Supplytime 05: BIMCO Finalises Its Revision of Supplytime 89

January 2006

In November 2005 BIMCO released its revision of the Supplytime 89 Uniform Time Charter Party for Offshore Services Vessels. Since it replaced its 1975 predecessor the Supplytime 89 has become the most widely used standard form contract in the offshore industry. However, despite its widespread use the form has not been free of criticism, and its Clause 26 Early Termination mechanism, particularly, has lead to considerable litigation. Very helpfully, BIMCO have provided detailed explanatory notes on the amendments in the new form, and these can be found on the BIMCO website at: www.bimco.dk. These notes underline that the majority of changes are linguistic - for the purpose of improving clarity and avoiding disputes.

Of the latest iteration's amendments to the 89 Form, two key provisions which merit close examination are the "Liabilities and Indemnities" provision, better known as the "knock-for-knock" clause, and the Early Termination Clause already mentioned.

Cl. 12 of the Supplytime 89 sets out the Liabilities and Indemnities under the contract. This provision is particularly important from the perspective of International Group P&I cover in respect of towage operations and generally: under the International Group Pooling Agreement liability in respect of towage operations by entered vessels would not be poolable in the absence of inter alia a valid knock-for-knock provision. Further, the liabilities falling on entered vessels as a result of waivers of rights of recourse, such as those that necessarily form part of any knock-for-knock provision, should only be poolable if the purported knock-for-knock provision is balanced, or in other words, a genuine knock-for-knock provision.

As can be seen from sub-clause (a) of Cl. 12 of the 89 Form, the Owner holds the charterers harmless in respect of any damage to its property or personal injury/death of its employees, or that of its contractors or sub-contractors. This is however subject to the following exceptions:

• The charterer bears the responsibility for damage caused by shipment of undeclared dangerous cargoes (this is the reference to Cl. 5(c)(iii) in Cl. 12(a)), 
• The charterer remains responsible for the replacement of towage and anchor handling equipment on board the vessel where same becomes lost, damaged or unserviceable other than as a result of the Owner's negligence (this is the reference to Cl. 7(b) in Cl. 12(a)), 
• The charterer remains responsible for the replacement of special mooring lines to offshore units, wires, hose connections and similar equipment on the vessel, as listed under Cl. 8 (b), 
• The charterer remains fully responsible for all losses suffered by all sides as a result of the carriage of any hazardous or noxious substances as ordered by the charterer (this is the reference to Cl. 12(g) in Cl. 12(a)). 
• The charterer remains responsible for any loss to the owner as a result of salvage performed on property owned by or contracted to the charterer (this is the reference to Cl. 15(c) in Cl. 12(a)). 
• The provisions of Cl. 12(a) do not apply to claims in General Average (this is the reference to Cl. 21 in Cl. 12(a)).

Conversely, as can be seen from sub-clause (b) of Cl. 12, the charterers hold the Owner harmless in respect of any liability relating to their property or personal injury/death of their employees, or that of their contractors or sub-contractors, including, crucially, anything towed by the vessel. In contrast to the Owner's position, the only exception under Cl. 12(b) is claims under General Average.

Cl. 12 of the Supplytime 89 is replaced by Cl. 14 of the Supplytime 05, which reads as follows:

"14. Liabilities and Indemnities 

(a) Definitions For the purpose of this Clause "Owners' Group" shall mean: the Owners, and their contractors and sub-contractors, and Employees of any of the foregoing.

For the purpose of this Clause "Charterers' Group" shall mean: the Charterers, and their contractors, sub-contractors, co-venturers and customers (having a contractual relationship with the Charterers always with respect to the job or project on which the Vessel is employed), and Employees of any of the foregoing.

(b) Knock for Knock

(i) Owners. - Notwithstanding anything else contained in this Charter Party excepting Clauses 6(c)(iii), 9(b), 9(e), 9(f), 10(d), 11, 12(f)(iv), 14(d), 15(b), 18(c), 26 and 27, the Charterers shall not be responsible for loss of or damage to the property of any member of the Owners' Group, including the Vessel, or for personal injury or death of any member of the Owners' Group arising out of or in any way connected with the performance of this Charter Party, even if such loss, damage, injury or death is caused wholly or partially by the act, neglect, or default of the Charterers' Group, and even if such loss, damage, injury or death is caused wholly or partially by un-seaworthiness of any vessel; and the Owners shall indemnify, protect, defend and hold harmless the Charterers from any and against all claims, costs, expenses, actions, proceedings, suits, demands and liabilities whatsoever arising out of or in connection with such loss, damage, personal injury or death.

(ii) Charterers. - Notwithstanding anything else contained in this Charter Party excepting Clauses 11, 15(a), 16, and 26, the Owners shall not be responsible for loss of, or damage to, or any liability arising out of anything towed by the Vessel, any cargo laden upon or carried by the Vessel or her tow, the property of any member of the Charterers' Group, whether owned or chartered, including their Offshore Units, or for personal injury or death of any member of the Charterers' Group or of anyone on board anything towed by the vessel, arising out of or in any way connected with the performance of this Charter Party, even if such loss, damage, injury or death is caused wholly or partially by the act, neglect, or default of the Owners' Group, and even if such loss, damage, injury or death is caused wholly or partially by un-seaworthiness of any vessel; and the Charterers shall indemnify, protect, defend and hold harmless the Owners from any and against all claims, costs, expenses, actions, proceedings, suits, demands and liabilities whatsoever arising out of or in connection with such loss, damage, liability, personal injury or death…"

The sub-clause (a) definitions set out the parties that fall within the "Owners' Group" and those that fall within the "Charterers' Group". This serves to avoid repetition in the rest of the clause but alters the position under the 89 Form.

The sub-clause (b) "Knock for Knock" provision includes the following exceptions to the Owner's indemnity to the charterers in respect of "Owners' Group" property/personnel:

• Undeclared dangerous cargo shipped by the charterers on Board the Vessel: the same exception can be found in the Supplytime 89 Knock for Knock (the provision relating to dangerous cargo in Cl. 5(c)(iii) the Supplytime 89 can now be found materially unamended in Cl. 6(c)(iii) of the Supplytime 05). 
• As before, charterers remain responsible for the replacement of towage and anchor handling equipment on board the vessel where same becomes lost, damaged or unserviceable other than as a result of the Owner's negligence (Cl. 7(b) of the 89 Form has been replaced by Cl. 9(b) of the 05 Form). 
• The charterers' responsibility for the replacement of special mooring lines to offshore units, wires, hose connections and similar equipment on the vessel, also remains (with 9(e) of the 05 Form replacing Cl. 8(b) of the 05 Form).

A substantive amendment to the 89 Form Liabilities & Indemnities provision relates to Bunkers. The 89 Form used only to include an obligation on the charterers to pay for the vessel's bunkers and lubricants under its Cl. 9. This Cl. 9 has now been replaced by the Bunkers provision from the BIMCO Boxtime Form, which places considerable additional obligations on the charterers. These obligations are set out in Cl. 10 of the 05 Form, and include the following in respect of liability, Cl. 10(d): "Liability - The Charterers shall be liable for any loss or damage to the Owners caused by the supply of unsuitable fuels or fuels which do not comply with the specifications and grades set out in … ". This obligation is an express exception to the 05 Form Liabilities & Indemnities provision and, as such, reduces the scope of the indemnity/hold harmless provided by the Owner. This noteworthy amendment to the liability regime under the 89 Form is reasonable and necessary given the charterers responsibility for the supply of suitable bunkers. It is analogous to the exception in respect of the carriage of undeclared dangerous goods.

Another major amendment to the Liabilities & Indemnities scheme under the 89 Form relates to Maritime Security. The 05 Form now includes at Cl. 11 the "BIMCO ISPS/MTSA Clause for Time Charter Parties", liabilities under which form an express exception to both sides of the Cl. 14 "Knock-for-Knock" scheme. Under the BIMCO ISPS/MTSA Clause the Owner has to comply with the ISPS Code and, if operating in United States, the MTSA 2002 (further information on an owner's obligations under the ISPS Code and the MTSA 2002 can be found in the Maritime Security section of the Steamship Mutual website). The Owner bears liability for any losses arising from its failure to do so.

The exception in respect of breaches of the ISPS Code fundamentally alters the nature of the liability apportionment scheme, and compromises the effectiveness of Cl. 14 as a "Knock-for-Knock" provision. In respect of towage, it could be the case that resulting liabilities fall outside the scope of International Group P&I Club cover, as the International Group requirements for pooling currently stand. The "Knock-for-Knock" provision is to operate irrespective of fault with the Owner is held harmless in respect of damage to the tow, or Charterers' Group property even if same is caused "wholly or partially by the unseaworthiness of any vessel". As an amendment to SOLAS, the ISPS Code partially defines a vessel's seaworthiness in the same way as the ISM Code. It is therefore surprising that breaches of the ISPS Code will deprive an owner of its Cl. 14 "Knock-for-Knock" protection, whereas breaches of the ISM Code will not. Losses and liabilities which arise as a result of breach of the ISPS are not necessarily the types of liabilities covered by war risk underwriters. In fact it is feasible that a breach of the ISPS Code by the Owner, by say not maintaining a proper system with regard to the determining the identities of individuals coming on board the vessel could result in losses to the tow caused by mischief on the part of third parties who are not operating to a terrorist or belligerent agenda.

That the charterer will be liable for losses suffered by the Owner as a result of the Charterers' breach of its obligations under the BIMCO ISPS Clause does not improve the Owner's position with regard to P&I Cover for towage operations by the vessel; these obligations relate only to the provision of information required for the Owner to comply with the ISPS Code/MTSA, and are unlikely to expose the Owners to claims that would not in any event be recoverable from the Charterers.

Also added to the list of exceptions in respect of the Owners' indemnity/hold harmless to the Charterers in respect of Owners' Group property is losses/liability arising "under the Bill of Lading" as a consequence of suspension of or withdrawal from the Charter Party - such losses are for the charterers' account under Cl. 12(f)(iv) of the 05 Form as referred to in the Cl. 14(b)(i) quoted above. The need for this exception in the liability apportionment scheme is unclear, not least because Cl. 7(a)(ii)(1) specifically states that "No bills of lading shall be issued for shipments under this Charter Party". Leaving that aside, and assuming bills have been issued, it is difficult to see how the Owners' liabilities under the bills of lading following, say, withdrawal are likely to involve the types of losses in respect of which the Owners hold the Charterers harmless under the "Knock-for-knock" provision.

Under a further amendment of the 89 Form, the Owner's statutory rights with regard to limitation of liability are not in any way compromised by the liability apportionment scheme in the 05 Form. This is achieved through the express reference to the Cl. 14(d) preservation of rights of limitation in 14(b)(i). The inclusion of the express reference in this manner is a departure from the position under then 89 Form. Whilst the 89 Form included a similar reference to limitation (at Cl. 12(d)), the same was not expressly mentioned in the 89 Form Owner's indemnity/hold harmless to charterers in respect of its own property. This amendment adds clarity to the overall liability apportionment scheme as it prevents Charterers from arguing that rights of limitation do not apply to the indemnity/hold harmless from the Owner. From the Charterers' perspective this amendment may be seen as a serious restriction on the indemnity provided by the Owners under the "knock-for-knock" agreement - the charterer/"Charterers Group" will only be indemnified up to the vessel's limitation figure in respect of losses to any member of the "Owners' Group". Such losses could comfortably exceed the vessel's limitation figure (it is worth bearing in mind that OSV's, because of their size, often have fairly low limitation figures) and any difference will have to be borne by the charterer or member of the "Charterers' Group" against whom the original claim was brought.

The Pollution Clause (Cl. 13) in the 89 Form remains the same in terms of the allocation of liability and can be found at Cl. 15 in the 05 Form. This clause allocates all liability for pollution from the vessel (excluding from cargo on board the vessel) to the Owners, regardless of fault, and all other pollution to the Charterers, also regardless of fault. The provisions of this clause have now been expressly incorporated in the Cl. 14 allocation of liability so as do avoid disputes as to whether there is any conflict in the terms.

Salvage is treated similarly to pollution and, like Cl. 12 of the 89 Form, the Cl. 14 liability apportionment scheme in 05 Form incorporates express reference to the salvage specific liability apportionment provisions which formed Cl. 15(c) of the 89 Form (these can now be found in Cl. 18(c) of the 05 Form).

The 05 Form also now includes the "Both-to-Blame Collision Clause", Cl. 27, as an express exception to the indemnity provided by the Owners in respect of losses to the Owners Group. Whilst, in the context of property belonging to the Charterers' Group, this exception is probably unnecessary as under 14(b)(ii) the Charterers in any event provide indemnity to the Owners in respect of losses relating to damage of property/cargo of the Charterers' Group, it would appear substantially to alter the Owner's position with regard to property of its subcontractors and others in the Owners' Group, as said property could arguably come within the wording of the "Both-to-Blame Collision Clause". That clause stipulates that the Charterers will indemnify the Owners for their losses arising as a result of a set-off by the other ship of claims for which it is liable in respect of "loss of or damage to, or any claim whatsoever of the owners of any goods carried under this Charter Party". Property belonging to members of the Owners' Group could come within this definition, and to that extent the Charterers may have to bear the liability/loss concerned. Whilst beneficial to the Owners, this is difficult to reconcile this provision with the general "knock-for-knock" approach.

As with the 89 Form, the 05 Form excludes claims/losses in General Average from the indemnities provided by both sides. However, whereas in the 89 Form General Average was the only exception to the indemnity provided by the Charterers to the Owners in respect of "charterer-sided" losses, the 05 Form includes three further exceptions. These are Pollution as set out in Cl. 15 of the 05 Form and discussed above, ISPS/MTSA obligations as set out in Cl. 11 - the very serious implications of which are discussed above, and Wreck Removal.

The 89 Form Wreck Removal provision, which was found at Cl. 29, has been moved, substantially unaltered to Cl. 16 of the 05 Form. The Owners obligations under it are unaffected by the indemnity provided by the Charterers in respect of Charterers' property etc. This has the effect of precluding the Owners from being able to claim from the Charterers any additional costs of wreck removal arising as a result of Charterers' Group property that was on board the vessel and forms part of the wreck, and represents a substantive amendment to the 89 Form.

The above is to highlight some of the key changes to the "knock-for-knock" provision which BIMCO, in its explanatory notes, rightly states "is at the core of the SUPPLYTIME". What should be clear from the above is that, there are important substantive changes in the 05 Form which alter the scope of the "knock-for-knock" provision. Any queries relating to the same should be referred to the Club.

The other provision in the 89 Form which drew considerable attention, and has been a cause of litigation, is the Early Termination Clause, Cl. 26 of the 89 Form and now Cl. 31 of the 05 Form. Past difficulties arose primarily in relation to Early Termination for Cause, and in particular in respect of Breakdown (of the vessel). Cl. 26(b)(v) of the 89 Form, now Cl. 31(b)(v) of the 05 Form, appears to have been materially amended. It appears no longer sufficient that the vessel is unable to perform for a period exceeding that agreed by the parties (and specified in Box 33): under the new wording, for the Charterers to be able to terminate the charter, in addition to the vessel being unable to perform for the period in question the Owners must also "have not initiated reasonable steps within 48 hours to remedy the non-performance or provided a substitute vessel". This amendment places a significant restriction on the Charterers' right to terminate early, and is a welcome change to the severe scheme under the 89 Form. The Owners will now have the opportunity to remedy the problem with the vessel, whilst the Charterers will be compensated under the other charterparty provisions if there has been a breach, and in any event hire will cease to count in line with Cl. 13 of the 05 Form.

Any queries relating to Early Termination under either of the Supplytime Forms should be referred to the Club.