09 April 2012

RECYCLECON: Standard Contract for the Sale of Vessels for Green Recycling

Although the Hong Kong Convention on the Recycling of Ships is not yet in force, there are a number of shipowners who are already seeking recycling yards with “green” credentials where their ships can be dismantled in an environmentally safe manner. The RECYCLECON contract voluntarily incorporates many of the requirements of the Convention such as the Inventory of Hazardous Materials and the Ship Recycling Plan. It provides a practical contractual solution for commercial parties and a useful stepping stone towards Convention requirements in the interim period before the Convention comes into force.

In view of the fact that much of the administrative infrastructure required under the Hong Kong Convention is not yet in place, RECYCLECON incorporates a number of commercial “work-rounds” to take care of certain procedural and certification requirements to be consistent with the objectives of the Convention.

As RECYCLECON is effectively a sales contract it shares similar characteristics to SALEFORM. In developing the contract BIMCO has incorporated provisions from the newly published SALEFORM 2012  where appropriate to the recycling business. Where there are differences in approach or in documentary or other requirements between RECYCLECON and SALEFORM, this has been done to reflect current industry practice. It should be noted that for recycling purposes vessels are accepted on the basis of detailed vessel descriptions – physical inspections are rarely, if ever, conducted prior to the sale.

One of the major challenges to the widespread adoption of RECYCLECON comes not from commercial restraints but from the reluctance of some States (particularly in Europe) to permit vessels beneficially owned in their countries to be sold for recycling to developing countries. The IMO Secretariat  has been particularly helpful in  addressing this important issue by offering assistance to explain to States that the objective of RECYCLECON is to provide a workable voluntary commercial “green recycling” solution in the interim period leading up to the Convention coming into force.

The following notes outline how RECYCLECON deals with some specific aspects of the Hong Kong Convention:


Like the Hong Kong Convention, RECYCLECON does not expressly exclude beaching but is simply silent on the matter.

At present few of the major recycling states have facilities that do not require the vessel to be beached for breaking up, and this position is unlikely to change in the near future. So while RECYCLECON does not endorse or encourage beaching, it is left to the parties to reach mutual agreement on the issue and to amend the contract as necessary.

Ship Recycling Facility Plan (SRFP):

In accordance with the Hong Kong Convention, every Ship Recycling Facility has to have a Ship Recycling Facility Plan (SRFP) in place before it can get licensed as a “green” recycling yard.  Although the official (state/government) approval process will not be in place during the interim period, a prudent seller should try to ensure that the Ship Recycling Facility has a SRFP in place.  RECYCLECON provides for the sellers to request a copy of the SRFP or an attestation that the yard has a SRFP in place. It also allows the sellers to visit the yard to review the plan and verify that the yard is compliant with the SRFP.

Inventory of Hazardous Materials (IHM)

The Hong Kong Convention requires the sellers to provide the buyers with an Inventory of Hazardous Materials. While some yards require Part I of the Inventory before giving a price quote on the cost of recycling, other yards calculate the price based on vessel type and age. RECYCLECON provides useful guidelines for the parties as to the appropriate time for the sellers to provide the buyers with the Inventory (i.e. as soon as possible after the date of the contract and latest upon delivery of the vessel).

Ship Recycling Plan:

Once the yard has received the Inventory of Hazardous Materials, they will issue a plan for the recycling of the vessel, the Ship Recycling Plan. The contract gives the sellers with a right to visit the yard to verify that the yard complies with this plan (i.e. that they are able to carry out the recycling operation in a safe and environmentally sound manner as set out in the Ship Recycling Plan). If the yard is not carrying out the recycling process in accordance with the plan, the sellers will have a right to claim damages.

Statement of Completion:

Once recycling has been completed the Ship Recycling Facility is obliged to notify the relevant government authorities by issuing a Statement of Completion. As with the Ship Recycling Facility Plan, the state/government infrastructure is not yet in place to deal with such information. For this reason, RECYCLECON requires  the yard  to provide the shipowners with the Statement of Completion.
The Drafting Team:

RECYCLECON was drafted by a team of industry representatives with particular expertise in and experience of recycling ships in an environmentally responsible manner. BIMCO is indebted to the following individuals who devoted a great deal of their valuable time and energy to this valuable project:

  • Mr. Robert Almström, Stena Line, Sweden (Chairman)
  • Mr. Dimitris Ayvatoglu, Leyal Ship Recycling Ltd, Turkey
  • Mr. Wouter Rozenweld, formerly of Maersk Ship Management, The Netherlands (now Sea2Cradle)
  • Mr. Henrik Aadnesen, NORDISK, Norway
  • Mr. Briac Beilvert, formerly of Eckhardt Marine GmbH, Germany
During the latter stage of development of RECYCLECON the group was joined by Dr. Nikos Mikelis of the IMO Secretariat who provided invaluable input and advice as to how certain key features of the Hong Kong Convention could be incorporated into a commercial agreement bearing in mind that much of the administrative infrastructure required by the Convention is not yet in place.

Explanatory Notes:

The following notes are designed to provide readers with a background to the thinking behind RECYCLECON and an explanation of the intention of each clause.

Part I Box Layout:

Part I of RECYCLECON follows the usual BIMCO box layout pattern providing a number of boxes which the parties must complete in order to conclude the contract – such as the names of the parties and basic vessel/delivery details. The contract also contains a number of supplementary annexes which are referred to at the end of these notes.

Part II Terms and Conditions:

Part II of the contract begins with a preamble outlining the purpose of the agreement, i.e. the sale of the vessel for recycling in a safe and environmentally sound manner. Furthermore it includes an undertaking that such recycling will be carried out in a manner consistent with international and national law.

Clause 1 (Definitions):                        

The contract contains a number of defined terms which appear in various clauses throughout the contract and which are listed in Clause 1 for easy reference. It should be noted that these definitions are used to define words and phrases for the purposes of the contract and are not “legal” definitions. The definitions are important to the understanding of the agreement and the key definitions are described below.

LDT” is the light displacement tonnage in tons. It should be noted that it should be stated in Box 11 whether metric or imperial measurement to apply.

Contractual Weight” is a new concept, which has been created to allow for common deductions from the light displacement tonnage (LDT) for permanent ballast and other weight deductions, for instance waste. The purchase price will be based on the contractual weight.

“Recycling” incorporates the definition of “Ship Recycling” from the IMO Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009.

“Ship Recycling Facility”, “Ship Recycling Facility Plan” and “Ship Recycling Plan”  are all Convention requirements, which have been thoroughly explained in relevant guidelines adopted by the IMO. However, during the interim period the wording of the Convention and the guidelines cannot be strictly applied, which means that the definitions in this Clause and the use of the Convention terminology throughout the entire contract is applied in a way that is consistent with current commercial practice. An example of this is the reference to “authorised site, yard or facility” in the definition of “Ship Recycling Facility”. Because the state infrastructure for authorising recycling yards is not expected to be in place during the interim period the reference to “authorised” is simply an indication that the yard has to follow the IMO guidelines and the obligations under the Convention, as far as this is appropriate and workable. This means that the level of compliance with the Convention requirements will depend on the level of infrastructure at the particular place of recycling.

Clause 2 (Outright Sale):

This Clause emphasises that the sale of the vessel is not subject to inspection and is based entirely on the detailed vessel description found in Annex A (Vessel Details) as well as the description of the vessel in Part I.

A pre-contractual inspection is normally carried out because of waste material and inventory checking and for making a proper description of the vessel. Unlike SALEFORM, the inspection in a green recycling scenario is not part of the approval process, but will be carried out in advance  of agreeing to the contract. Therefore, no reference to such inspection has been included in the contract.

Clause 3 (Purchase Price):

As mentioned under Clause 1 (Definitions), the purchase price is linked to the “Contractual Weight” which is derived from the light displacement tonnage, LDT. The price will be set out by the parties in Box 12, stating the price in figures and letters as well as stating the lump sum price and the equivalent price per ton “Contractual Weight”. The “Contractual Weight” is the LDT per tonne exclusive of deductions such as permanent ballast and other standard weight deductions.

It is important to note that, unless agreed otherwise, the purchase price is payable in United States Dollars.

Clause 4 (Deposit)

This Clause provides the Sellers with monetary security for the due fulfilment of the contract in the form of a deposit lodged by the Buyers into an account in the bank agreed in Box 14. The account is to be in the joint names of the Sellers and the Buyers of the vessel, unless otherwise agreed. When drafting this clause current practice has been considered, in particular standard practice in relation to SALEFORM. However, rather than leaving a blank for the parties to fill in, the contract provides for a standard of 5 banking days after the date of signing the contract.

Setting up a joint bank account can be a time consuming process, in particular in the light of burdensome money laundering legislation that require both parties to provide all the necessary documentation in order to comply fully with the relevant regulations. It should therefore be noted that it may take longer than 5 days to set up a joint account. Consequently, the parties should be aware of possible delays and adjust the figure if necessary to avoid problems if the deposit cannot be paid on time.

In respect of the payment of interest, it needs to be agreed between the seller and the buyer as to how this is done.

An example could be that the interest is paid as a deduction from the sales price.

Sub-clause 4 (d) sets out that costs (fees and charges) of establishing and holding the deposit should be shared equally between the Sellers and the Buyers.

In accordance with normal practice, the deposit should be free of bank charges.

Clause 5 (Payment):

On delivery of the vessel the Buyers are obliged to release to the Sellers the deposit mentioned in Clause 4 (Deposit) along with the balance of the agreed purchase price. Again here, the payment should be free of bank charges.

To allow for sufficient time for the banking process to transfer funds, the Clause sets out that payment should be received not later than three days from the tendering of the Notice of Readiness.

If the NOR is invalid because the vessel is physically not ready for delivery, it will be void and the Buyers will not be obliged to pay until the Sellers have tendered a valid NOR. It is important to note that there is no requirement for a formal acceptance of the NOR by the Buyers.

Clause 6 (Documentation):

In exchange for the payment of the purchase price the Sellers are obliged to provide the Buyers with a wide range of documents, as listed in this Clause. These documents are to be delivered at the place of closing and they should be in the English language or accompanied by a certified English translation. 

The types of documents and the number of copies requested reflects what is commonly required in the trade without being specific to any one country. Before agreeing to the terms and conditions, the parties should ensure that it will be possible for them to comply with the types of documents requested and within the time frame given – otherwise the requirements should be adjusted to suit their circumstances. The same applies to the documents mentioned in Clause 8 (Notice of Readiness for Delivery).

With regards to sub-clause 6(c) it has been duly considered whether a reference to liens should be included. However, not all registers include this in their certificate/transcript of registry and adding such a requirement could therefore place an undue burden on the Sellers.

Clause 7 (Advance Notices of Arrival):

This Clause sets out pre-determined notices of 15, 10, 7 and 3 days before the expected time of arrival of the vessel, which the parties can amend if they so wish. The notices provide the Buyers with a running estimate of when they should be ready to receive the vessel. This is particularly important for the Buyers and/or the Ship Recycling Facility in order to have in place necessary arrangements concerning mooring, personnel and relevant safety procedures.

Clause 8 (Notice of Readiness for Delivery):

The terminology of delivery has been thoroughly examined with a view to whether it would be more suitable to refer to “physical” delivery, rather than “delivery”. Investigations of standard practice have shown that the term ‘physical delivery’ is often the preferred term within the sale and purchase industry, which was also the reason why it was specified in SALEFORM 93 that the vessel should be physically ready for delivery.

That the vessel has to be “physically ready for delivery” means that the physical parts of the vessel must be ready for delivery but that a valid notice of readiness can be tendered even though the documentary requirements have not yet been fulfilled. However, it is important to note that arrangements would have to be in place so that the relevant certificates could be produced within a short time frame, for instance later the same day. This approach to delivery is seen to strike a fairer balance between the Sellers and the Buyers as well as avoiding unnecessary delay, as the Sellers would otherwise be obliged to have in hand all certificates and documents required for exchange at the place of closing already at the time when the notice of readiness is tendered.

The practical effect of tendering notice of readiness (NOR) is that it is given in good faith by the Sellers and that the Buyers must accept it. However, since it is common practice in sale and purchase transactions to require acceptance of the NOR, Clause 8 states that the Buyers must either accept the NOR or give a reasoned rejection of it within one banking day. If the Buyers do not react within the given time frame, the NOR will be deemed accepted and the right to reject the NOR has been lost. It is important to note that this provision does not make payment conditional upon acceptance of the NOR – if this was to be done the Buyers could simply reject the NOR and never be obliged to pay.

As with Clause 6, the documents listed in this Clause reflects the documents commonly required in the trade without being specific to any one country. It is known that some countries will request to see both the original trim and stability booklet, meaning the first booklet produced for the vessel at the time when it was built, and the current valid booklet. However, considering that the more up-to-date booklet, i.e. the valid booklet, would be the preference in most circumstances and that it may be very difficult for the Seller to track down old booklets, Sub-clause 8(a) provides for the Sellers to arrange for a surveyor certificate based on the valid trim and stability booklet.

The certificate required under Sub-clause 8(b), stating that the vessel, including cargo tanks, pump rooms and cofferdams, is safe for entry and safe for hot work, deliberately sets a higher standard than what is required by the Hong Kong Convention. Following the wording of the Convention the parties can choose between the two options, either safe for hot work or merely safe for entry. BIMCO and the drafting group is in favour of promoting the “greener” version, i.e. both safe for entry and for hot work, but it is acknowledged that this is a negotiation point between the parties because standard practice differs from area to area.

Clause 9 (Delivery):

It is the intention that delivery takes place alongside at the yard rather than at anchorage. However, the contract does not expressly exclude beaching but merely stays silent on the matter in the same way as the Hong Kong Convention. It is recognised that at present only few of the major recycling states have facilities that do not require the vessel to be beached for breaking up. This position is unlikely to change in the near future so while the contract does not endorse or encourage beaching it has been left to the parties to reach mutual agreement on the issue and to amend the agreement as appropriate.

The contract provides for the parties to agree to the operational condition of the vessel at the time of delivery and to place such information into Annex A (Vessel Details). If this is not done, the Sellers are obliged to deliver the vessel in a standard seagoing condition within the requirements set out in Sub-clause 9(a).

If the place of delivery is inaccessible at the time of delivery the Buyers have a right to nominate another safe place, provided that this can be approved by the Sellers (approval not to be unreasonably withheld). If the Buyers fail to nominate such safe place within a time frame on 24 hours, the Sellers have a right to deliver the vessel at a place where it is customary for vessels to wait following which the Sellers will be relieved from their obligations.

Expenses are shared equally between the parties with the Sellers being responsible for all expenses incurred prior to delivery of the vessel, while expense incurred after delivery will be for the Buyers’ account. Further to this, the vessel will stay at the Sellers’s risk and expense until it has been delivered to the Buyers.

Sub-clause 9(f) states that the vessel is to be delivered without any stowaways, contraband or arms and ammunition on board. This wording has been included to align RECYCLECON with the recent revision of SALEFORM. The problem arises in practice where such persons or goods are on board without the knowledge of the Sellers. Consideration was given to whether the Buyers should be given an express right to reject the vessel if, for instance, stowaways are  on board. However, it was decided that such a position would be too prescriptive because it could create uncertainly as to whether the Buyers would be entitled to reject the vessel altogether or whether they would be obliged to accept the vessel when the stowaways had been removed by the Sellers. It should therefore be noted that this sub-clause merely governs the condition of the vessel upon delivery and that it has not been made a condition of the contract that no stowaways, contraband or arms and ammunition are on board.

Clause 10 (Earliest Date of Delivery/Cancelling Date):

This Clause deals with the event that it becomes clear to the Sellers that the vessel will not be ready for delivery by the cancelling date agreed by the parties and set out in Box 18. If the Sellers anticipate delayed delivery, they have the option of notifying the Buyers and proposing a new cancelling date. The Buyers are not obliged to accept the proposed new cancelling date, but should they want to invoke their right of cancelling the contract they must do so within two banking days of receipt of the Sellers’ notification. If the Buyers do not react to the Sellers’ notification, or if they accept the new date, the proposed new cancelling date will take effect over the originally agreed canceling date.

This approach to delivery reflects current practice in sale and purchase. The reason for having such a Clause in the contract is to relieve the Sellers from their obligation to proceed to the place of delivery even though they will arrive after the agreed cancelling date. It also provides the Buyers with an “early warning” of a delay to the vessel’s delivery.

If no such provision was included in the agreement, the Sellers would be obliged to proceed towards the place of delivery until the passing of the cancelling date and await cancellation by the Buyers. The provision provides the Sellers with a possibility of mitigating costs while arranging for the vessel to be recycled at a different yard and/or sold to another interested Buyer.

Clause 11 (Post-Delivery Assistance):

If delivery takes place alongside at the recycling yard, post-delivery assistance will not be required. However, as the contract does not completely preclude beaching, this provision has been included to ensure that the parties consider the issue. As is the case today, only a limited number of yards have the capacity to recycle vessels without beaching and therefore post-delivery assistance is provided in most instances.

The parties need to establish the extent of the post-delivery assistance, including reaching agreement on the period of assistance and the daily costs, which are to be stated in box 19. Costs are to be paid by the Buyers to the Sellers based on the Sellers’ invoice.

It is important to note that the Buyers’ request for post-delivery assistance must be reasonable and is always subject to the Sellers being able to arrange for appropriate crew as well as being able to obtain the necessary crew insurance cover for such additional period. The crew insurance part of P&I cover will normally extend to the crew even after delivery has taken place, but for a short time only. Therefore the clause emphasises the need for the Sellers to verify that insurance cover for the crew will be in place for the agreed period. Furthermore, to ensure the safety of the crew, an obligation has been placed on the Buyers to assist in the safe disembarkation of the crew.

Clause 12 (Removals):

This Clause emphasises that the sale of the vessel includes all parts belonging to the vessel. This means that the Sellers are only allowed to remove ‘private’ items from the vessel, for instance crockery, cutlery, linen, library, forms etc.

Allowed removals also include master’s, officers’ and crew’s personal belongings. Furthermore, the Sellers are allowed to remove the vessel’s log book; statutory certificates; and special items as agreed between the parties and listed in Annex B (Excluded Items).
Flag state certificates often need to be returned to the flag state and therefore need to be excluded. For this reason sub-clause 12(c) permits copies to be given to the buyers instead of the originals.

If the Sellers have failed to list an item in Annex B (Excluded Items), and the item is not one of the above mentioned excluded items, the item will be deemed the property of the Buyers and the Sellers will not be allowed to remove it.

Clause 13 (Verification of Light Displacement Tonnage (LDT)):

This provision provides for the Buyers to verify the vessel’s light displacement tonnage (LDT) prior to the signing of the contract. The procedure for verifying the LDT is that the Buyers, or the Buyers’ representatives if applicable, inspect a copy of the vessel’s valid trim and stability booklet. Furthermore, the Clause places an obligation on the Sellers to ensure that the original and valid booklet (i.e. the original of the valid trim and stability booklets of the vessel) is in fact on board the vessel once the notice of readiness is tendered.

The relevance of having available the vessel’s LDT history, for instance if the vessel has been converted or modified, has been thoroughly examined. The Buyers are buying the vessel and paying the purchase price based on the current LDT, therefore it is an absolute requirement of the contract that the original of the valid trim and stability booklet is to be found on board the vessel. Furthermore, such subsequent amendments to the booklet could contain information of great importance to the recycling yard. However, it is also acknowledged that in practice some yards will also ask for the builders’ trim and stability booklet if they are not satisfied with the revised booklet. Thus a third paragraph has been added to this Clause 13, which allows the Buyers to request the builders’ trim and stability booklet and other relevant documentation from the Sellers, provided that such information is available.

Clause 14 (Charters, Encumbrances, Maritime Liens, Debts and Claims):

This type of clause is often considered standard within sale and purchase agreements. It provides the Buyers with certainty that (1) the vessel is free from all charters, encumbrances and maritime liens or any other debts and (2) should any claim be made against the vessel for incidents which occurred prior to the time of delivery, the Sellers will be under an obligation to indemnify the Buyers against all consequences of such claims, provided that the Buyers can demonstrate that the claims are the Seller’s responsibility.

This Clause is an extension of the requirement set out in sub-clause 6(c) that the Sellers shall provide the Buyers with a certificate or transcript of registry evidencing the ownership of the vessel as well as evidencing that the vessel is free from registered encumbrances and mortgages. Because this certificate/transcript is produced some days in advance of delivery of the vessel and claims could arise due to the Sellers’ actions in the days leading up to the delivery, and because the certificate/transcript will not, in most jurisdictions, encompass maritime liens and other debts, a warranty and indemnity provision has been included in Clause 14 to ensure that Buyers’ would not be left without any course of action if they were held responsible for such claims.

Clause 15 (Charges):

As the parties wish to share the costs of the transaction between them as equally as possible, Clause 15 sets out that the Buyers will be responsible for payment of taxes, dues, fees and expenses connected to the purchase of the Vessel while similar charges connected with the sale of the vessel, for instance charges connected with the closing of the Sellers’ register, will be for the Sellers’ account. This compromise reflects current practice  – it provides for less administration than a 50/50 sharing would and at the same time it does not leave any room for disputes over real costs, the content of invoices etc.

Clause 16 (Buyers’ Representatives):

The Buyers may wish to place personnel on board the vessel to check for damage or removals after the deposit has been paid. This Clause permits a maximum of three such representatives to enter the vessel and related expenses will be for the Buyers’ account.

In order not to interfere with the Sellers’ business, the Buyers’ representatives should not be placed on board the vessel earlier than 15 days prior to expected delivery and they must not in any way interfere with the operation of the vessel.

It should be noted that the Clause contains an exclusion of liability, meaning that the representatives are not the responsibility, neither risk nor liability, of the Sellers while on board the vessel. Furthermore, the Buyers are obliged to indemnify the Sellers against any claim for loss and/or damages due to the presence of such representatives on the vessel. As set out in the Clause, it is standard practice that the representatives sign the Sellers’ letter of indemnity prior to embarkation.

Clause 17 (Purpose of Sale):

To emphasise that the purpose of the contract is recycling and that the vessel is sold for recycling only (i.e. not to be used in the trade for some years before recycling), the Buyers warrant that the vessel will be recycled at the Ship Recycling Facility and that it will be recycled in accordance with the relevant Convention requirements (see Clause 18 for a more detailed explanation of Ship Recycling Facility Plan and Ship Recycling Plan).

Clause 18 (Safe and Environmentally Sound Recycling)

Ship Recycling Facility & Ship Recycling Facility Plan:

If the Sellers so request, the Buyers are obliged to provide them with a copy of the Ship Recycling Facility Plan (SRFP) or an attestation that the yard (i.e. the Ship Recycling Facility) has such a plan in place. The latter option is included because the SRFP is normally made out in the local language of the place of recycling and therefore the Sellers might find an attestation in a different language, for instance English, to be more helpful. If the Sellers receive an attestation rather than the SRFP, such attestation would not include the full information from the SRFP, but would often include a short summary of the more important points. It should be noted that the Buyers are only obliged to provide a copy of the SRFP, or the relevant attestation, if the Sellers request it.

The SRFP is a plan for the technical and operational management of the Ship Recycling Facility (the recycling site/yard), which will ensure that the vessel is able to be recycled in a safe and environmentally sound manner at this site. It is acknowledged that this plan may include information of a confidential nature which should not be made public. However, it is equally important for the Sellers to have reasonable means of ensuring that the recycling facility is in fact capable of recycling their vessel in a safe and environmentally sound manner. During the interim period, appropriate state infrastructure will not yet be in place and therefore the Sellers should exercise due diligence when choosing the recycling facility. For this reason, the Sellers have been granted the possibility to visit the Ship Recycling Facility, both to review the SRFP (in case only an attestation was received) and to verify that the facility is in compliance with the plan.

Once the Convention comes into force, the Ship Recycling Facility must be authorised as a ‘green’ recycling facility and the approval process will be based on the information set out in the SRFP. Therefore, such licence/certificate should provide the Sellers with sufficient certainty that the facility is capable to ‘green’ recycle their vessel and there will no longer be a need for the Sellers to receive a copy or an attestation of the SRFP.

Inventory of Hazardous Materials:

The Sellers must provide the Buyers with a list of the hazardous materials in the vessel’s structure and equipment, named the ‘Inventory of Hazardous Materials’ (IHM). Although it is now becoming standard practice that the building yard produces such inventory and passes it on to the buyers of the newbuilding, this is a new practice and only a minor part of the trading vessels have such inventory readily available. Most vessels would have to undergo a survey, and even after such survey the findings could not be considered to give the full picture as this would require the surveyor to have access to all concealed parts of the vessel. For this reason it has been stated in Clause 18 that the information contained in the IHM is “given to the best of the Seller’s knowledge, but always without guarantee”.

Having an IHM in place is a Convention requirement - once the Convention comes into force it will become compulsory for all ships weighing over 500 GT to carry such inventory.

The IHM consists of three parts: Part I is a complete inventory of the hazardous materials in the vessel’s structure and equipment, which is to be appropriately maintained and updated at all times; Part II is a list of the unavoidable operationally generated waste generated in the period prior to entering the Ship Recycling Facility  – owners/Sellers are obliged to conduct operations in a manner that minimises the amount of cargo residues, fuel oil and wastes remaining on board; and Part III is a list of stores on board the vessel, necessary for the vessel’s operations during its last voyage.

While some recycling yards require the Sellers to provide Part I of the IHM before giving a price quote on the cost of recycling, other yards calculate the price based on the vessel’s type and age. To provide useful guidelines for the parties as to when would be the appropriate time for the Sellers to provide the Buyers with Part I of the IHM and to avoid any undue delay, the contract places an obligation on the Sellers to provide Part I as soon as possible after the date of the contract. Parts II and III are normally developed before the final survey of the vessel, which takes place before the vessel takes off on its last voyage prior to entering the Ship Recycling Facility. However, to give the recycling yard some indication of which level of waste and stores they can expect upon delivery of the vessel the Sellers are obliged to provide the Buyers with provisional parts II and III as soon as possible after the date of the contract.

Ship Recycling Plan:

Once the Buyers have received Part I and provisional parts II and III of the IHM they (meaning the recycling facility) will prepare a plan for the safe an environmentally sound recycling of the vessel which includes a description of how the materials identified in the IHM will be managed and disposed of. The Buyers should provide the Sellers with this plan, named the Ship Recycling Plan (SRP), as soon as possible after the receipt of the IHM.

As with the Ship Recycling Facility Plan/attestation described above, the Sellers or Sellers’ representatives are allowed to visit the Ship Recycling Facility to verify that the recycling of the vessel is conducted in accordance with the SRP.

It should be noted that the contract does not provide the parties with a solution to the situation where the Sellers visit the facility and during this visit discovers that the vessel is not being recycled as per the requirements set out in the SRP. This is a breach of contract and possibly a breach that goes to the root of the contract. However, at this late stage of recycling it would be very difficult, if not impossible, to terminate the contract. For this reason the Sellers’ remedy would be limited to a claim in damages. It has been left to background law and the court/arbitration tribunal to decide on the amount of damages to be paid. The parties are free to agree to a suitable remedy should they so wish, however, they should ensure that such remedy would be enforceable under the governing law of the agreement.

Statement of Completion:

According to the Convention, the Statement of Completion should be sent to the relevant authorities once recycling has been completed. However, this requirement would not be applicable in the interim period because state infrastructure would not  yet be in place to deal with such document. In acknowledgement that the Sellers should receive some confirmation of the completion of the recycling process, Clause 18 places an obligation on the Buyers to provide the Sellers with a Statement of Completion  once the vessel has been recycled. For this purpose a standard form of the “Statement of Completion” has been annexed to the agreement, Annex C (Statement of Completion).

Clause 19 (Exemptions):

If the vessel cannot be delivered due to circumstances beyond the Buyers’ or the Sellers’ control as described in the Clause, then neither party will be liable to the other party for damages and loss suffered as a consequence of such circumstances.

Clause 20 (Buyers’ Default):

This Clause sets out the conditions of the contract and lists the events that can lead to cancellation of the contract by the Sellers. It is emphasised that should the Buyers not lodge the deposit or pay the purchase price in the manner provided for in the contract, the Sellers have a right to cancel the contract and claim compensation.

It is important to note that the claim for compensation will not be limited to the size of the deposit to be paid by the Buyers. The Sellers are entitled to claim full compensation for their losses (including interests) and expenses incurred as a consequence of performing their obligations under the contract.

Clause 21 (Sellers’ Default):

This Clause is similar to Clause 20 but with reversed parties. If the Sellers fail to give notice of readiness or fail to execute a legal transfer or to deliver the vessel with everything belonging to her by the cancelling date, the Buyers have the right to cancel the contract. If the contract is cancelled, the Sellers must return the deposit in full (including interests earned) to the Buyers.

It is important to note that, notwithstanding cancellation, the Sellers would be obliged to compensate the Buyers for any loss and/or expenses incurred as a consequence of the Sellers’ failure to comply with the requirements set out in the first paragraph of this Clause. However, in order to claim compensation the Buyers must prove that such failure took place due to the Sellers’ negligence.

Clause 22 (BIMCO Dispute Resolution Clause):

RECYCLECON incorporates the latest edition of the BIMCO Dispute Resolution Clause.

It is important to note that 22(a), 22(b) and 22(c) are alternatives and that the parties should indicate their choice in Box 20. If 22(c) is chosen, the parties must also indicate the agreed place of arbitration. If the parties omit to fill in Box 20 or do not fill it in appropriately, alternative 22(a) (English law and London arbitration) will apply.

For a fuller description of the BIMCO Dispute Resolution Clause, see Special Circular No. 1, 16 January 2002 available to download from the Documentary section of www.bimco.org.

Clause 23 (Entire Agreement):

The purpose of the Entire Agreement Clause is to limit the rights of the parties to the written terms of the contract. As
such it would exclude representations, written and oral, not intended to be part of the final concluded agreement.

Clause 24 (Notices):

This Clause anticipates that the parties will wish to send notices and documents between them, either by traditional mail/paper or by electronic means. It sets out that the address for giving notices should be the address set out in Boxes 21 and 22, as applicable, and that the parties should always designate another address in writing.

From the point of view of evidence it would be necessary to prove that the notice has been given in a proper way and to the right address and for this reason any notice should be given in writing and to the address chosen by the parties.

This is also the reason why any subsequent change of address should be given in writing as well.

Annex A (Vessel Details):

This annex contains a detailed description of the vessel and complements the short description of the vessel in Boxes 5-10.

Annex B (Excluded Items):

This annex is to be filled in by the parties if the Sellers want to remove particular items from the vessel, which are not normally considered as ‘standard’ removals. Unless the annex is filled in, the Sellers would not be allowed to remove from the vessel any other items than those listed in Clause 12.

Annex C (Statement of Completion):

This annex is to be filled in by the recycling yard/Buyers upon completion of the recycling process. The Statement of Completion serves as a confirmation to the Sellers that the vessel has been recycled at the agreed Ship Recycling Facility in accordance with the Ship Recycling Plan.

Copyright and availability of RECYCLECON:

Copyright in RECYCLECON is held by BIMCO who are also the publishers.
Sample copies of RECYCLECON are available free of charge from BIMCO’s website at www.bimco.org.  

To use RECYCLECON we recommend BIMCO’s web-based charter party editing system, idea, which provides access to a secure Microsoft Word version of the contract that can be filled in and edited online and then exchanged by e-mail.

For details of how to sign up to use idea please click on the Products tab on the BIMCO homepage at www.bimco.org or contact idea@bimco.org.   

Source: BIMCO

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