PRACTICAL CHARTERING

Lecture 5 Special Charterparty Clauses

1. CLAUSES APPLICABLE TO VOYAGE AND TIME CHARTERPARTIES
Some of the key clauses and concepts applicable to both voyage and time charterparties include:
Seaworthiness

The charterparty will usually state that the owner will keep the vessel in a seaworthy condition.
However, even when no such clause is included, the owner will still have an obligation, usually by
law of an implied warranty, to keep the vessel in seaworthy condition. Although there is no
comprehensive judicial definition of seaworthiness, the term generally means that in order to be
seaworthy, the vessel must in all respects be in a condition as to withstand the dangers that can
reasonably arise as possibilities during the voyage in question. Seaworthiness includes (but is not
limited to) crewing, documentation, fitness for the intended cargo, bunkering and storing.
Seaworthiness is a relative rather than an absolute term; it is specific to the intended voyage and the
intended cargo. The standard required will vary with the voyage in question, at least insofar as
seasonal, climatic and other variable factors are concerned. Although the vessel does not
necessarily have to be fitted with the latest state-of-the-art equipment and machinery, this does not
mean that a lower standard can be applied to an older ship than to a newer one. A good test for
establishing seaworthiness is to ask whether a prudent shipowner, knowing everything there is to
know about that ship, would have required a defect to be rectified before commencing the voyage.

It is generally not necessary for the ship to be seaworthy at the outset for the entire voyage, but only
for the particular stage to be undertaken (e.g. if the vessel is supposed to take bunkers at an
intermediate port, it will be seaworthy in this respect if it departs from the original port with
sufficient fuel to reach that intermediate port). An important aspect of making a ship seaworthy, in
terms of its being fit for receiving cargo, is cleaning. Although this applies to all vessel types, the
extent of cleaning involved depends on the trade. For example, a grain cargo cannot be loaded after
certain types of cargo without very careful cleaning. A tanker regularly lifting crude oil (dirty cargo)
cannot carry a clean cargo without a considerable amount of cleaning.
Lay/Can

In both voyage and time charters, it must be agreed when the vessel should be ready to load at the
first port or delivered to the charterer. This is usually accomplished through an agreed Lay/Can
period, which is expressed as two dates (e.g. laydays 25 March cancelling 2 April or laycan 25
March / 2 April) . The term lay is short for laytime not to commence before. If a ship, under a
voyage charterparty, is ready at the first loading port before the agreed layday, the owner cannot
claim that the charterer should start to load the vessel or that the time should start to be counted. If
a time-chartered vessel arrives at the port or place of delivery before the layday, the charterers have
no obligation to take delivery of her, and (unless the charterers agree to an earlier delivery) the ship
has to wait without earning anything for her owners. If, on the other hand, the charterers wish to
commence loading before the first layday, the owner and the charterer must come to an agreement
regarding the payment of hire, allocation of risks, etc. during the period up to the agreed layday.

If the ship has not arrived at the loading port, or port or place of delivery, on the cancelling day,
most charterparties give the charterer an absolute right to cancel the charter agreement. The
canceling clause is applicable even in cases where the ship has been delayed for reasons beyond the
owners control, and where the owner and master have done everything possible to speed up her
arrival. When it is obvious to the owner that he has no chance of arriving at the first loading port or
place of delivery before the canceling date, it is important that he obtain the charterers declaration
as to whether or not he will cancel. Some charterparties (such as Gentime) are worded not only to
give the charterer the right to cancel if the vessel is late, but also to protect the owner by giving him
the right to fix a new canceling day if the charterers fail to declare whether they will cancel or not.
The War Clause

War, revolution or similar occurrences can pose significant risks to the vessel, her crew and her
cargo, and can also increase the risk of delay and extra costs. Thus, it is important that the
obligations of the parties under such circumstances are clearly defined through a special war risk
clause and in some cases, a war cancellation clause. War risk clauses are usually found in all types
of charterparties. A key component of the clause is the way in which it defines war risk. It is
limited to actual war and warlike conditions, or does it also include the threat or war and warlike
conditions? Is its applicability fairly broad, or is it quite narrow (e.g. only when the port is
declared blockaded by reason of war)?
In addition to defining war risk, it is also important that the clause establish the respective rights
and obligations when the crew, cargo and vessel are exposed to such a risk. Can both the owner and
charterer cancel the charter agreement without compensation, or must the charterer arrange for
other cargo or pay deadfreight? Must the owner go to another port or area where the war risk does
not exist? Who will pay for the delay when loading and discharging, and the sea voyage itself, are
either delayed or hindered? Who will pay for extra insurance and extra wages for the crew?

Most standard charterparty forms have a printed war risk clause that is either quoted by reference
or inserted directly into the form. An example of a standard war risk clause used in time chartering
is Bimcos Conwar Time 2004, which has also been introduced into the NYPE 93, while an example
of a similar clause for voyage chartering in Bimcos Voywar 2004. It is important not to mix war risk
clauses designed for voyage charters with those designed for time chartering and vice versa.
Another type of war clause is the war cancellation clause, which is generally intended to give both
parties an opportunity to cancel the charter agreement in instances when the freight market has
totally changed due to war between certain countries or when the vessel cannot engage in further
trading because it is being requisitioned by its home country (or some similar action). Although
war cancellation clauses are mainly found in long term charterparties and contracts of
affreightment, they are increasingly also found in time charterparties (such as NYPE 93) and even in
voyage charterparties.

2. CLAUSES APPLICABLE TO TIME CHARTERING

Clauses and concepts of particular relevance to time charterparties include the following:

Delivery and Redelivery

A time charter period is defined by the delivery of the ship to - and the redelivery of the ship from the time charterers. As explained in the previous discussion on laycan, the time charterers are not
obliged to take delivery of a ship that is delivered too early. If the ship arrives too late, they are
entitled to cancel the agreement and in some cases, they are also entitled to damages. In the context
of a time charter, re-delivery is the termination of the charterers right to use the vessel and takes
place at that moment when the charter comes to an end. As far as the time for redelivery is
concerned, time charterparties usually accept a certain amount of flexibility in this respect. If the
charterers redeliver the ship too late, the owners may be entitled to damages from the charterers
(depending, in part, on the charterpartys terms governing law and the reason for the late delivery).
If it is clear that at the time the vessel was ordered on its last voyage, the charterers realized (or
should have realized) that it would no be possible for them to redeliver the vessel in accordance
with the agreement, the owners usually stand a good chance of obtaining damages for their loss.
The situation is more difficult when the redelivery has been delayed due to a reason beyond the
charterers control (provided that reason is not due to the charterers negligence).

Time and Place of Delivery / Redelivery: Although many standard charterparties stipulate that the
vessel can only be delivered and redelivered during weekdays and office hours, those limitations are
frequently deleted in the individual charterparty. It is also useful if the charterparty clearly
indicates whether UTC (Universal Time Coordinated) or local times should be applied when the
exact time for delivery and redelivery is established. The place or port of delivery and redelivery
can vary in terms of specificity, with a specific port mentioned in some cases and a certain area or
range in others (e.g. vessel to be delivered and redelivered in the Mediterranean). When only an
area or range is mentioned, it is usually the owners who choose the place of delivery and the
charterers who decide on the port of redelivery (since it is in the charterers best interest to have as
many options and as much flexibility when it comes to redelivery as possible). For example, the
Exxon Mobil 2000 form (a tanker time charter) provides for redelivery at a port or place
worldwide, in charterers option. Although this form is highly favourable to the charterer on this
point, it nevertheless provides the advantage of absolute clarity, which is a key consideration in
avoiding disputes among the parties.

Condition of the Ship Upon Delivery and Redelivery: On delivery to the charterers, the vessel should
generally be seaworthy and conform to the requirements of the contract (e.g. she being in every
way fitted for ordinary dry cargo service with cargo hold well swept, cleaned and ready to receive
cargo before delivery under this charter). As far as redelivery is concerned, a standard
charterparty clause will read: the vessel to be redelivered on the expiration of the charter in the
same good order as when delivered to the charterers (fair wear and tear excepted). These two
clauses basically mean that upon delivery, the charterers can require that the ship be in the
condition specified in the contract and ready to commence commercial trading for them. They are
also obliged to redeliver the vessel in a similar condition, enabling the owners to start immediate
commercial trading again, either for their own account or that of another time charterer.

An issue which can sometimes cause problems involves the clearning of cargo holds. Although the
charterers cannot in principle redeliver the vessel before she is swept and cleaned, they can
sometimes negotiate a charterparty clause containing words to the effect that The charterers shall
have the option to re-deliver the vessel with unclean / unswept holds against a lump sum payment
of ..in lieu of cleaning. Given that it can be difficult to estimate beforehand how many men /
hours will be required to clean the ship, it is usually better from the owners viewpoint to discuss

the specific amount of the lumpsum payment when the vessel is at the redelivery port and and her
next employment is known.
It is worth noting that unlike charters for dry bulk trades, few of the tanker time charters contain
provisions regarding the condition of the ship upon redelivery. Indeed, the tanker forms generally
obligate the owner to maintain the condition of the vessel throughout the entire charter period.
Repair expenses are for the owners account whether or not they constitute ordinary wear and tear.
Cases in which a charterer would be liable for physical damage would include a breach of its safe
port or safe berth obligations, or as a result of bad bunkers or cargo which did not conform to the
charter requirements.

Allocation of costs at delivery and redelivery: When the vessel is delivered under the charter,
liability for certain costs such as bunkers, harbour dues and agency fees is passed from the owners
to the charterers. In the same way, liability for those costs gets passed back to the owners at
redelivery. In order to obtain a basis for the allocation of costs, special on-hire and off-hire survey
reports are usually issued in connection with delivery and redelivery. These reports indicate the
exact time for delivery and redelivery, as well as the quantities of fuel and diesel onboard, and the
vessels general conditions (or any damage she may have sustained). The damage report can play a
key role in establishing liability for damages which sometimes arise during and after the charter
period. Although charterers and owners can undertake separate surveys, it is also common that
they agree to a joint survey by an independent surveyor, in which cases they must agree for whose
account the survey is and in whose time. There are a number of options they could choose in this
respect. For example, the chartperparty clause could read: Unless otherwise mutually agreed the
owners and charterers shall each appoint surveyors for the purpose of determining the condition of
the vessel at the time of delivery and redelivery herunder. Surveys whenever possible to be done
during service, but if impossible any time lost for on-hire survey to be for owners account and any
time lost for off-hire to be for charterers account. An alternative option would be to incorporate a
charterparty clause that reads: A joint survey at delivery to be arranged by owners and effected in
their time. A joint survey on redelivery to be arranged by charterers and effected in their time.
Costs for both surveys to be shared equally.
Off-Hire

As mentioned previously, the charterer must pay hire from the moment the vessel is delivered until
the moment she is redelivered to the owners at the end of the agreed charter period. The financial
risk for delay of the vessel due to bad weather, pilot or stevedore strikes, etc. during the charter
period normally rests with the charterers.

However, under certain conditions agreed upon in the charterparty and usually attributable to the
crew or other conditions connected with the vessel, the charterer may be entitled to compensation
in accordance with a special clause called an off-hire clause, suspension of hire clause or similar.
Charterers are entitled to off-hire only if the ship is delayed for a reason which is recognized as
grounds for off-hire in accordance with the terms of the negotiated off-hire clause. In other words,
the specific events that will serve to place a ship off-hire are always related to the construction of
the off-hire clause in question. And, if there is no off-hire clause, there will be no off-hire events.

Off-hire can be compared with liquidated damages because compensation is agreed to beforehand
between the parties. The compensation to charterers is based on the charter hire and charterers do
not have to prove their loss. Even if they can prove that their loss is higher than the charter hire,
they are not entitled to more than agreed beforehand. On the other hand, they still get

compensation based on the charter hire if their actual loss is less. A characteristic of off-hire is that
the charterer may be entitled to make the deduction from hire notwithstanding the absence of any
breach of contract or negligence by the owners. If the owners are in breach of contract or if they or
the people on board have been negligent, the charterers may, however, be entitled to damages or
off-hire at their own choice, or both.
A standard off-hire clause, as found in the NYPE charterparty reads:

That in the event of the loss of time from deficiency of men or stores, fire, breakdown or
damages to hull, machinery or equipment, grounding, detention by average accidents to
ship or cargo, drydocking for the prupose of examination or painting bottom, or by any
other cause preventing the full working of the vessel, the payment of hire shall cease for
the time thereby lost.

It is worth noting that wo later versions of the NYPE 1946 clause are also in use:

the 1981 ASBATIME (changes from NYPE 1946 are shown below in bolded
text
and the NYPE 1993 (changes from NYPE 1946 are shown below in underlined
text):

15 17 That in the event of the loss of time from deficiency and/or default and/or
strike of men officers or crew or deficiency of stores, fire, breakdown of, or
damages to hull, machinery or equipment, grounding, detention by the arrest of the
vessel (unless such arrest is caused by events for which the Charterers, their
servants, agents or subcontractors are responsible), or detention by average
accidents to ship the vessel or cargo unless resulting from inherent vice, quality
or defect of the cargo, drydocking for the purpose of examination or painting bottom,
or by any other similar cause preventing the full working of the vessel, the payment
of hire and overtime, if any, shall cease for the time thereby lost.
In order to determine whether a ship is off-hire under this particular clause, it would be necessary
to ask a number of specific questions, as follows:
1. Has the full working of the vessel been prevented?

2. If so, has one of the specific events set out in the first part of the clause occurred?

3. If not, has been nevertheless been any other cause preventing the full working of the
vessel?
4. Has any time been lost as a result?

1. Has the full working of the vessel been prevented? The requirement that the full working of
the vessel must be prevented to trigger the off-hire clause qualifies all of the events listed in the
clause Only if this first test is satisfied is it then necessary to consider the second issue: namely
whether a relevant off-hire event has occurred (although the two questions may obviously be
inextricably linked). In determining whether the full working of the vessel has been prevented, the

question that needs to be asked is whether the ship is fully capable of performing the services
immediately required of hire. Thus, the off-hire clause only applies if it is the condition of the
ship itself rather than some wholly external event - which prevents its full working, and
only if the ship is prevented from performing the service that is required by the charterer at
that particular time, and not some service that may be required in the future
A brief look at some well known judicial cases may help to illustrate this point more clearly. For
example, Court Line Ltd. Vs Dant & Russell Inc. (1939), involves a case in which a ship was delayed
due to a boom being placed across the River Yangtse by the Chinese in order to prevent the Japanese
from sailing up the river. In this case, it was ruled that the ship was not off-hire because the delay
was caused by an external event (the placing of the boom across the river), which had nothing to do
with the condition of the ship herself, and because the ship was still able to work efficiently.
Similarly, in the case of the Mareva AS (1977), a cargo of grain became wet during the voyage
because the hatch covers were not sound, as a result of which discharging took longer than it should
have. However, it was held that the vessels ability to discharge was not impaired or prevented, so
that the vessel was not off-hire in respect of this period. Indeed, it was the condition of the cargo
and not the ship which had caused the delay. The converse can be seen in the case of the Appollo
(1978), in which the ship was delayed because there was a suspicion that two members of the crew
had contracted typhus, and time was lost because the Port Authorities delayed in granting free
pratique as a result. In this case, it was ruled that the full working of the ship was prevented since
the incapacity of the ship to work was directly attributable to her suspected condition (which for
this purpose included the condition of her crew).
2. Has one of the specific events set out in the off-hire clause occurred?: If the working of the
ship has been prevented by one of the specific events listed in the first part of the off-hire clauses
(i.e. deficiency of men or stores, fire, breakdown or damages to hull, machinery or equipment,
grounding, detention by average accidents to ship or cargo, drydocking for the purpose of
examination or painting bottom), the ships subsequent off-hire status will be relatively easily to
establish.
Although disputes may arise on evidence as to whether there is, for example, a
deficiency of men etc., the legal principles to be applied will usually be clear .

3. Has any other cause prevented the full working of the vessel? If the full working of the
vessel has been prevented, but not from one of the specific events listed in the off-hire clause, it then
becomes necessary to consider whether it arose from any other cause. Taken by themselves, the
words any other cause appear to be completely general and would seem to allow any cause to
count. However, it is a general principle of English contractual construction that, where a list of
events is followed by sweeping up words such as any other cause, the parties are deemed to
intend that the other causes should be of a similar nature to the ones actually listed, which places
some constraint on the applicability of the relevant cause.

However, given the difficulties that can still be involved in defining any other cause in an
acceptable way, the off-hire clause is often amended so that the word whatsoever is added after
the words any other cause. By incorporating this amendment, both parties are agreeing that once
it has been established that the full working of the ship has been prevented for the service
immediately required of her, the cause of this prevention does not need to be analysed further. Any
cause, whether physical or legal, internal or external will suffice.
4. Has any time been lost thereby? Strictly speaking, if no time at all is lost as a result of a cause
specified in the off-hire clause, there will be no off-hire event. This is because the clause opens with
the words in the event of the loss of time from (the specified event) However, once time is lost,

and the remaining requirements of the clause are met, it then becomes necessary to calculate the
amount of time off-hire.

It is worth noting, however, that the charterers are not always entitled to off-hire for all the time
actually lost. For example, according to the Baltime charterparty, the ship is considered to be onhire again when it is able to perform the service immediately required. This means that if the ship
has an engine breakdown in the North Sea and is towed to Hamburg for repairs, she will be on hire
again when the main engine is repaired in Hamburg. As a result, the charterer will not be entitled to
off-hire for the time the vessel needs to get back into the position she had when she went off-hire
The NYPE 93 form adopts another approach, with its clause stating that the payment of hire and
overtime, if any, shall cease for the time thereby lost.