5. Lawful directions and orders.

Types of orders:

a. Lawful or legitimate (contractual): those which the charterer is entitled to give under the contract; they are within the scope of employ­ment.

There is no fault, no breach by the charterer.

Master has to obey the order.

The owner is entitled to an indemnity if loss results by reason of compliance with the order.

If the master disobeys, there will be a breach by the owner who will pay damages to the charterer for loss suffered (e.g The Hill Harmony). Alternatively, the c/p may provide for an indemnity as a remedy to the charterer if the master disobeys instructions,

b. Unlawful or illegitimate (un-contractual): those which the charterer is not give thus.

Charterer commits a breach of contract

An illegitimate order will cause the repudiation of contract

The owner has a right to elect: comply with the illegitimate order which does not mean he waives the right to claim damages; refuse to obey and demand a fresh order.

If the owner, via the master, elects to comply, the owner loses the right to reject the order later, but not the right to claim damages for loss caused by the breach.

If the owner elects the refuse of complying with an illegitimate order and the charterer does not issue a fresh order, the charterer will be in repudiation of contract, which the owner may elect to accept and claim damages for repudiation of contract. The upshot is that with illegitimate orders the owner can claim ei­ther damages for breach of contract, or indemnity under the express provision of the contract, or indemnity implied by law. Claiming an indemnity is better for the owner in terms of the burden of proof. For example, he does not have to prove breach of contract nor does he have to show that the loss suffered was not too remote.

Review questions:

1. What are the main obligations of a charterer in respect of the vessel?

2. What are the redelivery obligation of the charterer?

3. Explain the charters relationship with the waster

4. What types of orders which the charterer may give to a master do you know?

5. What kind of orders that a charterer gives to a master can be considered as "contractual"?

Lecture V. Chartering negotiations

1. Ship Chartering & its Role in World Trade

2. The Charter Market

3. A chartering negotiation

4. Service of shipbrokers.

1. Ship Chartering and its Role in World Trade. What does it mean to “charter” to ship? A standard dictionary definition for the verb “to charter” is “to hire, rent or lease (something) for usually exclusive and temporary use.” When the term is applied to ships, it basically refers to the hiring, rental or lease of a ship for a period of time and / or a particular voyage. Generally speaking, the party making his or her ship available for hire is the shipowner, while the party hiring the ship is the charterer.

The practice of ship chartering is an important instrument in facilitating world trade. For the shipowner, who has invested millions of dollars worth of capital in the construction, manning, maintenance and operation of his ship(s), the ability to charter those ships helps to ensure that they are gainfully employed in the carriage of goods by sea, thereby enabling the owner to earn a return on his investment. On the other side of the equation, chartering provides the producers of raw materials, agricultural products or manufactured goods with the physical means of transporting their products to distant markets for sale to consumers, without requiring them to invest in the construction and operation of vessels themselves. The practice of ship chartering also allows the world’s traders, through the mechanism of the worldwide charter market, to match the supply of cargo‐carrying vessels with the demand for cargoes to be carried, by chartering in from those who own or control vessels and by chartering out to those who need transportation.

2. The Charter Market. The charter market is a key element in the functioning of the shipping industry. The charter market is the place (whether physical or electronic) in which ships and cargoes come together, often through the efforts of a shipbroker, who serves as an intermediary between the shipowner and the shipper. The shipowner places his vessel in the market (or offers it “for hire”), free of cargo and indicates its speed, cargo capacity, dimensions and cargo handling gear. The vessel’s availability for its next voyage will likely be dependent on when it completes its existing chartering arrangement (or fixture), which will determine the time and date at which it will become available for its next charter. For his part, the shipper or charterer, who has a particular volume of cargo to transport from one location to another, will enter his cargo in the market in order to have it transported. The amount, physical characteristics and time constraints of the cargo will determine the type of shipping contract that is required. The broker serves as the intermediary in bringing the ship and the cargo together (with time and location being key conditions for sealing a deal) and if the shipowner and shipper agree on the terms and conditions, a charterparty is drawn up and the ship is “fixed.’ Once the ship has been fixed, a fixture report summarizing the details of the charter is issued. For a voyage charter carrying a cargo of grain, the fixture report might read: