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Gard News 187 -

 



Gard News has a look at some of the challenges of compliance and potential consequences of non-compliance with MARPOL Annex VI.

What is MARPOL Annex VI?
MARPOL Annex VI is a section of the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto (MARPOL 73/78), drafted by the International Maritime Organization (IMO).1 The individual sections of the convention have entered into force at different times as they gained the required number of signatory states. For example, MARPOL Annex I, regulations for the prevention of pollution by oil, have been in force for more than 20 years. Annex VI, regulations for the prevention of air pollution from ships, entered into force on 19th May 2005. Presently 37 countries have ratified Annex VI covering 70 per cent of the global tonnage.

Annex VI sets limits on sulphur oxide (SOx) and nitrogen oxide (NOx) emissions from ship exhaust and prohibits deliberate emissions of ozone depleting substances. The Annex places a global cap on the sulphur content of fuel oil at 4.5 per cent m/m (percentage by mass) and a 1.5 per cent m/m cap in “SOx Emission Control Areas” (SECAs). The Baltic Sea is currently defined as a SECA. In July 2005 the IMO adopted amendments which identify the North Sea as a SECA, with an implementation date of November 2007. Annex VI also prohibits the introduction into fuels of inorganic acids or chemical wastes that could jeopardise the safety of the ship, or harm ships’ personnel.2

Ships of 400 GT or more engaged in international voyages to or from countries that have ratified the convention or ships flying the flag of those countries are required to have an International Air Pollution Prevention certificate (IAPP Certificate) issued by the flag state (usually the class society as designated agent by flag state or for ships that are not registered in a MARPOL Annex VI signatory state).

In order for flag and port states to monitor compliance with the regulations, MARPOL Annex VI requires a bunker delivery note to be obtained and retained on board stating the sulphur content of the bunkers supplied, as well as samples of the oil. Fuel oil suppliers that are located in MARPOL Annex VI signatory states are subject to the regulations but those in non-signatory countries are not subject to oversight by the port state authorities.

The challenges of compliance and potential consequences of non-compliance
An article written by a DNV expert and published in Gard News issue No. 1843 outlines some of the possible problems with low sulphur fuels and with the addition of the North Sea SECA. Among those issues identified are ignition and combustion problems due to the low sulphur content and an increased presence of catalytic fines, abrasives that can damage the engine. Toxic materials may find their way into fuels. Such materials can lead to personal injury of crew or others aboard or on shore. DNV has also questioned the market availability of sufficient low sulphur bunkers due to the addition of the North Sea SECA. Finally, as an operational problem DNV has identified the difficulty of timing a change over to fuel required to enter and operate within a SECA. Even with the required fuel on board, a mistimed or improperly executed change over will result in violations within a SECA.

In the event that the fuel does not meet the low sulphur requirements, port state or flag state authorities may require deviation, de-bunkering and replacement of fuel, causing delay and additional costs. MARPOL violations may also result in fines against the vessel. Reportedly, enforcement activity has, to date, been light but if history with respect to MARPOL Annex I serves as an example, penalties will increase if the industry is slow to comply.

The vessel owners’ and charterers’ responsibilities for compliance
When the vessel is under a time charter, at a minimum the following parties will be involved in bunkering: shipowner, time charterer, bunkers broker and physical supplier. As a starting point, compliance with MARPOL Annex VI is the responsibility of the vessel owner. Ultimate liability for the consequences of off specification fuel, however, may be subject to contract indemnity provisions commonly found in time charterparties, or liability may rest with the supplier depending upon the terms of a sales contract. At least under English law, the bunker broker is ordinarily considered the agent of the purchaser and is not a party to the bunker sales contract and is therefore not generally subject to liability.

The time charterer is ordinarily obliged to purchase the bunkers pursuant to various forms of charterparty clauses. Typically a bunker clause will refer to a specific grade of fuel that meets “ISO 8217 Third Edition 2005” specifications. This standard was amended in 2005 to track MARPOL requirements, including the sulphur limits and elimination of waste oils. Bunkers clauses would also typically warrant that bunkers supplied by charterers comply with MARPOL requirements as well as any special regional requirements where the vessel may trade. The United States is not currently a signatory to Annex VI but California, for example, has its own standards and requirements for ship stack emissions.

As an addition to fuel specification, BIMCO has published a clause that is intended to balance the rights and responsibilities of owners and charterers.4 Pursuant to this clause the charterer will be liable to the owner when the physical supplier has delivered non-compliant bunkers. If the bunkers supplied are compliant, the owner will be responsible for the consequences of operational failures such as failure to timely change over to low sulphur fuel before entering a SECA which results in sulphur content in excess of 1.5 m/m.

The bunkers sale contract and possible recourse against the bunkers supplier
The business of supplying bunkers is said to be one of slim margins. Yet the commodity is essential. Suppliers generally have the upper hand with respect to dictating the terms of the sales contract. Suppliers in MARPOL signatory countries do have an obligation to comply with the Annex VI requirements and should not have an issue with wording in the sales contract that confirms the obligation.

The buyer is responsible for specifying the quality ordered and should ensure that the bunkers sale is ordered and confirmed as: “fully in accordance with ISO 8217 Third Edition 2005 and MARPOL Annex VI” and any other specific regional requirement for ports where the vessel will call. When fuel is required for a SECA, the following should be added: “and with maximum sulphur content of 1.5 per cent.” Additionally, the contract should state that “the supply procedures shall comply in all respects with the requirements of MARPOL Annex VI regulations in respect of sampling and documentation including the bunker delivery note”.

It takes time to analyse fuel, so it may not be practical or possible to independently test quality before delivery. The bunker delivery note requires the supplier to declare the sulphur content of the bunkers delivered and MARPOL does not require the supplier or the vessel to analyse the product before acceptance but, instead, merely requires sampling and retention of samples for analysis should there later be a question as to compliance. But testing should be done in any event to make sure the bunkers supplied meet the specifications. Sampling should be witnessed by vessel personnel or a designated surveyor and samples should be taken at the ship manifold. It is not recommended to accept samples from the supplier that have not been witnessed. Ideally, the sale contract should include an agreement to the test protocol and lab for the analysis.

If the fuel is ultimately determined to be off-spec, can the buyer seek recourse against the seller for additional costs or liabilities they may have? Yes, but often the sale contract contains provisions that either extinguish the claim or limit it. Bunker supply contracts are notorious for extremely short claim notification limits. Seven days from delivery is common. The short window for claims against the supplier underscores the importance of immediate analysis and notice to the supplier. Another common clause limits the claim to the value of the bunkers supplied which will be insufficient to cover losses such as damage to an engine.

The bunker sale contract should contain a dispute resolution clause which also specifies law and jurisdiction. In an ideal world, the forum would be the same in the charterparty and the bunker sale contract: for example, English law and arbitration. That way, in the case of dispute, all three parties could be brought into one proceeding. In the real world, the contract between owner and charterer and the contract between charterer and bunker supplier are both based on form contracts and favoured terms which may not be negotiable.

P&I and Defence cover respond to the new risks
Gard’s Defence cover provides compensation for legal and other costs pertaining to disputes related to MARPOL Annex VI non-compliance, whether under charterparties or bunker sale contracts, and whether pursuing or defending such claims. The Defence cover also includes fees and expenses due to claims by authorities for fines whether they are presented directly or via a charterparty indemnity provision. Gard’s lawyers and solicitors may also assist in advising members concerning contract provisions before a claim arises.

Damage to the ship itself is not an owners’ risk under P&I (but may be an insured risk under hull and machinery insurance). Gard’s Comprehensive Charterers P&I Cover, however, includes charterers’ liability for damage to hull. Thus, liability for physical damage to the vessel caused by bunkers, and de-bunkering costs, if in mitigation of liability for damage to the vessel, are covered risks under the charterers’ P&I policy. Liability for personal injury due to toxic substances to persons on board or ashore is a covered P&I risk. Rule 38 of Assuranceforeningen Gard’s Statutes and Rules covers liability for pollution (with the exception of fines) caused by stack emissions whether it is direct liability or via indemnity under the charterparty. Legal costs associated with any of these covered risks are also picked up by Gard provided such costs are approved by Gard.

P&I cover for fines is narrow. Under Rule 47.1.c, pollution fines are covered if they arise from an “accidental escape or discharge” of a pollutant from the vessel.

Fines for stack emissions exceeding the MARPOL cap may not be considered “accidental” in that the emission itself is intentional. Fines may be considered for discretionary cover on a case-by-case basis under Rule 47.2, provided “the member has satisfied the Association that he took such steps as appear to the Association to be reasonable to avoid the event giving rise to the fine”.

Finally, costs associated with delay, detention and deviation are not covered under owners’ P&I. Charterers’ liability for delay is covered if in consequence of damage to the hull caused by off-specification bunkers. Loss of use claims are of course subject to the Defence cover with respect to owners and charterers.

Conclusion
The focus on air pollution, including stack emissions reflected in the MARPOL requirements, will no doubt increase. Bunker quality claims under sale contracts and charterparties will certainly grow in number and value. Owners and charterers can meet these new challenges with practical loss prevention measures on both a technical and legal basis. Gard is here to help its members meet the new challenges.

Footnotes
1 See article “Annex VI of MARPOL 73/78 –Regulations for the Prevention of Air Pollution from Ships” in Gard News issue No. 176.
2 See article “MARPOL Annex VI – Solving the low sulphur issue” in Gard News issue No. 184.
3 See footnote 2.
4 See article “New BIMCO bunker fuel sulphur content clause” in Gard News issue No. 179.

Gard News 187, August/October 2007

Any comments to this article can be e-mailed to the Gard News Editor.

Gard News is published quarterly by Gard AS, Arendal, Norway.