Time Charters Introductory notes …
  • Formation of charter

    Formation of a time charterparty, same as a voyage charter, governed by the ordinary rules of the law of contract, i.e. there must be an offer and acceptance, then the parties must have agreed all the essential terms either in writing or verbally to make the contract binding.

    In Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd & Anor [2012] EWCA Civ 265 Lord Justice Tomlinson observed at para 22, that modern practice of negotiations of the "Accept/except" type, where the last offer, which may only except one small item, will not be intelligible without reference to the preceding offers and counteroffers:

    The conclusion of commercial contracts, particularly charterparties, by an exchange of emails, once telexes or faxes, in which the terms agreed early on are not repeated verbatim later in the exchanges, is entirely commonplace. It causes no difficulty whatever in the parties knowing at exactly what point they have undertaken a binding obligation and upon what terms… it is often a matter of happenstance, or, metaphorically, the pressing of a button, whether a sequence of emails manifests itself in a single document as a thread or string of emails or in a series of individual documents… I can see no objection in principle to reference to a sequence of negotiating emails or other documents of the sort which is commonplace in ship chartering and ship sale and purchase.

    Chartering of vessel for a prolonged period of time increases risks of default from either side, especially at times of global financial uncertainty. While owners are worried about financial sustainability of the charterers in case of sharp decline in spot rates, charterers in their turn concerned about uninterrupted utilisation of vessels under their commercial management throughout duration of charter. In Navig8 Inc v South Vigour Shipping Inc & Ors [2015] EWHC 32 (Comm) 4 tankers were timechartered from Demise charterers via their Managers. Before this fixture took place Demise charterers owed to the Registered owners almost US$18m and also suffered reputational problems which led to it being difficult for them to persuade charterers to fix the vessels. To blur negative effect of said bad publicity Managers when renewing the P&I cover for the vessels removed the bareboat charterers as an assured to be "no longer involved" and signed all timecharters as "Disponent Owners Signatory in Contract:" When Registered owners exercised their right and withdrew vessels from bareboat charters, the timecharteres claimed damages from both the Registered owners (international consortium) and Managers (worth USD7,500).

    The court held that, while parties must have considered that Managers, when signing time charters, were acting on behalf of Registered owners, the latter never gave their authorisation to fix vessels on the terms proposed by Timecharterers. Accordingly, Charterers claim against Registered owners failed and against Managers succeeded.


    Case law

    Royal Greek Government v Minister of Transport (The Ann Stathatos), (1948) 82 Ll.L.Rep. 196

    Navig8 Inc v South Vigour Shipping Inc & Ors [2015] EWHC 32 (Comm)

  • Contract for services

    It is necessary to note that a time charter is a contract for services to be rendered to the charterer by the shipowner through the use of the vessel by the shipowner’s own servants, the master and the crew. The charterer has no proprietary interest in the vessel, i.e. ship is not leased or withdrawn, only her services matters to the charterer.

    … the phraseology still adopted in the case of the charter of a ship where her services are put at the disposal of a charterer but she is not demised are deceptive. The ship is not leased or withdrawn. Her services and that of her crew are put at the disposal of the charterers when the charter begins and when the withdrawal of the ship is spoken of it merely means that those services are no longer supplied.
    Per Lord Porter in A/S Tankexpress v Compagnie Financiere Belge Des Petroles SA [1948] 2 All ER 939, at p.943.

    Generally speaking, the charterer benefits from commercial use of the vessel, when the vessel acting in accordance with the charterer directions as to the cargoes to be loaded and the voyages to be undertaken, assuming such orders the charterer is entitled to give under the terms of the charterparty. See also view of the Court of Appeal on "the owners agree to let," phrase.


    Case law

    A/S Tankexpress v Compagnie Financiere Belge Des Petroles SA [1948] 2 All ER 939

    Alma Shipping Corporation of Monrovia v Mantovani (The Dione) [1975] 1 Lloyd’s Rep. 115

    Santa Martha Baay Scheepvaart & Handelsmaatschappij N.V. v Scanbulk A/S (The "Rijn"),[1981] 2 Lloyd’s Rep. 267

  • Performance of charter

    Duration of a time charter implicate period of the time not the length of single or a number of voyages or geographical rotation. Therefore a time charter unlike a voyage charter, instead of provisions for freight, laytime and demurrage has stipulations for payment of hire, delivery, redelivery and off-hire events.

    Hire is a payment which the charterer is under obligation to pay on monthly basis to the owner, calculated daily, but usually payable in advance. Hire, unlike freight, in some instances might be subject to equitable set off. Time charterparty especially stipulates for time range and geographical range when and where the vessel has to start and finish her service under the said contract, those be delivery and redelivery dates and places. Time charterer pays for bunkers therefore bunker volumes recorded on both delivery and redelivery dates with further proportional settlement.

    Delays under a time charter, when triggered by the event described in an ‘off-hire’ clause, bring temporary cessation of hire payments until the moment the said event stops operating completely, unless, of course, it is so prolonged as to frustrate the contract.


    Case law

    Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, (The Scaptrade) [1983] 2 All ER 763

    Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia), [1991] 1 Lloyd’s Rep 100

    Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd & Anor [2012] EWCA Civ 265

Types of time charters

The respective rights and obligations of the two parties to this time charterparty must depend upon its written terms, for there is no special law applicable to the particular form of contract known as a time charterparty. A time charterparty is, in fact, a document which is of a very misleading nature, because the real nature of what is undertaken by the shipowner is disguised by the use of language dating from a century or more ago-language which was then appropriate to a contract of a totally different character.

Net or demise time charter
This clause identifies the contracting parties, the vessel, and the agreed voyage. Cargo capacity is usually expressed in terms of deadweight tonnage which, when translated, means the weight of cargo the vessel is capable of carrying when loaded down at its maximum permitted draught. Read more →
Gross or ordinary time charter

Clauses with the description of the type and quantity of cargo is likely to be specific including stipulations for the charterer’s liability for deadfreight.

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Trip time charter

An important difference between voyage and time charters that the latter is not in nature an undertaking by the owner to carry goods, but an undertaking by the owner to make available to the charterer a vessel and crew for the latter to employ in transporting goods makes it possible for the time charterers to circumvent rigidity of voyage charter rule of irrevocability of port election .

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See also: Standard sets of clauses in voyage charters

Description of the vessel is, naturally, very important to both sides of charterparty contract, because it outlines particulars and characteristics of the subject-matter of contract. The charterers obviously expect from the owners a punctual compliance with these provisions and in case of misdescription may be entitled to terminate contract or insist on rectification. In their turn the shipowners must tender the actual ship as per description in charter and, in the absence of a clearly drafted substitution clause, they are neither bound nor entitled to tender another ship.

Contrary to the earlier practice which, in absence of the concept of innominate term, considered most of descriptive stipulations as condition precedent, modern view is that not every aspect of the vessel’s description is a condition non-compliance with which would entitle the charterer to terminate the contract.

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Delivery under timecharter usually takes place at designed location or range and within certain time interval, which by analogy with voyage charter also called laycan.

As to geographical position of the vessel at the date of delivery it must meet requirement that the vessel is at the immediate and effective disposition of the charterers. The concept of laycan has a lot of similarity with one developed in voyage charters, although, terms related to place of delivery in time charter are less stringent as compared with a berth or a port voyage charters. Usually time charter provides for locations such as ‘dropping last outward pilot’ or OPL Singapore, where exact vessel’s location at the moment of delivery is of no importance. But whatever general description of delivery place might be, failure of the owners to deliver their vessel at such place gives the charterers a right to refuse delivery. Mechanism of invocation of cancelling clause is similar to that in voyage charter contracts. (Read more on Laycan and Cancelling Clause).

Baltime form, Box 16 and Clause 1 expressly stipulate date and time of delivery but some forms can instead contain only cancelling clause as NYPE 46 cl 14, while NYPE 93 cl 16 addresses both delivery and cancellation issues. An effect of cancelling clause is to give the charterers an option to cancel if the vessel is not ready by stipulated date. Mechanism of invocation of cancelling clause is similar to that in voyage charter contracts.

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