Background

Owners commonly require time charterers to provide a written guarantee underwriting their obligations to pay the owners for all sums due under the agreement. Such guarantees are typically issued by a parent company. A guarantee should provide owners with a greater degree of security; but if it is poorly drafted it may not be worth the paper it is written on.

To help avoid the pitfalls of a poorly worded guarantee, BIMCO has developed a standard document that provides a clearly worded and comprehensive guarantee of the charterers’ obligations to pay all sums due under the charter party. The BIMCO Charter Party Guarantee extends beyond payments due to the owners by the charterers by also incorporating a guarantee for charterers’ liabilities for items such as unpaid bunkers, port charges and stevedoring costs that the owners may find themselves liable for if the charterers default on payment.

While it is not possible to draft a comprehensive guarantee that will function in all jurisdictions (not least due to the many different preconditions for guarantees, such as formalities required for an effective guarantee, registration, filing and approval), the BIMCO Charter Party Guarantee is a flexible instrument which, although based on English law, can be adapted to work in other jurisdictions. The nature of the guarantee is a so-called “see-to-it” guarantee. 

The BIMCO Charter Party Guarantee was drafted by a team of industry representatives with expertise in and experience with this type of guarantee.

Explanatory Notes

• Clause 1 (Definitions)
• Clause 2 (Guarantee)
• Clause 3 (Continuing Nature of Guarantee)
• Clause 4 (No Deduction or withholding)
• Clause 5 (Owners’ rights, powers and remedies)
• Clause 6 (Demands for Payment)
• Clause 7 (Costs, charges and expenses)
• Clause 8 (Modification)
• Clause 9 (Assignment and Successors)
• Clause 10 (Representatives and Warranties)
• Clause 11 (Governing Law and Jurisdiction)
• Charter Party Guarantee Clause

The box layout as Part I of the agreement contains the key details of the Guarantee such as the identity of the Guarantor, the owners and the charterers, as well as the name of the vessel, maximum liability and governing law and jurisdiction.

Clause 1 (Definitions)

This clause sets forth a number of definitions used throughout the Guarantee. Most notably the “Guaranteed Amount(s)” definition contains two specific payment obligations, namely, the first being any sums due from the charterers to the owners under or in connection with the charter, including recoverable costs; and the second being any payment obligations which have been shifted to the owners due to the charterers’ default in payment regarding their operational costs.

The subcommittee considered that the Guarantee should be broader in scope than just covering the charterers’ monetary obligations under the time charter. Thus, it is preferable also to cover the charterers’ other debts as well, for instance, the costs of bunkers, port charges, stevedoring costs or the like.

If the parties also want the Guarantee to cover Letters of Indemnity, especially for delivery of the cargo without presentation of the original bill of lading, this should be specifically included in the scope of the Guarantee by amendment. 

Clause 2 (Guarantee)

This clause is intended to provide the consideration required under English law to ensure the validity and enforceability of a contract, as well as containing the substantive guarantee obligation.

The deadline for the Guarantor’s obligation to pay any guaranteed amount has been set at five banking days. This is considered more appropriate than the 10 days set out in the 2012 version of the Guarantee because a 10-day deadline, in practice, would most likely mean that 14 days or more could lapse before the payment is made.

The Guarantee also no longer includes a reference to a maximum liability figure which would cap the guaranteed amounts.

Clause 3 (Continuing Nature of Guarantee)

Subclause (a) clarifies that the provisions and effectiveness of the Guarantee remain unchanged regardless of any amendments to the charter party or any additional time given to the charterers to meet their obligations.

Subclause (b) states that the Guarantor’s liability under the Guarantee remains in effect even if the charterers go out of business.

Subclause (c) deals with how long the Guarantee is intended to remain in force. There is no time limit for when a demand on the Guarantor shall be made (unlike the 2012 version of the Guarantee). The reason for this is that the Guarantee will relate to the underlying charter party. The effect of this is that the Guarantor will only be released of his obligations once the obligations under the underlying charter party have become time-barred. A time limit will be more suitable to a guarantee issued by a bank or financial institution where the guarantor needs a certain protection and needs to be in a position to postpone its payments as it is not related to the underlying contract.

Subclause (d) provides for multiple demands to reflect that during a long time charter an owner might have to call upon the Guarantee on several occasions.

Clause 4 (No Deduction or withholding)

As the title of the clause suggests, the Guarantor is not allowed to make any set-off, counterclaim, deduction or withholding for any sums payable unless the Guarantor is entitled by law to make such deductions or withholding. As compared with the 2012 version of the Guarantee, it is specified that any such deductions and withholdings made shall be the minimum permitted.

Clause 5 (Owners’ rights, powers and remedies)

This clause sets out that the owners are under no obligation to make any demand to the charterers, or commence proceedings or make claims before exercising the rights, powers and remedies they have under the Guarantee or by law. This means that the owners can make a direct request the Guarantor to pay any guaranteed amounts.

Clause 6 (Demands for Payment)

This clause deals with some key features regarding the form in which demands should be made and also what constitutes an effective notice. To modernise the Guarantee, it now includes the possibility of giving notice by email. 

Clause 7 (Costs, charges and expenses)

The Guarantor is obliged to reimburse the owners on demand for all monetary losses that the owners may have sustained during their suing or recovering activities under the Guarantee.

Clause 8 (Modification)

This clause highlights that no modification to the Guarantee will be effective unless it has been mutually agreed and subsequently signed in a written instrument by the party against whom the amendment is made.

Clause 9 (Assignment and Successors)

Pursuant to this clause, the owners are entitled to transfer any or all their rights under the Guarantee as they deem fit, whereas the Guarantor must obtain a prior written consent from the owners to assign or transfer their rights or obligations under the Guarantee.

Clause 10 (Representatives and Warranties)

Some nations impose harsh requirements to ensure the validity and enforceability of guarantees, such as registration, filing requirements or similar. As such, this clause spells out that the Guarantor warrants to the owners that it possesses all the corporate powers, and has taken all necessary corporate, administrative or other steps to enable the Guarantee to be executed, delivered and performed.

Clause 11 (Governing Law and Jurisdiction)

The parties have to agree on the law which should govern the Guarantee in Box 9. If no election is made, the Guarantee will be governed by English law. 

To avoid that different jurisdictions apply and potential issues when enforcing the Guarantee, the jurisdiction or arbitration clause under the Charter Party is incorporated. To cater for the unlikely event that no so clause is included in the Charter Party, a reference to the BIMCO Law and Arbitration Clause 2020 (English law, London arbitration version) has been included as default.

Charter Party Guarantee Clause

The Guarantee is accompanied by an optional clause which it is recommended should be included in the charter party if it is agreed to issue a guarantee. The deadline for the charterers to arrange for a guarantee to be arranged has been increased from five days in the 2012 version to seven days as this was considered more appropriate.

Copyright and availability
Copyright in the BIMCO Charter Party Guarantee 2022 is held by BIMCO.