SALEFORM 2012 Ship Sale and Purchase Contract

SALEFORM 2012 Ship Sale and Purchase Contract

SALEFORM 2012 is the Norwegian Shipbrokers' Association standard memorandum of agreement for the sale and purchase of second-hand ships. Adopted by BIMCO, the form modernised the long-established SALEFORM structure and responded to market practices that had developed around SALEFORM 1993. Its purpose is to provide a complete contractual framework from agreement of the purchase price through inspection, deposit, delivery, transfer of title, closing documentation and the consequences of default.

The form is widely recognised because it addresses the principal risks faced by both sides of a second-hand ship transaction. The seller must preserve and deliver the ship in the agreed condition, provide clean title and complete the legal transfer. The buyer must establish the deposit, pay the purchase price and take delivery within the contractual timetable. Neither party should treat the printed wording as a substitute for careful transaction-specific drafting.

SALEFORM 2012 contains a preamble, a definitions section and 18 operative clauses. The form introduces clearer default positions, separates several concepts that were less precisely expressed in earlier versions and adds an entire-agreement provision. It should nevertheless be amended where the transaction involves unusual delivery arrangements, financing conditions, extensive inspections, back-to-back sales, substitute buyers, existing charters or special documentary requirements.

Origins and Relationship with Earlier Standard Forms

SALEFORM has been revised several times since BIMCO adopted it in 1956. Some changes reflected legal developments, while others responded to repeated amendments made by S&P shipbrokers, shipowners, buyers, banks and maritime lawyers in daily practice.

SALEFORM 1993 remained dominant for many years, but almost two decades of market use produced a large body of type-added clauses and negotiated revisions. SALEFORM 2012 sought to incorporate many of those practical lessons directly into the printed form.

Two other forms are frequently considered in the same context. Nipponsale 1999, published by the Japan Shipping Exchange, is often associated with Japanese sellers. Singapore Ship Sale Form 2011, known as SSF2011, was introduced as an alternative reflecting Asian commercial practice and supporting arbitration in Singapore. Parties may nevertheless select English law when using either form.

The Memorandum of Agreement and Its Effective Date

The expression Memorandum of Agreement reflects the traditional role of SALEFORM as the formal written record of terms first agreed through an S&P recap and then refined during drafting. Once SALEFORM 2012 is signed and takes effect, Clause 18 provides that the written contract constitutes the parties' entire agreement.

The contract should normally carry the date on which both parties sign it. Where the parties want the agreement to operate from an earlier date, they should state that it is dated as of, or effective from, the chosen date rather than simply backdating the document.

Retrospective effect must be considered carefully. A buyer incorporated specifically to own the ship cannot become a contractual party before the date on which it legally exists. The parties must also ensure that earlier effectiveness does not make deposit, notice or approval obligations impossible to perform.

Identifying the Seller and Buyer

The seller is usually the registered shipowner, but this is not inevitable. A seller may be a bareboat charterer exercising a purchase option, an intermediate buyer arranging an immediate on-sale, an economic shipowner whose title is held by a finance lessor's nominee or another party expecting to acquire title before the contractual delivery.

The buyer should verify that the seller is, or will become, capable of transferring full title. A contract with a non-owning seller may leave the buyer with only a damages claim against a thinly capitalised entity and without the possibility of obtaining the ship itself by specific performance.

An official transcript of register is the usual starting point. It identifies the registered shipowner and commonly records registered mortgages and other registrable encumbrances. It does not necessarily provide conclusive proof of ownership, and it will not disclose every maritime lien or unregistered claim.

A prudent buyer obtains a transcript before signing and another immediately before delivery. This enables the buyer and its lender to compare the registered position, identify new mortgages or entries and confirm that the seller remains entitled to complete the transfer.

Corporate Personality and Counterparty Risk

Shipping groups often operate through one-ship companies with limited assets apart from the ship, earnings and insurance proceeds. The fact that a seller belongs to a substantial group does not normally make the parent or related companies liable for the seller's contractual obligations.

English law generally respects separate corporate personality. The courts do not disregard a company merely because justice appears to favour recovery from its parent. Exceptions exist in narrow circumstances such as fraud, genuine nominee arrangements or other recognised grounds.

Where the seller lacks financial substance, the buyer may seek a parent guarantee, joint and several liability, escrow security or another form of collateral support. The seller may raise similar concerns where the buyer is a newly incorporated special-purpose company, although the deposit provides the seller with substantial protection.

Know Your Client and Beneficial Ownership

Banks, law firms, shipbrokers and deposit holders commonly require identification of the parties, beneficial shipowners, directors, authorised signatories and source of funds. The parties should not assume that checks performed by one adviser will satisfy every other participant.

Nomination of a replacement buyer can trigger renewed due-diligence requirements. Delays in producing corporate and beneficial-ownership documents can prevent an escrow account from opening or postpone closing even where the commercial terms are settled.

Nomination of a Substitute Buyer

A buyer may wish to nominate a special-purpose company to take its place before delivery. Although often described as nomination, the legal mechanism is usually novation: the original contract is discharged and replaced by a new contract involving the seller and substitute buyer.

Novation requires the consent of the seller, the original buyer and the substitute buyer. A simple assignment can transfer contractual rights but does not ordinarily transfer the buyer's payment and performance obligations without the seller's agreement.

A nomination clause should specify the permitted nominee, the deadline for nomination, the documents required and whether the original buyer remains liable or guarantees the nominee. The seller will usually insist on enough time to prepare the bill of sale and other delivery documents in the correct name.

If the deposit was lodged before nomination, the escrow arrangements must be reviewed. The deposit must continue to secure the seller against default and remain capable of release as part of the purchase price at delivery.

Agreement to Sell and the Passing of Title

SALEFORM 2012 records an agreement to sell rather than an immediate transfer of ownership. Contract signature is followed by deposit arrangements, inspections, advance notices, document preparation and physical positioning of the ship. Title passes at delivery when the agreed closing steps are completed.

The timing of title transfer affects risk, insurance, financing and creditors' rights. Before title passes, the seller remains the shipowner and normally bears the risk of accidental loss or damage. After title passes, the buyer acquires ownership, an insurable interest and the ability to grant a mortgage over the ship.

Most acquisition lenders require simultaneous payment, title transfer and registration of their security. Closing arrangements should therefore prevent an unacceptable period in which the purchase price has been released but title or mortgage protection has not been secured.

The Ship Description in the Preamble

SALEFORM 2012 identifies the ship by name, IMO number, Classification Society, class notation, year of build, builder or yard, flag, place of registration and GT/NT. Each entry may carry contractual significance and should be checked against official records and technical documents.

Name and IMO Number

Ship names are not globally unique and may change during service. The IMO number is therefore the most reliable identifying feature because it remains attached to the hull throughout the ship's life.

The name should still be recorded accurately because it appears in registry, class, insurance and delivery documents. Where the buyer intends to rename the ship, the intended new name should be reserved with the buyer's nominated flag administration before closing.

Classification Society and Class Notation

SALEFORM 2012 distinguishes between the Classification Society and the Class notation assigned to the ship. The seller must ensure that both descriptions are correct and will remain accurate at delivery.

A modification, trading change or revised notation may alter the class description between contract and delivery. Where uncertainty exists, the parties should avoid an inaccurate warranty and state precisely what class status must be maintained.

Year of Build and Builder

The build year influences value, insurance, financing and eligibility for certain trades. Registry and builder's certificates may provide prima facie evidence, but the actual completion date may require examination of the construction history.

In The Troll Park, the court accepted that a ship described as built in January 1971 was not misdescribed merely because certificates referred to 1970, since material construction work continued into January. Parties can avoid similar disputes by recording both completion and original delivery dates where relevant.

The identity of the yard can also matter. A shipbuilder operating several facilities may have different quality reputations, and a major conversion may justify identifying the yard and year of that later work.

Flag, Registration and Tonnage

The preamble should state the flag and port of registry applicable at delivery. Where the ship is temporarily bareboat registered, the underlying flag should be identified and the contract should deal expressly with termination of the bareboat charter and cancellation of the parallel registration.

GT and NT should be stated consistently with the international tonnage-measurement regime. Buyers should confirm that the figures match registry and tonnage certificates.

Definitions and the Importance of Banking Days

SALEFORM 2012 defines Banking Days, Buyers' Nominated Flag State, Class, Classification Society, Deposit, Deposit Holder, written communications, Parties, Purchase Price, Sellers' Account and Sellers' Bank.

Banking Days

Banking Days are days on which banks are open in the country of the purchase-price currency, at the place of closing and in any additional jurisdictions inserted by the parties. The definition affects deposit, payment, cancellation and repair-estimate deadlines.

The combined jurisdictions must be selected carefully. Different working weeks, national holidays and time zones can reduce the practical period available for payment. For a euro-denominated sale, a general reference to every eurozone state is unworkable; named banking centres should be used.

The buyer should include the countries of the remitting bank, receiving bank and any correspondent bank required for the currency transfer. Saturdays and Sundays are often expressly excluded to avoid arguments where banks provide limited weekend services.

Buyers' Nominated Flag State

The buyer's nominated flag determines the required form of bill of sale and additional registration documents. Before signing, the buyer should confirm that the ship is eligible, the intended name is available and the chosen Classification Society is recognised by that administration.

Deposit Holder and Sellers' Bank

The Deposit Holder should be agreed before signature. If no name is inserted, SALEFORM 2012 defaults to the seller's bank, but the buyer should not accept an unknown institution without reviewing its standing, jurisdiction and escrow requirements.

The seller's receiving bank should also be identified early. Late nomination can disrupt financing approvals, sanctions checks, correspondent-bank arrangements and the closing timetable.

Clause 1: Purchase Price

Clause 1 requires the currency and purchase price to be written in words and figures. This reduces the risk of transcription errors and establishes the defined Purchase Price used throughout the contract.

The headline price does not necessarily represent the entire amount payable at delivery. Bunkers, lubricating oils, hydraulic oils, greases and other agreed items may be purchased separately under Clause 7. The buyer must ensure that its acquisition financing covers both the price and all extras.

Where brokerage commission is to be recorded, an additional clause may identify the recipient, percentage, method of division and source of payment. A seller agreeing to commission for division on the buyer's side may seek an indemnity against further claims from undisclosed intermediaries.

Clause 2: Deposit

The deposit secures the buyer's performance. The parties insert an agreed percentage, with 10% applying if the space is left blank. A different percentage should be stated expressly and reflected consistently in all payment provisions.

The amount is commercially significant. The seller wants meaningful security and an incentive for completion. The buyer must consider the cost of locking up cash and the possibility that it may later be unable to complete.

Deposit Account and Escrow Arrangements

The deposit is placed in an interest-bearing account for both parties with the Deposit Holder. It should not be under the seller's exclusive control, and the Deposit Holder should have no lien or set-off over the funds.

A separate escrow agreement commonly regulates authorised signatories, interest, fees, release instructions, closure of the account and the procedure where the parties disagree. In a disputed case, release is usually made only against joint written instructions or a final court judgment or arbitral award.

Deadline for Lodging the Deposit

The buyer must lodge the deposit within three Banking Days after the agreement has been signed and exchanged and the Deposit Holder has confirmed in writing that the account is open.

This is a practical improvement over SALEFORM 1993, under which time ran from the contract date even when the account was not ready. The word lodge indicates that the money must be received in the account, not merely sent by the buyer's bank.

The parties must provide KYC and account-opening documents without delay. If certainty is important, they should add a long-stop date allowing termination without liability where the account cannot be opened despite cooperation.

Interest, Fees and Release

Interest belongs to the buyer until release. Deposit-holding and release fees are shared equally unless amended. At delivery, the deposit is released to the seller as part payment of the purchase price.

If the ship becomes an actual, constructive or compromised total loss before delivery, the deposit and accrued interest are returned to the buyer and the contract becomes null and void.

Sub-Sales and Nominees

Where one deposit is used to support a chain of back-to-back sales, the rights of each seller, buyer and deposit provider should be documented separately. In The Ranger, a downstream buyer's funds were used as the deposit under the head sale, and the court treated the arrangement according to the authority and purpose for which the joint account had been established.

A nomination after the deposit is lodged may require amendment of the escrow agreement so that the funds continue to secure the correct buyer's obligations.

Clause 3: Payment

The deposit is released and the balance purchase price and all other delivery sums are paid on delivery, but no later than three Banking Days after a valid Notice of Readiness under Clause 5.

The day of NOR is excluded when calculating the three-day period. The Banking Days definition must ensure that all necessary banks can operate before the deadline.

Payment in Full and Free of Bank Charges

The buyer must pay in full and free of bank charges. It should remit enough to cover transfer deductions and intermediary fees. A seller requiring complete protection against set-off should add an express exclusion of counterclaim, deduction and set-off.

The Deposit as Part Payment

SALEFORM 2012 expressly treats the deposit as part payment at delivery. This corrected the uncertainty exposed in The Aktor, where the SALEFORM 1993 wording permitted the seller to insist on payment of the entire purchase price to a separately nominated bank while the deposit remained elsewhere.

Without clarification, a buyer using SALEFORM 1993 could need funding equal to 110% of the price until the deposit was returned. Under SALEFORM 2012, the balance payment is the price remaining after release of the deposit.

Receiving Bank and Timing

The receiving bank, remitting bank, correspondent bank, registry representatives and closing team may operate in different time zones. The parties should design the payment sequence so that all necessary participants are available simultaneously.

A seller permitted to nominate its bank after signing should be required to give sufficient notice and select a jurisdiction compatible with the buyer's financing arrangements. Payment may be delayed if a newly nominated account requires fresh sanctions, compliance or lender approval.

When Payment Is Complete

A cheque or similar instrument is normally conditional until honoured. An internal transfer within one bank may be effective when accepted by that bank. An inter-bank instruction may not constitute payment until the receiving bank acts on it, unless the instruction is irrevocable and the parties agree otherwise.

The closing memorandum should identify the exact point at which funds are treated as received and documents may be released.

Clause 4: Inspection

Clause 4 offers two alternatives. Clause 4(a) applies where the buyer has inspected and accepted the ship and class records before signing. Clause 4(b) applies where acceptance remains subject to post-contract inspections. If neither option is deleted, Clause 4(a) applies by default.

Clause 4(a): Outright and Definite Sale

Under Clause 4(a), the buyer confirms that it has accepted the class records and inspected the ship at the stated place and date. The sale is then outright and definite, subject only to the remaining contractual terms.

Clause 4(b): Sale Subject to Inspection

Clause 4(b) permits inspection of class records, a superficial inspection of the ship without opening machinery and examination of deck and engine log books. The seller must make the ship available within the agreed time and place.

The buyer must avoid undue delay and bears the cost of its inspection. The printed wording gives no automatic right to open engines, test equipment or conduct sea trials. Any expanded inspection must be negotiated expressly.

The buyer commonly appoints marine surveyors to produce technical and photographic reports. Where particular tanks, holds, ballast spaces or machinery are important, the contract should identify the required access.

Acceptance or Rejection

The buyer must provide written acceptance within 72 hours after completion of inspection or the end of the agreed inspection period, whichever occurs earlier.

Under the unamended form, the buyer's discretion is broad. It may reject the ship or allow the inspection condition to fail without proving a specific defect. A seller may attempt to connect rejection to the inspection findings, but any objective standard must be drafted carefully.

If the buyer does not inspect as scheduled or does not provide timely acceptance, the deposit and interest are returned and the agreement becomes null and void.

Effect of Acceptance

Acceptance fixes the reference condition used by Clause 11. The ship must later be delivered substantially in the condition existing at inspection, subject to fair wear and tear and the express delivery exceptions.

Where a long period will pass before delivery, the buyer may seek a pre-delivery comparison survey. A jointly appointed surveyor can reduce disputes about whether deterioration exceeds fair wear and tear.

Clause 5: Time and Place of Delivery

Clause 5 regulates the physical location, delivery window, advance notices, Notice of Readiness, revised cancelling dates and total loss before delivery.

Safe and Accessible Delivery Place

The ship must be delivered safely afloat at a safe and accessible berth or anchorage within the stated place or range, usually in the seller's option.

Delivery in international waters may be proposed for tax or regulatory reasons but can create difficulties with crew change, flag attendance, registry formalities and physical takeover. The buyer may require the seller to bear the resulting additional costs.

Delivery in a repair yard creates possessory-lien risk. The buyer should require evidence that the yard has been paid and has released all claims, or insist that the ship leave the yard before delivery.

Because the validity of title transfer may be affected by the law of the place where the ship is located, the buyer and lender should confirm that local law recognises the intended delivery and mortgage structure.

Advance Notices

The seller must keep the buyer well informed of the ship's itinerary and give 20, 10, 5 and 3 days' notice of the date it intends to tender NOR and the intended delivery place.

These notices support crew mobilisation, payment, underwater inspection, registry attendance and document preparation. They express the seller's current intention rather than a binding promise to deliver on the notified date.

Changes should be communicated promptly, especially after the buyer has committed surveyors, crew, flights, hotels, bunkers or financing.

Earliest NOR Date and Cancelling Date

SALEFORM 2012 replaces the earlier expected-delivery concept with a date before which NOR may not be tendered. This protects a buyer that is not operationally or financially ready to accept an earlier delivery.

By the cancelling date, the seller must have tendered valid NOR and be ready to complete the legal transfer. SALEFORM 2012 removed the three-Banking-Day grace period available under SALEFORM 1993 because the seller controls when NOR is issued.

Valid Notice of Readiness

A valid NOR requires the ship to be at the contractual place of delivery and physically ready in accordance with the agreement. Completion of any Clause 6 underwater inspection must occur before NOR.

SALEFORM 2012 omits the phrase in every respect used in SALEFORM 1993. The change reduces the risk that a buyer will challenge NOR for a trivial physical defect and seek a last-minute price reduction.

The buyer may nevertheless seek wording requiring the ship to be physically and legally ready in all material respects, except for identified steps that can only occur at the instant of delivery, such as mortgage discharge.

The contract should regulate service times if the parties do not want NOR to be tendered at any hour. S&P shipbrokers may receive notices where they have actual or apparent authority, but Clause 17 details should make that authority clear.

Loss of Readiness After NOR

Risk remains with the seller until delivery. If the ship ceases to be deliverable after NOR, the seller must restore her and issue a fresh NOR. Failure to do so by the cancelling date may entitle the buyer to cancel.

The buyer may also claim foreseeable wasted costs caused by the failed readiness, including crew, travel, accommodation and financing expenses. Liability for losses under an on-sale or charter depends on the seller's knowledge and the rules on remoteness.

Proposed New Cancelling Date

Where the seller anticipates that the ship will not be ready despite due diligence, it may propose a new cancelling date. The buyer has three Banking Days to cancel or accept the new date.

Silence operates as acceptance, which differs from the ordinary English-law position. The buyer must therefore diarise the deadline carefully.

Cancellation, acceptance or failure to cancel does not prejudice a damages claim under Clause 14 for failure to meet the original date, provided the required proven-negligence test is satisfied.

Total Loss Before Delivery

An actual, constructive or compromised total loss before delivery makes the agreement null and void and requires immediate return of the deposit and interest.

The printed clause does not expressly determine whether the buyer may claim damages where the seller caused the loss. A buyer with sufficient bargaining power may preserve a claim for negligence or wilful default.

Where the buyer has entered an on-sale or charter commitment, contingency insurance may cover wasted transaction costs and anticipated profits. The seller may similarly insure the difference between the sale price and hull insured value, subject to policy restrictions.

Clause 6: Divers Inspection and Drydocking

Clause 6 provides an optional pre-delivery inspection of the underwater parts. The parties choose between a diver's inspection and a scheduled drydocking. The clause also allocates the cost of repairs, drydock time, tailshaft work and buyer attendance.

Diver's Inspection

The buyer may arrange an underwater inspection at its own cost by a diver approved by the Classification Society. The option must be declared no later than nine days before the intended readiness date notified under Clause 5.

The seller must make the ship available at its own cost, and the inspection must not cause undue delay. The buyer, its surveyor and class representatives may attend in accordance with the agreed arrangements.

If local conditions prevent an effective underwater inspection, the contract may require movement to an alternative location or drydocking. The consequences for cost and delay should be clear.

NOR cannot be tendered until the underwater inspection is complete. This removes uncertainty found in earlier wording.

Damage Revealed Below the Waterline

If the rudder, propeller, bottom or other underwater parts are damaged in a way affecting class, the seller must arrange repair. If repairs can be performed afloat to class satisfaction, drydocking may be avoided.

Where class does not require repair until the next scheduled drydocking, the seller may deliver against a deduction representing the estimated direct labour and material cost. Each party obtains an estimate within the stated period, and the contract provides a method for resolving the amount.

Where class requires immediate repair, the seller bears the repair and related drydocking costs. The cancelling date may need adjustment if suitable facilities are unavailable at the delivery port.

Automatic Drydocking Option

Under the alternative Clause 6(b), the buyer may require the ship to be drydocked for inspection. The selected option should be completed carefully because the cost allocation depends on whether class-affecting defects are discovered.

The buyer may request a tailshaft survey while the ship is in drydock. Unless the survey reveals defects for which the seller is responsible under the clause, the buyer normally bears the additional cost and time.

Attendance and Buyer's Works

The buyer may attend the drydocking and may sometimes arrange its own work after the seller's contractual inspections and repairs are completed. Any buyer work must not delay delivery, shift the seller's costs or interfere with the seller's control of the ship before title passes.

The Classification Society surveyor determines class requirements but does not resolve every contractual dispute. The parties should distinguish technical class decisions from legal questions about who pays and whether the ship satisfies the memorandum of agreement.

Clause 7: Spares, Bunkers and Other Items

Clause 7 defines what passes with the ship, what is excluded and what the buyer purchases separately.

Belongings and Spare Parts

Everything belonging to the ship on board or ashore is included unless excluded. Spare parts and spare equipment existing at inspection pass to the buyer, whether used or unused and whether stored on board or elsewhere.

Spares on order are excluded unless the parties agree otherwise. The seller is not generally required to replace spares consumed during ordinary operation before delivery, but special wording may preserve minimum inventories or class-required parts.

Forwarding charges for ashore spares are normally for the buyer. The parties should identify storage locations and establish that the seller can transfer title to items held by third parties.

Excluded Property

Seller-specific libraries, forms, personal belongings, slop-chest contents and listed items may be removed without compensation. Equipment on hire or owned by third parties must be identified.

Unlisted hired or third-party equipment found on board at inspection must generally be replaced or procured by the seller before delivery at its cost.

Bunkers, Oils and Greases

The buyer must take over remaining bunkers and unused lubricating and hydraulic oils and greases in storage tanks and unopened drums.

The parties choose the valuation method, usually actual net invoice price excluding barging expense or a stated market-based price. Measurements and supporting documents should be agreed before closing.

A bunker delivery statement or joint survey can record quantities. Payment is made in the purchase-price currency together with other delivery sums.

Clause 8: Documentation and Closing

Clause 8 coordinates legal title transfer, corporate authority, class evidence, registry deletion, payment and the physical handover. The place of closing should be chosen with regard to banks, registries, notaries, apostille requirements, time zones and the location of the ship.

Exchange of Drafts

The parties should exchange drafts or samples of closing documents by the agreed deadline, with nine days before the intended readiness date applying if the blank is left empty. Early review allows defects in wording, notarisation, legalisation or registry form to be corrected before delivery.

Documents not in English must be accompanied by an authorised or lawyer-certified English translation.

Seller's Delivery Documents

The seller must provide a legal bill of sale in a form recordable under the buyer's nominated flag, transferring title and stating that the ship is free from mortgages, encumbrances, maritime liens and other debts.

The seller also supplies evidence of corporate and shareholder authority, powers of attorney, a current certificate or transcript of registry showing ownership and registered encumbrances, and a declaration of class or class-maintenance certificate issued within three Banking Days before delivery.

A deletion certificate or equivalent evidence is required. Where the registry does not issue it immediately, the seller provides an undertaking to complete deletion promptly and within the contractual long-stop period.

The seller also provides the Continuous Synopsis Record material, commercial invoice for the ship, separate invoices for bunkers and lubricants, a copy of the communication-provider cancellation letter, additional reasonable flag-registration documents and confirmation that, to the seller's knowledge, the ship is not blacklisted.

Buyer's Documents

The buyer provides evidence that all necessary corporate and shareholder action has been taken and powers of attorney authorising its closing representatives.

On-Board Documents

At delivery, the seller hands over class certificates, plans, drawings and manuals on board, excluding retained ISM and ISPS manuals where applicable. Other trading certificates are delivered unless the seller must retain them, in which case the buyer may copy them.

Additional technical documents in the seller's possession are forwarded after delivery at the buyer's expense if requested. The seller may retain log books, but the buyer may take copies.

Protocol of Delivery and Acceptance

The parties sign a Protocol of Delivery and Acceptance recording the exact date and time of handover. This document marks the transfer of possession, risk, operational responsibility and, with the other closing steps, title.

The Completion Sequence

Before delivery, the parties finalise drafts, obtain registry and class confirmations, prepare mortgage releases, arrange funds, coordinate crew change and agree the closing agenda.

At delivery, payment, deposit release, document exchange, mortgage discharge, signature of the protocol and physical takeover occur in an agreed order.

After delivery, the seller completes deletion and terminates remaining operational arrangements, while the buyer registers the ship, records its mortgage, activates insurance and class arrangements and begins post-delivery trading.

Clause 9: Encumbrances

Clause 9 contains a warranty and an indemnity. The seller warrants that at delivery the ship is free from charters, encumbrances, mortgages, maritime liens, debts and Port State or other administrative detention.

The separate indemnity protects the buyer against consequences of claims incurred before delivery, even where they are asserted later against the ship.

Charter-Free Delivery

Unless the parties agree to a sale subject to charter, the ship must be free from charter commitments at delivery. Existing employment should be terminated or completed in time, and any bareboat registration linked to a charter must be cancelled.

Mortgages, Liens and Other Claims

Registered mortgages are identified through registry searches and discharged at closing. Maritime liens and certain possessory or statutory claims may not appear on the register and can follow the ship into the buyer's ownership.

The seller's warranty and indemnity are therefore critical. The buyer should also review port accounts, crew wages, repair-yard claims, bunker debts, taxes, collision liabilities and other exposures capable of producing action against the ship.

Administrative Detention

SALEFORM 2012 expressly requires the ship to be free from Port State and other administrative detention. A pending deficiency or prohibition may prevent valid delivery even if the ship remains technically in class.

Clause 10: Taxes, Fees and Expenses

The buyer bears taxes, fees and expenses connected with the purchase and registration under its nominated flag. The seller bears corresponding charges connected with closing the existing register.

The wording can create imbalance because the buyer's responsibility refers broadly to the purchase, while the seller's wording focuses on registry closure. Buyers may seek an amendment expressly placing all taxes and costs connected with the sale and deletion on the seller.

Local transfer taxes, stamp duties and registration fees should be investigated in advance. The delivery location may affect tax exposure, and contractual allocation does not prevent a tax authority from pursuing the person liable under local law.

Clause 11: Condition on Delivery

Clause 11 is one of the most disputed provisions. Risk and expense remain with the seller until delivery, but the ship is generally delivered and taken over as she was at inspection, fair wear and tear excepted.

The As-Is Baseline

The buyer accepts the condition existing at the Clause 4 inspection. Where no inspection occurred, the contract date becomes the reference point.

The seller is not required to deliver a newly repaired ship or correct every defect present at the reference date. The buyer assumes the ordinary risk of the condition it accepted, subject to the express exceptions.

Fair Wear and Tear

Normal deterioration arising from continued trading is permitted. Damage, neglect or abnormal deterioration falling outside fair wear and tear may place the seller in breach.

The longer the period between inspection and delivery, the greater the risk of disagreement. Comparative surveys, maintenance records and a jointly appointed expert can help establish whether changes are ordinary.

Express Delivery Exceptions

The ship must be free of cargo and stowaways. Her class must be maintained without condition or recommendation, she must be free of average damage affecting class and her trading certificates must remain valid and unextended at delivery.

Class notes and memoranda accepted without condition or recommendation are not automatically treated as disqualifying. The precise wording of the class certificate should be reviewed against the contract.

If conditions or recommendations existed when the buyer inspected the class records and the seller intends to deliver with them outstanding, the printed form must be amended. Otherwise the seller may be obliged to clear them before delivery.

Class Information and Disclosure

SALEFORM 2012 does not reproduce the broader notification wording found in some earlier forms. The seller may have no general contractual duty to disclose every class-related event arising before delivery unless it affects an express delivery obligation.

The buyer should therefore negotiate specific reporting duties where continued transparency is important, including casualty, machinery breakdown, class attendance, recommendations, detention, pollution incidents and material repair.

Clause 12: Name and Funnel Markings

The buyer must change the ship's name and funnel markings upon delivery. This separates the former shipowner's identity from the ship's future operation.

The buyer should obtain advance approval of the new name from its flag administration and arrange paint, signage, electronic systems, certificates and communication identifiers.

The seller may seek more detailed wording requiring removal of names, logos, house colours and distinctive marks rather than a minimal alteration.

Clause 13: Buyers' Default

Clause 13 gives the seller express remedies for failure to lodge the deposit and failure to pay the purchase price.

Failure to Lodge the Deposit

If the deposit is not lodged in accordance with Clause 2, the seller may cancel and claim compensation for losses, expenses and interest. The seller should act consistently and avoid conduct that could amount to waiver or an agreed extension.

Damages may include the difference between the contract price and a lower resale price, additional operating costs, brokerage, legal expense and other losses satisfying causation, remoteness and mitigation rules.

Failure to Pay the Purchase Price

If the purchase price is not paid under Clause 3, the seller may cancel and receive the deposit and accrued interest. If the deposit does not cover the loss, the seller may claim further compensation.

The seller's damages are not automatically limited to the deposit. Conversely, the deposit should not operate as a penalty detached from the seller's contractual rights unless the agreement clearly provides otherwise.

Other Buyer Breaches

Clause 13 expressly addresses only deposit and payment defaults. Other breaches, including failure to take delivery, interference by representatives or failure to provide documents, are governed by their specific clauses and general law.

The seller may claim damages, seek declaratory relief or, in an appropriate case, accept a repudiatory breach and terminate. The remedy depends on the seriousness and consequences of the breach.

Damages, Interest and Mitigation

The seller must prove causation and recoverable loss and must take reasonable steps to mitigate. A prompt resale is often central, particularly in a falling market.

Interest and claim currency should be addressed expressly where possible. A damages claim may be evaluated in the contractual currency or another currency most closely reflecting the loss.

Clause 14: Sellers' Default

Clause 14 addresses failure to give valid NOR and failure to be ready to complete a legal transfer by the cancelling date. It also covers loss of physical readiness after NOR.

Buyer's Right to Cancel

If the seller fails to meet the cancelling-date requirements, the buyer may cancel. If the ship ceases to be physically ready after NOR and is not restored with a fresh NOR by the cancelling date, the buyer retains the same option.

The right must be exercised carefully and in accordance with the notice provisions. Premature or wrongful cancellation may itself place the buyer in repudiatory breach.

Proven Negligence and Compensation

Clause 14 provides compensation for loss, expenses and interest where the seller's failure is due to proven negligence, whether or not the buyer cancels.

This wording creates a higher threshold than strict liability. The buyer must establish negligence and causal loss. Events wholly beyond the seller's responsibility may permit cancellation without damages.

Responsibility for managers, master, crew, bareboat charterers, repairers and other contractors depends on the contract and general law. The buyer may seek clearer wording allocating delay risk within the seller's operational sphere.

Non-Delivery and Market Damages

Where the seller fails to deliver, the normal damages measure may be the difference between the contract price and market value at the relevant date, together with recoverable consequential expenses.

For a unique ship or a market with limited comparable tonnage, valuation may be difficult. The buyer may claim the reasonable cost of obtaining substitute tonnage where that reflects the loss.

Late Delivery, Rejection and Repair Claims

A buyer may claim losses caused by late delivery, including financing, crew and operational expense, subject to foreseeability and mitigation.

The right to reject depends on whether the defect or non-compliance is sufficiently serious under the contract. Not every departure from Clause 11 justifies rejection. The classification of the relevant term and the consequences of breach are decisive.

Where the buyer accepts delivery despite a breach, damages may include reasonable repair cost and detention loss. Acceptance should be documented without unintentionally waiving reserved claims.

Mitigation and The Solholt

The buyer must mitigate its loss after seller default. The Solholt demonstrates that a buyer cannot always cancel in a rising market, refuse a reasonable opportunity to obtain equivalent performance and then recover the full market difference without regard to mitigation.

A replacement purchase, agreed extension or reasonable proposal from the seller may reduce recoverable damages even where the buyer has a valid cancellation right.

Specific Performance and Protective Relief

Specific performance may be available where damages are inadequate and the ship is sufficiently unique, although it remains discretionary. A buyer may also seek injunctions, freezing orders or other protective measures to prevent disposal of assets or preserve the transaction.

Such remedies require strong evidence, full disclosure and, commonly, an undertaking in damages. Arbitration clauses may affect the court's role but do not necessarily eliminate supportive judicial relief.

Clause 15: Buyers' Representatives

After signature and payment of the deposit, the buyer may place two representatives on board at its own risk and expense.

Their role is limited to familiarisation and observation. They must not interfere with navigation, management, crew or operations. The buyer and representatives sign the seller's P&I Club standard indemnity before embarkation.

Where the period before delivery is long, the buyer may negotiate additional or replacement representatives. The contract should regulate travel, accommodation, insurance, confidentiality, safety and removal if operational problems arise.

Clause 16: Law and Arbitration

Clause 16 offers alternative dispute-resolution regimes. The parties must select one and delete the others.

English Law and London Arbitration

The English-law option provides for London arbitration under the Arbitration Act 1996 and the applicable London Maritime Arbitrators Association terms.

The normal reference is to three arbitrators. A party appoints an arbitrator and requires the other party to appoint within the contractual period. Failure may permit the first arbitrator to act as sole arbitrator in accordance with the clause.

Claims and counterclaims below the stated threshold are referred to the LMAA Small Claims Procedure. The threshold should be reviewed rather than accepted mechanically.

The Arbitration Act restricts challenges to awards. Applications may concern jurisdiction, serious procedural irregularity or a question of law where the statutory requirements are met.

New York Law and Arbitration

The New York alternative provides for arbitration before three persons in New York under the stated statutory and substantive-law framework, with smaller disputes directed to the Society of Maritime Arbitrators' shortened procedure.

Other Law and Arbitration

The third option allows the parties to insert another governing law, seat and procedural system. The wording must identify both the substantive law and the arbitration place clearly.

Governing Law and Seat

Governing law determines contractual interpretation, implied terms, remedies and limitation issues. The arbitration seat determines the procedural law, court supervision and available challenges.

The law governing the arbitration agreement may require separate analysis. Parties should avoid partial deletion or mixed wording that creates incompatible regimes.

Clause 17: Notices

All contractual notices must be in writing, and the parties insert the contact details for service.

Where communications are routed through S&P shipbrokers, their addresses should be inserted or their authority confirmed. Important notices include inspection acceptance, advance delivery notices, NOR, revised cancelling dates, cancellation, drydock options and default notices.

The definition of written communication includes hand-delivered letter, registered letter, email and telefax. Informal messaging systems are not automatically covered.

Email notices should be sent to agreed operational addresses with delivery records. The contract may add deemed-receipt rules, time-zone provisions and treatment of messages received outside business hours.

Strict compliance matters. A notice sent to the wrong address, by an unauthorised method or without required content may be invalid even where the recipient learns of it indirectly.

Clause 18: Entire Agreement

Clause 18 states that the written memorandum of agreement contains the entire agreement and supersedes previous oral and written arrangements relating to the sale.

Each party acknowledges that it has not relied on statements, representations, assurances or warranties not expressly recorded in the contract and that it has no remedy for them, whether made negligently or otherwise, subject to the fraud exception.

Purpose and Effect

The clause promotes contractual certainty by preventing the parties from reconstructing the transaction through earlier circulars, emails, oral comments or inspection discussions.

It does not automatically defeat every misrepresentation claim. The wording, applicable legislation and reasonableness requirements must be considered, particularly where a non-reliance provision attempts to exclude liability.

Fraud

Liability for fraud cannot be excluded. A seller that knowingly or recklessly makes a false statement may remain liable despite the entire-agreement wording.

Exclusion of Implied Terms

Clause 18 also excludes terms implied by statute or law to the extent legally permitted. This is intended to reinforce the as-is structure and restrict implied Sale of Goods Act obligations concerning description, quality and fitness.

The effectiveness of exclusion depends on the transaction, governing law and applicable statutory controls. Parties should not rely on general words where a particular implied term or remedy is commercially important.

Comparison with Nipponsale 1999

Nipponsale 1999 uses a box format and assumes that the buyer has ordinarily inspected and accepted the ship and class records before signing. It provides less flexibility than SALEFORM 2012 for a post-contract inspection condition.

The standard deposit is 10% and is paid to a joint account at the seller's nominated bank. The buyer's obligation is commonly expressed as remitting the deposit, which may create a different timing analysis from SALEFORM 2012's requirement that the deposit be lodged and received.

Nipponsale contemplates payment of the balance to the nominated bank before delivery, with release against the signed Protocol of Delivery and Acceptance. A buyer may require a separate bank agreement controlling release if delivery fails.

Its delivery regime includes different notice periods, force-majeure provisions and a possible extension of up to 30 days. It also contains liquidated-damages provisions for buyer delay that require careful amendment to clarify cancellation and continuing-performance rights.

Nipponsale does not always distinguish class notation from the Classification Society as clearly as SALEFORM 2012. Parties should insert the full notation and update older tonnage terminology where necessary.

Comparison with Singapore Ship Sale Form 2011

SSF2011 combines a box-form first part with numbered clauses and permits English or Singapore law. It expressly accommodates guarantors and a nominee buyer through a three-party novation addendum.

Its timing language uses banking days, full banking days, working days and ordinary days in different places. The parties should define these terms to prevent inconsistent deadlines.

SSF2011 uses a fixed deposit value date and requires bank-to-bank confirmations concerning the buyer, remitting party and, where requested, source of funds. The seller is responsible for arranging the joint account but may depend on buyer KYC documents.

The form permits the buyer to delay delivery for a limited period against an agreed daily sum. The provision must be coordinated with the payment deadline, cancelling date and the seller's obligation to keep the ship ready.

SSF2011 includes ship type and bareboat-registry information in its boxes and provides a detailed inspection structure. As with SALEFORM, the buyer must negotiate access to any area or testing procedure not expressly included.

Practical Drafting Priorities

The parties should identify the correct corporate entities and obtain registry, ownership, beneficial-ownership and authority documents before signing.

The contract should state precisely whether a nominee is permitted, whether the original buyer remains liable and how the deposit and documents will be adjusted.

The ship description should be verified against IMO, registry, class and technical records. Material conversions and existing bareboat registration should be disclosed expressly.

Banking Days, Deposit Holder, Sellers' Bank, closing place and payment mechanics should be settled early. Time-zone and correspondent-bank issues should be tested through a written closing sequence.

The inspection option must match the buyer's actual due-diligence plan. A buyer requiring machinery tests, sea trials, tank access, pre-delivery comparison or financier approval should not rely on the superficial printed inspection.

Delivery notices, earliest NOR date, cancelling date and revised-date procedures should be realistic. Parties should decide whether silence can amend the cancelling date and whether damages require negligence.

Clause 6 should state the chosen underwater-inspection method, cost allocation, repair standard and consequences where facilities or weather prevent completion.

Excluded equipment, third-party property, spares, bunkers and oils should be inventoried. Quantities and pricing methods should be agreed before delivery.

The Clause 8 document list should be checked against the seller's registry, buyer's nominated flag, lender, mortgagee bank and local notarisation requirements.

The parties should decide whether Clause 11 provides sufficient protection during the period between inspection and delivery. Additional reporting and maintenance obligations may be necessary.

Default clauses should be reviewed against the parties' actual risk. The deposit is not a complete substitute for damages, and proven-negligence wording may materially restrict the buyer's recovery.

The governing law, arbitration seat, institutional rules, tribunal size, small-claims threshold and notice addresses must be completed consistently. Unselected alternatives should be deleted.

Conclusion

SALEFORM 2012 provides a sophisticated and commercially tested framework for second-hand ship transactions. Its strength lies in coordinating the commercial bargain with inspection, deposit, payment, delivery, title transfer, class status, documentation and default remedies.

The form cannot eliminate the need for due diligence or negotiation. Printed clauses assume a relatively conventional transaction and may not accommodate unusual finance, employment, condition, registry or closing arrangements without amendment.

A well-prepared SALEFORM 2012 contract should reflect the actual ship, the intended delivery process and the parties' agreed allocation of risk. Careful completion of the blanks, disciplined deletion of alternatives and precise additional clauses are essential to ensure that the memorandum of agreement operates as the parties expect from contract signing through final delivery.