BIMCO Charter Party Guarantee | Hellenic Shipping News Worldwide

BIMCO has published a revised version of its standard Charter Party Guarantee clause which provides a uniform standard guarantee clause for use by the shipping industry.

The Charter Party Guarantee 2022 is a time charterer’s guarantee in respect of all sums payable and liabilities arising under a time charterparty. Owners can request the guarantee from either the charterer’s parent company or another guarantor. The new version is broader in scope than the previous version (issued in 2012), providing a guarantee for unpaid debts of the charterers in respect of bunkers, port charges, stevedoring costs and other matters arising during the course of the charterparty, in addition to payments due directly to the owners by the charterers.

In addition, the 2022 version does not require owners to comply with any time limit before exercising their demand on the guarantor and there is no cap on the maximum liability figure that owners can include in the form.

BIMCO has also provided for an optional clause that sets a seven day deadline to issue a guarantee in the form of the BIMCO Charter Party Guarantee. This clause is likely to be incorporated in circumstances where it is agreed, at the time of formation of the charterparty, that a guarantee will be required.

Issues in relation to characterisation of a performance guarantee were explored in a recent case in the Court of Appeal of England and Wales, Shanghai Shipyard v Reignwood Ltd [2021] EWCA Civ 1147 (23 July 2021). In that case, Shanghai Shipyard (the ‘Builder’) agreed to build a drillship for Opus under a shipbuilding contract (the ‘Contract’). Reignwood provided a guarantee to the Builder in order to guarantee a final payment of USD 170m by Opus. Due to alleged significant defects, Opus rejected the vessel and refused to make payment. Following Opus’ decision, the Builder claimed the final instalment by making a demand of Reignwood under the guarantee provided.

The Court of Appeal found that as the guarantee was a demand guarantee, Reignwood was liable to pay following the demand. This reversed the first instance decision, which had held that Reignwood was entitled to refuse payment pending the outcome of arbitration proceedings between Opus and the Builder. The judgment of the Court of Appeal has been appealed to the Supreme Court and the judgment is awaited. It is possible that the Supreme Court’s judgment will have a bearing on application of the provisions of the Charter Party Guarantee 2022, and this will be assessed in due course. In any event, the case demonstrates the importance of legal certainty in charterparty guarantees, like all contractual documents.

BIMCO’s clauses and detailed explanatory notes are contained in a recent BIMCO circular found linked below.

It should be noted that the Charter Party Guarantee is a flexible instrument which, although based on English law, can be adapted to work in other legal systems.
Source: Standard Club

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