Short & Sweet: Ship Sale and Purchase #1 - Standard forms
Standard Forms regularly used
Almost every contract we see for sale and purchase of vessels is based on a market standard print form, with amendments, and not too seldom also with additional clauses. There are three formats most commonly encountered, all available through BIMCO’s portal. (As most BIMCO hosts some of the leading standard clauses and contracts, used by the shipping industry world-wide.
This is a standard contract form originally prepared by the Norwegian Shipbrokers’ Association and adopted by BIMCO in 1956. It is often referred to as the «Norwegian Saleform» (or «NFS»), which refers to its origins, not that it is customized for use in Norway or for Norwegian law. In fact, the form is prepared with English law as one of the default options for governing law, and there is no standard choice for Norwegian law.
The standard form has been revised in 1966, 1983, 1986/87, 1993 and latest in 2012. The latest edition aims to apply directions and adjustments dictated by the courts and commercial practice during the years since the previous format from 1993. We still see some use of the 1993 format, sometimes in an attempt to make this less Seller friendly. There is a reason behind the updated format, and using the old format might simply re-engage the ambiguity and loopholes which the 2012 format aimed to remedy. In our practice, the 2012 format is the format we see most used and applicable to most of the transactions where we are involved, with the needed revisions applied to befit each transaction.
The format has English law and arbitration and New York law and arbitration as default options for choice of governing law and arbitration venue. In addition it has an open option where other governing law or venue can be used. In each case, the draftsman must make sure to tune the print clauses having regard of the chosen governing law.
Singapore Ship Sale Form 2011
Singapore launched its own sale form in 2011. One of the main differences is that the main option for arbitration venue is Singapore, with governing law being Singaporean or English. In addition, the form also has an «open option» like NFS 2012. Its provisions seem inspired by NFS 1993, although the order of clauses is a bit different. It has been a bit criticized for being too legal and detailed, so it is more difficult to use it without legal advice. However, from a lawyers’ perspective it is clearer on certain points as long as you make sure to adjust it to the transaction in question.
The form was relatively recently made available through BIMCO. We have not seen Singapore Ship Sale Form 2011 much in use.
The third format we see used is Nipponsale 1999. This is the Japanese form and has standard arbitration venue in Tokyo. It does not actually have a provision on governing law, and leaving this silent we must assume Japanese law will be applied. We see this form regularly used in purchases with Japanese sellers. In our experience, you must be prepared to accept this format when dealing with Japanese owners. The format is shorter and simpler than the other two forms, and from a lawyers’ perspective a bit «thin» and needs to be supplemental on some of the provisions.
Additional clauses, known as rider clauses, can be added to the standard format of one of the aforementioned forms as a separate document in word, or within the template. Rider clauses might cover a variety of items, either tailor-made for special circumstances or simply common boilerplate clauses. Many contracts will add a clause introducing certain subjects (i.e. conditions for effectiveness of the agreement, such as board approval or debt financing, etc.). To the extent possible, we advise the parties to avoid subjects and hold off signing until the subjects are lifted. However, there may very well be a need for subjects, for example if the purchase of the vessel is subject to the award of a future contract for the vessel. Other clauses we often see are on confidentiality (included only in the Singapore Ship Sale Form 2011), Sanctions, Payment Procedure (see separate article later in this series), guaranteed buyers’ obligations, or transfer/novation of Charter (if the vessel is sold with Charter attached).
In our next articles, we will be focusing on certain aspects and mechanics addressed by the standard print clauses.