A New Horizon in Ship Sale and Purchase Or Just a Spin-Off

BIMCO's SHIPSALE 22 vs. NSF 2012:

Introduction:

The maritime industry is deeply rooted in tradition, and any change in its practices can be challenging. Hence, for SHIPSALE 22 to gain acceptance, there must be a market demand for something new that satisfies the industry’s needs. Market motivation is crucial. Any change needs to address deficiencies in the current form to encourage the sector to adopt it, otherwise it will be rejected.

The Dominance of NSF 2012 and BIMCO's Unique Strategy:

The NSF 2012 is the most widely used contract form for Ship Sale and Purchase, despite the fact that other forms are still in circulation. In order to change the “legacy” of Ship Sale and Purchase SHIPSALE 22 has to show that this new form fills the gaps and addresses the deficiencies of the NSF 2012.

BIMCO opted for the peculiar strategy to show the improvements in their new form by using the opponent's form and making adjustments and revisions on NSF 2012. This strategy involves refining an existing contract rather than creating an entirely new one from scratch.

While this approach may have some advantages, such as building upon familiar contract structures and minimizing disruptions for users, it has also received criticism. Critics argue that this strategy may not bring groundbreaking changes or significantly improve the contract's overall effectiveness. Instead, it might be seen as merely adding a BIMCO label to the Norwegian SALEFORM 2012 without fundamentally altering its core elements.

Whether this strategy is considered risky or not depends on how well the adjustments and revisions address the shortcomings of the original form and whether they genuinely improve upon it. Some users may appreciate the incremental changes, while others may expect more substantial revisions.

This article compares the provisions of the two forms based on the improvements in the new form so that the reader receives some help in deciding the best approach in dealing with Ship Sale and Purchase transactions.

The Need for Change:   

BIMCO claims that the existing sale forms were no longer considered fit for the purpose, as additional clauses on sanctions, anti-corruption, confidentiality, and guarantors made them overly complex. As a response BIMCO developed its own form to meet the current requirements of the industry.

To ensure the form's practicality, industry experts played a significant role in its creation, with BIMCO actively seeking market inputs. The form is designed to follow the chronological order of a Ship Sale and Purchase transaction. Additionally, the changes and adjustments made in SHIPSALE 22 aim to reduce the need for frequent amendments and additional clauses, providing a more standardized and user-friendly document for Ship Sale and Purchase transactions.

Covid Effect:

The form was originally planned for release in 2020, but due to the COVID-19 outbreak, its introduction had to be postponed by two years.The delayed release of BIMCO's Sale and Purchase form due to the Covid outbreak in 2020 turned out to be beneficial for two key reasons. Firstly, the timing was appropriate as the pandemic demonstrated that nothing is set in stone, leading to a shift in mindset among those who were resistant to change. The market had to adapt to the new circumstances, breaking down traditional barriers.

Secondly, the pandemic brought about new challenges in the shipping industry, creating a greater demand for solutions and modernization. SHIPSALE 22, the updated product, became more relevant and effective in addressing these emerging issues. Covid forced the shipping sector to envision the future by experiencing lockdowns and other problems. As a result, the industry was compelled to embrace virtual processes, flexible rules and modern practices, which proved to be successful. This realization led to a positive shift in the industry's approach toward embracing modernization and innovative procedures. Without further ado let’s now delve into the specifics of SHIPSALE 22.

Structure

The structure of SHIPSALE 22 comprises four distinct sections: Part I for key contractual terms with a box format and Part II for main contractual terms of the agreement, along with Annex A (Delivery Documents List) and Annex B (Excluded Items List).

Part I: Key Contractual Terms in Box Format

BIMCO's use of the box format for Part I of SHIPSALE 22 is notable. The box format is a trademark product of BIMCO, making the MOA easily recognizable as a BIMCO document. This user-friendly format allows parties to quickly grasp the essential commercial terms of the agreement, including the vessel, the parties details, inspections, the purchase price and canceling date.

Notable improvements in Part I include:

Guarantor Boxes (BOX 5-6): SHIPSALE 22 eliminates the need for additional Guarantee agreements or amendments by introducing specific boxes for Sellers' and Buyers' Guarantors. At the end of Part I both guarantors, assuming there are two, sign the contract and become a party to the contract and are bound by it. However, under the signature boxes, the wording of Guarantors is limited to only performance guarantees, and nothing further.

Bunkers and Oils & Greases (BOX 18): Bunkers and Oils & Greases are separated under this box, facilitating separate assessments of quantities onboard and determining the agreed payment for these items. This distinction provides the flexibility to exclude the sale of Bunkers.

Electronic Closing (BOX 19): the option of an electronic closing is introduced under this box. This new method has gained significant traction due to the COVID-19 pandemic, advancements in technology, and a desire to minimize costs.

Validity of Classification Certificates (BOX 20): it addresses the validity of classification certificates, which is particularly relevant for older vessels. Buyers often request certificates to remain valid for a certain period after delivery, SHIPSALE 22 acknowledges this concern and allows for negotiation and including this specific of such a provision, ensuring the buyers' interests are appropriately protected.

Subjects to the Agreement (BOX 25): it enables the parties to enter any relevant subjects into the agreement, providing a more comprehensive and customizable contract.

Part II: Main Contractual Terms and Amendments            

Part II of SHIPSALE 22 organizes NSF 2012clauses that we are familiar with in a way that follows the typical chronology of a ship sale and purchase transaction, making it easier to navigate. Of course, this form stands out with several notable amendments and adjustments. Such as:

Clause 1-4: The first four clauses of SHIPSALE 22 encompass the fundamental aspects of the ship sale and purchase transaction, providing a comprehensive outline of the deal. These clauses cover critical elements such as the effective date of the agreement, the purchase price, inclusions and exclusions in the sale, and the structure of additional payments. The first 4 clauses will allow the reader to have a basic knowledge of the commercial contract.

Clause 5 – Deposit : In contrast to NSF 2012, SHIPSALE 22 explicitly requires both the size of the deposit and the identity of the deposit holder to be agreed upon. Additionally, Clause 5(d) of SHIPSALE 22 introduces the concept of "Disruptive Banking Event."

A "Disruptive Banking Event" is a safety net for the Buyer in the event of a payment delay caused by factors beyond their control, such as unforeseen problems with the bank or correspondent banks. Under SALEFORM 2012, such a payment delay could result in the Seller canceling the agreement and claiming compensation from the Buyer. However, SHIPSALE 22 offers more buyer-friendly terms by providing a two-day extension in addition to the three-day grace period under the SALEFORM 2012, where the Buyer is not responsible for the delay.

Nevertheless, some lawyers have criticized the vagueness of the expression “review”, which isused to define a "Disruptive Banking Event." The review of this event is left to the discretion of the Deposit Holder's bank or any correspondent bank, which might lead to biased decisions.

Clause 6 - Inspection: Both SALEFORM 2012 and SHIPSALE 22 offer some options for buyers’ inspection. SALEFORM 2012 offers two options: a sale with a post-contract inspection or without a pre-delivery inspection. Under SHIPSALE 22 these two option is regulated however buyer’s right of pre-delivery inspection is expressly more limited compared to SALEFORM 2012 with the wording of the clause “without testing of the Vessel’s engines, machinery, equipment or systems”. This limitation streamlines the process and is especially useful in swift marketing practices.

Moreover, SHIPSALE 22 introduces an additional option to familiar two options from the SALEFORM 2012 for an outright sale where the buyer waives their right of inspection. This option caters to seller's markets, certain sales, leaseback transactions, and distressed sales. However, the buyer can still inspect the classification records if needed, ensuring some level of due diligence. This new addition in SHIPSALE 22 simplifies the process by including the option to purchase a vessel without inspection. It is particularly useful in specific situations where parties need to act quickly or when buyers are already familiar with the vessel, e.g. when currently chartering it. It is of course very suitable for swift market practice.

The clause also extends the deadline for buyers to give notice of acceptance after the inspection to five days compared to the seventy-two hours in SALEFORM 2012. This extension provides more time for buyers to assess the vessel's condition and make an informed decision.

Clause 8-9 – Underwater &Drydock Inspection: The underwater inspection provision in SHIPSALE 22 has undergone modernization with a tighter timeline for the buyers. Unlike SALEFORM 2012, SHIPSALE 22 does not require the nine-day declaration period.

Under SHIPSALE 22 buyers must commence the underwater inspection within a maximum of two days after the vessel is made available, otherwise it is assumed that the buyers waived their right to an underwater inspection. If the inspection is started but not completed within two days, the Cancelling Date will be extended to account for the additional time needed for completion. However,there is no further deadline for the completion of the inspection, which is unclear and raises some risks. Unlike SALEFORM 2012, SHIPSALE 22 does not require prior notice for the underwater inspection, assuming buyers will conduct it before delivery in most cases.

The clause also allows the parties to choose between two inspection methods: underwater inspection at the place of delivery with a possible drydock inspection following certain findings or drydock inspection before delivery. If no selection is made, the option of an underwater inspection applies.

The right for buyers to require tail shaft drawings during drydocking, present in SALEFORM 2012, has been removed in SHIPSALE 22. If drydocking is not feasible at the delivery port, SHIPSALE 22 extends the maximum cancellation date extension to 21 days to account for the additional time needed for drydocking at an alternate location.

Clause 10 - Condition of Vessel at Delivery: SHIPSALE 22, similarly to SALEFORM 2012, includes a warranty that the vessel is delivered free of encumbrances. However, SHIPSALE 22 adjusts the wording and expands the confirmation of obtaining a clean and unencumbered title to the vessel. Sellers should carefully review this clause to ensure compliance with the agreed-upon terms.

Clause 11 - Delivery Notices: SHIPSALE 22 is noteworthy for its removal of the distinction between "approximate" and "definite" notices. Instead, all notices are considered approximate until the Notice of Readiness is submitted. The latest notice must be given three days before tendering the Notice of Readiness. This change is better alligned with the unpredictable nature of shipping practices.

Clause 14 - Payments: In SHIPSALE 22 Clause 14 guarantees the payment of the purchase price "in full free of bank charges." The clause comprehensively lists all payments under the MOA and specifies that payment of the purchase price and other sums must be made without any set-off, deduction, or withholding, with an express gross-up. This inclusion ensures greater clarity and minimizes potential disputes related to payments.

Clause 16 - Delivery: SHIPSALE 22 includes comprehensive instructions for the closing process, specifying a documentary closing following the seller's notice of readiness for delivery. The parties have the flexibility to conduct this closing either electronically or in person, based on their mutual agreement, as indicated in Box 19.

Clause 17 - Post Delivery Obligations: Post Delivery Obligations are regulated under this clause which demonstrates that SHIPSALE 22 is an updated and well-organized version of NSF 2012. Although many of the provisions in SHIPSALE 22 are similar to those in NSF 2012, their organization and clarity make the document more user-friendly and easier to navigate. As previously mentioned, Part II of SHIPSALE 22 is organized in a chronological sequence that mirrors the typical process of a Ship Sale and Purchase transaction.

Clause 18 – 19 - Sellers’ & Buyers’ Termination Rights: In SHIPSALE 22 there are amendments to Sellers' Termination Rights and Buyers' Termination Rights. These changes address a commonly negotiated point, limiting the compensation Sellers and Buyers can claim from each other in case of termination. Under both clauses, the amount of compensation, if it exceeds the Deposit, is restricted to "direct losses and expenses." This distinction is not present in NSF 2012.

Clause 21 – 22 – 23 – Sanctions & Anti-Corruption & Confidentiality: SHIPSALE 22 aims to mitigate the need for additional clauses, which were commonly added to earlier forms like NSF 2012. To do that the form is regulated by the usual clauses that used to be negotiated to amend the NSF 2012. These provisions introduce significant considerations for sanctions, anti-corruption, and confidentiality, reflecting current market practices and ethical standards. Nowadays it is very standard for many shipping companies to include these clauses in the contracts. SHIPSALE 22, unlike NSF 2012 or any other competitive forms, introduces significant provisions related to sanctions, anti-corruption and confidentiality, respectively. These clauses are adapted from BIMCO's standard wordings to work in the context of Ship Sale and Purchase and reflect current common market practices.

The sanctions clause in SHIPSALE 22 requires warranties from both parties to comply with the relevant legislation concerning sanctions by using BIMCO's standard wording. If either party breaches this clause, the non-breaching party can terminate the agreement and claim damages. This provision ensures compliance with international sanctions regulations and reduces legal and financial risks.

The anti-corruption clause in SHIPSALE 22 also follows BIMCO's standard wording, warranting that the parties are not involved in corrupt activities. If a party breaches this clause, the non-breaching party can terminate the agreement and claim damages. This clause promotes ethical business practices and mitigates risk.

The confidentiality clause addresses the protection of sensitive information during the ship sale transaction. Notably, it clarifies that a breach of this clause does not grant the non-breaching party the right to terminate the agreement. This ensures that parties cannot use confidentiality breaches as an excuse to escape the contract.

In summary, SHIPSALE 22 addresses key aspects of sanctions, anti-corruption, and confidentiality in ship sale agreements. By incorporating BIMCO's standard wordings, these provisions enhance compliance, transparency, and accountability, while also protecting sensitive information. The inclusion of these clauses underscores their importance in modern shipping contracts and the industry's commitment to ethical practices and risk management.

Clause 27 - BIMCO Electronic Signature Clause 2021: This clause acknowledges the significant changes brought about by the COVID-19 pandemic, including the rise of remote closing practices in the shipping world due to lockdowns. The clause offers the parties the option to conduct closings either electronically or in person, depending on their preference. To complement virtual closings, a new electronic signature clause is introduced for completeness, aligning with Clause 16 and Box 19.

The timing of SHIPSALE 22 aligns well with the acceptance of remote closing as a new market practice influenced by the pandemic. The inclusion of electronic signatures and virtual closing options in the form highlights the growing trend towards more efficient and flexible business practices. However, it is essential for the parties to ascertain the acceptability of electronic signatures in relevant jurisdictions to ensure the contract's validity and enforceability. Overall, SHIPSALE 22 addresses the need for adaptability in today's business landscape, particularly in light of the COVID-19 pandemic.

Annex A (Delivery Documents): as repeatedly highlighted, SHIPSALE 22 is a well-organized and easy-to-follow form. Delivery Documents are kept separate from the main body of the form under SHIPSALE 22 Annex A because these Delivery Documents lists often get changed in addendums which is very different from the NSF 2012’s Delivery Documents clause. Under SHIPSALE 2022 it is easier to amend or remove the list and see the whole list together without breaking the completeness of the main body of the document. In summary, Annex A in SHIPSALE 22 simplifies the delivery document requirements by including them as an appendix.

Annex B (Excluded Items List): Annex B serves as the Excluded Items List and is intentionally left blank, allowing the parties to customize it for each transaction based on their specific needs. This flexibility enables a case-by-case approach, ensuring that the parties can precisely specify the items excluded from the sale. The addition of Annex B and the Excluded Items List in SHIPSALE 22 simplifies the process for buyers and sellers to understand the vessel's contents and to clearly identify what will be purchased, while also providing the freedom to tailor the exclusion list to suit each individual agreement.

Conclusion:

In conclusion, BIMCO's introduction of SHIPSALE 22 represents a bold step towards modernizing the ship sale and purchase industry. The maritime sector, deeply rooted in tradition, has been slow to embrace change, but the impact of the COVID-19 pandemic has forced it to reassess its practices and adopt more flexible and efficient approaches.

In the process of drafting the new form, its creators wisely considered the prevailing form in the market, NSF 2012, as it had gained significant popularity since its release. Consequently, they retained the core essence of the form while modernizing it and adding clauses to address current challenges. SHIPSALE 22 serves as a much-needed solution by bridging the gaps in the existing standard forms with a well-organized, comprehensive, and clearly written agreement for Sale and Purchase deals. By making subtle changes to the current form, this maneuver acknowledges the difficulty of altering established market habits. SHIPSALE 22 leverages familiarity and the desire for updated versions to drive faster adoption rates. The analogy of upgrading to the latest version of a familiar form resonates here. While not an entirely new form, the adjustments and enhancements, along with the BIMCO label, make it a more practical and valuable tool for its users. Notably, the new form is also designed to be more user-friendly, catering to first-time users and individuals outside of the sector, ensuring wider accessibility and understanding for all stakeholders involved.

Rooted in a case-based approach, it possesses the flexibility to adapt swiftly to the changing needs of society and the ever-shifting demands of the times. This adaptability has been instrumental in accommodating emerging challenges and complexities in various industries, including the maritime sector.

While SHIPSALE 22 introduces valuable improvements and addresses contemporary challenges, it is not without its critics. Some may argue that more radical changes were necessary to break away from the legacy of NSF 2012. However, gradual improvements may be more easily accepted by the conservative shipping industry. As the industry continues to evolve, BIMCO must respond promptly to market demands and consider future updates to ensure SHIPSALE 22 remains relevant and effective in meeting the sector's needs.

From my point of view, SHIPSALE 22 signifies a new horizon in Ship Sale and Purchase agreements, catering to the changing landscape of the maritime industry and demonstrating BIMCO's commitment to advancing modern practices. Whether it becomes the preferred standard form remains to be seen, but its introduction marks an important step towards a more efficient, transparent, and adaptable Ship Sale and Purchase process.

As the legal landscape continually transforms, the BIMCO Ship Sale 2022 aligns perfectly with the English legal system's ethos. By making subtle adjustments to the existing form, the creators have ensured that it remains relevant and applicable in a rapidly evolving maritime market. This approach reflects the spirit of a living legal system that can incorporate modern elements while preserving its core principles. Moreover, the user-friendly nature of the new form allows individuals outside the maritime sector to comprehend it and engage with it effectively. This accessibility opens doors for wider participation and understanding, promoting smoother transactions and fostering better compliance. So, why cling to outdated legacies when we can embrace forms that readily adapt to the needs of today and beyond?