A federal appeals court recently reaffirmed the limited duties of a time charterer with respect to vessel mishaps that may occur in the course of the charter.
For those unfamiliar with the business of ship chartering, a “time charter” is one in which the charterer obtains the commercial use of a ship for a specified period of time, but the ship remains under the operational control of the shipowner who employs the captain and crew. Under this arrangement, the charterer tells the vessel where to go to load and unload cargo, and pays for fuel, but the details of navigation still fall to the shipowner.
What, though, if something goes wrong and it turns out the shipowner is bankrupt or out of business? Often the injured party will look to the time charterer as an easier source of recovery. But courts have generally held that the time charterer’s duties are limited. That was the outcome in the case of Grand Famous Shipping Limited v. China Navigation Co., decided on August 15, 2022 by the United States Court of Appeals for the Fifth Circuit.
The facts were pretty straightforward: while navigating in the Houston Ship Channel, the ship Yochow managed to hit a moored barge, which in turn slammed into the dock where it was tied up. Apparently the helmsman was fatigued and turned to port despite being told to turn the other way. The Yochow was owned by the rather grandiosely named Grand Famous Shipping, but was on a long-term charter to China Navigation Co. under a typical standard time charter form1The New York Produce Exchange form used for this purpose.
Litigation over the incident kicked off with an admiralty claim in Texas against the ship itself, Grand Famous as owner, and China Navigation, as time charterer. The shipowner, however, countered with a separate claim to limit its liability to the ship’s value—a right available to shipowners under the Limitation of Liability Act. The cases were lumped together, and the lessee of the damaged dock—TPC Group LLC—filed a claim as well.
China Navigation then sought to extricate itself from the fray with a summary judgment motion. It argued that, as a mere time charterer, it had no duty to navigate the ship and wasn’t responsible for the sleepy helmsman. The lower court agreed and granted China Navigation’s motion. TPC Group then appealed on several grounds. It claimed, for example, that China Navigation should be treated as the ship’s operator because the ship’s funnel was painted with its house colors and China Navigation “stay involved” with vessel operations by amount other things tracking the ship’s movements and fuel consumption. But the court saw this as typical of time chartering relationships and not evidence that China Navigation had assumed any degree of operational control.
TPC also argued that China Navigation was a “negligent time charterer.” China Navigation should have vetted the owner’s finances before entering into the charter and made sure the owner had a proper safety management system in place. The court rejected these arguments as well. These were simply not the responsibilities of a time charterer.
The court did acknowledge that time charterer has some limited duties. The time charterer typically choses the cargo to load aboard the vessel; one can imagine how that might result in mishaps. The time charterer also chooses the vessel’s routes. But the day to day, or minute by minute, operation of the ship is still the responsibility of the owner, unless the parties have agreed to something else. Running the ship into a moored barge is not something you can usually blame on a time charterer.
- 1The New York Produce Exchange form