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FROM THE ARCHIVE: No Style – No substance; charterparty disputes

11/06/2018

The French have a saying, “Plus ça change, plus c’est la même chose”. It means, the more things change, the more they stay the same.

Over the last 12 months or so, we have been receiving a growing number of requests from clients for our assistance in helping them resolve charterparty disputes where one of the central questions to answer has been “who have we fixed our ship to?”

Despite corporate information becoming more publicly available in the digital era, it’s not a new problem. Indeed, in 2009 and 2010, we handled a spate of charterparty dispute cases where the question of the identity of the charterer was a major obstacle that shipowners were having to overcome.

In November 2010, we published our thoughts on this problem and how to avoid it. That article is as relevant today as it was then. This is what we had to say.

It must be tempting, occasionally, for owners and charterers to want to rip up the charterparty and concentrate on having a good business relationship instead. The reason why they don’t, of course, is because fixtures sometimes go wrong and when they do each looks to the charterparty in order to establish and assert their rights.

Claims arising under charterparties are common, and accepted as part and parcel of doing business. Freight, hire, demurrage, detention, delay, deviation, unseaworthiness, consumption; the list is long and Gray Page receives a substantial amount of casework arising from all manner of charterparty disputes. However, over the last eighteen months there has been an increase in the number of cases where the first question put to us has been “who have we fixed our ship to?”

It is easy to assume that an owner will know who he has fixed his ship to; it’s the charterer named in the charterparty. However, the actual identity and provenance of a charterer is often overlooked, or not addressed adequately during the heat of fixture negotiations.

Chartering expressions such as “same as last” and “know them well” often compound the situation, as they ignore the fact that since the last fixture the charterer may have moved domicile, or changed its ownership structure. The company may even have been struck-off! Simply put, such routine inferences tell us little if anything about the substance of the charterer.

One of the most common omissions from charterparties is the ‘corporate style’ – for example, Ltd., S.A., Corp., Inc., Pte Ltd., SARL., – of the charterer. While it might seem like a technical nicety, knowing and recording the corporate style of the charterer in the charterparty fulfils three essential functions.

Firstly, the corporate style evinces that a company actually exists. Therefore, its absence from the charterparty deprives the owner from readily knowing who to pursue for any claims he might have.
Secondly, the corporate style points to where the company is domiciled. Without it, there is no immediate guide to the jurisdiction in which proceedings would need to be served for any claims an owner might have.

Thirdly, the inclusion of the corporate style in a charterparty can highlight inconsistencies in the provenance of a given charterer. In particular, different jurisdictions permit the use of specific corporate styles. Therefore, while a corporate style might be provided, if it does not match the declared domicile of the charterer it should serve as a warning sign that not all is as it appears to be.

Take for example, a charterer given as a company called Bulk Entity S.A., United Kingdom. S.A. is generally an abbreviation of Société Anonyme or Sociedad Anónima. It is commonly used in French or Spanish speaking countries and it is not used for companies incorporated in the UK. So it suggests that Bulk Entity S.A., is not likely to be incorporated in the UK and there is a disconnection between the corporate style and purported domicile of the company which needs to be resolved subject to a clean fixture.

Furthermore, companies with the same name and style are often incorporated in multiple jurisdictions. Take for example a company called Bulk Entity Inc. There could be five companies with the same name legitimately and contemporaneously incorporated in Delaware, The Marshall Islands, Liberia, Panama and The St Vincent & The Grenadines respectively; all of which permit the style Inc. So it is worth being sure that what is being represented is true and accurate.

Of course, where there is a lack of bona fides for a charterer, the common solution is to accept a guarantor in the form of a parent or associated company that is “known”. However, it is as easy to assume that there must be substance to the guarantor as it is the principal entity. We have dealt with many cases where the guarantor, although a well-known generic name in the market, has itself been found not to exist as a lawfully incorporated entity. What then is the worth of the guarantee? Probably less than the paper the charterparty is printed on.

None of this is to say that, in the event that claims arise under the charterparty in these situations, an owner has no recourse. However, without knowing with any certainty who the ship is fixed to adds an obstacle, albeit usually surmountable, to proceeding with a claim in the first instance.

Overcoming the absence of a clearly identifiable counter-party usually requires some investigation by, or on behalf of, the owner. Given the right resources, it is relatively straightforward, but not necessarily easy when one considers that, amongst other issues, there are more than 100 jurisdictions in which companies tend to be domiciled.

It is uncommon, although not unknown, to have to search most – or all – of them to resolve a particular case. Helpfully, the information generated collaterally during the fixture negotiations will often point to the likely domicile of a charterer. However, the success of searches is predicated to a large extent on the name of the charterer, as it has been declared in the charterparty, being an actual company.

Consequently, the task of identifying and evidencing with confidence the identity of the charterer is often best placed in the hands of experienced investigative specialists such as Gray Page, who have substantial market knowledge and contacts, and can source corporate registry information accurately and expeditiously.

It is easier and less costly to get a charterparty right at the outset, than it is to deal later with the consequences of one that is badly constructed. Nevertheless, if one waited to be satisfied of the provenance of every charterer before fixing, there would be very little business concluded; and naturally good faith has to come into it somewhere. However, establishing the corporate style and domicile of incorporation of a charterer is a good first step in building a happy and mutually beneficial relationship in the long-run.

And it doesn’t need to be burdensome. Shipowners, large and small, are routinely required to complete questionnaires for the benefit of charterers. Why then should charterers not be expected to reciprocate on such a prosaic issue as evidencing corporate style and domicile as a subject to a clean fixture?

In the final analysis, the decision to fix a ship to any given charterer comes down to the judgment of the shipowner and the commercial imperatives of securing employment for his vessel. Yet it is better to fix with style rather than not and rue a charterer’s lack of substance later.

This paper is intended as a general summary of issues in the stated field. It is not a substitute for authoritative advice on a specific matter. It is provided for information only and free of charge. Every reasonable effort has been made to make it accurate and up to date but no responsibility for its accuracy or correctness, or for any consequences of reliance on it, is assumed by Gray Page.

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