BIMCO's New Standard Bunker Contract Reviewed

By Erik Kravets 02-09-2015 08:43:02

Op-Ed by Erik Kravets

What could be more exciting for a maritime lawyer than a new BIMCO standard contract?

The answer: after the break.

At SIBCON 2014, Grant Hunter, BIMCO’s chief legal and contractual affairs officer, said that previous attempts to create a standard bunker contract had failed because of bias toward buyers - which is to say that the owners had insufficient incentive to actually propose the standard bunker contract, this obviously being a requirement for their applicability.

The new BIMCO Standard Bunker Contract is more favorable to owners and, thus, brings the interests of the two parties into a more commercially viable balance.

So what is more exciting for a maritime lawyer than a new BIMCO standard contract? A new BIMCO standard contract that actually offers a solid practical foundation. Hunter spoke to this point specifically, clarifying: "Although BIMCO is a shipowners' organization, this is not a shipowners’ contract. It is simply not in our interest to produce contracts that are one sided or biased." Indeed, Mr. Hunter is right. That is a job for the shipowners’ lawyers.

BIMCO's Standard Bunker Contract is, indeed, a starting point for negotiations.

Thanks to the high degree of freedom of contract in maritime law, it comes down to the parties’ (or their lawyers’) skill in accurately, succinctly and clearly setting forth the terms. A good contract is one where both sides know and understand what they are getting, where there is a desire on both sides to perform and where both sides hold they are getting equivalent value.

Without further ado, let's look at the centerpiece of the new contract:

That’s right. For a bunker contract, the product, its specifications, the amount delivered and, naturally, the price are the main driving point of negotiation for the buyer and seller. Clause 2 (b) of the standard form already raises a major question for companies bunkering liquid natural gas (LNG), since the language here stipulates conformity with ISO Standard 8217:1996. This is a standard specifically for petroleum products, meaning that LNG is excluded. Clause 3 (c) once again refers specifically to petroleum standards; this time when it comes to determining measurement of the bunker quantities delivered, ISO-ASTM-API-IP Petroleum Measurement Tables are to be used. Different standards would need to be drawn on for LNG.

So, already, we have an item that must be adapted to LNG suppliers' needs - or, alternatively, which limits the scope of application of the BIMCO Standard Bunker Contract to petroleum.

Clause 7 discusses the price, and what is and is not included therein. Clause 7 (b) specifies additional expenses that are to be carried by the seller. This follows from the language:

“Any and all additional charges, if applicable, shall be specified in the Sellers’ quotation and in the confirmation note and shall include but not be limited to: (i) wharfage charges, barging charges, or other similar charges; (ii) mooring charges or port dues incurred by the Sellers which are for the Buyer’s account, and; (iii) duties, taxes, charges or other costs in the country where delivery takes place, for which the Sellers are accountable but which are for the Buyer’s account.”

At a minimum, I read this as stating that these costs must be specified in the seller’s quotation and in the confirmation note, such that the buyer is clear about and can anticipate these itemized expenses, even if they are ultimately shifted onto the buyer by contractual agreement.

A further central aspect of any bunker agreement is environmental damage (e.g. spillage). Liability for such damage is truly astronomical in certain jurisdictions, like Germany. Especially relevant in this context is action by state water police and clean-up crews. A certain German coast guard ship, for example, has an hourly hire in the low five digit euro range.

Essentially, the division of liability is that if spillage takes place “whilst the Marine Fuels” are being put into or taken out of the vessel's bunker manifold, the seller is liable - unless the buyer is at fault. On the other hand, if the fuel has passed into the buyer’s vessel and a spillage occurs, the buyers are at an obligation to indemnify the seller - unless the seller is at fault.

Clause 5 governs regulatory aspects (certificates, and whose responsibility they are) as well as notice requirements. Clause 5 (d) imposes an obligation on the buyer to make the necessary connections between the bunker manifold and the delivery hose. Clause 5 (e) i requires the buyers to inform the seller about the maximum permissible pumping rate, communication protocols and emergency shutdown procedures. Clause 5 (e) ii goes further and broadly requires the buyer to inform the seller about, inter alia, any “peculiarities”.

I am not so sure about the clarity and precision of this clause.

For illustration, in practice, the buyer will generally - upon arriving in port - send out a request for bunker. Then, local suppliers will contact the buyer and describe the capabilities of their bunker tankers. The buyer then finds a seller they want to contract with. The contract is agreed upon and the boxes on the face of the BIMCO form are filled in, one of which requires the seller to provide the minimum hourly pumping rate.

However, the buyer must inform the seller about the maximum allowable pumping rate merely “prior to delivery” (Cl. 5 (e) i), so it follows that the contract believes it is proper to fix a minimum hourly pumping rate (Box 12) before the seller is informed about the maximum allowable pumping rate by the buyer.

Since it seems reasonable to clarify pumping rate issues at the first stage of the negotiations, it stands to reason that Cl. 5 (e) i merely exists as a safeguard. If the buyer’s vessel is, for whatever reason, suddenly subject to security and safety problems if a given rate is exceeded, the buyer has an obligation to tell this to the seller. The clause ought to make it more clear that this is the purpose.

Any delay caused by a failure to reach the contractual pumping rate (Box 12) on account of the security and safety limitations of the buyer's vessel would surely be the fault of the buyer. But it would nonetheless appear prudent to clarify the receiving vessel’s maximum permissible pumping rate (in writing!) prior to filling in Box 12. This is especially so because Clause 9 c ii appears to create relatively strict liability to the detriment of the seller for failure to achieve the minimum hourly pumping rate. There appears to be some potential for conflict here.

Hopefully forthcoming BIMCO explanatory notes can provide some guidance on this issue.

Boxes 6 and 9 (c) are also important. The prior sets forth an estimated time of arrival of the bunker vessel, 9 (c) sets forth the price for delay in the event of the bunker vessel not arrival at the stipulated time, failure to provide notices or failure to achieve the agreed pumping rate.

The compensation rate in Box 13 would appear to be a daily rate, unless stated otherwise (e.g. hourly). But unfortunately, the phrasing is unclear, and “or pro rata” could mean hourly even if the parties do not explicitly opt-in to an hourly rate of compensation. The more accurate are the records, the higher the likelihood of being able to split up the compensation on a pro rata basis. Presumably, for the delaying party, the incentive will be there to keep such records, so as to enable a pro rata calculation. But the party being delayed will most likely not keep such records, since calculation on a day-to-day basis would maximize the delay compensation.

Boxes 14 and 15 allow the parties to agree on the forum and law they want, but also provide room to insert rider clauses (e.g. attaching in-house terms and conditions).

Finally, in accordance with widespread industry practice and guidance by P&I Clubs, the BIMCO Standard Bunker Contract time bars claims for quantity in 15 days and for quality in 30 days, although the procedural steps (presentation in writing) are not onerous.

So, overall, BIMCO's Standard Bunker Contract is a sound basis for negotiation.

However, a few additional elements could be included. Here, in my opinion, are a few:

• From the seller's standpoint, Clause 3 (Quantities and Measurements) still provides a lot of potential for conflict over the amount of bunker provided. A tougher “seller's measurement is final” clause could offer more legal security to the seller and avoid litigation. Clause 3 encourages both parties to have surveyors present, a potentially unnecessary cost.

• Clause 14 (a) states that buyer and seller should jointly (!) take all necessary steps to mitigate spillage damage. But indeed, having one person in charge of such measures is probably more prudent. When high risks, high-cost spillage cleanup is at stake, even two cooks in the kitchen can be too many. A clause giving the seller, who is potentially more at risk from home state authorities, the unilateral right to coordinate may be prudent.

• No lien is given to the seller for bunker payment.

• It could be smart to include a clause regarding a certain amount of pre-payment.

• Clause 14 (d) only requires that the seller obtain and present insurance. This appears quite one sided and certain modifications would make this clause more practicable, e.g. a requirement that the buyer obtain insurance for such spillage as is his fault.

This is hardly a conclusive list and the rider clauses will always depend on the circumstances. – MarEx

Erik Kravets is a maritime lawyer based in Cuxhaven, Germany.

Editor’s Note: The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.