Background

The need for a clearly worded pooling agreement has been demonstrated by the many queries received from members over the years and suggestions that BIMCO should produce a contract covering the issues. In the light of changes in the application of EU competition law in the maritime sector and Guidelines issued by the European Commission on the application of Article 81 of the EC Treaty to maritime transport services (2008/C245/02), (the Guidelines) relating, inter alia, to the tramp sector and shipping pools, the Documentary Committee agreed in November 2008 that a specialist document should be developed.

A Working Group was formed with the following members:

• Mr Francis Sarre, (Chairman) CMB (Owner)
• Mr Stathes Kulukundis, R&K (Owner)
• Mr Donald Chard, UK Chamber of Shipping (Owner)
• Mr Georg Scheel, Nordisk (Club Member)
• Ms Marjorie Holmes, (Reed Smith) (Lawyer)

Development process

Work on the new Standard Pooling Agreement, code named POOLCON A, was conducted over a period of almost three years starting in September 2009. Regular progress reports were made to the Documentary Committee and account taken of views and suggestions put forward.

BIMCO’s objective is to provide clearly drafted, balanced documents for use by industry interests. Consistent with this policy, and in line with proposals for seeking views on POOLCON A from the European Commission Competition Directorate (DGCOMP), a 60 day public consultation was undertaken in the autumn of 2011. During that period, all interested parties were invited to download and review the draft and submit comments.  This was an important part of the process for ensuring openness and transparency in the development of POOLCON A. As a final stage in the process, representatives of the Working Group met officials from DGCOMP in June 2012. The meeting was requested by BIMCO to explain the purpose of the document, the reasoning behind the provisions and learn whether the principles were likely to be consistent with EU competition legislation. It was made clear that the content could not be approved by DGCOMP and that it would be for parties to decide the appropriateness of using the document. However, no fundamental objections were raised and the introductory disclaimer with its recommendation to take advice when using POOLCON A was welcomed. Minor modifications were subsequently made to reflect observations put forward by DGCOMP including removal of a proposal for lay-up provisions which were viewed as capacity management and, therefore, problematic.

Accordingly, POOLCON A, which was adopted in principle at the Documentary Committee’s meeting in Singapore, 2012, was ready for publication.

Nature

The purpose of the Standard Pooling Agreement is to achieve the benefits of efficiency for users and their customers without creating restrictions on trade. POOLCON A is designed for use by tramp pools operating tonnage in dry and liquid bulk trades under contracts of affreightment, spot or possibly time charters to third parties.

The importance of compliance with the Guidelines and EC Guidelines on horizontal co-operation agreements (2011/C11/01), was recognised by the working group although, given the international use of POOLCON A, account was also taken of legislative implications in jurisdictions around the world. However, as competition law is often modelled on the European regime, it was decided that the Guidelines should provide the framework basis. Nevertheless, users are advised to make appropriate inquiries to ensure that their agreements are consistent with local legislative provisions.

The structure of POOLCON A, and whether it should be set up as a partnership, a limited liability company or an agency agreement, was discussed at length. The working group took the view that a partnership would not be a problem with 2 or 3 participants but might raise difficulties with multiple participants, particularly in the event of inter-party disputes and liabilities. It was concluded that a partnership, agency or joint venture arrangement would not meet market needs. Work therefore proceeded on the basis of a contract where the pool would be established as an entity in itself. POOLCON A sets out administrative and procedural issues relating to pool operation and allocates party liabilities and obligations as between pool members and the managers.

Underlying Time Charters

Pool members’ vessels are time-chartered to the pool and it is the underlying time charter that provides the basis of the trading relationship between the ship owner and the pool.

Explanatory notes

The following notes are intended to provide guidance on the provisions set out in POOLCON A.

Cover note

Introduction

Part I

• Clause 1 (Definitions)
• Clause 2 (Pool Agreement)
• Clause 3 (No Partnership)
• Clause 4 (Indemnity, Liability and Security)
• Clause 5 (Objective of the Pool Agreement)
• Clause 6 (Authority of the Pool Managers)
• Clause 7 (Pool Vessels)
• Clause 8 (Pool Management)
• Clause 9 (Pool Managers’ Authority)
• Clause 10 (Pool Committee)
• Clause 11 (Pool Committee Authority)
• Clause 12 (Participants’ Meeting)
• Clause 13 (Calculation of Pool Gross Revenue, Pool Net Revenue and Pool Expenses)
• Clause 14 (Pool Managers’ Accounts)
• Clause 15 (Participants’ Obligations)
• Clause 16 (Hire)
• Clause 17 (Pool Points)
• Clause 18 (Withdrawal)
• Clause 19 (Non-compete)
• Clause 20 (Insurance Policies)
• Clause 21 (Termination by the Pool Managers)
• Clause 22 (Winding up of Pool)
• Clause 23 (Default)
• Clause 24 (Rights on Termination and Withdrawal)
• Clause 25 (Hardship and Force Majeure)
• Clause 26 (Confidentiality)
• Clause 27 (Assignment)
• Clause 28 (Notices)
• Clause 29 (Dispute Resolution Clause)
• Clause 30 (Severability)

 

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Cover note

Competition law is complex and varies between jurisdictions. Whether a pool is consistent with local legislation will depend on a range of factors including market share, market concentration, market structure and turnover together with other regulatory provisions in the country of destination and, possibly, origin. The working group is of the opinion that POOLCON A, as a generic agreement, will not restrict competition on price and market share and is therefore unlikely to expose users to the risk of action for anti-competitive behaviour. Nevertheless, the use of POOLCON A does not in itself confer compliance and users are urged to take appropriate advice to ensure that a planned venture is consistent with relevant competition laws.

Introduction

The POOLCON A Agreement (the Agreement), follows BIMCO’s traditional style. Part I contains a box layout for variable information to be inserted by the parties; Part II sets out terms and conditions; and four supporting annexes detail arrangements for vessels on charter to the pool.

Part I

Particular attention is drawn to Box 5. The Participating Charter, which should be attached to Annex B, is the working document between the Pool Manager, as time charterer, and the Owner as Pool Participant. The charter is likely to be based on an existing standard document, typically BALTIME, GENTIME, NYPE 46, NYPE 93 or SHELLTIME 4 amended to reflect POOLCON A arrangements for payment of hire and delivery and redelivery of the vessel together with other general or trade specific provisions. 

Clause 1 (Definitions)

Terms used throughout the Agreement are set out. Words and phrases are defined for ease of reference for the purposes of the contract but are not legal definitions.

The term “Participant” is used to define an Owner entering a Vessel in the Pool. Attention is drawn to the distinction between “Participating Charter” which is the time charter between a Participant and the Pool Managers as time charterers; and “Transportation Contract” as between Pool Managers and third parties. A Transportation Contract is any contract for the use of a vessel or for carriage of goods and will include a contract of affreightment, spot charter or time charter.

Clause 2 (Pool Agreement)

The Agreement is made between each Participant and between the Participants and the Pool Mangers. Vessels are taken on time charter by the Pool Managers in accordance with the Participating Charter (annex B). All third party Transportation Contracts and contracts used for chartering in non-pool vessels (Additional Tonnage), are concluded by and in the name of the Pool Managers. It is expressly provided that the Pool Managers are not the agents of the Participants and that Participants are not the Pool Managers’ principals.

Clause 3 (No Partnership)

Construction of the Agreement as a partnership between Participants and the Pool Managers or any of them, is expressly excluded. Participants’ obligations are owed only to the Pool Managers save in relation to the specific provisions set out in clause 4 (Indemnity, Liability and Security), clause 26 (Confidentiality) and clause 29 (Dispute Resolution). 

Clause 4 (Indemnity, Liability and Security)

Each Participant is liable only for its own performance; there is no joint and several liability with any other Participant. This provision therefore protects a Participant from action by a third party to secure a claim against another Participant or the Pool Managers. In the event of such action, the Participant whose dispute affects another Pool Member (or the Pool Managers), must indemnify the innocent party for all costs and losses and provide security to lift or discharge any arrest of property.

Clause 5 (Objective of the Pool Agreement)

This is a mission statement explaining the commercial efficiencies to be gained from using the Agreement and the ultimate benefits to consumers. It reflects EU Guidelines on the application of competition legislation.

Clause 6 (Authority of the Pool Managers)

The clause sets out Pool Managers’ authority to enter Transportation Contracts in their own name and in accordance with their duties under clause 8 (Pool Management). The provision should be read in conjunction with clause 9 (Pool Managers’ Authority).  

Clause 7 (Pool Vessels)

Sub-clause (a) states that technical management of a vessel, including insurance and manning, is the sole responsibility of the Participant as set out in the Participating Charter.

Sub-clause (b) provides that, where necessary, Pool Managers may charter-in vessels (Additional Tonnage) to supplement resources to fulfil commitments.

Clause 8 (Pool Management)

A comprehensive list of duties to be undertaken by Pool Managers is set out. It includes operating, administering contracts, accounting, maintaining financial records, marketing and all other functions in support of the Pool’s commercial activities together with performance as charterers under the Participating Charter, including payment of hire. It is expressly provided that the Pool Manager shall not discriminate between Participants.

In accordance with sub-clause (d), the Pool Manager can sue and be sued in relation to any dispute under the Agreement.  

Clause 9 (Pool Managers’ Authority)

The maximum period for which Pool Managers are authorised to enter into Transportation Contracts is limited by agreement between the parties. Under sub-clause (a),in default of a stated time, the maximum is six (6) months or (for example under a Contract of Affreightment) by reference to the equivalent number of voyages provided such voyages are scheduled to be performed within a stated time or, in the absence of agreement, twelve (12) months. In accordance with sub-clause (b), Pool Managers’ authority to charter-in Additional Tonnage can also be limited by agreement or, in the absence of a stated period, to a maximum of six (6) months

Clause 10 (Pool Committee)

The Pool Committee supervises and monitors the Pool Managers. Membership is drawn from among the Participants. Decisions are made by ordinary majority of those present at a meeting. A Member may be represented by a proxy with full voting rights.

Clause 11 (Pool Committee Authority)

This sets out the scope of the Pool Committee’s authority. It includes making arrangements for  Participants’ Meetings (see clause 12), approving new and Substitute Vessels from Participants, approving Transportation Contracts for periods in excess of the Pool Managers’ authority, agreeing to Pool Managers’ use of currency and hedging instruments for periods of not more than twelve (12) months and such other functions as may be delegated by the Participants’ Meeting.

Clause 12 (Participants’ Meeting)

An ordinary meeting, with not less than 21 days’ notice, must be held at least once a year. An extraordinary meeting may be called by an agreed proportion of Participants giving 14 days’ notice. A meeting will be required in the event of the Pool Managers giving notice of termination (see clause 21). A Participant may be represented by a proxy with full voting rights.

The Participants’ Meeting is the Pool’s ultimate decision-making forum. Careful consideration was given to the voting procedures to ensure that decisions would balance individual interests and not be unduly influenced or blocked by a larger or smaller Participant able to exercise a veto over a particular course of action.

Under sub-clause (d), accounting and budgets, together with other matters not subject to an enhanced majority, are to be resolved by ordinary majority. This is determined by reference to the number of Pool Vessels owned or controlled by a Participant, with each vessel giving one vote.

A two thirds majority, again on the basis of numbers of vessels, is required under sub-clause (e) for matters relating to Pool Points, Transportation Contracts in excess of the Pool Committee’s authority and other listed activities in support of, or ancillary to, the Pool’s objectives. In order to reduce the likelihood of stalemate, or decisions being held up by a minority, a proposal to wind-up the Pool or appoint new Pool Managers, is also subject to a two thirds majority.

A unanimous decision of those present or represented at a Participants’ Meeting is required under sub-clause (f) to approve certain joint venture agreements, admission of new Participants and expulsion of a Participant (although the Participant under consideration for expulsion cannot vote on the issue).

Under sub-clause (g), proposed changes to the Agreement require Participant unanimity and the Pool Managers’ consent. The need for agreement by each and every Participant will protect the interests of those unable to attend, or be represented at, a meeting to determine a proposal.    

Clause 13 (Calculation of Pool Gross Revenue, Pool Net Revenue and Pool Expenses)

This clause gives further meaning to the definitions in clause 1 to address the calculation of income receivable. The determination of Pool Points is set out at clause 17 and in Annex D. It was felt that the two concepts should be dealt with separately and thus avoid a single, but complex, provision.

Sub-clause (a) identifies the elements comprising Pool Gross  Revenue including each Vessel’s income both actual and based on voyage estimates, charter hire receivable, income from ancillary activities and insurance money together with any indemnities or damages received arising from the Pool’s operations.

Sub-clause (b) deals with Pool Expenses covering all aspects of voyage and related costs, expenses under the Participating Charter, costs of chartering-in Additional Tonnage, other outgoings connected with the operation of the Pool and the agreed remuneration for Pool Managers. Liabilities or damages payable come within Pool Expenses unless (see sub-clause (c) and reflecting the position of ship managers under clause 17(b)(i) of SHIPMAN 2009) arising solely from the negligence, gross negligence or wilful misconduct of the Pool Managers who, in such circumstances, will be liable for any payment.

In the event of expenses exceeding income, Participants will be required to cover the shortfall in accordance with sub-clause (d) of clause 16 (Hire).

Clause 14 (Pool Managers’ Accounts)

Pool Managers are required to keep true and correct accounts by reference to the International Financial Reporting Standards (IFRS) or other agreed arrangements, exercise budget monitoring and controls and meet audit standards. The provision also outlines procedures for reimbursing Participants’ recoverable Pool Expenses.

Clause 15 (Participants’ Obligations)

The scope and extent of Participants’ financial obligations (other than remuneration under clause 13(b)(viii)) are quantified to cover amounts due under the Participating Charter, any damages for breach of contractual obligations and payments due in the event of withdrawal from the Pool. A Participant has no obligations beyond those expressly set out in the Agreement.  

Clause 16 (Hire)

The system for determining and paying hire to Participants is central to the objectives of a pooling arrangement. Hire is determined on a monthly basis by reference to the time on hire and each vessel’s Pool Points (clause 17) as a proportion of the total points of all vessels in the Pool multiplied by the Pool Net Revenue (clause 13); a formula in sub-clause (a) sets out the calculation.

Provisions for the distribution of hire, limiting or holding back payments in the event of insufficient funds and Participants’ obligations to make a contribution if a calculation results in a negative sum, are set out at sub-clause (b). Sub-clause (d) covers Participants’ obligations to contribute to Working Capital and operational losses.

Clause 17 (Pool Points)

Every pool will have its own individual characteristics according to trading activities and/or the type and mix of tonnage. In order to avoid the inclusion of a potentially complex formula within the text, a flexible approach has been followed. A cross reference to annex D (Pool Points Formula) suggests factors likely to be taken into consideration when assessing points for a vessel joining the Pool. Under sub-clause (b), the Participants’ Meeting will confirm the number of points, taking account of any recommendations made by the Pool Managers.

Sub-clause (c) requires Pool Managers to review voyage results and vessel performances on 1st January and 1st July to ensure that allocated points continue to fairly reflect each vessel’s relative earning capacity. Illustrative factors likely to affect the position, and which should be kept under review, are set out and include a change of trading pattern, changes in bunker costs, introduction of new regulations and vessel modifications. Pool Managers’ recommendations for amending individual Pool Points or the Pool Points Formula are referred to the next Participants’ Meeting. If necessary, and in accordance with sub-clause (d), revisions can be conducted at shorter intervals.

Clause 18 (Withdrawal)

This clause seeks to balance owners’ needs to be able to move in and out of trades and activities with Pool Managers’ needs for certainty of supply to fulfil their commitments under Transportation Contracts. It distinguishes between withdrawal of a Vessel and withdrawal of a Participant. 

Under sub-clause (a), a Pool Vessel may be withdrawn if sold or committed to a time or demise charter for longer than a pre-agreed period. Notice of withdrawal is required but, in defined circumstances, provision of a Substitute Vessel will fulfil a Participant’s outstanding obligations.

Sub-clause (b) sets out the notice requirements for a withdrawing Participant and arrangements for individual vessels to be taken out of the Pool. If the value of outstanding Transportation Contracts is below the market rate, the withdrawing Participant will be required to make a financial contribution pro rata to the number of vessels being withdrawn. No compensation is payable to the withdrawing Participant where the value of outstanding Transportation contracts exceeds the market rate. Disputed valuations are to be determined by reference to chartering brokers.

Nevertheless, if one or more vessels due to be withdrawn is or are determined by Pool Managers to be essential to the performance of existing contractual obligations, sub-clause (c) provides that the Participant must supply a Substitute Vessel or pay compensation to cover the cost of chartering-in  suitable tonnage.

Special provisions apply in the event of a constructive or total loss (sub-clause (f)). The clause also sets out procedures for redelivery of vessels and repayment of Working Capital. 

Clause 19 (Non-compete)

This clause was questioned by DGCOMP. At face value it appears to impose a restriction on ship owners’ freedom to trade. However, without the provision, a Participant would be free to compete against the Pool, possibly with the benefit of price or other sensitive information. This would conflict with restrictions on exchanges of information between competitors.

It has therefore been decided that the provision should stand. However, in order to clarify the intended scope, the statement “not entitled to operate in the same trades” should be interpreted in line with the industry’s understanding that this means the same geographic trades, commodities and type(s) of vessel.

Clause 20 (Insurance Policies)

Sub-clause (a) is based on the insurance provisions in SHIPMAN 2009. However, no reference is made in sub-clause (a)(i)(4), optional insurances, to kidnap and ransom (K&R) cover as underwriters normally impose strict non-disclosure provisions. Parties should decide whether cover is required on a confidential basis.

Sub-clause (b) requires Pool Managers to take out charterers’ liability insurance.

Clause 21 (Termination by the Pool Managers)

Pool Managers may give six (6) months’ notice to terminate their role. A Participants’ Meeting, convened in accordance with clause 12, must decide whether to appoint replacement managers. In the absence of a two thirds majority in support of a proposal, it will be necessary to proceed to the winding-up arrangements in clause 22.

Clause 22 (Winding up of Pool)

Sub-clause (a) provides a mechanism for winding-up the Pool by a two thirds majority vote at a Participants’ Meeting  or where, following Pool Managers’ resignation (clause 21), there is no agreement to make a new appointment.

Sub-clause (b) details arrangements for withdrawing vessels from the Pool and releasing Participants from their contractual obligations during the winding-up period.  

Clause 23 (Default)

This sets out the events and circumstances which may result in a Participant’s expulsion if so resolved at a Participant’s Meeting. Nevertheless, expulsion is without prejudice to the Pool Managers’ right to claim damages in accordance with clause 24.

Clause 24 (Rights on Termination and Withdrawal)

It is expressly provided that a Participant’s withdrawal whether voluntarily,  by expulsion or in the event of total loss, does not affect any rights or obligations incurred up to the effective date of withdrawal or beyond in the case of rights and obligations that survive termination of the Agreement.

Clause 25 (Hardship and Force Majeure)

Parties are encouraged, under sub-clause (a), to try to reach an amicable solution if the Agreement does not work as intended or expected.

In order to avoid possible conflict with force majeure provisions which will vary depending on the underlying charter accompanying the Agreement, sub-clause (b), setting out mutual exclusions from liability, is expressly stated to be “without prejudice” to the Participating Charter.   

Clause 26 (Confidentiality)

Competition legislation restricts the exchange of market or price sensitive information between competitors. It is, therefore, important that Participants observe and comply with this clause and its prohibition on disclosure, other than in accordance with legal process, or outside exploitation of information gained within the Pool.

Clause 27 (Assignment)

This requires all Participants to agree before a member may assign or transfer rights under the Agreement, other than assignment to an affiliate or financiers.

Clause 28 (Notices)

This is the standard BIMCO provision.

Clause 29 (Dispute Resolution Clause)

Disputes under a pooling arrangement may involve multiple parties. The BIMCO Standard Clause has been modified at sub-clause (a), London arbitration, to include a mechanism for the appointment of arbitrators where there are more than two parties to the arbitration. As the clause is not the standard version, “BIMCO” has been removed from the heading.

Clause 30 (Severability)

This is a standard clause. It seeks to avoid a situation where the entire agreement is held to be invalid because a particular provision is deemed by an arbitrator or other competent authority to be illegal, invalid or unenforceable.