Voyage Charters. Freight. Historical background and introductory notes.

Freight, in the ordinary mercantile sense, is the reward payable to the carrier for the carriage and arrival of the goods in a merchantable condition, ready to be delivered to the merchant.
Scrutton on Charterparties and Bills of Lading, 18th ed.,p. 329

Introduction

Freight is primary payment obligation arising under a voyage charter. This obligation represents a fixed price for carriage of a particular cargo or cargoes on a particular voyage. Such price normally includes the owner’s operating costs, the cost of fuel consumed on the passage between ports and the owner’s profit margin. The common law definition was articulated by Lord Kingsdown in Kirchner v Venus (1859) 12 Moo PCC 361 at p.390:

Freight is the reward payable to the carrier for the safe delivery; if the goods are lost on the voyage, nothing is payable. On the other hand, if the goods are safely carried, the Master of the ship has a lien on the goods for the amount of the freight due for such carriage, and cannot be compelled to part with the goods till such freight be paid. These incidents to freight exist by rule of law, without reference to any bill of lading, or other written contract between the parties.

Later, this rule was modified by decisions in Dakin v Oxley (1864) 15 C.B. (N.S.) 646 and Asfar & Co. v Blundell [1896] 1 Q.B. 123, to extent that necessity of "safe delivery" was excluded. Thus, it is said that freight is payable to the carrier for the carriage and arrival of the goods in a merchantable condition and ready to be delivered to the merchant. To secure payment of freight on delivery of goods the owner has a lien on them for the freight due for said carriage.

Under bill of lading regime it is the shipper who became primarily liable for the payment of freight, unless that liability be controlled by special custom. Under a charterparty contract freight is paid by the charterer to the owner as remuneration for the service provided, i.e. for transportation of the goods by sea and their delivery to consignee at destination.

No freight is due, however, if the carrying voyage has never begun or the owner has not delivered goods to the destination. Delivery of the cargo to the contracted destination is, therefore, a key characteristic of performance of the contract and has to satisfy the test laid down in Dakin v Oxley (1864) 15 C.B. (N.S.) 646 by Willes CJ:

…the true test of the right to freight, is, the question whether the service in respect of which the freight was contracted to be paid has been substantially performed; and, according to the law of England, as a rule, freight is earned by the carriage and arrival of the goods ready to be delivered to the merchant, though they be in a damaged state when they arrive. If the ship-owner fails to carry the goods for the merchant to the destined port, the freight is not earned. If he carries part, but not the whole, no freight is payable in respect of the part not carried, and freight is payable in respect of the part carried unless the charterparty makes the carriage of the whole a condition precedent to the earning of any freight - a case which has not within our experience arisen in practice.

When only part of goods delivered or delivered damaged then question whether the contract has or has not been substantially performed is always a question of facts and true construction of the charterparty.

The right to freight or right to receive freight is not affected by any subsequent intention of the ship owner how he would dispose the sum due, because the right to dispose of the freight is attached to the ownership of the right to the freight. The owner also has a right to direct the charterer to pay the freight to another. In Glory Wealth Shipping PTE Ltd v Flame S.A. [2016] EWHC 293 (Comm) it was argued by the charterers that since the owners, by their own design, arranged that the freight would never have been transferred to them, they therefore had not suffered any loss. The court, rejecting this contention, held that the value of the freight which the owners were deprived of due to the charterers’ breach was not worth any less because the owners had decided for its own reasons (even if they involve turpitude) that the freight would be paid to another company with the result that the freight would never have been transferred to it. Teare J. said that:

An award of damages … would compensate [owners] for having been deprived of the right to receive and dispose of that freight. Just as it would not matter to the assessment of loss if [owners] had intended to give the freight away once it had received it, so it matters not that [owners] had previously decided that the freight should in fact be paid to Evensource and First Goal. That was its prerogative as the person entitled to be paid freight under the COA.

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