Time Charterparty
Types of time charters
Per Mackinnon LJ in Re An Arbitration between Sea and Land Securities Ltd and William Dickinson & Co Ltd (The Alresford) [1942] 1 All ER 503 at p.504: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.
In contrast to a voyage charterparty, a time charter contract is not based on either single or consecutive transportations of the goods by sea between certain geographical locations (for comparative analysis of voyage and time charterparties see UNCTAD report here). It defined by a period of time during which the charterer has the owner’s vessel for its commercial use for agreed pay. Although sometimes, e.g. in case of trip time charter, the period may be defined only by a description of the permitted employment. There are two types of time charter, sometimes called "net" time charter and "gross" time charter. "Net" time charter is more commonly known as bareboat or charter by demise.
Net or demise time charter
Net charter or charter by demise operates as a lease of the ship itself, usually without master and crew, therefore often also called bareboat charter. The charterer becomes for the time the owner of the vessel, employs the master and crew and through them the possession of the ship is in him. Net time charter unlike Gross time charter has no off-hire clause, i.e. hire is payable "come Hell or High Water".
By Lord Hobhouse of Wood-borough in BP Exploration Operating Co Ltd v Chevron Transport (Scotland)(The Chevron North America) [2001] UKHL 50 at para 79:
A bareboat demise charter differs from the common kinds of charterparty, such as time charters and voyage charters. They involve no transfer of the possession of the vessel to the charterer; they are simply contracts for services to be provided by the ‘owner’ (who may or may not be the actual owner and frequently is just another charterer higher up the line) to the charterer.
Gross or ordinary time charter
A gross time charter, unlike that one by demise, gives the charterer no right of property in or to possession of the vessel. The owner receive his monthly payments by means of ‘hire’, calculated daily, but usually payable in advance. Hire will start to run when the vessel is ‘delivered’ and will cease when she is ‘redelivered’, the charter specifying where and when these operations are to take place. For information about demise or bareboat charter click here.
Fuel consumed during the charter period will be paid for separately by the charterers. Hire, unlike freight, is subject to the usual rules of common law and equitable set off.
Delay is also treated differently under a time charter. There is no direct equivalent to laytime and demurrage. Instead, hire will run from the commencement of the charter, ‘delivery’, to its termination, ‘redelivery’. However, its running may be interrupted by the operation of an ‘off-hire’ clause, which provides for the temporary cessation of hire brought about by the operation of any one of a number of specified causes.
Comparing with the position under a voyage charter, the charterer will also be more directly affected by any slow steaming on the voyages performed under the time charter in that this will restrict the total number of voyages it will be able to perform within the charter period. To deal with this problem, most time charters contain an express clause, such as that contained in cl 8 of the NYPE form which obliges the shipowner to prosecute voyages with the utmost dispatch. In addition, the charterparty will generally contain a warranty as to the speed at which the vessel will be able to proceed. In the light of such express clauses, there will generally be no need for a charterer to argue in favour of an implied term that voyages be prosecuted with reasonable dispatch. It shall be noted, however, that sufficiently wide drawn exception clause may protect the shipowner from consequences of a breach of this obligation.
Time charters do not usually envisage any contractual transfer of liability such as voyage charters achieve with ‘charterparty bills of lading’ and ‘cesser’ clauses. The norm is for bills of lading to be issued which do not contain any such words of incorporation. Such bills are frequently marked ‘freight prepaid’. This wording will prevent the shipowner from being able to exercise a lien on cargo. The cargo will not usually be owned by the time charterers and the bills of lading will contain no reference back to the terms of the time charter. The lien on subfreights is likely to be of more use. Time charters usually provide for a further remedy, which is not to be found with voyage charters. This is the right of ‘withdrawal’. This amounts to an option to terminate the charter if hire is not paid punctually in full.
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