SHIPSALE 22

Overview

SHIPSALE 22 is a standard Memorandum of Agreement (MOA) for ship sale and purchase. It provides an innovative and comprehensive approach to sale and purchase agreements with clauses following the sequence of events as they play out in a sale and purchase transaction.

Copyright in SHIPSALE 22 is held by BIMCO. 

SHIPSALE 22

Supporting documents

Explanatory notes

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Explanatory notes

Table of contents

 

SHIPSALE 22

Background

BIMCO’s policy is to provide our membership and the wider shipping industry with standard contracts covering a broad range of sectors and commercial activities. In line with this policy, BIMCO took the decision in 2019 to develop its own standard ship sale and purchase agreement to offer a modern, well-structured, clearly worded alternative to existing forms.

BIMCO would like to thank the drafting team for their considerable time, effort and commitment in producing SHIPSALE 22:

Francis Sarre, CMB (Chairman)
Antoine Person, Louis Dreyfus Armateurs
Basil Logothetis, Empros Lines Shipping
Catherine Lessow, Valhal Shipping
John Varley, Arrow Shipbroking Group
Christoph Bruhn, Bruhn Shipbrokers
Kasper Holm-Hemmingsen, Maersk Broker
Matt Hannaford, Hannaford Turner LLP
Michael Hope, North P&I
Jens Mathiasen, HFW

BIMCO secretariat support was provided by Søren Larsen, Deputy Secretary General and Grant Hunter, Head of Contracts & Clauses.

Part of the development process for SHIPSALE 22 included an industry-wide consultation which involved more than 200 stakeholders and generated over 800 individual comments. BIMCO would like to thank all those who took part in the consultation for their support and valuable input.

Explanatory Notes

The following notes are intended to provide a background to the development of SHIPSALE 22 and share some of the drafting committee’s thinking behind key clauses and specific aspects of the form. 

Structure

SHIPSALE 22 is divided into four main sections. Part I provides boxes for the parties to insert information such as the details of the ship, inspection and the purchase price and other amounts payable. Part II contains the standard terms and conditions with clauses following the typical sequence of a sale and purchase transaction. Annex A deals with the delivery documents to be provided by each party plus the protocol of delivery and acceptance. Annex B is where the parties list any items which are excluded from the sale.

Several standard clauses found in other BIMCO contracts, such as “sanctions”, “anti-corruption” and “entire agreement” have been adapted for SHIPSALE 22. The agreement does not contain a pandemic/epidemic provision or a force majeure clause – we leave it to the parties to add these provisions if they feel they are required for their transaction.

SHIPSALE 22 does not address recycling. BIMCO recommends using RECYCLECON to dispose of a ship in a compliant and environmentally sound way (green recycling). Equally, the agreement does not contain a “future trading” clause preventing the buyers from recycling the ship within an agreed period after purchase. It was not felt to be something that the industry would welcome as part of a standard agreement for global use. It would be difficult to police another party’s property and enforce the clause – and it may impact the purchase price if agreed.

Part I

The box layout in SHIPSALE 22 is a standard design used by BIMCO which makes it easy to use when editing the form and neatly summarises the key information.

There is a statement (after box 26) to the effect that if there is a conflict between the terms and conditions contained in the boxes (Part I) and those contained in Part II of the form, the terms, and conditions in Part I shall prevail.

Boxes 5 and 6 are included for transactions where performance of the obligations of the sellers and/or the buyers will be secured by a guarantee provided by a third party. In such cases, the guarantor’s details can be inserted in boxes 5 and 6, as applicable. Space is provided in each of the Authorised Signatures boxes for a party’s guarantor to sign and thereby bind itself into the agreement as guarantor. However, legal advice should be taken in the appropriate jurisdictions to ascertain the effect and potential limitations of this guarantee. As an alternative to signing the agreement, the guarantor(s) may simply be identified in boxes 5 and 6 with the terms and conditions of the guarantee being contained in a separate guarantee instrument. In such cases, the parties are advised to make specific reference to such instrument in SHIPSALE 22. If the agreement does not involve guarantors, the parties can simply delete the relevant parts of the boxes or insert the words “not applicable” in the relevant spaces.

Box 8 (Inspection) has a dropdown menu with different options. Depending on the choice made, the parties will be prompted to insert the place and date/date range of the ship inspection and classification society records inspection.

Part I incorporates the BIMCO Authenticity clause above the signature boxes. The purpose of the clause is to help prevent the, often unknowing, use of counterfeit) copies of BIMCO forms. If one of the parties provides the SHIPSALE 22 form for negotiation and is reluctant to include this clause, then this should serve as a warning that the offered form may not be a genuine BIMCO standard agreement (and, as such, may not accurately reflect the SHIPSALE 22 terms).

Part II

Clause 1 (Definitions and Interpretation)

This section includes defined terms used in SHIPSALE 22. Capitalised terms used in box 1 are also defined terms in Part II of the agreement. Defined terms used only in a single clause are incorporated in the clause in question. Some of the key definitions are described below.

“Banking Days” refers to the places/countries stated in box 13, and also to New York if the purchase price is denominated in United States dollars (USD) (recognising that the currency of most international transactions is USD). The definition refers to days on which banks are open for business but excludes Saturdays and Sundays when business transactions are not usually processed even in jurisdictions where the banks are generally open on those days.

“Delivery Documents” is defined by reference to the documents listed in Annex A. Where, as is often the case, the parties prefer to create their own list of delivery documents (for example, by way of an addendum to the agreement), this definition should be amended appropriately.

“Deposit Holding Agreement”. SHIPSALE 22 contemplates that the buyers will lodge a security deposit under clause 5 and that the deposit will be held in accordance with the terms and conditions of a separate deposit holding agreement between the sellers, the buyers and the deposit holder.

“Oils and Greases” are intended to exclude lubricating oils in the ship’s system from the price that the buyers must pay as they are considered “used”.

“Parties” are restricted to the sellers and the buyers (as each is identified in box 3 and 4). If guarantors sign the agreement, they will still not be “Parties”. Accordingly, if the sellers and buyers intend that any specific provisions will apply to the guarantors (as well as to the sellers and buyers), suitable amendments should be made either to the definition of “Parties” or within the applicable provisions themselves.

Clause 2 (Sale and Purchase)

This clause sets out the main purpose of SHIPSALE 22 as an agreement under which the sellers agree to sell and buyers agree to buy a ship based on the provisions of the agreement. The clause confirms that title and risk will remain with the sellers and not pass to the buyers until the ship is delivered to the buyers in accordance with the terms and conditions of the agreement.

Subclause 2(a) provides that, in addition to the ship, the sale includes the “Included Items” and the “Bunkers, Oils and Greases”. Both terms are defined in subclause 1(a).

The sellers are not required to replace spare parts that are used as replacements before delivery, but these spare parts become “Included Items” and, as such, are included in the sale without additional cost to the buyers.

“Included Items” covers everything that was on board the ship at the time of the clause 6 inspection (or, on the date of the agreement, if the parties have agreed that no inspection will take place) except for “Excluded Items”. These are items which have been identified in Annex B as being excluded from the sale. If there are any leased items on board which are not owned by the sellers, subclause 2(c) obliges the sellers to replace these items at their own expense before delivery if they have not been identified as “Excluded Items” in Annex B.

Clause 3 (Subjects)

The clause applies only if there are subjects listed in box 25.

Where subjects are listed in box 25 clause 3 provides that the agreement will not become effective until all those subjects have been satisfied. If the parties are not contracting under English law, they should check if this works as the law on contract formation in other jurisdictions may determine that there is a binding agreement even where all subjects have not been lifted.

If all the stated subjects have not been lifted by the deadline date (also set out in box 25) the agreement will be null and void. However, the parties’ obligations under clause 23 with regard to confidentiality shall survive.

If no subjects are listed in box 25, the date of the agreement will also be determined by the time when it was formed. In many cases, this will be the date on which the agreement was signed (as set out in box 2) but, where a legally binding contract was made between the parties before the signing date (for example, at the recap stage) it might be the case that the agreement became binding on the parties at an earlier date.

Clause 4 (Purchase Price)

This clause defines the purchase price by reference to box 9, which should state the amount and currency. It is advisable to write the amount and currency in words as well as numbers.

In line with market practice, the purchase price excludes the cost of bunkers, oils and greases (where the amounts payable are calculated in accordance with clause 13) and other additional expenses such as victualling and communication expenses.

Clause 5 (Deposit)

SHIPSALE 22 contemplates that the buyers will pay a deposit as security for their obligations under the agreement and that the deposit will be held by a third-party deposit holder. The deposit holder is identified in box 11. There is no stipulation as to what sort of entity the deposit holder must be (for example, a bank, law firm, etc), the parties being free to agree whatever is mutually acceptable. Apart from addressing the payment of the deposit holder’s fees and the treatment of any interest that may accrue on the deposit, clause 5 contemplates that the details for the receipt, holding and release of the deposit will be set out in a separate agreement between the sellers, the buyers, and the deposit holder. BIMCO’s Standard Deposit Escrow Agreement for Ship Sale and Purchase can be used to deposit money in connection with the transaction.

The buyers must lodge the deposit with the deposit holder within three banking days after the conditions in subclause 5(d) have been satisfied. This includes the lifting of any subjects. However, in recognition of the fact that circumstances can arise where, through no fault of the buyers, the deposit is not received in the deposit account within the stipulated time, subclauses 5(e) and (f) provide the buyers with an additional grace period of two additional banking days to lodge the deposit if it is delayed because of a Disruptive Banking Event as defined in subclause 5(e).

If the deposit has not been lodged within the time stipulated in subclause 5(d) (or subclause 5(e) where the deadline has been extended on account of a Disruptive Banking Event), the sellers have the option to terminate the agreement.

If no deposit is to be paid, this should be confirmed in box 10 and clause 5 should be deleted as well as the definitions of “Deposit Account” and “Deposit Holding Agreement” in clause 1. In addition, appropriate amendments will be required in clause 7 (Buyers’ On-board Representatives), clause 14 (Payments), clause 18 (Sellers’ Termination Rights), clause 19 (Buyers’ Termination Rights) and clause 20 (Total Loss).

Clause 6 (Inspection)

Clause 6 contains three alternatives:

Subclause 6(a): where the ship and the class records have been inspected prior to signing of the agreement.

Subclause 6(b): where the ship and the class records will be inspected at an agreed time and place after the agreement has been signed.

Subclause 6(c): where the buyers have waived their rights to inspect the ship and its class records.

Parties MUST make a choice as there is no default position in SHIPSALE 22 if no choice is made. This has been done to avoid forcing the parties into a position they may not want. In SmartCon a safeguard has been added so that SHIPSALE 22 cannot be finalised without selecting an option in box 8.

Clause 10(c) requires the sellers to deliver the ship to the buyers “in the same condition as it was at the time of inspection, fair wear and tear excepted”. This reference to “inspection” is the inspection carried out under subclause 6(a) or (b). Where the clause 6(c) option has been selected (and no inspection has taken place), subclause 1(b) (Definitions and Interpretation) of SHIPSALE 22 provides that references to “the time of inspection” shall be deemed to be replaced with “the date of this Agreement”.

Subclause 6(b) provides that the ship inspection shall not include testing of the ship’s engines, machinery, equipment and systems. Apart from this, the subclause is silent on the scope of inspection  In practice, the scope of the inspection will vary from case to case and, to avoid the buyers being unable to accept the ship under subclause 6(b)(v) because they feel that they have been unable to carry out a sufficiently thorough inspection, it is recommended that the parties should agree on the scope of the inspection before they sign the agreement.

To avoid undue delay in making the decision as to whether to move forward with the sale or withdraw, subclause 6(b)(v) provides that the buyers must notify the sellers if they accept the ship or do not accept it within five days after the earlier of (i) completion of the inspection and (ii) the last day in the date range stated in box 8 – so care should be taken in the selection of the date range.

Clause 7 (Buyers’ On-board Representatives)

After the buyers have lodged the deposit, clause 7 provide that they shall have the right to place a maximum of two representatives on board the ship until delivery.

Not all P&I clubs have their own standard letter of indemnity (LOI) for buyers’ on-board representatives, so clause 7 refers to the sellers’ P&I Club’s “recommended” LOI.

To provide sufficient protection to the sellers, the buyers and their on-board representatives should sign the LOI (which may be provided in original or electronically).

If necessary, the buyers’ on-board representatives should be able to use the ship’s communication system. In practice, often this issue will not be addressed until the buyers’ representatives embark the ship. But in order to avoid potential disputes, subclause 7(c)(i) of SHIPSALE 22 deals with this issue in advance.

Clause 7 also confirms that the buyer’s on-board representatives shall be on-board as observers for familiarisation purposes only and shall not interfere with the operation of the ship or the work of the crew.

Clause 8 (Underwater Inspection)

If the sellers and buyers agree that there will be an underwater inspection of the ship before delivery, they must make an election in box 17 for clause 8 to apply.

Subclause 8(a) specifies that the sellers are obliged to make the ship available for the underwater inspection and to arrange for a class surveyor to attend. However, subclause 8(c) confirms that the buyers shall be responsible for arranging the underwater inspection.

The buyers shall pay for the underwater inspection and for the classification society surveyor’s attendance (subclause 8(c)) unless the classification society surveyor determines that the underwater parts of the ship below the deepest load line are broken, damaged or defective so as to affect the ship’s class, in which case, the sellers shall pay (subclause 8(h)).

Subclause 8(b)(ii) specifies that the scope of the inspection and the conditions under which it is performed are to be to the satisfaction of the classification society surveyor. The underwater inspection is to be carried out at the place of delivery unless the classification society surveyor decides that the conditions are unsuitable in which case the sellers must take the ship to the nearest suitable place for an inspection. In such case, the sellers are obliged (at their expense) to take the ship to the place of delivery following completion of the inspection and the cancelling date will be extended by the additional time required for positioning and re-positioning the ship.

A two-day time limit is included in subclause 8(g) to prevent the buyers from “dragging their heels” in commencing or completing the underwater inspection.

If the classification society surveyor determines that the underwater parts of the ship below the deepest load line are broken, damaged or defective so as to affect the ship’s class, the sellers shall arrange for the ship to be drydocked (in which case clause 9 shall apply) unless:

  • as provided in subclause 8(h)(i), the sellers can carry out the necessary repairs afloat; or
  • as provided in subclause 8(i), - the classification society does not require the defects to be rectified until the next classification society drydocking of the ship.

Where subclause 8(i) applies, the sellers will be entitled to deliver the ship with the class affecting defects identified during the underwater inspection subject to a reduction in the purchase price based on the estimated direct cost of repair. Under subclause 8(j), each party has three banking days to obtain a quote for the repair works from a “reputable independent” shipyard or repair facility and the cancelling date shall be extended by three banking days. The discount to the purchase price will be the average of the two quotes obtained (or, if one party fails to obtain a valid quote within the stipulated deadline, the quote obtained by the other party).

Clause 9 (Drydock Inspection)

This clause will only apply if:

  • the underwater inspection has revealed class affecting defects which, under the terms of clause 8, require the ship to be put into drydock; or
  • the parties have agreed that the ship will go straight to drydock (without any underwater inspection).

If there are no suitable drydocking facilities at the place of delivery and the drydock inspection takes place at an alternative drydocking location, the cancelling date will be extended by up to a maximum of 21 days. The extension applies to the total period including the drydocking and additional sailing time (including re-positioning); not only to the drydock inspection itself.

The buyers do not have the right to have the tailshaft drawn during the drydock inspection. A survey of the tailshaft will only take place if this is required by the classification society surveyor.

The buyers do have the right to have the underwater parts of the ship cleaned and painted in accordance with subclause 9(j) while the ship is in drydock. If the buyers wish to carry out other works while the ship is in drydock, this should be agreed with the sellers on a case by case basis.

While the buyers must pay for any additional docking time needed to complete the buyers’ work on the ship in drydock, the sellers will nevertheless remain responsible for the costs of undocking the ship. If the buyers’ own works on the ship are still in progress when the drydock inspection has been completed (and the sellers have carried out any repairs required to be done in accordance with subclause 9(h)), the sellers can tender Notice of Readiness (and deliver the ship) while the ship is still in drydock.

Clause 10 (Condition of Vessel at Delivery)

Subclause 10(a) and (b) provide that, unless the agreement permits the sellers to give Notice of Readiness whilst the ship is in drydock, delivery must take place whilst the ship is safely afloat at a safe and accessible berth or anchorage. The references to the berth or anchorage being accessible is intended to address crew changes. Some anchorages are located outside port limits, making it difficult to clear the ship and change the crew.

Subclause 10(c) addresses the physical condition of the ship at the time of delivery. The starting point is that the ship must be in the same condition as it was at the time of inspection. This is a reference to the inspection carried out in accordance with subclause 6(a) or (b). Where no inspection took place, the benchmark standard will be the condition of the ship at the date of the agreement (as confirmed in subclause 1(b) (Definitions and Interpretation)). In line with market practice, there is an allowance for any fair wear and tear sustained by the ship between the time of inspection and the time of delivery.

Subclauses 10(c)(i) to (vii) then lists seven additional conditions with which the ship must comply when being delivered and taken over.

The sellers’ obligation under subclause 10(c)(i) to deliver the ship with its class maintained free from conditions and recommendations is supported in Part 1 of Annex A where the sellers are obliged to provide the buyers with a declaration of class or class maintained certificate issued not more than three days before delivery. In addition to this subclause 10(c)(ii) provides that the ship must be delivered free of average damage affecting the ship’s class.  This means that even where the sellers can demonstrate that the ship has been certified by its classification society to be in class without condition or recommendation, the sellers will still be in breach of their clause 10 delivery obligations if, as a matter of fact, the ship has average damage affecting its class. The intention of limiting this provision to “average damage” (as opposed to “any” damage) is to prevent the buyers from claiming in respect of types of damage which are attributable to the normal wear and tear sustained by the ship.

A distinction is made between subclause 10(c)(iv), which refers to national certificates and subclause 10(c)(v) which concerns all other certificates. Whereas, at delivery, the ship must have all national certificates required by the relevant authorities, the corresponding obligation with regards to any other certificates applies only to those which the ship had at the time of inspection.

Subclause 10(d) is a warranty by sellers that, at delivery, the ship is not encumbered by debts, liens, claims or commitments which could attach to the ship (or the buyers as new owners of the ship). 

Subclause 10(d)(ii) includes a warranty by sellers that the ship will be free from possessory liens. Where delivery is made in drydock the yard/drydock facility may have a possessory lien allowing the yard to keep possession of the ship until any payment due to the yard has been made. Accordingly, if delivery is taking place in drydock, the buyers should seek evidence at delivery that the yard has given up any rights to a lien on the ship, or that other satisfactory arrangements are in place to cover the drydocking costs.

The indemnity in subclause 10(f) relates to claims against the ship incurred prior to delivery. It was considered whether this indemnity should be limited to claims that were incurred whilst the ship was under the ownership of the sellers (as opposed to any previous owners). However, this would open the door for sellers to change ownership just before the sale and thereby avoid any claims. On balance, this should be the sellers’ risk, and they should have the same indemnity going backwards in the chain. This allocation of risk can be amended on a case by case basis where it is reasonable to do so, e.g.  where a ship has been on bareboat charter.

Clause 11 (Delivery Notices)

The notices to be given in accordance with subclause 11(b) relate to when the sellers “intend” to give Notice of Readiness and of the “intended” place of delivery. As such, these pre-delivery notices are not definite. The definite notice is the Notice of Readiness itself.

Depending on the circumstances, parties may wish to lengthen the notice period (by including one or more earlier notices) or shorten the notice period (for example, by deleting the 20 days’ notice). Where subclause 11(b) is amended to address this, the parties should consider whether it will be appropriate to amend the number of days’ notice under subclause 15(a) relating to exchange of delivery documents.

Subclause 11(c)(iv) recognises that there are circumstances – as set out in subclause 10(b) - where Notice of Readiness can be given when the ship is still in drydock.

Clause 12 (Vessel Delay)

Clause 12 gives the sellers the right to propose a new cancelling date if, despite their exercise of due diligence, they anticipate that they will not be able to give Notice of Readiness by the original cancelling date. Upon receipt of a written notice to this effect, the buyers will have the option to cancel the agreement or to accept the new cancelling date. If the buyers fail to communicate their option to the sellers within three banking days, they will be deemed to have accepted the new cancelling date.

If the new cancelling date applies, subclause 19(b) of SHIPSALE 22 provides that the buyers will retain the right to claim compensation for the ship not being ready by the original cancelling date if the sellers’ failure is due to negligence. The sellers’ right to propose a new cancelling date under Clause 12 may be exercised more than once.

Clause 13 (Bunkers, Oils and Greases)

The joint survey to verify the quantities of bunkers, oils and greases to be taken over at the time of delivery does not take account of any difference in quantities between the time of the survey and the time of delivery. If, between the time of the joint survey and time of delivery bunkers are used, this consumption should be accounted for in the calculation of the amount payable by the buyers.

Clause 13 recognises that parties may wish to have pricing options for bunkers which are different to those for oils and greases, and these are dealt with separately in subclauses 13(b) and (c).

Paints and additives used for scrubbers have not been provided for in SHIPSALE 22 as these are considered to be too ship specific.

The reference in subclauses 13(b)(i) and (c)(i) to “prices” (plural) is intended to ensure that sellers do not apply one price in circumstances where they have paid different prices for different amounts.

For time-chartered ships, where the owners do not have access to the bunker invoices, subclause 13(b)(i) provides that the sellers may evidence the actual bunker price paid with a charter party statement of account.

Clause 14 (Payments)

The buyers are required to pay the purchase price (and any other amounts due to be paid by the buyers to the sellers at delivery) no later than three banking days after the date on which Notice of Readiness is given by the sellers.

The deposit will be released in part payment of the purchase price and the buyers will be required to remit the balance to the sellers’ account.

All payments under SHIPSALE 22 are required to be made without any deduction, set-off or withholding. However, where there is a legal requirement for a party to make a withholding or deduction (for example, in jurisdictions where a withholding tax applies to such transactions) subclause 14(c) contains a gross up provision to ensure that the party obliged to make a payment will actually pay the amount that should have been paid even if there is a deduction or withholding.

Taxes covered by subclause 14(d) relate to the registration of the ship. Parties should be aware that some jurisdictions impose a sales tax on the ship and if the parties wish to avoid the incidence of such a tax, for example by agreeing that delivery will take place in a specific location where the tax will not apply, they should expressly provide for this by appropriate amendments to SHIPSALE 22.

Clause 14 does not make specific reference to the SWIFT MT199 interbank payment confirmation system or other similar systems. This is to maintain the flexibility of the form. Parties can define this themselves when finalising the agreement or leave the payment mechanics to be agreed at a later date.

Clause 15 (Delivery Documents)

The documents to be exchanged by the sellers and the buyers at delivery are listed in Annex A.  The parties may amend this list according to their particular requirements. Alternatively, parties sometimes prefer to agree the list of delivery documents in an addendum to the agreement. In such a case, it will be necessary to delete Annex A and amend the definition of “Delivery Documents” in subclause 1(a).

Clause 15(a) provides that the parties shall exchange copies, drafts or samples of the delivery documents no later than five days after the earliest notice has been given under subclause 11(b).  If the parties have amended the earliest notice date to be given under subclause 11(b), they may wish to amend the deadline for the exchange of copies, drafts and samples under subclause 15(a) as well.

Clause 16 (Delivery)

In line with current market practice, Clause 16 contemplates that the financial and documentary closing meeting may either take place physically or remotely by electronic means. The parties are required to make their election in box 19. Whether the closing takes place at a physical meeting of the parties’ representatives or through a documentary escrow agent, it is recommended that the parties agree the closing procedure well in advance of delivery.

The payment reference in subclause 16(b) contemplates that the sellers will receive the full purchase price (and all other sums due to them at delivery) in exchange for transferring ownership and possession of the ship. This subclause should always be read in conjunction with clause 14 (Payments) and, if the parties change the payment obligations (for example, by agreeing that the deposit will be deemed released to the sellers upon the joint instructions for release being received by the deposit holder), a corresponding amendment should be made to subclause 16(b).

Clause 17 (Post Delivery Obligations)

The sellers’ undertaking in this clause to give the ship’s satellite communication provider prompt and irrevocable instructions to deactivate the system is supported by a requirement in Annex A, Part 1 for the sellers to provide the buyers with a copy of the deactivation notice which will be sent by sellers following delivery.

Clause 18 (Sellers’ Termination Rights)

The sellers may terminate the agreement if the buyers fail to pay the deposit in accordance with clause 5 or if they fail to pay the purchase price in accordance with clause 14. In both cases, the sellers will be able to claim further compensation if the deposit does not cover all their direct losses and expenses.

Clause 19 (Buyers’ Termination Rights)

Clause 19 entitles the buyers to terminate the agreement if the sellers fail to give Notice of Readiness by the cancelling date or fail to be ready to complete a legal transfer of the ship by the cancelling date. In each case, the buyers will be entitled to the return of their deposit (plus any interest that has accrued).

If the buyers terminate the agreement under clause 19, they shall also be entitled to claim compensation for their direct losses and expenses (plus interest) if the seller’s failure is due to negligence.

Clause 20 (Total Loss)

The clause sets out the consequences of the ship becoming a total loss before it is delivered to the buyers. “Total Loss” is defined in clause 1(a) of SHIPSALE 22.

Where the ship suffers a total loss before delivery, clause 20 provides that the deposit shall be returned to the buyers (with any accrued interest) after which the agreement shall be null and void and neither party shall have any claim against the other. Strictly speaking, in the context of a voided contract, it is not necessary to add that the parties shall have no claims against each other, but it was felt that this was a useful clarification to put the matter beyond doubt.

Clause 21 (Sanctions)

The sanctions clause is an adapted version of the BIMCO Sanctions Clauses for Time and Voyage Charter Parties 2020.

In subclause 21(b)(iii), each party warrants that it is not a sanctioned party and that it is acting as principal (not as agent, trustee, or nominee for any sanctioned party).  The sellers also warrant that the ship is not sanctioned and not employed in any sanctioned activity. These warranties relate to the period from the date of the agreement through to the time of delivery.

If either party is in breach of its clause 21 warranties, the non-breaching party will be entitled to terminate the agreement and claim damages under subclause 21(d).

Clause 22 (Anti-Corruption)

The parties must comply with “all applicable anti-corruption legislation”. This aims to encompass any laws or regulations to which the parties are subject under their own national legislation or legislation in any country or jurisdiction where they operate.

Where a party has breached anti-corruption legislation to which it is subject, it must indemnify the other party against any loss or damage suffered by the other party as a result of the breach. This provision is likely to be of assistance in response to incidents of non-compliance where the termination provision in subclause 22(b)(ii) cannot be or is not invoked. 

Under subclause 22(b)(ii), termination can be invoked either by the sellers or the buyers where the other party has breached applicable legislation and that breach has put the other, non-breaching, party in breach of anti-corruption legislation to which it is subject.

There is no anti-money laundering (AML) provision in the agreement. In practice, the parties (and their banks and professional advisers) should go through an AML process.

Clause 23 (Confidentiality)

Typically, confidentiality is a matter of concern to both sellers and buyers in ship sale transactions. This clause imposes an obligation on both parties to treat the agreement and related documents and information as confidential; an obligation which will remain in effect despite termination of the agreement.

However, in line with common market practice, subclause 23(b) specifically provides that the parties cannot terminate the agreement due to breach of the confidentiality obligations.

Clause 24 (Notices and Communications)

This clause provides that notices and other communications between the sellers and the buyers shall be in writing and sent to the person(s) (and using the contact details) identified in boxes 21 and 22.

An exception is made in the case of notices and communications in relation to arbitration proceedings where the notice provisions contained in subclause 26(f) (BIMCO Law & Arbitration Clause 2020) shall apply.

Clause 25 (Entire Agreement)

SHIPSALE 22 includes a comprehensive entire agreement provision which aims, to the extent permitted by law, to limit the terms and conditions of the transaction to those which are expressly set out in the agreement.

Specifically, the third paragraph seeks to prevent any terms being implied into the agreement by the application of statutory implied terms (for example, in the case of an English law governed contract, the implied terms of the UK Sale of Goods Act 1979).

Clause 26 (BIMCO Law & Arbitration Clause 2020)

This is BIMCO’s 2020 edition of the law and arbitration clause which offers four named arbitration venues and a free choice of law and forum. When using SmartCon, the option chosen by the parties in box 26 will appear automatically in the body of this clause. If the parties fail to make a choice, English law and London arbitration will be the default position.

Subclause 26(a) determines the governing law; the place of arbitration; the applicable arbitration legislation; and the seat of arbitration (where the arbitration takes place in a jurisdiction other than the agreed place of arbitration). It is an “exclusive” arbitration agreement. This is emphasised by the addition of the phrase “referred exclusively to arbitration”.

Subclause 26(b) requires the parties to appoint three arbitrators but allows for a different number of arbitrators to be agreed.

Subclause 26(c) applies the terms (or rules) of the chosen arbitration association to the conduct of the arbitration. An appointment procedure is no longer included in the clause because the terms of the named arbitration association will contain a procedure to which parties should refer when making appointments of arbitrators.

Subclause 26(d) provides for the small claims procedures offered by the named arbitration association.

Parties are free to decide on the maximum applicable sum for small claims, but otherwise the clause will display the default amount used by each of the named venues. If the London arbitration version of the clause is chosen, then an additional “intermediate claims procedure” provision will apply optionally.

Subclause 26(e) applies the terms, rules, and procedures of the chosen arbitration association current at the time that arbitration proceedings are commenced. This is the common approach for arbitration in London, Singapore and Hong Kong. In New York the rules are different, and it is those current at the time when the agreement was made that will apply.

Subclause 26(f) addresses the correct service of arbitration notices and communications. Parties are free to serve notices by whatever effective means they choose, but if they choose email then they must provide the email address of someone authorised to receive arbitration notices (and advise the other party of any change of address during the period of the agreement). Notices are considered effectively served immediately on sending by email.

Clause 27 (BIMCO Electronic Signature Clause 2021)

The BIMCO Electronic Signature Clause 2021 enables the parties to sign the agreement (and any related documents) electronically.

Some jurisdictions may not recognise electronic signatures, and in such cases, subclause 27(c) provides a fall-back position whereby the parties can obtain a physically signed agreement.

Explanatory notes for the BIMCO Electronic Signature Clause 2021 are available here.

Annex A (Delivery Documents)

Annex A comprises three parts:

Part 1 - delivery documents to be provided by the sellers

Part 2 - delivery documents to be provided by the buyers

Part 3 – protocol of delivery and acceptance

Although Part 1 and Part 2 of Annex B contain the documents and certificates which are commonly agreed in ship sale transactions, often delivery documentation will be transaction specific and should be considered on a case by case basis. In particular, the evidence of corporate authority that each party will be able to provide will vary according to its jurisdiction. For this reason, reference in Part 2, Section 1, to “all relevant corporate documents and evidence” is drafted widely in order to ensure that each party provides appropriate evidence of its corporate authority.

The obligation for the parties to sign the protocol of delivery and acceptance is already covered in subclause 16(d) and, strictly speaking, is not a delivery document. However, in view of its importance as part of the delivery process, it was felt useful to refer to it in Annex B.

Annex B (Excluded Items List)

The purpose of Annex B is to list the items that are on board the ship at the time of the clause 6(a) or (b) inspection but are excluded from the sale. Any items on board the ship at the time of this inspection but not listed in Annex B as “Excluded Items” will be included in the sale as “Included Items”. Subclause 4(a) confirms that the purchase price stated in box 9 is the sum payable for the ship and the “Included Items”.

When completing the Excluded Items list parties should keep in mind that, according to subclause 2(c), any hired or leased items on board at the time of inspection should be replaced by the sellers before delivery, unless they have been identified as excluded items in Annex B.

Consideration was given as to whether a list of included items should be annexed to the agreement. However, for most ship sale transactions, it was felt that imposing an obligation to list everything included in the sale would not be practical and would have the potential to create rather than avoid disputes. That said, it was acknowledged that for certain ship types (cruise, seismic, fishing, etc) it may be appropriate for the parties to prepare and agree inventory lists for specific categories of included items or equipment.

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