Short & Sweet: Ship Sale and Purchase #3 – Time and Place of delivery and notices

| Insight

SVW boasts one of the largest shipping teams, continually handling vessel transactions all around the world. In this 3rd of our Ship Sale & Purchase series, we focus on time and place of vessel's delivery, NOR, notices and more.

In this article, we focus the terms agreed in the sale’s contract regarding time, and place of the Vessel’s delivery, and notices to the Buyers for their readiness to take over the Vessel. We will be looking into the relevant clause 5 in the most used form, the Saleform 2012 (aka NSF). This is a clause aimed at standardising the logistics of information prior delivery, and of the physical delivery as such. It might come as a surprise to some, but this clause might cause grave concerns if one is less prescient than ought to, when filling in and revising the standard NSF clause. What is key here is a good understanding of the repercussions of the choices to be agreed, and to maintain an open channel of communication between the draftsman and the operational team.

Place of Delivery

When choosing the place of delivery of a vessel, quite a few Buyer’s arrangements are to be tied-up with that choice, and certain Sellers expenditure will be directly impacted too. The flying-in of the requisite Buyers’ crew and their visas, the accessibility to the vessel for the change of crew at that berth (or anchorage!), the delivery by the Buyer’s agent of all flag certificates, the visibility in the waters for the underwater inspection (even if this is remediable under clause 6 (a)(i) of the NSF, it will cause delays to Sellers). So, deciding right, choosing a specific port (as opposed to a region), prohibiting double-banking, can make a great difference for either party. The recent coronavirus outbreak still affecting certain areas of the world illustrates how even unforeseen risks can make such choice of delivery place quite an expensive one. Without doubt, the knowledge required for making the optimal choice regarding place of delivery will not be with the draftsman of the contract; it is the operational or management team of each party that have to be consulted on this point, while the draftsman will have to raise any concerns and avoid the pitfalls. Experience and operational understanding comes handy when drafting such clauses.

Earliest Notice of Readiness

Next: choosing the earliest date for tendering Notice of Readiness. Here the Buyer and the Sellers can agree on the date within which Buyers are certain to be ready to take delivery (in coordination with their financing arrangements, their flag of choice, their managers and crew, their insurers, to name a few parameters) and Sellers are ready to deliver in accordance with the vessel’s itinerary and their agreed deliverable documentation.

Cancelling Date

The choice of cancelling date is also to be agreed on similar parameters as with the earliest Notice of Readiness above. Other than express wording allowing for adjustment of the Cancelling date, the only mechanisms afforded in the NSF form that will allow extension of that date are three:

  • Clause 5(c) of the NSF allows Sellers that have been diligent but are nonetheless delayed, to notify the Buyers of their delays and propose a new Cancelling date. Within 3 banking days from Buyers’ receipt, Buyers can either cancel the agreement invoking Sellers’ default, or accept. By operation of the wording of the Bimco print clause, should Buyers fail to respond within that time period, the Sellers new Cancelling Date will be deemed agreed.
  • Clause 5(d) should also be noted by the parties, particularly by Sellers. It states that the Buyers’ claim for damages shall not be affected by their choice to cancel, or failure to cancel or accept a new Cancellation Date. It leaves both parties with uncertainty as to the size of such claim and as to how and when it should be settled. In our experience, the parties would normally try to negotiate and agree the compensation/adjustment of Purchase Price prior to the Buyers’ accepting a new Cancellation Date. A Buyer would normally not accept an extension before it knows that its claim is accepted. A Seller would not be comfortable continuing the contract without any idea of the claim which the Buyers might present. The parties could negotiate and agree a settlement before the Buyers elects whether to accept or not. The Sellers can then also decide if they prefer to accept the Buyers’ claim and continue the contract, or reject and risk cancellation and then fight over damages.
  • If the underwater inspection of clause 6(a)(i) is not possible at the place of delivery, the Sellers will be obliged (at their cost and time) to make the Vessel available at a suitable other place and reposition the vessel for delivery at the agreed location. Pursuant to the print form, such arrangements are accommodated by automatically extending the cancellation date.
  • Similar to the above extension for the underwater inspection, clause 6(a)(iii) allows both the extension, as well as the change of place of delivery, if the vessel is to be drydocked due to findings requiring repairs in drydock under clause 6(a)(ii). However, Sellers beware that the print form clause 6(a)(iii) caters only for: a maximum of extension to 14 days from the Cancelling Date (or from the cancelling date as extended under clause 6(a)(i) noted above), while the extension is only valid where the drydocking is to be had in port other than the one stipulated as the delivery port.

Notice of Readiness (NOR)

There are some other notable points to be made for clause 5, paragraph (b). This paragraph covers the periodical Sellers’ notices to Buyers of the date they intend to serve Notice of Readiness. Previous forms of the NSF made a distinction between the first «approximate» and the subsequent «definite» notices. NSF has dispensed with that distinction, though many will manually opt to revise and introduce that distinction, in which case, Notice of Readiness cannot be tendered before the expiry of the latest definite notice.  One of the issues that can be aggravated due to the lack of distinguishing between the approximate and the definite days of notice is when a Seller keeps tendering such prior notices but with each notice extends the date too, on the safe side of the Cancelling Date, but on the expensive side for the Buyers who are ready to take over, and have to maintain crew near delivery location, and might already be incurring financing costs. Can such costs be claimed from the Sellers? Even if so, the further from the Cancellation Date a Buyer is, the lesser its bargaining position (or the strength of anticipatory-breach claim) is.

«Banking Days» following NOR

Lastly, we need to touch upon the counting of days, and «banking days» under the NSF. While it depends on the choice of law agreed, and its relevant procedural laws thereof, under English law the counting of the days in a commercial-contract context excludes the day on which a notice is delivered. So, when Notice of Readiness is issued, and the Buyers have the 3 banking days under clause 3 to make payment, the date when the NOR is issued would not be counted in those 3 banking days.