Reed Smith LLP

Reed Smith Client Alerts

BIMCO releases new standard ship sale and purchase agreement

Subscribe
Home Perspectives BIMCO releases new standard ship sale and purchase agreement
BIMCO has recently launched SHIPSALE 22, its own standard contract for the sale and purchase of vessels. It seeks to improve on SALEFORM 2012, the Norwegian Shipbrokers’ Association’s standard form of contract. Although there are only a few substantive changes in SHIPSALE 22, the new form is more in line with modern market practice, and it is expected that the industry will adopt it as a new standard form going forward.
Ship steering wheel

Format

Unlike SALEFORM 2012 but similar to other BIMCO standard contracts, Part I of SHIPSALE 22 contains the standard box layout setting out information such as the parties’ details, amounts and inspection arrangements, which allows the parties to locate the key information easily and for fewer amendments to be made to the Part II text. The substantive provisions are set out in Part II, followed by two annexes with the delivery documents and the excluded items.

In addition, the clauses have been arranged in such a way as to ensure that SHIPSALE 22 follows the typical chronology of a sale and purchase transaction, which makes the standard form more reader-friendly.

Apart from the layout changes, SHIPSALE 22 contains some revisions to the existing wording and new clauses in response to the latest developments in market practice. Some of the noteworthy changes are set out below.

Subjects

SALEFORM 2012 does not provide for a mechanism governing subjects to effectiveness of the agreement. In practice, the parties often deal with conditions precedent prior to signing the memorandum of agreement (in exchanges on terms and the recap) and such that the deal is unconditional by the time of signing. One of the notable additions in SHIPSALE 22 is the subjects clause, which allows the parties to set out in the agreement itself any conditions that are still to be fulfilled before it becomes effective. In the event that any conditions are not fulfilled by the specified date, the agreement will be null and void automatically. Where parties decide to include subjects in the memorandum of agreement, it is important to stipulate clearly which party is responsible for fulfilment of the subjects and how to confirm that they have been fulfilled.

Performance guarantees

In a ship sale and purchase transaction, it is not uncommon for the performance of one or both the parties (in particular buyer-side) to be guaranteed by another entity, in particular where the party in question is a single-purpose entity. To facilitate documentation of the performance guarantee in one single document, SHIPSALE 22 includes a signature field and a statement from each relevant guarantor that it shall guarantee the performance of the obligations of the seller or the buyer (as the case may be) in accordance with the agreement.

Deposit and payments

Revisions have been made to the deposit clause in SHIPSALE 22, in particular to refer to a deposit holding agreement, which shall set out the basis on which the deposit will be received, held and released by the deposit holder.

Further, the concept of disruptive banking events has been added to SHIPSALE 22. The deposit clause provides that a grace period of two banking days will be given to the buyer if the deposit holder’s receipt of the deposit is delayed by certain disruptive banking events, which might, for example, include delays due to bank sanctions checks.

SHIPSALE 22 also contains a gross-up clause, which provides that the paying party shall gross up the relevant payment so as to ensure that the other party receives and retains the full amount where the paying party is required by applicable law to make any deduction or withholding in respect of such payment.

Inspection

SALEFORM 2012 allows the parties to opt for (i) an outright sale, with inspection of the vessel and its classification records having been completed before the agreement is entered into, or (ii) a sale subject to the buyer’s right to conduct a pre-delivery inspection. SHIPSALE 22 provides an option (iii), namely an outright sale, the buyer having waived its right to inspect the vessel and its classification records, which may be agreed in a seller’s market or for certain types of sale and leaseback transactions and distressed sales. Of course, the buyer may still want to inspect the classification records.

Where option (ii) above is chosen, the buyer’s right of inspection is (at least now on paper, reflecting market practice as the usual scope of inspection) narrower under SHIPSALE 22. The inspection under SHIPSALE 22 is to be done “without testing of the Vessel’s engines, machinery, equipment or systems”, rather than “without opening up” under SALEFORM 2012.

It is worth noting that, unlike SALEFORM 2012, which contains a default position, SHIPSALE 22 does not stipulate which of the three alternatives applies in the event that the parties fail to make a selection. Therefore, it is important for the parties to make sure that the relevant box is filled in.