Explanatory notes

The development of the Vetting and Inspection Clause formed part of the general task of modernising the 1984 BIMCHEMTIME charter party. However, recognising the potential benefit to the chemical industry of coming up with a good standard vetting and inspection clause, BIMCO decided to prepare the BIMCHEMTIME Vetting and Inspection Clause as a free-standing standard clause that can be incorporated into other chemical carrier time charter parties.

The Vetting and Inspection Clause forms a cornerstone of any time charter party in the chemical trade. BIMCO’s Vetting and Inspection Clause for Chemical Carriers is an attempt to deal in a reasonable way with a fundamentally unreasonable situation.

The following notes are given as guidance on some of the thinking behind the Clause:

Part (a)

(a) Owners shall, with the co-operation of the Charterers, arrange to have the Vessel inspected under the CDI and SIRE Vessel Inspection Programs and by the major Oil and Chemical companies as required.

The opening words of the Clause establish the commercial importance of the charterers’ co-operation with the owners to assist in obtaining inspections by the major oil and chemical companies when so required. The use of the word “cooperation” is meant to convey the charterers’ active participation in the process.

As has been mentioned above, owners have often been caught in the difficult position of being obliged to obtain approvals from major oil and chemical companies to comply with the charter party, but the oil majors refusing to carry out an inspection because they have no commercial interest in the vessel. The link between the two parties in this respect is the charterer and the opening words emphasise the importance of collaborative effort. The scope of the Clause is limited to obligations which the owners can actually fulfil in today’s market.

The reference to annual inspection under the CDI (Chemical Distribution Institute) scheme reflects measures that the owners are able to initiate themselves. In contrast, inspection under the SIRE scheme can only be initiated by the oil majors. It is important to note that the preamble of the Clause deals only with the obligation to have the vessel inspected – the obligations in respect of approvals/acceptances are dealt with in subsequent sub-clauses. It should also be noted that the reference to CDI is specific to the chemical industry – it is not BIMCO’s intention that this Clause should be used in any other trade as vetting requirements vary significantly from trade to trade.

The second paragraph of the Vetting Clause consists of three parts, (i), (ii) and (ii) relating to the owners’ obligations under the Clause, covering all relevant scenarios. Parts (i) and (ii) are designed to be used by vessels presently trading. Part (iii) is to be used primarily for newbuildings, but also in connection with presently trading vessels entering into new trades. It should be noted that all three parts may not necessarily be filled in, but are offered as options to cover most scenarios.

Sub-clause (i)
(i) Owners warrant that on the day of delivery the Vessel has been vetted and is acceptable to:
___________________________________________________________________________.
Owners shall exercise due diligence to maintain such acceptances throughout the currency of this Charter Party.

This Sub-clause contains the list of acceptances valid at the time of delivery of the vessel. It provides a strict obligation on the part of the owners that the vessel has been vetted and “is acceptable” to the named major oil and chemical companies. The use of the term “acceptable” instead of the more commonly found “approved” is deliberate.

Following the Erika incident it transpired that the vessel was “approved” or “partly approved” by almost all of the oil majors. During the drafting of the Vetting and Inspection Clause it was agreed that while that words “approved” and “approvals” were generally acknowledged to be the generic term used throughout the industry, a number of the oil majors had deliberately removed the word from their contracts because of fears of adverse legal connotations.

On a long term charter the owners cannot be expected to know whether the major oil and chemical companies will introduce other requirements, say 4 years from the delivery of the vessel, which would result in them revoking their acceptances for the vessel. For this reason the owners’ obligation to maintain throughout the period of the charter party the acceptances in place at the time of delivery is one of due diligence.

It should be noted that the phrase “is acceptable” has been used in place of the more common “shall be accepted”. This has been done to avert concerns that the latter phrase could turn the provision into a condition precedent. The provision also distinguishes between the two processes of vetting and acceptance; vetting always preceding acceptance.

Sub-clause (ii)
(ii) Owners declare that the Vessel has been vetted and is, to the best of their knowledge, acceptable on a case-by-case basis by:
___________________________________________________________________________.
Owners shall exercise due diligence to maintain such acceptances throughout the currency of this Charter Party.

Like Sub-clause (i) this provision distinguishes between the two processes of vetting and acceptance. The Sub-clause is designed to reflect situations where a specific acceptance of a vessel has not been issued following an inspection and vetting, but where the owners firmly believe that if they were to seek formal acceptance for a particular voyage during the charter period, it would be given without any further need to inspect or vet the vessel. Such case-by-case acceptances are often given by companies following OCIMF guidelines whereby they reserve the right to “retract” the nominal acceptance.

The provision reflects the policies of some major oil and chemical companies that no longer issue what might be termed “period approvals” but instead often advise the owners simply that “the vessel does not need to be inspected by us for the next 12 months”. While this is not a positive acceptance, the assumption is that the vessel has met the required standards of the major and, should the vessel be presented to that major by the charterer, it would be accepted.

The obligation on owners to maintain such “case-by-case” acceptances, as they are commonly known, is one of due diligence – again reflecting the commercial realities of what the owners can actually warrant in today’s market.

Sub-clause (iii)
(iii) Owners shall exercise due diligence to obtain and thereafter maintain, throughout the currency of this Charter Party, acceptance of the Vessel by:
___________________________________________________________________________.

The intention behind this Sub-clause is to cover scenarios such as newbuildings and vessels currently trading entering new trades, which do not have approvals in place at the time of delivery. The issue of newbuildings and vettings is problematical because of the practical difficulty of warranting that the vessel has the necessary approvals in place when delivered.

It will generally not be possible to obtain vetting and acceptance for a newbuilding until the vessel is in service and inspectors are able to see cargo discharging operations in progress. If acceptances are made a strict obligation then owners would  immediately be in breach of their obligation as soon as a newbuilding was delivered into the time charter. The obligation in Sub-clause (iii) is, therefore, to exercise due diligence to obtain the listed acceptances. In part (d) of the Clause, the charterers are obliged to give the owners a “reasonable time” to arrange for the vetting and CDI inspection of the vessel, if she is a newbuilding delivered directly into the charter.

Consideration was given to the issue of a possible change of management during the charter period and the subsequent need to allow the owners reasonable time to have the vessel re-vetted and inspected. However, such a provision has not been included as it is unlikely in today’s market that any major charterer would accept a change of management.

Part (b)

(b) Inspections by above named companies (including CDI and SIRE Inspections) to maintain or obtain acceptances shall be arranged by Owners and costs for such inspections shall be for Owners’ account. If inspections by companies not named above are required by Charterers, all costs for such inspections shall be for Charterers’ account.

This part of the Clause allocates the responsibility for arranging and the costs of inspections with the named oil and chemical companies to the owners. However, should the charterers require inspections by companies not named in the list (a)(i)-(iii), the costs associated with the inspections must be paid for by the charterers. This is felt to be a fair allocation of costs for inspection and vetting.

Part (c)

(c) The Owners shall on receipt of an Inspection Report promptly make their comments on such Reports available to Charterers and arrange to have them entered into the respective databases.

The third part of the Clause deals with CDI reports and the owners’ obligation enter the details of CDI Inspection Report onto the CDI’s database, thus making it available for review by the charterers’ clients. CDI inspections are initiated by the owners and, being a points-based inspection system, it is common practice for owners to add their own comments to the report. Such comments may refer to the renewal of a particular certificate since the inspection or the fact that a particular aspect of the inspection could not be achieved due to the nature of the particular cargo operation. 

All comments on the CDI report must be filed promptly by the owners and uploaded to the CDI database with a notification to the charterers that the report and owners’ comments are available for their review.

Part (d)

(d) If the Vessel, on the day of delivery, is a newbuilding without any major approvals or Inspections, then the Charterers shall allow Owners reasonable time to arrange for the vetting and Inspection of the Vessel.

Part (d) ties in with sub-clause (a)(iii) of the Clause where recognition is given to the situation where the vessel is a newbuilding at the time of delivery. The owners will not be in breach by delivering the vessel without acceptances and CDI inspection in these circumstances as the provision recognises that inspections cannot take place until the vessel discharges her first cargo. However, once the vessel has reached her first discharge port then the owners must act with due despatch to obtain the necessary acceptances and CDI inspection.

 Part (e)

(e) Charterers shall assist Owners to get relevant oil and chemical companies to vet the Vessel. If any of the major Oil and/or Chemical companies, including those named above, refuse to inspect the Vessel because they have no commercial interest in the Vessel or an inspector is not available, then the Owners shall not be held liable and sub-clause (g) shall not apply.

The opening sentence of Sub-clause (e) echoes the sentiments of the preamble text in Sub-clause (a) which emphasises the need for the co-operation of the charterers in getting the vessel vetted. The use of the phrase “shall assist” places an obligation on the charterers to participate actively in the process. The very real likelihood of major oil and chemical companies declining to inspect the vessel claiming a “lack of commercial interest” or lack of an available inspector is dealt with in the second sentence. Where the owners have made diligent efforts to make their vessel available for inspection by an oil major, but have been rejected for the above reasons, then by virtue of this provision they will not be held liable and hire will not be reduced.

Part (f)

(f) The Vessel shall remain on-hire for the purpose of carrying out Inspections described in sub-clauses (a) and (b) above. If the Vessel fails to be accepted following any such Inspections or achieves a CDI score below an agreed minimum score of: ____ % (calculated as the average of the Statutory, Recommended and Desirable Sections), then the cost for re-inspection will be for the Owners’ account and the Vessel shall be off-hire for any time lost in having her re-inspected. 

Sub-clause (f) provides that the vessel will remain on-hire while carrying out inspections. If the vessel fails an inspection, however, then the costs of re-inspection are to be met by the owners and the vessel will be off-hire for any time lost conducting re-inspections. This also applies to the vessel’s CDI score which, if it falls below the agreed minimum percentage, will result in the vessel going off hire until the minimum CDI score is once again reached. It should be noted that it is possible for a vessel to have all the acceptances required but to have a CDI score that has fallen below the agreed level.

 Part (g)

(g) (i) If the Vessel, despite the exercise of due diligence, fails to obtain or retain acceptances by any of the companies listed in sub-clauses (a)(i), (ii) and (iii) above or the minimum CDI score stated in sub-clause (f), then the hire shall be reduced by the amount of ____ per day for each company’s non-acceptance and/or while the CDI score remains below the agreed minimum. Each reduction in hire, as stated above, shall continue until the corresponding company reaccepts the Vessel. If a reduction in hire is caused by a CDI score below the agreed minimum, such reduction shall continue until the agreed minimum CDI score is achieved. The Owners shall give the Charterers written notice when the Vessel has been prepared for and is eligible to the relevant companies for revetting. If the Vessel is not re-vetted by the relevant companies within 30 days of receiving the Owners’ notice, reduction of hire shall cease.

(ii) Should the Vessel when re-vetted or re-inspected still not obtain the acceptances required under sub-clause (a) or the minimum CDI score required under sub-clause (f), the hire shall be reduced or continue at the reduced rate as stated in sub-clause (g)(i) and the Charterers may notify the Owners that unless the situation has been rectified within 90 days, the Charterers shall have the right  to cancel this Charter Party. Such right to cancel shall be exercised by giving notice thereof within three (3) working days after the expiry of the above rectification period. The cancellation shall take effect as soon as the Vessel is free of existing cargo commitments. If the Charterers do not exercise the right to cancel this Charter Party, the provisions of this Clause shall remain in full force and effect.

The sanctions placed on the vessel for failing to obtain/retain acceptances is addressed in the opening lines which acknowledge that the consequences of failure are notwithstanding the exercise of due diligence on the part of the owners. The sanctions, however, are limited to failure to obtain or retain acceptances by the companies listed in sub-clauses (a)(i) through (iii) and not to unnamed companies.

Sub-clause (g) contains a provision for the parties to agree a daily reduction in hire for each non-acceptance until acceptance is achieved. Similarly, if the vessel’s CDI score falls below an agreed minimum then the reduction in hire will apply until the required score is achieved.

In order to avoid the owners being unduly penalised with a reduced hire over an extended period due to the charterers being unable to arrange an inspection, subclause (g) introduces a capping mechanism whereby the owners can put the charterers on notice that the vessel is in all respects ready and eligible for re-inspection. Should the vessel not be re-inspected within 30 days of that notice the reduction in hire will cease.

To ensure that the owners are not caught in a position where it is not possible to retain an acceptance or where the owners prefer for pure economic reasons not to make the vessel “fit” for new acceptance requirements, Sub-clause (g)(ii) provides that the charterers shall have the option to cancel the charter party if the missing acceptance is not gained within the agreed time span and following a grace period within which the owners must rectify the situation.

From the charterers’ point of view, the provision also covers instances where a vessel might be barred permanently by a particular oil or chemical company – thus effectively making the vessel unusable for the intended trade.

Part (h)

(h) In case the non-acceptances of the Vessel result from the fact that the Vessel, following an accident, must perform repairs to re-establish its condition as before the accident, the period of time in which the Vessel is off-hire due to such accident and in which the repairs are carried out shall not be included in the periods of 30 and 90 days allowed to Owners as per sub-clause (g) to restore the Vessel’s acceptances lost for the reason of the accident.

Sub-clause (h) excludes from the provisions of sub-clause (g) the consequences of non-acceptances due to repairs to the vessel following an accident.

Originally published in BIMCO Special Circular No. 1, 22 February 2006 - New Vetting Clause for Chemical Trade