The Novation Agreement for the Transfer of Ownership is an agreement between the parties to novate the time charter party from the original owners to the new owners on terms set out in the agreement. The latest edition of this contract is the Novation Agreement for the Transfer of Ownership, issued in 2016.
Copyright in the Novation Agreement for the Transfer of Ownership is held by BIMCO.
These notes are intended to provide an insight into the reasoning behind the key provisions of the Novation Agreement for the Transfer of Ownership. However, users are recommended to seek advice in respect of issues that are not covered, are specific to their particular contractual arrangements or require specialist legal guidance.
The contract is divided into two sections. The covering box layout is for the insertion of variable information relating to the novation followed by the applicable terms and conditions.
Consideration should be given to the implications of the basis of the change of ownership. If it is by way of sale, it will be important to ensure consistency between the content of the novation agreement and the terms of the sale documentation. A transfer of ownership may require specialist contractual or other arrangements.
The issue of bunkers is not addressed. This is because of concerns about the scope for dispute over title to charterers’ bunkers and possible conflict with the provisions of the underlying time charter party or contractual arrangements for the sale or transfer of the ship. For the same reason, there are no provisions relating to the original owners on board equipment.
Details of the Charterers, Original Owners and New Owners are to be entered in Box 2, Box 3 and Box 4 respectively, Vessel details in Box 5 and the date of the underlying Time Charter Party in Box 6. Further information required includes the Date of the Memorandum of Agreement, the Effective Time of novation, the New Owners’ bank and changes to ship information and party guarantors.
This states the parties’ agreement to novate the Time Charter Party from the Original Owners to the New Owners on terms set out in the agreement. In order to ensure consistency, it is expressly provided that terms used in the Novation Agreement shall have the same meaning as terms in the underlying Time Charter Party.
The changeover of contracting party takes place at the “Effective Time” agreed and entered in Box 8. This can be a specific time and date or it might be linked to an event such as “dropping last outward pilot” or on arrival at a specified port or place.
The New Owners will not expect to be held liable for matters arising prior to the changeover. Subclause (f) therefore provides that the Original Owners and Charterers remain liable to each other after the Effective Time for all liabilities and obligations occurring prior to the novation. An indemnity secures the New Owners’ position against any such claims.
In view of the variety of possible circumstances, such as a variable Effective Time or because of the corporate structure, adjustment of overpaid hire has not been addressed. Arrangements will depend on individual needs and should be resolved on a case by case basis.
The clause applies only where agreed and inserted in Box 15.
Accordingly, releasing original guarantors might be inconsistent with the terms of the guarantors’ liability for continuing or outstanding claims under the pre-novation time charter. An unconditional requirement to release the original guarantors could therefore prejudice the interests of the continuing counter party (charterers) who might lose the ability to recover a pre-novation claim.
It should be noted that while often taking an interest in an ownership novation, banks are nevertheless unlikely to become a party to the agreement. If required, any issues will normally be dealt with through a side letter between owners and their financiers.
Disputes under a novation agreement might involve all three contracting parties. Additional wording has therefore been included to provide a mechanism for starting multi-party disputes. The procedures apply where all three parties are involved in a dispute from the outset but are not designed to accommodate a third party joining an extant arbitration at a later stage. If the situation should arise, it can be dealt with on a case by case basis with the third party possibly starting a separate arbitration against either or both of the other parties. The references might then, by agreement, be consolidated, heard concurrently or restarted as a multi-party arbitration.
The modifications mean that the clause is not the standard version and “BIMCO” does not therefore appear in the heading.
Anna Wollin (BIMCO), Chris Kidd (Ince and Co) and Donald Chard (Arbitrator and BIMCO consultant) provide an overview of the Standard Novation Agreements.
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