Ships emissions - Contractual considerations

Ships emissions – Contractual considerations

Gard News has a look at charterparty provisions regarding the sulphur content in fuel oils.

Time charterparties often require charterers to pay for and provide bunkers suitable for use by the chartererd vessel.  Shipowners have an underlying responsibility to advise the charterers of the specification and grade of bunkers which are to be supplied, which is usually done through a clause in the charterparty.

In light of the implications MARPOL Annex VI¹ may have on the required fuel oil quality in given areas, it is recommended that the parties consider the relevant charterparty terms to protect their position with respect to potential fines and/or charterparty disputes.

BIMCO clauses
In order to ensure that the parties to a contract are clear as to their duties in regard to the sulphur content in fuel oils, BIMCO has prepared the following charterparty clause:

“BUNKER FUEL SULPHUR CONTENT CLAUSE FOR TIME CHARTER PARTIES 2005

(a) Without prejudice to anything else contained in this Charter Party, the Charterers shall supply fuels of such specifications and grades to permit the Vessel, at all times, to comply with the maximum sulphur content requirements of any emission control zone when the Vessel is ordered to trade within that zone.

The Charterers also warrant that any bunker suppliers, bunker craft operators and bunker surveyors used by the Charterers to supply such fuels shall comply with Regulations 14 and 18 of MARPOL Annex VI, including the Guidelines in respect of sampling and the provision of bunker delivery notes.

The Charterers shall indemnify, defend and hold harmless the Owners in respect of any loss, liability, delay, fines, costs or expenses arising or resulting from the Charterers’ failure to comply with this Sub-clause (a).

(b) Provided always that the Charterers have fulfilled their obligations in respect of the supply of fuels in accordance with Sub-clause (a), the Owners warrant that:

(i) the Vessel shall comply with Regulations 14 and 18 of MARPOL Annex VI and with the requirements of any emission control zone; and

(ii) the Vessel shall be able to consume fuels of the required  sulphur content when ordered by the Charterers to trade within any such zone.

Subject to having supplied the Vessel with fuels in accordance with Sub-clause (a), the Charterers shall not otherwise be liable for any loss, delay, fines, costs or expenses arising or resulting from the Vessel’s failure to comply with Regulations 14 and 18 of MARPOL Annex VI

(c) For the purpose of this Clause, “emission control zone” shall mean zones as stipulated in MARPOL Annex VI and/or zones regulated by regional and/or national authorities such as, but not limited to, the EU and the US Environmental Protection Agency.”

BIMCO has incorporated the requirements of MARPOL Annex VI and as such has endorsed the principle that charterers must provide fuels which comply with the requirements of MARPOL and meet the criteria of the Emission Control Area (ECA) to which the vessel is ordered. There is a further provision for charterers to employ only bunker suppliers that comply with the regulations, although there is no clarification as to the extent to which they must comply. This remains a grey area. The clause imposes responsibility on owners to comply with the regulations but only in so far as charterers have fulfilled their obligations.

This clause is designed to complement BIMCO’s standard bunkering quality and liability clause also recommended for time charterparties:

“STANDARD BUNKERING QUALITY AND LIABILITY CLAUSE

(a) The Charterers shall supply fuels of the agreed specifications and grades. The fuels shall be of a stable and homogeneous nature and suitable for burning in the Vessel’s engines or auxiliaries and, unless otherwise agreed in writing, shall comply with ISO standard 8217:2010 or any subsequent amendments thereof.

(b) The Charterers shall be liable for any loss or damage to the Owners or the Vessel caused by the supply of unsuitable fuels and/or fuels which do not comply with the specifications and/or grades set out in sub-clause (a) above, including the off-loading of unsuitable fuels and the supply of fresh fuels to the vessel. The Owners shall not be held liable for any reduction in the Vessel’s speed performance and/or increased bunker consumption nor for any time lost and any other consequences arising as a result of such supply.”

The parties' duties with regard to the sulphur content in
fuel oils should be made clear in charterparties.

The clause provides that charterers will supply fuel of the agreed specification and grade, which requires that owners and charterers agree on the amount of each specification/grade of fuel needed. This requires owners to declare which grade(s) of fuel the vessel requires for the intended voyage. However, there is a further requirement that the fuel shall be “suitable for burning in the vessel’s engines”. Such a term could be construed to mean that for any vessel transiting an ECA, in order for the fuel to be suitable for the engine to burn, it must be in compliance with the regulations applicable to that geographic zone. Sub-clause b) directs the liability for loss or damage suffered by the owners for the provision of unsuitable fuel, including any delays, to the charterers. Charterers will have to evaluate this risk, considering that vessels normally have no means on board of checking the sulphur content of fuel.  There is therefore a risk that a vessel may unwittingly burn high sulphur fuel in ECAs and potentially expose the shipowner to fines, delay and other costs and  expenses.

Therefore, it is very important for charterers to ensure the bunkers they are supplying are suitable not only in regard to the physical aspect of the engine but also in regard to the resultant emissions from burning such fuel.

In addition, BIMCO has published a Standard Bunker Contract to be used between bunker suppliers and buyers. Its clause 2 reads:

“GRADES/QUALITY

(a) The Buyers shall have the sole responsibility for the nomination of the grades of Marine Fuels fit for use by the Vessel.

(b) The Sellers warrant that the Marine Fuels shall be of a homogeneous and stable nature, shall comply with the grades nominated by the Buyers and be of satisfactory quality. Unless otherwise agreed in the Confirmation Note, the Marine Fuels shall in all respects comply with ISO Standard 8217:1996 or any subsequent amendments thereof.”

BIMCO makes the following statement in their notes to accompany the contract:

“Sub-clause (a) clearly places the responsibility with the buyers for nominating a specific grade (e.g., RME 25), ‘fit for use by the vessel’. Although in the original FUELCON wording the term ‘suitable to the vessel’ was used, existing case law on the subject suggests that the phrase ‘fit for use’ is the more applicable term.

Sub-clause (b) has been the subject of considerable discussion and legal opinion. It was decided that  the English ‘Sale and Supply of Goods Act 1994’ should be used to form the legal basis of the Contract, as the concepts introduced in this legislation are generally consistent with those in many other jurisdictions. The Act replaces the old notions of merchantability and fitness with the single concept of ‘satisfactory quality’. Nevertheless, it was felt appropriate to specifically highlight that the marine fuels shall be of a homogeneous and stable nature and comply with the grades nominated by the buyers. The sub-clause also stipulates that, in principle, the marine fuels will comply with ISO Standard 8217:1996 or any subsequent amendment, but that other standards may be used, in which case such standards should be stated in the Confirmation Note.”

Conclusion
Although the relevant BIMCO clauses are recommended by P&I Clubs, owners and charterers should be aware of the responsibilities they impose on each of them and ensure that they are able to comply with the provisions of the clauses before including them in charterparties.

Footnotes
¹ See article “Marpol Annex VI – New risks and challenges for owners and charterers” in Gard News issue No. 187.

Any comments on this article can be e-mailed to the Gard News Editorial Team.