Explanatory notes

The following notes are intended to provide an explanation of the reasoning behind the clauses of the BIMCO Bunker Terms 2018 that are not self-explanatory.

• Clause 1 - Definitions
• Clause 2 – Specifications/Grades/Quality
• Clause 3 – Quantities/Measurements
• Clause 4 – Sampling
• Clause 5 – Delivery
• Clause 6 – Documentation
• Clause 7 – Price
• Clause 8 – Payment
• Clause 9 – Claims
• Clause 10 – Risk/Title
• Clause 12 – Sanctions Compliance Clause
• Clause 13 – Anti-Corruption Clause
• Clause 14 – Indemnity
• Clause 15 – Liability
• Clause 16 – Force Majeure
• Clause 17 – Termination
• Clause 18 – Pollution
• Clause 19 – Drugs and Alcohol Policy
• Clause 22 – Assignment
• Clause 24 – Dispute Resolution Clause 2016
• Clause 26 – Entire Agreement and Priority of Terms
• BIMCO Bunker Terms 2018 - Annex A (Election Sheet)

Clause 1 - Definitions

The Definitions section sets out the contractual meaning of important terms that appear in several places in the contract.

“Banking Day” – This definition establishes what constitutes a banking day for the purposes of the agreement and distinguishes between payments made in US dollars which require New York banks to be open, and payments made in other currencies, which do not.

“Confirmation Note” – A signed Confirmation Note (sometimes referred to as a confirmation order in practice) should, ideally, be used for every bunker supply. It should list the specific terms agreed and make reference to the underlying standard terms and conditions (BIMCO Bunker Terms 2018). In the absence of a formal Note, this definition will encompass a seller's written confirmation of the final binding main terms. The BIMCO Bunker Terms do not include a standard confirmation note as parties generally prefer to use their own confirmation notes rather than a standard version.

“Contract” – The whole agreement will encompass the general terms and conditions in the BIMCO Bunker Terms 2018, the Confirmation Note, and the Election Sheet if used. Each delivery should be considered to be a separate agreement.

“Sellers” – This definition covers not just the sale of bunker supplies but also the arrangement for actual delivery to the ship, which may in many cases may be carried out by a third party physical supplier.

Clause 2 – Specifications/Grades/Quality

It is the buyers’ responsibility to nominate the specifications and grades of bunkers that are suitable for their ship. It is not the task of the sellers to provide fuels that are "fit for use by the vessel" as it is not reasonable to expect suppliers to be fully conversant with every main engine design to be able to make such an informed decision.

Clause 3 – Quantities/Measurements

Subclause (a) takes account of the various methods used around the world to measure the quantity of bunkers delivered to the ship.

Subclause (b) ensures that the buyers have the possibility to be present and to access gauges when quantity measurements are taken by the sellers. It is intended that the sellers should make all of the tanks on the bunker barge or barges available for inspection.

Clause 4 – Sampling

This clause has been carefully drafted to reflect current practices and establish a fair balance of obligations and responsibilities.

One of the main issues is the location of the sampling point – at the bunker barge's manifold or at the vessel’s bunker manifold. Most buyers prefer to have samples taken at the ship's manifold. However, practical factors may determine that the sampling point should be located elsewhere, such as accessibility to the receiving vessel from the bunker barge. To address these practical considerations and to give the parties a degree of flexibility in the location of the sampling point, the parties can agree on the location on a case by cases basis, provided it's closest to the ship’s bunker manifold and otherwise in accordance with the procedures set out in the IMO Resolution MEPC. 182(59) Guidelines for the Sampling of Fuel Oil for Determination of Compliance with MARPOL 73/78 Annex VI. What is of perhaps even greater importance than the location of the sampling point is that the sampling is properly witnessed by the ship’s crew.

Because in some parts of the world, notably Singapore, mandatory local rules and regulations for bunkering operations apply, the Terms clarify that these will take precedence over the provisions of subclause (a).

The number of samples taken also varies around the world, so the Terms set a minimum number of 5 samples to be collected. Subclause (b) deals with how they should be handled correctly and subclause (c) describes by whom the different samples should be retained and for how long. Two samples should be retained by the sellers for the minimum period stated, as these are the samples most likely to be used for checking purposes, and the other three, one of which should be the MARPOL sample, are to be retained on board the ship.

Clause 5 – Delivery

Subclause 5(a) – Contains an obligation on the sellers to deliver and the buyers to take delivery of the marine fuels within the period stated in the confirmation note. Delivery can take place at any time (which includes holidays, statutory or otherwise), but is subject to any restrictions imposed by authorities at the port or place of delivery.

The buyers are required to gives notices to the sellers of the vessel’s expected time of arrival as set out in subclause 5(b), ending with a 24-hour definite notice of arrival providing the time and location where delivery is requested. The sellers’ written confirmation of the delivery time will constitute the “Confirmed Delivery Time” for the purpose of calculating when delivery must be commenced or in respect of delay claims under subclause 9(c)(i) (Claims – Delay).

Subclause 5(c) and 5(d) sets out when the sellers must commence delivery depending on whether the vessel is ready or not to receive fuel at the agreed location and within the delivery window as stated in the Confirmation Note. When the vessel is indeed ready, the sellers are given an additional six hours to commence delivery, and when the vessel is not ready the sellers have an additional 12 hours to commence delivery, both counting from the Confirmed Delivery time or the time of Actual Readiness, whichever is later.

Subclause 5 (e) states that when no Confirmed Delivery Time has been agreed delivery must commence within 12 hours from the time the vessel is ready to receive fuels at the agreed delivery location. The reasoning is that if the parties have not agreed on a Confirmed Delivery Time, then sellers should not be obliged to sit around and wait for the buyers, i.e. the sellers do not have to be there and be ready once the buyers do show up.

Responsibility for compliance with local regulations in respect of deliveries rests with the sellers who, if local regulations permit, will also assist the buyers in connecting and disconnecting hoses.

Clause 6 – Documentation

A bunker pre-delivery form or similar document must be presented to the Master or its representative (in practice usually the Chief Engineer) for acknowledgement and should contain values for the various analytical parameters required by ISO 13739. The sellers are required only to sign for values for viscosity, density, sulphur content, flash point and delivery temperature, and, if available, similar information for vanadium, ash content, water content and pour point. Wording is included to provide for where local mandatory rules apply, which will then override subclause 6(a).

The Bunker Delivery Note (BDN), which should be signed by the Master or authorised representative after completion of delivery of the bunkers, should contain the information listed in subclause 6(b) which is warranted by the sellers, for example, delivered quantity and delivery temperature.

The Master may make appropriate remarks on the BDN if not satisfied with the sampling, quantity or other matters concerning the bunkers or the delivery. These remarks should be made on completion of delivery so that the sellers can start to investigate the claim as soon as possible. The remarks should either be stated in the BDN or in a separate letter of protest, if remarks in the BDN are not permitted. To reduce the likelihood of disputes about the receipt of such remarks, the sellers’ representative must acknowledge them in writing. It should be noted that there is a different time frame in respect of quality claims in subclause 9(b)(i) stating that quality claims must be notified promptly after the circumstances giving rise to such claim have been discovered (which is unlikely to be at the time of delivery because of the need for analysis of samples).

Clause 7 – Price

In this revision, wording has been included to provide that the price of the marine fuels is only valid if the vessel arrives within the defined Delivery Period, and that the sellers may amend the price in accordance with the prevailing market price if delivery is to take place outside this period.

Any additional charges incurred by the sellers but which the buyers should pay for should be listed in the sellers’ quotation and Confirmation Note to avoid unpleasant surprises after delivery. If charges such as overtime cannot be specified as a lump sum then they should, at least, be included as a rate per hour.

Clause 8 – Payment

There is a 30-day time limit within which payment should be made unless another limit has been agreed in the Confirmation Note. The basic principle is that payments should be made on or before the due date. This may be amended by the parties on a case by case basis if they so wish. Any additional payment or refund should be made within seven days from delivery. 

Subclauses 8(b) to (h) set out the terms for payment, for example, that buyers do not have the right to make deductions, and that payment is deemed earned when it has been credited to the sellers’ bank account and that delay in payment or refund will entitle the other party to interest.

A new subclause 8(e) has been included to address payment priority. This will be helpful in default scenarios in terms of how interest should be calculated and as to what has been paid or not. Sellers generally prefer to allocate payment to invoices last because outstanding invoices may be used for ship arrests. Interest usually rank before invoices since it is harder to claim. The received payment should be allocated to the various debts in the listed order.

Provision has been made for credit downgrade and cross accelerating in the new subclause 8(h). This will address a situation where the buyers’ creditworthiness becomes a problem. The sellers can then call for payments immediately instead of waiting for the buyers becoming bankrupt. Cross accelerating payments means that where one invoice is not paid, the sellers can demand payment of all other invoices immediately as well.

Clause 9 – Claims

This clause consolidates all the claims-related issues in the BIMCO Bunker Terms into a single provision that also covers time bar provisions. Given the importance of properly dealing with claims under a bunker contract, this clause warrants a detailed explanation.

Subclause (a)(i) deals with claims about the quantity of bunkers delivered that must be noted at the time of delivery. The first stage of the claim process is to make a remark in the BDN or in a separate letter of protest. The second stage requires the buyers to present their claim to the sellers within 14 days from the date of delivery. The parties can agree to a different number of days in the Election Sheet. The buyers cannot bring any other claims than the initial claims that have identified in the BDN or in the letter of protest. The 14 days is given to allow the buyers sufficient time to get their documentation in order and is considered a reasonable time in which sellers would still be able to verify delivered quantities. After the two weeks’ period, such claims will be considered waived by the buyers and therefore time barred. However, it is important to note that if the buyers are unable for whatever reason to provide all the documentation in support of their claim within 14 days, it will not be time barred provided they have submitted at least some documentation at that point.

Under subclauses (a)(ii)-(iii) the sellers and the buyers respectively have the right to charge each other for proven additional expenses. The sellers will have this right where the buyers have failed to take delivery of the full quantity of the ordered bunkers, and the buyers will have the right when the sellers fail to deliver the agreed quantity (unless the Master has put in writing that a lesser quantity is to be taken). The type of costs that are envisaged are, for example, if buyers receive less bunkers than ordered they may have to call at another port to top-up with bunkers, which will mean extra costs. From the sellers’ perspective, additional costs may be incurred if the buyers do not take full delivery of bunkers. As bunkers are often customs cleared for export, the sellers will have to wait for an opportunity to sell and deliver the fuel to another client as they cannot easily be “re-imported”. 

In the latest revision, an operational tolerance of +/- 2 per cent has been inserted in relation to the delivered quantity. This reflects practice as the fuel will, to a higher or lesser degree, stick to the walls of the barge tanks, depending on the type of product.

Subclause (b)(i) gives the buyers 30 days from the date of delivery to give notice to the sellers of claims relating to the quality or specification of the bunkers. The longer time bar for these type of claims is due to the fact that samples will have to be tested by laboratories, which can be a time-consuming process involving shipping samples to a remote location. The parties might prefer to negotiate the number of days on a case by case basis. They can do so and state the different time bar in the Election Sheet. Influencing factors on the suppliers’ preferred number of days can be, for example, if they are acting as traders or physical suppliers.

The procedure for quality or specification claims is set out in subclause 9(b)(ii). The buyers have the option to request a full analysis showing all fingerprint parameters. The reasoning behind the buyers’ option to request a full analysis is that it is generally cheaper to request a full analysis rather than to test only the parameters that are allegedly off-spec. If such option is exercised, the analysis should always be made in accordance with the specification set out in the Confirmation Note and ISO 4259. If there is a conflict between what is stated in the Confirmation Note and this clause, the Confirmation Note will prevail, see subclause 26(d) (Entire Agreement and Priority of Terms). A full analysis may not be possible in all parts of the world, so the parties are free to agree the extent of the analysis. The party whose claim or case is unfounded will have to pay for the analysis.

If a party suffers a loss because of a delay, they can claim compensation from the other party for those losses. From the buyers' side, the delay may spring from their failure to observe the notices requirements; failure to be ready to receive fuels at the agreed location within the Delivery Window; or failure to receive the bunkers at the previously advised pumping rate and pressure. The sellers, on the other hand, may cause a delay by failing to commence bunker delivery as agreed or their inability to deliver bunkers at the agreed minimum pumping rate and pressure.

Subclause (d) contains an overall time bar of 12 months from the date of delivery or the date when delivery should have commenced. To break the time bar, arbitration proceedings have to be initiated in accordance with the dispute resolution provisions under clause 24.

Clause 10 – Risk/Title

In the latest revision, this clause has been made into two options. Subclause 10(a) provides for an option where both risk and title in the marine fuels pass to the buyers once the fuels have passed the sellers’ flange. Under the option contained in subclause 10(b), the risk in the marine fuels passes to the buyers when the bunkers have passed the sellers’ flange. However, title only passes upon payment, not only for the fuel, but for all sums due to the sellers. Such other sums can be interest, debts or other outstanding costs owed to the sellers. So, under subclause 10(b), until payment is made, the sellers retain full title to the bunkers and the buyers are in possession of the bunkers as a "bailee" only (a legal obligation to look after something owned by another, while in your possession). The agreed alternative should be stated in the election sheet.

Subclause 10(c) includes an express permission to consume the fuel for propulsion of the ship.

Clause 12 – Sanctions Compliance Clause

The affect of sanctions on international trade applies equally to the purchase of bunkers and it is essential that parties are fully aware of the importance of exercising due diligence. The purpose of this clause is to protect parties against dealings with persons or undertakings prohibited from engaging in trade, commerce or financial transactions. P&I insurance cover will be prejudiced if a party is dealing with sanctioned parties.

While sanctions clauses of this type are now a common feature of most maritime contracts, this provision has been extended to address the issue of "source of origin" in respect of bunkers which may have come from a sanctioned country or is a blend of products which include bunkers from a country subject to relevant sanctions.

In the latest revision, reference to the United Kingdom has been included with the pending departure from the EU in mind. Specific mention of the US Department of the Treasury Office of Foreign Asset Control (“OFAC”) has also been made. The clause now provides for the main parties/bodies in the world in respect of sanctions.

It should be noted that the sanctions clause can be opted out from in the Election Sheet.

Clause 13 – Anti-Corruption Clause

This clause is based on BIMCO’s Anti-Corruption Clause for Charter Parties and amended to fit a bunker purchase context. The clause focuses on encouraging collaboration between the parties and how to deal with corruption in practice.

Subclause 13(a)(i) requires the parties to comply with “all applicable anti-corruption legislation”. Since the clause is designed for worldwide trading and is not linked to any specific legal system, this provision aims to encompass any laws or regulations to which the parties are subject under their own national legislation or legislation in the country or jurisdiction where they are operating.

Each party must have in place procedures to ensure that their commercial dealings with counter-parties are designed to prevent any offence being committed by their employees or agents. This is likely to be based on a company’s internal anti-corruption rules and guidance published by industry organisations. While there is no expectation that such procedures will be effective in every case, a certain and high threshold is set and parties should ensure they have robust systems in place for making appropriate background checks and undertaking due diligence in the appointment of agents and other third parties. Company procedures must also set, and enforce, high standards of conduct.

Subclause 13(a)(ii) makes an express provision for record keeping that reflects customary company practice and statutory obligations for keeping and maintaining accounting information. Proper recording of any payments made or gifts provided, along with the circumstances in which they were made or provided, is an essential part of a company’s procedures with regards to unwarranted facilitation payments.

Subclause 13(b) is triggered when a request is received by either party for payment or goods or other items of value (defined in the clause as a “Demand”) from any official, contractor or sub-contractor either engaged by either party or acting on behalf of any third party (such as port or customs officers). If the Demand is viewed as an illegal payment, the party receiving the demand must notify the other party and the two parties are to cooperate in taking reasonable steps to resist the Demand.

Subclause 13(c) provides mutual indemnities whereby a party that has breached anticorruption legislation to which it is subject, must indemnify the other party against any loss or damage suffered as a result by the latter.

Subclause 13(d) sets out the criteria for termination. Termination can be invoked either by either party but only where the other party has breached applicable legislation in connection with the contract; and that breach has put the other, non-breaching, party in breach of anti-corruption legislation to which it is subject.

It should be noted that: 

• use of the termination provision is optional and any breach committed by one party can be disregarded by the other party;
• the commission of a breach is limited to the actions of those directly employed by the breaching party and not those of agents or contractors engaged to act on their behalf;
• it is expressly provided that termination must be exercised “without delay”. This is to prevent a party using a prior incident as an excuse to bring the contract to an end possibly weeks or months later. The interpretation of “undue delay” will depend on case sensitive facts and circumstances; and
• termination is expressly “without prejudice” to any other rights under the contract.

Subclause 13(e) provides a self-standing regime warranting that the contract has not been procured by corrupt means. If breached, the innocent party may terminate the contract.

Clause 14 – Indemnity

This indemnity is strictly limited to damages directly caused by compliance with directions given by one party to the other; excluding any other causes.

Clause 15 – Liability

Subclause 15(a) is an exclusion of losses clause where subclause 15(a)(i) excludes certain specified losses that may be direct or indirect, and subclause 15(a)(ii) excludes indirect or consequential losses. This means that under the BIMCO Bunker Terms 2018, the buyers can claim for all direct losses, except those expressly excluded under 15(a)(i). The sellers on the other hand are protected by the cap on liability.

Subclause 15(b) – In line with the majority of bunker contracts in the market, an overall limit of liability has been included in the BIMCO Bunker Terms 2018. The limit has been set at the invoice value of the marine fuels or USD 500 000, whichever is the higher. The parties can agree to a higher limit in the Election Sheet, but the limit in this clause will serve as the default position.

Clause 16 – Force Majeure

This clause is based on the ICC (International Chamber of Commerce) model Force Majeure Clause 2003 which BIMCO has used to create a “standard” force majeure provision for its contracts. A "force majeure" event is a major or catastrophic event beyond the control of either party for which neither is responsible, but which prevents the party seeking to rely on the clause from fulfilling its contractual obligations. The event must not have been reasonably foreseen or possible to guard against. The clause requires the parties affected by a "force majeure" event to make reasonable efforts to minimise the effect of the event. Combined with the provisions of clause 17(e) (Termination), "force majeure" can give rise to a right of termination by either party should the event continue for a period exceeding 10 consecutive days from the date of the event or notification to the other party.

Clause 17 – Termination

Fundamental to any contract of this nature is the right of the parties to terminate the agreement under certain specified circumstances. For ready-reference, all of the BIMCO Bunker Terms' termination provisions are consolidated into a single clause. The termination rights are mutual and clearly set out in the text. In the latest revision, the right to terminate if the other party is in material breach has been added.

Clause 18 – Pollution

This collaborative provision deals with incidents of pollution that may occur during any stage of the bunkering operation.

Regardless of which party is responsible for a spill, subclause 18(a) requires that buyers and sellers jointly take immediate steps to effect a clean-up operation in accordance with local laws and regulations.

In subclause 18(b) an obligation is put on the sellers to have in place valid oil-spill contingency plans, approved by the relevant authorities.

Subclause 18(c) requires the parties to indemnify and hold each other harmless for any claims, losses, damages, penalties and other liabilities they have caused or contributed to and which are incurred under, for example, state, national or international pollution legislation, in connection with the performance of the contract.

In subclause 18(d), the sellers are made responsible for ensuring that the bunker company has satisfactory insurance for oil spills, either by ensuring that the bunker supplying company takes out such insurance or by providing such coverage themselves.

In the last revision, this clause has been made more general and wider. In the 2015 edition of the bunker contract, the buyers were required to indemnify the sellers for spillages after the transfer of risk, except when it was the fault of the sellers. But there was no provision for before the risk had passed and if spillage was caused by the buyers. Furthermore, the indemnity in the 2015 edition covered liabilities that had incurred under pollution legislation only, and not all losses. This subclause has therefore been amended and now allocates liability based on fault, and not based on the passing of risk in the bunkers.

It should be noted that the liability cap of USD 500 000 applies to indemnity claims between the buyers and sellers under subclause 18(c) as well.

Clause 19 – Drugs and Alcohol Policy

The buyers and sellers must have in place, and enforce, drugs and alcohol policies that, as a minimum, meet the standards in the latest edition of STCW 1978 (Standards of Training, Certification and Watchkeeping for Seafarers). The policies apply primarily to the buyers’ ship and to the sellers’ bunker barge, but in the case of the sellers, it also extends to their shore facilities. The ban on drugs extends to prescription drugs if used or abused for purposes other than those for which they were medically prescribed.

Clause 22 – Assignment

If one of the parties to the bunker agreement wants to assign or transfer the rights to the contract to another party, then it can only do so by prior agreement with the original contracting party. In the Election Sheet, the parties can specify certain rights that may be assigned without the prior written agreement as per this clause. For example, the sellers may want to include an express right to assign their invoices to their bank as part of their financing structure.

Clause 24 – Dispute Resolution Clause 2016

The dispute resolution clause offers four options for arbitration: London (which applies by default in the absence of a stated alternative in the Election Sheet); New York; Singapore; or an open choice for parties to agree the governing contractual law and seat of arbitration. Mediation procedures are set out for London, Singapore and the open forum. However, mediation has a different position in the USA and it is left to the parties to agree their own procedures.

Clause 26 – Entire Agreement and Priority of Terms

This clause limits the rights of the parties to the written terms of the contract. Representations, written and oral, are excluded and not intended to be part of the final concluded contract. It does not mean that the charter party, annexes, etc., override all other contracts that might exist between the parties, for instance contracts concerning other vessels. In its un-amended form, the UK Sale of Goods Act 1979 (SOGA) will not apply to this contract. However, if it is amended in a way so that it becomes a contract for the sale of goods, then the SOGA might apply, but subclause 26(c) would exclude the implied terms of the SOGA.

Subclause 26(c) does not exclude liability for fraud by the sellers and/or buyers, so that that the parties to the bunker contract will be liable for fraud against each other.

Subclause 26(d) is new and sets out the priority of the terms in case of conflicting terms. The Election Sheet takes priority over the General Terms and Conditions as the former is specifically negotiated and agreed between the parties. For the same reasons, the Confirmation Note takes priority over the General Terms and Conditions and the Election Sheet in case of conflicting provisions.

BIMCO Bunker Terms 2018 - Annex A (Election Sheet)

The Election Sheet gives the parties the possibility to customise some of the clauses in the General Terms and Conditions.