Vessels are vital for the movement of people and property (cargo) over inland waters, across blue water, and in support of offshore energy operations in post-Ida recovery. During post-Ida salvage and repair operations, vessels are necessary. Ida resulted in the destruction of terminals, docks, and platforms and also resulted in vessels “breaking away” from their moorings and sustaining heavy damages.
Vessels are hired, rented, or leased under the terms and conditions of charter parties and Master Service Agreements, which dictate the use, warranties, obligations, and allocation of risks between the parties. Understanding the basic structure of a vessel hire is important, just as when we rent a car or truck for personal or business purposes.
TYPES OF CHARTER PARTIES
There are three basic forms of charter: bareboat/demise, time, and voyage. In a bareboat arrangement, the vessel owner turns over control of the entire vessel to the charterer (renter), who crews and operates the vessel as if an owner pro hac vice. If the vessel is turned over in a seaworthy condition, the charterer becomes liable for any damages and assumes operational liabilities. The vessel must be returned in “good order” less any “ordinary wear and tear.”
As an owner pro hac vice, the charterer may assert a limitation of liability defense or proceeding for any third-party claims. A limitation of liability proceeding is a concursus filed in federal court where all claims arising from an incident against a vessel must be timely filed or are then barred. If successful in proving that any damages were not related to an unseaworthy condition or due to negligence within the “privity and knowledge” of the owner/charterer, liability is limited to the value of the vessel post incident. As between the vessel owner and the bareboat charter, liability is usually not limited under a personal contract rule of law. Insurance and indemnity provisions will likely be enforced.
A voyage charter is also similar to a Lyft/Uber service where a vessel or a portion of a vessel is used to transport people and/or cargo between agreed-to destinations.
FORUM SELECTION AND DISPUTE RESOLUTION CLAUSES
Since most charters are personal contracts, the owner and charterer negotiate terms and conditions. In particular, parties may decide how and where disputes between them may be resolved. A forum selection clause states whether an action may be pursued in a state or federal forum — where suit may be filed and where the parties agree to submit to jurisdiction. Choice of law clauses select between state or maritime law to interpret the terms and conditions of the charter. The parties may also choose to resolve disputes via mediation or arbitration. Unless contrary to expressed public policy, most of these terms will be enforced.
INSURANCE AND INDEMNITY
Insurance and indemnity clauses in maritime contracts, when clearly expressed, will be enforced. Unless otherwise expressed or conditioned, insurance and indemnity are distinct obligations that may be enforced separately. These clauses are used to allocate risk for property damage, environmental incidents, personal injury, and death claims.
Insurance clauses designate what types of policies shall be obtained and the limits of coverage. An additional assured provision adds either the charterer or owner as an insured to the coverage obtained. Additional assured clauses are usually “primary” and “non-contributing,” meaning that the policy obtained must respond to its limits without contribution from any separate insurance obtained by the additional assured. The underwriter owes a duty to both defend and indemnify the insured and additional assured. In addition, the underwriters usually waive any claims for subrogation against the additional assured. Parties often negotiate whether the insurance obtained is limited by or subject to the contractual indemnity obligation.
Indemnity clauses allocate risks for claims made against the parties for personal injury, death, property, and environmental claims. These clauses are strictly construed and should be irrespective of fault, negligence, unseaworthiness, and strict liability. Intentional and punitive actions are generally excluded. Many indemnity clauses are “reciprocal,” where each party assumes liability for its own people and property. Some clauses create one-way or unilateral obligations. Indemnity obligations should be supported by contractual indemnity insurance obtained by the indemnitor. The charter party is not only a personal contract for limitation of liability but also an insured contract under a policy of insurance.
MARITIME VERSUS NON-MARITIME
In 2018, the Fifth Circuit simplified the test to determine whether an oilfield contract was maritime in In re Larry Doiron. Subsequent decisions, like Barrios v. Centaur, expanded the analysis to include all types of service agreements involving work where the primary focus involved the use of vessels. In Louisiana and Texas, many service contracts are “mixed,” involving maritime and non-maritime services. Essentially, a contract will be interpreted under maritime law when it concerns services on navigable waters and a vessel plays a substantial role in completing the contract. The test is simply stated but the analysis is often complex. If the contract is not maritime, state law will interpret its terms and conditions. Indemnity may be prohibited or limited by anti-indemnity legislation. If the contract is maritime, the law seeks to enforce the intentions and free will of the parties.
Read before you sign, and clearly state what your intentions are. Services are urgently needed post Ida, but contracts have long-term consequences. When renting a car or chartering a vessel, the fine print matters when an accident occurs. When chartering a vessel, the insurance, indemnity, warranty, and dispute resolution clauses have real consequences. Contracts establish obligations, allocate risks, and should be reviewed carefully.