From Ship Building Agreement to Ship Recycling Agreement – Part IV

SHIP BREAKING AGREEMENTS

Ship Breaking is the process of dismantling a vessel. This is also called ship recycling. Alang in India is one of the biggest ship graveyards. Recently, India enacted the Recycling of ships Act, 2019 which provides for the regulation of recycling of ships by setting certain standards and laying down the enforcement mechanism for such standards.

When the Ship owners decides to sell the vessel for ship breaking, an agreement called Ship recycling agreement is entered into. BIMCO has a standard form of contract called RECYCLON for ship recycling. This standard agreement is drafted in accordance with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009.

Some of the important clauses in a Ship Recycling Contract are as below:

Place of Delivery : This clause must make it clear whether the sale is outright or the sale is complete only upon delivery at the ship breaking yard.

Consideration : The Ship Recycling Contract like any contract would contain clauses such as consideration and mode of payment. This clause must make the currency, mode and time of payment clear. The parties may also opt for an escrow account and decide when the amount will be released.

Documents: A ready for recycling certificate has to be obtained from National Authority as per Section 16 of the Ship Recycling Act, 2019. As per Section 19 of this Act, shall give an advance intimation to the Maritime Rescue Co-ordination Centre and the Competent Authority about the date of arrival, clear all port dues, and must keep the ship clear of cargo residues and minimise any remaining fuel oil and wastes on board. The agreement must clearly specify the consequences if there is any default in obtaining such documents.

Encumbrances: The Contract also provides a warranty from the seller that the vessel is from encumbrances and maritime liens. It is to be noted that Maritime lien cannot be exercised on a vessel, once the documents are submitted for the ship breaking as it is considered a dead vessel.

Environmentally Sound and Safe Recycling : The Seller must provide an inventory of hazardous materials and the buyer must provide a ship recycling plan. The Ship Recycling Act, 2019 also lays emphasis on the importance of safe and sound recycling and has introduced various regulations for the same.

Apart from the above clauses, other clauses which are included are dispute resolution, notices etc.