The Standard Deposit Escrow Agreement for Ship Sale and Purchase is a contract for depositing money in connection with ship sale and purchase transaction. The latest edition of this contract is the Standard Deposit Escrow Agreement for Ship Sale and Purchase, issued in 2017.
Copyright in the Standard Deposit Escrow Agreement for Ship Sale and Purchase is held by BIMCO.
Sample copy of Standard Deposit Escrow Agreement for Ship Sale and PurchaseDownload now
The absence of standard market contracts for depositing money in connection with ship sale and purchase transactions means that parties are left to draft agreements on an individual basis. In order to fill this gap and provide a useful complement to the SALEFORM, BIMCO has developed a standard form deposit agreement.
In recent years, it has become increasingly common for law firms and brokers, as opposed to banks, to act as deposit holders for buyers until delivery of the ship. This standard template will provide a useful starting point which can be tailored according to the parties’ specific requirements.
It should be noted that the “know your customer” (KYC) requirements of the deposit holder have not been addressed in this contract as they should be dealt with before entering the escrow agreement.
The following notes describe the reasoning behind those clauses in the agreement which are not self-explanatory.
BIMCO would like to thank the following subcommittee members for their considerable efforts in developing the Deposit Escrow Agreement for Ship Sale and Purchase:
The agreement is divided into three sections. The first section is a box layout for the insertion of specific contract information including the name of the parties, identity of the vessel and deposit amount. The next section sets out the applicable terms and conditions while Annex A contains a pro forma Letter of Instruction that can be used for the release of the deposit.
The sellers’ and buyers’ authorised representatives should be identified in Boxes 4 and 6. This is intended to remove any scope for later disputes by confirming, as far as the deposit holder is concerned, that the representatives have the necessary power to act on behalf of their principal.
Boxes 12 and 13 have been included for sellers’ and buyers’ respective share of the deposit holder’s fees which might not be in equal proportion. In addition, the parties’ liability for any applicable sales tax should also be stated.
The definition of “Banking Days” refers to days on which banks are open for business in the jurisdictions named in the MOA, and any additional jurisdictions stated in Box 11. The reference to “additional jurisdictions” is to address the situation where the deposit holder, under the Escrow Agreement, is in a jurisdiction that is not referred to in the MOA.
This clause identifies documents that must be provided to the deposit holder including a copy of the MOA signed by the sellers and the buyers.
The reference to “memorandum and articles of association” is the legal terminology used in the UK. In other countries, the same documents may be called, for example, “articles of incorporation”.
The provision also serves to remind parties of the need to carry out proper KYC checks and deal with administrative matters for opening and operating the deposit account. However, modified procedures are likely to be applied by law firms operating client accounts.
The final paragraph sets a time limit of five banking days from the date of the agreement for receipt of documents and information under the clause. In the event of non-compliance, the deposit holder may thereafter terminate the contract without liability to the parties and without prejudice to its rights under the agreement.
The buyers must transfer the deposit to the deposit account in accordance with the MOA and make all payments in full. If there are any deductions, such as banking fees, the payment must be increased accordingly so that the deposit is received in full. If the buyers fail to make payment in full the deposit holder should notify the sellers and buyers immediately. This provision has been included because such a failure may be discovered only at the time of release of the deposit. The sellers may try to look to the deposit holder for the balance. However, full settlement of the deposit is the buyers’ obligation and the deposit holder is not to be held responsible for any short payment.
The deposit can be released in accordance with written instructions by the sellers and the buyers (as per the Letter of Instruction at Annex A) or following a judgment or arbitration award. If the deposit is to be released into the mortgagee’s bank account, as opposed to the sellers’ account, this can be addressed in the Letter of Instruction. Bank charges incurred when releasing the deposit will be for the account of the receiving party.
Subclause (a) – Sets out the deposit holder’s obligation to hold and deal with the deposit in accordance with the agreement. No other duties (express or implied) are owed to the sellers or the buyers or any other person.
Subclause (b) – The deposit holder’s liability is limited to its own negligence or wilful misconduct.
Subclause (c) – Expressly excludes the deposit holder’s liability for direct losses (subparagraph (i)) and indirect or consequential losses (subparagraph (ii)).
Subclause (d) – Provides an indemnity protecting the deposit holder against losses.
Subclause (e) – The deposit holder must keep the deposit separate from its own funds.
Subclause (f) – Payment by the deposit holder must be made as soon as reasonably practicable after receipt of instructions. It should be noted that if the deposit holder has been instructed to release funds late in the afternoon, it might not be possible to arrange a bank transfer until the following day.
Subclause (g) – The deposit holder may not necessarily control the actual payment but might have to instruct a bank to release the funds. The generic phrase “initiated the payment” has been used to cover the triggering of payment of the deposit regardless of whether the deposit holder is a bank, a broker or a law firm. A bank will generally “effect payment” while a broker will “issue instructions”. The deposit holder’s responsibility in relation to any particular payment ceases when instructions have been given to release funds.
Subclause (h) – Identifies the point at which the deposit holder has fulfilled all of its obligations under the agreement.
The deposit holder’s fee, together with any applicable sales tax, is shared between the sellers and the buyers. Normally, the amount will be divided equally. However, as this is not always the case, the amounts payable should be inserted in Boxes 12 and 13 respectively for sellers and buyers. The buyers should pay their fee together with the transfer of the deposit to the deposit account. The sellers’ share will be paid by way of deduction by the deposit holder from the payment made to the sellers. Provision is also included to ensure that the deposit holder can invoice the sellers for their share of the fee where the deposit has not been released to the sellers.
The clause follows market practice where disputes under escrow agreements are generally referred to court jurisdiction rather than arbitration. Accordingly, the BIMCO Dispute Resolution Clause has not been used in this agreement.
The clause has been based on the Governing Law and Jurisdiction provision in the BIMCO Charter Party Guarantee. It sets out a framework giving parties the option to choose the law and forum, failing which English law and the courts of England and Wales will apply.
The clause applies only to disputes arising under the escrow agreement. Disputes arising under the underlying, but separate, MOA will be determined in accordance with the appropriate provision in that contract where SALEFORM provides for disagreements to be resolved by reference to arbitration.
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