On 25 April 2022, BIMCO announced the release of SHIPSALE 22, a new memorandum of agreement (MOA) for ship sale and purchase. This is the first MOA produced by BIMCO alone: copyright in previous Norwegian SALEFORM iterations is owned by the Norwegian Shipbrokers’ Association. The new “SHIPSALE 22” is not driven by any legal developments or market need for a new ship sale and purchase agreement: rather it seems to be part of BIMCO’s ambition to replace the Norwegian Saleform with a BIMCO standard form for the sale and purchase of vessels.

Without doubt, the Norwegian SALEFORM is the most widely used contract base for ship sale and purchase and it is accepted across the international shipping community, despite the other forms in circulation – NIPPONSALE, which is usually used for the Japanese market and Singapore Ship Sale Form 2011 which is sometimes used by the Asian maritime community.

SHIPSALE 22 was drafted by a group of industry experts following a lengthy and wide-ranging consultation. The aims were to clarify the form, bring it into a BIMCO style document (hence the box format for Part I of SHIPSALE 22) and to follow in a more logical manner the chronology of a ship sale and purchase transaction. It also includes provisions which reflect modern practice, such as the option for a virtual documentary closing and electronic signature of the contract, both of which have become common practice in the past couple of years as a knock-on effect of lock-downs triggered by the COVID-19 pandemic.

BIMCO say that SHIPSALE 22 is a modern and comprehensive alternative to existing sale and purchase forms but that it retains the necessary familiarity for users transitioning from other forms used for buying and selling ships.

Will this new form be used by the maritime industry? When the Norwegian SALEFORM 2012 was first published, there was reticence to move away from the all-familiar, tried and tested Norwegian SALEFORM 1993 despite its shortcomings. However, over time the 2012 version eventually gained acceptance as the industry standard and the maritime industry will probably move towards SHIPSALE 22 in a similar way, particularly as much of the content is recognisable. There are also some useful innovations: inclusion of clauses addressing sanctions, anti-corruption, confidentiality and Sellers’ and Buyers’ Guarantor are welcome additions and will save time and money in negotiating and drafting common provisions that are not included in SALEFORM 2012. Thanks to its similarities with SALEFORM 2012, it may be reasonable to expect market willingness to adopt it at a faster rate than the more cautious approach taken following the introduction of SALEFORM 2012.

In this article we briefly review some of the key differences between SHIPSALE 22 and SALEFORM 2012.

  • Format:

SHIPSALE 22 is split into two parts: Part I, where BIMCO have adopted their familiar box format, allowing the parties to insert the main commercial terms; and Part II, which contains the main contractual terms.This is helpful, as one is able to see at a glance the main commercial terms of the sale and purchase and practical matters such as the delivery window (box 14 is the earliest date for giving Notice of Readiness and box 15 is the Cancelling Date). It would, however, have been helpful (as with BIMCO’s BARECON 2017) had the boxes identified the clauses relevant to their subject matter.

  • Part I, Boxes 5 and 6 – Sellers’ Guarantor and Buyers’ Guarantor: SHIPSALE 22 now provides space for the parties to insert details of their respective guarantors. The guarantee wording itself is contained in the execution block at the end of Part I. Although SALEFORM 2012 does not provide for such, it is commonplace for it to be amended so that both parties’ obligations are guaranteed (more so the Buyers’ obligations), as the contracting parties are typically special purpose vehicle companies with no assets other than, in the case of the Sellers, the Vessel. It is helpful to include the guarantee provisions in SHIPSALE 22, as the guarantee itself is often overlooked despite the inclusion of guarantors.

  • Part I, Box 18 – Bunkers, Oils and Greases: These items have been split into two categories, which are dealt with separately in terms of the quantities remaining on board and how the amount payable for these items will be agreed.
  • Part I, Box 19 – Documentary closing: Unlike SALEFORM 2012, there is the option for the documentary closing meeting to be held electronically. In our experience, physical closing meetings have become a rarity, especially since the COVID-19 pandemic.
  • Box 20 – Validity of classification certificates: Although often requested by Buyers that the Vessel’s certificates should be valid for at least three or six months post-delivery, this requirement was not included in SALEFORM 2012. SHIPSALE 22 leaves space for the parties to negotiate and include this requirement.
  • Part II, Definitions: The definition of “Banking Days” has been updated to reflect a commonplace amendment, expressly excluding Saturdays and Sundays. “Excluded Items” are to be included as an annex, which again reflects common practice as these items are often not known at the time of MOA signing or are not easily inserted into the SALEFORM 2012 format.
  • Part II, Clause 3 - Subjects: The parties have the option to include subjects (e.g. board approval) in Box 25. If a deadline is included in Box 25 and the relevant subjects are not met by such deadline, this clause provides that the MOA shall become null and void. Whilst it is preferable to avoid entering into a MOA that includes subjects, it is not unusual for parties to include subjects so it is helpful that this is now included.
  • Part II, Clause 5 Deposit: A notable change to the Deposit provision in SHIPSALE 22, is that Buyers are provided an additional two Banking Day grace period if they fail to pay the Deposit on time for reasons not attributable to Buyers’ negligence but as a result of a “Disruptive Banking Event”, which includes “a review by the Deposit Holder’s bank (or any correspondent bank)”. Whilst this is a welcome addition for Buyers, it is not clear what is meant by “a review”: this could arguably cover any delay in the funds reaching the Deposit Holder which may well be the intention. If the delay is a “Disruptive Banking Event”, Sellers would not be able to terminate and claim compensation from the Buyers until the expiry of the additional two Banking Day period.

A small but much-needed correction has been made to (d)(iii) of clause 5 which does not refer to the Deposit Account being “opened” but rather “is in all respects ready to receive the Deposit”.This reflects common practice where the Deposit Holder is a law firm (as tends to be the case) and an actual account is not opened, although “know-your-client” formalities need to be completed before funds can be received.

SHIPSALE 22 makes no attempt to deal with one consequence of electing that the Deposit be held by an independent Deposit Holder, namely that until the Deposit Holding Agreement is agreed and in place, the MOA is effectively unenforceable. Although this is understandable given the different formats of Deposit Holding Agreement insisted on by banks and lawyers who commonly act as Deposit Holders, it is unfortunate that BIMCO did not take the opportunity to put forward a standard Deposit Holding Agreement that might alleviate this issue.

  • Part II, Clause 6 – Inspection: Under SHIPSALE 22, if the sale is subject to the Buyers’ inspection of the Vessel, testing of the Vessel’s engines, machinery, equipment or systems is expressly prohibited. SALEFORM 2012 is silent as to whether such testing is permitted and general practice is that, unless the Buyers are already familiar with the Vessel, they would seek to expand this provision to enable them to carry out more than superficial inspection. SHIPSALE 22 also provides the option for the sale to be without inspection by the Buyers’, in which case the sale is subject only to the terms of the MOA.

If the sale is subject to the Buyer’s inspection of the Vessel, the Buyers are required to give the Sellers notice of acceptance within five days after (i) the completion of the inspection or (ii) the last day in the date range set out in Box 8, whichever is the earliest. If no notice of acceptance is given by Buyers within such timescale, then the Deposit together with any interest earned is released to the Buyers and thereafter the MOA shall be null and void. The position under SALEFORM 2012 is similar, however the timescale for giving notice of acceptance is seventy-twohours.

  • Part II, Clause 8 – Underwater Inspection: Under SALEFORM 2012, the Buyers are required to notify the Sellers no later than nine days prior to the Vessel’s intended date of readiness if they wish to carry out an underwater inspection (UWI). In contrast, no such notice is required under SHIPSALE 22: this again reflects general practice that in the majority of sale and purchases of second-hand tonnage where the Vessel is not destined for recycling, Buyers will carry out an UWI prior to delivery. A well-advised Buyer would carry out the UWI once the Vessel is at the place of delivery. We also note that under SHIPSALE 22, if the Buyers do commence the UWI but fail to complete it, for whatever reason, within two days following the Vessel being made ready, the Cancelling Date shall be extended by the additional time taken for the UWI to be completed - to our mind somewhat peculiarly without a cap on the extension. This is a significant amendment from SALEFORM 2012 which provided that the UWI be carried out “without undue delay”. If Buyers fail to commence the UWI within two days following the Vessel having been made available, Buyers are deemed to have waived the right to carry out the UWI.
  • Part II, clause 9(d) – Drydock Inspection: If the Vessel has to be re-positioned for a Drydock Inspection and the Cancelling Date is automatically extended, Sellers are afforded a maximum of twenty-one days’ extension, compared to a maximum of fourteen days in SALEFORM 2012.
  • Part II, Clause 10 – Condition of Vessel at delivery: The warranty from Sellers as to the Vessel’s employment and security over the Vessel has been expanded at clause 10(d). Sellers should review this carefully to ensure that the warranty can be complied with.
  • Part II, Clause 11 – Delivery Notices: SHIPSALE 22 has removed the distinction between “approximate” and “definite” notices which is welcome as notices are invariably given on an approximate basis given the very nature of shipping and the common occurrence of unforeseen delays. Note that the latest notice is three days prior to tendering of Notice of Readiness.
  • Part II, Clause 14(d) – Payments: SHIPSALE 22 contains a new gross-up provision which was not expressly included in SALEFORM 2012. Although SALEFORM 2012 contained wording at clause 3 that the balance of the purchase price and other sums payable should be paid “in full free of bank charges”, a more thorough provision to address all payments under the MOA is sensible.
  • Part II, Clause 17 – Post-delivery Obligations: It is helpful to have these items grouped into one clause so that they are not overlooked.
  • Part II, Clause 18(b) – Sellers’ Termination Rights: The amount of compensation Sellers can seek to claim from Buyers if the Deposit is not sufficient is limited to “direct losses and expenses”. This is often negotiated into SALEFORM 2012 which does not distinguish between indirect and direct losses. The same addition has been made at clause 19(b) in respect of Buyers’ Termination Rights.
  • Part II, Clause 21 – Sanctions: Unlike SALEFORM 2012, SHIPSALE 22 contains a sanctions clause which, if breached, entitles the non-breaching party to terminate the MOA and claim damages. Parties often insert a sanctions clause into SALEFORM 2012 and the sanctions clause in SHIPSALE 22 follows BIMCO’s standard sanctions clause wording.
  • Part II, Clause 22 – Anticorruption: as with the sanctions provision, SALEFORM 2012 did not contain an anticorruption provision. This clause provides that if a party breaches anti-corruption legislation, it must defend and indemnify the non-breaching party against any fine, penalty, liability, loss or damage arising from such breach. If the breach causes the non-breaching party to itself be in breach of any applicable anti-corruption legislation, the non-breaching party is entitled to terminate the MOA and claim damages. This clause follows BIMCO’s standard anticorruption clause wording.
  • Part II, Clause 23 – Confidentiality: Although SALEFORM 2012 does not contain a confidentiality clause, it is commonly amended to include one. Unlike a breach of the sanctions and anticorruption clauses, a breach of this clause does not allow the non-breaching party to terminate the MOA.
  • Part II, Clause 27 – Electronic signature: This is a new clause in SHIPSALE 22 which addresses electronic signing of documents. As with electronic closing meetings, electronic signing of documents has become commonplace, especially since the COVID-19 pandemic. In most jurisdictions, electronic signature of documents is sufficient, although parties should be aware that in some jurisdictions an original signature will be required to constitute a valid and binding contract (or as a matter of good practice).
  • Annex A – Delivery Documents: This contains the usual list of delivery documents expected from both parties to a sale and purchase transaction. This replaces the need to set out the delivery documents in a separate Addendum One to the MOA, as is common practice when using SALEFORM 2012. Note that if there is a Sellers’ Guarantor or a Buyers’ Guarantor, the provision of corporate authorities and any other documents by them will need to be expressly included in the Annex.

In summary, SHIPSALE 22 appears to address many of the shortcomings of SALEFORM 2012, including those which were typically amended by parties. However, buyers and sellers have become comfortable with using SALEFORM 2012 and many owners have their own version of SALEFORM 2012 which they have developed over the last 10 years. We expect that parties will in time transition to SHIPSALE 22although in the short term it is likely that SALEFORM 2012 will remain the most commonly-used MOA wording.