Progress on Charterers’ Guarantee Contract

21.07.11

BIMCO’s project to develop a standard wording guarantee covering a time charterer's obligations took a further step closer to completion when the Working Group convened in London on 20 July. The Group reviewed a number of comments on the draft Guarantee submitted by Documentary Committee members at the recent Vancouver session.

The overall concept and structure of the Guarantee was well-received by the Documentary Committee and so the main task of the Working Group was to further polish the text and, importantly, decide on the basis upon which the owner could draw down a demand on the Guarantee. The BIMCO Guarantee is designed to cover a range of amounts due under a time charter party, not just hire. It is intended to be used in situations where an owner may be uncertain as to the financial standing of a charterer that he is unfamiliar with, or it may be used where an owner plans to do business with a start-up company that has no financial history. While it is possible that the form can be used for a bank guarantee, it is primarily intended to be used as a parent company guarantee.

The Group discussed whether the owners should in all circumstances have the right to make a direct demand on the guarantee for any unpaid amount or whether the charterers should have the right to dispute a claim by bringing the matter before a court or arbitration. There will be circumstances where a non-payment by a charterer is a clear cut issue entitling the owner to draw on the guarantee, but it is more likely that some issues will be disputable – perhaps, for instance, where the owners make a claim for damages on an un-safe port basis. Striking the right balance in the Guarantee is important to ensure that it represents current commercial practice and does not result in the instrument being used as a delaying tactic. While the Working Group tends to favour a more reasoned approach whereby the Guarantee cannot be drawn down directly, they have also recognised the need to put in place tight time control mechanisms to avoid the provisions of the Guarantee being abused.

The Guarantee is intended to cover long term time charters and therefore is capable of multiple calls on the same Guarantee. However, the guarantor will have the option to place a cap on his total liability under the Guarantee. The validity of the Guarantee will expire 12 months after redelivery of the vessel under the time charter. This is felt to be a reasonable period during which an owner might discover any issues or damages affecting his vessel as a result of the time charter.

Further market research into the present use and form of time charter guarantees will be done to ensure that the currently drafted model will meet the needs and expectations of the market. It is hoped that a final draft can be put forward for adoption at the Documentary Committee’s next meeting in November.

Source: BIMCO