Cargo Disputes: Lesson 1-Overview
When a party ships goods by sea, there are two main contracts that will be involved: (1) the underlying sale contract; and (2) the contract of carriage to transport the goods from A to B. Either the buyer or the seller will organise the contract of carriage, but the carrier might end up in a dispute with either of those parties, so both buyer and seller want to be able to have privity of contract with the carrier. The following diagram shows how that happens.
The diagram also shows what happens at the financial level. A buyer thousands of miles away from a seller doesn't want to run the risk of non-delivery of the goods (or documents representing title to the goods), so they frequently use banks as intermediaries who give cross-undertaking to each other, which makes the process more secure (although not always!).
Because this diagram has lots of moving parts, we recommend you download the dynamic PowerPoint presentation below as well as look at this static diagram. It talks you through each stage.
overview powerpoint (dynamic)
Once a shipyard has built a ship the registered owner will take possession and the vessel will become useful. The owner then must decide either: (1) to use the vessel themselves; or (2) "charter" (rent) it to another party. If they choose the latter the owner can charter the vessel in any one of the following three ways...
Bareboat (Time) charter
1) The owner often, but not always, decides to "bareboat"/"demise" charter the vessel for a period of time to a "bareboat time charterer", rather than run the vessel themselves.
This type of charter is called "bareboat" because the charterer supplies the master and the crew themselves - the boat is a "bare" boat. Bareboat charters are for a period of time and so are a species of "time charter".
2) Alternatively, the owner might not use the vessel themselves, but decide to charter the vessel on a time charter. Here the owner crews the ship (with a master and crew) but the time charterer instructs the master where to sail. Time charterers pay what is called "hire" for a vessel, and the arrangement is a bit like renting a car with a chauffeur.
3) A third option is the owner may not actually ship cargo themselves but charter the vessel to a voyage charterer, not for a period of time but for a specific voyage or series of voyages. Like a time charter, here the owner crews the ship (with a master and crew) but the voyage charterer instructs the master where to sail (and what goes on the vessel). Voyage charterers don't pay hire, they pay "freight".
NB: A bareboat charterer is known as a "disponent owner".
NB: Charterparty disputes are closer to regular contractual disputes than cargo claims, but they still have certain idiosyncracies. One of the idiosyncracies of charterparties is that they usually contain a mix of standard form terms and "riders" (specially negotiated terms), both of which are independently negotiated so that some of the standard terms will be struck out or altered and the riders will be incorporated into the contract. The main practitioner textbooks are, self-explanatorily, called: (1) "Time Charters" and (2) "Voyage Charters". They are available on the website i-law by paid subscription. Most legal cases on shipping law are contained in the Lloyd's Law Reports, which are also owned by i-law, although many will also be on Westlaw and LexisNexis.
Charterparties can also be layered vertically. Often you will see a registered owner bareboat charter the vessel, then the bareboat charterer may time charter it to another party, who may then voyage charter it to someone else. It doesn't have to be in this order but it often is. These additional charters are called "sub charters".
While there are few fixed rules for which order sub charters must be layered, voyage charters are normally "underneath" time charters, because, by their nature, they tend to be for a shorter period of time - for a particular voyage - rather than a number of months or years.
An example of a string of charterparties is as follows: