The Crackdown on Price Cap Evasion and the BIMCO Russian Oil Price Cap Scheme Clause for Charter Parties

The “Price Cap Measures” on Russian origin crude-oil and petroleum products (“Russian Oil”) were first introduced by the G7 countries and their coalition partners with effect from December 2022 and February 2023, respectively. Although there are subtle differences in the formal implementation of the scheme in the various participating countries, the essence is consistent: (i) a prohibition on marine transport, and services supporting such transportation, of seaborn Russian Oil globally, combined with an exception permitting the provision of such services if (a) the Russian Oil was purchased at or below a fixed price cap or (b) the party has reasonably relied on an attestation to that ­effect. 

By now, shipping parties have ­already grown accustomed to the process of requesting price information and making attestations to comply with the Price Cap Measures. There has also been strong engagement by the industry and by lawyers specialising in shipping sanctions with the relevant sanctions authorities. This has resulted in useful updates to the official guidance, as well as practical work to implement the rules. 

Despite such successes, there has been growing unease that the Price Cap Measures might have been too easy to circumvent for illegitimate actors and have thus not been wholly successful in reducing the amount of non-Price Cap compliant trade in Russian Oil. As a result, the Price Cap Coalition recently agreed on a set of measures aimed at reducing circumvention, including more detailed attestation requirements. We have also seen high-profile enforcement action targeting some actors paying lip-service to the pre-existing position that adequate due diligence has to be carried out before relying on attestation and re-emphasising that attestations are not a “tick-box”-exercise. 

Additional attestation ­requirements 

On 20 December 2023, the Price Cap Coalition published a statement outlining changes to the Price Cap Measures. As a result, all G7 countries and their coalition partner service providers are required to “receive attestations from their counterparties each time they lift or load Russian oil”, also known as a per-voyage attestation requirement. 

The relevant authorities in the EU, UK and US have published guidance elaborating on the content of the per-voyage attestation requirement. In short, Tier 1 and certain Tier 2 operators must provide an attestation confirming price cap compliance to any other Tier 1 or Tier 2 counterparty prior to the lifting or loading of Russian Oil or the effective date of the contract (whichever is earlier), and an additional attestation prior to the lifting or loading of Russian Oil. Further, they must provide an attestation to any Tier 3A operator (omitting reinsurers and certain financial institutions) prior to the effective date of the contract, and an additional attestation for every relevant voyage within 30 days of lifting or loading Russian Oil. Tier 3A operators must similarly request an attestation for all relevant voyages within 30 days of lifting or loading Russian Oil. 

The per-voyage attestation ­requirements enter into force on 19 February 2024 in the UK and US, and 20 February 2024 in the EU. 

In addition to the per-voyage attestation requirements, the Price Cap Coalition requested that all operators with access to price information (Tier 1 and certain Tier 2 operators) maintain and retain itemised price information for ancillary costs, including e.g., cost of export licences, inspection, shipping fees and packaging. This information must be shared with operators without access to price information (Tier 3A operators and certain Tier 2 operators) upon request. 

This requirement enters into force on the same date as the per-voyage attestation requirement set out above. 

The BIMCO Clause 

Since its introduction, the BIMCO Clause has been much used by shipping operators worldwide. The need for a specific clause on the Price Cap Measures was clear and, prior to its introduction, the industry’s approach consisted of a number of bespoke clauses in circulation, which in some cases resulted in fairly intense negotiations between counterparties. 

The BIMCO Clause has been a useful and in many cases suitable clause to replace the pre-existing versions that we have seen in circulation. 

However, the clause was drafted as a ‘one size fits all’ clause covering all Price Cap Measures for both time and voyage charters, and could not be expected to address all of the nuanced issues that arise in practice. As demonstrated by the tightening of the attestation requirements, one of the issues in respect of long-term charters will be to ensure the clause is sufficiently “future proof”. 

Users should therefore carefully consider what changes are necessary to make the clause suitable for their purposes. Some important points to consider are:

1. The official EU and UK guidance on the Price Cap Measures makes it clear that owners must carry out sufficient due diligence to satisfy themselves that it is reasonable to rely on the price information / attestations provided by charterers. This may require owners to review additional information beyond what they are entitled to request under the BIMCO clause. Owners should consider whether they are sufficiently protected on this point by any charter party clauses or if they are comfortable on the basis of their pre-existing knowledge of the charterers or trading in question.
2. It may be beneficial to both parties to include some form of “pre-approval” process where owners can assess the relevant trade, the parties involved and agree what further information will be received. This can help avoid situations where it is discovered at a late stage that owners are unable to satisfy themselves of the above requirements, which can cause delays and lead to conflicts. For charterers, this may be especially important in a charter party where owners have other relevant rights to refuse orders.
3. Owners should also consider whether the general confirmation that charterers are complying with their own reporting requirements is sufficient. For example, the UK Price Cap Measures require owners to report to OFSI if owners transact directly with a Tier 1 counterparty in certain circumstances, including when that Tier 1 counterparty is not itself required to report because UK sanctions do not apply to it. Accordingly, if UK owners are dealing with charterers who are also the buyer or seller of the cargo, it will be important for owners to find out if charterers are actually reporting to OFSI.
4. The new requirement for a voyage-based attestation is largely covered by the requirement to provide an attestation “[p]rior to each loading of any Price Cap Cargo”. However, there is a nuance in the EU guidance requiring a new attestation before any ship-to-ship operation.
5. The clause also does not expressly take into account the mandatory requirement for Tier 1 and Tier 2 operators, which will usually include charterers, to collate and keep itemised cost information upon request. Wording to that effect is not included in the standard attestation language. The provision allowing owners to request evidence from charterers arguably only covers evidence that charterers already hold. 
6. While arguably these “new” concerns are implicitly covered by the general warranty given by charterers that all employment will comply with the Price Cap Measures, dealing expressly with these issues is likely to reduce the scope for conflict. Owners may also want to consider whether they will be in a position to comply with their insurers’ requirements, which may be more stringent than strictly required by the Price Cap Measures. 
7. Owners and charterers should also carefully review the rights and remedies in sub-clause (e) of the BIMCO Clause and consider if these are suitable for their specific charter party. We comment further on this point below.

In relation to the last point regarding remedies, this is an issue that we have commented on in our more general sanctions articles in the context of longer-term contracts (available at wr.no). In the context of the Price Cap Clause, it is worth keeping in mind that:

• For owners, the main point will be whether the indemnity adequately covers their interests. The indemnity as drafted only covers losses arising from a breach, and as such may not extend to any steps taken by owners on the basis of having reasonable grounds to suspect activity contrary to the Price Cap Measures. Owners might therefore find themselves unable to pass on a loss for actions reasonably taken in response to a suspected breach of the Price Cap Measures.
• Charterers should note that owners are given the right to terminate the charter party in case of a breach of the clause and where owners have reasonable grounds to suspect activity contrary to the Price Cap Measures.
• More generally, the cause of breaches or the grounds for suspicion may be outside of charterers’ control. Charterers may therefore find it difficult to accept such a wide right to terminate if it is a long-term charter party that is crucial to their business. Additional flexibility may be appropriate in such cases if the breach can be remedied or if performance can be lawfully altered in some way.

In our experience the BIMCO Price Cap Clause has been widely adopted both “as is” and as a starting point for negotiations. In light of the recent development signposting that the Price Cap Measures are still being refined and that additional changes to further promote transparency are foreseeable, we would welcome an update to the clause that will reduce the perceived need or desire for bespoke amendments. In the meantime, we do not expect operators to find it too challenging to update what remains a well-drafted clause with clear and concise language.