Bimco’s new S&P agreement is on the way

On 22 January 2021, the Baltic and International Maritime Council (BIMCO) circulated a preliminary draft for a new standard contract for sale and purchase of ships among relevant parties in the industry.

Kvale’s shipping team received the draft, and is looking forward to contribute to the further development of this new S&P standard. The aim of this newsletter is to summarize our brief initial thoughts on the preliminary draft contract. 

  1. Introduction

At present, the most commonly used form for sale and purchase of ships in the Norwegian market is the Norwegian Salesform 2012 (NSF 2012). The form has also been recognized internationally due to its simplicity and strong core mechanisms, making it the industry standard within many fields. The NSF 2012 was developed jointly by the Norwegian Shipbrokers’ Association (NSA) and Bimco.

The new S&P contract – the Bimco Ship Sale and Purchase Agreement – is developed independently by Bimco. Unlike the NSF 2012, the new form looks more like a Bimco contract, with a Box section setting out the main commercial terms included in Part I and a Clauses section included in Part II. The form is also more comprehensive, and includes more detailed language than the NSF 2012.

That being said, the legal mechanisms and considerable parts of the text are very similar to the NSF 2012. The intention is clearly not to reinvent the wheel, but rather to create a more typical Bimco format, and incorporate certain regularly used additional Clauses.

  1. Key characteristics

The following key characteristics of the new form should be noted:

  • The order of the Clauses in the form is different from the NSF 2012. The intention is that the order shall reflect the progress in a S&P transaction.
  • The new form includes a new separate Clause dealing with subjects to the sale. This is usually regulated through amendments to the standard text, but in more or less the same way each time. The inclusion of a separate Clause for this purpose is thus a constructive addition.
  • The delivery documents to be provided by Seller and Buyer is listed in respectively Part I and Part II of the form’s Annex C. This differs from the NSF 2012, where the delivery documents are listed in Clause 8, together with certain other terms. Our initial impression is that this mechanism is more clear cut than the NSF 2012 solution. However, whether it is easier to use is more unclear given that one may need to go back and forth between the Clauses section and Annex C, when reading the contract.
  • Similar to the NSF 2012, the new form does not include a closing mechanism. This is usually something which is negotiated specifically between the parties in each transaction, and which may turn on a variety of factors. However, we would not have been surprised if the drafting committee had taken the opportunity to include a default option. This could have made the form easier to use for less experienced parties.
  • The standard provisions regarding Buyers and Sellers’ default have found their way to the new Clauses 18 (Sellers’ Termination Rights) and 19 and (Buyers’ Termination Rights). The Clauses are again very similar to the NSF 2012; however, with a key difference being that a mutual exclusion for indirect and consequential losses have been included. This addition has become increasingly common in all industry formats, and as such is not surprising.
  • A new Clause has been included to deal with the situation should the Vessel become a total loss before delivery. In such case, the deposit shall be released to the Buyers, and thereafter the Agreement shall be null and void. The Clause is in line with that which would apply if the Buyers terminate the Agreement without negligence on part of the Seller, as per Clause 19 (b) and NSF 2012 Clause 14. The addition brings some further clarity, but can arguably be considered superfluous in a form which should be short and easy to use.
  • Similar to Bimco’s other standard contracts, the new S&P form has been updated with regularly used additional Clauses, i.e. Sanctions, Confidentiality and Anti-Corruption Clauses. However, we note that such additional Clauses has been kept at a minimum, and that e.g. a Covid-19/pandemics Clause has not been included.
  • One feature which is not included in the draft, but is under discussion in the drafting committee, is to include a Clause dealing with the future trading of the ship after the sale. In particular, the Clause would effectively prohibit the ship from being sent for recycling within an agreed post-sale period. The purpose of the Clause would be to prevent illegal scrapping/beaching. We believe this would be a good addition to the form, in line with the developments in the industry, and that it would be welcome by most shipowners and brokers. However, it will also make the form even more comprehensive compared to the NSF 2012, possibly making it less likely to catch on.
  1. Summary and the way forward

In summary, our view is that Bimco has prepared a well thought out form adapted to the future of S&P transactions, without too many controversial changes from NSF 2012 as the current industry standard. We are looking forward to contributing our comments to the preliminary draft, and seeing how the final form turns out.

The deadline for submitting comments to the drafting committee is 15 February 2021, and the new contract is scheduled for publication in May 2021.

Kvale regularly assists shipowners and other industry players in S&P transactions. Please do not hesitate to contact us if you have questions to the new Bimco Sale and Purchase Agreement, or if we otherwise can be of assistance.