Background
The Norwegian Saleform, in its current 2012 revision, is published by the Norwegian Shipbrokers’ Association (Norske Skibsmæglerklubb) and adopted by BIMCO as SALEFORM 2012. It is used in the great majority of secondhand sales between commercial parties operating in the international market. Other regional forms (the Nipponsale, the Singapore Sale Form) exist but have a smaller share. Newbuilding contracts are documented by separate forms, principally the SAJ (Shipbuilders’ Association of Japan) form, the AWES (Association of European Shipbuilders) form, the NEWBUILDCON BIMCO form, and various bespoke yard forms. This article focuses primarily on secondhand sales under the Norwegian Saleform, with a separate section on newbuildings.
The MOA process is a structured sequence: indication of interest, subjects, recap, signed MOA, deposit, inspections (records and physical), notice of readiness for delivery, drydocking or underwater inspection if applicable, closing, and physical delivery. Each step has its own legal and commercial significance, and disputes can arise at any stage. This article examines MOA fundamentals, SALEFORM 2012 structure and key clauses, title transfer, classification certificate requirements, deficiency rectification, condition surveys, deletions and substitutions, newbuilding sales, bunker valuation at delivery, currency considerations, taxation issues, common dispute patterns, and recent market trends.
MOA Fundamentals
A ship MOA is a sale of a specific physical asset. Unlike a generic commodity sale, the buyer is acquiring a unique item with its own history, condition, and risk profile. The MOA therefore has elements of a real-property conveyance (the ship is registered, has a flag, has mortgages over it), elements of a goods sale (delivery, risk transfer, warranty), and elements of a corporate transaction (warranties as to title, encumbrances, due authority).
The fundamental commercial structure is: the seller agrees to sell, and the buyer agrees to buy, a defined vessel free from encumbrances, at a defined price, payable in cash on delivery, against delivery of defined documents. The vessel is to be delivered in defined condition (typically class maintained, free of average damage, free of recommendations, with current statutory and class certificates) at a defined place (or at sea, on dropping the last outward sea pilot from a defined area).
The MOA is governed by an express choice of law (typically English law, sometimes Singapore or New York law) and an express dispute-resolution clause (typically London arbitration under LMAA terms, sometimes Singapore arbitration under SCMA terms). The choice is consequential because the substantive rules on contract formation, frustration, repudiation, and damages vary materially between systems.
SALEFORM 2012 Structure
SALEFORM 2012 is a 19-clause document, with annexes for the form of bill of sale, the form of protocol of delivery and acceptance, and the deposit holder’s confirmation. The principal clauses are:
Clause 1 (Purchase Price) and Clause 2 (Deposit) establish the financial structure: a 10 per cent deposit (negotiable to 5 per cent or 20 per cent in some markets) is payable into a joint account or to a deposit holder within three banking days of MOA signature, and the balance is payable on delivery against the bill of sale and other delivery documents.
Clause 3 (Payment) provides for payment in same-day funds in the agreed currency (almost always US dollars), and Clause 4 (Inspection) governs the buyer’s right to inspect the vessel and the vessel’s records.
Clause 5 (Notices, Time and Place of Delivery) is the operational core: the seller must give notices of expected readiness (typically 30, 14, 10, 7, 5, 3, and 2 days in advance) followed by a definite notice of readiness when the vessel is at the delivery place and ready for delivery.
Clause 6 (Drydocking / Divers Inspection) provides for either a drydocking with class attendance (the traditional approach for older vessels) or an underwater inspection by approved divers (the modern norm for younger and well-maintained vessels). The clause allocates the cost of repairs and class follow-up depending on what is found.
Clause 7 (Spares, Bunkers and Other Items), Clause 8 (Documentation), Clause 9 (Encumbrances), Clause 10 (Taxes), Clause 11 (Condition on Delivery), Clause 12 (Name / Markings), Clause 13 (Buyers’ Default), Clause 14 (Sellers’ Default), Clause 15 (Buyers’ Representatives), Clause 16 (Law and Arbitration), Clause 17 (Notices), Clause 18 (Entire Agreement), and Clause 19 (Confidentiality) round out the form.
Key Clauses: Deposit, Inspections, Deliveries, Encumbrances
The deposit clause (Clause 2) is more than a security mechanism: it is a critical element of the contractual architecture. The deposit is typically 10 per cent, paid to a joint deposit holder (the buyer’s bank, the seller’s bank, or a neutral S&P broker’s escrow account). The deposit is forfeited to the seller on buyer’s default and refunded with interest on seller’s default. The deposit holder owes fiduciary duties to both parties and cannot release the deposit without joint instructions or a final award.
The inspection clause (Clause 4) typically distinguishes between records inspection (class records, statutory certificates, oil record book, garbage record book, ballast water record book, hull and machinery survey reports) and physical inspection. The buyer typically inspects records first, then the vessel afloat or in port. SALEFORM 2012 provides that the buyer may either inspect the vessel and records and then commit unconditionally, or commit subject to inspection (in which case the inspection itself becomes a condition).
The delivery clause (Clause 5 read with Clause 11) requires the vessel to be delivered “in the same condition as when inspected by the Buyers, fair wear and tear excepted”. The “fair wear and tear” carve-out is a frequent source of dispute: the buyer argues that defects discovered after delivery were not fair wear and tear; the seller argues that they were. The condition clause should be read together with the warranties as to class, average damage, and recommendations.
The encumbrances clause (Clause 9) requires the seller to deliver the vessel free from mortgages, maritime liens, claims, and encumbrances (other than those constituted by the buyer’s own actions). The seller typically procures a deletion certificate from the existing flag, and the buyer registers the vessel under its chosen flag at delivery. The buyer’s flag of choice has implications for flag state and flag of convenience considerations.
Title Transfer
Title to a registered ship transfers by execution of the bill of sale and by registration of the buyer as the new owner under the new flag. Under English law (governing most international S&P transactions), the bill of sale is the document of title, and registration is the public-record perfection. The bill of sale is typically notarised and apostilled in the seller’s flag jurisdiction, and translated into the buyer’s flag-state language where required.
The closing typically takes place simultaneously: the buyer’s funds reach the seller’s account, the seller delivers the bill of sale, and the seller delivers the vessel by signing the protocol of delivery and acceptance with the buyer at the delivery place. The flag-state deletion typically follows within days, and the buyer’s flag registration follows immediately. Provisional registration certificates are commonly issued to bridge the brief gap between deletion and full registration.
The title-transfer mechanics interact with the classification society regime: the seller must deliver the vessel with a valid class certificate, free of recommendations, and the buyer typically arranges for the same or a different class society to confirm the class on transfer. The IACS Transfer of Class Agreement governs the procedural aspects of class transfer between IACS member societies.
Classification Certificate Requirements
SALEFORM 2012 Clause 11 requires the vessel at delivery to be:
- with current class certificates valid until [date]
- free of recommendations affecting class
- free of average damage affecting class
- with current statutory certificates (load line, SOLAS, MARPOL, tonnage, IOPP, STCW-related, MLC 2006, ISPS-related, ISM-related)
- free of conditions of class
The “free of recommendations affecting class” requirement is particularly important. A recommendation is a defect or non-conformity that the class society has identified and that must be rectified within a specified period. A recommendation that is “affecting class” is one that, if not rectified, will result in suspension or withdrawal of class. Buyers typically insist that all recommendations are cleared at delivery; sellers typically argue that recommendations not yet due to be rectified should be at the buyer’s risk.
Deficiency Rectification
Where the inspection or the underwater survey identifies a defect, the MOA process provides for rectification by the seller before delivery, or for an agreed price reduction, or for the buyer to terminate the MOA and recover its deposit. The mechanism depends on whether the defect amounts to a breach of warranty or a breach of condition.
Average damage (damage caused by perils of the sea, collision, grounding, or other accident) and class-affecting recommendations typically must be rectified or trigger termination. Cosmetic damage, minor non-class items, and ordinary wear and tear are typically not grounds for rectification or termination but may be the basis of a price reduction in negotiation.
The drydocking or divers’ inspection (Clause 6) provides a defined window for the buyer’s class to identify defects below the waterline. Defects identified are categorised as class-affecting (seller’s risk) or non-class-affecting (typically buyer’s risk subject to negotiation).
Condition Surveys
A condition survey is an independent technical inspection of the vessel commissioned by the buyer (and sometimes by the buyer’s lender) to establish the vessel’s condition for purchase decision. The survey is typically conducted in three stages: a records survey at the seller’s office or at the class society, a physical survey afloat or alongside, and the underwater inspection or drydock survey at delivery.
The principal condition survey items are: hull steel condition (gauging readings, recent steel renewals, coating condition), machinery condition (main engine, auxiliary engines, boilers, separators, cargo handling equipment), cargo holds or tanks (coatings, cleanliness, recent repairs), navigation and communication equipment, pollution prevention equipment (ballast water treatment system, exhaust gas cleaning system if fitted), and accommodation condition.
The condition survey is the buyer’s principal protection beyond the contractual warranties. A well-conducted survey identifies hidden defects that the contractual representations do not capture; a poorly conducted survey can leave the buyer exposed to costly post-delivery repairs. Surveys are typically conducted by independent marine surveyors, naval architects, or class society inspection branches.
Deletions and Substitutions
A frequent issue in the S&P market is what to do when the vessel cannot be delivered: damaged in casualty before delivery, total loss before delivery, arrest before delivery, or simply unable to sail to the delivery place. SALEFORM 2012 contains specific provisions for these cases:
- Total loss before delivery: the MOA terminates and the deposit is refunded.
- Casualty before delivery: the seller may rectify and re-deliver or, if rectification is not possible, the MOA may be terminated.
- Arrest or detention: the seller is in default and must release the vessel, failing which the buyer may terminate.
Substitution (delivery of a different vessel) is not a default mechanism in SALEFORM 2012 but can be agreed by amendment. Substitution clauses are more common in newbuilding contracts where the yard may need to substitute hull numbers within a series.
Sale of Newbuildings
The sale of a newbuilding involves a different legal architecture. The principal contracts are the shipbuilding contract between the original buyer and the yard, and (where the newbuilding is sold before delivery) the resale contract between the original buyer and the new buyer. The shipbuilding contract is typically on the SAJ form, the AWES form, the NEWBUILDCON form, or a bespoke yard form, and it contains the stage-payment schedule (typically 5-10-10-10-65 or similar), the technical specification, the sea trials regime, the delivery date, and the warranties (typically a 12-month builder’s warranty plus a 5-year structural warranty).
When a newbuilding is sold before delivery, the resale typically takes the form of an assignment of the shipbuilding contract (with the yard’s consent) plus a back-to-back novation. The economic terms (the difference between the original contract price plus stage payments made and the resale price) determine the profit or loss to the original buyer.
The 2007-2008 market collapse and the 2020 contract cancellations during the COVID-19 disruption produced a wave of newbuilding disputes, principally over whether stage payments could be recovered under refund guarantees. The Korean and Chinese yards, the dominant newbuilding suppliers, have been the principal defendants in these disputes, and the English commercial court has produced a substantial body of case law on the construction of newbuilding contracts and refund guarantees.
Bunker Valuation at Delivery
The bunkers on board at delivery are the seller’s property up to the moment of delivery and the buyer’s property thereafter. The MOA provides for the buyer to take over and pay for the remaining bunkers and unbroached lubricating oils at delivery, at a price typically defined as the actual purchase price of the bunkers (with documentary evidence) or as the market price at the delivery port at delivery.
Disputes around bunker valuation at delivery are common in volatile fuel-price markets. A seller who bought bunkers at high prices may argue for actual-cost pricing; a buyer in a falling market may argue for market-price pricing. SALEFORM 2012 provides for actual-cost pricing supported by documentary evidence as the default. The bunker valuation issue is closely linked to bunker quality and ISO 8217 considerations: the buyer takes over the bunkers as is, including any quality issues.
Currency Considerations
Ship S&P transactions are almost universally denominated in US dollars. Exceptions arise for transactions between European parties (occasionally in euro), between Japanese parties (occasionally in yen), and for certain Chinese-yard newbuildings (sometimes in renminbi). The dollar denomination simplifies international financing and avoids currency mismatches with the dollar-denominated revenue of most shipping operations.
Currency risk in S&P transactions is typically managed at the buyer’s funding level rather than at the contract level: the buyer hedges its non-dollar funding into dollars in parallel with the MOA closing. The MOA itself does not typically include CAF or currency adjustment provisions of the type used in liner trades.
Taxation Issues by Jurisdiction
Ship S&P transactions are generally exempt from value-added tax (VAT) or sales tax in the principal flag jurisdictions, on the basis that they are sales of capital assets used in international transport. The principal taxation issues are:
- Indirect tax (VAT, GST, sales tax) at the place of physical delivery: most flag states have specific exemptions for international shipping, but care must be taken with delivery in EU territorial waters, where VAT may be triggered without proper documentation.
- Withholding tax on the purchase price: certain jurisdictions (Greece, Italy, India in some cases) impose withholding obligations on payments to non-resident sellers.
- Capital gains tax in the seller’s jurisdiction: depending on the seller’s residence and the structure of the sale (asset sale vs share sale of the SPV owning the vessel), capital gains tax may or may not apply.
- Stamp duty in the flag jurisdiction: certain flags (the UK, India, Hong Kong) impose modest stamp duties on bills of sale; most open registries do not.
The taxation analysis is jurisdiction-specific and is typically handled by specialised maritime tax counsel. The MOA is structured to allocate the principal tax risks (typically each party bears its own taxes in its own jurisdiction).
Disputes Around Condition Discrepancies
The most common dispute pattern in ship S&P is a post-delivery dispute over condition. The buyer, having taken delivery, finds defects that were not disclosed at inspection: corroded steel, defective machinery, contaminated tanks, hidden damage. The buyer alleges breach of the condition warranty in Clause 11; the seller responds that the defect is fair wear and tear, was disclosed in records, was visible on inspection, or was caused after delivery.
The English commercial court and London arbitration tribunals have a substantial body of decisions on these issues. The general approach is that the buyer takes the vessel “as is” subject to the express warranties, and the burden is on the buyer to prove that the defect existed at delivery and was not within “fair wear and tear”. The defect must also be material: minor defects do not give rise to damages claims.
Recent Market Patterns
The S&P market in 2024-2026 has been characterised by:
- Strong demand for secondhand bulkers and tankers, driven by tight newbuilding slots at major Korean, Chinese, and Japanese yards.
- Decarbonisation-driven divergence between dual-fuel-capable vessels (LNG, methanol, ammonia) and conventional vessels, with the former trading at significant premiums.
- Increased due-diligence focus on EU ETS compliance, FuelEU Maritime compliance, and CII (Carbon Intensity Indicator) ratings.
- Sanctions-related complexity for vessels with prior trading patterns involving Russian or Iranian crude.
- Growth in private-equity-backed S&P platforms competing with traditional shipowner-operators.
The overall transaction volume has remained strong, with SALEFORM 2012 continuing to dominate. A revised SALEFORM is reportedly under preparation by BIMCO, with publication expected in 2026 or 2027 to reflect the decarbonisation, sanctions, and digitalisation themes.
Related Wiki Articles
- Bareboat Charter Party
- Time Charter Party
- Voyage Charter Party
- Bill of Lading
- Classification Society
- Flag State and Flag of Convenience
- SOLAS Convention
- MARPOL Convention
- MLC 2006
- ISM Code
- ISPS Code
- Bunker Quality and ISO 8217
See also
Related wiki articles
- Bunker Adjustment Factor (BAF) in Shipping
- Knock-for-Knock Indemnity Clauses
- Cargo Insurance and Institute Cargo Clauses
References
- BIMCO SALEFORM 2012 (Norwegian Saleform)
- Norwegian Shipbrokers’ Association, Memorandum of Agreement for Sale and Purchase of Ships
- BIMCO NEWBUILDCON Standard Newbuilding Contract
- SAJ (Shipbuilders’ Association of Japan) Standard Form
- AWES (Association of European Shipbuilders and Shiprepairers) Standard Form
- IACS Transfer of Class Agreement
- English Sale of Goods Act 1979
- English Marine Insurance Act 1906
- English Merchant Shipping Act 1995
- Strong and Herring, Sale of Ships: The Norwegian Saleform (3rd edn)
- Goldrein et al, Ship Sale and Purchase (6th edn)
- Mikis Tsouroulis, The Resale of Newbuildings
- IMO SOLAS, MARPOL, STCW, MLC 2006 instruments
- IACS Procedural Requirements
- Drewry Sale and Purchase Annual
- Clarksons Research, Sale and Purchase Database