Arrest clauses

Arrest clauses

Overview

BIMCO has received comments concerning the arrival of a new breed of clauses seeking to shift risks traditionally falling within the charterers’ sphere onto the owners.

BIMCO has received the following comments concerning the arrival of a new breed of clauses seeking to shift risks traditionally falling within the charterers’ sphere onto the owners.


Change is inevitable 

Changes to established and accepted divisions of charter party risks and responsibilities usually take time and require a lot of caution, consideration and co-operation between all parties concerned.  It can take years and working as a group to revise a clause or document is not always easy - the revision of NYPE is proof of that.

An unfortunate alternative to a co-operation across the board is the charterers’ attempt to push imbalanced clauses through in a depressed market. Once these clauses have found their way in to negotiations they tend to stay and create an unhappy precedence.

A contemporary example is some dry bulk charterers challenging traditional mutual exception clauses by amending the division of risks and responsibilities relating to a ship’s arrest. The charterers try to justify the revision by arguing that they will otherwise suffer losses due to, for example, an unexpected arrest or detention of the ship. 

Any issue and change of practice requires open and honest discussion but it certainly does not warrant the burden of dealing with badly drafted clauses when negotiating spot fixtures in a depressed market.

Usually mutual exception clauses – both contained in BIMCO documents and private charter parties – include “arrest”. Often these clauses set out that neither party is responsible for any loss, damage, delay or failure in performance resulting from an arrest realising that there are invariably risks when entering into a commercial contract. Charterers might argue that the cause of the ship’s arrest or detention can actually be assigned warranting a revision of the exception clause.

While the issue of responsibility for losses due to a ship’s detention may seem straightforward -especially if it is a Port State Control detention- it may not be as easy to determine responsibility for “arrest” or “restrictions”.  It would not be problematic to assign responsibility of a ship’s arrest because of the owner’s actions, neglect or default. But, the situation is questionable in case of wrongful arrest, or in the event of the ship’s arrest due to default of the ship’s previous time charterer with no fault of the owner. 

In many negotiations today owners face an ultimatum of badly drafted so-called "arrest" clauses introducing charterers' rights in the case of a ship’s arrest, that deviate from the basic concept of many charter party clauses. Generally, these clauses misleadingly widen the classification of "arrest" to also include detention or other restrictions. 

Such clauses may refer to:

• demand from owners of an unattainable warranty where there are no outstanding claims that could conceivably result in a ship’s arrest
• owners are penalised in case of a ship’s arrest by the charterer’s right to cancel the charter party at almost any stage
• charterers’ right to invalidate notice of readiness and the commencement of laytime
• charterers’ right not to pay freight
• charterers' right to demand indemnity for indirect, consequential losses of any nature- to name a few.

It is very concerning  that there are owners who feel compelled to accept such clauses during spot fixtures, when the financial consequences of accepting this type of clause simply cannot be predicted.

Even in poor market conditions, the way to challenge established charter party principles is not to force badly drafted clauses onto owners, but to initiate open discussion so many shipping industry participants can be involved.

Kind regards
Owner member 
(identity known to BIMCO)

Merete Lund Greisen
in Copenhagen, DK

Coronavirus

Access BIMCO's COVID-19 related articles and advice.

Read more

Latest piracy reports

Latest industry releasable threats

 
 

ELSEWHERE ON BIMCO

Contracts & Clauses

All of BIMCO's most widely used contracts and clauses as well as advice on managing charters and business partners.

Learn about your cargo

For general guidance and information on cargo-related queries.

More about cargo

BIMCO Publications

Want to buy or download a BIMCO publication? Use the link to get access to the ballast water management guide, the ship master’s security manual and many other publications.

About a new business partner

We can help members check new business partners. We also help to recover millions of USD (undisputed) funds every year.