CHARTER PARTIES

GENCON - Clause 4

Payment of Freight Clause

CLAUSE 4

4. Payment of Freight	32
(a) The freight at the rate stated in Box 13 shall be paid in cash calculated on the	33
intaken quantity of cargo.	34
(b) Prepaid. If according to Box 13 freight is to be paid on shipment, it shall be	35
deemed earned and non-returnable, Vessel and/or cargo lost or not lost.	36
Neither the Owners nor their agents shall be required to sign or endorse bills of	37
lading showing freight prepaid unless the freight due to the Owners has	38
actually been paid.	39
(c) On delivery. If according to Box 13 freight, or part thereof, is payable at	40
destination it shall not be deemed earned until the cargo is thus delivered.	41
Notwithstanding the provisions under (a), if freight or part thereof is payable on	42
delivery of the cargo the Charterers shall have the option of paying the freight	43
on delivered weight/quantity provided such option is declared before breaking	44
bulk and the weight/quantity can be ascertained by official weighing machine,	45
joint draft survey or tally.	46
Cash for Vessel's ordinary disbursements at the port of loading to be advanced	47
by the Charterers, if required, at highest current rate of exchange, subject to	48
two (2) per cent to cover insurance and other expenses.	49

According to the 1994 revision of the CENCON Charter Party the freight can be either “prepaid” or “paid on delivery”. The choice made has to be indicated clearly in box 13. The way the freight has to be paid must be indicated in box 14.

Prepaid

The content of paragraph (b) of Clause 4 is very clear. Usually the following clauses can be found in box 14:

"Freight payable on signing Bills of Lading, non-returnable, discountless, ship and/or cargo lost or not lost."
"Freight earned and payable upon shipment, ship and/or cargo lost or not lost."

In both cases, freight paid on shipment is non-returnable.

On delivery

Freight payable on delivery has been the rule for quite a while. According to this way of payment, the owner only has the right to receive his freight when his obligations have been fulfilled in other words, when the cargo is ready to be delivered to the receivers. This means that if the Ship Owner, for a certain reason, is unable to deliver the goods to the receiver, he is not entitled to his freight. If for instance the ship got lost, then the Ship Owner will not be entitled to receive his freight. If in the destination port only part of the goods is delivered (short delivery, shortage) then the Ship Owner has a right to a share of the freight in proportion to the quantity which has been discharged.

If the goods arrive damaged, the owner only has right to the freight if the goods are in a negotiable state and if it still concerns the same type of goods. Thus e.g. for cars, the Ship Owner is entitled to the freight if the damaged cars can still be considered as cars and not as scrap. As scrap the cars have undergone such a transformation that they have become worthless (valueless) to the Charterer.

In case of damage to the goods the Charterer does not have the right to deduct a part of the freight for compensation. Freight must be paid in full even if the Charterer has a claim for damages against the owner.

In case of a "lump sum" charter the Ship Owner has a right to the complete freight as soon as part of the goods have reached their destination port. If the full cargo is lost, then the owner has absolutely no right to the payment of the freight.

In box 14, the following clause is often used:

"Freight payable within 3 days after right and true delivery upon presenting Owners' freight invoice to Charterers."

A distinction must be made between the moment the freight is earned and the moment that freight must be paid freight payable.

In voyage charter agreements it is possible to see a clause "Freight earned upon shipment…" in combination with "Freight payable before commencement of discharging" (or "before breaking bulk"). If bills of lading have been issued with the mention "Freight prepaid" then the Ship Owner must make sure that the freight is paid before the bills of lading are handed over to the shipper.

It is important to note that notwithstanding the provisions of sub-clause (a) i.e. that the freight shall be calculated and paid on the basis of intaken quantity, the Charterers have the option of paying the freight on the basis of delivered weight if in box 13 it is indicated that freight is to be paid on delivery. Such option is only available if declared before breaking bulk and the weight/quantity can be ascertained by official weighing machines, joint draft survey or tally.

In each charter party a "Payment Clause" must occur, which clearly indicates the payment modalities: currency; mode and place of payment, name of the bank and account number, etc. Since the freight can run up to considerable amounts the Payment Clause must clearly mention who must pay for the cost of transfer.

Some countries have restrictions with regard to foreign payments. This can be important re the payment of demurrage and the owner must examine the question thoroughly before he accepts the final fixture.
Concerning the deadfreight, we refer to the paragraph Obligations of the Charterer. To protect his rights with respect to the Charterer for the payment of deadfreight the Ship Owner (or the master) must take the following precautionary measures:

he must obtain from the Charterer a written statement that no more cargo is available. Such a statement from the shipper only is not sufficient because the Charterer can later claim that he could have looked for more cargo had he been informed before the departure of the ship;
Before the ship starts to discharge, the cubic content and the deadweight of the ship which was not used must be assessed with the greatest precision possible. This can be done through an independent surveyor or via the P & I club.
In order to safeguard his lien on the cargo against the receiver of the goods, the master must make a reserve on the bill of lading that relates to the shortages and which will confirm his claim for deadfreight.

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