4â Time charterparty

257

4â Time charterparty

make it difficult to guarantee the vessel will have completed the voyage in the

given time. The vessel may return early (known as underlap) or it may exceed

its time (known as overlap).

The charter may provide a fixed period for the charter, such as ‘one year’. In

this case, if the vessel is early or exceeds its time the courts tend to imply a mar-

gin of 4–5 per cent. Some charters will include a qualification using wording

such as ‘more or less’ or a minimum/ maximum approach. Such qualifications

will be treated as absolute in setting the maximum time allowable to the char-

terer. Once the period of tolerance is exceeded, the charterer will be in breach

of contract. The ship-owner can also decide to make time of the essence by

expressly stating a specific date for the return of the vessel.70 Unlike the voyage

charter, if the vessel is returned at an earlier date to the ship-owner the charterer

is not entitled to a refund of hire.71

If the charterer exceeds the time for redelivery and is within the leeway

allowed, he will only be liable to pay for time exceeded at the normal rate of

hire. However, if the vessel is not redelivered when the period of tolerance has

run out, the charterer will be liable for damages at the current market rate. The

courts will sometimes apply the ‘legitimate last voyage’ test to decide if the char-

terer is in breach; this requires that when the vessel departed for its last voyage

it was reasonable to expect the voyage would be completed within the period of

hire with the addition of the leeway.72

(b)â Hire

The wording of the time charter will make express stipulation as to the amount

of hire payable. There will also be clauses as to the time of payment, as well as

the currency. Payment is usually made on a monthly basis and will include

clauses to protect against currency fluctuations. Payment is normally made in

cash; this term embodies a wider meaning and can cover banker’s drafts and

transfers. The general practice is for payment to be made in advance, however

the charterer is allowed until midnight to tender payment.73 The obligation to

make timely payment is a strict one and the charterer will be in breach even if

failure to pay is not due to his actions.74

(i)â Off-hire

Time charters normally provide that hire will cease to be payable on the occur-

rence of certain events for the time lost to the charterer as a result of the event.

The charterer will bear the onus of establishing that ‘off hire’ should apply in the

circumstances. ‘Off hire’ clauses take the form of either a ‘period’ clause that

70

Watson v. Merryweather [1913] 12 Asp. 353.

71

Reindeer SS Co. v. Forslind (1908) 13 Com. Cas. 214.

72

The Democritos [1976] 2 Lloyd’s Rep. 149.

73

The Afovos [1983] 1 Lloyd’s Rep. 335.

74

Tankexpress v. Compagnie Financière Belge des Petroles (1948) 82 LI. L Rep. 43.

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Carriage of goods by sea

runs from the start until the end of the event, or alternatively, a ‘net loss of time’

clause which covers the payment of hire for the time lost during the event.

(ii)â Deductions from hire

In some circumstances the charterer is permitted to make deductions from

hire. These can include where he has made disbursements on behalf of the ship-

owner, monies owed from off hire, failure of the vessel to meet specifications or

damage to the cargo. Although the English courts were reluctant to accept this

approach,75 in The Nanfri76 Lord Denning reasoned that, where the ship-owner,

in breach, deprives the charterer of use of the vessel, there was no reason why a

cross-claim could not be set-off from hire.

Q16 When is hire payable? Can the charterer deduct from hire? If so, in what

circumstances?

(c)â Right of withdrawal

The ship-owner has a right to withdraw a vessel from service if hire is not paid

in full or by the due date stipulated in the contract. At common law, however,

time is not of the essence and therefore the ship-owner may only withdraw the

vessel if it becomes clear that the charterer will not perform his obligations.77

Therefore, most time charters will contain an express clause as to time of pay-

ment for which a breach would entitle the ship-owner to withdraw the vessel.

Notice of withdrawal must be given to the charterers, and once the vessel is

withdrawn the charter will be terminated. The ship-owner may choose to waive

the breach and accept a late payment, however if this is a continued pattern the

ship-owner may lose his right to withdraw altogether.78

(d)â Employment and agency

In a time charter, the charterer will issue orders to the master of the ship and

the master must act in accordance with his directions. The charterer has the

right to issue bills of lading in relation to the goods taken on board. The mas-

ter will sign these bills on the charterer’s instructions, however this would leave

the ship-owner liable to any holders of the bill of lading. To prevent this, the

charterer will agree to indemnify the ship-owner against any claims brought

by third parties. However, if the master follows instructions he knows are not

within the charterer’s authority, then the ship-owner is not entitled to rely on

the indemnity.79

75

Seven Seas Transportation v. Atlantic Shipping [1975] 2 Lloyd’s Rep. 188.

76

[1978] 2 Lloyd’s Rep. 132.

77

Cochin Refineries v. Triton Shipping [1978] AMC 444.

78

Tankexpress v. Compagnie Financière Belge des Petroles (1948) 82 LI L Rep. 43.

79

Larrinaga SS Co. v R [1945] AC 246.