Bareboat Operators – watch out for expiring Class Certificates!

Letters of Indemnity – Best Practice | BDM Blog | BDM Law

The recent decision of Carr J in “The Arctic” (1) serves as a salutary reminder that the obligation on a bareboat charterer to keep the vessel’s class and other certificates current at all times is an absolute obligation and a condition of the charter.

In this case the vessel was entered with BV and the certificate expired while the vessel was in port for repairs which would include dry docking in preparation for her special survey.  About a month later the owners found out about the expiry of class and they decided to withdraw the vessel from charterers’ service, one assumes because they had found a better prospect for her. The case was first heard in arbitration with the LMAA Tribunal deciding that the term was an innominate term (legal jargon for a term that can either be a condition or a warranty depending on the circumstances) and that, in this case, it was a warranty such that breach would sound in damages and not give rise to a right to terminate. On appeal by the Owners the arbitrators’ decision was overturned. Carr J held that charterers’ obligation in clause 9A “to keep the vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times” was an absolute obligation, not merely an obligation to reinstate expired class certificates within a reasonable time. Secondly, he held that the classification obligation was a condition of the contract and not an innominate term.

The moral of the story for charterers is – watch out for expiring class and other certificates of importance. A failure to renew them in time could inadvertently cost you the benefit of your charter. For owners – keep an eye on such issues especially if there are existing difficulties with the charterers or the charter is unprofitable and/or the market has improved since the vessel was delivered. There may be a chance to take the ship back from charterers if they neglect to maintain current certificates.

(1) SILVERBURN SHIPPING (IOM) LTD V ARK SHIPPING CO LLC (THE M/V “ARCTIC”) [2019] EWHC 376 (Comm)

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