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Thus, to mention the most striking distinction, in the case of a contract not under seal, a consideration is
absolutely necessary to give it validity, but in the instance of a specialty[deed], no consideration whatever
is in general requisite to render it obligatory, even in a count of equity. A practical treatise on the law of
contracts, not under seal: and upon the usual defences to actions thereon, Joseph Chitty, Tompsom
Chitty, 1841, p.227.
2
A compendium of the law of merchant shipping, F.Maude, C.Pollok, 3rd edt., 1864
3
Per Sir James Wigram VC in Lidgett v Williams [1845] EngR 662; (1845) 4 Hare 456 at p. 462.
4
Rossiter v Miller (1878) 3 App. Cas. 1124
5
Stadhard against Lee and Another [1863] EngR 209; (1863) 3 B S 364; 122 ER 138, at 372.
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Today charterparty contracts remains to be essentially of judge made law with very limited
influence of statue law.
The common law duties
The common law rule stated in Paradine v Jane (1647) Aleyn 26 insisted on holding the parties
to their bargain, and accordingly, mutual obligations of a shipowner6 and a merchant7, so called
mutual covenants, were almost absolute save few exceptions such as acts of God, Kings
enemies and perils of the sea. The owner with the cargo on board shall proceed without undue
delays and reach the place named in contract, and there deliver the goods to the receiver. The
merchant shall provide for the goods, load them on board and pay freight. Unless there was a
breach of condition precedent, each party was obliged to perform its part and had a remedy in
action for damages.
When we talk about the shipowner, only total loss of the vessel or capture by the enemies
excused hims from fulfilling his contract. Cresswell J in Moss v Smith [1850] EngR 155; (1850) 9
CB 94 described application of common law exceptions at pp.105-106:
The ship-owner engages to carry the goods from the port of loading to the port of
discharge: his contract would be absolute, but for the exception introduced into the bill
of lading,-unless prevented by perils of the sea. Now, when is the ship-owner said to be
prevented by perils of the sea from fulfilling the contract he has entered into? When the
ship is, by peril of the sea, rendered incapable of performing the voyage? A ship is not
rendered incapable of performing the voyage when she is merely damaged to an extent
which renders some repairs necessary: if that were so, any the most considerable
damage, such as the loss of her rudder, without which she could not proceed, would
render her incapable of fulfilling the contract contained in the bill of lading. But, if a ship
sustains so much sea-damage that she cannot be repaired, so as to be rendered
competent to continue the adventure, then the owner is prevented by a peril of the sea
from fulfilling his contract. If the ship is totally destroyed or sunk, the performance of the
contract is obviously prevented by a peril of the sea.
Now, while excused from performance, the owner was not entitled to any payment for the
services done before his vessel become a total loss, same as contractor who performed his
The duty of common carriers by the common law is perfectly well understood; it is a warranty safely
and
securely to carry; whether they be guilty of negligence or not is immaterial; , per Wilde C.J. in Richards
v L.B. & S.C. Ry. Co. (1849) 7 C.B. at p.858
7
Breach of contract is in itself an actionable wrong, irrespective of damage; consequently the plaintiff can
recover nominal damages for the mere breach, even if he has suffered no loss thereby. Common Law Of
England, W.B. Odgers. Vol.2, p. 750.
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contract in part but was not able to finish it without fault of his own. Blackburn J said Appleby v
Myers (1867) L. R. 2 C. P. 651:
The case is in principle like that of a shipowner who has been excused from the
performance of his contract to carry goods to their destination, because his ship has
been disabled by one of the excepted perils, but who is not therefore entitled to any
payment on account of the part performance of the voyage, unless there is something to
justify the conclusion that there has been a fresh contract to pay freight pro rata.
Thus if, in the course of the voyage, the ship in which the goods are being carried is lost or the
ship be disabled from completing her voyage, but the goods are saved, the shipowner may still
entitle himself to the whole freight, by forwarding the goods by some other means to the place
of destination8, otherwise no freight ever becomes due for the goods which were never
delivered.
Merchant's obligations were equally absolute9 unless he qualified them in clear words, so in
Storer v Gordon [1814] EngR 708; (1814) 3 M & S 308 it was held the charterers could not be
excused from their contractual obligation to provide return cargo because the outward cargo
was seized by the Government at Naples and never delivered to them. Furthermore, merchant
was obliged to pay full freight on delivery and acceptance of the goods, even if they arrived
damaged10 or merchant incurred additional expenses due to the owners imperfect
performance11.
Moreover, if words 'always mutually excepted' omitted, usual exceptions in charterparties such
as 'perils of the seas' and 'acts of God and King's enemies' were held to be intended to protect
the shipowner only, as Lord Alvanley held in Touteng v Hubbard (1802) 3 Bos & Pul 291 at p.298:
I will first consider for what purpose and for whose benefit the words 'restrain of princes
during the said voyage always excepted' were introduced. It appears to me that they
were introduced for the benefit of the master, not of the merchant, and the true
construction of the charter-party is this: the captain engages to go to St.Michael's,
restraints of princes excepted, and the merchant engages to employ him and furnish the
ship with cargo...
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In later case, Barrie v Peruvian Corpn. (1896) 2 Com. Cas.50, when storm destroyed the loading
berth, it was held that the charterer was entitled to rely on protection of 'perils of the seas'
exception. Correctness of this case, however, was later questioned.
Formation
The parties agreement may be made in the course of written exchanges, e-mails, or during
conversations and/or meetings, therefore so long as the parties have reached complete
agreement, formal exchange of signed charterparty is unnecessary. As Lord Dunedin said in May
v Butcher Ltd [1934] 2 KB 17 at p 21:
To be a good contract there must be a concluded bargain and a concluded bargain is one which
settles everything that is necessary to be settled and leaves nothing to be settled by agreement
between the parties. Because it may leave something which is still to be determined but then
that determination must be a determination which does not depend upon the agreement of the
parties.
Nowadays it is common, for parties to agree on all the essential terms necessary to bring about
the conclusion of an oral contract. Quite often instead of oral communication, parties use email
exchanges to come to agreement. Such agreement then to be followed by a written document,
often described as a confirmation or recap, which will not only set out the essential terms but
other terms common in the market. In such case the written document fulfils a dual function; it
both confirms evidentially the making of the oral agreement but also supersedes the oral
agreement in that it provides a document to which the parties thereafter look as the expression
of their bargain12. When no verbal communication preceded to recap a contract between the
parties may be deemed to come into existence by conduct when the voyage was performed and
the freight paid13.
The contract is considered to be concluded when the fact is established that the two parties had
come to a final and complete agreement, for, if not, there was no contract 14. At any stage of
negotiations either party may retract; and though the parties may have agreed on all the
cardinal points of the intended contract, yet, if some particulars essential to the agreement,
such for example as subject to conditions, still remain to be settled afterwards, there is no
contract. The parties, in such a case, are still only in negotiation.
12
Papas Olio JSC v Grains & Fourrages SA & Anor [2009] EWCA Civ 1401 per Toulson LJ at para 28.
TTMI SARL v Statoil ASA [2011] EWHC 1150 (Comm), it was held at para 48 that such a contract was
formed either when the freight was paid or when NOR was accepted or when cargo loaded.
14
Rossiter v Miller (1878) 3 App. Cas. 1124
13
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Cookes Voyage Charters15 distinguish two categories of items which are essential to the
agreement and which must therefore be settled before a binding contract exists:
i)
terms which, if not settled (or expressly left open for future negotiation), render the
entire agreement unworkable, for example such provisions of fundamental importance16 as
loading and discharging ports, quantity of cargo and size of the ship; or term which was agreed
but is too vague or uncertain to be enforceable (for example when a sale of a ship was agreed
subject to usual drydocking clause and there being no such usual clause (Svenska Lloyd v.
Niagassas (1921) 8 Ll. L. Rep. 500), similarly subject to war clause (Bishop & Baxter v AngloEastern [1944] K.B. 12).
ii)
terms, the agreement upon which is regarded by the parties themselves as an essential
prerequisite of the making contract. These are terms which parties expressly agree to settle
before any agreement becomes legally binding and which usually shortened to SUBS.
There are several expressions in common use fulfilment of which is prerequisite of conclusion of
charterparty: Subject to details, fixed subject to details, Subject to logical
amendments/alterations and similar expressions The Solholt [1981] 2 Lloyds Rep. 574; Star
Steamship Society v Beogradska Plovidba (The Junior K) [1988] 2 Lloyds Rep. 583, per Steyn, J. at
p.588:
The expression "subject to details" enables owners and charterers to know where they
are in negotiations and to regulate their business accordingly. It is a device which tends
to avoid disputes and the assumption of those in the shipping trade that it is effective to
make clear that there is no binding agreement at that stage ought to be respected.
As it follows from the above formation of charterparty is usually done by means of verbal
communications and electronic transmission, no signatures is necessary to give the contract a
binding force. In any case question whether the parties are bound before the charter is signed
will depend upon:
(i)
(ii)
15
Voyage Charters, Julian Cooke, Timothy Young QC, John Kimball, LeRoy Lambert, Andrew Taylor, David
Martowski, 3rd Edition, 2007 at paras 1.4-1.26
16
To be contrasted with such matters of considerable economic importance, as loading rate, and rates of
demurrage, despatch and carrying charges.
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Cargo clauses, with the description of the type and quantity of cargo is likely to be
specific including stipulations for the charterers liability for deadfreight. Such clauses are usually
trade-specific, such for example as Cargo Retention, Heating of Cargo and Pumping Clauses in
tanker charters.
Freight clauses specifying the agreed rate of freight, the unit of measurement of cargo
to which it applies, and the time and place of payment. It may be required that part of the
freight to be paid in advance and the balance on delivery of the cargo. Additional clauses
provide for the currency in which the payment is to be made.
ETA and NOR clauses and Demurrage/Laytime provisions specify whether charterparty is
a berth or a port charter and requirements as to validity and effectiveness of NOR as well as
amount of time allowed for loading and unloading the cargo. With regard to ETA it can be said
that generally the vessel must set out on the approach voyage to the first load port in time to
reach it by the given date, but this obligation does not apply to ETAs given in course of charter
performance, which vessel gives at certain given intervals, e.g. 96,72,48,24 and 12 hours.
Obligation to give ETAs has to be performed in good faith and upon reasonable grounds.
Additional clauses. At the end of bargaining process probably any standard charterparty form
apart from various and numerous amendments becomes also supplemented with sets of
additional clauses, such as: ISPS Clause, Ethical Policy Clause, Anti-Corruption Clause, ISM
Clause, H2S Clause, Piracy Clause and/or some other depending on trade.
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17
Where a tanker was chartered by an oil company, under a charter expressed to remain in force for as
consecutive voyages for which the vessel could tender for loading within a period of 18 months, to carry
cargoes of oil all over the world at specified rates of freight per ton per voyage or a return cargo of fresh
water at a lump sum.
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congestion, it makes good sense commercially that, irrespective of whether it be a berth charter
or a port charter, the charterer should assume the financial burden of that risk and compensate
the shipowner for the additional time that his vessel has had to be employed in the adventure in
the event of delay resulting from this cause.18
But whatever commercial sensibility of the above approach is, it is necessary to remember that,
the charterer often has no influence or control over congestions, strikes, government orders,
etc. in ports of loading and discharging. Therefore such delays may arise without any fault from
his side, same as many delays related to navigation and traditionally on the owners account are
not results of his failure19. Thus, final apportionment of liabilities is not always or necessarily the
most feasible scheme from commercial point of view, but it is always an outcome of
negotiations between the parties, which usually reflects prevailing market conditions at the time
of conclusion of contract.
Disposition of risks flows from the division of performance of a voyage charter into the four
successive stages: 1) Sea passage to loading port; 2) Loading itself 3) Sea passage to discharging
port; 4) Discharging itself20; and rests on assertion that each stage must be completed before
the next can begin.
So until the vessel has reached the specified place of loading on the approach voyage or the
specified place of discharge on the carrying voyage, all risks for delays borne by the shipowner
alone; and any loss occasioned by delay falls upon him21 irrespective of any fault from his side.
Then, during loading and discharging of cargo, liabilities for delays usually fell upon the charterer
unless they result from the failure of the vessels equipment or machinery. Finally, negotiating
parties can expressly relocate any of risks dealt above as it suit them, and if done in clear and
unambiguous language such allocation will be binding on both sides and can be enforced by the
court. See also Limitation and exclusion of liability.
Limitation and exclusion of liability
From the second half of the nineteenth century, English courts, while insisting on performance
of the contract within strict limits of self-imposed obligations, started to abandon a pure literal
approach in cases, where, if followed to the letter, performance would lead to results so
irrational that it was absurd to suppose that two commercial men entered into a contract to
pursue it to this end. Taylor v Caldwell (1863) 3 B. & S. 826; 32 L. J. (Q.B.) 164, Dakin v Oxley
(1864) 15 C.B. (N.S.) 646, Jackson v. Union Marine Insurance Company(1874) 10 CP 125, Dahl v.
Nelson, Donkin, and Others, (1881) 6 App. Cas. 38 illustrate this change in legislative approach.
18
Lord Diplock in Aldebaran Maritima v Aussenhandel (The Darrah) [1977] AC 157 at p.165
Low water, bad weather, unavailability of pilots and tugs, etc.
20
E. L. Oldendorff & Co. G.M.B.H. v Tradax Export S.A. (The Johanna Oldendorf) [1973] 3 All ER 148, per
Lord Diplock.
21
Unless expressly provided otherwise in charterparty. See also E. L. Oldendorff & Co. G.M.B.H. v Tradax
Export S.A. (The Johanna Oldendorf) [1973] 3 All ER 148, per Lord Diplock at 175.
19
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To do a justice between the parties the courts of law begun to apply new legal device - the
doctrine of frustration - allowing to discharge both sides from otherwise absolute mutual
promises when they themselves have failed to provide for the particular event which have
happened. The courts were often approached to investigate the true sense of contractual terms
and to derive from the words embraced in the contract the same idea which the contracting
parties intended to convey22 when they negotiated the contract see Rules of Construction.
Another important outcome of these decisions and especially one of the House of Lords in Dahl
v Nelson, Donkin, and Others, (1881) 6 App. Cas. 38 was that shipowners, merchants and their
legal advisers recognised dramatic force of introduction into the contracts of affreightment
carefully drawn amendments and even whole new clauses, which, when successfully invoked,
can completely shift traditional allocation of risks between the parties (HORSLEY V. PRICE AND
ANOTHER (1883) 11 QBD 244). It prompted draftsmen to produce more and more detailed
charterparty contracts carefully denoting parties duties and risk apportionment. This process
gradually transformed simple charterparties of the nineteenth century into complex modern
contracts.
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