BARECON 2017

BARECON 2017

Overview

BARECON is a bareboat charter party. It is a lease agreement whereby the charterer obtains possession and full control of the ship along with the legal and financial responsibility for it. The charterer generally pays for all operating expenses, including fuel, crew, maintenance, repairs, and P&I and hull insurance. The latest edition of this contract is BARECON 2017

Copyright in BARECON 2017 and in these explanatory notes is held by BIMCO.

Supporting documents

The  below explanatory notes for BARECON 2017 are also available as an e-book from Witherbys.

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The explanatory notes for BARECON 2017 are available as an e-book from Witherbys.

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Explanatory notes

These Explanatory Notes set out the reasoning behind the clauses that are not self-explanatory.

The BARECON bareboat charter was first published in 1974. It has become one of BIMCO’s most successful and widely used charter parties and was last updated in 2001. Although BARECON is rarely the subject of disputes over the interpretation of its clauses, we felt that it would benefit from a thorough review and update to make sure it keeps pace with modern commercial developments.

The new edition of BARECON is slightly leaner than its predecessor because we have removed provisions that were no longer relevant and consolidated wordings to avoid unnecessary duplication. We have added a number of new and helpful definitions to the contract that have been requested by users – not least of which is a definition of “latent defects”.

New features include an option for the charterers to extend the charter period; tighter notice requirements on delivery and redelivery; a right for the charterers to place staff on board for familiarisation prior to delivery; and a suggested formula to help calculate charterers’ contribution for mandatory modifications and new equipment required during the charter period.

The most significant changes to BARECON are the insurance provisions. In May 2017 the UK Supreme Court gave judgment in the “Ocean Victory”. Among the issues dealt with by the Supreme Court was the impact of BARECON’s insurance provisions on the right to claim against third parties. Although the case is of greater significance to insurers than bareboat owners and charterers, we took the opportunity to spell out in very clear terms how BARECON’s insurance provisions are intended to work in this context.

The revision of industry-standard contracts like BARECON is made possible only with the help, guidance and enthusiasm of the many people who gave their time freely to assist us. There are too many to name individually, but there are five people in particular who deserve special mention. They are the members of the BARECON subcommittee, led by Captain Ajay Hazari, who devoted many long hours reviewing and writing and then rewriting the amendments and new clauses. We would like to thank the subcommittee for their considerable efforts in producing BARECON 2017:

  • Capt. Ajay Hazari, Anglo-Eastern Ship Management (Chairman)
  • Mr Robert Almström, Stena RoRo
  • Mr Stephan Bade, Leonhardt & Blumberg
  • Mr Karl Even Rygh, Nordisk Defence Club
  • Mr Adrian Moylan, Gard P&I Club

Structure

The charter party is divided into five sections. Part I is a box layout used to insert specific contract information such as the name of the parties, identity of the vessel, charter period, amount of hire, etc. Part II contains the standard terms and conditions. Part III optional for newbuilding vessels, Part IV is the purchase option, and Part V is optional for vessels registered in a bareboat registry.

Part II

Clause 1 (Definitions)

The Definitions section includes terms that appear in several places throughout the charter party.

Clause 2 (Charter Period)

This clause, together with Box 16, sets out the charter period. The charterers now have the option to extend the charter period by the number of months stated in Box 18(i) and at the rate stated in Box 17(ii).

Clause 3 (Delivery)

Subclause 3(a) – The owners have an absolute obligation to deliver a seaworthy vessel which is ready for the services required by it under the bareboat charter party and which corresponds to the information given in Boxes 4-6. To protect the charterers’ position because they cannot bring any claims against the owners after they have taken delivery of the ship, the ship has to be delivered in the same condition as it was during the charterers’ previous inspection (fair wear and tear excepted). Wording has also been added to ensure that the ship will be delivered at a place where surveyors, crew, etc. can readily embark and where equipment can be taken off.

Subclause 3(b) – The ship must be properly documented on delivery in accordance with the requirements of the flag state and the classification society. This provision also requires that the ship’s survey cycles are up to date and that class certificates are valid and “unextended” for an agreed number of months following delivery. The parties have to agree what period of time should apply in their situation. If they don’t agree or forget to fill in the box, then 6 months applies by default. This is to avoid a situation where the ship is delivered in accordance with the charter party, but the certificates will expire before the charterers are able to obtain renewals. The reference to trading certificates (such as certificates of financial responsibility (COFR)) has been deleted as they are not transferable and will have to be procured by the charterers.

Subclause 3(c) – Owners are responsible for costs for repairs or renewals due to “latent defects” in the ship which existed at the time of delivery. The parties should agree to a time limit when the latent defects must have manifested themselves. If they can’t agree, then it will be 12 months from delivery. What is meant by “latent defect” is often a source of discussion under BARECON. To assist owners and charterers we have added a definition in Clause 1 (Definitions) setting out that it is a defect which cannot be discovered on an examination as a reasonably careful skilled person would make.

Clause 5 (Cancelling)

Under Subclause 5(a), the charterers can choose to cancel the charter party if the ship is not delivered by the agreed cancelling date. Subclause 5(b) gives the owners the possibility in the event of a delay to send a notice to the charterers with a new “ready” date, asking if they will cancel the charter party. The charterers then have three banking days after receiving the notice to cancel. If they choose not to cancel, or if they don’t respond, then the later “ready” date given by the owners will be the new cancelling date.

This mechanism is helpful to the owners because it can avoid them having to send their ship on a potentially long ballast voyage, only to be cancelled by the charterers on arrival. Instead, if the charterers agree to cancel, the owners can try to secure alternative employment at the earliest opportunity. It also helps the charterers by encouraging the owners to tell them well in advance of any potential delays to the ship. However, it is important to note that this clause in no way lessens the owners’ obligation under Clause 4 (Time for Delivery) to exercise due diligence to deliver the ship by the cancelling date.

Subclause 5(c) clarifies that if the charterers exercise their cancellation rights it will not affect any claim for damages they may otherwise have against the owners. 

Clause 6 (Familiarisation)

This is a new clause that gives the charterers and the owners the right to place representatives on board the ship prior to delivery and redelivery. The representatives are there to familiarise themselves with the ship but without interfering with its operation. How long the representatives stay on board the ship should be agreed on a case by case basis. The requirements for a newbuilding will be very different to a trading ship.

Clause 7 (Surveys on Delivery and Redelivery)

Surveys and inventories are an essential task – particularly at redelivery. BARECON provides for joint on- and off-hire surveys to be done by surveyors appointed and paid for by each of the parties. Expenses for the ship and any time lost due to the surveys are the responsibility of the owners on delivery and the charterers on redelivery.
It is an increasingly common practice for owners and charterers to require underwater inspections of the hull, rudder and propeller as part the overall survey of the ship’s condition. Subclause 7(b) gives the parties the right to do a diver’s inspection, for which they must arrange and pay. Class attendance is required. If damage is found the parties should decide on a case by case basis how it should be dealt with.

Clause 8 (Inventories)

Inventories are an important practice in bareboat chartering to verify what items are on board at delivery and redelivery. Generally, provisions, paint, ropes and other “consumables” don’t form part of a ship’s inventory, so these items have been removed from the clause. The ship should be redelivered similarly stocked and equipped as when delivered. 
In the previous editions of BARECON, the clause also dealt with the taking over and payment of bunkers and lubricating oils. This aspect is now covered in a separate Clause 9 (Bunker fuels, oils and greases).

Clause 9 (Bunker fuels, oils and greases)

This is a new clause inspired by a similar provision in SALEFORM 2012. Two alternatives are provided, with the first applying if the parties fail to make a choice. Subclause 9(a) provides for the actual price paid supported by invoices, while Subclause 9(b) refers to the “market price” for bunker fuels and oils at the port and date of delivery/redelivery.

Clause 10 (Redelivery)

The purpose of the second and third paragraphs of this clause is to help the owners in their planning of the next employment of the ship and to prevent an overrun of the charter period by the charterers. The parties should agree and state the number of days’ approximate and definite redelivery notices that the charterers must give. The number of days’ notice will differ depending on the trade.

The charterers must schedule the final voyage to be completed latest by the end of the agreed charter period. If the ship is delivered after the end of the charter period, the charterers have to pay the owners an “enhanced” charter rate for the additional period – or the market rate if it is higher (provided it can be established, which may, in some cases, be difficult). In addition, the owners may also be able to claim against the charterers for other damages due to the late redelivery of the ship.

In this revision, we have removed the reference to the ship being redelivered with valid “trading certificates”. This is because these types of certificates are not generally transferable. 

Clause 13 (Maintenance and Operation)

This clause is at the very heart of a bareboat charter agreement and sets out in clear terms the charterers’ obligations in the operation and maintenance of the ship. The clause has been re-structured to provide greater clarity. Several new provisions have been added.

In subclause 13(b) the parties now have the option to choose alternative methods of allocating costs for mandatory structural changes or new equipment. All costs can be for the charterers’ account if option (i) is agreed. This option is most likely to apply in agreements where the ship is chartered for its entire expected lifespan of the ship. Option (ii) takes the potential uncertainty out of allocating a “reasonable distribution” of the cost of compliance, which is the method used in BARECON 2001. In the new edition, option (ii) provides a method of calculating the charterers’ contribution taking into account the overall cost of the modification and the ratio of the expected life of the modification to the expected life of the ship and the remaining duration of the charter period. Two simple formulas are provided. The first applies if the modification will last to the end of the ship’s expected life, such as a substantial structural change. The second applies to modifications which may have a shorter expected lifespan than the ship, such as an item of machinery or equipment.

Under subclause 13(d) (Operation of the Vessel) the charterers are responsible for all “costs and expenses whatsoever relating to their use and operation of the Vessel, including any taxes and fees”. This phrase is intended to mean that the charterers should pay costs and expenses of any kind as if they were the actual owners of the ship. Such costs and expenses include annual flag state fees (even if the ship is not re-flagged during the charter period) as well as liability for state and municipal taxes due to the ship’s trading

In subclause 13(f) the charterers have the right to change the name of the ship, subject to the owners written approval, which has always been a feature of BARECON. However, an aspect discussed during the revision process was whether the owners should have a similar right to require the charterers to change the name of the ship on delivery to protect their “brand”. We decided not to include wording dealing with brand issues, but instead leave it to each owner to decide whether this is relevant to them on a case by case basis and to add wording as necessary.

Clause 14 (Inspection during the Charter Period)

This clause gives the owners the right to inspect their ship. It is often used to give a potential buyer the chance to inspect the ship towards the end of the bareboat charter period as well as checking that the ship is being properly maintained and repaired.

In the latest revision the owners can also inspect the ship’s classification records. The reason for this is that a lot of information about the ship’s history can be obtained from class records. Without such an express permission, the charterers would not have to show the class records or otherwise inform the owners about accidents or damage to the ship while on charter.

Clause 15 (Hire)

In subclause 15(a) the phrase “in respect of which time shall be of the essence” has been deleted as it could imply an immediate right of termination by the owners if the charterers fail to pay hire on time. The consequences of a failure to pay hire are dealt with in subclause 15(e) which gives a grace period to the charterers to make the outstanding payment. It is only after this grace period has expired and payment has still not been made that the owners acquire the right to terminate the charter party in accordance with the termination provisions of Clause 31(a)(i). If the owners choose not to terminate the charter party, this does not prevent them from exercising this right in the future should the charterers fail to make subsequent hire payments (see Subclause 15(f)). The grace period replaces the anti-technicality provision found in earlier editions of BARECON.

The words “at any time thereafter (as long as hire remains outstanding)” in Subclause 15(e) are designed to deal with a situation where the grace period has lapsed, entitling the owners to terminate, but the owners have not done so because the charterers have said that they could and would pay. Under the previous wording the owners would eventually lose their right to terminate because, at least under English law, they have to act on their termination right immediately after the grace period has lapsed. 

Clause 16 (Mortgage)

This optional clause is largely unchanged from the 2001 edition. The owners can declare that the ship is free of any mortgages and that they will not mortgage the ship during the charter period. Alternative subclause 16(b) is for cases where the chartered ship is financed by a mortgage.

If subclause 16(b) applies, it is normal practice in most jurisdictions for the bank to require the charterers to countersign the financial instrument and acquaint themselves with all its relevant terms, conditions and provisions to ensure that the charterers are fully aware of their undertaking. They also agree to comply with all instructions and directions the mortgagee in the financial instrument may direct in terms of employment, insurances, operation, repairs and maintenance. A condition for an obligation to comply is, of course, that the document has been disclosed to the charterers.
In terms of a financial-type bareboat charter, for instance for a newbuilding, there is a close link between the owners, the charterers, and the mortgagee in the venture as regards employment, insurances, operation, repairs and maintenance. Consequently, it is of vital importance that no conflict of interest arises which may prejudice the owners’ position towards the mortgagee.

It should be noted that the parties will in most cases need to tailor this clause to suit their particular needs. Finance arrangements will vary and it is impossible to make a standard clause that fits all. Below are some points for consideration by the parties:

Except for intra-group charters, where a mortgagee can impose vessel and insurance undertakings on the charterer on broadly the same terms as apply under the mortgage, there is always a tension between the expectations of the mortgagee and the charterer. The mortgagee, as a condition of its consent to the vessel being allowed out of the owner’s possession and control, wants the same level of undertaking as it would otherwise have from the owner. The charterer, particularly if the charter is already entered into on BARECON terms, wants to assume obligations no more onerous than those under the standard commercial terms of the BARECON form. As a result, it is fairly common for mortgagee and charterer to enter into a formal quiet enjoyment arrangement setting out the terms on which the charterer (subject to performance of its obligations) can retain possession of the vessel without interference from the mortgagee, in the event of a default by the owner under the mortgage documents.

Regarding Subclause 16(a), it should be noted that it provides no indication of the circumstances in which a charterer could reasonably withhold consent and, if any such consent is given, it is then silent as to the obligations imposed on the charterer in relation to the matters dealt with under Subclause 16(b). As a result, the mortgagee will probably require some form of separate undertaking from the charterers which the owners may find it difficult to obtain. The charterers may, for their protection, require in return (and as a condition of its consent) some form of quiet enjoyment undertaking from the mortgagee.

As to Subclause 16(b), which applies to a vessel already mortgaged, the wording may not satisfy the requirements of a mortgagee that the insurance and operational undertakings (set out in the mortgage and/or finance agreement) will be performed by the charterers (to the extent that performance by the owners is not possible without possession and control). Inevitably, typically as a condition for consent being given to the bareboat chartering of the vessel, the mortgagee will require separate supplemental undertakings from the charterers (to align the more general obligations under the BARECON to the more detailed covenants in the mortgage documents). The extent of the charterers’ undertaking under 16(b) may need to be further specified by the parties. The reference to “instructions or directions” does not obviously capture the contractual undertakings in respect of those matters given by the owners in the mortgage documents. One way to address this issue would be to strengthen the charterers’ undertaking so as to include expressly its compliance with those undertakings of the owners (evidenced by charterers’ counter-signature to a copy of the relevant undertakings), but only to the extent that compliance with those undertakings would be reasonably practicable and would not impose additional financial liabilities on the charterers as compared to its obligations under the standard terms of the BARECON.

Clause 17 (Insurance)

It is essential that the insured total loss value of the ship should be stated in Box 23. Under a long term bareboat charter, the parties may wish to consider amending this sum if the value of the ship changes. 

Generally, bareboat charters are for long periods of time and it is the charterers who arrange and take out all insurances, both property and liability covers (see Subclause 17(b)). Nevertheless, the owners might prefer to insure their ship if the contract is for a short period of time (see Subclause 17(c)). In either case, the parties should be co-assured under the policy (see Subclause 17(a)(i)). This is partly to address what is generally called “mis-directed” arrows where a claim is made to the owners which should rightfully have been made against the charterers, who are in full operational control. When the parties are co-assured, both the owners and charterers can access the composite policy and the insurance proceeds can be paid out to the mortgagee, owners or charterers, depending on whose interest is most affected. 

Another reason for the parties to be co-assured is to give the charterers direct access to the joint insurance to enable them to fulfill their obligations to repair and maintain the vessel during the charter period.

During the latest revision, the UK Supreme gave judgment in the case Court Gard Marine & Energy Limited v China National Chartering Co Ltd and another [2017] UKSC 35 (The “Ocean Victory”). In this case the insurance provisions of BARECON 89 were discussed and interpreted by the majority of the judges in a way that the BIMCO drafters had not contemplated nor intended. BIMCO has taken the opportunity during this revision to clarify the wording of the insurance and total loss provisions.

The amended wording intends to achieve the following:

  • the common law principle that parties as co-assureds have no liability towards each other should not automatically be applicable in BARECON (see Subclause 17(a)(ii)); 
  • the owners, charterers or their insurers shall retain the right to pursue claims against third parties who are outside the insurance arrangements (see Subclause 17(a)(ii) and (iii));
  • where the insurers have indemnified the owners for a total loss, the insurers should be able to pursue the claim against the time charterers or other third party such as a shipper of dangerous cargo by way of subrogation.

In the “Ocean Victory” case, the majority of the judges held that the common law principle that co-assureds cannot claim against each other prevented the insurers from recovering from the time charterers. Because the liability between the owners and the bareboat charterers was extinguished by the insurance recovery, there was no liability to pass on to the insurers that they could pursue. Therefore, a new sentence has been added to Subclause 19(a) that the bareboat charterers are liable to the owners by way of damages if the ship becomes a total loss. That is a liability which the charterers can protect by insurance.

The objective is not to make the bareboat charterers liable for the purpose of making claims against them. However, to ensure that liability is not excluded by the payment of the insurance proceeds to the owners, an express liability is first established, which ensure claims against third parties which have damaged the vessel remain preserved under hull policies, just in the same way pollution damage and wreck removal claims are preserved under liability policies.

If the insurer becomes insolvent, the loss in respect of a total loss of the vessel will fall on the bareboat charterers, who selects the insurers. The same applies to the risk of repairs. Repairs can be nearly as costly as a total loss so it makes sense to have the same risk allocation for both.

Clause 18 (Repairs)

The charterers are responsible for arranging and paying for insured repairs. Prior approval by the owners is required as they may want to have some influence over how repairs are done. There may also be provisions in financial instruments that need to be considered. It should be noted that insured repairs may be subject to deductibles etc. and are therefore treated differently to uninsured repairs. 

If the parties have agreed that the owners should keep the vessel insured (see subclause 17(c)), then the charterers have the right to be reimbursed for their expenses under the owners’ insurances.
Under this clause, the charterers are also responsible for uninsured repairs and those not exceeding the deductibles.

Time used for repairs forms part of the charter period (there is no concept of “off-hire” under a bareboat charter party).

Clause 19 (Total Loss)

A definition of Total Loss has been added to Clause 1 (Definitions) with the meaning “an actual, constructive, compromised or agreed total loss of the Vessel under the insurances”.

If the ship becomes a total loss, the total loss value (as per Box 23) will normally be paid to the owners or mortgagees who will be responsible for its distribution between the various insured interests.

As explained under Clause 17 (Insurance) above, a new sentence has been added to Subclause 19(a) that the bareboat charterers are liable to the owners by way of damages if the ship becomes a total loss. The intention is not to place the bareboat charterers financially at risk, unless the insurances have been rendered ineffective. This sentence has been added solely to make it possible for the insurers, who have indemnified the assured for a total loss, to pursue subrogated claims against external parties, such as time charterers or shippers. This avoids any problem that the co assured arrangement in BARECON has itself prejudiced insurances.

Clause 20 (Lien)

This clause grants the owners and the charterers a lien for their respective claims against each other.

Clause 21 (Non-Lien)

The aim of this provision is to protect owners from liens on the ship that have been incurred by the charterers. The previous wording about a non-lien notice to be pinned in a conspicuous place on the ship during the charter period has been deleted as superfluous and archaic. In any event, a non-lien notice pinned to the ship would not protect the owners from incurring a lien.

Clause 22 (Indemnity)

Subclause 22(a) provides an indemnity to the owners in the event of loss, damage, or expense arising out of the charterers’ operation of the vessel and against liens that attach due to an event that takes place during the charter period. In the latest revision, wording has been added to include an indemnity for loss, damage or expense arising out of an international convention that might impose strict liability against the owners.

Subclause 22(b) provides the owners with and indemnity against liabilities arising from the owners’ representatives signing bills of lading or other documents.

In the new edition, Clause 22 has been made more comprehensive in respect of risk allocation for arrests and detentions. As previously worded, the charterers were responsible for arrests and detentions by reason of claims and liens arising out of their operation of the ship. Owners were responsible for arrests and detentions by reason of a claim against the owners. However, as there may be arrests for other reasons, and arrests that occur after the charter period, the clause has been amended to allocate responsibility for those as well.

The charterers now take the risk of arrests and detentions in all cases except when they are caused by the owners. Thus, all arrests and detentions that may happen are now covered and disputes about responsibility can be avoided, see Subclauses 22(c) and (d).

Clause 24 (Wreck Removal)

This clause has been updated and its scope widened because there may be other reasons than the ship becoming a wreck or an obstruction to navigation for authorities to require it to be removed. Provision has also made for parts of a ship becoming an obstruction to navigation or posing a hazard. It is the charterers’ responsibility to pay the expenses for raising, removing, destroying, lighting or marking the vessel, and they will also have to indemnify the owners if they are charged for anything in this respect.

Clause 26 (Assignment, Novation, Sub-Charter and Sale)

Assignment of the charter party by the charterers is not permitted without the owners’ prior written consent. Novation of the charter party by the charterers is also now prohibited without written consent, although a novation cannot be done without the owners signing the novation agreement. 

Subclause 26(b) addresses the issue of the sale of the ship during the charter period and makes the sale of the vessel conditional on the written consent of the charterers and the agreement of the buyer to accept a novation of the charter.

Clause 27 (Performance Guarantee)

This is an optional clause for use in circumstances where the charterers do not have substantial assets and the owners require some form of financial guarantee for the charter party. For the clause to apply, the parties should state in Box 25 the amount and the identity of the provider of the guarantee. This provision was previously called “Bank Guarantee” but this has been changed to “Performance Guarantee” as it may be other entities than banks issuing a guarantee.

Clause 28 (Anti-Corruption)

This clause is based on the BIMCO Anti-Corruption Clause for Charter Parties. It has been amended to fit a bareboat charter context. The clause provides users with a regime for responding to unlawful demands for gifts in cash or kind, such as cigarettes or alcohol. The clause sets out a series of steps with the contracting parties working together to resist such demands but if this fails, owners’ rights to hire is protected. Termination, by either party, is the ultimate sanction but a high threshold has been set so that it cannot be easily used as an exit from an inconvenient charter. 
Subclause 28(a) sets out the scope of the clause. It applies as between the contracting owners and charterers and this extends to include their respective employees and agents. The provisions are effective in all jurisdictions where the parties are operating and ports and places visited. 

It is important to note that the clause addresses criminal law issues and is therefore distinct from the governing law of the charter party. By way of example, the United Kingdom Bribery Act applies to any party based in or with a “close connection to” the United Kingdom. However, if parties that do not fall within the scope of the United Kingdom Bribery Act elect to apply English law as the governing law of the charter party, the United Kingdom Bribery Act will not be applicable. They will, nevertheless, be subject to provisions imposed under their own or other applicable national legislation. 

Subclause 28(a)(i) requires the parties to comply with “all applicable anti-corruption legislation”. Since the clause is designed for worldwide trading and is not linked to any specific legal system, this provision aims to encompass any laws or regulations to which the parties are subject under their own national legislation or legislation in the country or jurisdiction where they are operating. 
Each party must have in place procedures to ensure that their commercial dealings with counter-parties are designed to prevent any offence being committed by their employees or agents. This is likely to be based on a company’s internal anti-corruption rules and guidance published by industry organisations. While there is no expectation that such procedures will be effective in every case, a certain and high threshold is set and parties should ensure they have robust systems in place for making appropriate background checks and undertaking due diligence in the appointment of agents and other third parties. Company procedures must also set, and enforce, high standards of conduct. 

Subclause 28(a)(ii) makes an express provision for record keeping that reflects customary company practice and statutory obligations for keeping and maintaining accounting information. Proper recording of any payments made or gifts provided, along with the circumstances in which they were made or provided, is an essential part of a company’s procedures with regards to unwarranted facilitation payments. 

Subclause 28(b) provides mutual indemnities whereby a party that has breached anticorruption legislation to which it is subject, must indemnify the other party against any loss or damage suffered as a result by the latter. 

Subclause 28(c) sets out the criteria for termination. Termination can be invoked either by owners or charterers but only where the other party has breached applicable legislation in connection with the charter; and that breach has put the other, non-breaching, party in breach of anti-corruption legislation to which it is subject. 

It should be noted that:

  • use of the termination provision is optional and any breach committed by one party can be disregarded by the other party; 
  • the commission of a breach is limited to the actions of those directly employed by the breaching party and not those of agents or contractors engaged to act on their behalf; 
  • it is expressly provided that termination must be exercised “without delay”. This is to prevent a party using a prior incident as an excuse to bring the charter to an end possibly weeks or months later. The interpretation of “undue delay” will depend on case sensitive facts and circumstances; and 
  • termination is expressly “without prejudice” to any other rights under the charter. 

Subclause 28(d) provides a self-standing regime warranting that the contract has not been procured by corrupt means. If breached, the innocent party may terminate the contract. 

Clause 29 (Sanctions and Designated Entities)

This clause is based on the BIMCO Designated Entities Clause for Charter Parties. It has been amended to fit in a bareboat charter context.

Subclause 29(a) sets out the scope, basis and application of the clause to sanctions, restrictions or prohibitions against persons, bodies and designated vessels imposed by the United Nations, European Union and the United States of America.

Subclause 29(b) sets out respective, and continuing, party warranties that neither is in breach of subclause 29(a). In the case of a sub-charter, charterers additionally warrant on behalf of sub-charterers, shippers, receivers and cargo interests. In all cases, owners warrant that the nominated vessel, or any substitute, is not a designated vessel.

Subclause 29(c) sets out the approach to be followed in the event that one of the parties is found to be in breach of warranty in this clause. If this occurs, the innocent party is likely to seek guidance from, and follow instructions or advice given by, a flag state or other regulatory body. Where such assistance is not forthcoming, the charter party may be terminated in accordance with Clause 31 (Termination).

Subclause 29(d) is a standard provision to make it clear that anything done or not done under this clause is not a deviation.

Subclause 29(e) – In contrast to international agreement on sanctions or designated entities, some states apply their own anti-blocking or similar legislation to counter the effects of a boycott or other targeted action affecting their trading interests. The clause therefore includes a provision that parties shall not be required to break their own laws. This is a potentially difficult area and legal advice is likely to be needed in the event of tension between regulatory obligations.

Subclause 29(f) – While owners and charterers each undertake to indemnify the other for any breach of warranty, it should be noted that this is unlikely to be enforceable where one of the two contracting parties is or becomes designated or subject to sanctions and, therefore, no longer able to receive or make any payments. Nevertheless, the provision could have effect where, for example, a breach is attributable to charterers’ cargo interests.

Clause 30 (Requisition/Acquisition)

In case of requisition for hire, the charter party remains in full force for the entire charter period agreed. However, a compulsory acquisition or requisition for title terminates the charter as of the date of the compulsory acquisition. In the latest revision, wording has been added that owners are entitled to compensation received for the compulsory acquisition.

Clause 31 (Termination)

This clause has been restructured to make it clearer and easier to read.

The word “withdraw” has been deleted. Reference is now made to “termination” of the charter party and repossession of the ship, which is more appropriate in a bareboat charter context.
If either party terminates the charter party because of the other one’s default, the terminating party will be able to claim damages for the loss of the remainder of the charter party in addition to other losses that the parties may have suffered.

Subclauses 31(a) and (b) set out the events that will entitle the parties to terminate the charter party because of the other party’s default.

Subclause 31(c) – The charter party will be deemed to be terminated if the ship is lost as per this subclause.

Subclause 31(d) – The party which is not bankrupt or facing bankruptcy is entitled to terminate under this subclause. This provision contains several descriptions of a party becoming insolvent or bankrupt. The reason for the many ways of describing this state of affairs is because different jurisdictions used different terminology. There is an exception for solvent reconstruction or amalgamation to avoid abuse of the right to terminate under this subclause. 

Subclause 31(b)(ii) – The owners have the right to terminate if the charterers fail to arrange insurance under Subclause 31(a)(ii)(2), and so the charterers have been given a reciprocal right to terminate if the owners fail to arrange insurance when required by subclause 17(c) (Owners to Insure).

Clause 32 (Repossession)

This clause deals with repossession of the ship following an early termination of the charter party. It may be that the owners cannot take immediate physical repossession of the ship. In such cases, the charterers must act as “gratuitous bailees” to the owners – meaning that they must look after the ship without compensation until the owners can physically repossess it. The provision also requires the owners’ representative to board the ship and take physical repossession as soon as reasonably practicable after the termination.

Under this clause, the charterers’ rights cease when they become gratuitous bailees of the ship. However, certain obligations remain until the owners can take physical repossession. These obligations include the safe navigation and delivery of the ship at the current or next port of call, or a place convenient to the owners. The charterers are also obliged to arrange, at their expense, the settling of their crew’s wages and disembarkation and repatriation costs.

Clause 33 (BIMCO Dispute Resolution Clause 2016)

The dispute resolution clause offers four options for arbitration: London (which applies by default in the absence of a stated alternative in Box 26); New York; Singapore; or an open choice for parties to agree the governing contractual law and seat of arbitration. Mediation procedures are set out for London, Singapore and the open forum. However, mediation has a different position in the USA and it is left to the parties to agree their own procedures.

Part III – Optional provisions for newbuilding vessels

This optional part of BARECON has been brought up to date to reflect current industry practice.

Clause 1 (Specifications and Building Contract)

It should be noted that there is no requirement for the owners to provide the charterers with a complete copy of the building contract. There may be information in the building contract that the owners do not want to disclose to the charterers, for example, the price. On the other hand, it is not possible for the charterers to monitor the construction of the ship and request variation orders without, at the very least, a copy of the relevant parts of the building contract such as the specification, plans and drawings. As a compromise, subclause 1(a) requires the owners to provide only those details of the building contract that are relevant to the functioning of the bareboat charter party agreement.

Part IV – Purchase option

The hire/purchase agreement in the previous editions of BARECON has been replaced with a purchase option. This reflects the fact that the hire/purchase option is now rarely used. In practice, a ship will generally be sold at a pre-agreed figure, more like a sales contract. The parties should state in Box 28 if the purchase option should apply.

Part V – Optional provisions for vessels registered in a bareboat registry

This part permits the charterers to register the ship in a bareboat charter registry. In this edition it has been updated to consider issues encountered in practice, for example the deletion of the ship from the bareboat registry following termination of the bareboat charter. Sometimes this is an automatic process. However, in some jurisdictions, it is only the bareboat charterers that can ask for a deletion. A clause has been added that requires the charterers to arrange for the immediate deletion of the ship from the bareboat registry if the charter party comes to an end. 

Other items worth noting about this edition of BARECON

Previous Clause 19 (Classification)

This clause has been deleted because it was felt to be unnecessary. Under this clause, it was the owners’ obligation to maintain class and all other necessary certificates in force. The background to this provision was to cater for short term charters where it would not make sense to hand over these obligations to the charterers for just a brief period of time. However, this would only be applicable on rare occasions. In practice, it was not possible for owners to control these things as the vessel was in the possession of the charterers. It was agreed that the charterers should keep the vessel classed and fully certified under all circumstances.

Previous Clause 26 (War)

The War Clause has been removed in the latest revision. As bareboat charterers take over the ship as disponent owners and have insurance in place for war risks, there is no reason to allow the registered owners preventing them from going to certain places. A war risks clause belongs in a time or voyage charter party, but not in a bareboat charter party.

 

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