BARECON 89 Standard Bareboat Charter revised (Printed in BIMCO Bulletin No.

2, 2002)

BIMCO introduced the first standard bareboat charter party into the market in 1974. The original BARECON was published in two versions: BARECON A, which was intended for the chartering of commissioned vessels, with or without existing mortgage; and BARECON B, which was a financial-type of charter for new-building vessels financed by mortgage.

Towards the end of the 1980s the growth in bareboat chartering as a fleet acquisition technique coupled with the increasing use by shipowners of open registries led BIMCO to consider a revision of BARECON A and BARECON B to update the forms consistent with the latest bareboat chartering practice. The result of the revision was an amalgamation of the two forms into a single document code named BARECON 89, containing separate alternative provisions to apply to new-buildings only.

In the thirteen years that BARECON 89 has been available, it has established itself as the industrys standard bareboat charter form, enjoying widespread use throughout the world. BARECON 89 has also enjoyed the distinction shared with BARECON A and BARECON B as a document that is rarely the subject of disputes on interpretation. This indicates that the BARECON Charter has functioned extremely well for its intended purpose as a clearly written operational document.

With this enviable record for clarity very much in mind, BIMCO decided in 1999 to undertake a modernisation of BARECON 89 to ensure that the provisions of this popular standard document kept pace with commercial practice. Initially, the Sub-committee assigned to the task of reviewing and revising BARECON 89 sought only to add clarity to some of the more cumbersomely worded provisions of the form and to replace the standard BIMCO clauses with their latest published versions. Closer examination of the form, however, led the Sub-committee to consider a more wide-ranging revision. In particular, it was felt that BARECON 89 would benefit from the introduction of specific termination and repossession provisions. In revising BARECON 89 great care has been taken by the Sub-committee not to disturb the operational

clauses of the Charter. It is hoped that the revised form, code named BARECON 2001 will provide users with an even more comprehensive bareboat charter that benefits from greater clarity and conciseness in its provisions.

The BIMCO Standard Bareboat Charter, Code Name BARECON 2001 was adopted by the Documentary Committee of BIMCO at its meeting held in Copenhagen in November 2001. A copy of the form is reprinted at the end of this article.

Special Observations The BARECON 2001 Standard Bareboat Charter follows the traditional box layout pattern used by BIMCO. Part I of the form consists of boxes used to insert the contracts key variable information pertaining to Parts II, III, IV and V. Part II of the form contains the main terms and conditions of the Charter (of which it should be noted that not all apply to new-building vessels). Parts III, IV and V are optional parts to be applied as appropriate to the nature of the specific agreement and cover new-building vessels, hire-purchase agreements and vessels registered in a bareboat charter registry.

The following Explanatory Notes are designed to provide some background information on the clauses of the various parts of the Charter and a general overview of the amendments made in this revision.

PART II Clause 1 (Definitions) The definition of owners and charterers has been simplified to remove the description of each entity. The narrow definition of owners used in BARECON 89 did not cover all types of owner and, as no suitable single definition could be found, it was agreed that the best solution would be simply to refer to the contents of the appropriate box in Part I. It has also been assumed that bareboat chartering is now a sufficiently commonly practised contract form and that a distinction

between it and voyage and time chartering is no longer required. Thus, the definition of charterers merely refers to the appropriate box in Part I.

The Definitions Clause also introduces two new definitions: Vessel, as this is a term used throughout the Charter; and Financial Instrument, which refers to the mortgage, deed of covenant or other such financial security instrument. The latter term has been created to avoid any potential ambiguity and to assist in simplifying the text of the Mortgage and Insurance and Repairs provisions. In some jurisdictions, such as Panama and Liberia, covenants relating to the vessel are incorporated into the mortgage document. Consequently, a wide definition of Financial Instrument has been used.

Clause 2 (Charter Period) Although Clauses 3 (Time for Delivery) and 14 (Redelivery) of BARECON 89 together provided information about the charter period, it was felt that a logical and useful addition to the Charter would be a specific new clause stating the period. Clause 2 (Charter Period) has been introduced to perform this function.

Clause 3 (Delivery) It should be noted that the order of the two paragraphs in sub-clause 3(a) has been reversed. This has been done to clarify that the owners due diligence obligation applies to both the first and the second sentence. In the second sentence of sub-clause 3(a), the charterers are now required to direct the owners to deliver the vessel to a prescribed ready safe berth.

The delivery provisions of BARECON have been expanded to incorporate a requirement that the vessel be properly documented on delivery (sub-clause 3(b)). Documentation needs to comply with the requirements of the flag State and the classification society. The provision also requires that the vessels survey cycles are up to date and that trading and class certificates are valid for an agreed number of months following delivery. This provision has been inserted to avoid a situation where the vessel is delivered in accordance with the Charter, but where certificates have insufficient time before expiry to allow the charterers to obtain renewals.

The often-vexing issue of latent defects was discussed at length during the revision of BARECON. The Sub-committee agreed that the existing wording presented the best solution to this problem, but has reduced the time limit for the manifestation of such defects from 18 months to 12 months (although the parties are still free to negotiate another period if they so choose). It should be noted that the 12 months period in the Delivery Clause of Part II is now consistent with the time period applying to latent defects in the new-building provisions of Part III (sub-clause 1(d)).

The Sub-committee has recognised that the charterers are exposed to a small but potential risk in the event the vessel sustains damage not affecting seaworthiness (but nevertheless affecting class) immediately prior to delivery. In such an event, under the present wording the charterers would be unable to reject the vessel and could be left to effect and pay for potentially expensive repairs to the vessel in order to maintain class requirements during the charter period. Strictly speaking, the charterers should not be liable for repairs to the vessel being delivered in a condition other than that agreed, although such damage could not be considered a latent defect. In such circumstances the charterers should seek to negotiate an amenable settlement with the owners in respect of damage that has occurred between inspection and delivery.

Clause 4 (Time for Delivery) This Clause contains the usual provisions relating to the date before which the vessel cannot be delivered, but now also incorporates an obligation for the owners to exercise due diligence to deliver the vessel no later than the cancelling date.

Clause 5 (Cancelling) The Cancelling Clause now incorporates a time limit of 36 running hours following the cancelling date during which the charterers must decide whether or not to exercise their option to cancel the vessel if it arrives late. If the charterers fail to make a decision within that time, then they lose the right to cancel the Charter. The 36 running hours period is designed to deter the charterers from prevaricating unduly over the vessel and potentially preventing the owners from securing suitable alternative employment at the earliest opportunity. However, the provision in

no way detracts from the owners obligation under Clause 4 (Time for Delivery) to exercise due diligence to deliver the vessel by the cancelling date, failing which the charterers right to cancel the Charter accrues automatically.

It should be noted that the Cancelling Clause has been spilt into three sub-clauses in order to emphasise that the interpellation provisions of Sub-clause 5(b) can be invoked multiple times. Sub-clause 5(a), as discussed above, deals with the charterers option to cancel if the vessel arrives after the cancelling date. Sub-clause 5(b) is the interpellation provision taken from BARECON 89, but contains three key changes. Firstly, the owners are no longer obliged to exercise the interpellation provision but are free to avail themselves of the option if they so choose. Secondly, the charterers reply time to the owners request regarding cancelling has been redefined as 168 running hours (as it was recognised that a long public holiday could substantially extend the time period). Thirdly, an alternative notice period of 36 running hours beyond the original cancelling date has been inserted. This is designed to take care of situations where the owners have given notice of an expected delay close to the agreed cancelling date and avoids the owners having to wait up to one week before being advised by the charterers whether or not they wish to cancel.

The purpose of sub-clause 5(c) is simply to make clear that the exercise of the cancellation provisions does not prejudice any claims for damages the charterers might otherwise have on the owners. Although sub-clause 5(c) may be unnecessary in many jurisdictions, it usefully clarifies for other jurisdictions that the charterers claims for damages survive cancellation.

Clause 6 (Trading Restrictions) The title of this clause has been changed from Trading Limits to Trading Restrictions as it was felt that the original BARECON 89 title did not reflect the true scope of the clause as it covered matters other than geographical restrictions.

According to this Clause, the charterers undertake not to employ the vessel under terms that are not in conformity with the terms of the insurance without first obtaining the consent to such employment of the insurers.

There may also be situations where the owners prior consent should also be obtained when the charterers want to employ the vessel under terms which are not in compliance with the insurance policy, even though it may be the charterers who take out the insurance policy.

The term instruments of insurance previously found in the second paragraph has been changed to contracts of insurance in keeping with modern parlance.

The requirement that the charterers should keep the owners and the mortgagees advised of the intended employment of the vessel has been deleted from the end of the second paragraph, as it was not felt to be appropriate to this specific clause. This provision has been moved to Clause 10 (Maintenance and Operation) as a new sub-clause (c) and now requires the charterers to report planned dry dockings and major repairs as well as the vessels intended employment.

Clause 7 (Surveys on Delivery and Redelivery) This Clause deals with the usual on-hire survey and off-hire survey procedures and allocation of cost and time between the contracting parties. No provision is made in respect of dry-docking the vessel in relation to the on-hire or off-hire surveys as this is not considered normal practice in bareboat charters and should be left to the parties in each individual case to discuss and negotiate as appropriate.

Clause 8 (Inspection) This provision gives the owners the right to inspect or survey the vessel throughout the charter period. The Clause has been modified in the new version to require the owners to give the charterers reasonable notice of their intention to inspect or survey the vessel. The owners have the right to inspect the vessel for three express reasons that have been divided into three sub-clauses to properly allocate costs. The first two reasons are taken from BARECON 89 and are 1) a survey to satisfy the owners that the vessel is being properly repaired and maintained and 2) a survey while the vessel is in dry dock if the charterers have not dry docked the vessel

at the regular intervals agreed to in Clause 10(f). The third reason is new to BARECON 2001 and permits the owners to inspect the vessel for any other commercial reason, although this right is balanced by the requirement that the inspection should not unduly interfere with the commercial operation of the vessel. This new provision has been introduced to permit, for instance, an inspection of the vessel pending a potential sale.

It should be noted that consistent with the change made to the Trading Restrictions Clause, the final sentence of the Inspection Clause relating to the intended employment of the vessel has been removed and added to a new sub-clause 10(c).

To make it clear that under a bareboat charter time is never interrupted, a provision has been added to Clause 8 to state clearly that all time used in respect of inspections, surveys or repairs should form part of the contract period and therefore be for the charterers account.

Clause 9 (Inventories, Oil and Stores) The word consumable has been removed from the heading of this Clause as oil and stores are considered by their nature to be consumable. The reference to the vessels outfit has now been expanded to include spare parts and it has been made clear that such spare parts are not considered consumable stores within the meaning of the contract.

With respect to the items to be taken over and paid for at delivery and redelivery, the list has been revised to exclude water (which the majority of vessels now produce themselves) and oils (as bunkers and lubricating oils are already included on the list).

A new final sentence requires the charterers to replace, at their expense, any spare parts listed in the inventory and used during the charter period, prior to redelivery.

Clause 10 (Maintenance and Operation) One of the most important consequences resulting from the bareboat chartering of a vessel is that during the entire period the vessel is in full possession and at the absolute disposal for all purposes of the charterers. Consequently, the responsibility for maintenance and operation and all costs and expenses arising from these activities rests with the charterers. The Maintenance and Operation Clause has been restructured to provide, where appropriate, clear sub-heading titles to make the provision easier to read.

Breach of the charterers obligation to maintain and repair may entitle the owners to withdraw the vessel if the charterers fail to effect repairs, etc., within a reasonable time. The right to withdraw the vessel was dealt with in sub-clause 9(a) of BARECON 89. However, with the introduction a new Termination Clause in BARECON 2001, this sanction now appears as subclause 28(a)(iii).

It should be noted that the obligation on the charterers to take immediate steps to have the necessary repairs done within a reasonable time, which appeared as the second paragraph of sub-clause 9(a) in BARECON 89, has been removed from the Maintenance and Operation Clause. It is felt that the precise timing of repairs is largely a matter for the charterers to decide in accordance with their planned maintenance schedule, provided such repairs do not compromise the vessels insurance cover. The obligation to effect repairs within a reasonable time is provided for, in any event, by the phrase in accordance with good commercial maintenance practice found in sub-clause 10(a)(i).

In the Maintenance and Operation Clause of BARECON 89 the charterers were required by sub-clause 9(a) to keep the Vessel with unexpired classification. This phrase was felt to be slightly unclear and has been re-worded in sub-clause 10(a)(i) of BARECON 2001 to read, keep the Vessels Class fully up to date. It is not the intention of this provision that the charterers should at all times keep the vessel classed without recommendations, provided that the recommendations expiry date does not pass without the charterers taking the necessary action to rectify the matter.

The question of class is also dealt with in the Redelivery Clause (Clause 15) in which the penultimate paragraph reads as follows:

... the Vessel shall be redelivered to the Owners in the same or as good structure, state, condition and class as that in which she was delivered, fair wear and tear not affecting class excepted.

In order to minimise the risks of dispute it is clearly stressed that the charterers must redeliver the vessel with class fully maintained to the satisfaction of the classification society. As fair wear and tear could substantially affect class with all the expenses involved in this respect, it has been considered appropriate to cover this point by stipulating in Clause 15 fair wear and tear not affecting class excepted.

It is also in the context of class that the last paragraph of Clause 15 should be read, noting that BARECON 2001 also requires trading certificates to be valid for an agreed number of months following redelivery. The last paragraph of Clause 15 reads:

The Vessel shall have her survey cycles up to date and trading and class certificates valid for at least the number of months agreed in Box 17.

Nowadays it is common practice for main engines/auxiliary engines to be on continuous survey and the last paragraph of Clause 15, as quoted above, is aimed at covering this point.

New Class and Other Safety Requirements Unforeseen important structural changes or requirements for new expensive safety equipment may arise under a long-term charter, especially due to the implementation of new International Conventions.

To place such a burden on the owners would be unfair unless the hire was to be renegotiated. On the other hand, such new requirements could also place a heavy burden on the charterers, for instance, in the case of compliance with the new requirements having to be made a short time before redelivery.

In order to solve this problem in a reasonable and equitable manner in the event of new important structural changes becoming necessary and costing more than an agreed percentage (as per Box 23, or if left blank then 5 percent) of the vessels marine insurance value, a door should be left open for the renegotiation of the Charter. Sub-clause 10(a)(ii) provides for referral to the Dispute Resolution Clause of the Charter should the parties fail to reach an agreement.

It should be noted that sub-clause 10(a)(ii) excludes the charterers loss of time arising from the implementation of new equipment from the sum calculated based on the agreed percentage of the vessels marine insurance value.

The word expensive has been removed from the reference to new equipment required for the continuing operation of the vessel, as the provision already adequately defines a threshold value for new equipment and the word expensive could, arguably, be used to qualify further that threshold.

Financial Security The scope of the fourth paragraph of sub-clause 10(a) of BARECON 89 has been extended to cover third party liabilities rather than specifically oil pollution damage. The provision in BARECON 89 relating to the TOVALOP Scheme has been deleted as the scheme expired in 1997.

Operation of the Vessel (sub-clause 10(b)) Under a bareboat charter, it is the charterers obligation not only to in all respects equip the

vessel, but also to man her, pay the wages to the Master, officers and crew. Thus, the charterers will normally have full freedom to choose and appoint personnel. However, the law of the country under whose flag the vessel sails, or any other applicable law, may be restrictive in this respect and it is important that such requirements be made known to the charterers. For instance, many countries require the Master and chief officer to be nationals of the flag State and possess certificates from their own country. On the other hand, the country of the bareboat charterers may impose certain requirements with regard to nationality and certificates of officers, especially as far as the Master is concerned.

Whereas it is not possible to cover this subject in detail in a standard bareboat charter, the subclause at least serves to remind the parties of the problem and to try to implement some general provisions that take care of the matter in a reasonable manner, such as suggested in the last paragraph of sub-clause 10(b). It should be noted that sub-clause 10(b) expressly states that the charterers are responsible for annual flag State fees this was not made sufficiently clear in BARECON 89.

In line with the provisions in Clause 10 under which the charterers are generally responsible for their servants, whether appointed by them or the owners, it also follows that full liability falls on the charterers as regards liability under bills of lading or other documents signed by the Master or officers whether appointed by the owners or the charterers. It is in this context that the last paragraph of sub-clause 17(a) (Indemnity) should be read.

Intended Employment Sub-clause 10(c) provides a requirement for the charterers to keep the owners and the mortgagees advised of the vessels intended employment, planned dry-docking and major repairs. This provision has been amalgamated from similar provisions found in BARECON 89 Clause 5 (Trading Limits) and Clause 7 (Inspection).

Flag and Name of Vessel Sub-clause 10(d) of BARECON 2001 introduces a new right for the charterers, with the owners

consent, to change the name and/or the flag of the vessel during the currency of the Charter. All registration and re-registration costs related to such activity are at the charterers expense and time. The application of a test of reasonableness, on the part of the owners, to a change of flag should ensure that the owners are adequately protected from an obligation to transfer the ownership of the vessel to a new company. However, it should be noted that a requirement to transfer the ownership of the vessel when registering under a bareboat charter register is by no means a common practice in the principal ship registries such as Panama and Liberia.

Changes to the Vessel This sub-clause (10(e)) requires the charterers to first obtain the owners approval before making any structural changes to the vessel or her machinery, etc. For the sake of clarity, BARECON 2001 introduces a cross reference to sub-clause 10(a)(ii) dealing with New Class and Other Safety Requirements. The cross-reference ensures that the charterers do not have to obtain the owners consent to make changes to the vessel required by class.

Periodical Drydocking In view of the durable qualities of modern marine coatings and common commercial dry docking practice, the default period between dry dockings has been extended from 18 calendar months to 60 calendar months after delivery, unless the classification society or flag State require an alternative period. Should the parties wish to agree contractually to a different period between dry dockings then they are free to do so by completing Box 19. The default period of 60 months applies only in the event that Box 19 is left blank.

Clause 11 (Hire) The Hire provisions of BARECON 2001 have been revised to reflect modern commercial practice and to incorporate the provisions of a new Termination Clause. It should be noted that the Hire Clause now begins with an express statement of the charterers fundamental obligation to pay hire to the owners punctually in accordance with the terms of the Charter. This provision has been inserted in an attempt to make it clear that any default by the charterers in the

payment of hire beyond the grace period would entitle the owners to claim damages for costs and losses incurred as a consequence of delays in the payment of hire, and, if the owners were to withdraw from the Charter, for the consequence of its determination. The provision has been strengthened (and balanced with the anti-technicality provision) by incorporating the wording found previously in Sub-clause 10(e) of BARECON 89 to the effect that time shall be of the essence in respect to payment of hire.

BARECON 2001 introduces a slight change to the hire payment mechanism of the previous edition. Instead of hire accruing on a lumpsum basis per calendar month from the date of delivery, hire is payable under sub-clause 11(b) not less than every 30 running days in advance, from the date of delivery. This modification has been introduced to simplify the payment process and to remove the need for a calculation of fractional hire at the beginning of the hire period. Referring to not less than 30 running days means that the charterers will not constantly have to make corrections to the payment date to cover payments falling due on weekends and holidays. The revised mechanism for the final payment of hire, where the period is less than 30 days, is dealt with in sub-clause 11(d).

The last sentence of sub-clause 11(b) states: Hire shall be paid continuously throughout the Charter Period. This statement has been added to emphasise that there is no off-hire under a bareboat charter. Note should also be taken of the use of the word paid rather than payable to illustrate the required action.

A strict, unconditional obligation to pay hire as and when due must, of course, be linked together with a right for the owners to withdraw the vessel if the charterers are in default of payment. The right to withdraw the vessel is now found in Clause 28 (Termination), which also provides a socalled anti-technicality provision covering hire payments (sub-clause 28(a)(i) (Charterers Default). The anti-technicality clause provides a grace period of the number of days as agreed by the parties in the event that the failure to make a punctual payment can be attributed to oversight, negligence, errors or omissions on the part of the charterers or their bankers.

It is not the intention that this provision should leave the charterers with a permanent, contractual grace period that can be invoked in respect of each monthly payment of hire. The provision is designed to cover exceptional situations when for bona fide reasons the charterers payment is late. If, however, the charterers do not settle the payment of hire within the agreed

period, the owners have the right to withdraw the vessel from the service of the charterers and terminate the Charter without further notice.

In most countries, the principle of awarding interest in legal proceedings is acknowledged, but often at the discretion of the court. Owing to the fact that a fixed rate of interest stipulated in a standard contract may be considered too high in some jurisdictions and too low in others, subclause 11(f) leaves it to the contractual parties to negotiate the applicable rate of interest and insert the figure into Box 24 of Part I accordingly. In the event that Box 24 is not filled in, BARECON 2001 introduces a new default interest rate mechanism. Instead of referring to the current market rate in the country where the owners have their principal place of business, the three months interbank rate in London (LIBOR), plus an additional 2 percent, is the rate that applies. Since LIBOR changes daily, it is important to pinpoint the day on which interest should start counting. In this respect, sub-clause 11(f) specifies the date when the hire fell due. As per sub-clause 11(g), interest is payable on all delayed payments of hire and is due within 7 running days of the date of the owners invoice specifying the amount, or in the absence of an invoice, at the time of the next hire payment.

Clause 12 (Mortgage) This optional clause is framed on the supposition that a mortgage may or may not be affixed to the vessel. The contracting parties can opt for alternative (a) in a straightforward situation where no mortgage has been effected on the vessel or alternative (b) in cases where the chartered vessel is financed by a mortgage. It should be noted that, for the sake of conciseness, subclause (c) from BARECON 89, which obliged the owners to seek the consent of the charterers before effecting any other mortgage on the vessel, has been merged into sub-clauses (a) and (b) of BARECON 2001. To assist the owners, the consent of the charterers to other mortgages is now qualified in both sub-clause (a) and sub-clause (b) by the statement which shall not be unreasonably withheld.

It should be noted that in sub-clause 12(b) the reference to Deed(s) of Covenant has been changed to Financial Instrument consistent with the new definition introduced in Clause 1 (Definitions).

Nowadays most vessels, and in particular new-building vessels, are financed by loans. In the event that alternative 12(b) applies, it is normal practice in most jurisdictions for the bank to require the charterers to countersign the financial instrument and acquaint themselves with all its relevant terms, conditions and provisions to ensure that the charterers are fully aware of their undertaking. They also agree to comply with all instructions and directions the mortgagee in the financial instrument may direct in terms of employment, insurances, operation, repairs and maintenance. A condition for an obligation to comply is, of course, that the document has been disclosed to the charterers.

In terms of a financial-type bareboat charter, for instance for a new-building vessel, there is a close interlink between the owners, the charterers, and the mortgagee in the venture as regards employment, insurances, operation, repairs and maintenance. Consequently, it is of vital importance that no conflict of interest arises which may prejudice the owners position vis--vis the mortgagee.

Clause 13 (Insurance and Repairs) In the context of bareboat chartering, the responsibility for arranging and paying insurances and effecting repairs rests solely with the charterers. It follows that there is no question of the vessel coming off hire, for instance, during repairs, and that time on hire runs unabated during such events. The question of responsibility for repairs not covered by insurance due to, for example, franchise or deductibles applicable under the terms of the insurances, is also a point of importance that must be duly reflected in the Charter; otherwise, disputes may easily arise in this respect (See sub-clause 13(a)). It should be observed that the previously used reference to marine risks in the first sub-clause has been changed to read hull and machinery. This has been done to restrict the scope of application, as there are other marine risks, such as loss of hire, which are not applicable in this context.

Sub-clause 13(a) introduces in lines 361-364 new wording to cover compulsory insurance requirements other than hull and machinery and protection and indemnity risks. Cross-reference is also made to the Financial Security provisions of sub-clause 10(a)(iii), taking careful note of the termination provisions of Clause 28.

The phrase All insurance policies shall be in the joint names of the Owners and the charterers as their interests may appear has been amended as it was felt that this wording was unclear. The pooling agreement of the International Group of P&I Clubs requires that liability for premiums or calls on the part of the owners must be properly covered. Although a co-assured would be liable for calls on a particular vessel, the owners need to be properly covered to protect themselves against exposure under international conventions, such as the Civil Liability Convention (CLC). Consequently, lines 371-372 of sub-clause 13(a) state Insurance policies shall cover the Owners and the charterers according to their respective interests.

In some cases, either of the contracting parties may have an interest in placing additional insurance to cover their particular interest in the venture. The charterers may, for example, wish to cover themselves against loss of time occasioned by excessive and time-consuming repairs because of hull damage. There may in practice, however, be certain problems placing such additional insurance according to, for instance, national legislation or because the insurers of the vessel may either refuse or put a certain limit on such additional insurance cover.

Whereas it has not been possible to draft a clause which covers all aspects of the problem in detail, the parties are nevertheless reminded of the problem in sub-clause 13(b) from which it follows that any such additional insurance effected is limited to the amount for each party as set out in the relevant boxes in Part I.

Consistent with the provisions for hull and machinery and war insurance, all P&I insurances must be arranged and kept by the charterers. In terms of the contract it is important to determine and agree the value of the vessel for the purpose of insurance coverage; such sum as may be agreed between the parties should be stated in Box 29 in Part I.

The strict contractual obligation to arrange for and maintain insurances on the part of the charterers carries with it a contractual right vested in the owners entitling them to withdraw the vessel if the charterers fail to arrange and keep any of the insurances. This follows from subclause 28(a)(ii) from which it will be observed that it has been considered reasonable to allow the owners the option to give the charterers a respite of a specified number of days to rectify the position.

Sub-clause 13(c) introduces a new obligation on the charterers to make the necessary documents available to the owners in order for the latter to comply with the insurance provisions of the Financial Instrument.

Clause 14 (Insurance, Repairs and Classification) The revised BARECON 89 maintains the provisions of the earlier edition designed to cover the bareboat chartering of a vessel for a short period, say, four to six months. This provision has particular application to passenger vessels bareboat chartered for seasonal cruises or for ferries hired for a summer season. It is normal commercial practice in such cases for the owners to maintain the insurances for their own account. It should be stressed that Clause 14 is strictly optional and is only to apply if expressly agreed and stated in Box 29 in Part I. If Clause 14 is agreed to, then Clause 13 (Insurance and Repairs) is automatically considered deleted.

The main difference between Clauses 13 and 14 is that in Clause 14 the responsibility for arranging and keeping the hull and machinery and war risk insurances has been shifted back to the owners. The responsibility for obtaining and paying for cover against Protection and Indemnity risks, however, remains with the charterers as per sub-clause 14(b). It follows from Clause 14(b) that failure to keep and maintain P & I insurances amounts to breach of contract. Consequently, the right to withdraw the vessel in such circumstances is vested in the owners by virtue of Clause 28 (Termination).

Even if the owners in accordance with sub-clause 14(a) maintain the hull and machinery and war risks insurances, it is the charterers obligation, in keeping with the basic concept of bareboat chartering, to effect all insured repairs; the charterers being secured reimbursement through the owners underwriters as set out in Clause 14(d). In line with this provision, it follows that responsibility and payment for repairs not covered by the owners insurances and/or not exceeding possible franchise or deductibles, rests with the charterers and that all time used for repairs whether under Clause 14(d) or (e) is for the charterers account (sub-clause 14(f).

As in Clause 13, the possibility of placing additional insurance by both parties is envisaged in Clause 14(g) to the extent such additional insurance is permissible. Within the whole concept of Clause 14, it is considered reasonable that when this clause applies, the owners shall also keep

the vessels class fully up to date with the classification society during the entire charter period. In the case of a short-term bareboat charter of, say, three or four months, it is not considered appropriate that a renewal of class should fall upon the charterers (see sub-clause 14(I)).

It should be noted that Clause 14 has been amended consistent with the changes made to Clause 13 as mentioned in the preceding explanatory note.

Clause 15 (Redelivery) The final voyage provision of the Redelivery Clause has been amended to address problems associated with an unforeseen overrun of the vessels last voyage beyond the end of the Charter period. BARECON 2001 introduces in the second paragraph of Clause 15 a warranty on the part of the charterers (lines 526-537) stating that they will not permit the vessel to commence a voyage that cannot reasonably be completed prior to the end of the charter period. Should the charterers fail to redeliver the vessel within the charter period, a mechanism is provided to compensate the owners for the period following the expiration of the Charter until the vessel is redelivered. The charterers must pay either the daily equivalent to the agreed rate of hire plus ten percent or pay the current market rate for the vessel, whichever is the higher figure.

The final paragraph of the Redelivery Clause has been amended to require the charterers to ensure that the vessels trading certificates, in addition to class certificates, are valid and up to date for the agreed number of months. This amendment has been made to be consistent with the changes made to Clause 3 (Delivery).

Clause 16 (Non-Lien) As with other charter forms, it is important in a bareboat charter to include suitable provisions to take care of potential problems concerning liens. The purpose of Clause 16 is to prevent the charterers from financing their operation by offering suppliers a maritime lien on the vessel. Where this provision is brought to the attention of the suppliers, no lien should arise.

It is important to note that in some jurisdictions, such as the United States, the Non-Lien Clause might not be valid because the suppliers will not be aware of specific provisions in the bareboat charter. To try to circumvent this problem Clause 16 proposes an appropriately worded notice to be pinned in a conspicuous place on the vessel during the charter period. If users are in any doubt as to the validity of this provision in a particular jurisdiction, BIMCO recommends that they consult with their legal advisers.

The indemnity provisions of this Clause, as it appeared in BARECON 89, have been removed to form a new, all encompassing Indemnity Clause (Clause 17), which is described below.

Clause 17 (Indemnity) The new Indemnity Clause consolidates into a single clause the indemnity provisions found in Clause 15 (Non-Lien and Indemnity) and Clause 21 (Bills of Lading) of BARECON 89, but extends the scope of the provision to that of a general indemnity. Sub-clause 17(a) provides an indemnity to the owners in the event of loss, damage, or expense incurred stemming from the charterers operation of the vessel; if the vessel is arrested or detained; and against liabilities arising from the owners representatives signing bills of lading or other documents.

Clause 17 also incorporates reciprocal indemnities for the owners to indemnify the charterers against the consequences of arrest. Sub-clause 17(b) provides an indemnity to protect the charterers against any loss, damage, or expense (including hire under the contract) arising out of arrest or detention for which the owners are responsible.

It is important to note that in some jurisdictions, such as the United States, the indemnity clause might not be valid; consequently, BIMCO recommends that users consult with their legal advisers if they are in any doubt.

Clause 18 (Lien) This is the usual clause granting the owners and the charterers a lien for their respective claims against each other. The Lien Clause has been amended to extend to sub-hire in addition to cargo and sub-freight and that such matters rest with sub-charterers as well as charterers. To take account of amounts owing to the charterers the words or due have been inserted into the phrase sub-hires or sub-freights belonging to the charterers in lines 588-589.

Clause 19 (Salvage) This Clause is self-explanatory and remains unchanged from Clause 17 (Salvage) of BARECON 89.

Clause 20 (Wreck Removal) Again, this Clause is self-explanatory and is unchanged from Clause 18 (Wreck Removal) of BARECON 89.

Clause 21 (General Average) The previous edition of BARECON contained the usual general average provision found in many charters. However, during the revision it was agreed that as the contractual application of the York-Antwerp Rules is between ship and cargo, it is not strictly necessary to make a reference to the Rules in a bareboat charter. However, the Sub-committee agreed that it was important to make an express statement that the owners should not contribute to general average.

Clause 22 (Assignment, Sub-Charter and Sale) This Clause previously referred to the sub-demise of the vessel. During the revision of BARECON 89 it was felt that the term sub-demise the Vessel caused some degree of

uncertainty in practice. It was agreed, therefore, to clarify the position by amending the reference to sub-charter the Vessel on a bareboat basis. This clause only provides the charterers with a right to sub-charter the vessel on the condition that proper consent has been obtained in writing from the owners.

A new sub-clause (b) has been added to this Clause addressing the issue of the sale of the vessel during the charter period. Sub-clause 22(b) makes the sale of the vessel conditional on the written consent of the charterers and the agreement of the buyer to accept an assignment of the Charter.

As this Clause now incorporates a sale of vessel provision the title has been amended to reflect this.

Clause 23 (Contracts of Carriage) The title of this Clause has been changed from Bills of Lading to Contracts of Carriage to reflect the widening of the scope of the provision to cover waybills and passenger tickets in addition to bills of lading. The Clause has been divided into two sub-clauses; the first dealing with cargo and the second with passengers.

In sub-clause 23(a) the charterers undertake to ensure that a Paramount Clause is incorporated in all documents issued for the carriage of goods under the Charter. It should be noted that the term bills of lading has been changed to a general reference to documents issued during the period of this Charter evidencing the terms and conditions agreed in respect of carriage of goods.

This has been done to take account of waybills and electronic bills of lading as well as conventional bills of lading. The clause also directs the charterers to include in such documents the usual protective clauses such as the amended New Jason Clause and the Both-to-Blame Collision Clause. The previous reference to the British Carriage of Goods by Sea Act has been removed and replaced with a reference to the Hague-Visby Rules.

Sub-clause 23(b) refers to the Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea, 1974 as the relevant liability regime. As stated previously, the last sentence of Clause 23, which dealt with an indemnity, has been moved to Clause 17 (Indemnity Clause).

Clause 24 (Bank Guarantee) A Bank Guarantee Clause has been incorporated, the text of which also appeared in BARECON 89, for use in circumstances where the charterers do not have substantial assets and the owners require some form of financial guarantee for the Charter. It is an optional clause that only applies if the relevant box in Part I is filled in.

Clause 25 (Requisition/Acquisition) Clause 25, the provisions of which are identical to those in BARECON 89, was drafted on the basis that in case of requisition for hire, the Charter remains in full force for the entire charter period agreed, whereas a compulsory acquisition or requisition for title terminates the Charter as of the date of such compulsory acquisition.

The final sentence of the original version of sub-clause (a), which stated The Hire under this Charter shall be payable to the owners from the same time as the Requisition Hire is payable to the Charterers was felt to be inconsistent with the principle of hire being paid continuously. This wording has been removed from sub-clause 25(a).

Clause 26 (War Risks) This clause contains standard provisions similar to those found in many other BIMCO standard forms and is based on the CONWARTIME 93 Standard War Risks Clause for Time Charters, amended to suit a bareboat charter context.

The main differences between CONWARTIME 93 and the War Clause of BARECON 2001 are summarised below:

- In Sub-clause 26(a), the definition of Owners has been deleted, since that term is already defined in Clause 1.

- Sub-clause 26(b) has been amended to reflect that the owners shall have the right to require the Vessel to leave an area that is at risk of war.

- Sub-clause 26(d)(i) has been deleted and sub-clause (d)(ii) has been made subject to the situations only where Clause 14 (Insurance, Repairs and Classification) applies.

- Sub-clause 26(e) has been deleted in entirety since it is for the bareboat charterers to employ the crew. - Sub-clause 26(f), which is now 26(e), has been amended to reflect that the charterers shall be at liberty to comply with orders, directions, recommendations or advice.

- Sub-clause 26(f) provides the owners and the charterers with a mutual right of cancellation in the event of war between (i) any two of the five permanent members of the United Nations Security Council and (ii) between two or more of the countries stated in Box 36.

For more information regarding CONWARTIME 93, please refer to BIMCO Special Circular No. 6, 23 July 1993.

Sub-clause 26(e) of the War Clause refers to the charterers having the liberty to comply with applicable orders, directions, recommendations, etc. It should be noted that the word liberty is not used in the context of providing the charterers with an option of whether to comply with such orders and directions. The intention is to provide the charterers with the freedom to comply with applicable orders and directions without any contractual consequences arising under the Charter, such as a breach of the charterers obligations. For example, if the charterers were ordered to send the vessel outside IWL by a supranational body, then under normal circumstances they would immediately be in breach of the Charter. However, by virtue of subclause 26(e) of the War Clause the owners waive their right to claim a breach.

Clause 27 (Commission) This standard provision contains wording found in many BIMCO standard forms. The first sentence of the Clause has been amended to remove the reference to commission being paid to brokers, which is in no case less than is necessary to cover the actual expenses (of the broker). It was felt that such wording put the brokers in a better position than was customary in the industry.

For the purpose of clarity, Clause 27 has been restructured to make the third sentence (beginning If the full hire is not paid) a paragraph in its own right.

Clause 28 (Termination) This new clause provides clear provisions regarding the termination of the Charter and consolidates the termination provisions previously found in Clauses 5, 9, 10 and 12 of BARECON 89. The clause distinguishes between termination by default on the part of the charterers, a default on the part of the owners, and extraordinary termination.

Sub-clause 28(a)(i) deals with a default in hire payment and entitles the owners to withdraw the vessel and terminate the agreement with immediate effect should the charterers fail to pay hire in accordance with Clause 11 (Hire). However, the sub-clause also contains an antitechnicality provision to the effect that should there be a genuine reason for the charterers or

their bankers failing to make punctual payment, then the owners are to give the charterers a written notice of the number of banking days in which the failure must be rectified. Once this period has expired without payment being made, the owners have the right to terminate the Charter with immediate effect.

Sub-clause 28(a)(ii) deals with a default on the part of the charterers to comply with the requirements of Clause 6 (Trading Restrictions) and Clause 13(a) (Insurance and Repairs). Recognising that it may not always be practically possible for the charterers to rectify certain situations immediately, provision is given for the owners to agree a grace period in which to rectify the failure.

A failure by the charterers to comply with the provisions of sub-clause 10(a)(i) (Maintenance and Repairs) is dealt with by Sub-clause 28(a)(iii). Emphasis is given to the need to ensure that the charterers rectify the failure as soon as practically possible after receipt of the owners notice, but in any event to ensure that the vessels insurance cover is not prejudiced.

Sub-clause 28(b) is the reciprocal default termination provision for a default by the owners. This provision entitles the charterers to terminate the Charter in the event that the charterers are deprived of the use of the vessel as a result of a breach by the owners of their obligations under the Charter that continues for a period of 14 running days.

Extraordinary termination of the Charter is dealt with by sub-clauses (c) and (d). Sub-clause 28(c) deals with the total or constructive or compromised or arranged total loss of the vessel. It should be noted that the provision states that the vessel is not deemed lost until she become an actual total loss or an agreement has been reached in respect of her loss with her underwriters. Failing an agreement as to the vessels loss by her underwriters, the matter it is to be determined by a competent tribunal.

Sub-clause 28(d) relates to the winding up, liquidation, dissolution or bankruptcy of either party. It should be noted that this provision gives the parties the option of terminating the contract and should the owners wish the charterers to rectify a breach, they must provide very prompt notice.

Finally, as termination of the Charter should not prejudice the parties rights neither should any claims that the parties might have against each other be prejudiced, which is now reflected at the end of Sub-clause (e).

Clause 29 (Repossession) This new clause tackles the potentially thorny issue of repossession of the vessel following termination of the Charter in accordance with Clause 28. A situation might arise where the charterers terminate early and do not pay outstanding crew wages and/or repatriation costs when abandoning ship. The Repossession Clause attempts to strengthen the owners position when the bareboat charter is terminated and the owners cannot take immediate physical repossession of the vessel. This issue is dealt with by requiring the charterers to act as gratuitous bailees only to the owners, whereby the charterers must care for the vessel without compensation until the owners can physically repossess her. Clause 29 also requires the owners representative to board the vessel and take physical repossession as soon as reasonably practicable following the termination of the Charter.

It is the intention of this Clause that the charterers rights cease upon becoming gratuitous bailees only to the owners, but that certain obligations remain until such times as the owners can effect physical repossession. These obligations include the safe navigation and delivery of the vessel at the current or next port of call, or a place convenient to the owners. The charterers are also obliged to arrange, at their expense, the settling of their crews wages and disembarkation and repatriation costs.

Clause 30 (Dispute Resolution) This Clause, previously the Law and Arbitration Clause, is the latest edition of BIMCOs standard suite of dispute resolution provisions. In addition to BIMCOs Law and Arbitration Clause 1998 , the provision incorporates a new mediation clause. The mediation provision is designed to function in conjunction with the chosen arbitration option, whether that be English law, London arbitration; US law, New York arbitration; or law and arbitration as agreed. Mediation is a technique that is recognised as offering savings in costs and time over traditional methods of dispute resolution for certain types of disputes. BIMCOs mediation is only triggered once arbitration proceedings have commenced and then runs in parallel with those proceedings,

if the parties so choose. This has been done to ensure that one party cannot invoke mediation as a delaying tactic.

For a fuller description of the BIMCO Standard Dispute Resolution Clause, please see BIMCO Bulletin No. 1/2002.

Clause 31 (Notices) The Notices Clause is new to BARECON and is designed to provide a single point of reference establishing the agreed method of communication between the parties for the duration of the charter period.

PART III Provisions to Apply for New-building Vessels (Optional) It is stressed that this Part III is optional and only applies if expressly agreed and stated in Box 37 in the framed part of Part I. In the event that Box 37 is filled in with yes, Boxes 38, 39 and 40 must also be filled in.

Specifications and Building Contract It has been found that in a typical financial bareboat charter such as, for instance, in connection with a new-building vessel, the owners should not become implicated in latent defects which may only manifest themselves a long time after delivery from the yard and the repairs of which are thus not recoverable under the building contract; hence the provisions found in sub-clause 1(d) of this clause that in regard to repairs or replacements or any defects which appear within the first twelve months from delivery, the owners shall only be liable to the charterers to the extent the owners have a valid claim against the builders under the Guarantee Clause of the building contract. Defects appearing later do not give rise to any claim against the owners.

It should be noted that although sub-clause 1(d) has been re-worded to make its provisions clearer, no substantive changes have been made to the text. However, a new final paragraph has been added to the sub-clause providing a mechanism allowing the parties to decide to whose account liquidated damages for physical defects or deficiencies should be directed. The new provision allows the parties to choose who should bear the costs, including liability, of pursuing a claim or claims against the builders.

Time and Place of Delivery It has not been considered appropriate to incorporate into clauses specifically designed for newbuilding vessels, provisions regarding to earliest date of delivery and the right to cancel if the vessel is not delivered latest by the cancelling date agreed. Normally, the owners have limited rights under the building contract to reject the vessel on account of delay in delivery from the yard, the builders in most cases being duly covered for delays under the terms of the building contract. This matter is dealt with in sub-clause (a) and sub-clause (d).

Sub-clauses 2(b) and 2(c)(i) provide for the possibility of cancellation or termination of the Charter before delivery under certain circumstances, for example, if the owners become entitled under the building contract to reject the vessel, or, if for valid reasons, the builders become entitled under the building contract not to deliver the vessel.

The wording of sub-clause 2(a) has been amended in BARECON 2001 to state, for the sake of clarity, that delivery to the charterers will take place when the vessel is ready for delivery and properly documented. The charterers entitlement to refuse to take delivery of the vessel has been changed to an obligation to accept delivery, subject to the provisions of sub-clause 1(d).

It is important to note that Clause 2 incorporates a new concept for BARECON relating to liquidated damages. Sub-clause 2(d) provides for the parties to decide for whose account should accrue any liquidated damages for delay in delivery. The details of which party liquidated damages should accrue to should be stated in Box 41 of Part I.

Guarantee Works This is self-explanatory.

Name of Vessel This is self-explanatory.

Survey on Redelivery Unlike commissioned vessels, there is no point in discussing or determining the condition of a new-building vessel at the time of delivery from the yard or to arrange a time consuming onsurvey for that purpose. According to sub-clause 1(c) the charterers have the right to inspect the vessel at all times during the course of her construction. Consequently, the survey clause only speaks about survey on redelivery.

PART IV Hire Purchase Agreement (Optional) It is stressed that this clause is optional and only applies if expressly agreed and stated in Box 42 in the framed section of Part I. The provisions of Part IV have been copied from BARECON 89 and incorporated in extenso into BARECON 2001 to provide for the possibility of making the contract a combined Hire/Purchase Agreement.

However, it goes without saying that in the context of a hire/purchase agreement there is no point in adhering to the normal practice observed under an ordinary sales agreement in regard to inspection, opening up of engines, drydocking, drawing of tail-end shaft, etc. Under a combined hire/purchase agreement, the vessel has been in full possession and under the complete control of the charterers (buyers) throughout the period of hire so that the charterers (buyers) have full

knowledge of the condition of the vessel at the time of taking over as buyers.

It therefore follows that on expiration of the Charter, the sellers (original owners) shall deliver and the buyers (the bareboat charterers) shall take over the vessel as she is at the time of delivery.

The second paragraph of Part IV (in BARECON 89) relating to the suspension of the owners right to withdraw the vessel for failure to pay the last months hire instalment in accordance with Clause 11 (Hire) has been deleted. There was particular concern that suspension of the right of withdrawal could be triggered by any reason beyond the Charterers control and this was felt to be too broad in its application. The termination of the contract due to a failure to make a timely payment of the final instalment of hire could, potentially, be disastrous for the charterers. However, the gravity of the situation for the charterers would be no less if the contract were terminated on the second or third last payment of hire. Consequently, it was agreed to delete the second paragraph of this Part in favour of taking a consistent approach to delays in payment as set out in the anti-technicality provisions of Clause 28.

PART V Provisions to Apply for Vessels Registered in a Bareboat Charter Reg-istry (Optional) It is stressed that Part V only applies if expressly agreed and stated in Box 43 in the framed section of Part I. In the event that Box 43 is filled in with yes, Boxes 44 and 45 must also be filled in.

It should be noted that the provisions of Part V have been copied without amendment from BARECON 89.

Bareboat chartering and flagging-out to bareboat charter registries has become common practice in recent years. Such practice fully complies with the longstanding principle of international law that permits a vessel to sail under one flag only; however, this practice involves

the inter-action of two ship registries and, consequently, also two jurisdictions. It is the involvement of more than one registry and one jurisdiction that may raise various problems regarding the rights of the mortgagee.

For the mortgagee, the problem is obvious. In the event a vessel is bareboat chartered out to a Bareboat Charter Registry, should his mortgage, covering that vessel, be recorded in the registry of the original country, i.e., the Underlying Registry, the registry of which has been suspended during the term the vessel is registered in the Bareboat Charter Registry or should the mortgage be recorded in the registry of the country in which the vessel is bareboat charterregistered or should the mortgage even be recorded in both places?

The concern of the mortgagee in the context of such bareboat charter arrangements is both simple and the same as it is for any other mortgagee, viz., that the mortgagee wants the highest degree of security so that his mortgage is valid and enforceable at any time if the owners default in their obligation to the mortgagee. The lack of uniformity in national legislations in respect of rules governing the validity and enforceability of a mortgage may make the mortgagees position exposed in a default situation created by the owners.

Definitions The ICC Recommendations for a Legal and Regulatory Framework for Bareboat Charter Registration contain Definitions of the terms used in these ICC Recommendations. Some of these Definitions have also been adopted in optional Part V, which, it is stressed, exclusively applies to vessels registered in a Bareboat Charter Registry.

Mortgage The provisions of this clause are framed on the presumption that the vessel is financed by mortgage and, therefore, also makes the provisions of Clause 12(b) of Part II applicable.

Termination of Charter by Default The purpose of this clause shall be seen in the light of the comments given in the introduction to Part V. Under normal circumstances, a mortgagee will have his mortgage registered in the registry of the State in which the owners of the vessel are registered, i.e., the Underlying Registry.

In the ICC Recommendations for a Legal and Regulatory Framework for Bareboat Charter Registration, it is recommended that: 1) Mortgages already registered in the Underlying Registry shall continue in full force and effect even though the vessel is bareboat chartered to a Bareboat Charter Registry; 2) Mortgages created during the period of Bareboat Charter Registration shall be registered in the Underlying Registry, and 3) All mortgages under (1) and (2) above shall be governed exclusively by the laws of the State of the Underlying Registry.

This clause provides that the charterers shall, if so required by the mortgagee, direct the owners to re-register the vessel in the Underlying Registry if the owners default in the payment of any amounts due under the mortgage. The clause was drafted with the common law concept Privity of Contract in mind. According to this concept, a third party cannot rely on provisions in a contract to which he is not a party. Recognising that this Charter may in many instances be subject to common law jurisdictions and recognising that the contractual parties parties to the BARECON 2001 Charter are the owners and the charterers exclusively, it was decided not to provide the mortgagee with a right to direct the owners to re-register the vessel in the Underlying Registry in a default situation as such a provision may be held invalid.

The first paragraph of this clause, therefore, provides that it is the charterers who, on behalf of the mortgagee, shall direct the owners to re-register the vessel in the Underlying Registry if the owners fail to honour their obligations under the mortgage. For the reasons explained in the foregoing paragraphs, it may be advisable for the mortgagee to have a collateral agreement with the charterers setting out that if required by the mortgagee, the charterers shall direct the owners to re-register the vessel in the Underlying Registry.

As will be seen, in the event that the vessel has been directed back to the Underlying Registry, the charterers, according to the second paragraph of this clause, have been vested with a right to terminate the Charter without prejudice to any other claim they may have against the owners

under this Charter. It has been considered appropriate to leave it to the charterers to decide whether or not to terminate the Charter since there may be situations where they would prefer to maintain the Charter even though the vessel has been directed back to the Underlying Registry.