Steady Ship, Shifting Hands: Decoding Clause 34 on Change of Ownership During a Charter

Steady Ship, Shifting Hands: Decoding Clause 34 on Change of Ownership During a Charter

 

Can a vessel be sold mid-charter without your consent?

Will a name or flag change affect your rights under the current Charter Party?

Are you protected if the new owner is part of the same corporate group?

These are the practical concerns addressed by Clause 34 – Change of Ownership, a clause that allows flexibility for shipowners while ensuring operational and legal stability for charterers.

In today’s market, where vessel sales and fleet restructures are frequent, understanding this clause isn’t just legal housekeeping—it’s essential risk management.

 

Clause 34 – Change of Ownership: What It Really Means

This clause governs ownership transitions, management changes, flag/name modifications, and charter continuity during the term of a Charter Party.

 

Let’s break it down:

 

🔹 1. Right to Sell or Transfer During Charter

Owners retain the right to sell the vessel or change its:

• Ownership
• Management
• Flag
• Name

This right exists during the currency of the Charter, as long as the charter’s terms and conditions remain unaffected.

📌 Example: If M/V OCEAN PROGRESS is chartered under a time charter and the owner sells her to another party, the new owner must honor the same CP terms. Freight rates, laytime terms, and redelivery dates cannot be altered.

 

🔹 2. Novation Agreement Requirement

Novation is a legal process where a new party replaces the original one under a contract. In this case:

• The Charterers’ prior written consent is required for a third-party buyer.
• Such consent cannot be unreasonably withheld.

🧭 Practical Tip: Charterers should pre-define what constitutes "reasonable" grounds for withholding consent—e.g., lack of financial stability, sanctions exposure, or operational inexperience.

 

🔹 3. Exception for Group Transfers

If the vessel is transferred within the same corporate group (XX Group in this case), consent is not required, provided:

• The new company is majority-owned and controlled by the RB Group.
• Charterers are given prior notice with details.

⚖️ Commercial Reality: This allows owners flexibility to optimize corporate structures without risking operational interruption.

 

🔹 4. Right to Change Vessel Name

The owner can change the vessel name during the charter period.

🚨 Pitfall: This seemingly simple right can cause confusion in:

• Port documentation
• Bill of lading issuance
• Legal filings and claims

🧾 Practical Tip: Always circulate updated ship particulars and IMO records when a name change occurs.

 

🔹 Legal Perspective & BIMCO Guidance

BIMCO’s position is consistent: novation should preserve the original Charter Party terms in full, and a group-level change does not generally trigger renegotiation or termination rights unless specifically agreed.

📚 Case Reference: The "SC Sophia" [2020] London Arbitration—a dispute arose when charterers claimed refusal rights over a group transfer. Tribunal ruled in favor of owners due to clear wording in the charter party allowing intra-group transfer without consent.

 

Actionable Steps for Stakeholders

✅ Ship Owners

• Maintain clear documentation of group structures to justify intra-group transfers.
• Draft novation agreements well in advance and propose them with full transparency.
• Notify all parties—including P&I clubs, flag state, and class—of any sale or name change.

✅ Charterers

• Conduct due diligence on new owners before giving consent.
• Insert criteria in charter terms defining “reasonable grounds” to refuse novation.
• Confirm updated vessel particulars for cargo documents.

✅ Ship Managers / Operators

• Coordinate name/flag change notifications with agents, charterers, and class.
• Keep the crew informed—port clearance issues can arise with inconsistent documentation.
• Update ISM and insurance documentation accordingly.

 

Conclusion: Know the Hand That Steers the Ship

In a fluid asset market, Clause 34 provides a vital legal mechanism for continuity and control. It protects charterers from being blindsided by a new owner and provides shipowners with enough flexibility to manage their commercial strategy.

Understanding how, when, and with whom a vessel may change hands—or identity—can prevent disputes, delays, and costly misunderstandings.

 

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