Charterparty Disputes: Demurrage, Off-Hire and Performance Claims

Affreightment is summed up in one sentence of the French Transport Code: by the contract of affreightment, the owner undertakes, for remuneration, to place a vessel at the disposal of a charterer (article L. 5423-1). The same article adds a qualification that governs everything else: the provisions of the chapter are default rules, yielding to the will of the parties. In French charterparty law, the statute applies only in the absence of contrary stipulation. It is the charterparty that makes the law of the parties, which is why a charter dispute is won or lost on the day it is negotiated, rarely at the hearing.

Three contracts, three allocations of risk

A bareboat charter places the vessel alone at the charterer’s disposal: he assumes nautical and commercial management, mans her, engages the crew and bears the bulk of the operating risk. A time charter provides the vessel manned and equipped for a fixed period, the owner retaining nautical management while the charterer directs commercial employment, orders the voyages and pays for bunkers. A voyage charter concerns one or more defined voyages: the owner retains both forms of management and undertakes to perform a carriage, not to place the vessel at disposal over time.

The distinction is anything but theoretical. It determines who pays for delay, who answers for damage to cargo and who bears detention following a technical incident. Article L. 5423-14 provides, for voyage charters, that the owner is liable for goods received on board by the master within the limits set by the charterparty, and is discharged by establishing either that he performed his obligations, or that the damage is not attributable to a breach of them, or that it results from nautical fault of the master or his servants. One sees here how far the characterisation of the contract, before any discussion of the facts, governs the outcome.

Writing required beyond one year

Article L. 5423-2 requires writing for time and bareboat charters, and for delegations of freight, concluded for a period exceeding one year, including where that period may be reached by extension. The reference to extension is the one that gets overlooked: a series of successive six-month renewals, agreed through broker messages, crosses the threshold without anything having been formalised. On the day the dispute arises, the party relying on an oral term faces an evidential problem from which it rarely emerges.

Demurrage, off-hire and speed warranties

Day-to-day charter litigation turns on a handful of contractual mechanisms, all foreign to the code and all drawn from Anglo-American charterparty practice. Laytime and demurrage fix the time allowed for loading and discharging and the daily rate payable for exceeding it: reconstructing that calculation line by line from notices of readiness and time sheets is among the most technical exercises in the field. Off-hire clauses suspend payment of hire where the vessel is no longer at the charterer’s effective disposal, provided the event relied on appears in the contractual list. Speed and consumption warranties, finally, bind the owner to a performance measured in defined weather conditions, and give rise to claims quantified from independent weather routeing reports.

Two clauses often decide the outcome before the merits are reached: the jurisdiction clause, frequently designating London arbitration or the Paris Maritime Arbitration Chamber, and the incorporation clause purporting to bind the third party holder of the bill of lading to the charterparty. The latter is a source of persistent litigation, and French case law is markedly less accommodating on the point than practice assumes.

Based in Paris, the firm acts in all French ports, from Le Havre to Marseille and from Nantes-Saint-Nazaire to Antibes, as well as before the Chambre arbitrale maritime de Paris, and works in English with shipowners, P&I clubs and foreign counsel.

Typical cases handled

The situations below are illustrative, anonymised scenarios. They show when the firm steps in and what the work consists of.

Demurrage disputed at the discharge port

The charterer disputes 240,000 dollars of demurrage on the ground that the vessel was not ready. The firm analyses the notice of readiness, the charterparty exceptions and the port records to establish the enforceable time sheet.

Off-hire and engine breakdown

The owner claims hire for twenty days of immobilisation; the time charterer invokes off-hire. The case turns on the characterisation of the breakdown and on the off-hire clause.

London arbitration clause

The charterparty refers to LMAA arbitration; the French charterer is unfamiliar with the procedure. The firm organises the defence, appoints the arbitrator and coordinates with an English correspondent.

Frequently Asked Questions

What distinguishes a time charter from a voyage charter?

Under a time charter the charterer hires the vessel and her crew for a period, pays hire and directs the commercial employment within the agreed limits, while the owner keeps the nautical management. Under a voyage charter the owner carries an agreed cargo between agreed ports for freight, and the time risk is allocated by laytime and demurrage rather than by hire. The distinction decides who bears delay, who pays for bunkers and port charges, and how the off hire and demurrage machinery works. Hybrid forms exist, and the label at the top of the document does not settle the regime.

Must a charterparty be in writing?

No. A fixture can be concluded by an exchange of messages once the parties agree the main terms, and recap messages routinely form the contract. That is precisely why disputes arise over whether subjects were lifted and which standard form and amendments were incorporated. Writing still matters for two practical reasons: an arbitration agreement generally needs to be evidenced in writing to be enforced, and the rider clauses are where the risk actually sits. A clear recap identifying the form, the amendments and any outstanding subjects prevents most of these arguments before they start.

Is the owner liable for cargo damage under a charterparty?

That depends on which contract the claimant holds. As between owner and charterer, the charterparty allocates responsibility, often through an inter club agreement in the dry trades. As against the cargo receiver, the bill of lading governs, and the carrier is identified by that document rather than by the charter. The same casualty can therefore produce one answer between the commercial parties and a different one towards cargo interests, with recourse actions in between. Identifying the carrier under the bill of lading is the first step in any cargo claim, before liability is discussed.

How is demurrage calculated?

Laytime begins once the vessel is an arrived ship, a valid notice of readiness has been given and any notice period has run. The agreed laytime is then counted according to the clause, subject to the exceptions the parties have written in. When laytime expires, demurrage runs at the agreed daily rate, in principle continuously, unless the charter provides otherwise. Most disputes concern the validity of the notice of readiness, the scope of the interruption clauses and the time bar for presenting the claim with its supporting documents, which is strictly applied in the tanker trades.

What is off hire, and when does hire stop running?

Off hire suspends the charterer’s obligation to pay hire when an event listed in the clause prevents the full working of the vessel, typically breakdown, deficiency of crew, drydocking or detention. The clause is construed strictly: the event must fall within the list, and the time lost must be proved. Net loss of time clauses and period clauses produce different results on the same facts, so the wording is read before any deduction is made. An unjustified deduction of hire is itself a breach and can expose the charterer to withdrawal of the vessel.

Where are charterparty disputes decided?

In the forum the parties chose, which in most standard forms is arbitration in London, New York or Singapore, with maritime arbitration also available in Paris before the Chambre arbitrale maritime de Paris. The choice affects cost, duration and the approach taken to evidence, and it deserves attention when the fixture is agreed rather than being left to the printed form. Whatever the forum, security is obtained separately: a conservatory arrest in a French port can secure a claim that arbitrators elsewhere will decide.