Barecon 2017 - Ringing in the Changes

BIMCO recently published an updated version of their widely-used BARECON 2001. Whilst it largely follows the same format, BARECON 2017 takes account of a number of legal and commercial changes and has been described by BIMCO as “a new leaner version” which they hope “will continue to be the first choice of contract for anyone looking to bareboat charter a ship”.

Key differences include:

Delivery condition – owners should note that the obligation to exercise due diligence has been replaced by an absolute obligation on them to deliver the vessel in a seaworthy condition, ready for service and in the same condition (fair wear and tear excepted) as she was at the time of inspection. Certificates are to be free of conditions or recommendations.

Latent defects – as before, the owners are liable for the cost (but not the time) of repairs arising out of latent defects. Interested parties will note that a definition of a latent defect has now been included, being “a defect which could not be discovered on such an examination as a reasonably careful skilled person would make”. This removes an element of uncertainty in the 2001 drafting.

Right to extend – the charterer has the right to extend the charter period, at a charter rate which is to be pre-agreed.

Familiarisation / surveys – a new clause 6 has been included which permits the charterers to put 2 representatives on board for “a reasonable period” before delivery, and the owners’ “usual letter of indemnity” is to be signed. Charterers also now have an express right to arrange a divers’ inspection in the presence of a Class surveyor. Corresponding provisions apply in the owners’ favour in the period before redelivery. Parties should (i) agree the relevant period and document it in advance, having regard to the circumstances, and (ii) give thought to the terms of any such indemnity letter.

Bunkers – two options are now provided: bunkers and fuel oils are taken over and paid for (i) at the actual price paid (to be evidenced by invoices) or (ii) at the current market price at the port and date of delivery / redelivery or the nearest bunkering port. The first option will apply if no selection is made.

Redelivery – charterers should take note of the financial implications of late redelivery, namely payment of an enhanced hire rate.

Maintenance & Operation – there are now 2 options for dealing with mandatory modifications: (i) the charterer bears all costs, or (ii) an apportionment is carried out which looks at the cost of the necessary change, the anticipated lifespan of the vessel, and the expected life of the modification. This second option is considerably clearer than the previous drafting, which contemplated a “reasonable distribution” of costs being agreed (the agreement of which is often fraught with danger). If neither option is specified the first will apply, but this would generally only be appropriate where charterers are taking the vessel for its entire lifespan.

Inspections – the owners retain the right to inspect the vessel but their ability to inspect documentation has been extended to include certificates, maintenance and other records, and Class records as well as log books. This greater right of access to information should help to give owners comfort around vessel condition whilst on charter.

Payment – reference to time being of the essence has been deleted from the payment provisions, and the drafting also now makes it clear that the charterers are to be given 3 days’ written notice of failure to pay after which the owners can terminate at any time provided that charter hire remains outstanding.

Insurance – these provisions have been updated in light of the Supreme Court’s findings in the ‘Ocean Victory’ case, on which we commented here, to make it clear that co-insurance ensures payment of insurance proceeds – as a first resort to make good the owners’ loss – but does not discharge liability between owners and charterers nor does it affect recovery from third parties. The total loss provisions have also been amended to include a statement that the charterers are liable to the owners in damages on total loss which will give comfort to insurers seeking to pursue subrogated claims against third parties.

Anti-corruption / Sanctions – as is now standard in many international contracts, provisions relating to compliance by both parties with anti-corruption and sanctions legislation have been included together with termination rights if these are not complied with.

Termination – the reference to the owners’ right to withdraw the vessel has been replaced with a (more appropriate) reference to termination and repossession. Otherwise the principles are largely unchanged except that the war risk provisions found at Clause 26(f) in BARECON 2001 have been deleted, meaning that the parties no longer have the right to cancel the charter in the event of war between the nations specified.

Part III – the owners now only have to provide those parts of the building contract which are relevant to the charter. The charterers now have the right to request changes albeit this must be done in accordance with the building contract’s provisions.

Part IV – the hire/purchase option has been replaced by a relatively straightforward purchase option which BIMCO feel is more representative of the market.

While it is expected that parties will continue to adapt and amend BARECON 2017 to reflect their specific circumstances, the contract is now much clearer and easier to read and remains relevant for a wide range of bareboat charter situations. We anticipate that it will continue to be used extensively across the shipping and offshore sectors.

That said, some of the changes could prove quite substantial. If you use BARECON when contracting it would be sensible to consider how the new drafting affects your obligations and whether you want to introduce additional amendments to protect your position. For further assistance please contact any of the authors or your usual CMS contact.