The vast majority of ship sale and purchase contracts are in our experience presently concluded on the basis of the SALEFORM 2012. In our view, this popularity is justified. Whilst the SALEFORM of course requires amending to meet the specific characteristics of a given transaction, its basic approach is helpfully pragmatic and one with a strong momentum towards delivery of the vessel.
In April 2022, BIMCO released the SALEFORM 22, its first own standard ship sale and purchase contract.
Against the background of the popularity of the SALEFORM 2012, the question arises whether the new SHIPSALE 22 is a sensible alternative and indeed, whether it should become parties’ preferred choice, or your preferred choice, when negotiating a ship sale and purchase transaction.
If you are familiar with the SALEFORM, you should not have too much trouble becoming familiar with BIMCO’s SHIPSALE. To give you a feel for how the new SHIPSALE compares to the SALEFORM, we have singled out certain items in the new form and separated them out in three partly subjective categories: “Main changes”, “No change”, “Tweaks”.
- Main changes
- Under the SALEFORM 2012, the deposit is 10% of the purchase price unless the parties agree otherwise. Under the SHIPSALE, there is no pre-set amount for the deposit. This change was possibly guided by the relaxation of the rule on penalties under English law since the 2015 ruling of the House of Lords in Cavendish v Makdessi. Accordingly, the new form might result in negotiated percentage figures for deposits varying much more than they presently do.
- The signature boxes of the SHIPSALE expressly provide for the signatures of any guarantor. This is a very welcome improvement as the lack of signature of the guarantor jeopardises the guarantee. Under the SALEFORM, the lack of reference to a guarantor’s signature is clearly a source of error in this regard. Even under the new form however, a guarantee must be treated with great care, in particular in case of any subsequent amendment to the contract.
- The new SHIPSALE includes a detailed “subjects” clause which sets out the effect of including a subject in the contract. Whilst a subject is often simply stated, e.g. “sub BOD”, its effect is often not fully appreciated by the parties. The new “subjects” clause in the SHIPSALE is therefore a helpful provision for parties wishing to include a subject. It should nonetheless be said that a subject is by nature a delicate instrument and proper consideration should be given in the first place as to whether its precise effect is in line with the parties’ intentions.
- The underwater inspection under the new SHIPSALE is no longer structured as an option which needs to be declared by the buyers within a set time limit (which was a rather odd development introduced in the SALEFORM 2012). On the other hand, the underwater inspection must be at least be commenced within two days of the vessel being made available for this purpose, or the right to conduct an inspection will be deemed waived.
- The new SHIPSALE prohibits set-off except for any allowed deduction in respect of the cost of repairing class-affecting damage found during the underwater inspection. This is something of which buyers need to be aware, as the SALEFORM does not contractually prohibit set-off:
- The ShHIPSALE includes a few new “boilerplate” clauses of varying importance. One is a sanctions clause, a sensible addition, though the definition of what is a “Sanctioning Authority” under the clause is not entirely clear. Another is a notably wide confidentiality clause, extending as it does both to the “provisions” and to the “existence” of the MOA. Also, BIMCO’s electronic signature clause is included, which appears to be a somewhat redundant clause at least against the background of English law and the EU’s eIDAS regulation on electronic signatures.
- No Change
- One aspect which the new SHIPSALE has not addressed is the possible delay in parties providing their KYC to the deposit holder which in practice is a prerequisite to the buyer being able to pay the deposit. The SHIPSALE provides that this documentation must be provided “without delay”, but depending on where a party is domiciled, complying with KYC requirements can be time-consuming and this might generate problems. This aspect therefore still requires individual consideration.
- Under the SALEFORM there is some debate as to whether in case of a “Sellers’ default” the buyers’ entitlement to compensation depends on whether the default is due to seller’s negligence. The SHIPSALE has not clarified this point.
- Certain time limits have been lengthened in the SHIPSALE:
- The time for lodging the deposit can be extended by up to two days in case of a technical banking issue, which hopefully will remain rare.
- If the MOA is entered into subject to inspection of the vessel, the buyers have five days from their inspection (rather than 72 hours under the SALEFORM) to accept the vessel, which seems rather lengthy.
- In case class-affecting underwater damage is found which class does not require to be repaired before the next scheduled docking, the parties under the SHIPSALE have three banking days to obtain repair quotes (instead of two under the SALEFORM), and the cancelling date is extended by three banking days in such case (there is no such extension under the SALEFORM).
- In case of dry-docking prior to delivery, the cancelling date can be extended by up to 21 days under the SHIPSALE (instead of 14 days under the SALEFORM).
- By contrast, the possibility for the buyers to request additionals delivery documents for the purpose of their registration of the vessel expires two days after receipt of the sellers’ first contractual delivery notice. Under the SALEFORM there was no such fixed expiry date.
- When it comes to quantifying a deduction from the purchase price due to class-affecting underwater damage, the SHIPSALE is arguably more generous to the buyers as to what comes within the estimated direct cost of repair because of the absence of the “(labour and materials)” qualification found in the SALEFORM.
- Under the SHIPSALE, parties are prompted to agree on the period of validity which the vessel’s certificates must have beyond the delivery date. There is no equivalent to this under the SALEFORM.
- The warranties as to freedom from employment commitments, security interests and restraint at delivery is wider under the SHIPSALE than under the SALEFORM and therefore more buyer-friendly.
- As regards bunkers and lubricating oils ROB, the standard wording of the SHIPSALE allows the parties easily to agree separately for each whether the applicable prices are the prices paid by sellers or prices prevailing at the place and time of delivery.
- The reality of virtual closings has found its way into the SHIPSALE, as the new form prompts the parties to agree on whether the closing is to take place in person or virtually. Virtual closings will require specific attention to the closing procedure.
- In case of buyers’ default or sellers’ default, compensation under the SHIPSALE might be limited to the “direct losses” of the innocent party. This might amount to a deviation from the otherwise applicable compensation regime and is accordingly something to watch out for.
So does the new SHIPSALE deserve to supplant the SALEFORM as the new industry standard, and is it right for you?
Overall, the new form comes across as a sensible evolution of the SALEFORM. As the SHIPSALE is tried and tested its advantages and any drawbacks will become clearer, but for now there seems to be no compelling reason why parties should not resort to using the new form as the basis for their sale and purchase transactions. If you would like to know whether the new form is right for you and what amendments you should be considering for your transaction, we invite you to speak to us.