Barecon 2018Karl Even Rygh

Sjørettsforeningens medlemsmøte, 26. juni 2018

Background

› What is a bareboat charter?

› "Charterers obtain possession and full control of the ship along with the legal and financial responsibility"

› Widely used form for multiple purposes, often with extensive rider clauses

– Operational BBs, in particular in RoRo/Ferry business

– Sale lease back

– Financial leases, long term BBs

– Intergroup agreements, between shipowning entity and operational entity

› Barecon 1974, 1989, 2001, 2017

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Background

› One of BIMCO's most widely used documents

› Revision scope; general update and modernisation

› Drafting committee;

– Ajay Hazari, Anglo-Eastern

– Robert Almström, Stena RoRo

– Stephan Bade, Leonhardt & Blumberg

– Adrian Moylan, Gard

› New edition better for everyone:

– leaner and simpler

– modernised

– responds to recent judgments

– includes new BIMCO standard clauses

– improved optional parts

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Clause 1 (Definitions)

› More defined terms than before

› "Latent defects" important term – defined in line with English judgments

› "means a defect which could not be discovered on such an examination as a reasonably careful skilled person would make"

› Still plenty of room for disputes – owners prefer to delete

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Clause 2 (Charter Period)

› Included provision for a charterers' option to extend the period

› "Charterers shall have the option to extend the Charter Period by the period stated in Box 18(i) at the rate stated in Box 17(ii), which option shall be exercised by written notice to the Owners latest as stated in Box 18 (ii)"

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Clause 3 (Delivery)

› Introduced a link to previous inspection in line with Saleform;

› "If Charterers have inspected the Vessel prior to delivery, the Vessel shall be delivered by the Owners in the same condition as at the time of inspection, fair wear and tear excepted"

› Important latent defect provision has not been changed, except the added definition

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Clause 4 (Time for Delivery)

› No default notice periods if not specified in box 9

› New final sentence to strengthen the effect of notices given, as a result of "the Zenovia";

› "Following the tender of any such notices the Owners shall give or allow to be given to the Vessel only such further employment orders as are reasonably expected when given to allow delivery to occur by the date notified"

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Clause 5 (Cancelling)

› Shorter deadline for cancelling following notice from Owners:

– "3 Banking Days", previously "168 hours"

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Clause 6 (Familiarisation)

› New clause, similar to Saleform:

– Two representatives

– Charterers before delivery and Owners before redelivery

– "a reasonable period"

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Clause 7 (Surveys on Delivery and Redelivery)

› Introduced option for diver's inspection as per Saleform;

– separate options for charterers at delivery and owners at redelivery

– Clause does not regulate consequences of any findings

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Clause 8 (Inventories)Clause 9 (Bunker fuels, oils and greases)

› Joint clause in previous version

› Introduced alternative price mechanism as per Saleform;

– "actual price paid" (default) or "current market price"

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Clause 10 (Redelivery)

› No default notice periods, if not specified in box 13

› Additional wording to strenghten the effect of notices given, as a result of "the Zenovia";

– "not permit the Vessel to commence a voyage … which cannot reasonably be expected to be completed in time to allow redelivery of the Vessel within the Charter Period and in accordance with the notices given"

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Clause 13 (Maintenance and Operation)

› Clause re-structured, and provisions added

› Alternative methods for allocation of costs resulting from new rules and requirements;

– Default; all costs for charterers' account

– Optional; sharing of costs if above agreed threshold, proportionality based remaining period and expected life of modification or ship

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Clause 14 (Inspection during the Charter Period)

› Extended and simplified right for owners to inspect vessel and class records at any time;

– Owners' costs

– Charterers' time

– "not unduly interfere with the commercial operation"

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Clause 15 (Hire)

› Time of the essence deleted

› Grace period in any event, 3 banking days from notice

› Improved owners' position;

– no waiver clause

– right to terminate "at any time"

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Clause 16 (Mortgage)

› Largely unchanged

› Difficult issue – clause needs to reflect the particular financing arrangements

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Clause 17 (Insurance)

› One joint clause, with alternative subclauses b) and c) – previously two separate clauses

› Gard Marine & Energy Limited v China National Chartering Co Ltd and another [2017] UKSC 35 (“the Ocean Victory”)

› Joint insurance in internal bareboat arrangement prevented insurers from pursuing subrogated claim towards time charterers in breach of safe port obligation

› The amended wording intends to achieve:

– the common law principle that co-assureds have no liability towards each other should not automatically be applicable in BARECON (see Subclause 17(a)(ii));

– the owners, charterers or their insurers shall retain the right to pursue claims against third parties who are outside the insurance arrangements (see Subclause 17(a)(ii) and (iii));

– where the insurers have indemnified the owners for a total loss, the insurers should be able to pursue the claim against the time charterers or other third party such as a shipper of dangerous cargo by way of subrogation.

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The Ocean Victory

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Gard

Disponent owners

Sub-Charterers

Registered owners

CharterersBB TC

Co-insurance TCT

Clause 18 (Repairs) Clause 19 (Total Loss)

› Stand-alone repair clause, previously part of the insurance clause

› Charterers are now liable to owners by way of damages if the ship becomes a total loss

› Charterers financially at risk only if the insurances have been rendered ineffective

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Clause 26 (Assignment, Novation, Sub-Charter and Sale)

› Added right for owners to assign their rights, without consent

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Clause 28 (Anti-Corruption)Clause 29 (Sanctions and Designated Entities)

› New clauses based on standard BIMCO clauses, amended to fit a BB context

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Clause 31 (Termination)

› Included right to claim damages for losses resulting from termination for default;

– "claim damages including, but not limited to, for the loss of the remainder of the Charter Party"

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Clause 33 (BIMCO Dispute Resolution Clause 2017)

› Updated to BIMCO's most recent standard, which includes Singapore (and not NOMA…)

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Part III – Optional provisions for newbuilding vessels

› Considered deleting the optional parts, since these are rarely used without significant modifications/additions

› Extended and improved, but should be tailor-made to fit the SBC

› Owner friendly back to back mechanisms

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Part IV – Purchase option

› Barecon 2001 hire/purchase agreement deleted

› Allows for multiple purchase options

› Operates on a stand alone basis, no need for MoA

› No provision for put options

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Part V – Optional provisions for vessels registered in a bareboat registry

› Significantly improved, but still need to consider amendments relevant to the specific registries involved

› Recommended to ensure that owners are able to delete bareboat registration without charterers' assistance

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Questions?