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13 November 2013
Sellers and buyers of secondhand vessels are sometimes faced with the question of which standard contract to use. The Norwegian Saleform 2012 is the most commonly used contract in the market, with the Japanese Nipponsale 1999 coming in second. However, if one party is based in the east and the other in the west, negotiations sometimes begin with a battle of forms and a discussion as to which contract should be used for the deal.
Negotiating a transaction based on an unfamiliar contract document may make some parties uneasy. This update looks at some of the main differences between the Norwegian Saleform and the Nipponsale.
An important difference is the time when the buyer must remit the balance of the purchase price. While the Norwegian Saleform requires the buyer to pay the balance on delivery of the vessel, the Nipponsale requires the buyer to pay the balance immediately after receipt of the seller's notice of readiness of the vessel, which is usually tendered three days before delivery. This also reflects market practice in Japan.
Although the purchase price is not released to the seller's account before the protocol of delivery and acceptance has been signed by both parties, remitting the balance of the purchase price in advance of delivery may give rise to some concerns on the part of the buyer and its financiers. The buyer has no influence on the bank nominated by the seller under the Nipponsale, and it is important that the documentation makes clear that the purchase price shall not be released to the seller's account before the protocol is signed by the buyer.
One advantage of the Nipponsale solution is that the seller's bank may be more willing to discharge its mortgage at an earlier stage in the closing meeting, as the buyer's funds will have been placed in an account under the bank's control, although the bank is not entitled to settle the mortgage debt with the pre-positioned funds before the signing of the protocol of delivery and acceptance. However, the Nipponsale may facilitate a less complex closing as the classic 'chicken and egg problem' has, to a certain extent at least, already been addressed.
The Nipponsale gives the seller more time to make the vessel ready for delivery in the event that the underwater inspection reveals that repairs are required. In such case, the cancellation date is extended by the corresponding number of days required for the repairs, up to a maximum of 30 days. The Norwegian Saleform allows only for an extension of the cancelling date with up to 14 days.
In both the Norwegian Saleform and the Nipponsale, the cancellation date may be extended if the vessel is not delivered on time. Under the Nipponsale, the initiative lies with the buyer, which is entitled either to cancel the contract or to propose a new cancellation date (such proposal is to be made within two working days of the original cancellation date). Under the Norwegian Saleform, it is the seller which has the right to propose a new cancellation date, although the buyer must accept the new cancellation date in order for the contract to be amended accordingly.
However, the Nipponsale provision does cause some uncertainty in the event that the buyer neither cancels the contract nor proposes a new cancellation date, leaving the seller with the obligation to deliver the vessel "as soon as practicable". Contracting parties may wish to eliminate this uncertainty by amending the clause and including a specific period within which delivery of the vessel must have taken place.
Other differences that should be mentioned are that the Norwegian Saleform strives to include a "complete list" of delivery documents, while the Nipponsale keeps the list of documentation to a minimum. When it comes to bunkers, the Norwegian Saleform gives the parties the option of choosing between the market price and the seller's net purchase price – the Nipponsale offers only the latter.
Under the Nipponsale, the buyer pays daily liquidated damages to the seller if the buyer fails to take delivery of the vessel. The liquidated damages accrue as of the third day of delay after notice of readiness has been issued, and up until the 10th day of delay. After this, the seller may chose to cancel the contract and claim damages for any losses not covered by the liquidated damages and any deposit. The Norwegian Saleform has no such provision on liquidated damages, but gives the seller the right to cancel the contract and claim damages for losses not covered by the deposit. As a consequence, the Nipponsale gives the buyer more time to conclude the transaction.
The Norwegian Saleform gives the parties a choice of three different clauses regarding law and arbitration:
Unsurprisingly, the Nipponsale provides for disputes to be submitted to arbitration in Tokyo at the Tokyo Maritime Arbitration Commission. There is no choice of law clause in the Nipponsale, on the assumption that a Japanese arbitration panel will apply Japanese law. Although Japanese law may appear exotic to western parties, Japanese civil law is partly based on German law and is thus similar in many respects to the law of continental Europe. However, should a party prefer an arbitration to take place on neutral ground, the contract must be amended to include both the alternative arbitration venue and the choice of governing law.
It is difficult to conclude that one standard form of contract is better than the other, as there are advantages and disadvantages to both. The attractiveness of each of the standard forms may also depend on whether one is the buyer or the seller. However, there are reasons to suggest that the Nipponsale is more favourable to sellers than the Norwegian Saleform. Consequently, western buyers often request certain amendments to the standard contract if the transaction is to be based on the Nipponsale form, instead of on the Norwegian Saleform.
For further information on this topic please contact Geir Ove Røberg, Hågen Hansen or Torgeir Willumsen at Wikborg Rein by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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