Short & Sweet: Ship Sale and Purchase #4 – Inventories following the Vessel

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SVW boasts one of the largest shipping teams, continually handling vessel transactions all around the world. In this 4th piece in our Sale & Purchase series, we focus on the provision regarding inventories following the Vessel (equipment, fuel and lubes etc).

Introduction

Invariably, the sale of a Vessel will include an inventory of her equipment, spares, stores, fuel and lubricants, and other items on board or in her. The contract of sale will have to be clear as to what is included in such sale (what belongs or is deemed to belong to the Vessel) and what is expressly excluded (items that do not belong to the Vessel or which the Seller wants to maintain).

The way the Saleform 2012 (NSF) and the other similar forms are designed, there is a standard print clause that follows the commercial custom, which the parties most often will need to tailor. In the NSF, there are designated fields which the Sellers will have to fill in for excluded items etc, price of bunkers etc. These details should be filled in preferably no later than when the MOA is circulated for execution, rather than by later supplements to MOA, given that the Buyers’ «inspection» (clause 4 of the NSF) is otherwise the benchmark of what was deemed in the reasonable opinion of the Buyers to belong to the Vessel at such time.

The Seller should therefore be cautious to state what items on board are hired and do not belong to the Vessel, which eventually are intended to be removed prior delivery.

Excluded items

The first sentence of Clause 7 of the NSF obliges the Seller to deliver the vessel «….with everything belonging to her on board and on shore.» The remaining of the clause regulate what (and at what price) is following the Vessel, and requires the Sellers to list the items not belonging to them and which will be excluded from the sale. It is important that all parts and objects which will be excluded from the sale (typically, hired items and equipment) are detailed and listed in (or appended to) the MOA.

Failure to list such items will have the effect of including them in the sale (at no extra cost for the Buyer), meaning that the Sellers will be liable to replace at their cost such hired items removed on delivery, or to compensate Buyers.  Therefore, the draftsman should always consult with the technical/operational team in the Sellers (or Sellers’ managers) in order to list any excluded items, and avoid any Sellers’ liability.

Bunkers and Luboils

Lines 218 through to line 228 of Clause 7 of the NSF sets out to regulate Buyers’ takeover and payment for of remaining unused bunkers, lubricating and hydraulic oils and greases on board the Vessel at the time of delivery. The wording clearly states that the Buyer shall take over the remaining bunkers and unused lubricating and hydraulic oils and greases in storage tanks and unopened and the clause sets out two alternative mechanisms for calculating the amount to be paid by the Buyers; (a) the Sellers’ actual net price evidenced by invoices, or (b) the net current market price at the port and date of delivery (one of which is to be deleted, failing which, alternative (a) applies by default).

Alternative (a) is the most commonly used alternative and the prices are evidenced by Sellers providing copies of vouchers and invoices.

If alternative (b) is used, the challenge is that the reference to «…current net market price at the port and date of delivery of the Vessel…» often leads to uncertainty and potential misunderstandings at the closing. The quoted part should be amended to refer to prices quoted by named benchmark provider, with reference to a certain port. These are benchmark prices for commodity markets which are being set on a daily basis. There is therefore good reason for amending the standard wording to clarify the intention of the parties with concrete parameters.

Scrubbers’ wastewater discharge

According to the 2020 Sulphur Cap that came into force on January 1st, 2020, and as of 1st of March this year, there should be no non-compliant fuel remaining on board the ship. It is of course impossible that this rang as news to anyone. But what remains relevant and worth mentioning is that  for vessels fitted with scrubbers, the discharge of wastewater effluent from an open loop scrubber or the waste from closed loop scrubber could be an added issue that could involve time and cost for Buyers. The parties need to address the potential conflicts and it will be important to incorporate  clauses in the MOA that clearly allocate the risk and cost responsibility related to the discharge of the wastewater between the contractual parties.

Conclusion

Drafting clauses relating to the inventory of the Vessel depend on technical, operational and commercial input from the relevant parties. The draftsman need to collect all input required and strive to have all that in place by the time a MOA is to be signed. Not much negotiation is required for this clause; it is a factual one. But failure to render an accurate description usually does lead to disputes and negotiations at a very unwelcome stage of the transaction – the closing meeting.