Explanatory notes

Ship Sales Further Trading Clause

Drafting team

The Clause is the result of a collaborative and consensual process between owners, shipbrokers, P&I clubs, and legal experts. BIMCO is grateful to the drafting team for their considerable time, effort and commitment in producing the Clause:

Mr Francis Sarre (Chairperson)  CMB 

Mr Christoph Bruhn                        Bruhn Shipbrokers 

Ms Catherine Lessow                     Enesel ApS

Mr Kasper Holm-Hemmingsen   Mærsk Broker

Mr Matt Hannaford                        Hannaford Turner LLP 

Mr Michael Hope                             NorthStandard

Mr Ola Granhus Medias                Nordisk Defence Club

BIMCO representatives:

Stinne Taiger Ivø

Aron Frank Sørensen

Carl Lindahl

Natalie Wong

Explanatory Notes

The following notes are intended to provide some background to the thinking behind the Clause. These notes explain the scope of the key provisions and clarify how the Clause is intended to operate. The following are (non-exhaustive) comments made in respect of key provisions in the Clause.  Please note that we have not provided commentary on every single subclause as some of these appear to be self-explanatory.  If you have any questions about the Clause, please contact us at contracts@bimco.org and we will be happy to assist.

Further, please note that this Clause cannot operate as a stand-alone clause and must be incorporated into a Memorandum of Agreement for the sale and purchase of the relevant Vessel (for example, BIMCO’s SHIPSALE 22, SALEFORM 2012 etc.).  References to “this Agreement” throughout the Clause refer to such Memorandum of Agreement.

Subclause (b)

In subclause (b) the Buyers give an undertaking that they will continue to trade the Vessel for an agreed period of time after the Buyers have taken delivery of the Vessel.  The only exception is if, during this “Applicable Period”, the Vessel becomes a total loss.  Subclause (b) contains wording to make it clear that the undertaking is not intended to prohibit or restrict the Buyers from taking the Vessel out of service for reasons which apply to trading vessels (such as dry-docking, maintenance, lay-up or repair) or for conversion of the Vessel for a different trading use. 

The Buyers and Sellers must insert a specific number of months for the “Applicable Period”, being the minimum period which the Buyers undertake to continue to trade the Vessel.  This will be a matter of commercial negotiations between the parties and relevant factors may include the specific characteristics of the sale and the age and value of the Vessel. In addition, when determining the appropriate Applicable Period, the parties should consider whether they are subject to any laws or regulations which may have an impact on what is an appropriate Applicable Period (for example,  as to whether under applicable laws the Applicable Period is too short to provide the Sellers with adequate legal protection or, alternatively, whether the enforceability of the undertaking is at risk if applicable laws determine that the Applicable Period is too long).

Subclause (c)

This subclause deals with the situation where the Buyers re-sell the Vessel within the Applicable Period.  Where this occurs, the agreement relating to that onward sale must also contain substantially similar provisions to those contained in subclauses (a) and (b) for the remaining part of the Applicable Period.  As an illustration, if the Buyers and the Sellers have agreed an Applicable Period of 36 months and the Buyers re-sell the Vessel after 12 months; then the remaining part of the Applicable Period shall be (36 – 12 =) 24 months.

There is also an obligation on the Buyers to undertake proper due diligence with a view to ensuring that the new buyers shall continue to trade the Vessel. This will in most cases require the Buyers to enquire with the new buyers what their intentions will be regarding the trading of the Vessel.

Subclause (d)

This subclause sets out the consequences of the Buyers’ breach of the undertakings given under subclauses (b) and (c).  The parties are required to elect one of two alternatives. 

If the parties choose (i) the remedy for the Sellers in the event of the Buyers’ breach is liquidated damages.  Please note that the parties should seek independent legal advice before selecting the liquidated damages alternative to ensure that the provision (and, specifically, the amount of liquidated damages that will be stated as payable by the Buyers) will be enforceable under applicable law. If the parties choose (ii), the Buyers must indemnify the Sellers (including any of its affiliates, respective directors, officers, employees, agents and representatives) for any failure to comply with the undertakings.  If the parties fail to elect an alternative, the default position is alternative (ii).

Subclause (e)

This subclause refers to possible injunctive relief and other equitable remedies (for example, injunctions or orders for specific performance) which may be available to the Sellers regardless of which alternative the parties have chosen in subclause (d). However, please note that in most jurisdictions, equitable relief will always be subject to the discretion of the relevant court/tribunal.

Subclause (f)

This subclause allows the Sellers to disclose the existence and breach of the Clause following a breach by the Buyers notwithstanding any confidentiality provisions that may be contained in the underlying sale and purchase agreement.