Concept of Charterparty as an International Contract for Engagement of Ship for Transportation of Cargo and Legal Perspective on Critical Areas of Charterparty for Avoidance of Disputes

• Author: Harsh Pathak
• Profession: Advocate, Supreme Court of India
• Pages: 93-109

Concept of Charterparty as an International Contract for Engage-

ment of Ship for Transportation of Cargo and Legal Perspective on

Critical Areas of Charterparty for

Avoidance of Disputes

Ph.D. Harsh PATHAK

1

"Beware of little expenses; a small leak will sink a great ship.”

Benjamin Franklin

Abstract

In internation al business charterparty is a main legal co ntract of engaging a

vessel for transportation of cargo. It is a highly impo rtant document since it defines the

performance obligations as rights, duties, liabilities, risks, earnings, costs and profits

between the co ntracted parties, i.e. the shipowner and the charterer. The proper incor-

poration, interpretation and understanding of charterparty terms is crucial for chartering

business. Therefore, this paper based on the o bservations of the various judicial author-

ities, emphasis on the main types of charter and deals with usual clauses qua distribution

of the liabilities and expenses between the ship-owner and the charterer. More specifi-

cally, type of the charter, important cla uses in the charterparty for suitability of the ves-

sel, its seaworthiness, the avoidance of unjustifiable deviations, the ship’s arrival at the

port, the loading and discharging operations, the delivery of cargo, liabilities, exceptions

to liabilities etc. The instant paper is based on shipping practices followed in accordance

with international and English common laws in pre-to-post fixture in execution of char-

tering process. As chartering is one of the most critical commercial operatio n under in-

ternational business contracts with significant operational, financial and legal conse-

quences. The deliberations in this paper is from a contractual and legal perspective to

understand this special purpose contract for better execution and avoidance of disputes.

Keywords: charterparty, shipping, cargo, seaworthiness, voyage, p erils.

JEL Classification: K22, K33

1. Introduction: charterparty a contract for vessel to transport cargo

The concept of charterparty is as old as the term ship for commercial

purpose. In maritime business the key players handling the cargo across water

bodies are namely, seller of cargo, buyer of cargo, shipper transporter of cargo,

ship owner whose ship is use for transportation of cargo and charterer a middle

man who hires the ship from ship-owner and use it for transportation of cargo. A

1

Harsh Pathak - Advocate, Supreme Court of India, dr.harshpathak@gmail.com.

Dynamic Elements in the Contemporary Business Law 94

charterparty (sometimes charter-party) is a maritime contract between a “ship-

owner” and a “charterer” for the hire of either a ship for the carriage of passengers

or cargo, or a yacht for pleasure purposes. It means that the charterparty will

clearly and unambiguously set out the rights and responsibilities of the ship owner

and the charterer and any subsequent dispute between them will be settled in the

court of law or any agreed forum with reference to the agreed terms and condi-

tions as embodied in the charterparty. The name "charterparty" is an anglicisation

the French charte partie, or "split paper", i.e. a document written in duplicate so

that each party retains half. Chisholm Hugh, ed.

2

. The Latin term charta partita is

a back-formation, and not a true etymological source.

A charterparty has been defined in Halsbury, Edn.

3

, as follows: "A con-

tract by charterparty is a contract by which an entire ship or some principal part

thereof is let to a merchant, who is called the charterer, for the conveyance of

goods on a determined voyage to one or more place, or until the expiration of a

specified period". It will be noticed that an essential part of the definition is that

the contract must be for the hiring of an entire ship or some principal part thereof.

Then in the same volume in para. 481 at page 283 it is stated as follows: "It is

usual to specify the name of the ship which is to be chartered in the charterparty

and to give her description in detail. The description usually includes statements

as to the nature of the ship, her registered tonnage, her classification at Lloyd's,

her position at the date of the charterparty, and her fitness for the purposes of the

charterer; it may, in addition, specify her carrying capacity and the name of her

master."

It is clear from this passage that the name of the ship is usually specified,

and the importance of doing so is to be seen from the passage that follows in

Halsbury which is as follows (p. 284): "Of these statements, those relating to the

name and nature of the ship, to her position at the date of the charterparty, and to

her tarrying capacity are to be regarded as conditions precedent on the non-fulfil-

ment of which the charterer may treat the contract as repudiated". Therefore, be-

fore parties can have a charterparty, there must be (a) the hiring of a ship or some

principal part of a ship, and (b) the ship must be specified. Reliance is, however,

placed on a footnote (o) at p. 284 where it is stated as follows: "There seems to

be no direct authority for the proposition that the statement as to the name of the

ship is a condition precedent. The proposition is retained from the previous edi-

tion. It is submitted that the proposition is in accordance with principle, subject

to the qualification that if the parties were agreed as to the identity of the ship an

incorrect statement of her name might be immaterial"

4

. Now, accepting the law

as stated in this footnote to be correct, it amounts to this that if the identity of the

2

Chisholm Hugh (ed.), Encyclopedia Britannica 5, 11th ed., Cambridge University Press, 1911, p.

953.

3

Halsbury, Hardinge Stanley Giffard, Earl of, The laws of England, being a complete statement of

the whole law of England, vol. 30, London, Butterworth, 1917, para. 472, p. 273.

4

Idem, p. 284.