SHIPSALE 22 - Will it improve ship pre-purchase inspections?

?This article reflects the view of the author’s experiences while serving on board after taking over a newly purchased vessel on behalf of the Owners and dealing with unexpected faults and failures.

The sale and purchase of second-hand vessels are carried out through a sale agreement referred to as a Memorandum of Agreement or a standard form of contract that sets out the contractual terms between the Buyer and the Seller.

Until recently, there have been three Ship Sale Forms: NIPPONSALE 1999, developed and used on the Japanese market, Singapore Ship Sale form 2011 developed to cater for the needs of the Asian market, and the oldest and the most widely used Norwegian SALEFORM 2012, first developed in 1925. All three forms have similar stipulations regarding the Vessel inspection clause, allowing for only superficial inspections.

The scope of the inspection is of course important for the Buyers who will commonly appoint an experienced marine surveyor to carry out the inspection prior to making a decision on the purchase of a Vessel.

The Sellers on the other hand will possibly try to limit the time available for inspection, may be unwilling to disclose maintenance records, deck and engine logs and other relevant documentation, try to hide flaws and damage, and even instruct the Master of the Vessel to conceal problems. Since this type of inspection due to its superficial nature does not reflect the real physical condition of a vessel, it is likely that, following the purchase, serious flaws may emerge during the Vessel’s operation.

Classification records may be considered invaluable if available for inspection because they will show the prospective Buyer of the Vessel certain defects, major breakdowns and repairs undertaken. However, and without diminishing the importance of the Classification records, it has to be taken into consideration that there is always a possibility the Classification records will not reveal damage and defects which the Owner failed to report to the Classification Society, or the Classification Society failed to spot them during a survey.

Potential issues that the Buyer may be faced with following the purchase, due to the superficial nature of pre-purchase inspections are probably best depicted in NIPPONSALE 1999 Clause 5 Delivery condition which states that “upon the Vessel being delivered to and accepted by the buyers … the sellers shall have no liability whatsoever for any fault or deficiency in their description of the vessel or for any defects in the vessel regardless of whether such defect was apparent or latent at the time of delivery”.

The most recent, fourth form SHIPSALE 22 was published by BIMCO in April 2022, with an ambition to replace the Norwegian SALEFORM 2012 as a new market standard form?for the sale and purchase of vessels. SHIPSALE 22 content is largely the same as SALEFORM 2012, with some welcome clarifications and additional clauses such as Sanctions, Anti-Corruption and Confidentiality. However, the Clause on Inspections retained the same superficial nature of ship pre-purchase inspections as SALEFORM 2012.?

It is worth comparing the Clause on pre-purchase inspections in all four forms to see if any of them boosts Buyers’ confidence that they purchased a good vessel.

The main similarities and differences between the Sale Forms are contained in the table below.

From the summary of the Buyers’ right to inspect, it is obvious that the Singapore Ship Sale Form favours the Buyers as it provides the prospective Buyer of a Vessel with the possibility of a more detailed inspection, while SHIPSALE 22 does not offer a specific scope of the inspection, but rather further limits the Buyers in what they can inspect. Clause 6 (b) only clarifies the meaning of “opening up of the Vessel” by excluding the Vessel’s engines, machinery, equipment or systems.

Going back to NIPPONSALE’s warning about the emergence of defects in the Vessel whether apparent or latent at the time of delivery, a good example of serious issues that the new Owner may face was when the Owner put the newly purchased vessel straight into operation (the Author’s personal experience). Due to frequent blackouts and other failures including finally a complete loss of power, the Owner eventually had to bear additional costs comprising of detention, service of the stand-by tug, cost of the temporary emergency generator, and classification society inspector fees, the total of about ￡280,000. There were other significant costs incurred due to disputes between Owners, Charterers, Cargo owners, and Managers.

All in all, BIMCO’s SHIPSALE 22 form may have clarified some stipulations compared to SALEFORM 2012, but it did not improve the scope of pre-purchase inspections.

Therefore, at least for the time being, it is not likely that the superficial nature of pre-purchase inspections is going to change. Under the circumstances, the best course of action for the Buyers, before the vessel is put in service is to dedicate some time to conduct a thorough inspection of the Vessel, the necessary tests and possible repairs thereby avoiding additional costs in the form of detentions, arrests, litigation, and finally loss of reputation, for what it’s worth.