DEMOLISHCON is a standard contract for the sale of ships for demolition and recycling. The latest edition of this contract is DEMOLISHCON, issued in 2001.
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The following explanatory notes are designed to provide some background information on the clauses of the various parts of the contract and a general overview of the amendments made in this revision.
As mentioned, the DEMOLISHCON Standard Contract for the sale of Vessels for Demolition and Recycling follows the traditional box layout used by BIMCO. Part I of the form consists of boxes used to insert into the contract variable information pertaining to Part II. The recycling industry is a highly specialised trade and since it is common practice that vessels are sold without inspection, it is critical for the buyers to be told of the exact details of the vessel. The vessel must conform to her description as per the pertinent details provided in Part I, although it is clear that a vessel sold for recycling need not meet the same overall standard as that of a vessel sold for further trading. Therefore, to avoid that a buyer may try to renegotiate the price simply because of the overall condition of the vessel upon arrival at the delivery place, it has been provided that “The Sellers shall not be held responsible for any errors, omissions and/or the overall condition of the Vessel upon arrival at the place of delivery except for the items specified in this Part I”.
The Preamble includes an express undertaking by both parties to comply with the Industry Code of Practice on Ship Recycling in accordance with the provisions of Clause 17. The Code establishes the procedures to be adhered to in the selling of a vessel for recycling and provides a framework of “best practice” for the contractual parties involved in the sale of a vessel for recycling. Reference is made to Clause 17 (Safety and Environment).
It is common practice in the recycling trade that no inspection of the vessel is carried out by the buyers. Clause 1 of DEMOLISHCON reflects such practice by providing that no inspection has taken place and that the sale is outright and definite.
This Clause has been drafted on the basis that it is common practice within the recycling trade to contract on the basis of a price per long ton lightweight. Reference is made to Box 37, which requires the parties to state both the lump sum price and the equivalent price per long ton light displacement.
According to sub-clause 3.2 the deposit shall be made latest three banking days, as defined, after the signing of the contract. This is in accordance with general trade practice and notably different from SALESCRAP 87 which made the date of the contract the payment date for the deposit. Following trade practice in respect of the payment of the deposit involves the potential risk that a buyer may try to price the seller down by holding him to the contract although in some cases the buyers will pay the deposit before the parties sign the contract.
It will be seen that according to sub-clause 5.1 (vii) the sellers shall provide a certificate according to which the sellers guarantee that at the time of delivery the vessel is free from all encumbrances and maritime liens or any other debts whatsoever. Although a duplication of the requirements in sub-clause 5.1 (i), it is a firm requirement by a number of recycling yards that the sellers provide such undertaking to avoid the situation that non-registered debts incur between the date of the bill of sale and the physical delivery of the vessel. Nevertheless, it may happen that a claim arises immediately prior to the time of delivery, which cannot always be guarded against and provisions have therefore been included in Clause 13 (Encumbrances and Maritime Liens, etc.) according to which the sellers shall indemnify the buyers against all consequences that arise from such claims.
Both parties have an interest in the smooth taking over of the vessel by the buyers and therefore sub-clause 5.2 provides that the sellers shall make available to the buyers copies of the documents listed in sub-clauses 5.1 (i) to (vii). The intention is to provide the buyers with copies of the relevant documents in the form they are supposed to have at the time of closing.
Particular attention is called to the provisions of sub-clause 7.4, which prescribe that the NOR shall be accompanied by an inventory in the form as recommended by the Industry Code of Practice on Ship Recycling. The inventory, which is to be completed by the Master or his authorised representatives, provides an estimate of all potentially hazardous or contaminating materials or substances on board the vessel, inherent in its structure, or as an integral part of the machinery and/or equipment at the time of the sale. It is recommended to make use of the standard form of inventory referred to which clearly exonerates the shipowners or any of their representatives from liability as a result of errors or omissions on their part in completing the inventory. Having no contractual force the inventory is meant as a guide to the recycling facility and its workforce in connection with the dismantling of the vessels.
Tanker vessels have to be delivered with their tanks cleaned and certified for hot work in accordance with the standards laid down in sub-clause 7.6. This is a very important provision since the explosion risk from non-gas freed tanks when vessels are being dismantled represents the biggest single safety issue.
The provisions of sub-clause 8.2 emphasise the buyers’ obligation to designate another safe berth or anchorage if the original place of delivery agreed is inaccessible for any reason whatsoever.
Sub-clause 8.3 provides that if the sellers have been instructed to and deliver the vessel at a place other than that originally agreed they have fulfilled their contractual obligations with the same legal consequences as if delivery had taken place in accordance with the provisions of sub-clause 8.1.
Sub-clause 8.5 is a straightforward risk sharing provision according to which all risks and expenses fall upon the sellers until the vessel has been delivered. After delivery all such risks and expenses are transferred to the buyers.
Sub-clause 9.1 provides a period within which the vessel should be delivered. However, the crucial date is, of course, the one stated in Box 43, i.e., the cancelling date. If the vessel has not tendered NOR for delivery by the date stated in Box 43 then, no matter what the reason may be, the buyers may cancel the contract.
Sub-clause 9.2 (i) includes the so-called interpellation provisions. It has become common practice for BIMCO to include such provisions in its standard documents be it charter parties or other types of contracts. The purpose of the provisions is that the vessel shall not be required to proceed on a voyage to the place of delivery if it is clear to the sellers that despite their exercising due diligence, the vessel will not be able to arrive by the cancelling date, not knowing whether the buyers will maintain or cancel the contract once the vessel arrives. The provisions are particularly relevant in trades involving long ballast voyages and resulting high costs.
Sub-clause 9.2 contains provisions in respect of the new cancelling date in the event the interpellation provisions come into operation. It should be noted that whether or not the buyers decide to cancel the contract following the owners’ interpellation is without prejudice to their right to claim damages for any loss or damage incurred as a result of the sellers not being able to meet the original cancelling date.
It is important to BIMCO that the beaching of the vessel does not in any way impact upon the safety of the crew. Therefore, specific provisions have been included to provide that the buyers shall use their best endeavours to assist in the safe disembarkation of the crew after beaching.
In some countries the buying and selling of bunkers are monopolised with no rights for the buyers to buy any remaining bunkers on board the vessel at the time of delivery. Sub-clause 11.2 therefore provides that any remaining bunkers together with lubricating oils, stores, etc. shall become the buyers’ property, it being left to the parties to agree otherwise where possible and if so wished.
Sub-clause 11.4 states clearly which items are always excluded from the sale.
The provisions of Clause 16 are aimed at protecting the sellers against such events. Should the buyers decide to continue trading the vessel or resell to a third party this will amount to breach of contract against which the sellers will have a claim for damages.
It was felt that this was best achieved by a general reference to the Code of Practice as set out in the first paragraph of Clause 17 whereby both the sellers and the buyers declare themselves to be familiar with the Code; the sellers use their best endeavours to give information to the buyers in respect of its recommendations and the buyers, likewise, use their best endeavours to comply with those recommendations. The obligation to undertake their best endeavours suggests that neither the sellers nor the buyers should be held accountable for information that is provided or relied upon in good faith but which may appear not to be entirely correct.
The Code of Practice urges those entities entering into a contract for the sale of a vessel for recycling to consider the working practices and facilities in the recycling yard to ascertain that safe and environmentally sound practices are being conducted in respect of recycling. This may be possible where the sale is between the registered owners of the vessel and the yard. However, where intermediaries are involved, which is most often the case, the owners are unlikely to know the final destination of the vessel at the time of the sale and will, therefore, be unable to ascertain that appropriate standards are conducted in the yard as regards safety and environment.
The drafting committee realised that the only way to overcome this problem would be if the sellers were allowed to visit the relevant ship recycling facility. However, the question remained whether the sellers should be allowed to do so before or after delivery. Before delivery, would presuppose that the sellers always know of the buyers’ choice of recycling yard and therefore be in a position to influence such choice – which is seldom the case. It was therefore agreed that the second paragraph of Clause 17 should provide for the buyers to ensure that after delivery the sellers shall be allowed to visit the yard to ascertain that appropriate standards in respect of safety and environment are complied with. This should avoid any grey areas as regards what may be known to the sellers between the interval of them signing the contract and the delivery of the vessel.
Copyright in DEMOLISHCON is held by BIMCO.
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