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Clyde & Co explains BIMCO’s Bunker Terms 2018 contract

11 May 2018

The following is an article written by James Kennedy of Clyde & Co to inform the shipping industry about the merits of BIMCO’s newly launched Bunker Terms 2018 contract:

The much anticipated new version of BIMCO's standard contract Bunker Terms 2018 was formally adopted yesterday, in New York. The BIMCO committee which drafted the Bunker Terms 2018, consisted of representatives from across the bunker industry including three major bunker suppliers/traders, shipowners Norden and J Lauritzen, the North of England P&I Club, the International Bunker Industry Association, and James Kennedy of Clyde & Co.

The background and purpose of the Bunker Terms 2018
Following the OW bankruptcy and the UK Supreme Court decision of "Res Cogitans", there were calls from across the industry for a contractual solution to protect against the consequences that flowed from the OW bankruptcy, e.g. double payment by buyers.

Additionally, in a volatile market with no widely and commercially acceptable existing standard contract terms, there was a plethora of contractual terms being used across the industry causing contractual uncertainty, extended contractual negotiations and the potential for disputes for both buyers and sellers.

The first purpose of the Bunker Terms 2018 was to contain an OW Bunker type protective clause. The second purpose of the Bunker Terms 2018 was to be a more balanced set of terms which were commercially acceptable to both buyers and sellers, which would then boost harmonisation of trading terms across the industry to bring clarity and certainty to bunker sale and purchase transactions, and reduce the potential for disagreement

The result – The Bunker Terms 2018
After wide consultation and a thorough examination of possible solutions, it was concluded that there is no legally and commercially workable OW Bunker type protective clause that would be widely accepted by the industry. Instead, the Bunker Terms 2018 will be accompanied by advice and guidance to better protect parties against double payment, by helping the industry to focus on better risk management, understanding of contractual terms, and know-your-counterparty due diligence before entering into a contract.

In relation to the second purpose, to strike a fair balance between the interests of buyers and sellers, a substantial amount of work and industry consultation went into redrafting and redesigning the previous terms to make them more commercially acceptable. There are, therefore, several changes to the terms including delivery, payment, and claims management clauses.

The most important changes however are a new liability cap and the use of a "Confirmation Note" and an "Election Sheet". The lack of a liability cap was seen as a stumbling block for the previous BIMCO terms gaining a stronger foothold in the market. The inclusion of the Confirmation Note was to reflect industry practice in the purchase and supply of bunkers. Similar to the Gencon or NYPE charterparty forms, the Election Sheet was viewed as a way of allowing parties to negotiate the terms more easily. The Bunker Terms 2018, therefore, don't have to be a "take it or leave it" style document and instead can be used as a template with parties free to adapt it to cater for particular commercial and legal factors.  

The Bunker Terms 2018 should go a long way toward providing certainty, simplifying negotiations, expediting transactions and reducing the potential for disputes between the parties.

Although it may take a little while for parties to become acquainted with the new terms, given the wide consultation across the supply chain during the drafting process (including strong representation from physical suppliers and traders), it is expected that the whole industry will respond positively to the introduction of the new standard contract. In the meantime, until there is wider uptake on the Bunker Terms 2018, scope for discrepancies in the contractual supply chain is likely to remain.  

Related: BIMCO introduces updated, approved bunker contract

Photo credit: BIMCO
Published: 11 May, 2018


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