By publishing BARECON 2017, BIMCO hopes to bring the industry-standard bareboat charterparty terms fully up to date, reflecting commercial practice, addressing issues recently raised by the UK Courts, and simplifying the form where possible.
In this article, we explore the key differences between this latest incarnation of the BARECON form and its 16 year old forerunner, BARECON 2001, and consider the impact it will have on the bareboat chartering market.
Rather than catering only for a single fixed charter period, BARECON 2017 envisages the parties agreeing an extra period on top, exercisable at the charterers' option. The length of this extra period must be stated in box 18 on the face of the form, along with the deadline by which the charterers must give notice to the owners if they wish to extend.
Although owners and charterers sometimes did this ad hoc, by adding bespoke wording, the inclusion of a clear mechanism for extending the charter period in BARECON 2017 is to be welcomed.
Condition on delivery
BARECON 2017 maintains the position under the 2001 form that the charterers cannot claim against the owners for not meeting any conditions, representations or warranties in relation to the vessel once delivery has taken place.
As this imposes a severe restriction on the charterers' rights, BIMCO has decided to extend the obligations on the owners in relation to the condition of the vessel on delivery. The owners now have an absolute obligation to deliver the vessel in a seaworthy condition and, in every respect, ready for the charter service, whereas, under the old form, the owners needed only to "exercise due diligence" in this regard. This is a significant tightening of the owners' obligations on delivery.
To further protect the charterers' interests, BARECON 2017 provides that, if the charterers have inspected the vessel prior to delivery, it shall be delivered in the same condition as at the time of the inspection, fair wear and tear excepted. Charterers would be well-advised to ensure that an inspection is carried out before delivery to take advantage of this protection.
These amendments are helpful in striking a balance between the owners' and charterers' rights on, and after, delivery in relation to the condition of the vessel. When drafting BARECON 2001, the BIMCO sub-committee recognised that the charterers could be exposed in the event of the vessel sustaining damage shortly before delivery, suggesting that the charterers "should seek to negotiate an amenable settlement with the owners in respect of damage that has occurred between inspection and delivery". The new terms in BARECON 2017 now clearly allocate liability between the parties for damage to the vessel.
Although the time of delivery is the latest point at which the charterers can raise claims relating to the condition of the vessel, an exception is made for "latent defects" – defined in BARECON 2017 (unlike earlier versions of the form) as defects "which could not be discovered on such an examination as a reasonably careful skilled person would make". The owners will be liable for the cost of (but not the time for) repairs or renewals arising out of "latent defects" in the vessel which existed at the time of delivery.
The latent defects must, however, manifest themselves within a fixed period after delivery if they are to form the basis of a claim against the owners. The parties are free to agree the length of the fixed period but a default period of 12 months will apply if no other agreement is reached (mirroring the position under BARECON 2001).
BARECON 2017 has a new clause allowing the charterers to "place a maximum of two (2) representatives on board the Vessel at their sole risk and expense" for "a reasonable period prior to delivery of the Vessel". The charterers and their representatives are required to sign "the Owners' usual letter of indemnity prior to embarkation".
A similarly worded provision entitles the owners to place two representatives on board prior to redelivery.
In its explanatory comments accompanying the new form, BIMCO says that "the representatives are there to familiarise themselves with the ship but without interfering with its operation". The operational and safety benefits of ensuring that the charterers' representatives are familiar with the vessel are clear, and so this new clause has been welcomed; but there is scope for dispute between the parties as to how long the "reasonable period prior to delivery" should be, or whether the letter of indemnity that the charterers must sign is fair and reasonable.
To reduce the risk of such issues arising, the parties may wish to prescribe expressly the length of the period in which the charterers' and owners' representatives are allowed onboard prior to delivery and redelivery respectively, and the wording of the letters of indemnity that will need to be signed could be appended to the charter form, so that their terms are clear from the outset.
Another new measure in BARECON 2017 is the inclusion of a clause permitting the charterers (at delivery) and the owners (at redelivery) to arrange for an underwater inspection, to be performed by a diver approved by Class and in the presence of a Class surveyor. The inspection would determine the condition of the rudder, propeller, bottom and other underwater parts of the vessel.
This new regime acknowledges that it is increasingly common for owners and charterers to agree to underwater inspections as part of the surveys on delivery and redelivery.
BARECON 2001 had prescribed that, in the event of any structural changes or new equipment becoming necessary for the continued operation of the vessel by reason of new Class requirements or by compulsory legislation, the cost of compliance would (if above a certain level) be shared between the parties in such a way as to achieve "a reasonable distribution" of the cost between them, bearing in mind the length of the period remaining under the charter period. No specific formula for the cost-sharing was ever included in the form, leading to uncertainty and potential disagreement.
BARECON 2017 now has a more detailed clause for the apportionment of these costs. The parties have a choice: they can either provide that all such costs are for the charterers' account (the default option), or they can agree to a pre-set formula that calculates the charterers' required contribution, using the cost of the modification and the ratio of the expected life of the modification to the expected life of the vessel, and the remaining duration of the charter period.
Different versions of the formula apply depending on whether the modification will remain to the end of the expected lifespan of the vessel, or only for a shorter period.
In last year's UK Supreme Court decision in The Ocean Victory, the insurance provisions in BARECON 1989 came under close scrutiny. The owners and the bareboat charterers were co-insureds under a policy, and it was held by the Supreme Court that the bareboat charterers had no liability to the owners in circumstances where the insurance covered the claim. This meant that there was no claim that could be passed down from the bareboat charterers to the time charterers, and therefore no avenue for recovery by the insurers of the losses they had sustained, an outcome that was greeted with some surprise by the industry.
BARECON 2017 seeks to close this gap by expressly providing that the insurance clauses in the form are "intended to secure payment of the loss insurance proceeds as a first resort to make good the Owners' loss". If the insurance pays out on the owners' loss, such payment "shall be treated as satisfaction (but not exclusion or discharge) of the Charterers' liability towards the Owners". The intention, therefore, is to leave open to the insurers an avenue of recovery against third parties (such as time charterers) from whom the bareboat charterers may have a valid claim in respect of a loss.
The revisions made by BARECON 2017 to the earlier iteration of the form are helpful in clarifying the basis on which the parties are contracting and in reducing the potential for dispute. Although the addition of new provisions may introduce uncertainty in some respects, their advent comes with a clear commercial rationale. The form also strikes a sensible balance between the competing interests of the owners and charterers. It is expected, therefore, that BARECON 2017 will be adopted as the industry-standard bareboat charterparty form.
First published in Maritime Risk International, March 2018