BAREBOAT CHARTERS BY MARK DAVIS Partner, Curtis Davis Garrard fl L P LONDON 2000 HONG KONG
Contents Acknowledgements Préface Table of Cases Table of Législation Table of Conventions vii ix xxi xxvii xxix 1 THE NATURE OF A BAREBOAT CHARTER Introduction 1 Operating charters 2 Finance charters and leases 3 The essential characteristics of a bareboat charter 3 The fondamental terms of a bareboat charter 4 The liability of the owners of a bareboat chartered vessel to third parties 5 Owners' liabiiity for acts or omissions of the bareboat charterers 5 Owners' liability to third parties for their own négligence 5 Owners' rights where the vessel is simultaneously bareboat chartered and taken back on time charter 6 2 THE FORMATION OF A BAREBOAT CHARTER AND THE BIMCO BARECON 89 FORM Formai requirements for a bareboat charter 7 Fixture before formai charter signed 9 Construction of the contract 10 General principles 10 Presumption against surplusage 11 xi
Deletions 11 Printed/typed clauses 11 Conditions, warrantes and "innominate" terms 12 Conditions 12 Warrantes 12 Innominate terms 12 Terms implied by statute 13 The Supply of Goods and Services Act 1982 as amended by the Sale and Supply of Goods Act 1994 13 The right to transfer possession of the vessel and the right to quiet enjoyment 14 Correspondance with description 15 Satisfactory quality 16 Fitness for purpose 16 Répudiation 16 Unfair Contract Terms Act 1977 17 The Law Reform (Frustrated Contracts) Act 1943 17 The BIMCO Barecon 89 form 17 3 CLAUSES 2/3 DELIVERY, AND TIME FOR DELIVERY Clause 2 Delivery 19 Introduction 19 What constitutes delivery? 20 Place of delivery 20 Owners' obligations 20 Due diligence 20 Seaworthiness 21 Readiness for service 21 Properly documented 22 Breach of owners' obligations 22 Discharge of owners' obligations under Clause 2 23 Latent defects 24 Clause 3 Time for delivery 25 Window for delivery 25 Notice 26 Change in vessel's position 26 4 CLAUSE 4 CANCELLING The charterers' contractual right to cancel 27 Claims against the owners 28 Measure of damages 28 Owners' notice of delay 29 Cancellation before the cancelling date 29 xu
5 CLAUSE 5 TRADING LIMITS CONTENTS Purpose of trading limits 31 Breach measure of damages 32 6 CLAUSES 6/7 SURVEYS, AND INSPECTION Clause 6 Surveys 33 Purpose of survey 33 Expenses of survey 33 Disputes as to vessel's condition 34 Drydock 34 Clause 7 Inspection 34 Owners' right to inspection/survey 35 Cost of inspection/survey 35 Right to inspect the vessel's log books 36 Duty to keep owners advised of the intended employment of the vessel 36 7 CLAUSE 8 INVENTORIES AND CONSUMABLE OIL AND STORES Préparation of inventory 37 Payment 38 Property in bunkers 38 8 CLAUSE 9 MAINTENANCE AND OPERATION Maintenance and opération 41 Charterers' obligations as to maintenance and repair 42 The owners' right to withdraw 43 Structural changes to the vessel 44 Financial security for pollution 45 Manning, victualling, supplies and fuelling 45 Flagging and insignia 46 Structural changes 46 Use of outfit, equipment and appliances 47 Periodical drydocking/cleaning and painting of underwater parts 47 Breach of charterers'obligations 48 9 CLAUSE 10 HIRE Introduction 50 Payment of first month's hire 50 Payment of subséquent instalments of hire 50 Payment of last month's hire 51 xiii
Payment in cash without discount Set-off Vessel lost or missing Time of the essence In default of payment Part payment Repeated failures to pay hire on the due date Without noting any protest and without interférence by any court or any other formality whatsoever Effect of withdrawal of the vessel Interest Waiver and estoppel Waiver Estoppel Acceptance of late payment Relief against forfeiture 52 53 54 54 55 56 56 56 57 58 58 59 59 59 60 10 CLAUSE 11 MORTGAGE Introduction 63 Rights of the mortgagee 64 11 CLAUSES 12/13 INSURANCE, REPAIRS AND CLASSIFICATION Introduction 65 Clause 12 Insurance and repairs 66 Marine, war and Protection and Indemnity risks 67 Additional insurances 67 Actual, constructive, compromised or agreed total loss 67 Termination of the charter 68 Abandonment 68 Value of the vessel 68 Clause 13 Insurance, repairs and classification 69 Marine and war risks 70 Protection and Indemnity risks 70 Vitiation of the insurances 70 Responsibility for insured repairs 71 Responsibility for uninsured repairs 71 Time for repairs 71 Classification Certificates 71 12 CLAUSE 14 REDELIVERY Redelivery at end of charter period 73 Place of redelivery 73 Time and notice for redelivery 74 xiv
Early redelivery 74 Late redelivery 75 Condition of the vessel upon redelivery 76 Measure of damages 77 Survey cycles and class certificates 79 13 CLAUSES 15/16 NON-LIEN AND INDEMNITY, AND LIEN Clause 15 Non-lien and indemnity 81 Common law and liens 81 Introduction 81 Ostensible authority 82 Notice 83 Indemnity 83 Arrest 83 Clause 16 Lien 83 Introduction 83 The owners' lien upon ail cargoes belonging to the charterers 84 The owners' lien upon ail sub-freights belonging to the charterers 84 The owners' lien upon any bill of lading freight 85 The charterers' lien on the vessel for ail moneys paid in advance and not earned 85 Priority 85 Registration 86 14 CLAUSES 17/18/19 SALVAGE, WRECK REMOVAL, AND GENERAL AVERAGE Clause 17 Salvage 87 Clause 18 Wreck removal 88 Charterers to indemnify owners 88 Clause 19 General average 89 Introduction 89 English law of gênerai average 90 15 CLAUSE 20 ASSIGNMENT AND SUB-DEMISE Introduction 91 Assignment of benefits 91 Assignment of burdens 92 Vicarious performance 92 Légal and équitable assignments 93 Légal assignments 93 Equitable assignments 93 Novation 93 Consent not to be unreasonably withheld 94 Effect of assignment in breach of contractual prohibition 95 Sub-demise 97 xv
Time or voyage charter 97 Sale of the vessel by the owners 97 Discharge of guarantee 98 16 CLAUSE 21 BILLS OF LADING Paramount Clause 99 New Jason Clause 100 Both to blâme collision clause 101 Indemnity 101 Claims by cargo owners 102 17 CLAUSE 22 BANK GUARANTEE Introduction 105 The nature of a bank guarantee 106 The nature of a performance bond 107 "First class" bank guarantee or bond 108 Discharge of the surety under a bank guarantee 108 General 108 Extension of the charterparty 109 Assignment by the owners of the benefit of the charterparty 112 Charterers ordering the vessel outside trading limits 113 Enforceability of the guarantee 113 18 CLAUSES 23/24 REQUISITION/ACQUISITION, AND WAR Clause 23 Réquisition/Acquisition 115 Introduction 115 Réquisition for hire and frustration 116 Clause 24 War 117 19 CLAUSE 25 COMMISSION Introduction 119 Broker's commission who is responsible? 119 Brokers' ability to recover commission 120 Contracts (Rights of Third Parties) Act 1999 120 At common law 121 20 CLAUSE 26 LAW AND ARBITRATION London/New York 123 English law and London arbitration 124 xvi
Scope of the disputes 124 Procédure 125 Commencement of arbitration proceedings 125 Rights of challenge/appeal 126 The LMAA Rules 127 Back to back contracts 128 Enforceability of the award 128 21 PART III: PROVISIONS TO APPLY FOR NEWBUILDING VESSELS ONLY Introduction 131 Spécifications and building contract 131 Time and place of delivery 133 Guarantee works 134 Name of vessel 134 Survey on redelivery 135 22 PART IV: HIRE/PURCHASE AGREEMENT Introduction 138 Provided the charterers hâve fulfilled their obligations 138 Delay in payment of the final instalment 139 Guarantee and indemnity 139 Miscellaneous provisions 140 Purchase and registration expenses 140 Bill of Sale and deletion from Register 140 Wireless installation and nautical instruments 140 Sellers' risk 140 Repatriation 140 23 PART V: PROVISIONS TO APPLY FOR VESSELS REGISTERED IN A BAREBOAT CHARTER REGISTRY 141 24 FINANCE CHARTERS AND LEASES Introduction 145 Loans and leases 145 Main différences 145 Tax/accounting treatment 146 Re-characterisation risk 146 Financing bareboat charters 147 Typical financing charter terms 148 Introduction 148 Définitions '48 Transfer of risk provisions 149 xvii
"Hell or high water" payment terms 149 Hire 149 Owners' liability 149 Charterers' indemnity 150 Owners' rights 150 Right to mortgage or sell the ship 150 Rights on termination 150 Other common provisions 150 Conditions précèdent to the grant of the lease 151 Charterers' représentations and warranties 151 Charterers' covenants and undertakings 152 Termination events 153 Owners' liability issues 153 Introduction 153 Oil pollution 154 Third party liabilities 154 Flag liabilities 154 Other civil liabilities 155 Insurance cover 155 Insolvency issues 155 Repossession 155 Liquidation 155 Administrative receivership 155 Administration 156 Recovering hire 156 Liquidation 156 Administrative receivership 156 Administration 156 Disclaimer of charter 157 Disposai of ship 157 Automatic termination on liquidation or administration 157 Islamic lease finance 158 25 IN REM CLAIMS AND ADMIRALTY JURISDICTION Introduction 161 Claims in personam and in rem 161 Claims in personam 161 Claims in rem 162 Advantages of an action in rem 162 Procédural issues 163 Statutory liens 163 Maritime liens 164 Introduction 164 Main features of a maritime lien 165 Discharge of a maritime lien 165 Maritime liens and actions in rem 165 The distinction between in rem and arrest jurisdiction 166 Priority 167 xvui
Claims against the bareboat chartered ship 167 Introduction 167 When can a third party arrest or proceed in rem against a bareboat chartered ship? 168 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? 169 Summary 17 ) 26 POLLUTION Introduction 173 OPA 90 174 Introduction 174 Strict liability 174 Who can be held liable? 174 Type of damage covered 174 Exceptions to liability 175 Limitation of liability 175 Certificates of financial responsibility 175 Oil Spill Liability Trust Fund 176 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 176 Introduction 176 Strict liability 177 Who can be held liable? 177 Type of damage covered 177 Exceptions to liability 178 Limitation of liability 178 Compulsory insurance and certification 179 The International Convention on the Establishment of a Fund for Compensation for Oil Pollution 1992 and the IOPC Fund 179 The Hazardous and Noxious Substances Convention 1996 179 The HNS Fund 180 27 FRUSTRATION The doctrine of frustration 181 Applicability of the doctrine of frustration to bareboat charters 182 Foreseen events provided for in the charter 183 The effect of frustration at common law 183 The Law Reform (Frustrated Contracts Act) 1943 183 Background 183 Applicability of the Act 184 Recovery of advance payments 184 Obligations other than to pay money 185 Identification of the benefit 186 Valuation of the benefit 186 xix
Award of a just sum 186 Frustration by loss of the ship 186 Frustration by delay or strike 188 Frustration by illegality 188 Frustration by war 188 Frustration by requisitioning 189 Arbitration 190 APPENDIX 1 Barecon 89 192 Index 205 xx