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Friday feature: Towcon 2008 & Towhire 2008

A towage contract can be for a variety of activities: arrival and departure of ships at ports, offshore mobilisations and salvage operations to name a few. There is also a plethora of towage contracts to be used by tug owners and hirers around the world. For example, in the United Kingdom you use the UK Standard Towage Conditions, revised in 1986. These conditions were drafted by tug owners and, unsurprisingly, are heavily biased towards them. Furthermore, they are 30 years old which means they may not be completely suitable for modern towage operations. A more balanced and recent approach can be found in the BIMCO standard form international ocean towage agreements. BIMCO stands for the Baltic and International Maritime Council and was founded in 1905. They are now the world’s largest international shipping association with the aim to produce flexible commercial agreements that are fair to both parties.

There are two types of BIMCO ocean towage agreement. These are Towcon 2008 and Towhire 2008 with the main difference being that Towcon 2008 (TC08) is a lump sum contract, while Towhire 2008 (TH08) is a daily hire/time charter contract. These forms were first issued in 1985 with a revised edition issued in 2008 and another revision currently underway. I will quickly explain the structure of the agreements and then discuss the major clauses in the terms and conditions. Even though I will not discuss every clause, it is important to read every agreement in full and in detail. Where clauses are to be found in both TC08 and TH08 the clause reference will refer to Towcon 2008. From the outset I should make clear that my comments are on unamended BIMCO forms. It will often be the case that the terms and conditions have been amended. This will impact the apportioning of risk and liability so any amendments must be closely scrutinised. For people familiar with BIMCO agreements, TC08 and TH08 are both set out as per the standard BIMCO form with a Part I, Part II and Annex A.

For people unfamiliar with BIMCO, this template has a clear structure and is easy to understand. Part 1 consists of boxes that are to be populated with the job specific information (40 boxes in TC08 and 43 boxes in TH08), Part II is the terms and conditions (35 clauses in TC08 and 33 clauses in TH08) and Annex A contains the tug specification. It is important to complete Annex A properly and not to just include a tug specification sheet. The forms allow additional clauses to be included in the contract. Part I and any additional clauses will prevail over Part II and Annex A in the event of a conflict of terms and conditions. The first clause to look at in Part II is clause 3 which is ‘price and conditions of payment’. Even though the payment mechanisms in Part I of TC08 and TH08 are different, the same condition applies to both – that all sums payable shall “be fully and irrevocably earned at the moment it is due”. That is to say that any lump sums or daily hire due shall be paid regardless of whether the tow or part of the tow is lost. In TC08 the risk to the hirer can be reduced in Box 33. The lump sum towage price can be split into instalments with the final instalment “due and payable on arrival of tug and tow at place of destination.” A prudent hirer will aim to have much of the lump sum price in that instalment. Consequently, if the tug and tow does not arrive at the place of destination that instalment is not due. In TH08, as a time charter contract, there is no instalment scheme available to back load. The agreements recognise the potential risk of a tug not being ready to commence the towage and require a cancelling date in Box 38. This is the date that the hirer shall have the option of cancelling the agreement if the tug is not ready to commence the towage. Clause 5 deals with the cancelling date and how it can be extended, providing instructions for both the tug owner and hirer. If the tug owner anticipates that the tug will not be ready, he shall notify the hirer stating the expected date of readiness and enquire if the hirer wishes to cancel the agreement. This option is only available to the hirer for 48 hours after receipt of the tug owner’s notice. If the option to cancel is not exercised, then the date in the tug owner’s notice shall be the new agreed date to commence towage operations.

Regardless of whether the hirer cancels the agreement he is “entitled to claim damages for detention if due to the wilful default of the tug owner”. This could be the additional costs at the place of departure incurred as a result of the tug’s delay. There are often additional charges and extra costs when performing a tow. This issue is dealt with in clause 9, ‘additional charges and extra costs’. To put it simply all additional charges and extra costs are to be borne by the hirer. These charges and costs consist of agency, port expenses, taxes, assisting tugs, costs necessary for preparation of the tow and insurance of the tow. These costs must be taken into consideration by the hirer when entering into a towage agreement. Clause 18 imposes undertakings on the hirer with regard to the condition of the tow or ‘tow-worthiness’. The hirer must exercise due diligence to ensure that the tow is fit to be towed. This means that the hirer must ensure that the tow is “suitably trimmed, prepared and ready to be towed at the time when the tug arrives and is fitted and equipped with such shapes, signals, navigational other lights of a type required for the towage.” This will usually be demonstrated with a certificate of towworthiness issued by a Marine Surveyor.

However, there is no obligation to perform the tow until, at the tug owner’s discretion, the tow is fit and ready for towage. It is important to note that an inspection of the tow by the tug owner will not constitute approval of the tow’s condition or a waiver of the hirer’s above undertakings. A much shorter clause 19 governs seaworthiness of the tug. The tug owner “will exercise due diligence to tender the tug at the place of departure in a seaworthy condition and in all respects ready to perform the towage.” What does this due diligence entail? The tug owner must carry out any inspection, repairs etc, which, in the circumstances a skilled and prudent shipowner would carry out. Any work carried out must be done with reasonable skill, care and competence. This exercise of due diligence is not delegable. It would not be sufficient for the tug owner to point to the appointment of properly qualified people to perform the work. Tug owner will be liable for defects reasonably discoverable when tug comes into their ownership, possession or control. However, if bad work is concealed and can not be detected by reasonable care then the tug owner will not be liable. Clause 22 allows the hirer to terminate the contract. In every instance of termination, a termination fee will have to be paid as set out in Part I, assuming no fault on the part of the tug owner. If the tug is already en route to / arrived at the place of departure or even if towage operation is underway then hirer shall pay the tug owner all sums payable under this agreement. This is in addition to any damages the tug owner may be entitled to claim for breach of the agreement. Clause 23 gives the tug owner the right to withdraw and leave the tow. This right is limited to five situations, namely: delay at place of departure; delay at place of refuge; financial security not provided; hirer not accepted tow at place of destination and; unpaid sums due.

Delay (or delays) must exceed 14 days before the tug owner has the option to terminate. The other three termination grounds require 7 days to pass before termination can be invoked. The tug owner must give 48 hours notice of his intention to withdraw. Failing to do so may result in a repudiatory breach of the contract. Clause 25 governs ‘liability and indemnity’. The 2008 revisions introduced a knock for knock regime into both Towcon and Towhire. The underpinning principle of knock for knock is simply, ‘your personnel + your property = your problem and my personnel + my property = my problem’. The result is no responsibility for each others personnel and property and protection from third party claims caused by the other parties’ property. The indemnities apply however the claim may arise or the damage is caused. As the clause is written there is no exception due to the gross negligence or wilful misconduct of the hirer or tug owner. The knock for knock regime applies for the period of time “from arrival of tug at place of departure until disconnection at place of destination”. In TC08 and TH08 the indemnities and liabilities are split out which makes them easier to understand. Part (a) deals with personal injury or death with (i) setting out the tug owner’s indemnities and (ii) setting out the hirer’s indemnities. Part (b) deals with loss or damage to property with the tug owner’s and hirer’s indemnities split into (i) and (ii). Part (c) concerns loss of profit, loss of use or loss of production and consequential loss or damage. This part of the clause includes five exceptions to the strict knock for knock regime. These are permits and certification, the tow-worthiness of the tow, the seaworthiness of the tug, termination by the hirer and termination by the tug owner. So, in these instances, parties will be liable for loss of profit, use or production and any consequential loss or damage. TC08 and TH08 both contain another exception to the knock for knock regime and it can be found in clause 16 which is ‘towing gear and use of tow’s gear’. The tug owner must provide all tow wires, bridles and towing gear carried on board the tug for the purpose of the towage free of cost to the hirer.

Furthermore, the tug owner can make reasonable use at his discretion of the tow’s gear, power anchors, anchor cables, radio, communication and navigational equipment free of cost during and for the purposes of the tow. This is set out in parts (a) and (b) but most important is part (c). It states that “the hirer shall pay for the replacement of any towing gear and accessories should such equipment become lost, damaged or unserviceable during the service(s), other than as a result of the tug owner’s negligence.” Now that replacement cost could be very large as towing gear is expensive. This is a significant exception to the knock for knock regime that the hirer must be aware of. Clause 28 allows a possessory lien over the tow. This lien can be exercised in relation to any and all sums due to the tug owner under this agreement, and not just the lump sum or daily hire. The lien can be exercised by the tug owner “himself or his servants or agents or otherwise.” This is necessary as the tug owner does not always receive payment, so it allows the party who does receive payment to exercise the lien. The clause allows the tug owner to recover “all reasonable costs and expenses and all costs of recovering the same, including legal fees…in exercising or attempting or preparing to exercise such lien”.

Finally, the tug owner shall be entitled to receive the tug’s delay payment under TC08 or the daily rate of hire under TH08 for any reasonable delay to the tug resulting from the lien. So, having a lien exercised on a tow can be an expensive matter. The hirer will have to pay all sums due under the agreement with interest and all costs associated with the lien and delay payments. Clause 6 in TC08 deals with free time and delay payments. A similar clause is not required in TH08 as it is a time charter and the daily hire will apply. The purpose behind this clause is to allow for a defined period of free time for clearly identified events where the tug will not be subject to delay payments. Boxes 26 and 27 will state the defined periods of free time and clause 6 states the identifiable events when free time applies and when free time starts. The events are connecting and disconnecting the tow, transiting canals and restricted waters and all other purposes related thereto. Free time at place of departure shall commence when the Tug arrives at the pilot station until dropping last outbound pilot when leaving for the open sea. Free time at place of destination shall commence when the tug and tow arrive at the pilot station or anchors or arrives at the usual waiting place or anchorage until dropping last outbound pilot when leaving for the open sea. Should free time be exceeded then delay payments at the rate specified in Box 30 of Part I shall be payable. These delay payments will apply until tug and tow sail from the place of departure or the tug is free to leave the place of destination.

These are, in summary, the main considerations in Towcon 2008 and Towhire 2008. I will repeat that the comments are on unamended BIMCO forms and to again warn that any amendments introduced by the other party will require close scrutiny. Thankfully on BIMCO forms additions are highlighted in red and deletions are highlighted in blue which makes amended agreements easier to digest. Changes to the clauses that have been discussed require extra close scrutiny as the risks and liabilities of the parties may have shifted. If a party is including their own changes to the forms, then these should be clear in wording and purpose. Otherwise that will bring uncertainty into the agreement which the BIMCO forms try to avoid.

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