BIMCO has published a precedent clause designed to address some concerns about sanctions. Most major sanctions regimes, including those of the US and EU, include lists of designated parties with whom it is effectively prohibited to do business. Under the EU regime, for example, all assets of designated parties must be frozen and it is prohibited to make funds or economic resources available to those parties, whether directly or indirectly.
The involvement of a designated party at any stage of a trade may mean that any other party involved is violating one or more applicable sanctions regimes. This can cause major issues in the performance of charterparties. For example, it may entitle Owners to refuse Charterers’ orders, render a trade illegal in breach of the charter terms, or prevent the provision of security following an arrest.
This new clause requires owners and charterers to warrant that they are not designated entities. Where applicable, charterers’ warranty extends to sub-charterers, shippers, receivers and cargo interests. The clause aims to provide flexibility where a party or vessel becomes a designated entity after the charterparty has been agreed.
Owners and charterers undertake to indemnify the other for any breach of warranty. BIMCO has noted that this may not be enforceable where one of the contracting parties is or becomes designated, as they would not be able to receive or make payments. The provision could, however, have effect where, for example, a breach is attributable to cargo interests or another third party.
It is strongly recommended that new charterparties include clauses dealing with sanctions. The BIMCO clause is useful either to use as drafted or amended to suit specific circumstances. Parties must, of course, ensure that any sanctions clauses work in their particular circumstances and are compatible with all other charterparty clauses.
The full text of the clause is available on the BIMCO website.