The BIMCO Ship Sale Agreement – a new form of standard?
BIMCO has circulated a Consultation Draft of a new Ship Sale Agreement (the «SSA»). For some time now, there has been a predominant standard form of vessel sale. With its origins back to 1925, developed by the Norwegian Shipbrokers’ Association and available through Bimco, it is still referred to as the Norwegian Saleform (or NSF) despite its recent rebranding as «Saleform 2012». Since its inception, the Saleform has been amended a number of times, latest in 2012, such amendments driven by legal developments, and generally aimed at improving clarity of its terms. The new Bimco SSA form is not driven by any legal developments, but seems rather an independent Bimco ambition to replace the Norwegian Saleform (and other forms) with the SSA as a new market standard form for sale and purchase of vessels. But how new is this SSA form, and will the market see it as an improvement?
Unlike the Norwegian Saleform, which has become the world-favourite, there are two recognised vessel sale-forms in the market, albeit not in as wide use, nonetheless, tested and trusted. For Japanese transactions we usually see the NIPPONSALE format, developed in Japan. In 2011 Singapore Maritime Foundation launched its own format, Singapore Ship Sale Form 2011, in response to Singapore’s and the Asian maritime community’s call for an alternative form which favoured and promoted the arbitration venues in the region. BIMCO’s intention with the SSAas their own independent form, will bring it in «competition» with the existing forms.
The main questions are (i) do we need a new ship sale form, and (ii) will the new form replace the three (or some of those) forms the market is accustomed to? To our experience, the maritime community is rather conservative, trust being earned the hard way. It took many years to establish the updated Saleform 2012 as a standard in place of its former 93 version, even though the 2012 version was a clear improvement of the previous version. The Saleform 2012 and its prequels have been tested numerous times in the courts, and arbitration tribunals; each time it was tested, the market gained further assurance and developed confidence in the legal interpretation of the provisions they agreed. We still see that an important clause as the Documentation clause regularly is deleted in the Saleform and addressed in an Addendum which the parties will tailor and agree after entering into of the sale contract, which was a practice established under the previous formats but which the 2012 form tried to amend by suggesting a rather standard and more comprehensive list in the standard form. We also know that should you do transactions involving Japanese sellers you must be prepared to use the NIPPONSALE format. For newbuilding contracts we have seen BIMCO launching the Newbuildcon in 2007, but we have still not seen this format much in use and the yards seem to prefer their established local standards.
We note that the new Bimco SSA form is mainly drafted along the same lines as the Saleform 2012, but with an attempt to «clean up», organize the clauses almost identical to the Saleform but in different order etc., resulting largely with the same main content of the Saleform. The Singapore Ship Sale Form was also prepared along the same lines as the Saleform (then 93), and the Nipponsale bears also similarities although deviates somewhat more. We question if a new fourth form based more or less on the same provisions will add anything to an industry which has used and trusted one established and tested format for decades.
We question if a new fourth form based more or less on the same provisions will add anything to an industry which has used and trusted one established and tested format for decades
At Simonsen Vogt Wiig’s international shipping team, we handle a large number of sale and purchase of ships every year. We absolutely see room for improvements of the standard contracts, which we tailor manually each time, but we have no indication that there is any demand for a new standard in place of the established standards.
We have, over the last months, been publishing a series of articles on the various topics and clauses of the Saleform 2012. These can be found on our website.
Below, we analyze some of the differences between the new BIMCO SSA form and the existing forms, mainly the Saleform 2012.
Vessel details and choice of law and dispute venue
The SSA form’s first page has the standard BIMCO «Box format» to insert vessel and other details, pertaining to inspection, earliest date for Notice of Readiness, Cancelling Date, Place of delivery/closing etc. This will certainly provide an easier overview of some of the main parameters of the agreement, rather than looking them up «hidden» in the various clauses throughout the agreement. However, we cannot see that this is more than a clean-up. The information remains the same, save that separate boxes have been included for subjects and validity of class certificates, which previously were inserted directly in the relevant clauses if required.
One important change is that the new governing law/dispute venue clause is drafted in neutral form, so the parties can insert the governing law and venue they prefer. If they do not choose a venue, English law/arbitration in London will be the default form. This is a change from the Saleform 2012 where English law/London arbitration and New York law/arbitration were the two alternative choices, while a third open option was included but with rather limited wording/regulations. This was one of the reasons for the Singapore Ship Saleform being launched, and we also note that NIPPONSALE prescribes Japanese arbitration. The «neutral» governing law/arbitration clause is perhaps an attempt to demonstrate its international neutrality, but the option already exists in the Saleform 2012.
Payment mechanisms and Deposit
One of the new changes in Saleform 2012 was the introduction of «Deposit Holder». This was made to meet the fact that escrow arrangements through lawfirms, brokers and notaries have gradually replaced traditional bank accounts held jointly by the parties. Today, we rarely see joint bank accounts, most transactions use escrow agents. The SSA form further develops this function and include, inter alia, references to the escrow agreement to be entered into between the parties and the Deposit Holder. However, except for including references to the escrow agreement, we do not see that the wording adds too much to the current regulation in Saleform 2012.
The SSA form introduces also regulations of «Disruptive Banking Event» to cover the situations we (unfortunately) from time to time experience where bank transfer is delayed. An important factor not included in this new definition is an inclusion of delays caused by anti-money laundering and/or sanctions checks which we experience from time to time, and which cause delays in a transfers, and sometimes return of funds, which is outside the control of both parties. We have, as an example, experienced that this could happen due to the use of a particular word as part of the vessel’s or company’s name in the transfer. We would recommend that BIMCO considers to address those issues. However, a question is whether this definition and its use will only add further ambiguity. Would it be a better solution to rather leave the days required for transfer open, to be agreed, or state 5 Banking Days, and not address the reason for a delay?
During the revisions of Saleform 2012 we suggested that a clear payment mechanism was introduced in the form. One of the most common discussions we experience when preparing ship closings relates to the payment mechanism, causing frustrations, increased costs and potential defaults. This applies to all transactions, but particularly if a financier is involved on either, and more frequent if on both parties’ side. The ever-present issue of delivering a free of mortgages vessel, in exchange of the agreed purchase price, while the sellers’ mortgagee is not supposed to discharge its existing mortgages until it is paid, that is, until it received the proceeds of the sale. If you read the Saleform 2012 carefully, and supplemented by its explanatory notes, you will see that the intended mechanism is that a Buyer should first pay and then the Seller provides the delivery documents, including evidence that the Vessel is free of encumbrances, «in exchange of receipt of the Purchase Price». However, a Buyer and its financiers rarely accept to pay to the Seller’s account first, and then receive evidence that the vessel is free of encumbrances. The new BIMCO SSA form maintains the language of Saleform 2012 and the unclear regulation of that challenge remains. Any improvement here would have to reflect the market standard options of resolving of such situations, used by most shipping and ship-financing lawyers.
One of the most common discussions we experience when preparing ship closings relates to the payment mechanism, causing frustrations, increased costs and potential defaults
Inclusion of subjects
The BIMCO SSA form introduces provisions covering subjects (i.e. conditions for effectiveness) in the contract, and regulation of how subjects shall be lifted and the effect if not lifted. Although we would prefer a clean contract without subjects when the parties sign the contract, we often see subjects in recaps, and also included in the agreements. But having such proposition of subjects in the standard form might well increase the number of agreements signed on subjects, imposing commercial uncertainty. Our recommendation has always been to keep subjects in the recaps, and sign a sales agreement only when all subjects are cleared.
The inspection clause in the BIMCO SSA form is similar to Saleform 2012, but one new provision which we have previously commented as missing in Saleform 2012 is a separate alternative for waiving inspection. However, the new clause does not cover the situation where the Buyers have a right to inspect as per the agreement but later waive the inspection. It is then still important to get a clear written statement that the inspection is waived and Vessel accepted without inspection. Otherwise, the agreement may automatically be null and void due to lack of acceptance within the agreed deadline.
Termination and damages
The new BIMCO SSA form makes it clear that the Sellers are entitled to liquidated damages in the same amount as the Deposit if the Buyers default in payment of Deposit. This follows from English case law, but was not expressly stated in the wording of Saleform 2012. Also, the new BIMCO SSA form have clearer provisions excluding indirect losses, and loss of profit.
We note that the SSA form maintains the provisions that a Buyer may claim damages if the Sellers do not tender Notice of Readiness within the Cancelling Date, even if the Buyers elect not to cancel the agreement but continue the agreement and takes delivery. We usually try to delete this when representing Sellers, but are not always able to change this as it is a part of the standard wording. For all practical purposes, the Sellers and the Buyers will in such situation discuss the terms for continuing the agreement, and, if they agree, there should not be an additional unknown claim from the Buyers under the contract. Should the Buyers agree to continue while reserving any claims, the Sellers should not be forced to maintain the contract with such uncertainty, but only when the consideration (i.e. amount of claims) for the Buyers affirmation is known to the Seller.
We note that the new BIMCO SSA form only requires negligence from a Seller in order for Buyer to claim damages, while Saleform 2012 requires «proven negligence» it is often hard for a Buyer to prove the Sellers’ negligence. We assume that the purpose of this change is that the Sellers must also demonstrate that they have not been negligent.
The BIMCO SSA form introduces a provision that the Sellers can only demand extension of Cancelling Date once. We do not see the purpose. A Buyer can always deny any undesired repeated request and thereby prevent an extension. Why shall a form create a situation where it requires an amendment if both parties agree to an extension more than once?
Sanctions and Anti-corruption
We note new provisions regarding Sanctions and Anti-corruption. These are welcome and already frequently added and incorporated in the Saleform 2012. It is preferred to have standard clauses to relate to. However, there is an imbalance here, as the Sellers are not entitled to automatic release of the Deposit to the Sellers if these provisions are breached by the Buyers, while the deposit is to be released to Buyers in case of Sellers’ breach.
The SSA form moves certain lists (included items, excluded items and delivery documents) over to the Annexes.
The delivery documents’ list is almost identical with the list in Saleform 2012, including the rather vague provision on corporate approvals required. This part will need to be amended in each transaction to refer exactly to what documents are required. Alternatively, a list with specified documents should be included and the parties delete or add as required. As mentioned above, from time to time, we see that the list of documents in Saleform 2012 deleted, to be negotiated and agreed between the parties by way of an addendum to the agreement. However, a good part of the market and most lawyers find the list complete, and will continue supporting the use of that list to be agreed within the agreement.
We note that the SSA form introduces a novelty, the inclusion of a list of spare parts, spare equipment and other items «listed in Annex A» as «Included Items». It is then important for both Sellers and Buyers not only to prepare the list of actual excluded items, but also the included items. Given that everything onboard the Vessel at the time of inspection is automatically included by the provisions of the agreement, excepting specifically only the listed Excluded Items, we assume the «Included Items» of the SSA form imposes the additional duty and diligence to list equipment and spares on shore.
Issues not addressed
As mentioned above, the format is to a large extent covering the same as the existing standards. There are some issues we experience under the current standards which could have been regulated in this new form (and/or any updates of the current forms), such as:
Buyers’ right to place representatives onboard occurs immediately upon lodging of the Deposit. For agreements with a short timeframe between signing and deliver, this is practicable. However, we often see agreements where there is a long period from signing until delivery. In such transactions it is not practical for the Sellers that the Buyers’ representatives stay on board for months. We would have welcomed alternatives in this clause, such as that the Buyers obtain a right to place their representatives on board for the last voyage(s), and that the Sellers have an obligation to keep the Buyers updated of the Vessel’s itinerary and expected ports of calls.
If damages are found during the underwater inspection before delivery, and such damages are required by class to be immediately repaired, the Sellers will get additional max 14 days (Saleform 2012) or 21 days (BIMCO SSA form) extension of the Cancelling Date if the Vessel must be drydocked and no facilities are found at the Place of Delivery. This has caused some issues as the Sellers, if Cancelling Date is approaching, will be incentivized to (i) insist that drydocking is necessary, and (ii) not find any yard at the Place of Delivery, just to get additional sufficient time to repair. The extension does not only apply to extra days of steaming, but also to the time to drydock. If, however, the Vessel can be repaired afloat, or a dock is available at the Place of Delivery, no extra time will be granted. We would suggest that the additional time then was granted in any event. Alternatively, it should only be granted for extra time for steaming. On that same note, the use of «the Place of Delivery/port of delivery» is not clearly interlinked. If there is no dock in that exact port, but there is a dock 2 hours steaming from that port, will Buyers be entitled to the additional 21 days? Will 24 hours steaming be sufficient? We have experienced issues as described above and would suggest this to be clarified. Same applies to Clause 9 in the new BIMCO SSA form.
We note that the BIMCO SSA form still use «free of average damage affecting class» regarding Vessel’s condition on delivery. Singapore Sale Form only uses «free of damage affecting class». The term «average» is not all too clear to all commercial parties and could in our opinion be deleted (or at the least clarified) to avoid disputes.
The new BIMCO SSA form continues the principle that Notice of Readiness cannot be tendered before the underwater inspection is completed. This principle was introduced through the revisions in Saleform 2012. The Notice of Readiness is the trigger for a Seller to avoid missing the Cancelling Date. As the underwater inspection is arranged by the Buyer, the Buyer could use this to prevent the Seller from tendering Notice of Readiness in time if there is a tight timeframe. In our opinion, the Sellers should be entitled to tender Notice of Readiness when they believe the Vessel is ready, and thereby preventing a Sellers’ default, but such Notice of Readiness will not be valid and must be re-tendered if damages affecting class were found during the underwater inspect. As per the current forms, the Sellers risk to be ready before the Cancelling Date, and even with an underwater inspection not revealing any damage, the Sellers may still be in default if the underwater inspection causes the Cancelling Date to be passed.
The Covid-19 situation has, in the last year, increased the number of closings held virtually by email or phone/video conferences. Our colleagues on aviation have used this for years and have commented several times that our activities travelling around the world to physically attend closing meetings and deliver papers are outdated. The last 12 months have proved that alternative closing mechanisms are effective also in the shipping industry. The new BIMCO SSA form still prescribes physical closing meetings. A 2021 format should have alternative provisions regulating virtual/electronic closing meetings.
A 2021 format should have alternative provisions regulating virtual/electronic closing meetings
Also, the Covid-19 situation has proved great needs for a pandemic clause. Although we hope that we will soon be out of this situation, and not experience it again, we realistically think that a provision should be drafted and cater for a situation where crew are not allowed to embark/disembark due to quarantine and local regulations at the port of delivery.
In the circulation of the Consultation Draft, BIMCO asked if a provision regarding future operation of the Vessel, restrictions on ship-recycling should be included. We agree that it is time that such provisions was included in the forms, and is already often inserted manually as additional clause.
Two items from Singapore Ship Sale Form and Nipponsale should also be considered.
Under Saleform 2012 and the BIMCO SSA form, the Buyers have 3 Banking Days after tendering of Notice of Readiness to take delivery and pay, or be in default. Under the other forms there are provisions where Buyers can extend such days up to a certain period (7 consecutives days in Singapore Ship Saleform) against paying a pre-agreed daily amount, typically compensating opex. This would prevent unnecessary discussions if Buyers’ crew are delayed for various reasons, quarantines etc. A Seller will rarely cancel if the Buyer is 1 or 2 days late, but is rather arguing with the Buyers regarding compensation in exchange of extending the period. It would be better if this was already catered in the form.
Under Singapore Ship Saleform there is also a clause stating that the Buyers can only terminate the agreement and reject the Vessel due to deficiencies in the condition of the Vessel if such deficiencies have a substantial impact on the Buyers’ ability to trade the Vessel. Otherwise, the Buyers’ remedy for deficiencies lies in damages. We do recommend the introduction of such a provision. We have experienced situations under Saleform 2012 where there is a damage affecting class, but where the cost of repairing it is rather limited. However, if the Sellers cannot repair it prior to the cancellation date it will give the Buyers a right to terminate. This is disproportionate. If this is a damage the Buyers easily can repair in the next port of call, or next docking, their claim should be limited to actual repair cost (as with damages found during underwater inspection). When they have a right to cancel, they are incentiviced to get a much higher compensation than the actual cost.
We consider the BIMCO SSA form mostly an attempt to clean up the Saleform 2012, and propose a few updates in a rebranded, and re-shuffled form. It appears, at least from a perspective of a party who is not too accustomed to the Saleform, easier to read, and the clean-up is overall successful. On the other hand, we have not seen a demand or desire for a new contract, which will inescapably compete with the existing. For those of us who have worked on the Saleform formats for decades, and have followed its judicial and arbitral interpretation closely, we have already developed a sense of trust and deep familiarity. Our guess is that it will be difficult to establish the new SSA form as the new widely used format, but we would welcome the opportunity if the parties to the transaction wish us to use it.