Clause 14 of the 2017 form – Liabilities and Indemnities
Clause 14 has been revised extensively and, for the most part, for the better. Of particular note are the new exclusion of liability provisions which correct the 2005 form’s troublesome blurring of the lines between consequential and direct losses. This important revision resolves a well-known issue in the 2005 form which was all too often ignored.
The revisions to the definitions of “Charterers’ Group” and “Owners’ Group” are certainly an improvement. That said, the 2017 form definition of “Charterers’ Group”, for example, would benefit from clarification. In view of the use of the conjunction “and” at the end of each limb of the definition of “Charterers’ Group” (each limb listing the entities or groupings of entities encompassed within the “Charterers’ Group”), it is not clear in each instance what is intended by the references to “…any of the foregoing” in limbs (ii), (iii) and (iv). It would be preferable to refer, for example, in limb (iii) of the definition to “Affiliates of any of (i) and / or (ii)” in place of “Affiliates of any of the foregoing” and indeed it may, in certain circumstances, be necessary to expand limb (iii) to cover limb (iv) (“contractors and sub-contractors (of any tier)”), so that limb (iii) would read “Affiliates of any of (i), (ii) and / or (iii)”.
It is noteworthy that in the phrase “…arising out of or in any way connected with the performance or non-performance of this Charter Party…” in Clause 14 (a)(i), as with the 2005 form, no reference is made to partial performance. In that regard, when using the 2017 form, the new Clause 14 (a)(i) might benefit from amendment.
Clause 34 of the 2017 form (formerly Clause 31 in the 2005 form) – Early Termination
In May 2014 when BIMCO announced that the 2005 form was due for a “light touch” revision process, it singled out Clause 31 as being particularly deserving of attention, stating “feedback from users has indicated that some of the provisions of the Early Termination clause could be more clearly written to avoid possible misunderstanding” (a sentiment the authors certainly shared).
The revisions to what is now Clause 34 are fairly extensive and, in large part, to be welcomed. Gone are the inadequate notice provisions in Clause 31 (b) of the 2005 form, which are now replaced by an improved notices mechanism (in Clause 34 of the 2017 form), which seeks to make clear by whom the six Termination Events may be prayed in aid.
Under the 2005 form early termination arrangements, Owners could have benefitted from their own breach – for example, the right to terminate for breakdown was available to both parties. In the latest version of the form, that right has been removed, and replaced by a termination right (which is also now independent of the other early termination rights) where the Vessel is off-hire for a period, or periods, exceeding certain given thresholds (such thresholds to be agreed between the parties).
The ability for either party to terminate where there is a repudiatory breach is not linked to the notice provisions (unlike the 2005 form) and is exercisable immediately (i.e., with no grace period, also unlike the 2005 form) upon written notice, rather than there being any grace period. Under the 2005 form, if the party seeking to terminate (it could have been either, and not just the innocent party) for repudiatory breach did not comply with the strict timings in the notice provisions then arguably they lost the right to terminate, and a continuing breach would not have provided a fresh right to terminate as the notice provisions only responded to the ‘occurrence of an event’. In the 2017 form, the risk under the 2005 form of losing the right to terminate for repudiatory breach for failure to comply with the notice provisions has been removed as there is no link to the notice provisions. In addition the risk in the 2005 form of there not being a fresh right to terminate where the breach is continuing has been removed as Clause 34 (c) refers to a party’s right to terminate arising if the other “party is in repudiatory breach” (as opposed to being on the “occurrence” of the breach).
With the 2005 form there was always uncertainty in relation to the right to terminate for repudiatory breach and its relationship with the notice provisions, and whether Clause 31 (b) of the 2005 form amounted to a ‘complete code’, so as to exclude any other common law rights that might otherwise be available – several commentators, and at least one arbitral tribunal, have considered Clause 31 (b) to constitute a complete code. It is unclear whether Clause 34 of the 2017 form is intended to be a complete code – while the termination rights for repudiatory breach and off-hire are expressed to be without prejudice to any other rights of the parties under the Charter Party (which might suggest a complete code), the termination for cause provisions provide that they shall not relieve the Charterers of “any obligation for Hire” (presumably intended to refer to the obligation to pay Hire) and “any other payments due up to the date of termination”. In this regard, when used, the 2017 form may merit amendment to clarify the position.
Cancelling date, mobilisation fee, carriage of dangerous cargoes, fuels and pollution under the 2017 form
Under the 2005 form the Owners could, if they so chose, give a notice to the Charterers that they would not be able to deliver the Vessel within the cancelling date, which would give the Charterers the right to elect to cancel the Charter Party within 24 hours of the Owners’ notice. The 2017 form (at Clause 2 (c)) now obliges the Owners to give such a notice if they “know or ought reasonably to know” that they will be unable to deliver the Vessel within the cancelling date, the stated (in BIMCO’s explanatory note) purpose of this revision being to avoid “a ship at risk of arriving after the cancelling date and time” having to “proceed on a long voyage towards the delivery place, not knowing whether or not the charterers will accept the ship once it has arrived”.
It is noteworthy that Clause 2 (b) of the 2017 form provides that the mobilisation fee is payable on delivery of the Vessel, whereas under the 2005 form it was payable at the time stated in Box 12 (ii) (which, presumably not intentionally, the 2017 form retains). Even if it were intended that the mobilisation fee be payable on delivery of the Vessel (the authors’ experience is that typically it would not be), it would, if only for the sake of clarity, be sensible, when using the 2017 form, to revise Clause 2 (b) so that the time for payment of the mobilisation fee is only by reference to the time that should be stated in Box 12 (ii).
Whereas Clause 6 (c)(iii) of the 2005 form provided that the Charterers were to indemnify the Owners in respect of any loss or damage arising from a failure to notify the Owners of carriage of explosives and/or dangerous cargo, or a failure to mark and pack such explosives and/or cargo in accordance with relevant regulations, there is no such indemnity in the 2017 form. The rationale for this removal in the 2017 form is, so BIMCO’s explanatory note provides, to “make the contract more balanced and to strengthen the knock-for-knock regime”. Some may consider the new approach to be somewhat at odds with current market practice, and the usual common law position. These provisions of the 2017 form may be an area where Owners will seek to carry over elements of the relevant provisions of the 2005 form.
Potentially quite significantly for Owners, no longer are the Charterers liable expressly for loss and damage caused by the supply of unsuitable fuels or fuels which do not comply with contractual specifications and grades (see Clause 10 (d) of the 2005 form). Much as with the revisions to the dangerous cargo provision, the removal of the express provision regarding Charterers’ liability as regards fuels seems to stem also from the ‘re-balancing’ exercise that has been undertaken by BIMCO. Whether a court or arbitral tribunal would be prepared to imply a warranty of fitness for purpose of fuels remains to be seen. In the revised wording of Clause 10 two options as to payment for fuels are given – one follows the more traditional route (Charterers buy from Owners on delivery and Owners buy from Charterers on redelivery); and the other where fuels are paid for by way of reconciliation on redelivery between the quantity of fuels on delivery and at redelivery (a mechanism that has become increasingly popular in conventional shipping for short term chartering). That second option, when selected, would perhaps benefit from some amendment to clarify where title to the fuels lies.
The structure of indemnities in the 2005 form as regards pollution is largely retained in the 2017 form. One of the respects in which the two forms diverge is that in the 2017 form the indemnities are no longer excluded from the knock-for-knock regime, as noted in BIMCO’s explanatory note, and as such bring pollution within the purview of that regime. The addition in the 2017 form of a carve-out in the indemnity provided by the Owners in Clause 15 (a) as regards pollution from cargo could perhaps benefit from a clarification that this would include residues from such cargo, to remove the question that may otherwise arise as to how, for example, unpumpables from previous Charterers’ cargoes would be treated. In addition, the carve-out may, when using the 2017 form, benefit from being extended to cover pollution from Charterers’ equipment fitted to the Vessel (which, with the Owners’ prior written consent, the Charterers are permitted to fit under Clause 4).
The 2017 form versus the 2005 form
The 2017 form is a marked improvement in many respects, and is to be welcomed and, we would suggest, adopted, albeit with careful attention to whether all its provisions are suitable for the project in question, as well as the Vessel, and align properly with the needs of the parties. The 2017 form seems a better starting point than the 2005 form (and indeed the 1989 form) and, with a few careful amendments, including those mentioned above (if relevant to the circumstances), it should be possible to use it successfully.
Client Alert 2017-156
