BAREBOAT CHARTERS SECOND EDITION BY MARK DAVIS Davis & Co. L L P LONDON 2005 SINGAPORE
Contents Acknowledgements Preface to the Second Edition Table of Cases Table of Legislation Table of Conventions vii ix xxiii xxxi xxxiii 1 THE NATURE OF A BAREBOAT CHARTER para nos Introduction 1.1 Operating charters 1.7 Finance charters and leases 1.8 The essential characteristics of a bareboat charter 1.9 The fundamental terms of a bareboat charter 1.13 The liability of the owners of a bareboat chartered vessel to third parties 1.14 Owners' liability for acts or omissions of the bareboat charterers 1.15 Owners' liability to third parties for their own negligence 1.16 Owners' rights where the vessel is simultaneously bareboat chartered and taken back on time charter 1.17 2 THE FORMATION OF A BAREBOAT CHARTER Formal requirements 2.1 Fixture before formal charter signed 2.6 Construction of the contract 2.8 General principles 2.8 XI
Presumption against surplusage 2.10 Deletions 2.11 Printed/typed clauses 2.12 Conditions, warranties and "innominate" terms 2.13 Conditions 2.14 Warranties 2.15 Innominate terms 2.16 Terms implied by statute 2.18 The Supply of Goods and Services Act 1982 as amended by the Sale and Supply of Goods Act 1994 2.18 The right to transfer possession of the vessel and the right to quiet enjoyment 2.20 Correspondence with description 2.24 Satisfactory quality 2.29 Fitness for purpose 2.30 Repudiation 2.31 Unfair Contract Terms Act 1977 2.32 The Law Reform (Frustrated Contracts) Act 1943 2.34 3 THE BIMCO BARECON 2001 FORM 3.1 4 CLAUSES 1, 2 AND 3 DEFINITIONS, CHARTER PERIOD AND DELIVERY Definitions 4.1 Charter period 4.2 Delivery 4.3 Introduction 4.4 Due diligence 4.5 Seaworthiness 4.8 Readiness for service 4.9 What constitutes delivery? 4.11 Breach of owners' obligations 4.12 Place of delivery 4.13 Properly documented 4.15 Survey cycles, trading and class certificates 4.16 Discharge of owners' obligations under Clause 3 4.17 Latent defects 4.21 Damage existing at the time of delivery 4.24 5 CLAUSE 4 TIME FOR DELIVERY Window for delivery 5.1 Notice 5.2 Change in vessel's position 5.4 xn
6 CLAUSE 5 CANCELLING CONTENTS The charterers' contractual right to cancel 6.2 Owners' notice of delay 6.4 Cancellation before the cancelling date 6.6 Claims against the owners 6.7 Measure of damages 6.8 7 CLAUSE 6 TRADING RESTRICTIONS Purpose of trading limits 7.1 Breach measure of damages 7.3 Withdrawal of the vessel and termination of the charter 7.6 8 CLAUSE 7 SURVEYS ON DELIVERY AND REDELIVERY Purpose of survey 8.1 Expenses of survey 8.2 Disputes as to vessel's condition 8.3 Drydock 8.5 9 CLAUSE 8 INSPECTION Owners' right to inspection/survey 9.1 Cost of inspection/survey 9.3 Right to inspect the vessel's log books 9.6 Duty to keep owners advised of the intended employment of the vessel 9.7 10 CLAUSE 9 INVENTORIES, OIL AND STORES Preparation of inventory '0-1 Payment 10-2 Property in bunkers 10.3 II CLAUSE 10 MAINTENANCE AND OPERATION Maintenance and operation 10(a) Maintenance and repairs, New class and other safety requirements and Financial security '' -2 10(a)(i) Maintenance and repairs H-3 10(a)(ii) New class and other safety requirements 11.6 10(a)(iii) Financial security H-8 Operation of the vessel '' -9 Intended employment 11.10 xiii
Flag and name of vessel 11.11 Structural changes 11.12 Use of outfit, equipment and appliances 11.13 Periodical drydocking/cleaning and painting of underwater parts 11.14 Breach of charterers' obligations 11.15 12 CLAUSE 11 HIRE Introduction 12.1 Time of the essence 12.2 Payment of first month's hire 12.4 Payment of subsequent instalments of hire 12.5 Payment of last month's hire 12.6 Payment in cash without discount 12.8 Set-off 12.9 Vessel lost or missing 12.11 Part payment 12.12 Interest 12.13 Waiver and estoppel 12.14 Waiver 12.15 Estoppel 12.17 Acceptance of late payment 12.18 13 CLAUSE 12 MORTGAGE Introduction 13.1 Vessel not financed by a mortgage 13.2 Vessel financed by a mortgage 13.3 Rights of the mortgagee 13.4 14 CLAUSES 13/14 INSURANCE AND REPAIRS Introduction 14.1 Clause 13 Hull and machinery, war and P&I risks 14.3 Hire/purchase 14.5 Additional insurances 14.6 Documentation 14.7 Actual, constructive, compromised or agreed total loss 14.8 Termination of the charter 14.10 Abandonment 14.11 Value of the vessel 14.12 Clause 14 Marine and war risks 14.14 Protection and indemnity risks 14.15 Vitiation of the insurances 14.16 Responsibility for insured repairs 14.17 xiv
Responsibility for uninsured repairs 14.18 Time for repairs 14.19 Additional insurances 14.20 Agreed, constructive, compromised or agreed total loss 14.21 Termination 14.22 Abandonment 14.23 Value of the vessel 14.24 Classification certificates 14.25 15 CLAUSE 15 REDELIVERY Introduction 15.1 Place of redelivery 15.2 Time and notice for redelivery 15.3 Early redelivery 15.4 Late redelivery 15.7 Condition of the vessel upon redelivery 15.9 Measure of damages 15.12 Survey cycles and class certificates 15.16 16 CLAUSE 16 NON-LIEN Introduction 16.1 Common law and liens 16.2 Introduction 16.2 Ostensible authority 16.3 Notice 16-6 Arrest 16-7 17 CLAUSE 17 INDEMNITY Introduction ' 7.1 Indemnity by the charterers '7-2 Indemnity by the owners 17.4 18 CLAUSE 18 LIEN Introduction '8.1 The owners' lien upon all cargoes belonging to the charterers 18.2 The owners' lien upon sub-hires and all sub-freights belonging to the charterers 18.3 The owners' lien upon any bill of lading freight 18.5 The charterers' lien on the vessel for all moneys paid in advance and not earned 18.6 Priority 18.7 Registration ' 8-8 xv
19 CLAUSE 19 SALVAGE Introduction 19-1 20 CLAUSE 20 WRECK REMOVAL 20.1 21 CLAUSE 21 GENERAL AVERAGE Introduction 21.1 English law of general average 21.4 22 CLAUSE 22 ASSIGNMENT, SUB-CHARTER AND SALE Introduction 22.1 Assignment of benefits 22.3 Assignment of burdens 22.4 Vicarious performance 22.6 Legal and equitable assignments 22.7 Novation 22.8 Consent not to be unreasonably withheld 22.9 Effect of assignment in breach of contractual prohibition 22.12 Sub-bareboat charter 22.17 Time or voyage charter 22.18 Sale of the vessel by the owners 22.19 Discharge of guarantee 22.20 23 CLAUSE 23 CONTRACTS OF CARRIAGE Paramount Clause 23.2 New Jason Clause 23.4 Both-to-blame collision clause 23.5 Claims by cargo owners 23.6 Passengeer tickets 23.11 24 CLAUSE 24 BANK GUARANTEE Introduction 24.1 The nature of a bank guarantee 24.3 The nature of a performance bond 24.6 "First class" bank guarantee or bond 24.8 Discharge of the surety under a bank guarantee 24.9 General 24.9 Extension of the charterparty 24.12 Assignment by the owners of the benefit of the charterparty 24.18 Charterers ordering the vessel outside trading limits 24.20 xvi
Enforceability of the guarantee 24.21 25 CLAUSE 25 REQUISITION/ACQUISITION Introduction 25.1 Requisition for hire 25.2 Compulsory acquisition or requisition for title 25.4 Requisition for hire and frustration 25.5 26 CLAUSE 26 WAR War risks definition 26.1 The scope of Clause 26 26.3 27 CLAUSE 27 COMMISSION Introduction 27.1 Broker's commission who is responsible? 27.2 Brokers' ability to recover commission 27.5 Contracts (Rights of Third Parties) Act 1999 27.5 At common law 27.10 Common law and the Contracts (Rights of Third Parties) Act 1999 27.12 28 CLAUSE 28 TERMINATION Introduction 28.1 Charterers' default 28.2 Failure to pay hire 28.3 Failure to comply with Trading Restrictions (Clause 6) or the Insurance and Repair provisions of Clause 13(a) 28.5 Failure to comply with the Maintenance and Repair provisions of Clause 10(a)(i) 28.7 Owners' default 28.8 Loss of the vessel 28.9 Insolvency 28.10 Reservation of rights 28.11 Practical consequences of termination 28.12 Effect of withdrawal of the vessel 28.13 29 CLAUSE 29 REPOSSESSION Introduction 29.1 Repossession 29.2 The position pending repossession. 29.3 Disembarkation and repatriation expenses 29.4 xvii
Arrest Relief against forfeiture 29.6 29-5 30 CLAUSE 30 DISPUTE RESOLUTION Introduction 30.1 Arbitration London/New York 30.2 English law and London arbitration 30.4 Scope of the disputes 30.4 Procedure under the LMAA rules 30.5 Small claims 30.8 Commencement of arbitration proceedings 30.9 Rights of challenge/appeal 30.11 Back-to-back contracts 30.14 Enforceability of the award 30.15 Arbitration by third parties 30.16 Mediation 30.17 31 CLAUSE 31 NOTICES Introduction 31.1 Time of service 31.2 The general rule 31.2 The postal rule 31.3 Service by email 31.4 Service by telex and/or fax 31.5 Failure to comply with the notices provision 31.7 32 PART III: PROVISIONS TO APPLY FOR NEWBUILDING VESSELS ONLY Introduction 32.1 Specifications and building contract 32.3 Time and place of delivery 32.7 Guarantee works 32.10 Name of vessel 32.11 Survey on redelivery 32.12 33 PART IV: HIRE/PURCHASE AGREEMENT Introduction 33.1 Provided the charterers have fulfilled their obligations 33.2 Delay in payment of the final instalment 33.3 Guarantee and indemnity 33.4 Miscellaneous provisions 33.5 xviii
Purchase and registration expenses 33.5 Bill of sale and deletion from Register 33.6 Wireless installation and nautical instruments 33.7 Sellers' risk 33.8 Repatriation 33.9 34 PART V: PROVISION TO APPLY FOR VESSELS REGISTERED IN A BAREBOAT CHARTER REGISTRY Introduction 34.1 Bareboat charter registration under British flag 34.2 Governing law 34.2 Qualification for registration 34.3 Period of registration 34.4 The effect of registration 34.5 Application for registration 34.6 Changes in circumstances 34.7 Notification of primary registry 34.8 Regulation 87 34.9 Registrar's power to refuse registration 34.10 35 FINANCE CHARTERS AND LEASES Introduction 35.1 Loans and leases 35.1 Main differences 35.2 Tax/accounting treatment 35.3 Re-characterisation risk 35.4 Financing bareboat charters 35.5 Typical financing charter terms 35.7 Introduction 35.7 Definitions 35.8 Transfer of risk provisions 35.9 "Hell or high water" payment terms 35.9 Hire 35.10 Owners'liability 35.11 Charterers' indemnity 35.13 Owners' rights 35.14 Right to mortgage or sell the ship 35.15 Rights on termination 35.16 Other common provisions 35.17 Conditions precedent to the grant of the lease 35.18 Charterers' representations and warranties 35.19 Charterers' covenants and undertakings 35.20 Termination events 35.21 Owners' liability issues 35.22 Introduction 35.22 Oil pollution 35.23 xix
Third party liabilities 35.24 Flag liabilities 35.25 Other civil liabilities 35.26 Insurance cover 35.27 Insolvency issues 35.28 Repossession 35.29 Liquidation 35.30 Administrative receivership 35.31 Administration 35.32 Recovering hire 35.33 Liquidation 35.33 Administrative receivership 35.34 Administration 35.35 Disclaimer of charter 35.36 Disposal of ship 35.37 Automatic termination on liquidation or administration 35.38 36 IN REM CLAIMS AND ADMIRALTY JURISDICTION Introduction 36.1 Claims in personam and in rem 36.2 Claims in personam 36.2 Claims in rem 36.3 Advantages of an action in rem 36.4 Procedural issues 36.5 Statutory liens 36.6 Maritime liens 36.7 Introduction 36.7 Main features of a maritime lien 36.8 Discharge of a maritime lien 36.9 Maritime liens and actions in rem 36.10 The distinction between in rem and arrest jurisdiction 36.11 Priority 36.13 Claims against the bareboat chartered ship 36.14 Introduction 36.14 When can a third party arrest or proceed in rem against a bareboat chartered ship? 36.15 When can a third party arrest or proceed in rem against a sister ship of the owner and/or bareboat charterer of the bareboat chartered ship? 36.18 Summary 36.20 37 POLLUTION Introduction 37.1 OPA 90 37.2 Introduction 37.2 Strict liability 37.3 Who can be held liable? 37.4 xx
Type of damage covered 37.5 Exceptions to liability 37.6 Limitation of liability 37.7 Certificates of financial responsibility 37.8 Oil Spill Liability Trust Fund 37.9 ''The International Convention on Civil Liability for Oil Pollution Damage 1992 and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992 37.10 Introduction 37.10 Strict liability 37.12 Who can be held liable? 37.13 Type of damage covered 37.14 Exceptions to liability 37.15 Limitation of liability 37.16 Compulsory insurance and certification 37.18 The International Convention on the Establishment of a Fund for Compensation for Oil Pollution 1992 and the IOPC Fund 37.19 Supplementary Fund 37.20 The Hazardous and Noxious Substances Convention 1996 37.21 The HNS Fund 37.22 38 FRUSTRATION The doctrine of frustration Applicability of the doctrine of frustration to bareboat charters Foreseen events provided for in the charter The effect of frustration at common law The Law Reform (Frustrated Contracts Act) 1943 Background Applicability of the Act Recovery of advance payments Obligations other than to pay money Identification of the benefit Valuation of the benefit Award of a just sum Loss of the ship Frustration by delay or strike Frustration by illegality Frustration by war Frustration by requisitioning Arbitration APPENDIX 1: BARECON 2001 APPENDIX 2: BARECON 89 Index 38.1 38.3 38.4 38.5 38.6 38.6 38.7 38.8 38.11 38.12 38.13 38.14 38.15 38.17 38.18 38.19 38.20 38.21 page nos 251 265 279 xxi