Contract of Affreightment is the expression usually employed to describe the contract between a ship-owner and another person called the charterer, by which the ship-owner agrees to carry goods of the charterer in his ship, or to give to the charterer the use of the whole or part of the cargo-carrying space of the ship for the carriage of his goods on a specified voyage or voyages or for a specified time. The charterer on his part agrees to pay a specified price, called freight, for the carriage of the goods or the use of the ship.
A ship may be let like a house to a person who takes possession and control of it for a specified term. The person who hires a ship in this way occupies during the specified time the position of ship-owner. The contract by which a ship is so let may be called a charter-party; but it is not, properly speaking, a contract of affreightment, and is mentioned here only because it is necessary to remember the distinction between a charter-party of this kind, which is sometimes called a demise of the ship, and a charter-party which is a form of contract of affreightment.
Rules of law
The law with regard to the contract]] of affreightment is, of course, a branch of the general law of contract. The rights and obligations of the ship-owner and the freighter depend, as in the case of all parties to contracts, upon the terms of the agreement entered into between them.
The law, however, interferes to some extent in regulating the effect to be given to contracts. Certain contracts are forbidden by the law, and being illegal are therefore incapable of enforcement. The most important example of illegality in the case of contracts of affreightment is when the contract involves trading with an enemy.
The law interferes again with regard to the interpretation of the contract. The meaning to be given to the words of the contract, or, in other words, its construction, when a dispute arises about it, must be determined by a judge or court. The result is, that certain more or less common clauses in contracts of affreightment have come before the courts for construction, and the decisions in these cases are treated practically, though not perhaps quite logically, as rules of law determining the sense to be put upon certain forms of expression in common use in shipping contracts.
A third way in which the law interferes is by laying down certain rules by which the rights of the parties are to be regulated in the absence of any express stipulation with regard to the matter dealt with by such rules. This is done either by statutory enactment, as by that part (Part VIII) of the Merchant Shipping Act 1804 which deals with the liability of ship-owners; or by established rules of the unwritten law, the common law as it is called, as, for instance, the rule that the common carrier is absolutely responsible for the safe delivery of the goods carried, unless it is prevented by an Act of God or enemies of the Queen.
These rules of law, whether common law or statute law, regulating the obligations of carriers of goods by sea, are of most importance in cases in which there is an affreightment without any written agreement of any kind. It will, therefore, be convenient to consider first cases of this kind where there is no express agreement, oral or written, except as to the freight and destination of the goods, and where, consequently, the rights and obligations of the parties as to all other terms of carriage depend wholly upon the rules of law, remembering always that these same rules apply when there is a written contract, except insofar as they are qualified or negated by the terms of such contract.
In default of express contract
The rules of the common or ancient customary English law with regard to the carriage of goods were no doubt first considered by the courts and established with regard to the carriage of goods by common carriers on land. These rules were applied to common carriers by water, and it may now be taken to be the general rule that ship-owners who carry goods by sea are by the English law subject to the liabilities of common carriers. (See, as to the grounds and precise extent of this doctrine, the judgments in Liver Alkali Company v. Johnson (1874), L.R., 9 Ex. 338, and Nugent v. Smith (1876) 1 C.P.D. 423.)
In practice. goods are not often shipped without a written contract or acknowledgment of the terms upon which they are to be carried. For each separate consignment or parcel of goods shipped a bill of lading is almost invariably given, and when a whole cargo is agreed to be carried the terms are set out in a document called a charter-party, signed by or on behalf of the shipowner on the one part, and the shipper, who is called the charterer, on the other part. But at present we are considering the relations of shipowner and shipper independently of any express contract, as in a case when goods are shipped and received to be carried to the place to which the ship is bound for a certain freight, but without any further agreement as to the terms of carriage. In such a case the rights of the parties depend on the rules of law, or, which is much the same thing, upon the warranties or promises which though not expressed must, as the courts have held, be implied as arising from the relation between the parties as shipper and carrier.
The obligations on the one side and the other may be summarized as follows:
The shipper must not ship goods of a nature or in a condition which he knows, or ought, if he used reasonable care, to know to be dangerous to the ship, or to other goods, unless the shipowner has notice of or has sufficient opportunity to observe their dangerous character. The shipper must be prepared, without notice from the shipowner, to take delivery of his goods with reasonable dispatch on the arrival of the ship at the place of destination, being ready there to discharge in some usual discharging place. The shipper must pay the agreed freight, and will not be entitled to claim delivery until the freight has been paid.
In other words, the shipowner has a lien on the goods carried for the freight payable in respect of the carriage. On the other hand, the obligation upon the shipowner is first and foremost to deliver safely at their destination the goods shipped, and this obligation is, by common law, subject to this exception only that the shipowner is not liable for loss or damage caused by the act of God or the king's enemies; but by statute (Merchant Shipping Act 1894, Part Viii.) it is further qualified to this extent that the shipowner is not liable for loss, happening without his actual fault , by fire on board the ship, or by the robbery or embezzlement of or making away with gold or silver or jewelery, the true nature and value of which have not been declared in writing at the time of shipment; and, further, the shipowner is not liable for damage to or loss of goods or merchandise beyond an aggregate amount, not exceeding eight pounds per ton for each ton of the ship's tonnage.
The shipowner is bound by an implied undertaking, or, in other words, is made responsible by the law as if he had entered into an express undertaking: that the ship is seaworthy; that she shall proceed upon the voyage with reasonable dispatch, and shall not deviate without necessity from the usual course of the voyage.
This article outlines the important obligations of shipper and shipowner, where no terms of carriage have been agreed, except as to the freight and destination of the goods, are such as have been described above.
Bills of lading
The document signed by the master or agent for the shipowner, by which are acknowledged the shipment of a parcel of goods and the terms upon which it is to be carried, is called a bill of lading. The document still used today, initially appeared some centuries ago as a bill (account) presented to shippers for all the charges incurred with his cargo until properly secured and stowed on board. Since in the era of sailing ships it was not uncommon for cargo and ship to become lost, and therefore this bill was not only proof that cargo expenses were paid, but became mainly a proof that the cargo was really on board and thus become a negotiable property title. Under this type of carriage, the bill of lading assumes two main tasks, as cargo receipt and property title. In liner shipping it assumes a triple identity: property title, cargo receipt and carriage contract. In tramp shipping, object of this wiki entry, the carriage contract is the charter party
It must not be supposed that even these primary obligations, which are introduced into every contract of affreightment not by express terms of the contract.
It has now become common form to stipulate that the shipowner shall not be liable for any loss arising from the negligence of his servants, or that he shall not be liable for loss by the excepted perils even when brought about by the negligence of his servants.
And with regard to seaworthiness, it is not uncommon for the shipowner to stipulate that he shall not be responsible for loss arising even from the unseaworthiness of the ship on sailing, provided that due care has been taken by the owner and his agents and servants to make the ship seaworthy at the commencement of the voyage.
There is indeed no rule of English law which prevents a shipowner from exempting himself by the terms of the bill of lading from liability for damage and loss of every kind, whether arising from unseaworthiness or any other cause whatsoever.
In such a case the goods are carried at their owner's risk, and if he desires protection he must obtain it by insurance.
In this respect the law of England permits greater freedom of contract than is allowed by the law of some other states.
The owners, agents and masters of vessels loading in the United States of America are forbidden by an act of Congress, commonly called the Harter Act, passed in the year 1893, to insert in their contracts of affreightment any clause exempting the shipowner from liability for the negligence of his servants; but it is at the same time enacted that, provided all reasonable skill and care has been exercised by the shipowner to make the vessel seaworthy and fit for the voyage at its commencement, the shipowner shall not be liable for any loss caused by the negligence of the master or crew in the navigation of the vessel, or by perils of the sea or certain other causes set forth in the act.
It is now very usual to insert in the bills of lading of British vessels loading in the United States a reference to the Harter Act, incorporating its provisions so as to make them terms and conditions of the bill of lading.
The difficulty of construing the terms of bills of lading with regard to the excepted perils, often expressed in obscure and inexact language, has given rise to much litigation, the results of which are recorded in the law reports. Where such difficulties arise debate arises as to the true and natural meaning of the language used by the parties. The words of the contract must always be considered with reference to these rules, which are founded upon the well-established customs of merchants recognized and formulated by law.
The bill of lading sometimes contains a clause as to the shipowner's lien. Without any express provision for it, the shipowner has by common law a lien for freight. If it is desired to give the shipowner a lien for demurrage or other charges, it must be expressly provided for. The lien is the right of the shipowner to retain the goods carried until payment has been made of the freight or the demurrage, or other charge for which a lien has been given. The lien may be waived, and is lost by delivery of the goods, or by any dealing with the consignee which is inconsistent with a right of the shipowner to retain possession of the goods until payment has been made. The shipowner may preserve his lien by landing the goods and retaining them in his own warehouse, or by storing them in a public warehouse, subject to the conditions required by the Merchant Shipping Act (1894).
A charter-party for a voyage is a formal agreement made between the owner of the vessel and the charterers by which it is agreed that the vessel being tight, staunch and strong, and every way fitted for the voyage, shall load at a certain named place a full cargo either of goods of a specified description or of general merchandise, and being so loaded shall proceed with all possible despatch either to a specified place or to a place to be named at a specified port of call, and there deliver the cargo to the charterers or their assigns.
There are clauses which provide for the amount of freight to be paid and the manner and time of payment; for the time, usually described as lay days, to be allowed for loading and discharging, and for the demurrage to be paid if the vessel is detained beyond the lay days; usually also a clause requiring the cargo to be brought to and taken from alongside at merchant's risk and expense; a clause that the master shall sign bills of lading for the cargo shipped either at the same rate of freight as is payable under the charter-party or very commonly at any rate of freight (but in this case with a stipulation that, if the total bill of lading freight is less than the total freight payable under the charter-party, the difference is to be paid by the charterers to the master before the sailing of the vessel); and there is usually what is called the cesser clause, by which the charterer's liability under the charter-party is to cease on shipment of the cargo, the shipowner taking a lien on the cargo for freight, dead freight and demurrage. The charter-party is made subject to exceptions similar to those which are found in bills of lading. There are also usually clauses providing for the commissions to be paid to the brokers on signing the charter-party, the address commission to be paid to the agents for the Vessel at the port of discharge, and other matters of detail. The clauses in charter-parties vary, of course, indefinitely, but the above is probably a sufficient outline of the ordinary form of a charter-party for a voyage.
Terms of a bill of lading as to the voyage, the place of delivery, the exceptions and excepted perils, and the liability of the shipowner and his lien applies equally to charter-parties.
Other terms are relevant here: demurrage, dead freight, and cesser, which are described below.
Demurrage is a fixed sum per day or per hour agreed to be paid by the charterer for any time during which the vessel is detained in loading or discharging over and above the time allowed, which is, as we have said, usually described as the lay days. Sometimes the number of days during which the vessel may be kept on demurrage at the agreed rate is fixed by the charter-party. If no demurrage is provided for by the charter-party, and the vessel is not loading or discharging beyond the lay days, the shipowner is entitled to claim damages in respect of the loss which he has suffered by the detention of his ship; or, if the vessel is detained beyond the fixed number of demurrage days, damages for detention will be recoverable. Sometimes there is no time fixed by the charter-party for loading or discharging. The obligation in such cases is to load or discharge with all despatch that is possible and reasonable in the circumstances; and if the loading or discharging is not done with such reasonable despatch, the shipowner will be entitled to claim damages for detention of his ship. The rate of demurrage (if any) will generally be accepted as the measure of the damages for detention, but is not necessarily the true measure. When the claim is for detention and not demurrage the actual loss is recoverable, which may be more or may be less than the agreed rate of demurrage. The contract usually provides that Sundays and holidays shall be excepted in counting the lay days, but unless expressly stipulated this exception does not apply to the computation of the period of detention after the lay days have expired.
Dead freight is the name given to the amount of freight lost, and therefore recoverable by the shipowner from the charterer as damages if a full and complete cargo is not loaded in accordance with the terms of the charter-party.
The cesser clause has come into common use because very frequently the charterers are not personally interested in the cargo shipped. They may be agents merely, or they may have chartered the vessel as a speculation to make a profit upon the bill of lading freight. The effect of the clause is that when the charterers have shipped a full cargo they have fulfilled all their obligations, the shipowner discharging them from all further liability and taking instead a lien on the cargo for payment of all freight, demurrage or dead freight that may be payable to him. It has become an established rule for the construction of the cesser clause that, if the language used will permit it, the cesser of liability is assumed to be co-extensive only with the lien given to the shipowner; or, in other words, the charterers are released from those liabilities only for which a lien is given to the shipowner.
The shipowner is further secured by the stipulation already referred to, that if the total freight payable under the bills of lading is less than the full chartered freight the difference shall be paid to the shipowner before the vessel sails. A difficulty which sometimes arises, notwithstanding these precautions, is that although an ample lien is given by the charter-party, the terms of the bills of lading may be insufficient to preserve the same extensive lien as against the holder of the bills of lading. The shippers under the bills of lading, if they are not the charterers, are not liable for the chartered freight, but only for the bill of lading freight; and unless the bill of lading expressly reserves it, they are not subject to a lien for the chartered freight. The master may guard against this difficulty by refusing to sign bills of lading which do not preserve the shipowner's lien for his full chartered freight. But he is often put into a difficulty by a somewhat improvident clause in the charter-party requiring him to sign bills of lading as presented. See Kruger v. Moel Tryvan, 1907 A. C. 272.
A time(d) charter-party is a contract between the shipowner and charterers, by which the shipowner agrees to let and the charterers to hire the vessel for a specified term for employment, either generally in any lawful trade or upon voyages within certain limits. A place is usually named at which the vessel is to be re-delivered to the owners at the end of the term, and the freight is payable until then; the owner almost always pays the wages of the master and crew, and the charterers provide coals and pay port charges; the freight is usually fixed at a certain rate per gross register ton per month, and made payable monthly in advance, and provision is made for suspension of hire in certain cases if the vessel is disabled; the master, though he usually is and remains the servant of the owner, is required to obey the orders of the charterers as regards the employment of the vessel, they agreeing to indemnify the owners from all liability to which they may be exposed by the master signing bills of lading or otherwise complying with the orders of the charterers; and the contract is made subject to exceptions similar to those in bills of lading and voyage charter-parties. This is the general outline of the ordinary form of a time charter-party, but the forms and their clauses can vary considerably.
It is apparent that under a time charter-party the shipowner to a large extent parts with the control of his ship, which is employed within certain limits according to the wish and directions, and for the purposes and profit of, the charterers. But, as we have already explained at the beginning of this article, the shipowner continues in possession of his vessel by his servant the master, who remains responsible to his owner for the safety and proper navigation of the ship. The result of this, as has been already pointed out, is that the holder of a bill of lading signed by the master, if he has taken the bill of lading without knowledge of the terms of the time charter-party, may hold the owner responsible for the due performance of the contract signed by the master in the ordinary course of his duties, and within his ostensible authority as servant of the shipowner, although in fact in signing the bill of lading the master was acting as agent for and at the direction of the time charterer, and not the shipowner. In the language of the ordinary time charter-party the ship is let to the charterers; but there is no true demise, because, as we have pointed out, the vessel remains in the possession of the shipowner, the charterer enjoying the advantages and control of its employment. Where the possession of a ship is given up to a hirer, who appoints his own master and crew, different considerations apply; but though the instrument by which the ship is let may be called a charter-party, it is not truly a contract of affreightment.
There are certain rights and obligations arising out of the relationship of shipowner and cargo-owner in circumstances of extraordinary peril or urgency in the course of a voyage, which, though not strictly contractual, are well established by the customs of merchants and recognized by the law.
It is obvious that, when a ship carrying a cargo is in the course of a voyage, the master to some extent represents the owners of both ship and cargo. In cases of emergency it may be necessary that the master should, without waiting for authority or instructions, incur expense or make sacrifices as agent not only of his employer, the shipowner, but also of the cargo-owner. Ship and cargo may be in peril, and it may be necessary for the safety of both to put into a port of refuge. There it may be necessary to repair the ship, and to land and warehouse, and afterwards re-ship the cargo.
For these purposes the master will be obliged to incur expense, of which some part, such as the cost of repairing the ship, will be for the benefit of the shipowner; part, such as the warehousing expenses, will be for the benefit of the cargo-owner; and part, such as the port charges incurred in order to enter the port of refuge, are for the common benefit and safety of ship and cargo.
Again, in a storm at sea, it may be necessary for the safety of ship and cargo to cut away a mast or to jettison (throw overboard) part of the cargo. In such a case the master, acting for the shipowner or cargo-owner, as the case may be, makes a sacrifice of part of the ship or part of the cargo, in either case for the purpose of saving ship and cargo from a danger common to both.
Voluntary sacrifices so made and extraordinary expenses incurred for the common safety are called general average sacrifices and expenses, and are made good to the person who has made the sacrifice or incurred the expense by a general average contribution, which is recoverable from the owners of the property saved in proportion to its value, or, in other words, each contributes according to the benefit received. The law regulating the rights of the parties with regard to such contribution is called the law of General Average.
However, the owner of the cargo is entitled under the contract of affreightment to the ordinary service of the ship and crew for the safe carriage of the cargo to its destination, and the shipowner is bound to pay all ordinary expenses incurred for the purpose of the voyage. He must also bear all losses arising from damage to the ship by accidents. But when extraordinary expense has been incurred by the shipowner for the safety of the cargo, he can recover such expense from the owner of the cargo as a special charge on cargo; or when an extraordinary expense has been incurred or a voluntary sacrifice made by the shipowner to save the ship and cargo from a peril common to both, he may require the owner of cargo to contribute in general average to make good the loss.