SHIPSALE 22—a familiar form in a new guise
On 21 April 2022 BIMCO released SHIPSALE 22, its new standard contract for sale/purchase of vessels.
Whilst SHIPSALE 22 is clearly based on the familiar and widely used Saleform 2012 and uses much of the same wording, there are two important differences in layout to note. Firstly, BIMCO has implemented its well-known box format, with key contractual terms to be inserted in boxes (with clause references) on the first page of the contract rather than directly in the individual clauses. Secondly, BIMCO has re-arranged the order of the clauses to follow the chronology of a typical sale/purchase transaction. In addition to the layout changes, some revisions have been made to the existing wording to improve clarity and some new clauses have been included reflecting developments in commercial practice since the adoption of Saleform 2012. These changes are likely to be viewed as helpful improvements over Saleform 2012. A selection of noteworthy changes is set out below.
Saleform 2012 does not include a regulation of subjects to effectiveness (such as board approvals), and an additional clause is therefore frequently added. In SHIPSALE 22, a mechanism for subjects to effectiveness has been included as a new Clause 3, a sensible and welcome addition. Care is however needed when drafting the subjects to specify which party benefits from and is able to lift them.
It is not uncommon for the performance of one or both parties under a sale/purchase agreement to be guaranteed by another entity, particularly where the party is a single-purpose entity. In SHIPSALE 22, a set of boxes and signature fields have been included to make it simpler to document such performance guarantees.
SHIPSALE 22 (Clause 5) assumes, like Saleform 2012, that the buyers are to lodge a deposit as security for their obligations under the agreement. However, unlike under Saleform 2012, the size of the deposit and the identity of the deposit holder must both be explicitly agreed, and care should be taken that the relevant boxes are filled out. SHIPSALE 22 specifically states that the deposit holder agreement between the parties and the deposit holder must be entered into before the deposit is lodged, and an explicit mechanism has also been included to allow for extension of time if the deposit is delayed by certain disruptive banking events.
Saleform 2012 allows the parties to choose between (a) outright sale, with inspection of the vessel and its classification records having occurred before contract signing; and (b) sale subject to pre-delivery inspection. SHIPSALE 22 Clause 6 introduces an additional alternative (c): outright sale with the buyer waiving its right of inspection entirely, which may be practical in e.g. certain sale/leaseback transactions, sale between related parties or distressed asset sales. Unlike Saleform 2012, SHIPSALE 22 does not specify which mechanism applies if the parties do not make a selection, and care should be taken to ensure the relevant box is filled out.
Where alternative (b) is chosen, the buyer’s right of inspection has been worded more narrowly than under Saleform 2012: rather than “without opening up”, the inspection is under SHIPSALE 22 to occur “without testing of the Vessel’s engines, machinery, equipment or systems”. Furthermore, the buyers’ deadline for acceptance or rejection of the vessel following inspection has been prolonged from 72 hours to five days.
Underwater Inspection or Drydock Inspection
Like Saleform 2012, SHIPSALE 22 (Clause 8 and 9) allows the parties to choose between (a) a right to underwater inspection of the vessel before delivery, with drydock inspection to follow in case of certain findings; and (b) a right to drydock inspection of the vessel before delivery. If no selection is made, SHIPSALE 22 (like Saleform 2012) provides that the option of an underwater inspection shall apply.
Where an underwater inspectio n is chosen, the requirement in Saleform 2012 that buyers declare latest nine days before the vessel’s intended date of readiness for delivery whether they intend to carry out an underwater survey has been removed. Instead, SHIPSALE 22 provides that if the underwater inspection has not been initiated within two days after the vessel being made available for inspection, the buyers are deemed to have waived their right to underwater inspection.
If the vessel is drydocked, Saleform 2012 includes a right for the buyers to require the tailshaft to be drawn, even if this is not required by the vessel’s classification society, with the costs apportioned depending on the findings. In SHIPSALE 22, this right of the buyers has been removed.
In cases where drydocking cannot be carried out at the port of delivery, the maximum extension of the cancellation date owing to the additional time caused by drydocking at an alternative location has been extended from 14 days in Saleform 2012 to 21 days in SHIPSALE 22.
Like Saleform 2012, SHIPSALE 22 Clause 10 includes a warranty by the sellers that the vessel is delivered free of encumbrances. The wording has, however, been adjusted to explicitly cover any form of trading commitment as well as any form of arrest or restraint.
Saleform 2012 provides that the purchase price is to be paid “in full free of bank charges”. In SHIPSALE 22 Clause 14, it has been made explicit that payment of the purchase price (along with other payments under the contract) is to be made free of any set off, deduction or withholding – and an express gross-up clause has been included.
Delivery Documents and Closing
The deadline for exchange of drafts has been tightened in SHIPSALE 22: Where Saleform 2012 provided that drafts of sellers’ and buyers’ delivery documents should be exchanged no later than nine days before the intended date of readiness for delivery, SHIPSALE 22 stipulates five days after the first delivery notice, which in the standard form is to be sent 20 days before the intended date of readiness. Furthermore, SHIPSALE 22 provides that the buyers must specify any additional documents their intended registry requires within two days of receipt of the sellers’ earliest delivery notice, underscoring the importance of early contact with and pre-clearance of required documents with the intended registry.
SHIPSALE 22 Clause 16 outlines the closing procedure in somewhat more detail than Saleform 2012: Express reference is made to a documentary closing to take place after notice of readiness for delivery has been tendered by the sellers, and it is specified that the documentary closing may occur either remotely by electronic means or physically, with the parties to select a procedure in Box 19.
Other new clauses
A few new clauses have also been included in SHIPSALE 22.
Firstly, warranties by both parties to comply with relevant legislation concerning sanctions and anti-corruption, and entitling the non-breaching party to terminate the agreement and claim damages, have been included in Clauses 21 and 22. Secondly, a confidentiality clause, with an express provision that the non-breaching party is not entitled to terminate the agreement, has been included in Clause 23. Thirdly, a new electronic signature clause has been included in Clause 27, expressly allowing for both the agreement itself and all other documents to be signed in connection with the agreement to be signed electronically.
Saleform 2012 is often amended to include such clauses, and their inclusion in SHIPSALE 22 will likely be viewed as a significant improvement.
There are few substantive changes in SHIPSALE 22 compared to Saleform 2012 other than the layout changes, clarifications of wording, and updates to reflect recent commercial practice, but all of these are likely to be viewed as helpful improvements. Although Saleform 2012 is a widely used form and it often takes some time for a new form to be adopted, we would not be surprised if SHIPSALE 22 is quickly picked up as a new standard form for sale/purchase agreement across the shipping/offshore sectors.