Repairs carried out in connection with the transfer

SALEFORM[23] 2012, one of the often-used standard-form agreements for the sale and purchase of second-hand tonnage, illustrate the context in which Cl. 16-15 will apply in respect of repairs carried out in connection with the transfer of a vessel to a new owner (the buyer).

It follows, inter alia, from Clause 6 (a) (i) of SALEFORM 2012 that unless otherwise agreed “the Buyers shall have the option at their cost and expense to arrange for an underwater inspection by a diver approved by the Classification Society prior to the delivery of the vessel.”

SALEFORM 2012 Clause 6 (a) (ii) goes on:

If the rudder, propeller, bottom or other underwater parts below the deepest load line are found broken, damaged or defective so as to affect the Vessel's class, then (1) unless repairs can be carried out afloat to the satisfaction of the Classification Society, the Sellers shall arrange for the vessel to be drydocked at their expense for inspection by the Classification Society of the vessel's underwater part below the deepest load line, the extent of the inspection being in accordance with the Classification Society’s rules (2) such defects shall be made good by the Sellers at their cost and expense to the satisfaction of the Classification Society without condition/ recommendation and (3) the Sellers shall pay for the underwater inspection and the Classification Society’s attendance.


Alternatively, under SALEFORM 2012 Clause 6 (b) the parties may agree to skip the diving inspection and drydock the vessel. This clause reads:

The Sellers shall place the Vessel in drydock at the port of delivery for inspection by the Classification Society of the Vessel's underwater parts below the deepest load line, the extent of the inspection being in accordance with the Classification Society's rules. If the rudder, propeller, bottom or other underwater parts below the deepest load line are found broken, damaged or defective so as to affect the Vessel's class, such defects shall be made good at the Sellers’ cost and expense to the satisfaction of the Classification Society without condition/ recommendation. …………………


According to Cl. 16-15, sub-clause 1, when damage is repaired in connection with the transfer of ownership, the loss of hire insurer is not liable for time that would in any event have been lost in connection with that transfer. This provision recognises that the seller will usually take the vessel out of service for diving inspection and/or docking in order for the buyer to have it properly inspected prior to delivery. In the normal course of events, the vessel will be delivered to the new owner upon completion of the diving inspection or undocking of the vessel or shortly thereafter, depending on the terms of the sales contract. Thus, once the vessel is taken out of service by the seller for delivery to the buyer, there will no longer be a potential for loss of income on the part of the seller. If the delivery is delayed due to repairs of damage covered under the loss of hire insurance, the seller will not suffer a loss of hire, but he will suffer loss of interest on the purchase money since the buyer normally is entitled to withhold payment until the vessel is actually ready to be delivered.

The assured's loss of interest is recoverable under the policy pursuant to Cl. 16-15, sub-clause 1, second sentence, which states that if the transfer of ownership has to be postponed in order to repair damage relevant to the loss of insurance, the loss of hire insurer is liable for the assured's loss of interest "in accordance with the rules in Cl. 5-4" and regardless of whether the vessel would have earned income for the assured during such delay.

The words in inverted commas above quoted from Cl. 16-15 means that the rate of interest applicable for the insurance year in question shall be applied. The insurance compensation for the assured’s loss of interest is thus on an assumed rather than actual basis. On the rate of interest see under 13below. This calculation method will usually reflect the level of interest applicable at the time and will often, but not always, give the assured full compensation for the loss he suffers because of delayed delivery of the vessel to the new owner.

On the other hand, the linking of the assured's loss to the interest rate as per Cl. 5-4 is not supposed to provide a higher compensation that which what would follow from the daily amount insured, multiplied by the time for which transfer was postponed or the estimated time necessary for the new owner to complete the repair, see Cl. 16-15, sub-clause 2. The deductible period as per Cl. 16-7 will, of course, apply also in cases where the vessel is transferred to a new owner. This means that the insurer may draw up an ordinary particular average adjustment and compare the net payment to the seller (assured) with payment of interest as previously mentioned and the assured is only entitled to the lower of these two amounts.

How to apply the deducible period if the daily amount of interest on the purchase price was different from the sum assured per day was somewhat debatable before 2010. The Commentary to Cl. 16-15 explains in detail the two different methods that were applied. In 2010, this debate was brought to an end by adding a new second sentence to sub-clause 2 of Cl. 16-15 reading:

The deductible period is calculated in consecutive days even if the loss of interest differs from the sum assured per day.


Thus if repairs takes 30 days, and the deductible period is agreed at 14 days, 16 days shall be compensated. No conversion shall be made if the daily amount of interest is USD 5,000 while the sum assured per day is USD 7,500. The assured will be compensated in an amount of USD 80,000 under the loss of hire insurance, 16 days @USD 5,000.



[23] Norwegian Shipbroker’s Association’s Memorandum of Agreement for sale and purchase of ships. Adopted by BIMCO in 1956. Code name SALEFORM 2012. Revised 1966, 1983 and 1986/87, 1993 and 2012