Bimco’s new bargehire 2021 charterparty

2021 has seen two new versions of BIMCO's standard form offshore contracts, with the new TOWCON / TOWHIRE and BARGEHIRE forms being released earlier this year.

In our previous Marine Client Advisor, we reviewed some notable changes to the TOWCON and TOWHIRE contracts. In this edition, Alex McCooke, Claims Syndicate Manager at Shipowners P&I Club in London again offers his insight, this time into some of the key revisions to the BARGEHIRE contract, which aims to increase the effectiveness of the wording and make sure the forms keep pace with current commercial practice.

Introduction

BARGEHIRE is a BIMCO charter party designed specifically for the charter of barges. Typically, these are un-manned, non self-propelled barges being used in offshore projects or ocean transport. The first edition was released in 1994. The form was updated in 2008 and the third edition, BARGEHIRE 2021, was released earlier this year.

A question sometimes arises as to whether BARGEHIRE is a time charter or a bareboat charter. Where BIMCO contracts usually contain a subtitle with a bareboat / time / voyage classification, BARGEHIRE carries the non-designatory subtitle[1] ‘standard barge charter party’. However, it originates as a bareboat charter, and the first version of the contract[2] was titled ‘standard barge bareboat charter party’. If we consider the theme of the agreement, it is to transfer possession and control of a marine asset to another party, which is the very nature a bareboat charter. In addition, the form does, to this day, retain the language of a bareboat charter, describing sub-charters as ‘sub-demise’ arrangements.[3]

That said, bareboat chartering a barge is not akin to bareboat chartering other types of vessel. There is no need to deal with issues of crewing, for example, and the owner may allow their H&M and/or P&I insurance to remain in place during the period the vessel is in the charterer’s possession. Therefore, BARGEHIRE provides an agreement uniquely tailored to fit the needs of its industry and users. The revisions to the form in 2021 were made to ensure it remains adapted as closely as possible to those needs as encountered in today’s commercial world. Key to these changes was ensuring that the insurance provisions reflected contemporary commercial practice.

Some of the principal changes to the insurance regime in the 2021 form are:

Default insurance cover position for H&M and P&I

BARGEHIRE contains clear provisions specifying which party shall be responsible for providing H&M and P&I insurance for the barge during the charter period. The parties may choose whether these insurances are provided by the Owners or the Charterers, and in the 1994 and 2008 version the default option (if no decision was specified in the form) was for the Owners to provide both H&M and P&I cover.

Since 2008, commercial practice and usage of the form indicated that whilst it remains common for the Owners to maintain H&M insurance during a charter, it was more usual for the Charterers to obtain the P&I cover. This division of insurance responsibilities may seem surprising, but on reflection it merely aligns the policies with the respective interests. The Owners obtain cover to compensate them if their asset is lost or damaged, and the Charterer needs cover for the third party liabilities arising in the operations they undertake with that asset.

Accordingly, in BARGEHIRE 2021, Clause 15 which deals with H&M responsibilities has a default option for Owners to provide the hull, machinery and war risks insurance. However, Clause 16, which deals with P&I cover, now defaults to the Charterers providing their own P&I cover. Both options can be altered to suit the needs of the parties, through the completion of Boxes 24 and 25.

It was recognised at the time of drafting that there are some occasions on which a Charterer may struggle to obtain adequate P&I cover. This may be the case, in particular, where BARGEHIRE is used for short charters of less than a month, or where the Charterer has no pre-existing relationship with a Club and only a single barge charter to insure. It should, therefore, be stressed that Charterers ensure the options are correctly completed where BARGEHIRE 2021 is used, because they can no longer fall back on a default position where the Owners take all responsibilities for insurance.

P&I approval

Whereas under BARGEHIRE 2008 the terms of the P&I insurance were intended to be approved by the Owners generally, BARGEHIRE 2021 makes it clear that this approval must be obtained ‘ … prior to the delivery of the barge’.

It is critical, where an Owner is relying on P&I insurance placed by a Charterer, that the insurance is placed with an appropriate entity and its terms provide suitable cover, in terms of scope and limits. It is difficult to resolve a dispute about the appropriateness of insurance cover, after the insurance is in place and the vessel has commenced work, so hopefully this new wording should ensure that these matters are addressed early in the contracting process.

Double insurance

Under the clauses referenced above, where one party acquires the H&M insurance, they shall ensure that the other is named as co-assured on that policy. Similarly, where one party acquires the P&I cover, they shall ensure the other is named as a joint entrant. This allows both interested parties to be protected by one policy, regardless of who obtains it, and avoids increasing costs through over-insurance.

It is not unheard of for an Owner to charter out their barge on a bareboat basis and ask the Charterers to take all responsibility for insuring it but retain some insurance themselves on a contingent basis. In other words, the Charterers may provide the H&M or P&I, or both, and name the Owners as an additional assured on those policies; but notwithstanding this, the owners could retain a long-term insurance they have in place personally for the asset, as a ‘fallback’ cover.

Sometimes this is done to provide an extra layer of protection should the Charterer-obtained insurances be voided or fail to respond for some reason. The Owner may also wish to protect a long-term, positive claims record from losses arising through the Charterers’ operations. They may feel that claims arising during the Charterers’ operation of the asset do not reflect the prevailing risk profile of their own operations and should not effect their wider fleet profile.

Where this is done, it is important that the Owners discuss the position with their insurers, and clarify the intention of retaining two policies and when either is expected to respond. Unless there is a clear agreement as to one of the insurances being primary and the other secondary, technically cover under both policies may be prejudiced as most insurance polices have a clause restricting cover in the event that the assured has insurance elsewhere for the same risk. Where one policy is clarified to be required to respond only on the failure of another policy, Underwriters may be able to provide that cover at an adjusted premium level to reflect the contingent nature of the risk.

Waivers of subrogation and co-assured

In Clause 15 of BARGEHIRE 2021 the party obtaining H&M insurance is required to obtain a waiver of subrogation from the insurers, in favour of their contracting counter-party. This is to avoid, for example, the Owners’ H&M insurers paying for repairs and then bringing a subrogated recovery claim against the Charterers.

Careful observers will note that Clause 16 does not require a similar waiver from the P&I insurers. This is not because P&I insurers retain a right to recover from the Owners/Charterer, but merely because the form requires both parties to be named as joint entrants under the P&I insurance and P&I insurers do not pursue recoveries against their own joint entrants.

The 'Ocean Victory' language

BARECON 2017 is BIMCO's equivalent bareboat charter form for other types of vessel. In its insurance provisions it has extensive wording in relation to the functions of co-assured status. This deals with a rather complex legal point as to whether the presence of the co-assurance merely satisfies or, alternatively, extinguishes the underlying liabilities to which the insurance relates. This wording was incorporated in BARECON to deal with the judgment of the UK Supreme Court in the “Ocean Victory [2017] UKSC 35”, which was seen as restricting the ability of some claims to pass through the charterparty chain.

The “Ocean Victory” case focused on a specific set of circumstances and a mixed chain of bareboat and time charters relating to a capesize bulk carrier; all of which contained a safe port warranty that the barge could only be traded between ‘good and safe ports’. In BARGEHIRE, this style of time-charter warranty is not present, and there are no groups of indemnified parties or Himalaya clauses either. Further, it is not anticipated that a barge would be subject to a chain of demise and time charterer agreements. Therefore, the same language does not appear in BARGEHIRE 2021 as it was not felt to be required. To the extent the parties feel it may be relevant to their particular format of contracting, as BIMCO recommend, the text from BARECON may be inserted as an additional subclause.

Final thoughts

The Club's view is that BARGEHIRE 2021 also contains other useful rearrangements and clarifications, as well as a modernisation of the language (it now speaks only of ‘insurances’ instead of ‘instruments of insurance’). Undoubtedly the new form offers considerable improvements on the previous version, in particular with respect to clarity of obligations, and transparency in terms of the insurance arrangements of both parties. The Club therefore hopes that the industry will be swift to adopt BARGEHIRE 2021.

Our special thanks to Alex McCooke at the SOP for his insight and contribution on this project.

Resources: Link to BARGEHIRE 2021 charterparty contract at BIMCO.

For any questions regarding the contents of this Marine Client Advisor or for any other marine insurance enquiries please do get in touch. 

Howden Insurance Brokers is not a technical, commercial or legal adviser. Any commentary made in this document should not be construed as such, and we do not guarantee in any way the accuracy of the resources used or referenced in this document. In case of doubt, formal advice should be obtained that is directly relevant to your circumstances.