Employment and Indemnity

What it does

An employment and indemnity clause is a defining feature of the time charter. It provides that the master, though employed by the owner, is to follow the charterer's orders as to the commercial employment of the vessel, and that in return the charterer indemnifies the owner against the consequences of complying with those orders. The owner places the earning capacity of the ship at the charterer's commercial direction.

The indemnity is the counterweight to that control. Because the master must obey the charterer's lawful employment orders, the clause shifts to the charterer the risk of losses that flow from following them, for example liabilities arising from the trades, ports, or cargoes the charterer directs, or from signing bills of lading as the charterer requires. It defines the boundary between the charterer's commercial control and the owner's responsibility for navigation and the ship.

Commercial effect

The clause is the mechanism that makes the time charter work: the charterer gets to use the ship as if it were running her, directing where she goes and what she carries, while the owner retains the vessel and the crew and is protected by the indemnity against the fallout of obeying. It allocates to the charterer the commercial risks of the employment it controls, which is the essence of the time charter bargain.

The reach of the indemnity is significant and often litigated. It generally covers losses that are a direct consequence of complying with the charterer's orders, but not those that result from risks the owner has accepted, such as matters of navigation or the ship's condition. Where the line falls determines who bears liabilities to cargo interests and others, and it is read with the bill of lading, safe-port, and exceptions provisions.

Owner's perspective

The owner wants a clear employment and indemnity clause so that, having put the ship at the charterer's commercial disposal, it is protected against the consequences of doing as the charterer directs. It relies on the indemnity to recover losses that flow from the charterer's orders, such as liabilities from the trades and ports chosen or from bills of lading signed at the charterer's request.

The owner is careful to preserve the master's authority over navigation and the safety of the ship, so that the charterer's control is confined to commercial employment. It wants the indemnity broad enough to cover the real consequences of compliance while keeping responsibility for the ship's seaworthiness and safe operation, which the owner has not handed over, clearly on its own side of the line.

Charterer's perspective

The charterer values the commercial control the clause gives it, since directing the ship's employment is the whole point of taking her on time charter. It accepts that the indemnity is the price of that control, but it wants the indemnity confined to losses that genuinely result from its orders, not extended to cover matters within the owner's own responsibility such as the ship's condition or the master's navigation.

The charterer is mindful that the indemnity can expose it to substantial third-party liabilities flowing from the employment it directs, so it manages its orders and its bills of lading with that exposure in mind. It negotiates the scope of the indemnity and its interaction with the safe-port, cargo, and exceptions provisions so that it bears the risks of its commercial decisions without absorbing those that belong to the owner.

Negotiation points

• The scope of the charterer's right to direct the commercial employment of the vessel.
• The reach of the indemnity for consequences of complying with the charterer's orders.
• The boundary preserving the master's authority over navigation and the ship's safety.
• How the indemnity interacts with the bill of lading, safe-port, and exceptions provisions.

Common variations

• A clause placing employment under the charterer's orders with an express indemnity.
• An indemnity limited to the direct consequences of complying with orders.
• A clause coupling employment with the master's duty to sign bills of lading as presented.
• A provision reserving the master's authority over navigation and safety.