TOPIC 9: “SHIP CHARTERING. SHIP LEASING CONTRACT.

MARINE
TOWAGE”

Plan

1. SHIP CHARTERING.
2. SHIP LEASING CONTRACT.
3. MARINE TOWAGE.

1. SHIP CHARTERING.

ТIME CHARTER. By a contract of chartering a vessel for a time (time

charter) the shipowner shall undertake to avail to the charterer for a fixed period of
time, against a fixed payment (freight), of a vessel and the services of the members
of its crew to use for the carriage of goods, passengers or for other purposes of
merchant shipping.
Application of the regulations set out in this Chapter. The regulations set out
by this Chapter shall apply, unless otherwise is provided by an agreement of the
parties.
Contents of a time charter. A time charter shall contain the names of the
parties, the name of the vessel, its technical and operational particulars (tonnage,
cargo capacity, speed and others), area of operation, the purpose of chartering, the
time and place of handing over and return of the vessel, freight rate and period of
validity of the time charter.
Time charter form. The time charter shall be concluded in writing.
Sub-time charter. Unless otherwise is provided in the time charter, the
charterer, within the scope of the rights conferred by the time charter, may
conclude in his name contracts of chartering of the vessel for a time with a third
party for the whole period of validity of the time charter, or for a part thereof (sub-
time charter). Conclusion of a sub-time charter shall not exonerate the charterer
from performing the time charter concluded by him with the shipowner.
The regulations set out in this Chapter shall apply to the sub-time charter.
Seaworthiness of a vessel. The shipowner shall make the vessel seaworthy
to the time of its handing over to the charterer, that is, he shall take measures to
ensure the vessel's fitness (its hull, engines and equipment) for the purposes of
chartering specified in the time charter, as well as those to man and properly equip
the vessel. The shipowner shall not be liable, if he proves that the unseaworthiness
of the vessel has been caused by defects which could not be discovered by his due
diligence (latent defects). The shipowner shall also be bound for the period of
validity of the time charter to maintain the seaworthiness of the vessel, pay
expenses on insurance of the vessel and of his liability as well as those on
providing for the members of the vessel's crew.
Duties of a charterer in the commercial use of the vessel and the return
of it. The charterer shall be bound to use the vessel and services of the members of
the vessel's crew in accordance with the purposes and terms of availing of them as
specified in the time charter. The charterer shall pay the cost of bunkering and
other costs and dues in connection with the commercial use of the vessel. Incomes
earned as a result of the use of the chartered vessel and the services of its crew
members, shall be the property of the charterer, except for incomes earned from
salvage, which shall be apportioned between the shipowner and charterer. Upon
the expiry of the period of validity of the time charter, the charterer shall be bound
to return the vessel to the shipowner in the same condition he received it, taking
into account a normal wear and tear. In event of a late return of the vessel, the
charterer shall pay for the delay in return at the rate of freight specified in the time
charter or by the market rate of freight, if it exceeds the rate of freight specified in
the time charter.
Liability of the charterer to the cargo owner. Where the vessel is availed
to the charterer for the carriage of goods, he shall be entitled to conclude in his
name contracts of carriage of goods, sign charters, issue bills of lading, maritime
waybills, and other transportation documents.
Subordination of the vessel's crew members. The master and other
members of the vessel's crew shall obey orders of the shipowner, relating to the
management of the vessel including navigation, its daily routine and the vessel's
crew complement.
The orders of the charterer relating to the commercial operation of the vessel
shall be binding on the master and other members of the vessel's crew.
Exoneration of the charterer from liability for losses caused by salvage,
wreckage or damage to the vessel. The charterer shall not be liable for losses
caused by salvage, wreckage or damage to the vessel, unless it is not proved that
the losses were caused at the fault of the charterer.
Payment of freight. The charterer shall pay the freight to the shipowner in
the order and within periods of time specified in the time charter. The charterer
shall be exonerated from the payment of the freight and the expenses on the vessel
for the time during which the vessel was not fit for operation due to its
unseaworthiness.
When a vessel becomes unfit for operation at the fault of the charterer, the
shipowner shall be entitled to the freight specified in the time charter, irrespective
of compensation by the charterer for losses suffered by the shipowner.
In the case of delay in the payment of freight by the charterer for more than
fourteen calendar days, the shipowner shall be entitled, without notice, to withdraw
the vessel from the charterer and recover the losses incurred by this delay.
Wreck of the vessel and payment of freight. In the case of wreck of the
vessel, the freight shall be paid from the day specified in the time charter until the
day of wreck of the vessel, and if this day is impossible to determine, until the day
of the last report about the vessel received.
Reward for rendering salvage services. The reward due to the vessel for
salvage services, rendered before the expiry of the time charter, shall be
apportioned in equal shares between the shipowner and charterer, less the expenses
on the salvage and a share of the reward due to the vessel's crew.
CONTRACT FOR CHARTERING A VESSEL WITHOUT CREW (BAREBOAT
CHARTER)
By a contract of chartering a vessel without crew (bareboat charter) the
shipowner shall undertake to avail to the charterer to use and possession for a fixed
period of time, against a fixed payment (freight), of an unmanned and unequipped
vessel for the carriage of goods, passengers or for other purposes of merchant
shipping. The regulations set out by this Chapter shall apply, unless otherwise is
provided by an agreement of the parties.
Contents of a bareboat charter. A bareboat charter shall contain the names
of the parties, the name of the vessel, its class, flag, its technical and operational
particulars (tonnage, cargo capacity, speed and others), fuel consumption, area of
operation, the purpose of chartering, the time and place of handing over and return
of the vessel, freight rate and period of validity of the time charter.
Bareboat charter Form. The bareboat charter shall be concluded in writing.
Unless otherwise is provided in the bareboat charter, the charterer, within the scope
of the rights conferred by the bareboat charter, may conclude in his name contracts
of chartering of the vessel without crew with a third party for the whole period of
validity of the bareboat charter, or for a part thereof (sub-bareboat charter).
Conclusion of a sub-time charter shall not exonerate the charterer from
performing the bareboat charter concluded by him with the shipowner.
The regulations set out in this Chapter shall apply to the sub-bareboat
charter.
Seaworthiness of a vessel. The shipowner shall make the vessel seaworthy to
the time of its handing over to the charterer, that is, he shall take measures to
ensure the vessel's fitness (its hull, engines and equipment) for the purposes of
chartering specified in the bareboat charter. The charterer shall be bound for the
period of validity of the bareboat charter, to maintain the seaworthiness of the
vessel, but rectification of latent defects shall be a duty of the shipowner.
Vessel's crew. The charterer shall arrange for manning of the vessel. The
charterer shall be entitled to man the vessel with persons other than those who have
previously been members of that vessel’s crew, or in accordance with the terms of
the bareboat charter, with persons, who have previously been members of that
vessel's crew. Regardless of the method of manning the vessel, the master and
other members of the vessel's crew shall be subordinate to the charterer in every
respect.
Duties of the charterer in operation of the vessel and the return of it. The
charterer shall operate the vessel in accordance with the terms of the bareboat
charter and shall bear all expenses in connection with its operation, including the
expenses on providing for the vessel's crew members. The charterer shall pay up
expenses on insurance of the vessel and of his liability, as well as paying all dues
recovered from the vessel.
Upon the expiry of the period of validity of the time charter, the charterer
shall be bound to return the vessel to the shipowner in the same condition he
received it, taking into account a normal wear and tear. Liability of the charterer to
third parties. The charterer shall be liable to third parties for any claim arising out
of operation of the vessel, except for claims for compensating for damage caused
by oil pollution from vessels and damage in connection with the carriage of
hazardous and noxious substances.
Losses caused by salvage, wreck of or damage to the vessel. Losses caused
by salvage, wreck of or damage to the vessel shall be borne by the charterer, unless
he proves that the losses were caused not at his fault.
Payment of freight to the shipowner. The charterer shall pay the freight to
the shipowner for a month in advance by the rate agreed by the parties. The
charterer shall be exonerated from the payment of the freight and the expenses on
the vessel for the time during which the vessel was not fit for operation due to its
unseaworthiness, unless the unseaworthiness has arisen at the fault of the charterer.
In the case of delay in the payment of freight by the charterer for more than
fourteen calendar days, the shipowner shall be entitled, without notice, to withdraw
the vessel from the charterer, and to recover the losses incurred by this delay. In
event of the wreck of the vessel, freight shall be paid from the day specified in the
bareboat charter until the day of the wreck of the vessel, and, if this day is
impossible to determine, until to the day of the last report about the vessel
received.
Inadmissibility of withdrawal of the vessel. Under the bareboat charter,
with the clause of redemption of the vessel, the shipowner shall not be entitled to
withdraw the vessel from the charterer in the case of a delay in paying freight of
more than fourteen calendar days, if this delay resulted from occurrences not
within the control of the charterer, but he shall be entitled to recover from the
charterer the losses incurred by this delay.
Redemption of the vessel. Under the bareboat charter, with the clause of
redemption of the vessel, upon the expiry of the period of validity of the bareboat
charter the vessel shall be passed into the ownership of the charterer, provided the
latter has performed his duties under the bareboat charter and has made the last
payment of freight. Liability for defects of the redeemed vessel. The shipowner
shall be liable for any defects in the vessel redeemed by the charterer, including
latent defects, if the charterer proves that such defects have arisen before the vessel
was handed over to him or for reasons that arose before its handing over. Ship
leasing contract.

2. SHIP LEASING CONTRACT.

In its most general definition “leasing” is a process by which one party

obtains the use of a fixed asset for which it must pay a series of contractual
periodic rentals to the owner of the fixed asset. The party obtaining the use of the
asset is called the lessee, whereas the party providing the use of the asset is called
the lessor. In this chapter, the focus is on the longer term ship leasing market,
which is in fact an alternative finance market for the industry. The motivation for
entering into a leasing transaction could be based on any single or combination of
factors including cash management, funding diversification, cost, accounting and
technological obsolescence risk mitigation. Compared to ship operators, the risk-
return profile of the leasing business is more attractive and lessors can usually
achieve higher financial leverage in debt markets that can drive returns on equity
(ROEs) to attractive levels. Ship leasing transactions can be structured in several
forms and each has its advantages and disadvantages. This is also discussed in the
text in greater details. In pricing lease transactions, lessors typically focus on target
project returns, equity returns and cash yield. The assumed residual value of the
asset at lease maturity will have a significant impact on pricing. Lessors face three
broad risks credit, asset and financial which need to be addressed appropriately
through a disciplined risk management approach. The recent financial and shipping
crises have posed significant challenges for the industry. Bank lenders have
become highly selective in grading fresh credit and high profile defaults of
companies, such as Sanko, Korea Line, Berlian Laju Tanker, Armada and Brittania
Bulk, as well as complex restructurings of Torm, CSAV and CMA CGM, have
shed light into the risk of off-balance sheet obligations. Significant developments
to ship leasing are the proposed changes to lease accounting rules. If implemented,
“lease buying behavior” is likely to change since obligations that were heretofore
treated off-balance sheet will henceforth be capitalized onto the balance sheet.

3. MARINE TOWAGE.

TOWAGE CONTRACT. Under the towage contract, the owner of one

vessel undertakes against a remuneration to tow another vessel or other floating
object over a specified distance (marine towage) or for performing manoeuvres in
the aquatorium of the port, including bringing a vessel or other floating object to
port or taking them out of the port (port towage).
The regulations set out in this Chapter shall apply, unless otherwise provided
in an agreement of the parties.
Form of the towage contract. The contract of marine towage shall be
concluded in writing. The contract of port towage may be concluded orally. The
agreement to place the duties of managing towage on the master of the towing
vessel shall be concluded in writing.
Duties of parties to the towage contract. Each party of the towage contract
shall be obliged in good time to bring the vessel or other floating object in a
condition fit for towage. Towage shall be exercised with the skill required by the
circumstances, without breaks and delays, except those necessary, and in
accordance with good sailing practice. The vessel or other floating object under
management of the master of another vessel or other floating object shall also
exercise diligence in respect of the safe sailing of the tow.
Liability in marine towage. Marine towage shall be exercised under the
management of the master of the towing vessel. Liability for damage caused during
marine towage to the towed vessel or other floating object, or to people or property
thereon, shall lie with the shipowner of the towing vessel, unless he proves that the
damage has not been caused at his fault.
The parties to the marine towage contract may, by an agreement in writing,
place on the master of the towed vessel or other floating object the duty of
management of marine towage. In this case, the liability for damage to the towing
vessel, or to people or property thereon, caused by sea towage, shall lie with the
shipowner of the towed vessel or other floating object, unless he proves that the
damage has been caused not at his fault.
Liability in port towage. Port towage shall be exercised under the
management of the master of the towed vessel or other floating object. Liability for
damage caused during port towage to the towing vessel, or to people or property
thereon, shall lie with the shipowner of the towed vessel or other floating object,
unless he proves that the damage has not been caused through his fault.
The parties to the port towage contract may, by an agreement in writing, to
place on the master of the towing vessel the duty of management of port towage. In
this case, the liability for damage to the towed vessel or other floating object, or to
people or property thereon, caused by port towage, shall lie with the shipowner of
the towing vessel, unless he proves that the damage has not been caused at his
fault.
Liability in towage in ice-covered waters. The shipowner of the towing
vessel shall not be liable for damage caused to the towed vessel or other floating
object, or to people or property thereon when towed in ice-covered waters, unless it
is proved that the damage has been caused at his fault.