Ship Sale and Purchase by Iain Goldrein QC, Matt Hannaford -- Read -- Imperial Library of Trantor

Index

Cover Half Title Lloyd's Shipping Law Library Title Page Copyright Page Foreword by The Rt. Hon. The Lord Mance Preface Table of Contents Table of Cases Table of Statutes Table of Statutory Instruments Table of European Council Directives and Regulations Table of International Conventions Chapter 1—The Sale and Purchase of Second-Hand Ships

1.1 Introduction 1.2 Assessing market value

1.2.1 Market value 1.2.2 Valuation criteria 1.2.3 Finance valuations

1.3 Marine surveyor inspections

1.3.1 First stage – review of class records 1.3.2 Second stage – inspection on board ship 1.3.3 Third stage – report 1.3.4 Variable factors 1.3.5 Length of marine surveyor inspections 1.3.6 Inspection limitations

1.4 Negotiations to the recap stage

1.4.1 Offers and counter-offers 1.4.2 Acceptance 1.4.3 The recap message

1.5 From recap to delivery

1.5.1 Conduct of principals 1.5.2 The normal course of events

1.6 Buyer's flagging arrangements

1.6.1 Requirement to flag 1.6.2 Choice of flag 1.6.3 Flag rules on eligibility 1.6.4 Prioritising safety 1.6.5 The International Transport Workers' Federation 1.6.6 Crewing requirements 1.6.7 Taxation and other matters 1.6.8 Provisional and permanent registration of the ship

1.7 Considerations for ship financiers

1.7.1 Introduction 1.7.2 Sale contract considerations for ship financiers 1.7.3 Flag considerations for ship financiers

Chapter 2—Sale and Purchase Brokers

2.1 Brokers as agents

2.1.1 Legal status of sale and purchase brokers 2.1.2 Appointment of a broker 2.1.3 General duty of care 2.1.4 Duty to advise or merely to provide information? 2.1.5 Fiduciary duties 2.1.6 Disclosure of commission payments 2.1.7 Bribery legislation 2.1.8 Confidential Information 2.1.9 Tortious liability 2.1.10 Actual and ostensible authority 2.1.11 Principals beware 2.1.12 Liability of S&P brokers who sign sale and purchase contracts 2.1.13 Sole agent – potential problems 2.1.14 Lack of authority – S&P brokers beware

2.2 Commission

2.2.1 Commission – the modern practice in S&P broking 2.2.2 Documenting commission arrangements 2.2.3 Address commission 2.2.4 When does the S&P broker's entitlement to commission arise? 2.2.5 When will the commission be earned?

2.3 Can a broker claim commission if the contract is not performed? 2.4 Right of S&P brokers to claim commission where no privity of contract

2.4.1 The web of business relationships 2.4.2 No privity of contract 2.4.3 Contracts (Rights of Third Parties) Act 1999 2.4.4 1999 Act – rebuttable presumption of intention 2.4.5 Excluding the application of the 1999 Act 2.4.6 1999 Act – submission of disputes to arbitration 2.4.7 Brokers' right to commission held in trust 2.4.8 No privity of contract – summary

Chapter 3—Classification Societies

3.1 Introduction 3.2 What are Classification Societies?

3.2.1 Role of Classification Societies

3.3 The classification system

3.3.1 What does classification mean? 3.3.2 Frequency of classification surveys 3.3.3 Suspension or withdrawal of class

3.4 Commercial importance of Classification Societies

3.4.1 Flagging 3.4.2 Insurance 3.4.3 Chartering 3.4.4 Ship financing

3.5 Classification records

3.5.1 What will class records reveal? 3.5.2 What will class records not reveal? 3.5.3 How to exploit class records to best advantage

3.6 Liability of Classification Societies

3.6.1 No contractual relationship with the buyer of a ship 3.6.2 Does a Classification Society owe a duty of care to the buyer of a ship? 3.6.3 The Morning Watch (1990) 3.6.4 The Nicholas H (1995) 3.6.5 Philcox v. Civil Aviation Authority (1995) 3.6.6 Reeman and another v. Department of Transport and others (1997) 3.6.7 Perrett v. Collins and others (1998) 3.6.8 The Prestige and other US cases 3.6.9 Overview of tort duty of Classification Societies to buyers of second-hand ships

3.7 Will Classification Societies continue to enjoy protected status?

CHAPTER—4 CONTRACT FORMATION

4.1 Introduction 4.2 Formation of contract

4.2.1 Introduction

4.3 When is there a binding contract?

4.3.1 A problem of interpretation 4.3.2 Use of written contracts 4.3.3 “Subject to contract”, “Subject to details” 4.3.4 Referring to specific subjects 4.3.5 The legal effects of a subject 4.3.6 Letters of intent and similar documents

4.4 Statutory considerations

4.4.1 Unfair terms in ship sale contracts 4.4.2 Unfair Contract Terms Act 1977 4.4.3 The Misrepresentation Act 1967 4.4.4 Legislation relating to contracts with consumers 4.4.5 Sale of Goods Act

4.5 The use of standard forms in second-hand ship sales

4.5.1 The value of standard forms 4.5.2 Tension with the standard forms

Chapter 5—Saleform 2012

5.1 Introduction

5.1.1 Saleform 2012 5.1.2 Nipponsale 1999 5.1.3 Singapore Ship Sale Form 2011

Preamble to Saleform 2012 5.2 Introduction

5.2.1 Why “Memorandum of Agreement”? 5.2.2 Dating

5.3 Sellers and buyers

5.3.1 Sellers: who are they? 5.3.2 Transcript of register 5.3.3 Doctrine of corporate personality 5.3.4 Buyers: who are they? 5.3.5 Nomination of substitute buyers

5.4 Agreement to sell in future

5.4.1 Timing of the passing of title 5.4.2 Position under Saleform 2012

5.5 Saleform 2012 – the ship-description

5.5.1 Description of ship 5.5.2 Name of ship 5.5.3 IMO number 5.5.4 Classification Society and class notation 5.5.5 Year of build 5.5.6 Builder/Yard 5.5.7 Flag and place of registration 5.5.8 GT/NT

5.6 Notes on Nipponsale 1999

5.6.1 Dating 5.6.2 Sellers and buyers 5.6.3 Ship's description

5.7 Notes on SSF2011

5.7.1 Box layout 5.7.2 Option to insert “guarantor” 5.7.3 Buyer's nominee provision 5.7.4 Ship's description

Definitions section of Saleform 2012 5.8 Definitions section

5.8.1 Definition of “Banking Days” 5.8.2 Definition of “Buyers' Nominated Flag State” 5.8.3 Definitions of “Class” and “Classification Society” 5.8.4 Definitions of “Deposit” and “Deposit Holder” 5.8.5 Definition of “in writing” or ”written” 5.8.6 Definition of ”Parties” 5.8.7 Definition of ”Purchase Price” 5.8.8 Definition of the ”Sellers' Account” and the ”Sellers' Bank”

5.9 Notes on Nipponsale 1999

5.9.1 “Banking Days” and “Working Days”

5.10 Notes on SSF2011 Saleform 2012 Clause 1

5.11 Introduction 5.11.1 What is included/excluded in/from the purchase price? 5.11.2 Role of deposit 5.11.3 Commission 5.12 Notes on Nipponsale 1999 5.13 Notes on SSF2011

Saleform 2012 Clause 2 5.14 Introduction

5.14.1 Amount of the deposit 5.14.2 The deposit holder 5.14.3 When must the deposit be paid? 5.14.4 Anti-money laundering and “KYC” requirements 5.14.5 Interest 5.14.6 Deposit and total loss 5.14.7 Failure to pay the deposit 5.14.8 Deposit and sub-sale 5.14.9 Deposit and nominees

5.15 Notes on Nipponsale 1999 5.16 Notes on SSF2011

5.16.1 Deposit amount 5.16.2 Timing for payment of the deposit 5.16.3 Compliance with anti-money laundering laws

Saleform 2012 Clause 3 5.17 Payment

5.17.1 When must payment be made? 5.17.2 Payment in full free of bank charges 5.17.3 Release of the deposit as part of the purchase price 5.17.4 Receiving bank 5.17.5 Payment of the purchase price 5.17.6 When is payment made? 5.17.7 Currency of payment 5.17.8 Methods of payment

5.18 Notes on Nipponsale 1999 5.19 Notes on SSF2011

5.19.1 “in full” 5.19.2 “Including any extras under Clause 7” 5.19.3 “Free of bank/transfer charge” 5.19.4 “To the seller's nominated bank account stated in Box(ii)(a)” 5.19.5 “Upon delivery of the Vessel” 5.19.6 “Clause 2(b) – delay and liquidated damages”

Saleform 2012 Clause 4 5.20 Inspections

5.20.1 Interpretation 5.20.2 First alternative – clause 4(a): outright sale 5.20.3 Second alternative – clause 4(b): sale subject to inspection 5.20.4 Clause 4(b) – inspection of class records 5.20.5 Clause 4(b) – superficial inspection of the ship 5.20.6 Clause 4(b) – inspection of deck and engine log books 5.20.7 Buyer's discretion under clause 4(b) 5.20.8 Clause 4(b) – acceptance 5.20.9 Clause 4(b) – failure to confirm acceptance 5.20.10 Clause 4(a) and (b) – effect of acceptance 5.20.11 Other inspections

5.21 Notes on Nipponsale 1999 5.22 Notes on SSF2011 Saleform 2012 Clause 5 5.23 Time and place of delivery and notices

5.23.1 Clause 5 – overview 5.23.2 Meaning of delivery 5.23.3 Clause 5(a) – place of delivery 5.23.4 Notices of “intention” to tender NOR 5.23.5 Delivery date 5.23.6 Cancelling date 5.23.7 Notice of readiness – overview 5.23.8 Ship to be “at the place of delivery” 5.23.9 Ship to be “physically ready for delivery” 5.23.10 When and to whom may NOR be given? 5.23.11 Ship ceases to be in a deliverable condition after NOR is given 5.23.12 Clause 5(c) – the seller's right to propose a new cancelling date 5.23.13 Possible tension between clause 5(c) and clause 14 5.23.14 Clause 5(d) – buyer's right to damages 5.23.15 Clause 5(e) – total loss of the ship before delivery 5.23.16 Total loss occasioned by the seller's fault 5.23.17 Insuring against total loss

5.24 Notes on Nipponsale 1999

5.24.1 “Ready for delivery” 5.24.2 Possible 30 days' extension 5.24.3 Buyer's right to select a new delivery date and cancelling date 5.24.4 Notice of Readiness 5.24.5 Liquidated damages 5.24.6 Total loss 5.24.7 Force majeure

5.25 Notes on SSF2011

5.25.1 Clause 5(a) – advance notices 5.25.2 Clause 5(b) – notice of actual readiness 5.25.3 Clause 5(c) – total loss

Saleform 2012 Clause 6 5.26 Clause 6 – inspection and drydocking regime

5.26.1 Choice of clause 6 inspection procedure 5.26.2 Clause 6(a) – diver's inspection 5.26.3 Clause 6(b) – drydocking inspection 5.26.4 Clause 6(b) drydock – who bears the cost? 5.26.5 Ship in drydock – tailshaft survey 5.26.6 Ship in drydock – the buyer's rights of attendance 5.26.7 Ship in drydock – the buyer's own drydock works 5.26.8 The role of the surveyor

5.27 Notes on Nipponsale 1999

5.27.1 Summer load line 5.27.2 Who arranges the underwater inspection? 5.27.3 No interference 5.27.4 Notice requirements 5.27.5 Cost of underwater inspection 5.27.6 Seller's option 5.27.7 Other drydocking issues under Nipponsale 1999

5.28 Notes on SSF2011

5.28.1 No option for automatic drydocking 5.28.2 Location not suitable for inspection

Saleform 2012 Clause 7 5.29 Interpretation

5.29.1 Sale to include “everything ? on board and on shore …” 5.29.2 Spares 5.29.3 What if the seller fails to deliver a spare part? 5.29.4 Spares on order 5.29.5 Spares to minimum class requirements 5.29.6 What is the position where the seller uses spares prior to delivery? 5.29.7 Forwarding charges 5.29.8 Unused stores and provisions 5.29.9 Personal belongings 5.29.10 Other excluded items 5.29.11 Items on hire or owned by third parties 5.29.12 Obligation on buyers to take over bunkers, oils and greases 5.29.13 Price calculation for bunkers, oils and greases 5.29.14 Bunker delivery statement 5.29.15 Payments under clause 7 of Saleform 2012

5.30 Notes on Nipponsale 1999 5.31 Notes on SSF2011

5.31.1 Spare parts “required by Class” 5.31.2 Excluded items 5.31.3 Spares/bunkers and others

Saleform 2012 Clause 8 5.32 Introduction

5.32.1 Place of closing 5.32.2 Documents to be delivered by the parties at closing meeting ashore 5.32.3 Documents in English language 5.32.4 Exchange of drafts 5.32.5 Seller's documents 5.32.6 Bill of sale 5.32.7 Evidence of corporate authority 5.32.8 Power of attorney 5.32.9 Certifi cate of ownership or transcript of registry 5.32.10 Declaration of class or class maintenance certifi cate 5.32.11 Certifi cate of deletion 5.32.12 Continuous synopsis record 5.32.13 Commercial invoice 5.32.14 Commercial invoice for bunkers and lubes 5.32.15 Letter to satellite communication provider 5.32.16 Additional “flagging” documents 5.32.17 Confirmation regarding no blacklisting 5.32.18 Buyer's documents 5.32.19 Documents to be delivered by the seller to the buyer on board 5.32.20 Protocol of delivery and acceptance

5.33 Completion

5.33.1 Pre-delivery phase 5.33.2 Delivery phase 5.33.3 Post-delivery phase

5.34 Notes on Nipponsale 1999 5.35 Notes on SSF2011

5.35.1 Clause 8(a) 5.35.2 Clause 8(b) – protocol of delivery and acceptance 5.35.3 Notarisation and legalisation 5.35.4 Class Maintained Certifi cate 5.35.5 No grounding letter 5.35.6 Documents relating to the parties 5.35.7 Document exchange

Saleform 2012 Clause 9 5.36 Introduction 5.37 First limb of clause 9 – seller's warranty

5.37.1 “The sellers warrant…” 5.37.2 Conditions and warranties 5.37.3 Intermediate terms 5.37.4 Distinguishing between conditions, warranties and intermediate terms 5.37.5 Ship to be delivered “charter free” 5.37.6 Ship to be delivered “free from encumbrances” 5.37.7 Ship to be delivered free from “mortgages” 5.37.8 Ship to be delivered free from “maritime liens” 5.37.9 Ship to be delivered free from “…any other debts whatsoever” 5.37.10 At delivery, ship not subject to “Port State or other administrative detentions”

5.38 Second limb of clause 9 – seller's indemnity

5.38.1 First and second limbs of clause 9 distinct 5.38.2 Discovery of outstanding claims against the ship

5.39 Notes on Nipponsale 1999 5.40 Notes on SSF2011 Saleform 2012 Clause 10 5.41 Introduction

5.41.1 Fees and expenses for buyer's account 5.41.2 For seller's account 5.41.3 Taxes and stamp duty

5.42 Notes on Nipponsale 1999 5.43 Notes on SSF2011 Saleform 2012 Clause 11 5.44 Interpretation

5.44.1 Seller's risk until delivery 5.44.2 “At the time of inspection” 5.44.3 Allowance for fair wear and tear 5.44.4 “As is” rule and exceptions 5.44.5 First exception to “as is” rule – free of cargo 5.44.6 Second exception to “as is” rule – free of stowaways 5.44.7 Third exception to “as is” rule – class maintained 5.44.8 Fourth exception to “as is” rule – free of average damage affecting class 5.44.9 Fifth exception to “as is” rule – valid certificates 5.44.10 No duty to report class matters under Saleform 2012 (or Saleform 1993) 5.44.11 Duty to report class matters under Saleforms 1983 and 1987 5.44.12 Significance of revision in Saleform 1993 (as maintained in Saleform 2012)

5.45 Notes on Nipponsale 1999 5.46 Notes on SSF2011

5.46.1 “Substantially the same condition” 5.46.2 “Damage affecting Vessel's Class” 5.46.3 “Cargo spaces clean and free of cargo”

Saleform 2012 Clause 12 5.47 Saleform 2012 5.48 Notes on Nipponsale 1999 5.49 Notes on SSF2011 Saleform 2012 Clause 13 5.50 Interpretation

5.50.1 Failure to lodge the deposit “in accordance with clause 2” 5.50.2 Failure to lodge the deposit – the seller's right to cancel 5.50.3 Failure to lodge the deposit – the seller's right to compensation 5.50.4 Failure to pay the purchase price – the seller's rights 5.50.5 Failure to pay purchase price – the seller's right to cancel 5.50.6 Buyer's breaches not covered by clause 13 of Saleform 2012 5.50.7 Measure of damages 5.50.8 Causation and remoteness of loss 5.50.9 Other possible remedies for the seller 5.50.10 Rate of interest 5.50.11 Currency of claim

5.51 Notes on Nipponsale 1999 5.52 Notes on SSF2011

5.52.1 Clause 12(a) 5.52.2 Clause 12(b) 5.52.3 Failure to pay “the agreed purchase price” 5.52.4 Failure to pay “additional amounts” 5.52.5 Timing for payment 5.52.6 Seller's right to cancel Saleform 2012 Clause 14

5.53 Introduction

5.53.1 Failure to give NOR 5.53.2 Failure to be ready to complete a legal transfer of the ship 5.53.3 Buyer's right to claim compensation – “proven negligence” 5.53.4 Buyer's right to claim general damages 5.53.5 Invalid NOR remedied but the buyer suffers loss 5.53.6 Expenses 5.53.7 Interest 5.53.8 Causes of seller's default 5.53.9 Measure of damages for non-delivery of the ship 5.53.10 Measure of damages for non-delivery of a spare part 5.53.11 Measure of damages for late delivery of the ship 5.53.12 Buyer's right to reject the ship 5.53.13 If the buyer rejects the ship, can it also terminate the contract? 5.53.14 The buyer's right to claim damages in respect of “condition” claims 5.53.15 Mitigation 5.53.16 The seller's failure to deliver the ship and specific performance 5.53.17 Seller's default and injunctive relief 5.53.18 Freezing orders 5.53.19 Freezing orders – some relevant factors for buyers 5.53.20 Freezing orders – what must the applicant prove 5.53.21 Other possible remedies for buyers

5.54 Notes on Nipponsale 1999 5.55 Notes on SSF2011

5.55.1 Introduction 5.55.2 Clause 13(a) 5.55.3 Clause 13(b) 5.55.4 Clause 13(c) 5.55.5 Clause 13(d)

Saleform 2012 Clause 15 5.56 Introduction

5.56.1 Familiarisation only 5.56.2 Indemnity letter

5.57 Notes on Nipponsale 1999 5.58 Notes on SSF2011 Saleform 2012 Clause 16 5.59 Dispute resolution and governing law 5.59.1 Arbitration and governing law under Saleform 2012

5.59.2 Clause 16(a) – construction 5.59.3 Arbitration Act 1996 5.59.4 Arbitration procedure under Saleform 2012 5.59.5 Constituting the arbitral tribunal 5.59.6 Small claims 5.59.7 English law 5.59.8 Governing law

5.60 Notes on Nipponsale 1999 5.61 Notes on SSF2011 5.61.1 Introduction Saleform 2012 Clause 17 5.62 Interpretation

5.62.1 Permissible methods 5.62.2 Email notices 5.62.3 Presumption of good service 5.62.4 Deeming provisions 5.62.5 Compliance with notice provisions

5.63 Nipponsale 1999 5.64 Notes on SSF2011 Saleform 2012 Clause 18 5.65 Introduction

5.65.1 Purpose of entire agreement provision 5.65.2 False or misleading statements 5.65.3 Exclusion of pre-contractual representations 5.65.4 Fraudulent misrepresentation 5.65.5 Exclusion of implied terms 5.65.6 Do the SGA implied terms apply to contracts for the sale of second-hand ships? 5.65.7 Are the express terms of Saleform inconsistent with the statutory implied terms?

5.66 Notes on Nipponsale 1999 5.67 Notes on SSF2011

Chapter 6—Additional Clauses

6.1 Introduction 6.2 Assignments and novations

6.2.1 Assignments 6.2.2 Novations

6.3 Third parties

6.3.1 Excluding the application of the Contracts (Rights of Third Parties) Act 1999 6.3.2 Commission

6.4 Additional inspection rights

6.4.1 Insurance and fi nance surveys 6.4.2 Other inspections

6.5 Force majeure, frustration and partial invalidity

6.5.1 Force majeure 6.5.2 Doctrine of frustration 6.5.3 Partial invalidity clause

6.6 Exclusions and limitations of liability

6.6.1 The general approach 6.6.2 Particular exclusions and limitations of liability

6.7 Other provisions relating to parties' rights after delivery

6.7.1 Restrictive covenants 6.7.2 Intellectual property rights

6.8 Good faith 6.9 Variations, waivers and the preservation of rights

6.9.1 Variations 6.9.2 Waiver clauses 6.9.3 Rights and remedies cumulative

6.10 Confidentiality, press releases and other announcements

6.10.1 Confidentiality 6.10.2 Press releases and announcements

6.11 Conflicts between printed terms and type-added words

6.11.1 Resolving confl icts 6.11.2 Providing an internal priority order

6.12 Liquidated damages provisions 6.13 Dispute resolution

6.13.1 Resolving disputes by arbitration 6.13.2 Resolving disputes in court 6.13.3 Resolving disputes through mediation

6.14 Execution of the contract

6.14.1 Signatures and correction of errors 6.14.2 Initialling the pages and corrections 6.14.3 Counterparts 6.14.4 Annexes and schedules 6.14.5 Authorities

6.15 Sales and purchases of other ships

6.15.1 Options

6.16 Back-to-back sales

Chapter 7—Payment Methods and Alternative Security Arrangements

7.1 Payment arrangements

7.1.1 Timing issues for payment 7.1.2 The standard forms 7.1.3 Payment in full 7.1.4 Bankers' payment letters 7.1.5 Advance deposit arrangements 7.1.6 Credit transfers 7.1.7 Payment by letter of credit 7.1.8 Cheques 7.1.9 Bills of exchange 7.1.10 Payment in kind

7.2 Alternative security arrangements

7.2.1 Security for the buyer's performance of the contract 7.2.2 Parent company guarantees 7.2.3 Preparation of guarantees 7.2.4 Bank guarantees 7.2.5 Letters of credit 7.2.6 Letters of credit – The Messiniaki Tolmi 7.2.7 Using letters of credit – some lessons 7.2.8 Comfort letters

7.3 Security for the seller's performance of the contract

7.3.1 Not customary for the seller to provide security 7.3.2 Potential exposure for unsecured buyer 7.3.3 Security for the seller's pre-delivery/delivery obligations 7.3.4 Retention arrangements to secure the seller's post-delivery obligations 7.3.5 Maritime lien insurance

Appendix 1: Saleform 2012 Appendix 2: Saleform 1993 Appendix 3: Nipponsale 1999 Appendix 4: Singapore Ship Sale Form 2011 Appendix 5: Barecon 2001 Appendix 6: The LMAA Terms 2012 Appendix 7: The LMAA Small Claims Procedure 2012 Appendix 8: The LMAA Intermediate Claims Procedure 2012 Index

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