Author: Aysha Hanan, Cochin University of Science and Technology
INTRODUCTION
A contract of affreightment is like a special deal between a ship-owner and a charterer. The ship-owner promises to deliver a certain number of cargos to the charterer at a set price over a specific time. It’s called “affreightment” to highlight its special nature. The carrier is usually liable for the loss of goods, but they make a special contract for sea carriage. Freight refers to the charges for carrying the goods.
In the complex world of international trade and shipping, affreightment contracts play a vital role in facilitating the transportation of goods from one place to another. Essentially, an affreightment contract is an agreement between a ship-owner and a charterer that outlines the terms and conditions of cargo transportation. This crucial document ensures that both parties are clear on their responsibilities, liabilities, and expectations, minimizing the risk of disputes and misunderstandings. In this article, we will delve into the world of affreightment contracts, exploring their key components, benefits, and pitfalls, to provide a comprehensive understanding of this essential shipping agreement.
TYPES OF AFFREIGHTMENT CONTRACTS
Contract of Affreightment are of two types and they are:
Charter party
A charter party is a contract where someone hires a ship, either the whole ship or a part of it, to transport goods from one port to another. It can also refer to the written document that expresses this agreement. The person who hires the ship is called the ‘charterer’.
A Charter Party may be either:
Voyage Charter: When the vessel is chartered for a particular voyage is called the voyage charter. Charter-parties usually provide that the ship shall be “tight, staunch and strong and every way fitted for the voyage”. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd. (1962), a ship was chartered to carry cargo, with a contract stating that the ship was “in every way fitted for ordinary cargo service”. During the voyage, the ship kept breaking down due to poor engine maintenance. The court ruled that the ship-owners failure was not a major breach, so the charterers couldn’t cancel the contract. Instead, they could only claim damages for the losses caused by the ship’s breakdowns.
Time Charter: When the vessel is hired for a specified period of time, irrespective of the number of voyages performed, it’s a time charter. Time Charter Party is also known as Charter Party by Demise. In the case of Milburn & Co. vs. Jamaica Fruit Importing & Trading Co. of London Ltd. (1900) the master signed bills of lading without proper care, leading to the owner’s inability to recover general average contributions from cargo-owners. As a result, the charterer was held responsible as the owner under an “indemnity clause.” When a charter-party is by demise, the charterer becomes the temporary owner of the ship and also assumes responsibility for the crew. This means that any negligence on the part of the crew falls on the charterer. Additionally, the charterer becomes liable for any consequences arising from bills of lading signed by the master.
Bill of Lading
A document that the ship-owner, captain, or agent issues in exchange for the mate’s Receipt after the goods are loaded onto the ship. It’s used when the goods are part of a larger cargo on a general ship. If the entire ship is hired, a charter party is created. The Carriage of Goods by Sea Act, 1925 applies only when the contract of affreightment is evidenced by a bill of lading. The bill of lading certifies that the goods have been received. This means that the ship-owner cannot later deny receiving the goods, unless they can prove that the bill was obtained through fraud or collusion with their agents. If there is non-delivery or a shortage of goods, the ship-owner is responsible unless they can show that the bill was signed by their agent without the goods actually being loaded. So, the ship-owner carries the burden of proof in this situation.
In the case of Malabar Steamship Co vs. Central Bank of India (1939), a shipper loaded goods onto a lighter, expecting a ship to arrive the next day. However, the ship didn’t arrive, and the shipper got fake bills of lading (documents proving ownership) from the shipping company, used these fake documents to borrow Rs 5000 from a bank and disappeared with the money. The goods were seized by the seller, who hadn’t been paid. The ship sailed away without the goods. The bank sued the shipping company for the loss. The court ruled that the shipping company was responsible for the loss because they had issued the fake bills of lading, which led to the bank’s loss.
IMPLIED UNDERTAKINGS
Seaworthiness
In a contract of affreightment, the carrier has certain implied undertakings. The most important one is that the ship must be seaworthy, meaning it’s fit for the journey and equipped for the specific cargo it’s carrying. In Elder, Dempster & Co Ltd v Paterson, Zochonis & Co. Ltd. (1924), casks of oil were crushed by palm kernels placed on top of them, the House of Lords ruled that it wasn’t unseaworthiness but improper stowage that caused the damage. Since there was an exception in the contract for loss due to bad stowage, the ship-owner wasn’t held liable. So, it’s important for the ship to be seaworthy and for the cargo to be properly stowed.
According to the Carriage of Goods by Sea Act of 1925, Rule 1 of Article III states that the ship-owner must exercise due diligence to ensure the ship is seaworthy before and at the start of the voyage. This Act applies only to contracts of affreightment that are included in a bill of lading. It doesn’t apply to charter-parties, so in a charter-party, the obligation to ensure seaworthiness remains absolute.
In Riverstone Meat Co. Ltd. V. Lancashire Shipping Co. Ltd. (1961) a ship was repaired by a reputable firm, but a fitter’s oversight led to loose nuts on certain covers. During rough weather, the nuts came undone, allowing water to enter and damage the cargo. Despite the ship owner’s efforts to ensure the ship’s seaworthiness by hiring a renowned repair firm, the House of Lords held them liable for the defect. Viscount Simonds emphasized that even if a ship-owner takes reasonable care, they may still be responsible for hidden flaws that couldn’t be detected.
In Tattersal vs. National Steamship Co. Ltd. (1854) a ship-owner contracted to carry animals on the condition that he would not be liable for death or injury by disease. He did not disinfect the ship after the previous voyage and consequently the cattle were infected with mouth and foot disease. He was held liable. The infection was caused by uncargoworthiness which disentitled him from relying upon the exception clause.
If a voyage consists of multiple stages, the ship must be seaworthy at the beginning of each stage. If the damage is solely caused by a peril that is specifically excluded in the contract, the shipowner may not be held liable for it.
2. Reasonable Dispatch
In contracts by charter-party, if there is no specific agreement about the time, it is implied that there should be no unreasonable delay in starting the voyage. The voyage must begin within a reasonable timeframe because in the shipping business, promptness is crucial. Delay can undermine the purpose of the voyage. This principle has been established for a long time and was demonstrated in the case of M’Andrew vs. Adams (1834). In that case, a ship deviated from its agreed route and arrived at the destination port a month later than expected. The charterer was allowed to sue for the breach of the implied warranty of reasonable dispatch. When there is a delay, the party causing the delay must provide a valid explanation. Determining what is reasonable or unreasonable depends on the specific trade context. In the mentioned case, the court had no doubt that the intention of the parties was for the voyage to begin promptly.
3. No Deviation
Deviation from the agreed or customary route is considered a breach of contract, and it can make the ship-owner liable and unable to rely on any exception clauses. This means that if the ship deviates without justification, the ship-owner is held responsible for any damage that occurs after the deviation, even if the damage was not directly caused by the deviation itself. However, there is an exception when it comes to saving lives. Common law allows for deviation to save lives, but not for the protection of property. In Scaramanga & Co. v. Stamp (1880) a ship deviated from its course to assist a vessel in distress. The master agreed to tow the distressed vessel for £1,000, which led to the ship stranding and ultimately being lost along with its cargo. The court found that towing was not necessary to save lives, but rather to save the distressed vessel and its cargo. As a result, the shipowner was held liable for the loss of cargo.
In case of a contract of affreightment that is in the form of a bill of lading, the Carriage of Goods by Sea Act applies. According to Article IV [R. 4] of the Act, any deviation made to save or attempt to save life or property at sea, or any reasonable deviation, is not considered a breach of the contract of carriage. Deviation for these recognized purposes is justified even when the need for the deviation was created by unseaworthiness of the ship. It is the presence of the peril and not its causes which justify deviation.
In Leduc & Co vs. Ward. (1888) It was decided that, If contract clauses allow deviation it can be justified but it shouldn’t be against the very substance of the contract.
4. Not to load goods liable to cause danger or delay to ship
The shipper has a responsibility not to load the ship with dangerous or delay-causing goods. If the shipper knows about any risks associated with the goods, they must inform the ship-owner.
In the case of Bamfield vs. Goole & Sheffield Transport Co. Ltd., (1910) the goods were described as general cargo, but they actually contained a chemical called “ferro silicon” that could give off poisonous gases. The shipper knew what the goods were but didn’t know they were dangerous, so they didn’t inform the ship-owner. Unfortunately, the goods did emit poisonous gases, causing harm to people on board. As a result, the defendants were held liable.
CONCLUSION
In conclusion, affreightment contracts play a vital role in the complex world of international trade and shipping. These specialized agreements between shipowners and charterers outline the terms and conditions of cargo transportation, ensuring that both parties are clear on their responsibilities, liabilities, and expectations. Through this article, we have explored the key components of affreightment contracts, including charter parties, bills of lading, implied undertakings, and the importance of seaworthiness, reasonable dispatch, and no deviation. By understanding these essential elements, stakeholders in the shipping industry can navigate affreightment contracts with confidence and clarity, minimizing the risk of disputes and misunderstandings. As the shipping industry continues to evolve, the significance of affreightment contracts will only continue to grow, making it crucial for all parties involved to be well-versed in their intricacies.
REFERENCES
Avatar Singh, Law of Carriages, Eastern Book Co.2015
https://www.globaltrademag.com/contract-of-affreightment-how-to-know-your-obligations/
https://www.linkedin.com/pulse/charterparties-contracts-affreightment-femi-atoyebi-co
FAQs
1. Q: What is the difference between a charter party and a bill of lading in a contract of affreightment?
A: A charter party is a contract where a ship is hired for a specific voyage or period, while a bill of lading is a document issued by the shipowner or agent to acknowledge receipt of goods and evidence the contract of carriage. A charter party is used when the entire ship is hired, while a bill of lading is used when goods are part of a larger cargo on a general ship.
2. Q: What are the implied undertakings in a contract of affreightment, and why are they important?
A: The implied undertakings in a contract of affreightment include seaworthiness (ensuring the ship is fit for the journey and equipped for the specific cargo), reasonable dispatch (starting the voyage within a reasonable timeframe), and no deviation (not deviating from the agreed or customary route without justification). These undertakings are crucial because they ensure the safe and timely transportation of goods, and any breach of these undertakings can make the shipowner liable for damages or losses.
