On 25 October BIMCO published an updated version of GENCON aiming to reflect the commercial needs and legal requirements of today’s shipping industry. GENCON has been the most widely used voyage charter party for dry bulk trade. This newsletter will briefly deal with some of the key changes that have been introduced in GENCON 2022, and what significance these will have for ship owners and charterers.
The GENCON 22 version aims to strike the right balance with regards to the rights and obligations of both parties in a charter party. For that purpose, BIMCO has altered several key clauses and made the charter party standard more comprehensive in order to lessen the need for additional clauses attached to the charter. Furthermore, the new version attempts to fill the gaps of interpretation that make room for disputes through clear wording and structure. All this is central to the BIMCO standard, as GENCON is viewed as one of their flagship charter parties and as such must reflect the challenges of the modern shipping industry. In their view, this new version reflects the current regulatory landscape and commercial practices in a more suitable way compared to the 94 version.
One key clause that has been amended is the Owners Responsibility Clause (Clause 2). In the 1994 version, this clause was criticised for being out of touch with modern industry practices and provided a dissatisfactory allocation of risk between the ship owner and the charterer. The former clause granted owners broad protection for loss, damage, or delay to the cargo, even in case of negligence on part of the crew, and with liability only in case of negligence by the ship owner's higher management. At the same time, the clause provided little security for the owners in terms of other events, accidents, and financial loss. As a result, the clause was often replaced with a clause from other standard contracts such as a Paramount Clause.
BIMCO's view is that such replacements failed to provide a balanced solution and has therefore amended the clause to mirror the approach of the Hague-Visby Rules. As such, the new clause entitles the owners to rely on the rights, defences, immunities, and limitations of liability available under the Hague-Visby Rules. Furthermore, the clause place duties on the ship owner to exercise due diligence to provide a seaworthy ship and properly care for the cargo. The applicability of the seaworthiness obligation was set between the loading of the cargo and the commencement of the laden voyage.
BIMCO has also added a new clause 3 regulating the risk and liability of damage to the cargo during loading, stowage, carriage and discharge.
Several more clauses have been amended and added to the new GENCON version, and the two clauses presented above only reflect parts of BIMCO’s new approach. In the broader sense, the new version follows certain fundamental principles. The GENCON 22 continues to place the responsibility for the cost and risk of cargo operations on the charterer. While the responsibility for delays is split between the parties, in that the owners bear the risk for delays by navigation risks within their control and charterer for commercial risks. Furthermore, the new version continues to protect owners against liability for cargo loss or damage but is remedying the charterers risk by placing fundamental duties on the owners before commencement and under the voyage through clauses 2 and 3.
Considering the scope and length of GENCON 22, this revision is unlike the former revisions that sought mainly to clarify and update the charter party standard. The new revision has through industry consultation undergone meaningful changes in line with a modern shipping industry. As a result, the GENCON 22 is presented by BIMCO as a whole new charter party which aims to reduce the initial costs for both sides of entering into a charter party through reducing needed adjustments. That being said, the question is how this new form will be received by the market. GENCON 1994 has been a cornerstone form, and it is unclear whether shipowners will be eager to use a contract with a less favourable liability regime for the owners' side. Our expectation is that the form will have a slow start, but catch on in the long run. However, whether our predictions prove to be correct, remains to be seen.