Law Of The Carriage Of Goods By Sea (PART 7)

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series, the basis and elements of the Law Of The Carriage Of Goods By Sea will be explored.

Nature of time charters, description of ship, delivery date and cancelling clauses

1. Nature of time charters

   In the classic phraseology, ‘the Owners agree to let and the Charterers agree to hire the vessel from the time of delivery for a period of’ (see NYPE 93 and NYPE 2015, clause 1). Except in a demise or ‘bareboat’ charter, no proprietary interest passes (see NYPE 2015 and NYPE 93, clause 26: ‘Nothing herein stated is to be construed as a demise of the vessel to the Time Charterers’) and words such as ‘let’ and ‘delivery’ are to that extent inappropriate.
   ‘Delivery’ is defined (NYPE 93, clause 2) as the placing of the vessel ‘at the disposal of the Charterers ready to receive cargo and tight, staunch, strong and in every way fitted for ordinary cargo service’ – in other words, seaworthy (on delivery, see also NYPE 2015, clause 2).
   The general structure of a time charter is that the charterers agree to pay the hire and certain other outgoings, notably bunkers; in return, the owners (through the master) are obliged to perform the voyages directed by the charterers with due despatch, subject to agreed trading limits and the reservation to the master of matters of navigation (see NYPE 93, clauses 5, 8 and 26; NYPE 2015, clauses 5, 26 and 1(a) and (b)).It is for the parties to build on this framework. Those obligations that would be implied by the common law into a time charter (e.g. for the owners to provide a seaworthy vessel and for the charterers to nominate safe ports) are largely overtaken by the express terms of the charter.

2. Description of the ship

   1. Identity
      The preamble to NYPE 93 identifies the ship and lists certain features of the ship, such as:
      1. name
      2. flag
      3. age
      4. capacity
      5. speed
      6. fuel consumption.

      In NYPE 2015, both the preamble and Appendix A provide certain features of the ship.

      The shipowner’s description of the vessel can be a term or a representation of fact. Where the shipowner’s description is only a representation of fact that turns out to be untrue, the charterer’s remedies will be mainly based on the Misrepresentation Act 1967.

      The remedies for misrepresentation are rescission and/or damages. In the case of fraudulent and negligent misrepresentation, the charterer can claim for both rescission and damages (Misrepresentation Act 1967, s.2(1)). In the case of innocent misrepresentation by the shipowner, the charterer can either rescind the charter party or ask for damages in lieu of rescission (Misrepresentation Act 1967, s.2(2)).

      It is in the best interests of the charterer to ensure that all the statements about the vessel’s description are express terms in the charterparty. This is because the Misrepresentation Act 1967 does not apply in the case of a misrepresentation by a third party and also in cases where the misrepresentation does not induce the charterer to enter into a charter party with the shipowner.

      Where the shipowner’s description of the vessel is a term of the charterparty, this raises the question of whether such a term is to be interpreted as a condition, innominate term or warranty. Recent cases suggest that English courts are inclined to treat such terms as innominate terms (The Aegean Dolphin). Nonetheless, a term will be held to be a condition, inter alia, in cases where:

      1. it is so designated in the charter party or if the consequences of its breach, that is, the right of the innocent party to treat itself as discharged, is provided for expressly in the charter party
      2. it has been so categorised as a result of a previous judicial decision
      3. the nature or subject matter of the contract or the factual
         circumstances of the case lead to the conclusion that the parties
         must have intended that the innocent party would be discharged
         from further performance of their contractual obligations if the term was not complied with (The Seaflower).
         In the leading case of The Diana Prosperity, the charter of a tanker under construction referred to the vessel as ‘Yard No. 354 at Osaka Zosen’ (Zosen meaning ‘shipbuilding’). The work was in fact carried out at the yard of a subsidiary company of Osaka, where the vessel was No. 004. The market having fallen, the charterers sought to escape from the agreement by arguing that the vessel did not comply with its contractual description, so that, by analogy with the law of sale of goods, the owners were in breach of condition. This argument was rejected by the House of Lords: the words ‘Yard No.354 at Osaka’ were intended merely to identify the subject matter of the contract, which they did, and did not amount to a contractual description with which the owners were bound to comply.
   2. Speed and fuel consumption
      The preamble to NYPE 93 and Appendix A of NYPE 2015 make provisions for precise technical information to be given with regard to the vessel’s speed and fuel consumption. Such statements have consistently been taken to be warranties (i.e. contractual undertakings) (The Apollonius and The TFL Prosperity). (‘Warranted’ in this context means ‘guaranteed’, as in insurance law, and does not refer to the distinction between conditions and warranties under the Sale of Goods Act 1979.)
      In The Aegean Dolphin, a cruise ship was chartered under a time charter party, which contained a provision in relation to the required speed of the passenger cruise ship. In that case, the ship’s inability to satisfy the required speed made her completely unsuitable for the service, and this breach was held to go to the root of the contract, entitling the charterers to terminate the charter party.
      The charterers needed the ship to perform the intended cruises, and the shipowners were aware of the charterer’s particular commercial
      objective when entering into the charter party. In time charters, it is common for parties to exclude the warranty in respect of voyages after the vessel has been waiting in warm water ports. The commercial justification for the exclusion is that the vessel’s hull can become seriously fouled by barnacles due to delays in warm water.
      The provisions with regard to the vessel’s speed and fuel consumption have also been taken to refer to the time of delivery (The Apollonius).
      Failure to maintain the stated performance throughout the charter may be compensated by a deduction from hire (NYPE 93 and NYPE 2015, clause 17).Unless the charter so provides (SHELLTIME 4, clause 3), there is no undertaking as such that the level of performance will be maintained.
      It has not been necessary for the courts to determine the precise status of undertakings with regard to speed and fuel consumption, but they have all the hallmarks of innominate terms.
      Statements as to speed and fuel consumption are often qualified by ‘abt’ (about) (e.g. BALTIME 1939 (as revised 2001), Box 11). In The Lipa, the added description clause concluded ‘All details “about” – all details given in good faith without guarantee’. In a dispute about the vessel’s performance, the arbitrators thought that it would be contrary to common sense and business efficacy to hold that ‘without guarantee’ relieved the owners of any legal obligation with regard to the vessel’s performance. They concluded that, whereas ‘about’ in itself implied a 5 per cent margin, ‘without guarantee’ should be read as giving a warranty subject to a 10 per cent margin (The Al Bida).This pragmatic approach was undoubtedly influenced by the courts’ reluctance to regard statements in the charter about the vessel’s characteristics as devoid of contractual force (The TFL Prosperity), but, on appeal, was rejected by Andrew Smith J, who held that the owners had given no warranty: they had merely made bona fide representations.
   3. Effect of clause paramount
      A warranty of the vessel’s performance may be indirectly modified by the inclusion in the charter of a so-called clause paramount (i.e. a clause incorporating the Hague Rules, the Hague-Visby Rules or legislation such as the US Carriage of Goods by Sea Act into the charter (see NYPE 93, clause 31(a) and NYPE 2015, clause 33(a)).
      Thus, in The Leonidas, the owners could avoid liability for breach of a warranty that the ‘vessel will perform a laden passage at 11 knots weather and safe navigation permitting’ where the failure to achieve that speed fell within one of the COGSA exceptions to carrier’s liability.
   4. Other characteristics
      Statements are made with regard to:
      1. flag
      2. class
      3. tonnage; and other matters.
         There is some authority for saying that the owners are under an implied obligation not to change the flag (M Isaacs & Sons Ltd v William McAllum & Co Ltd on the rather dubious ground that the discipline and morals of the crew might be affected: the assumption appears to be that the nationality of the crew follows the flag and that a ‘foreign’ crew would be less reliable). However, it is not implied that class will not change (French v Newgass), although the statement of class at delivery is probably a condition (Routh v Macmillan).
         The owners warrant that critical internal dimensions are accurate. (In The TFL Prosperity the free height of the main deck was 5 cm less than stated at one crucial point, making it impossible to load Mafi trailers double-stacked with 40 ft containers as the charterers intended.)Statements with regard to the quantity of bunkers on board at delivery are not conditions and the charterers are not entitled to refuse to take delivery because of a shortage : The North Sea, where the judgment of Hobhouse LJ contains much useful information about the various abbreviations used in relation to fuel, such as HFO, IFO and MDO, and other acronyms such as DLOSP.
         However, the provision in a ‘majors’ approval clause’ (i.e. a requirement for confirmation by major oil companies that the vessel was acceptable to them) that the tanker owners guaranteed to obtain Exxon approval within 60 days was held to be of such importance that failure entitled the charterers to terminate the charter (The Seaflower).
         The importance of the term to the parties was shown by the inclusion in the charter of an option to terminate it, or to continue with a reduction in hire, if one of the existing approvals was lost during the currency of the charter and not reinstated within 30 days. The case provides a good illustration of the sort of arguments that can be deployed by counsel in the conditions/innominate terms debate.

3. Delivery date and cancelling clauses

   Clearly, the charter must define the date and time at which the ship is to be at the charterers’ disposal and the charterers’ obligation to pay the hire commences.
   This is referred to as ‘delivery’ of the ship to the charterers. The same problems arise as with voyage charter parties. If a precise date and time cannot be given when the fixture is made, the shipowner must give an estimate. As long as the estimate is made honestly and on reasonable grounds, the shipowner’s obligation is discharged (The Mihalis Angelos).
   The shipowner does not guarantee that the ship will arrive by the stated date and is not in breach by the mere fact that the ship arrives late. However, if the estimate is not made honestly and on reasonable grounds, the shipowner is in breach of condition and the charterer may cancel the charter party.
   Charter parties usually contain a clause giving the charterer an option to cancel if the ship is not delivered by a stated date (BALTIME 1939 (as revised 2001), Box 22 and clause 21). The exercise of the option is not dependent on the shipowner being in breach or in any way at fault (Smith v Dart). Where a ship is not delivered by the cancelling date, this is not of itself sufficient to hold the shipowner in breach, although the charterer can opt to cancel the charter party pursuant to the cancelling clause (The Democritos).
   However, there is no ‘anticipatory’ right to cancel if it becomes clear, before the cancelling date, that the ship will not be in a position to load until after the cancelling date (see The Madeleine). Where a charter party requires the charterer to nominate a delivery port, the charterer’s nomination of a delivery port can be a condition precedent to their right to cancel on the cancelling date (The North Sea). However, in The Ailsa Craig, the Court of Appeal held that the charterers’ failure to nominate a delivery port did not prevent them exercising the right to cancel the charter party. The charterers’ nomination of a delivery port was not expressly made a condition precedent to their right to cancel and the court refused to imply a provision into the charter party to that effect. Any such implication or construction of the charter party would be entirely pointless, given that both at the time when the charter party was entered into and at the time when the cancelling date was extended both parties knew that the vessel was undergoing repairs in Greece. Hence, the court held that the time for the charterers to make a nomination never arrived and that the charterers had the right to cancel the charter party under the cancelling clause.

   1. Laycan
      The interval between the delivery date and the cancelling date is known as the ‘laycan’ or ‘laycan spread’ and charter parties may provide for notice to be given for narrowing the laycan as the dates approach.
      Whether this requirement is a strict contractual condition or not will depend on the construction of the clause in the context of the particular charter party (The Niizuru and Universal Bulk v Andre).

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This article is written by our Principal Associate, Chakaravarthi