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VOYAGE CHARTER CONTRACTS


Introduction
Historical background
Almost until the second half of the nineteenth century charterparty contracts usually were
made under seal1. They embodied the terms upon which the shipowner lends the use of the
ship, and contained stipulations as to the rate of remuneration, the nature of the voyage, and
the time and mode of employing the vessel2. However for agreement to be valid no any
particular form of document is necessary under English law. Already in Lidgett v Williams [1845]
EngR 662; (1845) 4 Hare 456 it was held that signatures of parties are not required to give force
to complete agreement.
There was not, properly speaking, a charter-party, but there was an agreement, the terms of
which are on paper; and it is admitted that, if the agreement was completed, a charter-party,
signed by the parties interested, was not necessary.3
Legal rules applicable to the charterparty contract are essentially the same as to any other
agreement under the ordinary law of contract. The courts generally inquire whether an offer
made by one party has been accepted by the other and whether a firm agreement upon all
essential terms has been reached4.
Coming back to the nineteenth century case law one can find numerous illustrations of the
tendency of the courts, influenced by the philosophy of laissez-faire, to give full effect to the
agreement, however unreasonable and oppressive a stipulation or condition may be, because it
was to be presumed that the parties meant only what was reasonable. The argument supporting
such position was pronounced by Cockburn CJ:
It frequently happens in the competition, which notoriously exists in the various
departments of business that persons anxious to obtain contracts submit to terms,
which, when they come to be enforced, appear harsh and oppressive. From the
stringency of such terms escape is often sought by endeavouring to read the agreement
otherwise than according to its plain meaning5.

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...

Hunter v Prinsep (1808) 10 East 378 per Lord Ellenborough at p.394.


Blight v Page (1801) 3 B. & P. 295 per Lord Kenyon Ch.J.
10
Dakin v Oxley (1864) 15 C.B. (N.S.) 646
11
Bornmann v Tooke [1811] Camp 376, the charterer must bring his cross-action for any loss he may have
suffered from the default of the owner.
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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)

whether they are ad idem and


whether on the true construction of the language used in the negotiations, including
the use of phrases containing qualification words "subject to" it was the intention of
the parties that they should be bound before they sign formal document.

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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Standard sets of clauses in voyage charterparty contracts


Nowadays standard voyage charterparty form at least consist of such clauses as below:

An introductory clauses. These clauses (Condition of vessel, Cleanliness of tanks,


Voyage, Safe port in Shellvoy6) identify 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. Statements refer to the maximum weight that the vessel can
carry. See below

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.

Bills of Lading/Employment and Indemnity Clauses - These clauses specifies how


Bills of Lading shall be presented and signed by the Master and also specify
charterers obligation to indemnify the Owners against all consequences or liabilities
that may arise from the signing of bills of lading as presented.
Eligibility clauses. These are provisions which stipulate regime of compliance with
international, local and trade specific regulations and requirements such as US Coast
Guard Certificate of Compliance, Major Approval Clauses, Law and Arbitration,
Paramount Clause, ITWF (International Transport Workers Federation), Oil response
pollution and insurance.

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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As some textbooks reflect, emphasis on documentary aspects prevailing nowadays encourages


reflex reaction to every new problem arising, which usually finds solution in producing an
additional clause to cover the new requirement. A guide to tanker charters, H. Williams, p.20
Categories of voyage charters
Originally featured for a single voyage, voyage charter contract can embrace several voyages
either consecutive, then called a consecutive voyage charter, see for example Suisse Atlantique
Socit d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1 AC 361 and
Anglo-Saxon Petroleum Co. Ltd v Adamastos Shipping [1957] 2 W.L.R. 96817; or occurring at
irregular intervals, also called an intermittent voyage charter, see as an example The Oakworth
[1975] 1 Lloyds Rep. 581. In some instances parties agree to utilise tonnage, which may be one
or several vessels, to transport large consignments of certain commodities on series of periodic
voyages. Such contracts called tonnage contracts or sometimes contracts of affreightment, or
simply COA, see as an example The Kriti Rex [1996] 2 Lloyds Rep 171 where under the COA the
owners were to provide refrigerated vessels to load cargoes of fresh green bananas and other
fruit at Big Creek in Belize, Puerto Corts in Honduras and Manzanillo in the Dominican Republic
for carriage to Portsmouth and Zeebrugge during certain period of year.
Distribution of risks
Voyage charterparty is a contract of carriage between the shipowner and the charterer, when
the latter pays freight for use of the owners vessel for a specific voyage or a number of
consecutive voyages to ship certain commodities. Such transportation by sea usually forms an
essential part of charterers commercial activities attaining crucial importance to the delivery of
the goods undamaged and in time. On the other hand shipowner's remuneration for the
services rendered covers its operating costs, fuel and crew including, plus profit margin. That
makes vessels continuous unhindered employment a basic revenue generating factor.
Evidently, the owner would be inclined to free himself from all liabilities for delays which result
from congestion or unavailability of cargo and/or berth.
The commercial interest of the shipowner in a voyage charter is to make profitable use of his
vessel. Unlike the charterer he is not primarily concerned with the choice of ports between
which she is used to carry goods, though it may be to his interest that the loading port in any
voyage charter is as near as possible to the discharging port in the immediately preceding
charter, and that the discharging port in the new charter is not too remote from potential
loading ports for subsequent charters. But his primary concern is that his vessel should earn the
stipulated freight in as short a time as possible. To the charterer, on the other hand, the identity
of the particular ports between which the cargo is to be carried is vital. So if he wants his cargo
to be carried to or from ports where there is risk of delay in loading or unloading cargo owing to

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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22

The American Law Register (1852-1891) Vol.XI-9, January 1863

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