BIMCO AIS Switch Off Clause for Time and Voyage Charter Parties 2021

(a) For the purposes of this Clause:

“AIS” means an automatic identification system fitted to the Vessel in accordance with SOLAS Chapter V, Regulation 19.2. or any subsequent amendment thereto.

“Guidelines” means the IMO Revised Guidelines for the Onboard Operational use of Shipborne Automatic Identification Systems, Resolution A.1106(29) or any subsequent amendment thereto.

(b) Owners warrant that for the six (6) months prior to the arrival of the Vessel at the first or sole loading port under this Charter Party and throughout its duration they have not knowingly operated and will not knowingly operate the Vessel’s AIS other than in accordance with the Guidelines. This includes, but is not limited to, not manipulating, knowingly switching off or otherwise disabling the Vessel’s AIS other than in accordance with the Guidelines.

(c) In the event that Charterers reasonably believe that Owners are in breach of subclause (b) Charterers shall request Owners to explain the apparent breach. Owners shall provide such explanation within seventy-two (72) hours of receipt of Charterers’ request.

(d) Without prejudice to other rights pursuant to this Charter Party, if Owners are in breach of subclause (b), Charterers may terminate this Charter Party. Charterers may only exercise this right after the expiry of the time period contemplated in subclause (c).

(e) Charterers warrant that throughout the duration of this Charter Party they shall not:

(i) request Owners to operate the Vessel’s AIS other than in accordance with the Guidelines. This includes, but is not limited to, manipulating, switching off or otherwise disabling the Vessel’s AIS other than in accordance with the Guidelines; or

(ii) give orders to conduct a ship-to-ship cargo transfer (STS) with a vessel whose AIS has not been operated in accordance with the Guidelines throughout the last six (6) months prior to the orders.

(f) If at any time Charterers are in breach of:

(i) subclause (e)(i) above, then Owners may reject the request and/or terminate this Charter Party and/or claim damages resulting from the breach; or

(ii) subclause (e)(ii) above, then Owners may refuse to conduct the STS cargo operation and request new orders.

BACKGROUND

The AIS as such is not a sanction tool. It is a device to aide navigational safety and transmits information about a ship including its identity and position. The AIS is mandatory under SOLAS and it should not be switched off or disabled at any time other than for very specific safety and security reasons permitted by the convention.

The initiative to develop the AIS switch off clause follows the publication of the OFAC Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors issued in May 2020. It recommends that all charter parties should contain an AIS “switch off” clause which provides for a termination right where the AIS has been switched off, disabled or manipulated contrary to SOLAS guidelines.

The OFAC Advisory addresses sanctions violations where the AIS has been switched off or manipulated. Most cases where this has happened involved STS (ship-to-ship) cargo operations. AIS manipulation has been used to conceal sanctions violations, so there is a synergy between the interests of regulators from the US, UK and UN and the shipping industry to tackle such behaviour whilst ensuring that contracts are not terminated when the AIS has been operated legitimately. To help address this situation BIMCO has developed a clause for use in charter parties balancing the requirements of regulators and the interests of owners and charterers.

Strictly speaking, there should be no reason for an AIS “switch off” clause because the SOLAS Guidelines clearly set out the legitimate circumstances under which AIS can be switched off. However, because the incorporation into contracts of AIS “switch off” clauses are recommended in the OFAC Advisory, “ad hoc” clauses have begun to find their way into charter parties. These clauses often give charterers the right to terminate simply on the basis that the AIS transponder is not transmitting without considering that there are circumstances where the AIS can be switched off legitimately. One of the reasons for drafting a standard BIMCO clause has been to address the shortcomings of such “ad hoc” clauses.

The BIMCO “AIS switch off” clause addresses the use of the AIS both during the charter period and prior to it. This is important because the OFAC Advisory focuses on identifying patterns in AIS manipulation by vessels rather than isolated “one-off” incidents.

Various AIS tracking providers and sanctions screening services offer reports on the AIS activity of vessels. Some also issue warnings where there is a concern that the AIS has been switched off illegitimately which could potentially result in a breach of sanctions.

Drafting team

The BIMCO AIS “Switch Off Clause 2021” has been developed with the invaluable assistance of owners, charterers, P&I clubs and legal experts. BIMCO is extremely grateful to the following individuals for working with us and their dedication to the project:

• Frank Sanford, MSC (Chairman)
• Amelie Acena, MSC
• Jeff Nielsen, Maersk
• Flemming Dahl Jensen, Norden
• Nicola Ioannou, Oceanfleet Shipping
• Mark Church, North P&I
• Michelle Linderman, Crowell & Moring LLP
• Dj (David) Wolff, Crowell & Moring LLP

BIMCO secretariat support was provided by Grant Hunter, Head of Contracts & Clauses and Nina Stuhrmann, Manager, Contracts & Clauses.

Guidance Notes

The following guidance notes are intended to provide some background to the thinking behind the BIMCO “AIS Switch Off Clause 2021”. These notes explain the scope of each provision and clarify how the clause is intended to operate and the way it allocates risk between the parties. If you have any questions about the clause that we have not answered in these notes, please contact us at contracts@bimco.org and we will be happy to assist.

Subclause (a) sets out the definitions of the defined terms in the clause and is self-explanatory.

Subclause (b) – Owners’ warranty

Under this subclause the owners give a warranty about their AIS activity in the six months prior to the arrival of the ship at the first or sole loading port and during the charter. In short, the owners will only be in breach of the warranty if they intentionally switch the AIS off for reasons which are not permitted by SOLAS and the guidelines. To illustrate what this means, examples of manipulating, intentionally switching off or disabling the AIS are given. This language reflects the OFAC Advisory.

If the AIS is not transmitting, this does not mean that owners are in breach of the warranty. Charterers need to establish that it was “knowingly” switched off in violation of the SOLAS Guidelines and for the purpose of sanctions’ evasion. Since the warranty is tied in to the SOLAS Guidelines, this means that there will be no breach of the warranty if the non-transmission of the AIS is excused under SOLAS. Situations where the AIS is switched off for safety purposes or to protect the ship against a potential piracy attack, will not constitute a breach of the warranty.

It will not constitute a breach of the warranty if owners switch off the AIS in accordance with the SOLAS Guidelines but forget to switch it back on when, for example, they leave a piracy area. The clause does not refer to a “breakdown” of the AIS which would not constitute a breach of the warranty in any event. In the case of such a breakdown the master is to make a note in the logbook and report it to the flag state. The AIS is designed for navigational safety purposes and any breakdown is to be treated the same way as a breakdown of any other item of mandatory safety equipment required by SOLAS. A lapse of judgement when owners wrongfully believe that they are allowed to switch the AIS off in accordance with the SOLAS Guidelines would also not constitute a breach of this warranty and not give the charterers the right to terminate the charter party.

The reference to six months prior to arrival at the first or sole load port is a suggestion only and can be amended by the parties to suit their individual needs. The reason for including a warranty period prior to the commencement of the actual charter party is to give charterers a contractual right to terminate the charter party in case the AIS had been switched off in violation of SOLAS under a previous charter party which would expose the charterers to enforcement actions. Charterers will want to avoid the ship or its owners from becoming sanctioned during their charter party for an AIS switch off and sanctions violations which happened under a previous employment. Additionally, the advisories issued by the various regulators recommend that the AIS history of the ship be checked which should be part of the sanctions compliance programme of a prudent company.

The suggested period of six months comes from the subcommittee’s own experience of the time frame within patterns of AIS switch offs can be identified.

Subclause (c) - Charterers’ right to request information

This subclause is intended to give the parties a tool to communicate in case of a problem but also to give charterers the opportunity to obtain information on a potential SOLAS violation under a previous charter party and the current charter party.

In practice, it is supposed to deal with the situation where charterers get information from a provider that there has been a suspicious AIS switch off which could be linked to a sanctions violation and the charterers want to obtain further information. Often, this information can only be provided by the owners and because of this the charterers can request information on the reasons for the AIS switch off. Where the owners then show that the AIS was switched off in accordance with the SOLAS guidelines, the issue will be resolved.

The subclause does not give charterers the right to terminate the charter party where the owners do not comply with charterers’ request to provide information and they will need to obtain information from third party providers to establish the breach of the warranty.

Since the clause is linked to a violation of the OFAC Advisory, the charterers should be prevented from asking owners each and every time the AIS was not transmitted which would be too cumbersome.

The owners have 72 hours to provide the charterers with an explanation for the apparent breach. Again, this is a recommendation only and can be amended by the parties. The time is important to charterers’ termination right under subclause (d) which can only be exercised once the stated hours have lapsed which should be kept in mind when amending the provision.

Subclause (d) – Owners’ breach of warranty

This subclause gives the charterers the right to terminate the charter party and/or claim damages if the owners are in breach of their warranty under subclause (b). The right to terminate arises only when the time for owners to explain the apparent breach under subclause (c) has lapsed.

The right to terminate the charter party arises with the first breach of the warranty under subclause (b) and no pattern is required. This is considered to be fair and balanced because only “malicious” switch offs are covered under the warranty and one intentional switch off could result in owners becoming designated and exposing the charterers to potential enforcement actions. The consequences of being sanctioned are so severe that there should be the contractual right for the innocent party to remove itself from such a transaction.

Another reason why no pattern is required is that there is no definition of what would constitute a “pattern” in the OFAC Guidelines which could result in uncertainties as to when there is a breach of the warranty under subclause (b) and consequently a lack of clarity as to when charterers’ right to terminate the contract arises.

Subclause (e) – Charterers’ warranty

Under this subclause, the charterers warrant that they will not request an AIS switch off other than in accordance with the SOLAS Guidelines.

The subclause further deals with a second situation where the ship is used for STS cargo transfers. In such a situation, the charterers also warrant that the STS operations are conducted with a vessel whose AIS has been operated in accordance with the SOLAS Guidelines throughout the last six (6) months prior to the orders. This deals with the practical situation where the main issues with AIS switch off occur in which the AIS of the other ship or barge from which the ship is loaded or discharged has been switched off. The purpose of such a switch off is most likely to be to conceal the origin of the cargo. This subclause gives the owners the contractual right to reject orders and stop ongoing STS operations where the AIS of the other ship has not been operated in accordance with the SOLAS Guidelines.

The OFAC Advisory recommends that charterers also check the other ship involved in an STS transfer for any potential AIS manipulation, including for a period prior to the current employment of that ship. To reflect this recommendation, the warranty under this subclause is extended to 6 months prior to the planned STS operation, which is a recommendation only and can be adjusted by the parties. If the STS operation is to take place in a high-risk area, the period can be extended.

It is important to note that stemming bunkers is not intended to be covered by this clause.

Subclause (f) - Charterers’ breach of warranty

This subclause reflects charterers’ warranties under subclause (e) and deals with a breach of the warranty to request the switch off of the AIS in breach of the SOLAS Guidelines and also to give orders to conduct an STS transfer with a ship whose AIS has not been operated in accordance with the SOLAS Guidelines.

If the charterers give orders in breach of subclause (e)(i), the ship will remain on hire whilst waiting for the new orders. If, however, the parties wish to have a different position, this subclause may be amended.

The subclause does not address how a potential time loss under a voyage charter party should be allocated. In case the parties wish to address this, the clause could refer to a compensation mechanism by which the time lost can be compensated at the demurrage rate.