Shipping Podcasts finalists for Maritime Media award

#MaritimeLaw podcast with @incelaw : Overview of The Norwegian Salesform 2012

By • May 2nd, 2012 • Category: Ince & Co Podcasts by Coracle, Shipping Law

Maritime Law Podcast from Coracle Online and international law firm Ince & Co

To learn more about maritime law, why not take Coracle’s Legal Principles in Shipping course? or Coracle’s Shipping Law course?

In this podcast we give an Overview of “The Norwegian Salesform 2012”

Have you downloaded Ince’s iPhone app yet? Grab your free copy here

The Norwegian Saleform 1993 is currently the most widely used and internationally recognised standard agreement for the sale and purchase of second hand tonnage (at least in the Western Hemisphere). Despite its wide use, feedback from the industry indicated that the Saleform could benefit from an update. BIMCO and the Norwegian Shipbrokers Association (“NSA”) therefore set about the challenge of revising the standard agreement. The result is the introduction of the Saleform 2012.

The general principles and structure of the Saleform have been retained. However, amendments have been made to better reflect industry practice and to clarify certain issues prone to ambiguity or dispute. In this article, we shall consider the main amendments incorporated into the new Saleform 2012.

Preamble

The preamble has been subject to some minor amendment but the revision has no wording to reflect the common practice where a buyer or seller provides a performance guarantee in respect of its nominated buying/selling company. In light of the requirements for a valid guarantee under English law, such standard wording setting out the extent of the guarantee and calling for the signature of the guarantor may have been beneficial by limiting disputes concerning the validity of guarantees. A signature box for any guarantee can of course always be added as necessary.

Definitions

A number of additional definitions have been included in the revised Saleform, the most striking being the definition of “Class” as the “class notation” rather than the Classification Society itself. Sellers will now be required to insert the class notation into the Memorandum of Agreement (“MOA”), a practice which is currently rare, and which sellers usually avoid in order to prevent possible misdescription claims. It is notable that the definition of “in writing” has not been linked to the new notice provisions at clause 17.

The deposit (clause 2)

In order to take account of commercial practice, the parties are now free to insert the relevant percentage of the purchase price which will be paid by way of a deposit. However, the traditional 10% remains as the default level of the deposit if no other figure is inserted by the parties.

An interesting amendment is the new reference to a “Deposit Holder” which is a move away from the assumption that the deposit will always be held by the sellers’ nominated bank. The “Deposit Holder” can be any third party – be it the brokers, lawyers etc.
One of the most significant alterations to clause 2 is the revised wording setting out the trigger for payment of the deposit by the buyer. The Saleform 1993 provides that the deposit be paid within a certain number of banking days from the date of the MOA. The number of banking days allowed for payment is open to the parties to agree. The revised Saleform 2012 now provides that the deposit will be payable three banking days from signature and exchange of the original MOA and receipt of confirmation in writing from the Deposit Holder that the account has been opened.

The time for payment under the clause is clear but it is possible that this wording may give rise to difficulties of interpretation. The usual position is that absent indications to the contrary, the brokers’ recap is evidence of a binding agreement having been reached, provided all terms have been agreed. It is possible that this new wording will lead to arguments that the agreement is not binding until signature and exchange of the MOA, though this was presumably not the intention of the drafters.

There is also the added express obligation on the parties to provide the Deposit Holder with all documentation required to open the account. The failure by one of the parties in providing this documentation may have a considerable effect as the deposit will not be payable until the Deposit Holder confirms that the account has been opened. There is no express provision dealing with the consequences of such a failure.

Payment of the purchase price (clause 3)

The wording for the trigger for payment of the purchase price has also been altered. Buyers are now obliged to pay the purchase price within three banking days of the date that Notice of Readiness (“NOR”) is given in accordance with clause 5. The additional requirement in the Saleform 1993 for the vessel to be “in every respect physically ready for delivery” has been removed.

The other significant development is the express confirmation that the deposit should now be considered as forming part of the purchase price. This deals with the interpretation given to the Saleform 1993 by the English High Court in PT Berlian Laju Tankers v. Nuse Shipping (The Aktor) [2008] EWHC 1330 (Comm).

Time and place of delivery and notices (clause 5)

Clause 5 has been amended so as to include a date range for delivery by the inclusion of a date before which NOR may not be provided as well as a cancelling date. Sellers’ obligation to keep buyers informed of the vessel’s itinerary now requires them to give notice of when they intend to tender NOR.

NOR is still to be provided when the vessel is “at the place of delivery and physically ready for delivery in accordance with this Agreement.” However, the well-known wording “in every respect” has been removed apparently in order to clarify that minor defects will not enable buyers to reject the vessel under the MOA. This arguably goes back to the position enunciated in The Aktion [1987] 1 Lloyd’s Rep 283.

Where a seller indicates that the ship will not be ready by the cancelling date, the buyers’ time for exercising their option whether to cancel the MOA or not has been reduced from seven running days to three banking days.

Diver’s inspection and dry docking (clause 6)

Although the different alternatives for dry docking and inspections have been retained, the order of the alternatives in the standard form has been altered in order to reflect industry practice.

Clause 6(a)(i) has been amended so as to provide that buyers must exercise their option to require a diver’s inspection at least nine days prior to the intended delivery date. This seeks to ensure proper notice for sellers to make the required arrangements. Buyers should take note of the time limit to ensure they are not deprived of their right to call for a diver’s inspection.

Where a diver’s inspection is required and the conditions at the port of delivery are unsuitable, Saleform 2012 adds a provision confirming that the cancelling date shall be extended by the additional time required for the positioning and subsequent repositioning of the vessel.

Clause 6(a)(ii) provides that if Class do not require certain defects to be rectified before the next dry docking survey, the sellers are entitled to deliver the vessel with those defects against the deduction from the purchase price of the estimated direct cost of labour and materials of carrying out the repairs. Buyers will then have no further right in respect of any defects and/or repairs. Although this reflects the incorporation of a frequent amendment, sellers should consider this wording carefully as the direct costs incurred may exceed the costs of labour and materials and include various additional expenses.

The clause also sets out a mechanism for calculating the deduction from the purchase price. Quotes for the repair work are to be obtained by the parties from two reputable independent shipyards in the vicinity of the port of delivery within two banking days from the imposition of the condition/ recommendation of Class unless the parties agree otherwise. If one of the parties fails to obtain such a quote then the quote of the other party will be the sole basis of the estimate. NOR cannot be tendered by sellers until the various quotes have been obtained. This may become a further area of dispute. Differences in the standards applied by various Class surveyors and a subjective decision as to whether a defect must be repaired before delivery or not may be of significant effect. There may also be some practical difficulties arising from the imposed time limit of two banking days for the parties to obtain their quotations. Some shipyards may not be prepared to provide a quotation without a full inspection to survey the work required, which may lead to difficulties in obtaining a quote, or inaccurate quotations.

Obligation on sellers regarding listing spares etc. (clause 7)

Clause 7 of the MOA has been amended to include an increased responsibility on sellers to list the items not belonging to them and excluded from the sale. Sellers are also obliged to replace items owned by third parties if those items were on board during inspection. It appears that this was inserted in order to ensure that buyers, having inspected the vessel, are not surprised when certain items which may have been hired from a third party are not included in the sale.

Documents (clause 8)

Clause 8 has been amended so as to include a longer list of the documents required in the form of delivery documents. The more comprehensive list is an improvement, however it is not exhaustive of all the documents which may be required on the sale of a vessel. Parties would be well advised to consider amending the standard wording further in order to clarify certain issues and the documents required for the transfer of that particular vessel.

Encumbrances (clause 9)

This clause has been amended to include the additional warranty that, on delivery, the vessel will not be subject to a “port state or other administrative detention.” Such an additional warranty in respect of port state detentions may have an effect on the deliverability of a vessel as recently considered by the Court of Appeal in an Ince case, YHM Shipping v. Polestar Maritime (The Rewa) [2012] EWCA Civ 153.

Condition on delivery (clause 11)

Clause 11 includes the added obligation that the vessel be delivered free of cargo and stowaways. This may give rise to practical issues relating to the condition of the vessel as it is unclear whether “free of cargo” also requires the vessel to be free of any cargo residue.

Sellers’ default (clause 14)

The three banking days provided to sellers after tender of an NOR to “make arrangements for the documentation set out in clause 8” has been deleted from clause 14. This deletion is significant in light of the recent decision of the Court of Appeal in The Rewa (see above). Sellers will now need to be diligent as regards these documents and certificates as the grace period afforded to perfect problems with documents has been removed.

Law and arbitration (clause 16)

The wording of the law and jurisdiction clause has been updated. It retains the choice between English law and London arbitration or New York law and New York arbitration or any other law and jurisdiction which the parties may agree. In relation to the choice of English law and London arbitration option, any arbitration is now subject to Lloyd’s Maritime Arbitrators Association (“LMAA”) terms.

Notices (clause 17)

All notices between the parties will now need to be in writing and given in accordance with clause 17, though no provisions have been inserted to clarify when such notices are deemed to have been received.

Entire agreement clause (clause 18)

An entire agreement clause has been inserted which will result in any previous agreements (whether oral or in writing) between the parties being of no further effect as they will have been superseded by the signed MOA. This will go some way to avoiding disputes regarding alleged agreements made orally during negotiations and may prevent buyers from making misrepresentation claims.

The clause also has the significant effect of effectively excluding the implied terms of the Sale of Goods Act 1979. Much debate has centred around whether sales of ships under the Saleform exclude the obligation on the seller to ensure that the vessel is of satisfactory quality and fit for purpose pursuant to that statute. This removes any such argument and confirms the “as is” nature of the sale.

Comment

Some useful amendments have been made to the standard form by this new revision, Saleform 2012. It is likely that this new form will in time become widely used and potential users of the form should consider the amendments made and the impact of these changes on the workings of the MOA