BARECON 2017: Aligning an industry standard to reflect commercial and legal developments

The BARECON charter has been one of BIMCO's most widely used and most successful charter parties. The charter party was last updated in 2001 and was due for a throughout review and update to ascertain that it keeps pace with modern commercial developments, as well as legal developments. The purpose of this newsletter is to provide an overview of some of the key changes to the charter party.

Condition of vessel at delivery

The charterer will generally be prevented from bringing claims against the owner in respect of the condition of the vessel following the charterer's acceptance of the vessel. A key characteristic of a bareboat charter relates to the condition of the vessel at delivery.

Under the previous BARECON 2001, the owner was only to "exercise due diligence" to make the vessel seaworthy at the time of delivery. In the updated BARECON 2017, the obligation has been amended to an absolute obligation for the owner. Consequently, the charterer's position under the charter party has been strengthened.[1]

This amendment has aligned the BARECON charter with most time charter parties.

Moreover, if the charterer has inspected the vessel prior to delivery, the charterer will also be obliged to redeliver the vessel to the owner in the same condition, fair wear and tear excepted.

Time of delivery

Under BARECON 2001, the default position was a 30 days' preliminary and a 14 days' definite notice for delivery. This is updated in BARECON 2017, which requires the owner to keep the charterer informed about the vessel's itinerary and the parties to expressly state the number of days' approximate and definitive notice to be given.[2] Furthermore, the owner is only permitted to employ the vessel on contracts that can be reasonably expected to be completed prior to the agreed delivery date.

Payment of hire

A key obligation for the charterer is the payment of hire. In the earlier version of the charter party it was left up to the parties to agree the remedy period for late payment, the BARECON 2017 provides for fixed three banking days.[3] The charter party now also includes a requirement for the charterer to gross-up payments in case of withholdings, which usually would be included in the charter party's rider clauses.

The applicable interest has also been amended from two percent over three month LIBOR to three percent over one month over LIBOR.

Familiarisation and surveys

Clause 6 in BARECON 2017 is new and provides the charterer and the owner the right to place representatives on board the vessel prior to delivery and redelivery. The purpose of the clause is to give the representatives an opportunity to familiarise themselves with the vessel, and the length of such attendance on board should be agreed on a case-by-case basis. The different requirements for a newbuilding compared to an ordinary trading ship are obvious.[4]

Regulatory requirements

Due to a more complex and stringent regulatory environment for operators, the relevant provisions of the BARECON 2017 have undergone amendments to further clarify the parties' responsibility for the cost of compliance with the new regulations.

A vital feature of any bareboat charter is the charterer's obligations relating to the maintenance and operations of the vessel.  Under the BARECON 2017, the parties now have an option for allocation of costs of such changes:

  • Default solution: all costs are to be for charterers' account, or
  • Alternative option: costs to be split in accordance with a pre-determined formula for the apportionment of the modification costs.

In the event that the vessel is chartered for the whole or majority of the estimated trading span for the vessel; the most likely option will be the default solution.

Insurance

Under long term bareboat charterers, the charterer will usually arrange for vessel's insurance (including H&M[5] and P&I). For shorter term charterers however, the owner may prefer to place the insurance. BARECON 2017 clearly sets out these two alternatives.[6]

The owner and charterer shall be co-assureds under the H&M policy. This is partly to address the potential "mis-directed" arrows claims where a claim is made to the owners which should rightfully have been made against the charterers, who are in full operational control of the vessel. Furthermore, another reason for the parties to be co-assured is to give the charterer direct access to the joint insurance, which enables them to fulfil their obligation to maintain and repair the vessel during the period of the charter.

Following the UK Supreme Court judgement in the Ocean Victory case,[7] it was also expected that BIMCO would clarify the wording of the insurance and total loss provision.[8]

A new sentence has been added to the previous sub-clause 19(a);[9] stating that the bareboat charterers are liable to the owners by way of damages if the ship becomes a total loss. That is a liability which the charterers can protect by insurance.

BIMCO has underlined that the objective has not been to make the bareboat charterer liable for the purpose of making a claim against them.[10] However, to ensure that liability is not excluded by the payment of insurance proceeds to the owners, an express liability is first established, which ensure claims against third parties which have damaged the vessel remain preserved under hull polices. This is similar to the solution for pollution damage and wreck removal claims are preserved under P&I policies.

Sanctions and anti-corruption

The BARECON 2017 has also included BIMCO's "Anti-Corruption Clause for Charter Parties" and "Designated Entities Clause for Charter Parties" with amended wording adjusted for bareboat charter parties.[11]

Should either party be in breach of these provisions, the non-defaulting party may terminate the charter.

Newbuilding

Part III of BARECON 2017 may be applied in relation to newbuilding vessels. Part III has also been amended to reflect current industry practice.

The amendment provides a right to the charterer to request a variation order to the vessel's specification in accordance with the terms of the building contract.

There are also amendments made to the termination provisions. Under the 2001 charter, the charterer had the right to terminate the charter in the vent the owner became entitled to terminate the building contract. However, in the 2017 version, this has been amended so that it is now the owner that has the right to terminate the charter should it become entitled to cancel the building contract.

BIMCO has also included a liquidated damages provision. This provides the parties with different options as to how any liquidated damages payable by the yard under the building contract are to be apportioned between the parties.

Purchase option

BARECON 2017 provides the charterer with various options to purchase the vessel during the charter term at a pre-agreed purchase price. In contrast, BARECON 2001 provided a purchase option on behalf of the charterer, where title in the vessel would be transferred to the charterer on the final payment of hire under the charter – provided of course that the parties had elected such provision to apply.

Summary

The BARECON 2017 represents a slightly leaner charter party than its predecessors and the amendments have made the provisions both clearer and easier to read.

The charter party seems to retain a balance between the owner's and charter's interests, and we expect that this new edition will be accepted quickly in the industry.

 

[1] Clause 3

[2] Clause 4

[3] Clause 15

[4] Similar solution in the Norwegian Saleform 2012

[5] Hull and machinery insurance

[6] Clause 17 (b) and (c),

[7] Gard Marine & Energy Limited v China National Chartering Co Ltd and another [2017] UKSC 35

[8] Newsletter - The "Ocean Victory"

[9] BARECON 2001

[10] BIMCO's explanatory notes

[11] Clauses 28 and 29

Practice areas

Lawyers

Henrik Aadnesen
Stian S. Tennfjord
Marte Kapstad Roen

Published

09. February 2018