goods and failing to communicate that danger to the shipowner.
- Therefore, where the Charterer had no knowledge or means of knowing the dangerous nature of the cargo he is nevertheless still liable.
Multi-million dollar claims arise from such damages and delays, RR&CO have in addition handled such cases in the following situations:
- EDC - stainless steel
- Acetic Acid - stainless steel
- Petroleum wax - stainless steel
- PFAD - epoxy phenolic coating
- Phosphoric Acid - stainless steel
D. SUPPLY OF BAD BUNKERS
There is an absolute duty on Time Charterers to provide bunkers that are of reasonable general quality and suitable for the type of engines fitted to a particular ship.
If the bunkers supplied prove to be out of specification or of poor quality, then the Charterers will be liable for any main engine damage and delay resulting therefrom. In view of the declining quality in bunkers such claims are becoming more prevalent.
If a problem with bunkers supplied by Charterers results in delay, the Charterers will not be entitled to put the vessel off-hire.
E. VARIOUS MINOR EXPOSURES TO LIABILITY
Aside from the four major areas outlined in this page, the Charterer has little or no control over the day-to-day running of the vessel, thus the exposure of charterers to a liability such as pollution or ecological damage certainly in English law does not exist. In essence the offence under the Merchant Shipping Act 1995 arises where there has been a discharge of oils into UK waters where the Owner and/or Master of the ship may be found liable. However note that the Charterer may still be liable to indemnify the owners or be liable for fines, see below:
Indemnification of Owners
A Charterer will have an obligation to indemnify the owner for third party liability where this results from a breach of the charterparty by the Charterer, or arises out of activities which are the charterer’s responsibility.
For example, BIMCO’s “Fuel Sulphur Content Clause for Time Charter Parties” provides for the Charterer to indemnify the owner for loss or liability arising from a failure to “permit the Vessel, at all times, to meet the maximum Sulphur content requirements of any emission control zone when the Vessel is trading within that zone”.
A Charterer, if falling into the definition of “carrier”, can be subject to fines, e.g. if in non-compliance with the US “Automated Manifest System” Regulations. Guidance by the US Customs & Border Patrol advised that it views the carrier as the entity that “controls” the vessel which includes:
- (a) determining ports of call; and
- (b) controlling loading and discharging cargo.
NOTE on SAFE PORT WARRANTies
- Most if not all navigable rivers, channels, ports, harbours and berths have some dangers from tides, currents, swells, banks or bars. Such dangers are frequently minimised by lights, buoys, signals, warnings and other aids to navigation and can normally be overcome by good navigation and seamanship, but if more than ordinary skill is required to avoid the dangers the port will be unsafe and the Charterer will be liable for damage or delay caused to the vessel.
- A safe port warranty extends to cover docks, wharves, berths and other places within the port to which the vessel is directed.
- Whereas, a safe berth warranty only extends to cover access and egress to the berth.
- A safe anchorage warranty extends to the approach and departure from the anchorage and the only means of access and egress, which in river anchorages or ice channels may be several hundred miles.
- Where Charterers have incurred a liability to Owners for breach of a safe port obligation, they are not entitled to limit that liability under the Convention on Limitation of Liability for Maritime Claims.
- Where there is no express term as to safety, the Court may imply one (in certain circumstances).