Abstract
Relations between shipowners and charterers are one of the fundamental issues that appear under each charter party. This sort of agreement determines terms, primary conditions, duties, obligations, and other aspects of the cooperation and penalties that could be applied to one or another party. In this regard, this report aims at the investigation of the types of disputes that might appear between shipowners and charterers because of different reasons. Causes for the appearance of these issues are analysed and discussed. The report also revolves around the possible ways to avoid the appearance of this contradictions in relations between parties and suggests efficient solutions that could contribute to the improved outcomes and enhanced relations between agents. Moreover, the paper delves into the peculiarities of the charter party and legal frameworks that regulate the cooperation of all vessels owners and hirers. At the end of the paper, the conclusion about the importance of the issue is given.
Introduction
Today, maritime transport remains one of the cheapest ways to deliver cargoes or passengers to different destination points. Such factors as significant capacity, safety, ease of operations, and numerous routes contribute to the enhanced importance of the sphere of shipping across the globe. Therefore, big vessels characterised by a high cargo capacity might be too expensive for companies operating in the given sphere to be able to buy them. Under these conditions, we nowadays observe the cooperation between shipowners and charterers with the primary aim to acquire benefits by leasing a vessel out from one side and using it to deliver cargoes from another. The importance of these relations is evidenced by numerous regulations and terms of the agreement that exist to monitor the sphere and introduce the legal framework for the cooperation between a shipowner and a charterer. However, there are still some grounds for the appearance of disputes especially if complex situations occur.
Background
Thus, a charter party could be defined as a hire or lease contract between a shipowner and a lessee or charterer for one or more voyages or for an established period (Alderton 2011). In such a way, parties engaging in cooperation, both a vessel owner and charterer, stipulate terms of an agreement and outline the legal framework of their partnership. It is fundamental to establish terms, freight, both parties obligations, responsibilities, and duties, etc. These elements precondition the success of the would-be cooperation and might be used as the central argument in debates in case some disputable issue appears. The fact is that regardless of the specified terms, there are numerous situations when shipowners and charterers are not able to make a compromise and prefer to engage in vigorous discussion regarding their rights and compensatory damages. Therefore, numerous disputes may arise between these parties.
Types of Disputes
Financial
First, financial disputes are one of the most common types of problems that might appear between shipowners and charterers. The fact is that the freight, or the payment for an owner for the right to use the vessel, depends on numerous aspects such as the term, damage, cargo, etc.( Ducruet & Notteboom 2012). Any agreement presupposes a stipulated price that is appropriate for all parties to a contract. However, during the vehicle operation, unforeseen situations or emergencies might appear. For instance, a particular defect, previously unknown, was discovered when delivering cargo to a destination point. In this regard, a charterer might demand compensation from a shipowner because of the inappropriate state of a vessel and financial losses that might happen because of this defect. However, it will be a complex issue because of the need for credible evidence of one or another sides fault and particular terms of an agreement that either mention or disregard the above-mentioned defect.
Speed and Consumption
Disputes over speed and consumption are another popular issue that might arise during cooperation. The fact is that some charterers might prefer to cut speed with the primary aim to save fuel and reduce spending (Charterparty issues 2015, para. 8). Usually, the given practice is used when the timeframe is not critical regarding the terms of the agreement. Speed reduction also means enhanced carbon dioxide savings. However, at the same time lowering vessels speed for a long period may do significant harm to engines that need a particular load (Baughen 2015). Under these conditions, no specific point in a voyage charter party demands a certain load and speed for an engine, a disputable situation might appear as a charterer might use this loophole to save costs at the expense of a significant deterioration of the vessel overall state.
Harm
This problem is related to another disputable issue which is the damage done to a ship. In general, all contracts contain specific terms that outline the main causes of damage and responsibilities of parties if these problems appear. However, the problem of stevedore damage and other unexpected complications remains topical (Baughen 2015). A charterer might refuse to take responsibility for the harm caused by third parties. For instance, the majority of companies operating in Algeria knows that local ports might cause serious damage to their ships. Under these conditions, they address the Algerian Supreme Court with the primary aim to compensate for losses (Charterparty issues 2015, para. 11). Another problem related to the issue is the determination of the character of the question whether it is physical damage or ordinary wear (Alizadeh & Nomikos 2009). These issues might become extremely important regarding the cooperation between a shipowner and a charterer and terms of the charter party as the damage assessment procedure could establish a high compensatory price. The charterer has to pay if as a result of a breach of any of his/her obligations, a vessel is delivered in a worse condition. That is why it is fundamental to decide what degree of physical change or deterioration will constitute damage and what will stand for wear.
Unsafe Ports
Another issue might appear if a charterer decides to enter an unsafe port which results in damage done to a vessel or other problems including the complete loss of a ship because of various reasons. Traditionally, the majority of agreements provide a lessee with a right to decide what port to enter (Ducruet & Notteboom 2012). However, in some situations, these decisions might create a precedent regarding the state of a vessel, cargo, crew, or terms of the agreement. That is why a shipowner might become dissatisfied with the consequences of the decision. In general, the theme of unsafe ports is critical for shipowner-charterers relations as the definition of an unsafe port remains unclear and it is difficult to outline central issues related to the entrance to these areas. Several destination areas are considered dangerous and usually outlined in agreements; however, the character of cargoes, policies, and other aspects might alter the situation.
Violation of Obligations
Violation of obligations is another disputable issue that might appear between vessel owners and charterers. The fact is that the delivery of particular cargoes could be complicated by unpredicted problems that happen due to diverse factors. Usually, these (both factors and problems) are included in agreements and discussed by parties (Ducruet & Notteboom 2012). However, it is impossible to consider all possible complications. For this reason, violation of obligations is one of the most common reasons for the appearance of a problematic issue. Shipowners, as well as charterers, might act in ways not included in a contract. Moreover, if these actions result in damage done to a vessel or other financial losses, a significant problem appears. Parties to a contract will demand compensation; however, it is difficult to determine which agent is guilty and provide appropriate punishment.
Demurrage
A disputable issue might occur if a specified period for loading and unloading the cargo, known as laytime, is exceeded. Under this condition, a charterer has to pay demurrage. In the majority of cases, lessees are responsible for demurrage incurred at the port of discharge (Baughen 2015). Moreover, as a rule, a shipowner would rather prefer to ask a charterer for payment of demurrage instead of a third party that might be responsible for delays (Charterparty issues 2015, para. 7). That is why conflict might appear. A lessee might not have the needed money and could suggest a receiver of cargo to pay for all delays. The process might be complicated by numerous factors starting from a size of compensation and ending with the relations between all parties involved in the dispute as a shipowner will ask a charterer for demurrage regardless of a receivers guilt.
Deadfreight
A dispute over dead freight is another common type of conflicts appearing between agents involved in a charter party (Branch 2007). It could be determined as a charge payable to a shipowner on space booked on a ship but not used by the charterer (Branch 2007). In other words, it is the unoccupied space in ships. Usually, peculiarities of dead freight are determined by a charter party. However, there are numerous cases including charterers violations of these points with the primary aim to load additional cargo and spend less money (Gorton et al. 2009). Under these conditions, if these facts have been discovered, a dispute over the alteration of dead freight and compensation might be initiated. It a significant number of cases, parties have different perspectives on space used for cargoes and space not utilized by a charterer (Brodie 2014). For this reason, a dispute might have a prolonged character.
Despatch
Finally, a charterer might be interested in the reduction of laytime as one of the ways to acquire dispatch from a shipowner. However, it could also become a disputable issue because of the problems related to the definition of despatch, its size, and conditions under which it should be paid (Mukherjee & Brownrig 2013). Moreover, trying to save laytime, a charterer might cause harm to a vessel by exceeding the outlined speed limit, using extra equipment, etc. Under these conditions, disputes over despatch might occur regularly. Thus, traditionally, the charter party presupposes significant rewards when a vessel is returned before the deadline as it provides an opportunity to make a new deal and increase income (ICS 2011). At the same time, shipowners might initiate discussion related to main reasons for despatch and factors that stipulated savings of laytime.
Ways to Avoid Issues
Agreement
Therefore, regarding a significant number of causes that might result in the appearance of disputable issues and problematic situations in terms of a charter party, much attention should be devoted to the elaboration of efficient solutions and approaches that might help to avoid them. First, a comprehensive agreement or a charter party is the guarantee that no problematic issues will appear (Stopford 2009). Parties to the contract should outline as many disputable issues along with appropriate solutions as possible and include them in the agreement. Later, both a shipowner and a charterer could refer to this document and suggested solution if some disputable questions appear. By the statistics, a carefully developed contract significantly decreases the probability of the appearance of misunderstandings between parties and results in the improved cooperation between them (Stopford 2009). For this reason, it should be considered one of the ways to avoid conflicts.
Discussion of Disputable Issues
Second, special attention should be given to disputable issues mentioned above because of their significance and pernicious impact on relations between parties. It means that such contradictory aspects as unsafe ports, demurrage, dispatch, harm, etc. should be discussed within an agreement and determined. It is one of the ways to avoid problems in future. As it has already been stated, a significant number of problems related to the harm done to a vessel come from a vague definition of physical damage and wear appearing during the exploitation of a ship. For this reason, the existence of clear criteria will help to avoid conflict and solve a problem if it occurs (Alderton 2011). In general, both shipowners and charterers know the most problematic areas of their cooperation. For this reason, they should include them in the agreement to improve their collaboration
Third Parties
Finally, regarding the complexity of a charter party and numerous problematic areas that demand special attention, a third party could be involved to guarantee the observance of the basic aspects of the agreement and avoid disputes over problematic issues. The primary role of this party is the monitoring of a shipowner and a lessees relations and assistance in problem-solving because of the enhanced competence related to the above-mentioned agents cooperation. Nevertheless, in a significant number of cases, governments of different countries act as the guarantors that conditions of agreements will be fulfilled otherwise significant fees could be imposed (Branch 2007). This approach could be considered efficient enough in avoiding contradictory aspects of misunderstandings between parties to a contract. That is why the involvement of a third actor could help to minimise risks by providing an objective perspective on a charter party and its peculiarities.
Conclusion
Altogether, relations between a shipowner and a charterer remain a complex issue that depends on numerous aspects. Therefore, an agreement between these parties, or a charter party, includes the majority of issues that might appear during the cooperation or vessel hire. However, there are still diverse disputable issues that appear. The central causes for their occurrence differ. These might include harm done to a vessel at ports or by a lessee, size of freight, non-compliance with deadlines, freight, demurrage, etc. For this reason, a comprehensive agreement including all these aspects becomes central for the beneficial cooperation between parties to a contract and their satisfaction.
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