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Charterers’ Orders

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Law and Sea.

Employment and Indemnity clause provides, generally, that the master is to be under the orders of the charterer as regards employment, agency and other arrangements and that the charterer is to indemnify the owner against consequences or liabilities arising from the master, officers or agents signing bills of lading or other documents or otherwise complying with such orders.

Employment and Indemnity Clause
Last updated: 28-Nov-2015

Per Devlin J in Royal Greek Government v Minister of Transport (1949) 83 Ll L Rep 228, at p.234:

… if [the owner] is to surrender his freedom of choice and put his master under the orders of the charterer, there is nothing unreasonable in his stipulating for a complete indemnity in return.

Per Mustill J in The Georges C Lemos (3rd party proceedings) [1991] 2 Lloyd’s Rep 107:

When deciding who has to bear the consequences of a choice being made in one way rather than the other, it is reasonable to assume that the consequences shall fall upon the person who made the choice, for it is the charterer who has the opportunity to decide upon the wisdom of the selection which he makes.

Per Mr Justice Colman in Ullises Shipping Corp v FAL Shipping Co Ltd (The Greek Fighter), [2006] EWHC 1729 (Comm) at para 302:

As to the issue whether the consequence of charterers’ orders to be the subject of the indemnity should be ‘direct’ consequences as distinct from mere consequences, the authorities demonstrate that the problem is more apparent than real and is largely a matter of semantics. The exercise essentially involved is the identification of the scope of the indemnity obligation and is thus fundamentally a question of construction. In identifying that scope, certain considerations are relevant. In particular, the parties are unlikely to have contracted for the protection of the Owner against losses which are remote as a matter of causation from the charterer’s order. That is because it is in a commercial setting improbable that a charterer would be prepared to assume the risk of eventualities causally remote from his own orders. This concept of the exclusion from the scope of a contractual indemnity of remote eventualities has been illuminatingly and comprehensively explored by Rix J. in The Eurus [1996] 2 Lloyd’s Rep 408 at pages 424 to 432. Much less would a charterer be likely to assume the risk of eventualities causally contributed to by negligence or other fault on the part of Owners notwithstanding that charterers’ order may have initiated the train of events leading to Owners’ loss. For these reasons it is improbable that a charterer would ever willingly enter into an indemnity which protected Owners from losses not predominantly or proximately caused by the charterers’ orders under the charter.

In Petroleo Brasileiro S.A. (Respondent) v E.N.E. Kos 1 Limited (Appellant)[2012] UKSC 17 per Lord Sumption at para.7:

7. The indemnity reflects the breadth of the powers conferred on the charterers as to the employment of the vessel.

11.… The owners are not entitled to an indemnity against things for which they are being remunerated by the payment of hire. There is therefore no indemnity in respect of the ordinary risks and costs associated with the performance of the chartered service. The purpose of the indemnity is to protect them against losses arising from risks or costs which they have not expressly or implicitly agreed in the charterparty to bear. What risks or costs the owners have agreed to bear may depend on the construction of other relevant provisions of the contract, or on an informed judgment of the broad range of physical and commercial hazards which are normally incidental to the chartered service, or on some combination of the two. The classic example of a loss within the indemnity, and probably the commonest in practice, is one which arises from the master complying with the charterers’ direction to sign bills of lading on terms of carriage more onerous than those of the charterparty. But the indemnity has been held to be applicable in principle to a wide variety of other circumstances, including compliance with an order to load cargo which is dangerous even on the footing that appropriate care is taken of it, or an order to proceed to a legally unsafe port. On the other hand, the indemnity will not apply to risks which the owners have contractually assumed, which will usually be the case where they arise from, for example, their own negligence or breach of contract or consequences such as marine fouling which are incidental to the service for which the vessel was required to be available.

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