In this video, Agnieszka Nowinska (Aalborg University Business School) and Hans-Joachim Schramm (Copenhagen Business School) talk about their research on chartering during the financial crisis in container shipping. The session has been developed in collaboration with MARLOG.
The costs of buying tonnage – whether new built or second hand – are so high that most Owners will need the assistance of Financers in order to be able to make the purchase. This raises several legal questions regarding ship’s finance. This article will provide a discussion of certain aspects of ships’ finance under Danish Law relevant to the charterparty trade.
The factual starting point for the paper is that a vessel is working in or intended to work in the charterparty trade, most particularly under long term time charterparties or Contracts of Affreightment. In such a situation, we find a tri-party relationship between the Financers, the Owners and the Charterers. When things are well, the interests of these three parties are on a par. The Charterers wish to use the vessel in order to make a profit, enabling them to pay the Owners. The Owners, receiving the hire or freight, are able to pay the crew, maintain the vessel and pay the Financers. However, the moment the financial stability of the Owner or the Charterer is threatened, the three parties will tend to have conflicting interests. The Financers, if unpaid, may wish to sell the vessel in order to cover at least some of their losses. The Charterers may wish to continue the use of the vessel, which may be inconsistent with a (forced) sale. Alternatively, the Charterers may wish to be freed of their obligations under the charterparty if the Owner enters into receivership or other types of insolvency proceedings. They may not be comfortable with e.g. having the Owners estate in bankruptcy running the vessel. And ultimately the Owners estate may wish to reconstruct the company in order to stay in business, for which end keeping the vessel as an asset and the income flowing from a (continued) charterparty may be a precondition.
The paper will discuss the problem with the starting point in Danish law on the subject, and investigate whether Danish law is apt to protect the conflicting interests of the three parties. However, the paper will make comparisons to other laws, mainly English law and Norwegian law. Also, the paper will discuss the general problems with the definitions of how a working vessel should generally be considered in the eyes of the law (is it simply any piece of chattels or is it more akin to a whole production facility?) and as well as whether the service provided by both owners and charterers under a charterparty should be considered personal or generic. Thus, although the paper uses Danish law as a starting point, it provides points of discussion of more general interest.
The paper ultimately concludes that Danish law does provide an adequate protection and balancing of the interest of the parties, but that uncertainties and the general inaccessibility of the law must be considered to restrict its use to the full – to the detriment of market interests.