Time Charter party

Sneha Vijayan
Semester VIII
898
Introduction

A charterparty is the contract between the owner of a vessel and the charterer for the use of a
vessel. There are three big types of charter parties: voyage charters, time charters and demise
charters (or bareboat charters). In a time charterparty, the charterer takes over the vessel for
either a certain amount of time. A voyage charter is for a certain point-to-point voyage. A
demise charter is a contract for the leasing of a ship under which the charterers take possession
of the ship, and also provide their own crew and ship management to operate her

Time Charterparty, definition

Time charters are the other big type of contracts in the shipping industry, aside from voyage
charters. Many of the same principles apply to both types of charters. This allows to make a
meaningful comparison between them, to draw analogies from the new developments in time
chartering and apply them to voyage charter practices. However, the relationship between the
parties involved is not exactly the same, which translates into a different set of responsibilities
and goals for each of the contracting partners.

Under a time charter party, the shipowner undertakes to make the vessel available to the
charterer for the purposes of undertaking ballast and loaded voyages as required by the
charterer within a specified area over a stated period.1 It may also be defined as a contract
for services to be rendered to the charterer by the shipowner through the use of the vessel by
the shipowners own servants, the master and the crew, acting in accordance with such
directions as to the cargoes to be loaded and the voyages to be undertaken as by the terms of
the charter-p arty the charterer is entitled to give to them2

1
Donaldson, J., in The Berge Tasta [1975] 1 Lloyds Rep. 422, at page 424
2
Lord Diplock in The Scaptrade [1983] 2 Lloyds Rep. 253, at pages 256 to 257.
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The scheme of a time charter

The parties

The time charter will identify the parties contracting as owners and charterers, and the ship to
be chartered, or provide a mechanism by which they are to be identified, for example, by
nomination.

Principal obligations

The owners main obligations under a time charter are as follows:

The owners promise that the description of the ship that they have given in the charter is
accurate at the time when the contract is concluded. In most cases, they promise at least to act
diligently to ensure that the ship is delivered to the charterers by a particular date. In particular,
they promise that she will be seaworthy (or at least that they will have acted diligently to make
her seaworthy) Once the ship has been delivered into the charterers service, the owners
undertake that the ship will comply with the charterers orders as to her employment, executing
them promptly. They undertake to co-operate with the charterers in loading and unloading
cargoes (although exactly how much they undertake to do will depend on the terms of the
particular charter). In order to facilitate the charterers commercial use of the ship, the owners
undertake that they will enter into contracts with third parties for the carriage of cargoes loaded
onto the ship, as and when directed to do so by the charterers and, generally, on such terms as
the charterers may require. Throughout the period of the charter, the owners promise to keep
the ship properly officered and crewed, to provide her with all necessary supplies (other than
bunkers) and to meet her running expenses. They also undertake to carry out any necessary
cleaning of the ship between cargoes and to maintain her in a condition for service.

The charterers most significant obligations are these:

That they promise to pay hire, for as long as the ship is performing the charter service, from
the time that the ship is delivered until she is redelivered. Although it is for them to choose
how they use the ship, they usually promise to trade the ship only within certain limits, in
particular only at and between places which can be expected to be safe for her and loading only
certain kinds of cargo. Although it is generally the owners responsibility to keep the ship

TIME CHARTERPARTY 3
supplied, the charterers undertake to supply the ship with bunkers and also to pay the costs of
calling at the ports to which the ship is traded. They promise to co-operate with the owners in
loading and unloading cargoes (although exactly how much they undertake to do will depend
on the terms of the particular charter). They undertake that they will finish using the ship, and
redeliver her, at the end of the charter period, neither any sooner nor any later. Finally, there is
typically an undertaking, implied if not express, to indemnify the owners against loss suffered
as a result of complying with the charterers orders.

Important duties falling on both parties equally are thus:

There is an implied duty to co- operate in the performance of the contract and, it is suggested,
to communicate honestly in that regard. A time charter is a complex contract and many of the
stages of its performance require the parties to co- operate. There is an implicit obligation, in
particular, to co- operate to settle the charter account. Any sums due on the charter account
must be paid within a reasonable time.

The ship

As regards the ship to be chartered, the charter will normally do more than merely identify her
by name. Some detail as to the characteristics and capabilities of the ship will ordinarily be
stipulated, whether by reference to standard particulars such as those in Lines 4 to 11 of the
New York Produce form or by an additional, detailed vessel description, or both. An additional,
detailed description is sometimes based on a questionnaire completed during the negotiation of
the charter. It will be the responsibility of the owners to ensure that the ship complies with the
description given in the charter. That responsibility may have to be discharged at the time the
charter is concluded, at the time when the ship is delivered, or both. This may be an absolute
obligation or a qualified obligation, typically a due diligence obligation. When considering
such matters, it may be important whether the charter incorporates any version of the Hague or
Hague- Visby Rules, for example, the United States Carriage of Goods by Sea Act 1936 in the
case of the New York Produce form, under Clause 24. There will normally be a further promise
by the owners concerning the maintenance of the ships condition and fitness for service during
the course of the charter. That could, in theory, be an absolute undertaking. Far more
commonly, however, it is only an obligation of due diligence. Indeed, the arguably unqualified
TIME CHARTERPARTY 4
maintenance language of Clause 1 of the New York Produce form is interpreted as imposing
only an obligation of diligence. For discussion of the owners maintenance obligations.

Delivery

In order to trigger the start of the charter service, various requirements may have to be satisfied.
For example, the ship may have to reach a particular location or the owners may have to serve
a notice of readiness. However, subject to any such requirements in any particular case, the
delivery of the ship consists simply in putting the ship at the charterers service. In The Niizuru
case3, it was stated that, . . . delivery refers to the placing by the owners of the vessel at the
disposal of the charterers, . . . with a view to starting the time for payment of hire running.
Similarly Roskill, J., said in The Madeleine4, that An owner delivers a ship to a time charterer
. . . by placing her at the charterers disposal and by placing the services of her master, officers
and crew at the charterers disposal, so that the charterers may thenceforth give orders (within
the terms of the charter- party) as to the employment of the vessel to the master, officers and
crew, which orders the owners contract that their servants shall obey. Under the New York
Produce form, there is a particular question whether delivery occurs before time starts to run.
The charter will normally make provision for when delivery is to take place. The typical
pattern, as under the New York Produce form5, is to entitle the charterers to refuse delivery
earlier than a certain time and to cancel the charter if delivery has not occurred, or at least if
the ship has not made herself ready for delivery, by a certain time.

Redelivery

Redelivery occurs when the charter comes to an end. Everything going well, the ship will be
redelivered when the owners have completed the charterers final voyage orders, so that the
charter service is at an end. The charter may require the ship to have reached a certain place
before it is redelivered or it may require the charterers to serve a notice of redelivery. However,
in the absence of such requirements, a time charter ends in exactly the same way as a voyage

3
[1996] 2 Lloyds Rep. 66, at page 68, Mance, J.
4
[1967] 2 Lloyds Rep. 224, at page 238
5
Clause 14
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charterparty ends when the last cargo is discharged6. Where the charter comes to an end
prematurely, redelivery is said to occur there and then. For example, if one party repudiates
the charter and the innocent party elects to terminate the charter, the ship is thereupon
redelivered. Some of the consequences of a premature redelivery may be different from
those of a redelivery in the ordinary course at the end of the intended period as provisions of
the charter that operate on redelivery may, properly construed, relate only to the latter.

Nominating a safe port

This is a clause that is common in time charterparty contracts. The obligation to nominate a
safe port means that the charterer will warrant that the port is safe. This is a promissory
obligation, which can be settled by damages if the obligation is breached. Whether a port is
safe has been decided in case law. Within a relevant period of time, a ship must be able to reach
a safe port and return from it, bar some abnormal occurrence, without being exposed to danger
which cannot be avoided by good navigation and seamanship7. This last element refers to a
standard of skill that can be required of the master to avoid danger. The question to be asked
is: could an ordinarily prudent and skilful master get there in safety?. A port that had
underwater pipelines near the berth, which were damaged by a dragging anchor was considered
to be unsafe, meaning the charterer could be held liable to pay for these damages 8. Other
reasons why a port might be considered unsafe are for example: not enough draft clearance,
vessel has to be lightened to enter, buoys are not in position or if there is no assistance of tugs.
Political risks such as war, blockades and sanctions might be considered as risks in unsafe
ports9. A charterer might escape liability on this point if this would amount to an abnormal
occurence". To decide whether enforcement of sanctions such as detention, seizure or
blacklisting is an abnormal occurrence, depends on the foreseeability of these measures. There
is no requirement of actual physical loss to consider a port unsafe, a risk of damage is
enough.34 If charterers nominate a specific named port, they cannot order the shipowner to
then go to a different port (especially not after the vessel has become an arrived vessel), unless
the shipowner agrees and freight is compensated. If a range of ports is nominated under a

6
The Berge Tasta [1975] 1 Lloyds Rep 422, per Donaldson, J., at page 424. I.38
7
The Eastern City [1958] 2 Lloyds Rep 127; S. GIRVIN, Carriage of Goods by Sea, 318.
8
The Polyglory [1977] 2 Lloyds Rep 353; S. GIRVIN, Carriage of Goods by Sea, 329.
9
S. GIRVIN, Carriage of Goods by Sea, 326
TIME CHARTERPARTY 6
charter party, this does not mean that the warranty of port safety is implied for each and every
of those

Hire

The owners reward for putting the ship into the charterers service is the right to be paid hire.
A key feature of any time charter is that the charterers agree to pay for the services of the ship
on a time basis, paying hire, as it is called, at a rate per time unit (most often a day) shorter
than the whole period of the charter. Hire is another word which, when used in a time charter,
has no connotations of leasing (and thus of a transfer of possession of the ship). As Lord
Denning, M.R., pointed out in The Nanfri10, it was at one time common to describe the owners
remuneration under a time charter as freight, later time chartered freight or time freight.
But for many years now, the word freight has been reserved for all forms of voyage charter
(and bills of lading) and the word hire used, by way of distinction, in time (and demise)
charters. Time charter hire is typically payable in advance at set intervals throughout the course
of the charter.

The charter account

At the end of the charter, the parties will attempt to calculate whether any balance is owed by
one to the other on the charter account. The most important elements of the account are hire,
taking into account any off-hire periods, and bunkers taken over by the charterers on delivery
and by the owners on redelivery. However, there are numerous other expenses which may be
paid during the course of the charter by one party which are for the account of the other, that
is to say which, according to the charter, are to be paid or borne by the other. The parties
respective statements of the account are usually described and referred to as their final hire
statements. It is suggested that, as an incident of the general duty of co-operation, the parties
are each obliged to provide a final hire statement to the other, so as to identify all areas of
agreement and any areas of disagreement on the amounts due in each direction.

10
[1978] 2 Lloyds Rep. 132 at page 140
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Contrasted with voyage charterparty

A voyage charter party can be defined as a legal contract, in which shipowners promise to carry
a particular cargo on a particular ship on a particular voyage for an agreed sum. Whereas, a
time charter party can be defined as a legal contract, in which charterers are hiring of vessels
for a specific period of time from the shipowners.

The differ greatly due to the following aspects. Firstly, with respect to responsibility of parties.
Under time charter party contracts, shipowner remains responsible for the technical operation
of the vessel, but commercial control of the vessel is handled by the charterer. Under this
contract, the shipowner must cover all costs associated with crewing, maintenance of the vessel
and insurance, but vessel fuel consumption and port charges will be compensated by the
charterer. Under voyage charter party contracts both technical and commercial management
handled by the shipowner. Here, the shipowner is not only responsible for the costs associated
with crewing, maintenance of the vessel and insurance, but also pays for all the costs of the
voyage, including bunkers and port charges.

When it comes to duration, time charter party contracts are signed for a limited period of time
without dictating a fixed route to the charterer. During the charter party contract period, the
charterer could operate the vessel commercially within allowed routes freely. However, voyage
charter party contracts are signed to carry specific amount of goods between pre-determined
route. Under voyage charterparties shipowners carry pre-defined cargo between pre-
determined ports. Once the transportation is completed, the voyage charter party contract
comes to an end.

With respect to the calculation of the contract amount, under time charter party contracts
charterers pay daily hire to the shipowners of the vessels. Whereas, under voyage charter party
contracts charterers are obliged to pay the freight to the shipowners. Freight is calculated either
according to the quantity of cargo loaded or carried, or a lump sum freight (money paid to
shipper for a charter of a ship up to stated limit irrespective of quantity of cargo).

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Contrasted with demise charters

A demise charter is a contract for the leasing of a ship under which the charterers take
possession of the ship, and also provide their own crew and ship management to operate her.
In Sea & Land Securities v. Dickinson11, said that the difference between the two kinds of
charter was like the difference between hiring a boat in which to row yourself about, in which
case the boat is handed over to you, and contracting with a man on the beach that he shall take
you for a row, in which case he merely renders services to you in rowing you about. Thus,
under a time charter the owners continue to officer and crew their ship, but agree that the ship,
through her master, will follow the charterers orders, within the limits set by the charter. That
a time charter does not operate by way of demise is confirmed expressly in Clause 26 of the
New York Produce12: Nothing herein stated is to be construed as a demise of the vessel to the
Time Charterers.

Types of time charter party contracts

The maritime transport business can be seen to evolve over extended periods of time. It is
constantly trying to match or even stay ahead of trade market needs, which is not easy to do
against the volatile economic situation in the world. At the core of this business are the
agreements and contracts between a whole range of maritime players and intermediaries.
Various international organisations and associations are following these developments and try
to facilitate contact between maritime businesses. One of the more prominent ones is BIMCO.
They are well known for developing many of the model contracts used in maritime transport.
More recently, they have updated one of their time charter forms, the NYPE. However, it was
over 20 years since the last revision, making the new version long overdue. A similar update
is expected for the other widely used model, the GENCON. Meanwhile, business continues as
usual and not every new proposal is implemented or even welcomed immediately. Sometimes
the older models remain predominantly in use and contract parties simply choose to
additionally clause them where needed. There is a certain limit to how long this practice can

11
(1942) 72 Ll.L.Rep. 159, at page 163, Mackinnon, L.J
12
form (Line 170)
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continue until the model is devoid of its original intention. On top of this, legal disputes arise
and case law is constantly sculpting the ways of interpretation of the contract terms. Until a
new (and improved) model contract comes along, contracting parties must find ways to make
sense of the amalgam of clauses available and rules applicable to them.

The list of certain Time Charter party contracts that are used by parties to such contracts
have been listed below

BALTIME 1939 (all types of vessels),

BARGEHIRE 94 (for barges),

BOXTIME (for container vessels),

GENTIME (all types of vessels),

NYPE 93 (all types of vessels),

SUPPLYTIME 89 (for offshore vessels).

Conclusion

It is a fundamental legal concept that any contract is governed by a particular system of law.
In India, The Indian Contract Act, 1872 could be the relevant legislation to deal with issued
relating to charterparties. The issues of charter parties are discussed in Carriage of Goods by
Sea Act, 1925 and the (Indian) Bills of Lading Act, 1856. Besides, the Merchant Shipping
Act, 1958 also touches this topic.

TIME CHARTERPARTY 10