THE PERIOD OF NEGOTIATION
Considering the purpose and usage of the seatransport agreement-the contract, charter-party-we we well advised to keep in mind that this document has been worked out and tested under demanding practical conditions, and legally scrutinized over 600 years or more. It is still being continually refined by the market itself and, worked by an institution like BIMCO, is a very fine and complete instrument, with the following three important function:
-it is clearly lining up and distributing the operative responsibilities and actions to be taken by the two parties through the duration of the charter:
-it distribute the legal undertakings and responsibilities between the parties:
-it lines up and give figures on all economic undertakings and obligations by respective parties including relevant checkpoints.
Between serious parties the negotiations will always be carried out with above matters well in mind with the aim of reaching an agreement on a “win-win” basis, whilst realizing that no agreement in the world can foresee and cover everything, but with the intention to mutually work out in a positive spirit all matters not in the written and signed document, which all experienced shipping people know will happen sometime during the charter.
The negotiation stage can be divided into two parties. First, negotiation of the main terms will be conducted and second, when the parties are in agreement, further negotiations will take place about the details and the wording of the clauses which have not been taken up during the negotiations of the main terms.
In voyage chartering the first offer that starts the firm negotiations will contain the following details:
-the shipowner’s name (full style)
-the ship’s name and particulars
-the charterer’s name(full style)
-cargo quantity and description of the commodity
-loading and discharging ports and berths
-loading and discharging rates and terms
-demurrage and dispatch rates
-freight amount and conditions for payment of freight
-clauses covering time counting, Ice clause, War Risk clause, applicable law and place of arbitration, Bunker clause, clause covering extra insurance premiums, taxes and dues, etc., which the owner considers to of prim importance
– charter-party form
In time chartering the offer will contain the following details
-the shipowner’s name (full style)
-the ship’s name and particulars
-description of the time charter engagement
-place of delivery and redelivery
-laydays/cancelling day of the delivery
-intended trade with geographical limits and other trading limits, cargo exclusions from the owner’s side
-quantity and price for bunkers on board on delivery and redelivery
-hire and conditions for hire payment
-other causes which the owner wishes to negotiates as main terms
The details of the vessel that are included in the particulars given in the main terms negotiations are:
-deadweight (may be given in different ways)
-cargo space cubic (in most cases both Grain and Bale cubic)
-number of hatches and holds
-speed (include laden and ballast)
-bunker consumption(FO respectively DO-only applicable on time charterer engagement)
In practice, the particulars cannot be given with great exactness and it is customary that the description of the ship is followed by the words ALL DETAILS ABOUT. (The shipowner’s official description of a ship in tonnage list and pamphlets is often concluded by the sentences ALL DETAILS GIVEN WITHOUT GUARANTEE BUT GIVEN IN GOOD FAITH AND BELIEVED TO BE CORRECT and that is exactly the meaning of the word ABOUT in the particulars of the ship given when submitting the offer. It may be emphasized that the precise legal effect of these words is not always easy to foresee, but the individual circumstances may differ and thereby also the legal consequences.)
Since the parties start by negotiating the main terms and save the details for a later stage, both parities have to make allowance for the duration of the main terms negotiation. Therefore every offer or counter offer submitted by either party during the negotiations is ended by words SUBJECT TO DETALS(normally sub details for short).
The offer commences with “OWNER’S OFFER FIRM…” and in this part or at the very end of the offer a time limit for reply is given. The owners are now committed in accordance with the terms offered until the time limit has been passed or until the charterers have given a reply which on any point differs from the offer made by owners. In practice it never happens that one party replies to a first by a “clean accept”, but instead the reply will be one of the following:
-“CHARTERERS ACCEPT OWNERS’ OFFER,EXCEPT……” followed by the terms that charterers want to change(this is if the owners’ offer is acceptable in parties, but some terms must be subject to further negotiations)
-“CHARTERERS DECLINE OWNERS’ OFFER AND OFFER FIRM AS FOLLOWS……” (if the charterers find most of term offered unacceptable, but nevertheless will try to negotiate. The charterers will in this case go back to owners with a full firm offer of their own)
-“CHARTERERS DECLINE OWNERS’ OFFER WITHOUT COUNTER”(if the charterers find the owners’ offer to be completely unacceptable and they find it pointless to continue the negotiations)
Charterers’ reply is firm and is given with a time limit within which the owner has to revert. In the first of the above examples the charterers’ reply is called a “counter” and the parties have already agreed on a number of terms. In the second example the charterer submit a “counter offer” and technically the parties have not yet agreed on any point. In the last example the negotiations will be terminated.
Like the owner, the charterer can make provisions or “subjects” in their counters or counter offer, e.g.
-“SUBJECT TO CHARTERERS’ BOD APPROVAL”(abbreviation of Board of Directors).
-“SUBJECT TO RECEIVERS’ APPROVAL”. (If the receiver of the cargo in question has to give its approval to the transportation)
-“SUBJECT TO STEM”.(If the charterers have to obtain confirmation from the shippers or suppliers of the cargo that the negotiated quantities will be ready for loading at the time for loading agreed between owner and charterers during the negotiations.)
-“SUBJECT TO CHARTERER’S APPROVAL OF PLAN AND SUBJECT TO INSPECTION”. (If the charterers have to ensure that the vessel is technically fully suitable for intended trade-this refers especially to time charters)
The owner in his turn can now choose to reply either by “ACCEPT…EXCEPT…” or advise the counterpart that he turns down the counter and discontinues the negotiations. It is not considered good ethics for one party to cut off firm negotiations one-sidedly by just not replying to or commenting on offers or counters which are considered unsuitable as a basis for continued negotiations. If only a few points are found acceptable in a reply given by a counterpart, then the following counter can be given by reference to the last own counter or offer given, together with amendments to points where it is possible to meet with the other party’s intentions in order that negotiations be continued. Thus such a reply from the owner’s side would be: “OWNR COUNTERS BY REPEAT HIS LAST, EXCEPT…”.
The negotiations will continue in this way by “taking and giving” from both sides until the parties have reached a compromise regarding terms that are acceptable to both of them. This agreement on “main terms”, always “SUBJECT TO DETAILS” and possibly other outstanding subjects, is concluded by a “confirm”. The last reply from the owner’s side can be expressed as “OWNER ACCEPT CHARTERERS’ LAST IN FULL AND COFIRMS HEREBY THE FIXTURE SUBJECT TO DETAILS”, or from the charterer’s side: “CHARTERERS CONFIRM THE FIXTURE SUBJECT TO DETAILS AND SUJECT TO STEM”. Technically, the parties are now regarded as committed to the charter(even if a party may still formally have the right to “jump off” during the following discussions regarding the details of the charter party-or if insurmountable obstacles appear relating to other subjects), but for good order’s sake it is customary for the party who has received a “confirm” to respond by saying “reconfirm”
At this stage the charterers or their brokers will immediately compile a full recapitulation of all terms and details so far agreed. This “recap” is given to the owner or to the broker representing the owner in the negotiations and this recap should be carefully checked and confirmed by both parties without delay.
Because the parties are working within narrow time limits, the offers and counters are given for reply within a number of hours down to immediate reply(“THIS IS FIRM FOR REPLY HERE XX HOURS OUR TIME TODAY/THIS IS FRIM FOR IMMEDIATE REPLY”), and the time allowance tends to become shorter as the parties are coming closer to a “confirm”. It is not unusual that the last round takes place with the owners’ and charterer’s brokers in direct telephonic contact with each other and both brokers also in direct contact with their respective principles over another line.
It must also be stressed how important it is for the parties participating in negotiations to make careful notes and to keep all paperwork in good chronological order, keeping records of all notes, e-mail/telefaxes and other documents used in ay way during the discussions and the firm negotiations from the very beginning until the end. The negotiations may have been a mixture of “Accept…Except” and “Repeat last…” and may have been carried out both over telephone and by e-mail. In other words, it must be prerequisite that the documentation should clearly show that what has been said and agreed. It is an advantage if a least the first full round is fully and completely documented on e-mail and recapitulation is practically always submitted by e-mail immediately after the parties are “fixed sub details”.
（To be continued……）