New Old BIMCO SHIPSALE 22 Form

In connection with the announcement of the new SHIPSALE 22 form by BIMCO (Baltic and International Maritime Council), which has been under development for almost two years, this publication has two aims at the same time.

Firstly, for the less informed readers, to give the most general idea of what the proforma is, including a better understanding of the changes to the new SHIPSALE 22 form. Secondly, to familiarize the reader with the main amendments to the new proforma. Therefore, this publication will be more of a descriptive and practical nature.

One consequence of repetitive, template-based transactions in the shipping business has been the gradual emergence and development of so-called proforma contracts. Their emergence is primarily attributed to the intensification of shipping due to the industrial revolution. The proformas are typical contractual terms which are widely used in the world practice of merchant shipping.

As a rule, proformas are developed by reputable international non-governmental organizations with the participation of representatives of merchant mariners, shipowners, carriers, cargo owners, insurance companies, etc. This involvement of business representatives is important since a proforma developed without considering the realities and needs of business will obviously not be used in practice.

The purpose of any proforma is to systematize the most used terms, to simplify, expedite and make it convenient to conclude agreements, and to reflect a balance of interests of the parties to the contract, arising as a compromise from the discussion of the proforma prior to its adoption.

Unfortunately, the balance of interests is not always maintained in the proforma for the simple reason that their development and introduction is most often lobbied by a particular interest group. However, even in this case, the practice has found a solution. Although the proformas are standardized contractual terms and conditions, this does not mean that they cannot be changed by agreement between the parties. In practice, parties do exactly that by adding, modifying, or deleting (“crossing out”) relevant terms from the proforma text, so the proforma is a kind of legal “constructor”. If there are many changes, the parties conclude additional agreements (addendums), in which the terms of the agreement are specified in detail. Often the addendum is much larger than the proforma itself.

Convenience and velocity of transactions is facilitated by the way in which proformas are designed and structured. The proforma can be either a monolithic text of the terms of the agreement (classic proformas widely used in the first half of the 20th century) or a special “boxed” form. However, the “boxed” form in the vast majority of cases involves several parts of a contract, one of which includes a monolithic transaction text. While the monolithic text is commonplace, the “boxed” form is rather exotic among contracts, which became widespread in the second half of the 20th century. One of the first of such a form was the GENCON voyage charter party form. The “boxed” form is the construction of the main terms of contracts in the form of “boxes” in which the main terms of the agreement, quantitative indicators, etc., i.e. the most important economic terms of the deal from a business point of view are written. Proforma “boxes” usually form the first part of the contract, while the second part is written as a continuous text. The terms in the “boxes” have a thematic reference to the articles in the second part of the proforma, which already contains detailed legal regulation of the relevant issues. This technique indicates that the proforma is a product of business and for business, but without affecting the legal part.

There are a variety of types of proformas: for charterparties (up to and including proformas for certain types of cargo), for affreightment, for vessel towing, for shipbuilding.

Among the proformas, an important place is occupied by proformas regulating relations from sale and purchase of the fleet. Most of the fleet sale and purchase market is based on such proformas.

The best known and most widely used are the Norwegian Sale Form (SALEFORM 2012), Nipponsale Form, Singapore Shipsale Form, each of them reflects the regional characteristics of the market where it is used. The proformas are generally used in transnational agreements. Although the most proformas have been developed in the context of English law as the applicable law, the proformas have also become common in Russian practice. Thus, judicial practice shows that Russian proforma sale and purchase agreements are concluded on the basis of SALEFORM 1993 (e.g. the Decree of the Commercial court of Far Eastern District dated 01 July 2021 No. F03-2642/2021 in case No. A51-18991/2019, Decree of Federal Commercial court of Northwestern District dated 12 December 2008 in case No. A56-27224/2007). There are known cases where parties have made such proformas subject to Russian law as well.

The result of such actions without redrafting the proforma may be unpredictable, especially in the context of Russian legal reality.

BIMCO, a non-governmental organisation with 350-some proformas and various clauses has played a significant role in the development of proformas. More recently, BIMCO has developed and published its own new proforma for the second hand vessel market called SHIPSALE 22, a sample of which can be downloaded¹ from the official BIMCO website.

An immediate predecessor of the new proforma discussed below is the BIMCO SALEFORM form adopted in 1956 and revised in 1966, 1983, 1986, 1993 and 2012. The proforma was developed in conjunction with the Norwegian Shipbrokers’ Association.

Although it is based on the SALEFORM, the new proforma has key changes that are intended to make the proforma even more user-friendly than its predecessors. It is not just a question of changing certain wording, but also of including additional clauses. Below we briefly describe the main innovations in the SHIPSALE 2022. These innovations concern both the form and the content of SHIPSALE 2022.

First of all, the clearly recognizable BIMCO “boxed” form catches the eye. Unlike SALEFORM, the new proforma now uses a standardized “boxed” form, as in many other BIMCO proformas, which undoubtedly brings convenience to the processing of the agreement.

In addition to the “boxed” form, the list of documents exchanged by the parties at the close of the agreement is now included in a separate Annex A instead of including text in the “body” of the proforma. On the one hand, this makes the contract easier to read and easier to find the relevant provisions, as this is usually the part negotiated by the parties. On the other hand, in practice, parties rarely include a list of such documentation in the text of the contract. Most often, such a list is in the form of a separate supplementary agreement and the relevant lines in the proforma text are simply crossed out. Similarly, the proforma now includes Appendix B, which consists of a list of items that are not included in the subject matter of the agreement. Finally, the new proforma has been designed to align the sections of agreement as closely as possible with the chronology of the transaction, in other words, the structure of the proforma reflects the logic of the execution of agreement process.

However, the amendments do not stop at the appearance and structure. The new proforma contains absolute innovations. For example, the proforma explicitly permits documentary closure of a transaction by electronic means of communication (Article 16(a)). Firstly, the proforma now permits the use of an electronic signature through the new BIMCO’s Electronic Signature Clause 2021. This applies to the contract itself as well as to other documents within the transaction. In practice, this may pose several problems because not all countries in which ownership of a ship will be registered are able to accept the electronic bill of sale as supporting documents as well as other documents within the transaction. Therefore, the use of this clause and this method of signing documents requires the parties to take special care and to verify in advance the acceptability of such form with the administration of the Flag Registry State. Secondly, a provision reflecting the current trend in the COVID-19 context to conduct the closing of a transaction remotely deserves separate attention. Most often such “meetings” are conducted by videoconference.

Other important changes include changes relating to the deposit, the sanctions clause, the anti-corruption and confidentiality clause, copies of transaction documents, transfer of the vessel and transfer of title, the performance guarantor, the warranty of the absence of encumbrances on the vessel, and the inspection of the vessel. We look at them in a little more detail.

Article 5 regulating the conditions for making a deposit has been amended. The market trend is that a third party (the deposit holder) is often involved in the execution of the agreement. While the previous proforma contained such a condition, the new proforma details the terms of the agreement involving the deposit holder and explicitly refers to a separate tripartite deposit agreement, regulating issues related in detail. For example, the identity of the deposit holder must be clearly agreed. Buyers are also given a grace period of two banking days if the deposit is delayed due to certain disruptive banking events. The latter is particularly relevant in the context of banks’ concerns about compliance with money laundering regulation and various sanctions inspections by the relevant bank services when making payments.

Another change concerns the purchase price. SHIPSALE 22 (Article 14) now stipulates that payment of the purchase price (along with other payments under the contract) shall be made without any set-off, deduction or withholding. Previously, SALEFORM 2012 stipulated that the purchase price must be paid “in full free of bank charges”.

Boxes 5 and 6 of the new proforma identify the seller’s and buyer’s guarantors, respectively, who are now also signatories to the memorandum, together with a statement that, by his signature on the memorandum, the guarantor guarantees the performance of the sellers’ or buyers’ obligation in accordance with agreement. This innovation is due to the fact that buyers often create entirely new companies without the assets to acquire a particular vessel and operate it. Previously, the practice was to issue such guarantees in a separate document.

There is a new subject clause in Box 25 which has been used quite frequently in practice. For example, such a condition often includes the receipt of corporate approvals. For example, if the approval is not received by a party by a certain deadline, the transaction is considered to be cancelled. If the condition is met, then the transaction went through. This is essentially a condition precedent.

Given the current global political climate, the parties have recently been increasingly including sanctions and anti-corruption clauses in the text of contracts to comply with any internal company requirements. The clause included in SHIPSALE 2022 is rather short and is likely to be subject to change by the parties in practice. Nevertheless, the indication that the other party will have the right to terminate the contract and recover damages in the event of a breach of such clauses seems useful.

Among the new clauses is also the confidentiality clause, which is a clause frequently included in almost any transaction involving the sale and purchase of a vessel. SHIPSALE 2022 set out that a breach of a confidentiality clause does not give the aggrieved party the right to terminate the contract.

The warranty clauses of the seller on the absence of encumbrances on the vessel at the time of delivery have also been amended. The new wording is worded more broadly to cover as many not explicitly addressed encumbrances and restrictions as possible.

One important change from SALEFORM 2012 concerns the provision for vessel inspection. Previously, the parties only had two alternatives: either the buyer has inspected and accepted the vessel and its classification records, or the buyer shall have the right to inspect the vessel and its classification records. SHIPSALE 22 includes a third option for the buyer to explicitly refuse to inspect the vessel and its classification records and accept them “as is”. This can be a useful alternative for some agreements, e.g. between ‘own’ companies or when selling a vessel for scrap. Attention is also given to the separate provisions relating to underwater inspection and drydocking, which mostly deal with the same issues as previously, but in more detail. It should be particularly emphasized that SHIPSALE 22, unlike SALEFORM 2012, does not specify which alternative applies if the parties have not exercised a direct choice of alternatives. Therefore, care should be taken to ensure that the relevant proforma field is filled in to avoid a disputable situation.

Also, the period within which the parties must exchange copies, drafts or samples of the delivery documents has been reduced from nine to five days after the earliest notice of transfer in SHIPSALE 22. Under the new proforma, the earliest delivery notice must be sent 20 days before the expected date of readiness of the vessel for delivery.

Finally, the arbitration clause together with the applicable law clause have also been slightly modified. The new article in SHIPSALE 22 seems more neutral than previous versions containing three alternatives and gives the parties more freedom to include the procedure of their choice.

The basis for the arbitration clause is the BIMCO Law and Arbitration Clause 2020.

Therefore, SHIPSALE 2022 is hardly new at all. There is a clear continuity with the SALEFORM proformas but with ‘authorial’ changes made by BIMCO.

It is worth noting that business has always been wary of new versions of the proforma as they emerged and the widespread use of new proformas has been the result of very long testing in practice. In addition, as a rule, proformas are not freely available and parties to civil law relations use proformas they have previously received, or they are not even aware of the existence of new proformas. This is evidenced, for example, by the fact that SALEFORM 1993 is still in use. There is no doubt that business will continue to use the old proformas along with the new ones. First of all, the reason for this is court practice, which forms the answers to various disputable situations arising in the conclusion and execution of agreements on the sale and purchase of the fleet, the interpretation of certain provisions of the proforma. Most likely the same fate awaits the new SHIPSALE 22, which, however, has not undergone any critical changes as compared to its predecessors. Nevertheless, the new proforma can be a good starting point for negotiating a sale and purchase of a vessel, considering the market trends of the last few years, and taking into account the great similarity to the SALEFORM 2012, it has good chances of becoming the new proforma standard in the sale of vessels. Although the new proforma does not contain any fundamental innovations due to the new legal regulation, the addition of various new provisions to the proforma may help the parties to save their time and money in negotiations. ■

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