The Baltic and International Maritime Council (BIMCO) recently published its own standard form of ship sale and purchase contract, SHIPSALE 22. This new form seeks to update and improve on the leading standard, SALEFORM 2012, the most recent iteration of the Norwegian Shipbrokers’ Association’s memorandum of agreement for ship sale and purchase.
Rather than being a response to any particular legal developments, the new SHIPSALE 22 form was drafted by a team of industry experts following wide consultation. The aims of this were to codify and clarify the form, improve accessibility and more closely follow the chronology of a typical ship sale, with further updates to reflect modern market practice.
Users who are familiar with the box format found in other BIMCO contracts are likely to be pleased to see that it has been adopted in Part I of SHIPSALE 22. This section summarises the transaction information including key dates, amounts, inspection arrangements and more, enabling parties to find the commercial details at a glance.
The substantive clauses then follow in Part II and the additional annexes that address delivery documents and excluded items are now incorporated as standard. In practice, many parties using the SALEFORM 2012 will have become accustomed to adding annexes for these purposes and many will often have their own standard wordings covering these areas. However, the SHIPSALE 22 annexes should serve as a useful base for those who do not already have standard terms covering delivery documents and excluded items.
A key addition in SHIPSALE 22 is the dedicated 'subjects' clause that allows the parties to agree and document any specific conditions to be fulfilled before the agreement takes effect. If such conditions are not met by the specified date, the agreement is automatically null and void.
From a practical perspective, many buyers and sellers may prefer to address any such conditions prior to incurring the costs and time of negotiating and signing the agreement. However, in circumstances where subjects are to be included, it will be important to ensure that it is clear which party is responsible for addressing the subjects and confirming that they have been satisfied.
The deposit clause in SALEFORM 2012 was amended from its previous version (SALEFORM 1993) to reflect market practice more closely, namely the increased use of a third party deposit holder in place of a joint account in the name of the buyer and seller held with either party's bank. SHIPSALE 22 builds on this point further, with specific references to a separate deposit holding agreement between the buyer, seller and deposit holder.
Another new addition to the deposit clause is the concept of a 'disruptive banking event'. This is defined as a specific event that occurs beyond the parties’ control and delays the deposit holder’s receipt of the deposit. If such an event occurs, the buyer is then given additional time to complete the transfer. The definition extends to a delay resulting from a 'review' by the deposit holder’s bank, or a correspondent bank, which will likely include anti-money laundering and sanctions checks (which are increasingly becoming commonplace).
With regard to the payment of the balance on delivery, SHIPSALE 22 does not specify the payment and release mechanisms to be used. The 'stand-off' remains as to who moves first: the buyer sending the balance of funds or the seller effecting delivery of the vessel. This issue is particularly highlighted where one or more financing banks are involved and the vessel forms part of a security package.
The seller’s bank will want receipt of the funds before releasing its mortgage and the buyer’s bank will want to ensure the vessel is being delivered free of encumbrances before releasing the money. We expect this will continue to be an issue to address on a case-by-case basis, depending on numerous factors including each party’s experience and bargaining power.
One important change from SALEFORM 2012 is in the inspection clause. Previously, parties would have only two alternatives: that the buyer has inspected and accepted the vessel and her class records, or that the buyer will have the right to inspect the vessel and class records.
SHIPSALE 22 now includes a third option for the buyer expressly to waive an inspection of the vessel and Class records, and accept them 'as-is'. This may be a useful option for some transactions.
There are also separate clauses regarding underwater inspection and dry-docking, largely addressing the same issues as previously but in greater detail.
Buyers now have an automatic right to place representatives on board following the payment of the deposit. For many transactions this will be a helpful addition but, if there is a significant gap between payment of the deposit and delivery of the vessel, the seller in particular may want to adjust this wording accordingly.
The SALEFORM 2012 gave parties the following three choices in respect of law and jurisdiction:
In the absence of any particular choice, English law and arbitration would apply by default. The Japanese NIPPONSALE form and the Singapore Ship Saleform were both developed, partly in response to the preference for English and New York law, in order to highlight their own respective dispute resolution centres instead.
The new clause in SHIPSALE 22 appears to be a more neutral option that allows the parties greater freedom to include their own chosen procedure.
In line with industry practice, the new form now includes BIMCO’s standard wording on sanctions and anti-corruption. Many parties were already including their own additional clauses to address this and, in financed transactions in particular, they were often required to include suitable wording to satisfy their respective lenders. The inclusion of standard wording is, therefore, a welcome one and should help save further time and costs in negotiations.
With their use in commercial contracts being accelerated by the COVID-19 pandemic, electronic signatures are (even if not tested in many jurisdictions) now widely recognised. As a result, BIMCO developed and published the BIMCO Electronic Signature Clause 2021, and this is now incorporated into SHIPSALE 22 as standard wording such that, by default, electronic signatures are expressly confirmed as valid for the agreement and documents signed in connection with it.
Provision for 'wet-ink' signatures remains, in the event that electronic signatures are not recognised by a particular party, authority or jurisdiction.
While this will be a welcome update for many as it will help to ensure consistency, parties will still need to consider any specific requirements in their respective jurisdictions or the vessel’s flag state, including any practical implications for documents requiring notarisation and/or legalisation.
Reference is also now made expressly to closing remotely, not just at a physical meeting, reflecting recent market trends since the introduction of SALEFORM 2012.
SHIPSALE 22 is largely a re-organisation of the earlier SALEFORM 2012, with some practical updates to help reflect modern market practice. Although it is a longer document, the addition of the various new clauses which were often added by parties themselves may help save time and money in negotiations. For those used to SALEFORM 2012, the familiarity of the new form should stop parties from feeling all at sea.