How To Manage Risks Which May Lead to Charter Party Disputes?
Laytime/demurrage is traditionally one of the most contentious issues in the shipping industry, owing to the frequency with vessels are delayed in port, the cost caused by such delays, and the often ambiguous wording in charter parties and contracts for the international sale of goods.
In order to maintain a harmonious business relationship between shipowners and charterers, it is desirable to avoid disputes on charter parties. Therefore, the establishment of a clear and solid contractual basis on laytime calculations and demurrage rules for all parties is one of the utmost importance. A firm understanding of the legal and practical issues of demurrage can make a significant difference in securing advantageous trade deals, as well as avoid costly legal disputes in the unfortunate event of charter delays.
The Charter party plays a central role in commercial shipping as it regulates the relationship between the Shipowner and the Charterer. However, many disputes occur from charter party disputes, and can lead to arbitration or litigation. This raises the costs of the parties and minimises their potential profits. Here are some ways to manage those risks.
- Manage your Counterparty Risk
To manage your counterparty risk, the Shipowner must be able to provide a seaworthy vessel and the Charterer must be able to remit the hire or freight within the time specified in the charter party.
Upon commencing negotiations, it is very important each party to check the background & profile of its counterparty in order to make sure that it will be able to perform its main obligations under the charter party. Asking for other parties’ references and previous fixtures assists for such evaluation.
- Manage your Legal Risk
Both parties should agree on the tested clauses and charter party forms. Both parties should exchange clear offers and keep a proper filing of all these exchanges to avoid unilateral interpretation in regards with any clause at a later stage.
Clearly-explained exchanges and a clearly-drafted charter party will assist the parties to settle potential disputes in a commercial way and avoid unnecessary legal costs.
- Manage your Operating Risk
The focus on ship and cargo operations helps to manage your operating risk through reduction of avoidable claims, such as improper cargo handling. Other factors include c/p clauses which describe issues like the required condition of the vessel, the cargo characteristics and their condition upon loading or the off-hire events (in case of time charter) and laytime/demurrage (in case of voyage charter). For example, bulk cargoes which are listed in the IMDG code may create several problems unless they follow the International standards and loaded & stowed properly. All these requirements and the protective actions which should be taken should be clearly mentioned in the charter party and followed by the parties accordingly.
Practical A-Z guide to Laytime & Demurrage is a 2-day training course held from 7-8 November 2018 (Kuala Lumpur) designed to provide an in-depth understanding of laytime and demurrage to avoid expensive legal proceedings and maximize the profitability of a fixture, especially for liquid cargo. Catered to the perspectives of both shipowners and charterers, this course will discuss the calculation and exceptions of laytime, despatch, and the role played by damages for detention. Breach of pumping and/or temperature warranties and pumping warranty claims will be examined. This course will also look at the possible revisions of contract clauses that either party can negotiate for improved clarity and increased advantage. For more information, please visit us at http://www.opuskinetic.com/training or contact us at info@opuskinetic.com.
Interested to read other articles? Check out: A Guide To Laytime & Avoiding Demurrage Charges
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