Explanatory notes

GENCOA A – Explanatory notes

OVERVIEW

GENCOA A 2022 is a standard contract of affreightment for dry bulk cargoes. It is one of two versions of GENCOA revising the latest version of the contract issued in 2004:

GENCOA A - a framework contract that can be used with different voyage charter parties for different trades; and

GENCOA B - an “all in one” contract that includes all terms and provision usually found in a contract of affreightment, both the contract terms of GENCOA A and the charter party terms that would otherwise be found in a voyage charter attached to GENCOA A.

These explanatory notes are intended to explain the drafting team’s thinking behind some of the clauses of GENCOA A. This document is intended as a living document and when BIMCO receives questions on some of the clauses we will expand these notes.

BIMCO would like to thank the members of the drafting subcommittee for all their hard work in producing the new editions of GENCOA:

Ms Inga Frøysa, Torvald Klaveness (Chairperson)

Capt. Lin Huoping, COSCO Shipping Bulk Co 

Ms Peri Ertugruloglu, Viterra 

Mr Mike Queally, ADM 

Mr Sasha Patel, Steamship Mutual 

Mr Fulvio Carlini, FONASBA 

GENCOA includes several standard BIMCO clauses (such as the Anti-Corruption Clause and the Sanctions Clause). Some of these clauses have been amended to fit a contract context. Explanatory notes for these clauses are available on the BIMCO website.

Copies of GENCOA A are available on BIMCO’s contract editing tool SmartCon. Users who obtain a copy of GENCOA A from any other source are encouraged to verify its authenticity before using it. A free verification checking tool is available on BIMCO’s website at bimco.org.

Structure

GENCOA A is divided into five main sections. Part I, Part II and Annexes A to C. Part I is used to insert the deal-specific information that has been agreed between the parties. Part II contains the standard provisions. Annexes A and B are optional, whilst Annex C incorporates the charter party elected by the parties.

Part I

Box layout

GENCOA A follows the usual pattern of BIMCO standard forms and includes a box layout format. Here the parties can enter the variable information that applies to the contract such as details of the parties, quantities, shipments, and scheduling requirements. Note that when using SmartCon the information entered in the Boxes will automatically appear also in the corresponding clauses of Part II. This means, for example, that when the charterers’ spread of laydays is typed in Box 13 (ii), the corresponding subclause 7 (a) will be filled in at the same time, or vice versa. 

Additional clauses covering special provisions, if necessary and agreed for a particular contract, may be added as rider clauses to the contract and should be referred to in Box 29. It should be noted that the incorporation of additional clauses, as with amendments to the standard text, may alter the balance of responsibilities and liabilities between the parties in the pre-printed form and, potentially, prejudice P&I cover.

Part I incorporates the BIMCO Authenticity Clause above the signature boxes. The purpose of the clause is to decrease the frequency of the industry’s - often unknowing - use of counterfeit copies of BIMCO forms. If one of the parties provides the contract template for negotiation and is reluctant to include this clause or wants it struck out, then this should serve as a warning that the offered contract is probably not a genuine BIMCO standard agreement.

Preamble – The preamble clarifies the position when there is conflict between the terms of GENCOA A and the elected Charter Party. It determines that if there is any conflict, Part I, II and the Annexes should prevail over the voyage charter party. This means that if users want to have their individual provisions prevailing over the wording provided under GENCOA A, the respective references in Part I and II should be amended. This is important to bear in mind since there may be overlapping clauses in GENCOA and the Charter Party.

Clause 1 – Subject of Contract

This clause sets out the core obligations of the parties. Additionally, it contains an express safe port warranty from charterers. The safe port warranty implies a safe berth warranty. The reasoning behind this is that whilst in a contract context the ports are usually named, port characteristics and circumstances may change during the contract period. The safe port warranty is often a topic of negotiations between the parties. It can be amended to reflect the individual negotiations.

Clause 2 - Total Quantity/Number of Shipments

The parties need to elect whether a total volume of cargo in metric tons or a number of shipments should be performed. The parties must make a clear choice of which provision is to apply by indicating their choice in Box 9 of Part I.

Subclause (a) is a “total quantity” option allowing the parties to state a minimum/maximum amount to be carried under the contract. It is part of the negotiations to agree on the quantity. To avoid recurring disputes, as per Clause 3 the loaded quantity as stated on the bill of lading for each shipment shall apply when calculating the total quantity shipped.

Subclause (b) is a “number of shipments” option.

Subclause (c) deals with the situation where a shipment is not performed in accordance with the terms of the contract. If the contract provides for the total quantity option, the nominated quantity will be deducted from the total quantity. If the contract provides for a number of shipments to be performed, the number of shipments will be deducted.

Circumstances where a shipment cannot be performed are, for example, force majeure situations or where a shipment is cancelled because the laycan was missed.

Clause 3 - Actual Total Quantity

This clause deals with the quantity for the actual shipment loaded and referred to in the bill of lading. The Actual Total Quantity is an important figure used to establish compliance with the total quantity requirement under Clause 2 (Total Quantity/Number of Shipments).

Clause 4 - First Shipment Layday and Final Shipment Cancelling Date

This clause establishes the shipment period, making it clear that the first layday of the first shipment must coincide with or be later than the date stated in Box 10 and the cancelling date for the final shipment must not be later than the end date specified therein.

Clause 5 - Quantity per Shipment

The quantity of cargo for each separate shipment is an integral part in the performance of the whole contract. It is at the owners’ option to decide on the minimum/maximum quantity per shipment within the limits stated in Box 10. This is very important for the owners to be able to nominate the performing ship.

Clause 6 - Spread of Shipments

This is one of the core provisions of the contract as it deals with the gaps between the voyages.

The practical importance of this provision is that the parties need to know when they will be required to perform their respective obligations. For the owners, it means providing the ship. For the charterers, it means having the cargo at the port ready for loading. All this requires planning and coordination and be done at a time that is workable for both parties.

GENCOA is intended for use in a broad range of dry bulk cargo trades on a worldwide basis. It would be difficult to regulate contractually for every kind of programme of shipments and nomination of tonnage because individual requirements vary so much. Instead of incorporating alternative clauses for programming shipments, GENCOA A uses the concept of “fairly evenly spread” which should be sufficient in most cases.

The reference to “fairly evenly spread” means that the parties are not tied to any specified dates. There is a significant downside to this in practice because the term is imprecise, and it is difficult to determine what are suitable intervals. We recommend that the parties consider agreeing timings setting out the preferred “quarter” or range of months during which the shipments are to be carried, wherever practicable, or even agree on schedules.

Clause 7 - Scheduling/Nomination

This clause provides a scheduling and nomination procedure for each of the shipments under the contract.

In Clause 7(a) the charterers are obliged to give the owners a notice providing an agreed spread of laydays for each shipment. If the contract provides for a range or multiple load or discharge ports, the charterers must nominate the port when declaring the laycan.

Subclause (b) deals with the ship’s nomination and provides two options to choose to elect. The second option under (b) (ii) provides for a further narrowing of the laydays.

The acceptance by the charterers of the owners’ nominated ship is dealt with in Clause 7(c). The principle is that if the charterers fail to advise the owners whether the nominated ship is accepted within 24 hours of the nomination, then the ship will be deemed to be accepted.

In practice, the first nominated ship will often not be the one performing the actual voyage. This process is reflected in subclause (d) which gives the owners the option to nominate another similar vessel which will be the ship performing the voyage and must meet the same requirements as the initially nominated ship.

Clause 8 - Nomination of Discharging Port(s)

The charterers must make their declaration of discharge port or ports “in sufficient time not to delay” the ship. This clause deliberately avoids a requirement to specify a number of days’ notice as the time required will depend on the discharge port nominated.

Clause 9 – Freight/Deadfreight

The freight rate for each voyage is determined by the rate stated in Box 14, and in Annex A (in cases where there are different freight rates based on different ports). The freight provisions of GENCOA are tied closely to Clause 14 (Suspension and Termination). This is a provision not normally found in voyage charter parties but which spells out the consequences of late freight and demurrage payment in the context of the relationship between owners and charterers under the GENCOA.

Clause 10 – Bunker Price Adjustment Clause

This clause is intended to be a base for a BAF clause which can be amended to reflect the needs of the parties and the trade.

Clause 11 - Demurrage/Despatch

The applicable demurrage rate is the rate specified in Box 17, or Annex A, or as declared on nomination when the parties wish to agree to it separately for each shipment.

The clause makes a distinction between disputed and undisputed demurrage. Undisputed demurrage is payable within 14 days after receipt of the invoice. Disputed demurrage is dealt with in subclause (c). The owners have no right to suspend performance or terminate the contract in accordance with Clause 14 (Suspension and Termination) for disputed demurrage.

The parties should use their best endeavours to submit invoices within 30 days after completion of discharge, but provided they have indeed used their best endeavours they do not waive their rights if the invoices are not submitted within that time.

Clause 12 - Lien

This is a standard provision for contracts of affreightment. The lien can be exercised for former and completed voyages and is not limited to claims under the current voyage.

Clause 13 – Agents

The parties should fill in Boxes 20 and 21 to indicate which party is to nominate and appoint the agents at the loading and discharging ports. If no such choice is made, the default position that will apply is that the agents should be nominated by the charterers and appointed by the owners.

The party nominating the agents should be aware that the agents must meet the minimum quality standards required inter alia by the Federation of National Associations of Ship Brokers and Agents (FONASBA) or other equivalent quality standard. Information about the FONASBA Quality Standard is available here.

Clause 14 - Suspension and Termination

GENCOA includes a suspension and termination clause giving rights to both the charterers and the owners in the event the other party breaches the contract.

Subclause (a) deals with the charterers’ non-compliance with their payment obligations or failure to provide cargo for shipment.

Failure to pay freight, deadfreight, demurrage and sums due and payable is addressed in subclause (a)(i). It applies to all outstanding sums due and payable under the contract as such and is not limited to a shipment currently being performed. The charterers’ failure to pay “other compensation” due covers other amounts due and payable by the charterers to the owners. These rights are not available for disputed demurrage before it has become payable in accordance with Clause 11 (Demurrage/Despatch).

If a situation arises where the charterers are in breach of their obligation to pay, the owners must issue a notice with a request to pay within the stated period. If the charterers do not pay within that period, the owners can immediately suspend performance of any or all their obligations.

The right to terminate the contract is only available once the period agreed in subclause (a)(i)(2) has lapsed.

If the charterers fail to provide cargo for an agreed number of shipments, the owners are entitled to terminate the contract unless the failure is caused by a Force Majeure event in accordance with Clause 15 (Force Majeure) or due to owners’ breach of contract.

Subclause (b) mirrors this provision for situations where the owners are in breach of contract. It addresses the owners’ core obligation under a COA which is to nominate ships and make them available to the charterers. The clause does not refer to “consecutive” shipments and therefore means a failure to nominate the agreed number of shipments throughout the duration of the contract.

The charterers can also exercise the rights provided under this subclause if the owners are in material breach of the terms of the contract. The reference to “material breach” is an undefined term and its meaning will vary based on the individual contract terms. On a more general basis, it is intended to mean an act, omission, thing, payment, provision, obligation, or circumstance that would be of significance to both parties and which a reasonable person would consider as important to the contract. If the owners commit such a breach, the charterers are entitled to suspend performance immediately - which includes the payment of freight - and after an agreed grace period has lapsed, to terminate the contract.

Clause 15 – Force Majeure

Please see the explanatory notes for the Force Majeure Clause here. Note that the suggested additional subclauses (h) and (i) in these notes have been added to the clause.

Clause 16 - Insurance

Setting out the insurance requirements for both parties under long-term contracts has become an important practice. This clause reflects market requirements.

Clause 17 – Assignment/Novation

GENCOA is intended to be a complete base contract the parties can use for a long-term contract. To protect eithers party’s interest, a party to the contract cannot be changed without the other party’s consent. The non-assigning party can only refuse to consent if it has reasonable grounds for doing so. A standard example for that is that the new company would not be as financially sound as the original party.

Clause 18 Liquidation/Bankruptcy

Such a provision is often seen in long-term contracts of affreightment. It is important to know that it operates differently in different jurisdictions and depending on the local insolvency law, the non-liquidated/bankrupt party might not be allowed to terminate the contract because overriding local legislation might prevail. We recommend obtaining local legal advice before operating the clause.

Clause 20 - Sanctions Clause

This bespoke Sanctions Clause for GENCOA is based on the BIMCO Sanctions Clause for Voyage Charter Parties. The explanatory notes can be found here.

Clause 21 - Anti-Corruption Clause  

This is an amended version of the BIMCO Anti-Corruption Clause for Charter Parties 2015 adapted to fit a contract context. The explanatory notes to the Anti-Corruption Clause are available here.

Clause 22 – BIMCO Law and Arbitration Clause 2020

This is BIMCO’s 2020 edition of the law and arbitration clause which offers four named arbitration venues and a free choice of law and forum. When using BIMCO’s contract editing system, SmartCon, the option chosen by the parties in Box 27 will appear automatically in the body of this clause. If the parties fail to make a choice, English law and London arbitration will be the default position.

Subclause (a) determines the governing law; the place of arbitration; the applicable arbitration legislation; and the seat of arbitration (where the arbitration takes place in a jurisdiction other than the agreed place of arbitration). It is an “exclusive” arbitration agreement. This is emphasised by the addition of the phrase “referred exclusively to arbitration”.

Subclause (b) requires the parties to appoint three arbitrators but allows for a different number of arbitrators to be agreed.

Subclause (c) applies the terms (or rules) of the chosen arbitration association to the conduct of the arbitration. An appointment procedure is no longer included in the clause because the terms of the named arbitration venue contain a procedure to which parties should refer when making appointments of arbitrators.

Subclause (d) provides for the small claims procedures offered by the named arbitration association. Parties are free to decide on the maximum applicable sum for small claims, but otherwise the clause will display the default amount used by each of the named venues. If the London arbitration version of the clause is chosen, then an additional “intermediate claims procedure” provision will apply optionally.

Subclause (e) applies the terms, rules procedures of the chosen arbitration association current at the time that arbitration proceedings are commenced. This is the common approach for arbitration in London, Singapore, and Hong Kong. In New York the rules are different, and it is those current at the time the contract was concluded that will apply.

Subclause (f) addresses the correct service of arbitration notices and communications. Parties are free to serve notices by whatever effective means they choose, but if they choose email then they must provide the email address of someone authorised to receive arbitration notices (and advise the other party of any change of address during the period of the agreement). Notices are considered effectively served immediately on sending by email.

Clause 23 - Mediation/Alternative Dispute Resolution Clause 2021

This is BIMCO’s Mediation/Alternative Dispute Resolution Clause 2021. The explanatory notes to the clause are available here.

ANNEX A (Ports and Rates)

To complement relevant boxes in Part I, an optional annex has been included where the parties can include information in case of multiple ports/places and freight/demurrage/despatch rates. Separate tables have been included for loading ports/places, discharging ports/places and freight/demurrage/despatch rates.

ANNEX B (Requirements for Nominated Vessels)

An optional annex has been included to make room for the inclusion of specific requirements for the vessels to be nominated by the owners.

ANNEX C (Charter Party)

In this annex, the parties must include the applicable charter party. As also stated in Part I, the provisions of Parts I and II of GENCOA A shall prevail over those of the incorporated charter party in case of conflict. Thus, it is important to avoid overlapping clauses in the contract form and the charter party.

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