Charter Parties

Charter Parties

Case Summaries

Charters Bailment Waiver of Subrogation

North King Lodge Ltd. v Gowlland Towing Ltd. et al., 2005 BCCA 557 affg. in part 2004 BCSC 460This matter concerned liability for the sinking of the barge Sea Lion VI. The barge had been hired by the Plaintiff, the owner of the barge, to the first Defendant, a logging company, for use as an accommodation barge at a remote logging camp. One of the terms of the agreement was that the owner would provide a watchman. When the logging operations had ceased the second Defendant, the towing company, was retained to remove the log booms. In doing so the crew of the tug untied the port side mooring lines of the Sea Lion VI which had been tied to the log booms. Shortly thereafter the Sea Lion VI went aground and sank. The trial Judge found as a fact that the removal of the port lines caused the sinking. The trial Judge held that the contract between the owner and the logging company was one of bailment and that the logging company was liable for failing to promptly advise the owner when it became apparent that the barge was in danger. The trial Judge further held, however, that because the owner was required by the contract to provide a watchman it had the primary responsibility for the safe moorage of the barge. With respect to the liability of the towing company, the trial Judge held that the owner had committed a trespass by tying the barge to the log booms and that the duty owed by the towing company to a trespasser was to not intentionally harm the Plaintiff, act recklessly or without common humanity. He held that although the towing company did not act with reasonable care it did not breach these duties. In the result, the action against the towing company was dismissed and the liability for the sinking was apportioned 80% to the Plaintiff and 20% to the logging company. The owner appealed the dismissal of the action against the towing company and the logging company appealed the finding that it was 20% liable. The British Columbia Court of Appeal dismissed the appeal by the owner and allowed the appeal by the logging company. The Court of Appeal rejected the argument that there was an implied permission to moor to log booms, agreed that the tying of the barge to the boom sticks was an act of trespass and agreed that the duty owed to a trespasser was to act with common humanity. The Court of Appeal held that this duty had not been breached by the towing company. With respect to the appeal by the logging company, the Court of Appeal disagreed with the trial Judge that there was a contract of bailment. The Court of Appeal held that there was no transfer of possession of the barge, that the logging company had a mere licence to use the barge and that the contract between the owner and the logging company was a time charter. The Court of Appeal further held that there was no implied term in the charter that the logging company was to inform the owner of any dangers to the barge. Such a term was inconsistent with the requirement that the towing company keep a watchman on the vessel and was neither reasonable, in the circumstances, nor required to make the contract effective.

Mareva Injunction Breach of Charter Party

Front Carriers Ltd. v Atlantic & Orient Shipping Corporation, 2006 FC 18See the summary of this case under Admiralty Practice.

Bareboat Charter Liability of Owner Under Safe Working Practices Regulations

R v M/S Apollo Tiger Shipping GmbH & Co. KG, 2005 NBPC 16The registered owner of the subject vessel was charged with an offence under the Safe Working Practices Regulations passed pursuant to the Canada Shipping Act following an accident involving a crane on the vessel in which two stevedores were injured. The owner brought a non-suit motion following the conclusion of the Crown's case arguing that the vessel was under a bareboat charter at the time and that the definition of owner in the regulations did not include the registered owner under such circumstances. After extensively reviewing the definitions in the Canada Shipping Act and the regulations and noting the differences between the English and French versions of the definitions in the regulations the Court concluded that the definition of owner in the regulations did not extend to include the owner of a ship that was under a bareboat charter.

Charter Parties - Negotiation - Concluded Agreement

Armonikos Corp. v Saskatchewan Wheat Pool, 2002 FCT 799

The issue in this case was whether a charter party had been concluded between the brokers acting for the parties. The Defendant argued that no charter party had been agreed because there had not been a meeting of the minds regarding a significant term, notably, whether the vessel to be chartered was certified by the International Transport Workers Federation. The court held, however, that the broker for the Defendant had not been particularly attentive to this issue and had confirmed the charter party without the inclusion of an ITF clause. Further, the court held that the broker for the Defendant did not view the absence of an ITF clause as an impediment to the charter party and, once the issue was squarely raised, agreed to a charter party with a modified ITF clause. As a consequence of the courts finding that there was a binding charter party, the court stayed the present action in favour of London arbitration pursuant to an arbitration clause in the charter party.

Charter Parties - Negotiation - Concluded Agreement

Champion International v The Sabina, 2002 FCT 1122

Again the issue in this case was whether there was a concluded agreement between the parties. The Plaintiff and Defendant, through their respective agents, had entered into negotiations for the carriage of the Plaintiffs cargo. All substantial matters had been agreed with the exception of lay days and quantity of cargo which were characterized as loose ends by the Defendant. However, before these loose ends were dealt with the Defendant advised the Plaintiff that it had received another offer to time charter the ship which it intended to accept. The Plaintiff sued for breach of contract. The court agreed with the Plaintiff that although a formal contract was never signed there was agreement on the substantive terms and there was therefore an agreement which was breached by the Defendant.

Charter Parties - Set-off

Barber Dubai Shipping Agencies Co. v Angel Maritime Inc., 111 ACWS (3d)3

This was a dispute over fees payable to a broker by a shipowner. The charter party provided for daily demurrage which had been unpaid by the charterer. The shipowner attempted to set-off the unpaid demurrage from the fees payable to the broker. Both at first instance and on appeal the court held that the shipowner was not entitled to claim a set-off.

Bareboat Charter - Liability of Owner

North Ridge Fishing Ltd. v The "Prosperity" et al.,

This was an appeal from a summary trial application. The appeal arose out of a net cutting incident that occurred during the roe herring fishery. The Plaintiff alleged that the Defendant vessel "Prosperity" negligently cut its net during the fishery resulting in a loss of fish. At the time, the "Prosperity" had been chartered for the entire 1997 herring season. A term of the agreement provided that only three named individuals were permitted to operate the vessel. One of those individuals did, in fact, operate the vessel. At issue in the summary trial and on appeal was whether the agreement was a charter by demise and the effect of such a charter by demise on the liability of the owner. The Court of Appeal held that the agreement did amount to a charter by demise as the owner effectively relinquished custody, possession and control over the "Prosperity" to the charterer. The fact that the charterer was required to appoint one of three named individuals to operate the vessel did not detract from this conclusion since it was the vessels insurer that required this condition and the owner had no right to chose which of the three named individuals would be appointed. The Court of Appeal further held that as all of the crew were appointed by the charterer, there was no vicarious liability on the part of the owner. A second issue on the appeal was whether the owner was negligent in failing to properly train the master or in holding him out as being properly trained. The Court of Appeal agreed with the Trial Judge that an owner of a ship under bareboat charter had no duty to train those manning the vessel and that simply agreeing to have the ship operated by one of three individuals was not a representation as to the training of those individuals. In the result, the appeal and the action against the owner was dismissed.

Charter Party - Option to Purchase - Substantial Performance

Sail Labrador Ltd. v The "Challenge One", [1999] 1 S.C.R. 265, (S.C.C.).

This was an appeal from the Federal Court of Appeal. The Appellant/Plaintiff had entered into a 5 year charter party with the Respondent/Defendant. The terms of the charter party included an option to purchase the vessel at the end of the five year term subject to "full performance" of its obligations under the charter party. Clause 10 of the charter party specified an annual payment and clause 11 provided that the annual payment was to be paid in seven monthly instalments. The practice of the parties was for the Plaintiff to provide the Defendant with seven post dated cheques at the beginning of each year. Due to an error by the Plaintiff's bank, the first cheque for the fifth year was returned insufficient funds. The Defendant then wrote to the Plaintiff advising that the option to purchase was void. The Plaintiff immediately rectified the non-payment and all subsequent payments were made on time. Pursuant to clause 25 of the charter party, the Defendant also requested that the Plaintiff provide it with all of the log books for the vessel. The Plaintiff failed to do so. At the conclusion of the charter term, the Plaintiff attempted to exercise the option to purchase but the Defendant took the position that the option was void because of the late payment and the failure to provide the log books.

At trial, the trial judge held that the Plaintiff had substantially performed its obligations under the charter party and was entitled to exercise the option to purchase. On appeal, the Federal Court of Appeal held that a party exercising an option to purchase must strictly comply with the conditions of the option and that, as the Plaintiff had not done so, it was not entitled to exercise the option. On further appeal, the Supreme Court of Canada held that the option to purchase was part of a bilateral agreement between the parties comprising both the charter and the option. As a bilateral contract the doctrine of substantial compliance was applicable and the court found that there had been substantial compliance by the Plaintiff. Further, the court held that the words used in the option were not precise enough to make time of the essence of the contract. On the issue of the Plaintiff's failure to provide the log books the court noted that pursuant to section 26 of the Canada Shipping Act the log books must remain on the vessel. Therefore, the court held that all the Plaintiff was required to do was to make the logs available for inspection on the vessel. In result, the appeal was allowed.

Charters - Brokerage Fee

Spellacy v. Marine Management Inc., (February 4, 1998), No.4141, (Nfld. S.C.)

The issue in this case was the brokerage fee to which the Plaintiff was entitled. The Plaintiff had negotiated a two year charter of a tug at $1,100.00 per day with an option to purchase for $900,000.00. The option to purchase was exercised. The Plaintiff argued that he was entitled to a 5% commission on the basis that he was acting for both parties to the transaction and, pursuant to industry practice, was therefore entitled to a double fee. The Court held, however, that he acted only for the owner of the tug and was therefore only entitled to a fee of 2.5% of the sum of the total charter payments and the purchase price.

Charter Hire- Demurrage - Set-Off

Halla Merchant Marine Co. Ltd. v. The "Lok Maheshwari" et. al., (February 26, 1997) No. T-279-96 (F.C.T.D.)

This was an application for summary judgment by the disponent owner of the Defendant ship against the charterer for charter hire. The charterer defended the application on the grounds that it had a right of set off in respect of a claim for demurrage. The Court held that there was no valid right of set off because the hire claim was for a different time period than the demurrage claim. The disponent owner was not, however, completely successful. The Court held that there was a genuine issue for trial in respect of some of the periods for which hire was claimed.

Charter party - Cancellation - right to damages

Melsa International Inc. v. Adecon Shipping Lines Inc. et.al., (April 11, 1997), No. T-2185-96 (F.C.T.D.)

This was an application by the defendant for summary judgment dismissing the Plaintiff's action. The Plaintiff's action was for breach of a charter-party agreement. The Plaintiff and Defendant had entered into a charter-party agreement in the Gencon form. The Defendant was not able to meet the agreed upon loading date and, as a consequence, the Plaintiff exercised its right to cancel the charter-party and found another vessel to carry the cargo. The Plaintiff claimed the difference in the freight payable under the two charter parties. The Defendant argued that pursuant to the charter-party the Plaintiff's remedy was to cancel the charter and that it had no right to claim damages. The Court reviewed the authorities and noted that a charterer who cancels a charter-party has a claim in damages if the failure of the ship to arrive by the cancelling date was a result of a breach on the part of the shipowner of his obligation to load by a particular date. In result, the Court found that there was a genuine issue for trial and dismissed the motion for summary judgment.