BIMCO New IMO regulations will pose contractual problems - A new chapter for MARPOL Annex VI

The amendments to the International Convention for the Prevention of Pollution from Ships (MARPOL) were adopted in July 2011.They add a new chapter 4 Regulations on energy efficiency for ships to MARPOL Annex VI, to make mandatory the Energy Efficiency Design Index (EEDI), for new ships, and the Ship Energy Efficiency Management Plan (SEEMP) for all ships. Other amendments to Annex VI add new definitions and the requirements for survey and certification, including the format for the International Energy Efficiency Certificate.

The regulations apply to all ships of 400 gross tonnage and above. However, under regulation 19, the Administration may waive the requirements for new ships up to a maximum of 4 years.

The EEDI is a non-prescriptive, performance-based mechanism that leaves the choice of technologies to use in a specific ship design to the industry. As long as the required energy-efficiency level is attained (regulations 20 and 21), ship designers and builders would be free to use the most cost-efficient solutions for the ship to comply with the regulations.

The SEEMP establishes a mechanism for operators to improve the energy efficiency of ships. Regulation 22 requires ships to keep on board a ship specific Ship Energy Efficiency Management Plan (SEEMP).

Enhancing energy efficiency

Shipping is permanently engaged in efforts to optimize fuel consumption. And, while ships are universally recognized as the most fuel-efficient mode of bulk cargo transportation, the Second IMO GHG Study, published in 2009, identified a significant potential for further improvements in energy efficiency, mainly through the use of already existing technologies such as more efficient engines and propulsion systems, improved hull designs and larger ships: or, in other words, through technical- and design-based measures that can achieve noteworthy reductions in fuel consumption and resulting CO2 emissions on a capacity basis (tonne-mile). The study also concluded that additional reductions could be obtained through operational measures such as lower speed, voyage optimization, etc.

The EEDI addresses the former type of measure by requiring a minimum energy efficiency level for new ships; by stimulating continued technical development of all the components influencing the fuel efficiency of a ship; and by separating the technical and design-based measures from the operational and commercial ones.

The SEEMP provides a management framework, that may form part of the ship’s safety management system, for improving the energy efficiency of a ship whilst operating at sea and in port,.

Applicability

The EEDI formula – as presently drafted – is not supposed to be applicable to all new ships of 400 gross tonnes and above engaged in international trade. Indeed, it is explicitly recognized that it is not suitable for all ship types (particularly those not designed to transport cargo) or for all types of propulsion systems (e.g., ships with diesel-electric, turbine or hybrid propulsion systems will need additional correction factors).

Indeed, the first iteration of the EEDI has been purposefully developed for the largest and most energy-intensive segments of the world merchant fleet, thus embracing approximately 70 per cent of emissions from new ships and covering the following ship types: tankers, gas carriers, bulk carriers, general cargo ships, refrigerated cargo carriers and container ships.

For ship types not covered by the current formula, suitable formulae will be developed in due course to address the largest emitters first. IMO’s Marine Environment Protection Committee (MEPC) is poised to consider the matter in detail at future sessions, with a view to adopting further iterations of the EEDI.

All existing ships of 400 gross tonnes and above engaged in international trade are required to implement and maintain a SEEMP which establishes a mechanism for operators to improve the energy efficiency of ships. This should be achieved by monitoring the energy efficiency performance of a ship’s transportation work and at regular intervals considering new technologies and practices to improve energy efficiency.

The SEEMP will offer operators of existing ships the chance to reduce costs immediately by saving fuel. As the regulation does not set any energy efficiency requirements it will be up to the industry to proactively utilize SEEMP to ensure they optimize the fuel saving benefits. In the end it is in the industry’s best interests to utilize the SEEMP as with fuel accounting for over 50% of operational costs, keeping fuel costs in check is a major factor in the industry’s economic health. Such an approach will be important to achieving both sustainable development and economic goals for the industry going forward.

A set of such guidelines was adopted by MEPC 63 (March 2012) intended to assist in the implementation of the mandatory regulations on Energy Efficiency for Ships in MARPOL Annex VI:

• resolution MEPC.212(93) – 2012 Guidelines on the method of calculation of the attained Energy Efficiency Design Index (EEDI) for new ships;
• resolution MEPC.213(93) – 2012 Guidelines for the development of a Ship Energy Efficiency Management Plan (SEEMP);
• resolution MEPC.214(93) – 2012 Guidelines on survey and certification of the Energy Efficiency Design Index (EEDI); and
• resolution MEPC.215(93) – Guidelines for calculation of reference lines for use with the Energy Efficiency Design Index (EEDI).

Minimum propulsion power

The need for a minimum propulsion power to be incorporated into the EEDI formula has been duly acknowledged and, to that end, regulation 21.5 of MARPOL Annex VI states that “For each ship to which this regulation applies, the installed propulsion power shall not be less than the propulsion power needed to maintain the manoeuvrability of the ship under adverse conditions as defined in the guidelines to be developed by the Organization.”

It should, therefore, be clear that IMO fully supports the view that a minimum installed power to maintain safe navigation in adverse (weather) conditions is of critical importance to ensure both the safety and efficiency of international shipping. While the EEDI instrument therefore contains the standard to be achieved on this matter, implementation of that standard will be enabled through guidelines that are also to be adopted. IMO circular MSC-MEPC.2/Circ.11 provides “Interim Guidelines for determining minimum propulsion power to maintain the manoeuvrability of ships in adverse conditions”.

Fuel efficiency and engine power

Although the easiest way to improve a vessel’s fuel efficiency is, indeed, to reduce speed – hence the move to slow steaming by a significant number of ships – there is a practical minimum at which fuel efficiency will decrease as a vessel is slowed down further. There are other technical ways to improve fuel efficiency, such as waste heat generators, which do not impact on speed (they impact on auxiliary engines). Indeed, improvements in road transport efficiency have been made through advances in technology that have, however, not led to a sacrifice in speed; rather, quite the opposite.

It has been (wrongly) argued that the EEDI limits installed power and so induces owners to use small-bore high-rpm engines, thereby increasing fuel consumption. However, a reduction of installed power does not require a reduction in engine bore and increasing rpm. The easiest way to reduce power would be to “de-rate” the exact same engine by limiting the “maximum” rpm (remember, horsepower = torque multiplied by rpm). This would have the impact of increasing propeller efficiency (if the exact same propeller is installed), as propeller efficiency will generally improve as rpm decreases. Another practical way to reduce installed horsepower is to install an engine with one cylinder fewer. This would have no impact on specific fuel consumption or rpm. Such engines can be identified by reference to the catalogues of major engine manufacturers.

Of course, there are “economies of scale” in ships’ fuel efficiency. The larger the ship (at a given speed), the lower the fuel consumption per unit of cargo. However, such economies of scale are limited by trade considerations, physical port limitations (generally, draft) or cargo logistics issues. Therefore, ships tend to be designed to be as large as practical for a given trade.

Effectiveness of EEDI and SEEMP in reducing emissions from ships

The EEDI, in establishing a minimum energy efficiency requirement for new ships depending on ship type and size, provides a robust mechanism that may be used to increase the energy efficiency of ships, stepwise, to keep pace with technical developments for many decades to come. It is a non-prescriptive mechanism that leaves the choice of which technologies to use in a ship design to the stakeholders, as long as the required energy-efficiency level is attained, enabling the most cost-efficient solutions to be used. Such technologies have been comprehensively considered in the 2009 IMO GHG Study and are now frequently highlighted by the shipping media. A consequence of the new regulations, and the growing interest and demand for innovative energy efficiency improving technologies, is leading to significant investment in research and development.

Fuel oil consumption represents a significant element of the cost of operating a ship today. The effective implementation of SEEMP onboard a ship could lead to a reduction in fuel used, and so could be considered a commercial imperative, as much as a regulatory one, for those seeking to manage a ship in today’s market. To enable the ship’s energy efficiency performance is be optimised the operational energy efficiency measures employed either at sea or in port need to be robustly monitored and appropriate benchmarking tools used. Comparing the energy efficiency performance of one ship with that of a similar ship on the same trading route is also possible but this is more complicated as energy efficiency of different ships can be affected by many variables, not least, the weather and sea conditions they each experience. A proactive approach to energy management of a ship should deliver cost improvements for the business and a reduction of emissions from ships for wider society. 

Carbon emission regulations set to be adopted at the next meeting of the International Maritime Organization’s Marine Environmental Protection Committee (MEPC) will need to be addressed by shipowners’ legal teams as well as their technical departments, according to a study by independent shipowners’ association BIMCO and several other key stakeholders.

The impact assessment identified a range of contractual challenges in the proposed carbon regulations.

BIMCO has begun to prepare charter party clauses to help owners and charterers comply with the new regime.

Since charter parties that extend beyond 2023 were already being negotiated and agreed, BIMCO had given this task top priority.

BIMCO said that the main driver of its initiative was the amendments to chapter 4 of MARPOL Annex VI, which are due to come into force in 2023. Those changes will regulate more strictly the energy efficiency and carbon intensity of ships.

BIMCO said that the future regulatory framework might require shipowners to reduce engine power and speed to comply with the Energy Efficiency Existing Ship Index (EEXI). Meanwhile, the carbon intensity index (CII) requirements might also see shipowners having to reduce cargo intake, as well as taking measures that will affect the routes chosen and the speed of the vessel during its journey.

BIMCO warned that compliance with the new regime might mean that shipowners would be at risk of being in breach of their obligations in performing the voyage under standard charter party terms.

BIMCO said that the impact study indicated that the commercial implications would be just as challenging as the contractual issues.

It observed that compliance would involve cost “This may take the form of capital costs installing new equipment to make the ship more efficient; or it may be costs related to cargo shutout and longer voyage durations. A fair allocation of costs and responsibilities will be at the heart of the new BIMCO clauses to ensure that neither party is unduly disadvantaged by the carbon regulations.”

BIMCO said that it would also look closely at emission trading schemes currently under discussion and how they would be dealt with in charter parties. The association said that, although carbon levies could be considered a “tax” for the purposes of charter parties, and therefore covered by existing clauses in standard forms, it might be that a more prescriptive approach was called for.

BIMCO said that it had been encouraged by the willingness of several dry cargo and wet charterers to work together with shipowners and BIMCO to find contractual solutions.

BIMCO’s Documentary Committee will discuss the draft carbon clauses over the summer and review then for possible adoption in September.

An essential part of this process is bringing owners and charterers together to find practical and commercial solutions to issues that are fair to both parties. BIMCO’s impact study has indicated that the commercial implications of CII will be as equally challenging as the contractual issues. Compliance will involve cost. This may take the form of capital costs installing new equipment to make the ship more efficient; or it may be costs related to cargo shutout and longer voyage durations. A fair allocation of costs and responsibilities will be at the heart of the new BIMCO clauses to ensure that neither party is unduly disadvantaged by the carbon regulations.
Is it a tax?

BIMCO will also look closely at emission trading schemes currently under discussion and how they be dealt with in charter parties. Although carbon levies could be considered a “tax” for the purposes of charter parties and therefore covered by existing clauses in standard forms, it may be that a more prescriptive approach is called for.

As with the industry’s transition to low sulphur fuels in 2020, the carbon clauses will require owners and charterers to closely cooperate on technical and operational activities. On this aspect BIMCO has been encouraged by the willingness of several dry cargo and wet charterers to work together with shipowners and BIMCO to find contractual solutions.

BIMCO’s Documentary Committee will discuss the draft carbon clauses over the summer and review then for possible adoption in September.

https://www.bimco.org/news/priority-news/20210528-bimco-tackles-challenging-carbon-rules-with-new-charter-party-clauses

The “Tai Prize” Case – The Court of Appeal reaffirms the Master’s duty to independently record the order and condition of cargo

The Tai Prize decision is unsurprising in result in that it reaffirms the Master’s obligations under the Hague-Visby regime.  It is, however, a demonstration of a failed attempt by a time charterer to pass liability to the voyage charterer for damage to soya beans due to pre-shipment conditions. Following their breakdown of the case, our authors discussed the options in such cases for Owners, Time Charterers and their P&I Clubs with Solicitor Darryl Kennard of Penningtons Manches Cooper LLC.

The Court of Appeal in PRIMINDS SHIPPING (HK) CO LTD V NOBLE CHARTERING INC (“The Tai Prize”) confirmed the commercial court’s decision which held that the shipper’s statement in a draft Bill of Lading presented to the Master does not amount to a warranty by the Shipper/Charterers of the cargo’s apparent order and condition. This is because the carrier has the free-standing and independent obligation under the Hague Rules to accurately record the apparent order and condition of the cargo on the Bill of Lading when shipped on board.

Background

The Tai Prize loaded a cargo of 63,366.150MT soyabeans in Brazil bound for China. Shippers presented Shipowners a Bill of Lading which contained the statements “clean on board” under “Shipper’s description of Goods” and “shipped … in apparent good order and condition.” At discharge, receivers raised a claim for burnt, discolored and moldy cargo. Receivers succeeded in their claim in Chinese court against the Head Owners as carriers under the Bills of Lading. Shipowners recovered a 50% contribution from Disponent Owners under the Inter-Club Agreement as incorporated in the Head Time Charterparty. In turn, Disponent Owners claimed 100% recovery from Charterers under an amended North American Grain Charterparty 1973. They succeeded in arbitration on the basis (as held by the Tribunal) that

(i)     it would, on a reasonable pre-shipment inspection, have been apparent to the shippers/charterers that the cargo was not in apparent good order and condition,

(ii)    in consequence of this, the draft bill of lading presented for signature was inaccurate because it stated that the cargo was shipped in apparent good order and condition and

(iii)  Owners were entitled to be indemnified for any liability they incurred by reason of signing inaccurate draft bills because the defective condition of the cargo was not apparent to the Master on a reasonable inspection during loading.

The Commercial Court

The Charterers appealed the arbitrator’s decision to the High Court, which considered the following questions:

1.     Did the pre-filled statements, “clean on board” and “apparent good order and condition” on the draft Bills of Lading, constitute a representation or warranty by shippers as to their knowledge of the apparent condition of the cargo as presented, or were the draft Bills of Lading merely an invitation to the Master to make his own assessment of the apparent order and condition of the cargo after reasonable inspection?

2.     Were the Bills of Lading, as issued, inaccurate as a matter of law?

3.     Would Charterers be liable to Owners either by way of warranty or implied indemnity if the Bills were inaccurate?

The High Court reversed the arbitrator’s decision, finding that a pre-filled statement on a draft Bill of Lading is neither a warranty nor a representation as it is the Master’s obligation independently to assess and record the apparent order and condition of the cargo. Furthermore, the Bills of Lading were not inaccurate as a matter of law, given that as far as the Master or crew could see during a reasonable inspection during loading, there was no damage to the cargo and thus no reason to remark the Bills of Lading. The last question then was moot as the Bills of Lading were not inaccurate.

The Court of Appeal Decision

The Court of Appeal considered the same three questions and confirmed the Commercial Court judgment.

First, they considered what the term “apparent good order and condition” means on a Bill of Lading. The arbitrator had accepted that the Master was unable to see any damage to the cargo at loading, but held that the damage would have been discoverable by shippers before loading, and thus the cargo was not in apparent good order and condition. The Court, citing The Nogar Marin, found that the arbitrator applied the wrong test; the words on a Bill of Lading are understood to be a representation by the Master, not the shippers. The authority of the David Agmashenebeli [2003] case was reconfirmed where it was held that the remark “in apparent good order and condition” is a statement made by the Master regarding the cargo’s external condition at the time of shipment arising from a reasonable examination by a competent Master based on the prevailing circumstances during loading. A reasonable examination does not entail that the Master is an expert in the cargo and cannot perform a granular inspection nor interrupt regular cargo operations for inspection. 

The principle that remarks about cargo condition are from the Master’s point of view is consistent with the Hague Rules incorporated in the Bills of Lading. Article III Rule 3 obliges the carrier to issue, upon the shipper’s demand, a bill of lading setting out certain information such as number of packages, leading marks, quantity, weight, and apparent order and condition of the goods. Further, Article III Rule 5 contains a guarantee (and associated indemnity) by the shipper to the carrier for accuracy of all this information save, importantly, for the apparent good order and condition of the goods. 

If the above establishes that it is the Master who is obliged to record the apparent order and condition of the cargo, what is the effect of the wording on the draft Bills of Lading, “shipped in apparent good order and condition” and “clean on board,” as presented by the shippers? Owners argued that this was a statement of shippers’ knowledge of the cargo condition, which gave rise to a right of indemnity where it was inaccurate. The court found that this was not the case, as it was contrary to the obligation of the Master to issue a Bill of Lading based on his own assessment of the apparent order and condition of the cargo. The presentation of the draft Bill of Lading by the Shippers is merely an invitation to the Master who must examine the external condition of the shipment at the time of loading and under normal loading procedures to confirm the cargo’s apparent good order and condition. If the shipper’s “clean” draft cannot be confirmed, the Master has a right, and a duty, to refer to cargo’s apparent condition at the time of shipment with a suitable remark. This principle leads back to the basic functions of a Bill of Lading, as a receipt from the Carrier for the goods as shipped on board, and as a contract of carriage (or evidence of a contract) between the holder of the Bill of Lading and the Carrier. 

In summary, on the questions of law, the Court found:

1.     The statements on the draft Bill of Lading provided by shippers do not amount to a representation or a warranty. They are an invitation to the Master to make an independent representation of the condition of the cargo as it is apparent to the Master.

2.     The Bills of Lading as issued were not inaccurate. 

On the question of implied indemnity, there could be no implied indemnity for shippers tendering a draft Bill of Lading; it would be contrary to the Carrier’s Hague Rules obligation to issue a Bill of Lading stating the apparent condition of cargo when shipped on board.
We took the opportunity to discuss the Tai Prize decision in the wider context of soya bean claims in China arising from inherent vice of the cargo with Darryl Kennard, Solicitor and Partner with Penningtons Manches Cooper LLC.

The Court of Appeal expressed some sympathy with the Owners in a theoretical case where the Shippers have actual knowledge of poor cargo condition, which the Master could have no reasonable means of discovering, suggesting in such a case there could be implied representation. What would be the applicable test to prove knowledge? And moreover, would gross negligence also pass the test?

The applicable test would be one of actual knowledge of the cargo being defective at the time of shipment. In any case, the question is only theoretical since there is neither an implied nor an express representation made by the Shippers who only provide a draft Bill of Lading to the Master. The Master has no obligation to follow what the pre-printed words mention if, according to his judgment, the cargo is not in apparent good order and condition. Another issue would be whether the party having suffered the loss (be the Head Owner or the Disponent Owner) would pursue its claim under the charterparty chain or under the bill of lading.

The latter may present better prospects of success. The party having suffered a loss, might possibly find an economic tort if it could be established that the Shippers knowingly and deliberately provided damaged cargo and tendered a draft “clean” bill of lading in order to obtain payment for defective cargo, and thereby benefited to the detriment of the Owners.

Is there any danger that Shippers/Voyage Charterer are “encouraged” to be careless or negligent as argued by Owners?

A clean Bill of Lading is simply a Bill of Lading without clausing, it is the Master who provides any information about the apparent order and condition. This case just makes clear that the Bill of Lading in draft form does not constitute a representation of the apparent order and condition of the cargo. How can the shippers be encouraged to do something they are not doing in the first place? If the defective condition is not apparent, then the Owners are not deprived of defenses, although they have to be careful to keep good records and overcome the burden of proof to show they have cared for the cargo and any defect was either not apparent at loading or not caused by the ship. It does not assist to conflate the cause of the claim with the remark on the bill of lading. The Owners did not succeed in China to convince the court that they had no liability for the damaged cargo condition. The cause of the liability was not the statements as to the apparent condition of the cargo as contained in Bills of Lading, which were accurate as far as the Master could determine.

The Hague Visby Rules, which are the benchmark of P&I cover, are clear with respect to Carrier’s obligations when signing a Bill of Lading. Does the “Tai Prize” bring Owners in a more onerous position or does it reiterate what is already known? (The David Agmashenebeli [2003] / Nogar Marin [1988])

This case aligns the risks with the provisions of the Hague Visby Rules. It was always the Master’s obligation to ensure the accuracy of the facts on the Bill of Lading insofar as concerns the apparent order and condition of the cargo, not of the Shippers. The obligation cannot be put on the Shippers who are only presenting the cargo for loading. The bill of lading is a receipt of goods being brought for loading, and it is the Master’s obligation to report the apparent condition of the cargo at the time of shipment under normal loading procedures, it always has been. The Master was never entitled to rely at what Shippers presented as being the condition of the cargo.

Is it an even balance of risk that Owners, or the Charterers in the middle, are left with a loss which was not their fault? For example, soya bean “inherent vice” claims represent significant exposure to P&I Clubs and Shipowners and this case makes it difficult to pass liability to voyage charterers, who would presumably have more information about the cargo condition. How can Owners protect themselves? Are express indemnity clauses the only solution? Could there be recourse against shippers under the Bill of Lading?

It is important to remember that although Charterers may be the agents of the shippers in a charterparty context, it cannot necessarily be said that it is the Charterers who would have more information about the cargo. The Master’s role in recording the condition of cargo at the time of shipment on a Bill of Lading has been the same for hundreds of years for a good reason, which is that the Master may be the only party that can give an independent assessment of the cargo.  In FOB sales contracts the buyer may be entirely reliant on the Master’s remarks that the cargo as provided by the seller is in good order and condition, and it is on this basis that they agree to pay for the cargo.

Express indemnity clauses may sound like a solution, but they are not getting to the root of the problem, and they will inevitably create more. For P&I insurance, any charterer agreeing to such an indemnity clause would likely have trouble with their Club. The market is unlikely to accept such clauses if they lead to uninsured losses. The trouble, really, is that by addressing these claims through the charterparty chain, there is going to be nothing but more narrow legal arguments until the liability rests with one or another party until the next case comes up. The cause meanwhile is going unaddressed, which is that the Owners have defences under the Bill of Lading when they can prove that any damage was pre-existing but not apparent to the Master. There was no inaccuracy in the Bills as issued, from the eye of the Master, and implying there is another test, that of the shipper’s representation, changes the meaning of the representation on the Bill of Lading as it has been understood through hundreds of years in international trade.
 

Is there any market-based approach to rectifying this imbalance?

It is important for the P&I Market to stem the tide of soya bean cases in China, and this is perhaps best done by a coordinated and concerted effort to push back against the main protagonists, the Chinese receivers and insurers. 

In this regard, the recent English court decision in The Frio Dolphin has (subject to appeal) given P&I insurers a powerful weapon in their fight against the injustice of being saddled wrongly with the cargo losses arising from inherent vice. In this case, the court held that a shipowner may bring arbitration proceedings against a subrogated cargo underwriter and claim “equitable compensation” (i.e. damages) in cases where the subrogated underwriters has obtained judgment in a foreign court in breach of the arbitration clause incorporated in the Bill of Lading contract. As the law currently stand, such damages would be equal to the amount the shipowner has had to pay pursuant to the foreign judgment, plus any associated costs. Of course, the challenges of enforcement remain but insurers are much more susceptible to enforcement proceedings than local receivers are.

Further, in The Eternal Bliss (another recent English High Court decision, which again is subject to appeal), it was held that demurrage does not liquidate damages for all losses incurred by reason of the detention of the Vessel. In consequence, an indemnity can potentially be sought from voyage charterers (and potentially by voyage charterers, if they are sellers in any underlying sale contract) for loss and damage incurred because of cargo deterioration sustained during the period spent waiting at the discharge port. That said, this potential remedy may not improve the position of a head owner (whose rights are recovery are governed by the ICA).  The result does, however, assist intermediary time charterers who have been held liable under the ICA pass that liability down to their voyage charterer.  

Finally, anti-suit injunctions remain a potent weapon and it should not be assumed that they will simply be ignored by Chinese receivers. In a recent soya bean case in which damages of US$10 million were claimed, we obtained an anti-suit injunction against a government owned Chinese receiver, and this stopped the claim dead in its tracks; the ASI was complied with and the security posted in China returned.

 

Exercise of maritime liens on cargo to secure credits for freight and demurrages

Facts

A cargo of coal was transported from Colombia to Italy under a voyage charterparty. The coal was destined for the Italian cargo receiver, the bill of lading holder, in Civitavecchia.

The charterparty provided that the charterer had to pay the owner the 10% freight balance within 30 days of completion of the discharge, and that any demurrages had to be paid within 30 days of the presentation of the final invoice, along with the timesheet and statement of facts.

While discharging operations were underway, the charterer informed the owner that an application to open insolvency proceedings had been filed with the competent court.

When the discharging operations were about to end, the owner applied to the Civitavecchia Tribunal, pursuant to Article 437 of the Code of Navigation, to exercise the maritime lien on a quantity of coal carried on board the carrying vessel to secure its credits for the freight balance, demurrages and expenses towards the charterer and, at the same time, obtain permission to deposit the cargo ashore under judicial authority. According to Italian law, a maritime lien can be exercised by the vessel owner only with the permission of the local court.

The owner served the lien application to the cargo receiver and the charterer. Both the cargo receiver and the charterer opposed the claimant's demand.

The charterer replied that:

• the owner's credit for the freight balance and demurrages had not yet arisen when it had filed the lien application because of the contractual provision deferring payment of such sums after a certain period from discharge;
• by agreeing to the deferred payment of the balance freight and demurrages, the owner had implicitly waived its right of lien;
• the lien clause invoked by the carrier could not be considered valid under Italian law as, under the Italian system, the only existing liens are those established by the law; and
• the bill of lading contained no specific reference to the voyage charterparty. As such, the owner's credits arising from the voyage charter were not enforceable against the bill of lading holder.

The claimant counterargued that, in any case, the credit for freight and demurrage had become immediately due as a consequence of the manifest insolvency of the charterer, as per Article 1186 of the Civil Code.

Decision

The tribunal granted the opponents' defense, thereby dismissing the lien application brought by the owner.

Preliminarily, the judge observed that Italian law applied in accordance with the Italian rules of private international law, which state that actions relating to proprietary rights and rights in rem in movable and immovable property are regulated by the law where the goods are located (ie, lex rei sitae). Therefore, it excluded the application of English law as argued by the cargo receiver.

Further, the court stated that the carrier was not entitled to claim a lien on cargo according to Article 437 of the Code of Navigation as security for its credits of freight and demurrages arising from the voyage charter when payment of such credits was contractually payable after the discharge of goods.

According to Article 437, the prerequisite for filing an application with the local court requesting permission to discharge and deposit a sufficient quantity of carried goods to secure the carrier's credit for freight and demurrage is that such credit must be outstanding (ie, payment failure must be established). In the present case, the parties had agreed in the voyage charter that payment of outstanding freight and demurrages was due only after discharge. Therefore, the credit to be secured could not be deemed outstanding.

Moreover, as per Article 564 of the Code of Navigation, the maritime lien set out under Article 561(4) of the code expires 15 days after discharge if the lien application is not presented beforehand. The court stated that the contractual provision according to which the balance freight and demurrage were payable 30 days after discharge amounted to an implied waiver of the abovementioned maritime lien and the right to place a lien on cargo for the carrier's credit.

Further, the court rejected the owner's argument that the credit was deemed outstanding in light of Article 1186 of the Civil Code – specifically, that the credit for freight and demurrage was considered accelerated in light of the charterer's patent insolvency. The court stated that the charterer's insolvency had been known to the parties even before the carriage contract was agreed between the parties and could not amount to a supervening circumstance.

As far as the existence of contractual lien was concerned, the court decided that the charterparty provision which set out a contractual lien was inconsistent with the provisions making the outstanding freight and demurrage payable 30 days after discharge.

The court found that the right of lien set out under the charterparty could not be claimed against the cargo receiver. The bill of lading did not incorporate a full reference to the lien clause or the specific charterparty, as it simply contained a generic reference to "all the terms and conditions of the voyage charter", which could not incorporate the lien clause contained in the charterparty.

In light of the above, the carrier's lien application was dismissed.

Comment

This decision was based on two 1980 precedents of the Genoa Court and reinforces the principles that under Italian law, a lien on cargo can be placed under the authority of only the local courts which, before granting such lien, will strictly verify the existence of the legal requirements set out under Italian law. These can be briefly summarized as follows:

• A lien on cargo can be placed to secure claims listed under Article 561 of the Code of Navigation.
• The bill of lading must expressly incorporate the charterparty from which the claim for unpaid freight or demurrages arises.
• In light of Article 564 of the Code of Navigation, according to which a maritime lien expires 15 days after discharge, contractual provisions making freight and demurrage payable more than 15 days after discharge may amount to an implied waiver of the right of lien on cargo.

 

Accepting LPG fuel stock for pre-2016 code gas tankers

Norwegian shipping company BW LPG wanted to use its LPG cargo as a fuel for a pre-2016 code vessel, since it offers environmental advantages over oil – but it needed a different regulatory regime to do so.

This was developed by the Isle of Man Ship Registry (IOMSR) Norwegian shipping company BW LPG wanted a regulatory methodology to permit a pre-2016 code VLGC (very large gas carrier) to be retrofitted to use liquefied petroleum gas (LPG), normally butane and propane as fuel for propulsion.

For the last four years, it has been possible for vessels to be designed and built to the International Gas Carrier code (2016 IGC code) and permitted to run on LPG fuel.

But for vessels built under the previous code (1983 IGC code as amended) this was not a permitted option.

So, BW LPG had discussions with its flag, The Isle of Man Ship Registry (IOMSR), about how this could be changed. Discussions began with IOMSR and BW LPG, as well as partners Wartsila Gas Solutions, MAN Energy Solutions and DNV-GL in 2018. Aside from the fact that LPG is already being carried (as the cargo), it offers benefits over LNG (which was allowed as a fuel under the 1983 code).

LPG does not need to be cooled to cryogenic temperatures, so the storage tanks can be made from less expensive materials. There is a much wider availability of fuel gas, which can be supplied by road tankers at most ports, whereas LNG isn’t.

LPG offers advantages over fuel oil. “Gas is cleaner to burn than fuel oils and allows a large reduction in particulate emissions, helping to meet ever-tightening restrictions placed upon the marine industry,” he says. After much discussion and research by interested parties, IOMSR put together relevant paperwork and submitted a design equivalence application to the International Maritime Organization.

This equivalence, granted in March 2020, allows the use of LPG as a fuel on the VLGC BW Gemini, setting a precedent in the industry and enabling the IOMSR to issue the world’s first flag acceptance of a modification to use LPG as fuel for older gas tankers.

“A full conversion of the ship, which has been in service for about ten years, was not an option because it would have run into millions of pounds and taken much longer to carry out,” says Mr Liddell.

“Instead, it was decided to carry out a modification of the engine and fuel supply system, which was much more commercially viable.”

The retrofitting work took place in Q4 of 2020 and lasted just over two months. It involved fitting the vessel with two extra LPG fuel storage tanks in the cargo area, a high-pressure liquid fuel system for the modified MAN Energy Solutions two stroke engines and significant upgrades to the fuel delivery and associated safety and control systems.

The work was timed to be carried out during the BW Gemini’s dry dock period, to ensure the vessel was not out of service any longer than necessary. In November, BW LPG announced the successful completion of sea and gas trials.

Pontus Berg, Executive Vice President (Technical and Operations), BW LPG, said: “BW LPG has chosen to commit 12 of our VLGCs to be retrofitted with pioneering LPG propulsion technology. This is a significant upfront investment of over USD100 million, and it represents our willingness to act on the ESG front.”

“Building new ships can provide the benefits of operating with LPG but comes at a heavy cost.” “Counting total emissions, a new ship represents about 70,000 tons of carbon dioxide in the materials and building process, compared to 2,000 tons of carbon dioxide for retrofitting.

“The sustainability outcome is much better from retrofitting than from building new vessels.”

“We thank the Isle of Man Ship Registry for its strong support and for embarking on this journey with BW LPG to take the lead and advance technology closer towards a zero-carbon future.”

The vessel is thought to have achieved a historic milestone as the world’s first VLGC to be fueled by LPG. It has sailed on LPG propulsion across the Pacific Ocean to Texas for loading, another historic first.

This voyage is expected to produce twenty percent less greenhouse gas emissions and use ten percent less fuel overall, compared to regular fuel oil, according to BW LPG. The work of IOMSR in gaining the design equivalence for their clients to enable the plans to go ahead, has paved the way for five other ships of the same class to undergo the same modification. Ships in other classes will be subject to the same discussions and application for design equivalence should their owners wish to modify them to run on LPG. IOMSR is able to assist with its expertise, Mr Liddell says.