Do we know our contractual partner? - BIMCO https://www.bimco.org/Members/Chartering/Time_Chartering/Do_we...

Do we know our contractual partner?

As with voyage chartering, it is crucial to pose the question: “What do we know about our prospective business partner? Indeed, it may be even more important to explore that point
when a time charter is contemplated. There are many pitfalls in time charter and the above question should thus take precedence over considerations such as hire.

BIMCO has been confronted with cases in which the time charterers paid the first or possibly also the second hire instalment whereupon they disappeared leaving a trail of unpaid
bunkers and port expenses. As “freight prepaid” bills of lading had been issued the owners were precluded from exercising lien on the cargo and since the owners were under bill
of lading liability to deliver the cargo to the bill of lading holders, they were compelled to complete the voyage for their own account. Owners’ gross loss in one of those cases
amounted to more than US$ 1,000,000 composed of unpaid hire, bunkers and port expenses.

Almost 100 years ago the following reminder appeared in BIMCO’s Monthly Circular (August 1912):

When fixing on time charter make sure that charterers are A.1.

That statement is as pertinent as ever!

Putting up a performance guarantee may be one approach. BIMCO has drafted a PERSONAL GUARANTEE and ORDINARY GUARANTEE to be issued by the guarantor. As with
the other documents and clauses referred to in this publication, the wording of these clauses can be found in Forms of Approved Documents as well as in the “Documentary”
section at www.bimco.org.

Brokers should not be indifferent about whom they represent. It may reflect quite adversely on their reputation if the time charterers for whom they act turn out to be rouges. It
should be kept in mind that broker-members of BIMCO have special commitments and standards to live up to and they would be well-advised to check thoroughly the credentials
and financial standing of the principals whom they represent in fixtures.

In “Arta” Court of Appeal judgement rendered in London in 1985, in which the Court was asked do consider “whether brokers negligently misstated financial standing and reliability
of charterers [and] whether owners could recover from brokers”.

How can you help yourself

Make use of BIMCO’s company information service and Notices to Members which are available to members on the BIMCO website.

Make thorough enquiries through the broker as to whether time charterers are known to it as “first class” (an expression to be used with the utmost caution!).
Ask for charterers’ bank references and check with your own bank connections.

There is simply no substitute for business prudence. Unfortunately, cases are known of new fixtures with parties earlier reported in BIMCO Notices to Members. In time chartering,
the integrity of your business partner is the crucial part of the deal!

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