BIMCO offers new Standard Bunker Contract

July 11, 2002

When BIMCO published the "Fuelcon" Standard Marine Fuels Purchasing Contract in 1995, it received only a modest welcome from the bunker industry. Although a standard contract of this type had been long-awaited by those involved in the marine fuels sector, "Fuelcon" was not widely adopted. The general feeling in the industry was that BIMCO, in an attempt to redress the balance of often onerous suppliers' terms and conditions then in general usage, had produced a standard form of contract that was too biased towards the buyers. Although failing to achieve dominance in the market, the "Fuelcon" initiative successfully raised awareness in the bunker sector of the need for a set of standard terms and conditions acceptable both to buyers and sellers. The lessons learned from the development of "Fuelcon" proved to be invaluable when BIMCO decided in 1999, in consultation with the International Bunker Industry Association (IBIA) to revise the document to produce an acceptable balanced contract to facilitate marine fuels purchasing negotiations. The result of two years development work by a sub-committee comprising of buyer, seller, broker, and trade representatives is the newly approved "BIMCO Standard Bunker Contract". In view of the background against which "Fuelcon" has been revised, the BIMCO Standard Bunker Contract may, in some quarters, be considered less favourable to the buyers than its predecessor. Nevertheless, the BIMCO Standard Bunker Contract is undoubtedly a more suitable alternative to existing contracts and one that buyers can safely rely upon in negotiation. On a practical note, it is worthwhile drawing attention to the fact that despite the contractual foundation of a bunker deal, every product has its price. Buyers should, therefore, always be wary when offered bargain-priced marine fuels, especially if it is from an unknown supplier.

Layout

In contrast to the layout used in "Fuelcon", BIMCO has chosen to dispense with the well-known box layout system in the BIMCO Standard Bunker Contract as it was felt not to reflect the way business is conducted in the bunker industry. The BIMCO Standard Bunker Contract has been developed in the form of a so-called "frame agreement", i.e., an agreement that simply contains general terms and conditions for supplying marine fuels that a bunker supplier may use with all his customers. A BIMCO Confirmation Note, tailored and applied by reference to the General Terms and Conditions, enables the parties to record basic variable information such as quantity, price, grade and place of delivery. It should be noted, however, that incorporation of the BIMCO Confirmation Note is by no means a prerequisite for the use of the General Terms and Conditions. A bunker supplier who wishes to make use of his own confirmation note is free to do so without prejudicing the use of the General Terms and Conditions. However, as the General Terms and Conditions make reference to the "Confirmation Note" it is important that when the bunker supplier uses its own form it be referred to as the "Confirmation Note".

Explanatory Notes

To assist in the practical use of this standard contract the following is a brief background description of the standard clauses contained in the General Terms and Conditions.

Clause 1 - Definitions

The definition of "Marine Fuels" is limited to the bare minimum with further characteristics being dealt with under Clause 2 (Grades/Quality). The definitions of the "Sellers" and the "Buyers" concisely identify the parties to the BIMCO Standard Bunker Contract. BIMCO is aware that parties may wish to expand the definitions to include also the suppliers of the marine fuels (if the sellers do not actually supply the fuels themselves) and the buyers' agents. To avoid any legal uncertainties about who can enforce the terms of the contract and who is responsible, it has been agreed to narrow the definitions to include only the party contracting to sell and deliver the marine fuels and the party taking delivery of and paying for the marine fuels. The definition of "Bunker Tanker" has been incorporated to deal with the different means of supplying the marine fuels.

Clause 2 - Grades/Quality

Sub-clause (a) clearly places the responsibility with the buyers for nominating a specific grade (e.g., RME 25), "fit for use by the vessel". Although in the original "Fuelcon" wording the term "suitable to the vessel" was used, existing case law on the subject suggests that the phrase "fit for use" is the more applicable term. Sub-clause (b) has been the subject of considerable discussion and legal opinion. It was decided that the English "Sale and Supply of Goods Act 1994" should be used to form the legal basis of the Contract, as the concepts introduced in this legislation are generally consistent with those in many other jurisdictions. The Act replaces the old notions of merchantability and fitness with the single concept of "satisfactory quality". Nevertheless, it was felt appropriate to specifically highlight that the marine fuels shall be of a homogeneous and stable nature and comply with the grades nominated by the buyers. The sub-clause also stipulates that, in principle, the marine fuels will comply with ISO Standard 8217:1996 or any subsequent amendment, but that other standards may be used, in which case such standards should be stated in the Confirmation Note.

Clause 3 - Quantities/Measurements

At first glance, it may seem unsatisfactory to the buyers that the Contract stipulates that quantities are to be determined from the gauge or meter of the delivering bunker tanker or shore tank. The balance in Clause 3, however, is achieved by making this stipulation subject to sub-clause 6(c) and Clause 9 (Claims), according to which the Master has the possibility to state his own quantity either in the receipt, if possible, or in a separate letter of protest. Furthermore, sub-clause (b) gives the buyers the right to be present or represented and to receive sufficient information and facilities to verify the volumes delivered. This refers, inter alia, to information on the tanks of the delivering bunker tanker and details of the calibration tables. Sub-clause (c) states that the quantities delivered will be established by using the ISO-ASTM-API-IP Petroleum Measurement Tables, which are recognised worldwide.

Clause 4 - Sampling

One of the most important aspects of the bunkering procedure is sampling. As may be expected sampling is a highly contentious subject often leading to disputes between the parties involved. Considerable time has been spent on trying to find an acceptable compromise solution to the sampling issue without being too inexplicit. Sub-clause (a) prescribes a representative sample to be taken at delivery and that sample divided into 4 identical sub-samples, two of which are to be retained by the sellers and two by the buyers (vessel). The thinking behind this requirement is to cover the following procedure:

1. The first sub-sample used will be one of the two retained by the buyers (vessel), which may be sent for analysis to a laboratory either as part of the buyers' standard procedure or in the event there is doubt about the quality of the marine fuels delivered.

2. If the quality is not as it should be and the buyers submit a claim to the sellers, the second step is prescribed in sub-clause 9(b)(ii) where one of the sub-samples retained by the sellers is analysed by a mutually agreed, independent laboratory.

3. The above procedure should prevent, in most cases, the claim becoming a full-blown dispute; the matter being resolved by the laboratories with the two remaining samples eventually being disposed of.

4. However, should the claim become a real dispute, resulting in, for instance, arbitration, then both parties will still have one sample in their possession to be available for use in the proceedings.

It is important to note that sub-clause (a) provides for a representative sample of each grade to be taken throughout the entire bunkering operation in the presence of both sellers and buyers or their representatives. The intention with the latter provision is to impress upon the buyers and the receiving vessel the importance of close supervision of the sampling operation. Considerable discussion has centered on the location of the sampling point, as stipulated in sub-clause (b). On the buyers' side, there is a clear preference for sampling to take place at the receiving vessel's bunker manifold, which it is felt gives the least possibility of tampering. Sellers, on the other hand, maintain that this is for many reasons an impractical solution. In 2001, the Singapore Maritime and Port Authority amended their Code of Practice to make custody transfer sampling the new standard, i.e., bunker samples shall be taken at the receiving vessel's bunker manifold.

The Sub-committee discussed whether to align sub-clause (b) with the new Singapore Code of Practice. However, although Singapore is an important bunkering port the Sub-committee felt that the procedures adopted there would perhaps not be followed in other major bunkering ports such as Rotterdam in the very near future. The Sub-committee accordingly decided to maintain the provisions of the original "Fuelcon" providing for sampling to be done at a mutually agreed point closest to the receiving vessel's bunker manifold. In order to achieve a balance, the Sub-committee found it appropriate to stress the importance of using proper sampling devices and sub-clause (c) prescribes the use of mutually agreed sampling devices which are constructed in such a way that they can be properly secured and sealed to avoid being tampered with during the entire bunkering operation.

Sub-clause (d) describes what should be done with the four identical sub-samples and is self-explanatory.

Sub-clause (e) provides that the sellers retain the two sub-samples for a minimum of 60 days after delivery unless the buyers request in writing that a different period is required. The latter provision also covers a request for, e.g., one of the sub-samples to be analyzed, which would then imply a shorter storage time than 60 days.

Clause 5 - Delivery

Clause 5 reflects what the Sub-committee considers "best practice" in connection with delivery of marine fuels. In principle, delivery can take place at any time of day or night including Sundays and holidays, but always subject to custom of the port. Provisions are made for ample notification to be given of the vessel's expected time of arrival, ending with a 24-hour definite notice of arrival providing the time and location where delivery will take place. Responsibility for compliance with local regulations in respect of deliveries lies with the sellers who will also assist the buyers in making the connections and disconnections of hoses. The responsibility, however, for making a proper connection and disconnection rests with the buyers who are also responsible for ensuring that the vessel is fully certified and in compliance with local regulations pertaining to the delivery of marine fuels. Furthermore, it is the buyers' duty to instruct the Master to co-operate with the sellers during the delivery procedure. The Master shall co-operate in: advising, prior to delivery, the maximum pumping rate and pressure the vessel can accept; agreeing on communication and emergency shut-down procedures; notifying the sellers in advance of any special circumstance which may affect the delivery; offering a free side and assisting in the mooring and unmooring of the bunker tanker (where applicable).

Clause 6 - Documentation

The requirements for documentation are straightforward. The bunker requisition or similar document, which must be presented to the Master or his representative (in practice usually the Chief Engineer) for his acknowledgement, should contain values for the various analytical parameters required by ISO/TR 13739:1998. The Sub-committee is aware that, although ISO/TR 13739:1998 is only a recommendation, it contains relevant information which shall be provided by the sellers. The sellers are required only to sign for values for viscosity, density, sulfur content, flash point and delivery temperature, and, if available, similar information for vanadium, ash content, water content and pour point. The receipt, which shall be signed by the Master or his representative after completion of delivery of the marine fuels, should contain the information listed, and is warranted by the sellers. This information contains metric units and ISO testing methods as a standard. It has been customary to ask the Master to sign for receipt of a quantity expressed in metric tons but it should be noted that the BIMCO Standard Bunker Contract, in an effort to reduce disputes, specifically states that the Master signs for actual volume and delivery temperature only. In a further effort to promote "best practice" the Master is given the opportunity to make appropriate remarks on the receipt. If local authorities requiring clean receipts do not permit this, such remarks may be made in a separate letter of protest, to be issued immediately after delivery. As a matter of balance it was felt unfair to allow any delay in the presentation of the letter of protest especially in the light of the time-bars stated in Clause 9 (Claims).

Clause 7 - Price

This is a straightforward clause and it will be seen that an effort has been made to have any and all additional charges included to avoid unpleasant surprises after delivery. If charges such as overtime cannot be specified as a lump sum then they should, at least, be included as a rate per hour.

Clause 8 - Payment

This Clause reflects current practice in most parts of the world. Sub-clause (a) provides a 30-day time limit within which payment should be made unless another limit has been agreed in the Confirmation Note.

"Fuelcon" provided very specific provisions as regards the sellers' right to exercise lien over the marine fuels delivered until payment had been made. The Sub-committee engaged in the drafting of the BIMCO Standard Bunker Contract realised, however, that the sellers' right to exercise lien over the marine fuels may in a number of jurisdictions be unenforceable since by the time they may wish to exercise such lien they will no longer have the fuels in their possession. Nevertheless, to comfort the sellers a sweeping provision has been made in sub-clause (e) for the sellers to pursue any legal remedies available in the relevant jurisdiction governing the contract. (See the comments made under Clause 10 (Risk/Title) in respect of "retention of title").

Clause 9 - Claims

Sub-clause 9(a) deals with claims in respect of shortage of quantities delivered and it was felt that a short time-bar of 15 days was sufficient, bearing in mind that it should be possible for the vessel to notify any disputes on quantity immediately after delivery. Clause 6(c) prescribes that in such case the Master should make appropriate remarks in the receipt or in a separate letter of protest. Conversely, for claims on quality, which are dealt with in sub-clause 9(b), there is a case for a longer time-bar having in mind that it will usually take more time to realise that something is wrong with the quality of the marine fuels. It should be noted that the time-bar is on notification and not presentation of the claim. If the buyers have reason to question the quality of the marine fuels delivered, the applicable procedure to follow is described in sub-clause 9(b)(ii). (See also the comments made under Clause 4 (Sampling)). The intention of sub-clause 9(c) is to compensate either party for actual delay incurred to their respective bunker tanker/vessel in the event that the other party does not comply with its obligations concerning commencement of bunkering operations and agreed pumping rate. The compensation in the form of liquidated damages will naturally be different depending on whether the delay is for the account of the bunker tanker or the vessel.

Sub-clause 9(d) provides that neither party will be liable for indirect or consequential loss and/or damage arising from the Contract. From an English law perspective and under many other jurisdictions there will be no need for such provisions since the parties will only be held responsible for loss or damage that results naturally and directly from a breach of contract. However, to comfort the suppliers of marine fuels that they will not be held responsible for remote consequences resulting from the delivery of bad fuels, it was agreed to include specific provisions exempting the parties from indirect and/or consequential damage.

Clause 10 - Risk/Title

Ideally risk and title should pass from the sellers to the buyers at the same time. It was felt by the draftsmen, however, that it would not be equitable from the sellers' point of view to relinquish title before payment is made. The two items, therefore, have been split, i.e., risk is transferred when the marine fuels pass the sellers' flange connecting to the Vessel's bunker manifold, whilst title is transferred upon payment being made. Until payment is made, the sellers retain full title to the marine fuels. Title is secured by the incorporation of a straightforward retention of title provision with the addition of wording setting out the sellers' rights against the vessel and/or the charterers' bunkers remaining on board, should there be a breach of the payment terms.

Clause 11 - Termination

In accordance with advice from legal counsel, this Clause deals only with termination in case of insolvency and liquidation. Reliance is otherwise placed on the general law rights of termination.

Clause 12 - Indemnity

At first sight, Clause 12 may seem far from balanced in that, generally speaking, the sellers could face a higher risk of having to indemnify the buyers than vice versa. It should be realised, however, that this indemnity is strictly limited to damages directly caused by compliance with directions given by one party to the other; thus excluding any other causes.

Clause 13 - Force Majeure

This Clause is self-explanatory and is taken from the wording commonly used in a number of other BIMCO standard forms.

Clause 14 - Safety and the Environment

Many complaints have been received by BIMCO concerning the imposition by suppliers of onerous clauses attempting to burden the buyers with the entire responsibility for oil spills; not only during transfer but also during the entire transport of the marine fuels to the vessel. As such pre-transport is clearly outside the control of the vessel, the Sub-committee has deemed it necessary to spell out where the responsibilities lie without, however, losing sight of the need to produce a balanced clause. Sub-clause (a) stipulates that regardless of which party is responsible for a spill, buyers and sellers will jointly take immediate steps to effect a clean-up operation in accordance with local laws and regulations, which may compulsorily apply.

In sub-clause (b) an obligation is put on the sellers to have in place valid oil spill contingency plans, approved by the relevant authorities.

Sub-clause (c) mainly stipulates that the sellers will indemnify and hold harmless the buyers for any claims, losses, damages, penalties and other liabilities incurred under the United States OPA 90 or any other pollution legislation of any state, country or jurisdiction occurring during transport to or from the vessel's bunker manifold, unless caused by any fault of the buyers. Similarly, the buyers will indemnify the sellers where any spillage occurs after the risk in the marine fuels has passed to the buyers. In sub-clause (d), the sellers are made responsible for ensuring that the bunker company has satisfactory insurance for oil spills, either by ensuring that the bunker supplying company takes out such insurance or by providing such coverage themselves.

Finally, sub-clauses (e) and (f) signal that the sellers' and buyers' personnel will comply with the drug and alcohol policies enforced by the buyers and sellers on board their vessels and in their facilities.

Clause 15 - Dispute Resolution

The BIMCO Standard Dispute Resolution Clause has been incorporated into this Contract, providing a choice of jurisdictions, places of arbitration and an optional mediation provision. Sub-clauses (a), (b) and (c) are identical to BIMCO's Standard Law and Arbitration Clause (1998), whereas sub-clause (d) is a new mediation option. For further information on the BIMCO Standard Dispute Resolution Clause, see Special Circular No. 1, 16 January 2002.

Withdrawal Notice

Finally, it should be noted that "Fuelcon" has officially been withdrawn and is no longer available from BIMCO's printers.

The new form is available in an electronic editable format on BIMCO's idea (Internet Document Editing Application) at www.bimco.dk. BIMCO's idea is an easy to use online document editing system based on Microsoft Word that allows subscribers to edit and exchange by e-mail a wide variety of BIMCO and other standard shipping forms.