Introduction
The freedom of contract in chartering was introduced as a political and economic idea. It all started in the nineteenth century when the law began to reflect on a new ideology. In the beginning, a strong movement started to reject the too-fixed legislation of a paternalistic charter, and then the tables turned, and the movement was the other way around. This was when the freedom of contract began; therefore, contractual parties had the freedom to agree on their rights and duties. However, this freedom is usually lifted when a third party enters the agreement. This study seeks to examine whether this freedom is conducive to the “health” of the market.
Discussion
In chartering legal relationships, the contractual parties can agree on their rights and duties. This is done with n the aim of reducing inconsistency and ambiguity of clauses. Therefore each party is expected to adhere to their duties, and if one party breaches the contract, they go to court for intervention (Cherednychenko, 2021). Court system decisions are mostly reflected in the presumed intentions of the parties. Therefore, freedom allows them to make rights and duties according to the changing needs of commerce.
During the transportation of goods across the sea, shipowners and charterers are free to agree on their rights and duties. However, when a third party (indorsee of a bill of lading issued under a charter party) is involved, the freedom to agree on their rights and duties is lifted (Cherednychenko, 2021). The Bills of Laden Act Chapter 15.13 states every indorsee of a bill of lading which the property shall have transferred all the rights vested in him and is liable for the same liabilities (Cherednychenko, 2021). This shows that if a third party is involved, all the rights and responsibilities shall be transferred to them from the shipowner or the charterer. For instance, if the ship-owner was to inspect the goods on behalf of the charterer, and a third party is involved at the port, then the rights and duties are imposed on them. The third-party will be expected to inspect the goods received to ensure they are in good condition. If the third party receives the goods and some are damaged in their process, they will have to compensate the charterer as agreed with the shipowner.
The business of transporting goods from one port to another should rest on the ship owner and the charterer. However, some government interventions should ensure that both parties conduct fair business. In such a business, it is expected that there will be conflict due to the uncertainty of sea travel, and thus sometimes, courts shall be used to solve the challenge. The market is quite competitive, thus giving the ship owner and the charterer the autonomy to set their rules and laws encourages autonomy in the business (Wackett, 2022). Less conflict is expected when each party knows its obligation and does its best to achieve it. In addition, giving them this type of business autonomy shields the shipping business from political and economic interference. Some of the political hurdles may be government-imposed rates or the impact of a fluctuating economy.
The other reason freedom of chartering is healthy for the market environment is that it helps to reduce monopoly on the business. When a few people or companies are given the ability to control the charters, they are likely to exploit both the consumers and the ship owners (Wackett, 2022). Therefore, using this freedom, charterers have been able to bypass the traditionally long process and make their contracts with ship-owners to transport goods, which makes the shipping process flexible and more attractive to the market. Some of the main US retailers who act as charterers are known for using this freedom to increase their flexibility in dispatching goods and receiving raw materials from other overseas countries. For instance, Amazon has made permanent charter shipping arrangements with private entities, which has enabled it to make its deliveries efficient (Pohan, 2021). Thus, the freedom of chartering relationships with the contractual parties has enabled the business to flow more efficiently in the market by removing monopoly.
For instance, during the Christmas holiday season in 2021, freedom of chartering has significantly boosted many US retailers. Walmart, one of the companies known to have exploited this freedom, expected to receive a 5% increase in holiday sales and deliver revenue of $30 billion the same year (Wackett, 2022). The company had experienced a stockpile ahead of the Christmas rush due to the lack of ship charters. However, since the company took advantage of the freedom of chartering relationships, it has created private arrangements with ship owners, enabling them to deliver their products and smoothen logistics.
Freedom of chartering has given the respective parties the autonomy to decide their terms and conditions, allowing the charterer and ship-owner to share the cost and bend some standard rules. Various rules apply when there is chartering because the two parties agree on the most favorable terms. For instance, the Voyage charter allows the ship-owner to take all the liability on the sea except those caused by unforeseen natural forces (Wackett, 2022). This implies that if the ship becomes unseaworthy in the sea, the ship-owner is responsible for the damage to the goods. However, due to the freedom of chartering, some owners may agree with the charterers that they are both liable for the products moving in the sea and thus, they jointly insure them. However, in forming the conditions of the charter, both parties should understand the responsibilities. If any parties are found to have fraudulently changed some conditions, they are liable for any damage or loss incurred. Therefore, as long as both parties are aware of their obligation and the rules of the charter, they can make them as they please.
On the contrary, the freedom of chartering has its downsides, too, such as being more expensive. Although these conditions are flexible, charter freedom may make shipping quite expensive. Charter freedom has somehow privatized the shipping business, whereby charters get specialized services (Cherednychenko, 2021). For instance, a charterer may want the ship owner to inspect and deliver goods without involvement. This shows that the services brought by these services may be more complex since more expensive to ship goods. In addition, ship owners may have to install specialized equipment to handle specific charter requirements. An example is when the charter may want to transport bulk cars on a ship. The ship may need specialized storage, such as adjustable floors to accommodate the car and clips to hook them. These services are an added cost to install; thus, installing them implies that cost would be imposed on the charterer. Thus, the freedom of chartering legal relationships may make the services more expensive.
Another downside of charter freedom is that both parties are at risk of fraudulent misinterpretation. This freedom will increase fraudulent misinterpretation of legal causes that bind the different parties. Although the charter party has the power to repudiate the agreement, they will still suffer harm (Cherednychenko, 2021). For instance, misinterpretation may arise when goods and services on the freight are caused by a fire resulting from a rough sea. Although the fire damaged the goods, the cause of the fire was natural and could not have been foreseen. However, the charter may argue that the ship-owner had to ensure that the fire was put out before it consumed their products. Such misinterpretation may be difficult to solve, especially when the parties made the rules on their own. This shows that the freedom will place both parties at an increased possibility of misinterpreting their contract. However, if there is a disagreement between both parties on their rights and responsibilities, they can take it to court for settlement.
Conclusion
The freedom of contract in chartering gives the legal chartering relationship of the contractual parties the freedom to agree on their rights and duties. These rights can be enforced in a court of law and only become invalid when a third party is introduced (an indorsee of a bill of lading issued under a charter party). Freedom is healthy for the chartering market because it enables the business to be competitive. Another important reason is that it helps eliminate industry monopoly by allowing ship owners to negotiate directly with their clients. Freedom of contract in chartering also helps to make the market more flexible, whereby the parties involved can bend some standard rights and duties to fit their capability and needs. However, on the contrary, drawbacks include freedom of chartering, making the market quite expensive. Finally, this freedom exposes the contracts to the risk of fraudulent misinterpretation whereby one party may manipulate the other party with misinterpretation of a clause. Based on the benefits and drawbacks of the freedom of chartering legal relationships, the approach is conducive and healthy for the market.
References
Cherednychenko, O. O. (2021). Fundamental Rights, Contract Law and Transactional Justice. European Review of Contract Law, 17(2), 130–141. Web.
Pohan, M. (2021). Principle of Freedom Contracts at a Company. Utopía Y Praxis Latinoamericana, 26(Esp.1), 158–166. Web.
Wackett, M. (2022). Lack of free tonnage keeps charter market insulated against freight rate falls. The Loadstar. Web.