MARITIME

BARECON 2017: THE TIMELY REVISION

OF AN INDUSTRY STANDARD
DECEMBER 2017

● BARECON 2017:
SIGNIFICANT UPDATE TO
PREDECESSOR, BARECON
2001
● BRINGS BAREBOAT
CHARTER FORM IN LINE
WITH LEGAL
DEVELOPMENTS
● BIMCO AIM: ENSURING
BARECON “KEEPS PACE
WITH MODERN
DEVELOPMENTS”

BIMCO has recently published its new BARECON 2017 following a review of its
predecessor, BARECON 2001. This revision represents a significant update to the
standard form of contract used by practitioners in the shipping and offshore sectors
for the bareboat or demise charter of ships and offshore units – and is viewed as
being a timely intervention by BIMCO, required to bring the 2001 version into line
with recent legal and commercial developments.

Whilst this latest edition follows a similar format to the previous version, BIMCO
“THE NEW FORM NOW comments that the new edition is “slightly leaner than its predecessor”, having
IMPOSES AN ABSOLUTE removed provisions “that were no longer relevant”, whilst consolidating wordings to
remove unnecessary duplication. However, other than these aesthetic enhancements,
OBLIGATION ON THE there are a number of commercial changes to this 2017 version, the most significant
OWNER TO DELIVER THE of which we highlight in the commentary below.
VESSEL IN A SEAWORTHY
Delivery
CONDITION.” A key feature of any operating lease or bareboat arrangement relates to the
condition of the vessel on its delivery because the charterer is generally prevented
from bringing any claim against the owner in respect of the vessel’s condition
following the charterer’s acceptance. The charterer’s position was not assisted in the
previous version in which the owner was only obliged to “exercise due diligence” to
make the vessel seaworthy at the time of delivery.
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The provisions as to owners retaining liability for the rectification costs but not the
time cost of latent defects discovered within a negotiable period of months following
delivery remain unchanged from BARECON 2001.

The new form now imposes an absolute obligation on the owner to deliver the vessel
in a seaworthy condition which gives the charterer some additional protection in the
event that the vessel fails to meet this particular requirement. This brings BARECON
2017 into alignment with the owner’s standard obligations upon delivery under most
time charter contracts.

Furthermore, if the charterer has inspected the vessel prior to delivery, the vessel now
has to be delivered by the owner in the same condition, fair wear and tear excepted.

Charter period
Although often negotiated as a separate rider clause to a charter, the 2017 form
now expressly includes an option for the charterer to extend the charter period at a
pre-agreed charter rate.

Familiarisation and inspection

A new provision has been included that gives the charterer and owner the right to
place representatives on board the vessel prior to delivery and redelivery. In addition,
the charterer and owner now have the option to arrange for an underwater
inspection of the hull, rudder and propeller as part of the overall survey of the
vessel’s condition at delivery and redelivery respectively.

Regulatory requirements
The charterer’s obligations relating to the maintenance and operation of the vessel
during the charter term are of course an essential feature of any bareboat charter.
However, given the increasingly stringent regulatory environment that operators
within the maritime and offshore sectors are obliged to comply with, the relevant
provisions of BARECON 2017 have been amended to provide greater clarity as
regards each parties’ responsibility for the cost of compliance with new regulations.

Whilst the charterer remains responsible for undertaking any structural changes
required by compulsory legislation, the parties are now provided with the choice of
options for allocating the costs of such changes. The first option (and default
position) is that all costs are to be for the charterer’s account and is the most likely
option in the event that the vessel is chartered for the whole or majority of its
intended trading lifespan. The second option, which removes the inherent ambiguity
within the 2001 version of allocating costs on the basis of a “reasonable
distribution”, provides the parties with a pre-determined formula for the
apportionment of the modification costs – provided of course the parties agree that
such costs should be shared between them in the first place. If the required
modification is expected to last for the life of the vessel, the charterer’s portion of the
cost is calculated by dividing the modification costs by the vessel’s expected
remaining life, multiplied by the remaining period of the charter. On the other hand,
if the required modification is not expected to last for the vessel’s remaining life, then
the charterer’s portion is based on dividing the costs by the expected life of the
relevant modifications, multiplied by the remaining period of the charter.
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Payment of hire
The relevant provision relating to the payment of hire in BARECON 2017 (clause 15)
now reads that “the Charterer shall pay hire due to the Owners punctually in
accordance with the terms of this Charter Party”. The phrase “in respect of which
time shall be of the essence” which had followed the above wording in the 2001
version has now been deleted, and the new version now contains a simplified and
clearer anti-technicality provision providing for a prescribed grace period of three
banking days, within which the charterer is required to rectify any failure to pay hire.

Insurance
As bareboat charters are generally for long periods of time, it is the charterer that
usually arranges the vessel’s insurance (both hull and machinery and P&I). However,
for shorter term charters the owner may prefer to place the insurance, and the
revised provisions within the 2017 version now clearly set out these two alternatives.

Both the owner and charterer are co-assured parties under the hull and machinery
policy. This is not only to address a possible “mis-directed arrow” claim (i.e. where a
claim is made against the owner but where the charterer is in fact at fault), but also
provides the charterer with a direct claim against the insurers in order to effect
repairs to the vessel to the extent it is obliged to do so under the terms of the charter.

Furthermore, the insurance provisions within BARECON 2017 have been specifically
“WE HAVE NO DOUBT amended to address the recent “Ocean Victory” case1 by clarifying that whilst the
THAT THE MARKET WILL proceeds of loss insurance are to cover the owner’s loss, such payment does not
prevent the owner (or its insurers) from making a claim against the charterer, nor the
READILY ACCEPT BARECON owner or the charterer (or their insurers) from pursuing claims against third parties.
2017, WHICH LARGELY
MAINTAINS THE SAME Anti-corruption and sanctions
As has previously often been included in separate rider clauses, the 2017 version
BALANCE BETWEEN THE now includes an anti-corruption clause based on BIMCO’s “Anti-Corruption Clause
OWNER’S AND THE for Charter Parties” and a sanctions provision based on BIMCO’s “Designated
CHARTERER’S INTERESTS, Entities Clause for Charter Parties” – both of which have been amended to fit a
bareboat charter context. A breach of either of these provisions may entitle the non-
AS THE STANDARD FORM defaulting party to terminate the charter.
OF CHOICE FOR
BAREBOAT CHARTER Termination
The owner’s right to “withdraw” the vessel following the charterer’s default has been
CONTRACTS GOING revised to a more appropriate entitlement to “terminate” the charter, given that the
FORWARD.” owner does not provide a service as such under a bareboat charter from which the
ship can be withdrawn, but otherwise the provisions relating to termination largely
follow the 2001 version. However, it should be noted that the war risk clause has
been deleted from the latest version meaning that neither party now has the right to
terminate the charter in the event of an outbreak of war between any two of the
countries listed within the charter.

Newbuilding vessels
The optional provisions of Part III that may be applied in relation to newbuilding
vessels have been amended to reflect BIMCO’s perception of current industry
practice. This includes the insertion of a new right on the part of the charterer to

1 Gard Marine and Energy Limited v China National Chartering Company Limited and another (2017)
4 Watson Farley & Williams

request a change order to the vessel’s specifications in accordance with the terms of
the building contract.

The termination provisions have also been revised. Whilst in the 2001 version the
charterer had the right to terminate the charter in the event the owner became
entitled to terminate the building contract, the 2017 edition has been amended so
that it is now the owner that has the right to terminate the charter should it become
entitled to cancel the building contract.

A liquidated damages provision has also been included, providing the parties with
various options as to how any liquidated damages payable by the builder under the
building contract for physical deficiencies in the vessel or delay in delivery are to be
apportioned between the owner and charterer.

Purchase option
The previous hire/purchase arrangement contained within the optional Part IV has
been replaced with a purchase option on behalf of the charterer. In the 2001
version, title in the vessel is transferred to the charterer upon the final payment of
charter hire under the charter – provided of course that the parties have elected such
provision to apply. The 2017 arrangement now provides the charterer with several
options to purchase the vessel during the charter term at a pre-agreed purchase
price.

Conclusion
It is felt that BIMCO have largely been successful in their stated aim of ensuring that
the BARECON “keeps pace with modern developments”, and although the latest
edition has kept the same general lay-out as its predecessor, the amendments have
undoubtedly made the provisions clearer and easier to read. As a result, practitioners
should find the enhancements made in BARECON 2017 relatively straightforward
and self-explanatory, and we have no doubt that the market will readily accept
BARECON 2017, which largely maintains the same balance between the owner’s
and the charterer’s interests, as the standard form of choice for bareboat charter
contracts going forward. In many transactions, the terms of BARECON 2017 will, in
any event, be modified by bespoke additional clauses, as was frequently the case
with its predecessor.
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FOR MORE INFORMATION

Should you like to discuss any of the matters raised in this Briefing, please
speak with one of the team members below or your regular contact at Watson
Farley & Williams.

JOE MCGLADDERY LINDSEY KEEBLE CHARLES BUSS

Partner, Head of Maritime LNG Partner, Global Head of Maritime Partner
London London London

+44 20 7814 8235 +44 20 7814 8227 +44 20 7814 8072

jmcgladdery@wfw.com lkeeble@wfw.com cbuss@wfw.com

Publication code number: 61299922v1© Watson Farley & Williams 2017

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