Owners and operators of ships calling on the United States know well that criminal prosecutions are now a regular occurrence in the maritime industry. Most relate to environmental violations and post-incident conduct like false statements and obstruction of justice. Recently, however, prosecutors also have used the Seaman’s Manslaughter Statute as an enforcement tool.

The statute allows for federal charges against vessel officers and corporate executives of the vessel owner or charterer if a death results from negligence aboard a vessel. Several high-profile casualties have clearly placed the statute back on the government’s radar and it is now an enforcement risk for passenger and cargo vessels alike.

The Statute

The Seaman’s Manslaughter Statute criminalizes negligence and inattention to duties by a captain, engineer, pilot, or other person employed on a vessel. Violations can result in up to 10 years’ imprisonment, a fine, or both. The statute stems from 19th century laws aimed at preventing deaths from fires on steamboats, which were designed to punish ship’s officers for negligent conduct. A similar focus exists today. Under the statute, vessel officers and shoreside employees may be liable for manslaughter if their negligent conduct causes a fatality. This is a “simple negligence” standard, meaning that the government need not prove the conduct was willful, knowing, or reckless.

However, a heightened, “gross negligence” standard applies for cases against executives of corporate vessel owners or charterers. There, the government must prove that the individual corporate executive: (1) had “control and management of the operation, equipment, or navigation” of the vessel; and (2) “knowingly or willfully caused or allowed” the negligent conduct that resulted in a death.

Prosecutions through the 2000s

Few Seaman’s Manslaughter cases were brought before the 2000s. The most notable was the General Slocum disaster in 1904, where over 1,000 people died in a vessel fire in New York. The captain, corporate executives, and the vessel inspector were indicted when the investigation revealed serious violations of safety standards and false records covering up the deficiencies. This incident lead to major regulatory change and reform of the predecessor agency to the U.S. Coast Guard.

In the early 2000s, several major casualties revived the statute, including the Staten Island Ferry incident in 2003, where a ferry veered off course and allided with a concrete maintenance pier, killing 11 people and injuring 73 others. The resulting investigation found that: the pilot was taking painkillers; the pilot’s doctor knew about his condition and falsified medical records that were a prerequisite to the pilot’s license; the director of ferry operations knew the ferry was operating in violation of a rule mandating two pilots in the wheelhouse; and the port captain lied to investigators about compliance with the rule. The pilot and director of ferry operations were convicted of manslaughter and the captain and doctor were convicted of making false statements and obstructing justice.

Recent Prosecutions

Recent Seaman’s Manslaughter cases exemplify the statute’s breadth and show that a casualty with fatalities will almost certainly result in a criminal investigation, along with a parallel investigation by the National Transportation Safety Board and civil lawsuits.

In the last few years, the government brought charges in two high-profile and tragic passenger vessel casualties: the Stretch Duck 7 duck boat disaster in the Ozarks in 2018, and the P/V Conception dive boat fire in California in 2019.

In the Stretch Duck incident, 17 people died when the vessel sank in a storm on Table Rock Lake in Missouri. The captain was charged with 17 counts of Seaman’s Manslaughter and the indictment alleged that he failed to properly assess weather conditions, failed to act when the bilge alarm sounded, failed to instruct passengers to wear life jackets, and failed to prepare to abandon ship. Superseding indictments charged three corporate managers with the same 17 counts and added 13 counts against all defendants for grossly negligent operation of a vessel.  The trial court dismissed the case in late 2020, finding that the lake on which the casualty occurred was not within the general admiralty jurisdiction or the “special maritime jurisdiction” of the United States, a jurisdictional prerequisite for a prosecution  under the Seaman’s Manslaughter Statute. The government appealed this decision to the Eighth Circuit Court of Appeals in December 2020, so the final outcome remains undetermined.

Comparably, in the P/V Conception case, 34 people died when the dive boat caught fire and sank in California. The captain was indicted on 34 counts of Seaman’s Manslaughter in December 2020. The indictment alleged that he failed to have a night watch and conduct sufficient fire drills and crew training. The captain was released on $250,000 bail, but his case remains pending. Thus far, the owning company has not been charged, but it sold off the remainder of the fleet amidst multiple wrongful death lawsuits.

Beyond these passenger vessel cases, the government has brought Seaman’s Manslaughter charges for casualties on other types of commercial vessels, such as fishing charters, parasailing operations, tugs/barges, and cargo ships. Two cases serve as interesting examples: U.S. v. Kaluza, which relates to the Deepwater Horizon incident involving an explosion, fire, and oil spill in the Gulf of Mexico in 2010, and U.S. v. Egan Marine Corp., which involved a large explosion on a slurry barge in Chicago in 2005. Although the charges in these cases ultimately were dismissed, the dismissals were based on legal technicalities and the threat of prosecution following such incidents remains very real.

In Kaluza, Deepwater Horizon well site leaders were indicted because their failure to conduct proper pressure testing led to the explosion that killed 11 people. The defendants appealed and the 5th Circuit Court of Appeals held that the Seaman’s Manslaughter Statute did not apply because they were not involved in the marine operation of the vessel. Yet, similar conduct by a chief engineer or comparable shipboard officer would have resulted in criminal charges.

Egan Marine involved a slurry barge explosion that occurred because the master told a deckhand to warm a cargo pump with a propane torch even though open flames were prohibited. The master and the company were convicted of one count of Seaman’s Manslaughter for the deckhand’s death. They appealed and in 2016 the 7th Circuit Court of Appeals overturned the convictions because a prior civil suit relating to the same incident had determined that there was not proof that the deckhand was using a propane torch at the time of the explosion.

Conclusion

The government’s increasing willingness to invoke the Seaman’s Manslaughter Statute following maritime casualties should serve as a wakeup call for companies to avoid becoming a part of this trend. Today, a marine casualty resulting in a fatality will almost certainly prompt an investigation under the Seaman’s Manslaughter Statute, in addition to any separate investigation by regulatory authorities and private civil lawsuits. This risk underscores the importance of implementing an effective, practical, and verifiable compliance program focused not only on the minimum regulatory requirements, but also the reduction of unnecessary risk.

Jeanne Grasso the co-chair of Blank Rome’s Maritime and International Trade Practice Group and a member of the firm’s Maritime Emergency Response Team (“MERT”). She focuses her practice on maritime, international, and environmental law for clients worldwide. Jeanne counsels owners and operators of vessels, charterers, cargo owners, and facilities, including manufacturing facilities, both marine-side and inland. 

Kierstan Carlson helps corporate and individual clients navigate a wide range of white collar and complex civil litigation matters. She has substantial experience as the lead associate coordinating responses to subpoenas and civil investigative demands, and conducting parallel internal investigations. Kierstan has significant experience defending clients in maritime environmental criminal cases involving MARPOL and the Clean Water Act, as well as in civil and administrative enforcement actions involving the False Claims Act and other regulatory violations.

Source: maritime-executive

Container shipping giant MSC Mediterranean Shipping Company doubled down on its position to avoid sending its vessels through the Northern Sea Route and urged others to follow suit, citing environmental concerns.

“As a responsible company, this was an obvious decision for us,” said MSC CEO, Soren Toft. “MSC will not seek to cut through the melting ice of the Arctic to find a new route for commercial shipping, and I consider this a position the whole shipping industry must adopt.”

Running from Murmansk near Russia’s border with Norway to the Bering Strait near Alaska, the Northern Sea Route is significantly shorter than going via the Suez Canal and cuts sea transport times from Asia to Europe.

Shipping activity in the Arctic has picked up as the region has warmed at least twice as quickly as the rest of the world over the last three decades. In particular, the trade is driven by commodities producers—mainly in Russia, China and Canada—sending iron ore, oil, liquefied natural gas (LNG) and other fuels through Arctic waters.

MSC first announced its commitment to avoid the Northern Sea Route, including the Northeast and Northwest Passages, in 2019 in an effort to limit black carbon and other environmental impacts in the environmentally sensitive Arctic. Its competitors Hapag-Lloyd and CMA CGM are among other shipping companies that have made similar pledges.

“Some of our peers have already made the same commitment to put the preservation of the Arctic environment ahead of profits. The Northern Sea Route is neither a quick fix for the current market challenges, nor a viable long-term strategy,” Toft said.

An expansion of Arctic shipping could increase the emissions of so-called black carbon—physical particles of unburned carbon which can settle on land or ice, as well as compromising air quality and accelerating the shrinkage of Arctic sea ice. MSC said it believes risks such as navigation incidents, fuel spills, air quality and altering the ecological balance/biodiversity of the marine habitat beneath the surface of the sea also outweigh any commercial opportunities to make a short cut between North America or Europe and eastern Russia or Asia.

“Attempting to open new navigation routes which skim the polar ice cap sounds like the ignorant ambition of an 18th century explorer, when today we know that this would pose further risks to humans and many other species in that region, as well as worsen the impact of shipping upon climate change,” said Bud Darr, Executive Vice President Maritime Policy & Government Affairs at MSC Group.

“MSC supports the decarbonization targets of the UN International Maritime Organization, including complete decarbonisation of shipping, and sees no overall merit in using this potential trade route. The risks and impacts outweigh the benefits of the shorter transits. There are no shortcuts toward genuine decarbonization of shipping and this is a shortcut that should definitely be avoided.”

Source: marinelink

LONDON: Disruption to shipping from the long-anticipated switch to more environmentally friendly marine fuels has finally arrived, exacerbated by logistical problems as much as any shortage of the cleaner fuel.

New International Maritime Organization (IMO) rules, referred to as IMO 2020, aim to stop ships from using fuels containing more than 0.5 percent sulfur unless they are equipped with exhaust-cleaning systems known as scrubbers.

From the start of January ships must load very low sulfur fuel oil (VLSFO) or more expensive marine diesel unless they have scrubbers for the old high-sulfur fuel oil (HSFO).

The new regulations have been on the radar since 2016, with no prospect of any extension to the 2020 deadline, prompting concern from oil producers, storage operators and shippers and multiple warnings over the potential for a chaotic switch.

With only a minority of ships in the global fleet having installed scrubbers, the oil industry had feared refiners would not be able to make enough diesel and VLSFO. But delays appear to be more down to a lack of refueling barges than the fuel itself, with sources saying that major ports are running 10 days behind schedule across fuel types.

Source: arabnews

Let us assume your tug is leaving port, outbound in a narrow channel a nautical mile or two from the exit, making 8 knots. You are complying with IMO’s collision regulations (COLREGS) narrow channel rule 9(a) and are sticking to the starboard side of the channel. You, however, observe a vessel to starboard moving very slowly but shaping to make a course across the entrance.

It is clear that its intention is to pick up a pilot and enter the channel and that it will have to turn to port to do so, to line up on her starboard side of the channel. Its bearing is steady.

Do the “crossing rules” (rules 15-17 of COLREGS) apply, making you give way to the vessel, or does the narrow channel rule, requiring you to stay on the starboard side of the channel, override that? What should you do?

The English Supreme Court, on appeal from the Admiralty Court in London, has now grappled with the tension between the two rules.

The collision in question occurred in February 2015 between UK-registered large container vessel Ever Smart and Republic of the Marshall Islands-flagged very large crude carrier (VLCC) Alexandra 1 in the pilot boarding area, just outside the exit of the dredged narrow channel to Jebel Ali, United Arab Emirates.

Alexandra 1 was inbound and awaiting the pilot transferring across from Ever Smart before entering the channel.

The Supreme Court has produced a detailed judgement referring to authorities going back to 1886, long before any uniform version of the COLREGS applied internationally.

The earlier decisions concerned collision cases in and around various narrow channels in the approaches from Bristol to Buenos Aires.

Two issues fell to be decided. The Supreme Court held that the crossing rules are overridden only when the approaching vessel is shaping to enter the channel, adjusting its course so as to reach the entrance on the starboard side of it, on its final approach.

That can be determined from the vessel leaving the channel by visual (or radar) observation of the approaching vessel’s course and speed.

The Supreme Court also held if two vessels are crossing so as to involve the risk of collision, the engagement of the crossing rules is not dependent upon the give-way vessel being on a steady course.

If it is reasonably apparent to those navigating the two vessels that they are approaching each other on a steady bearing, then they are indeed crossing, so as to involve a risk of collision, even if the give-way vessel is on an erratic course.

Rules for the avoidance of collision were first adopted by international convention in the 19th century. Since that time, the Admiralty Court in London has been tasked with interpreting and applying them to apportion liability in collision cases before it. These are typically 80:20 or two thirds, one third or 60:40 or 50:50 according to the degree of fault.

Fault is measured by the causative degree to which either ship adhered or not to the COLREGS. It is no simple task to extract precise guidance for navigators from a 60–page court judgment, but I would put it briefly as follows:

1. Vessels intending to exit or enter a narrow channel should both proceed with caution, always maintaining a good lookout so as to determine whether a risk of collision exists, and accordingly what their responsibilities are.
2. Specifically, the vessel that has the other on its starboard side on a steady bearing, should comply with the obligation to give way.
3. Accordingly, a ship due to exit a narrow channel may be under an obligation to give way in accordance with the crossing rules.
4. Bridge crew on such a vessel should not regard the narrow channel rule as permitting them to proceed on, regardless of incoming traffic approaching towards the entrance, in particular traffic to starboard.
5. Only where an approaching ship is finally shaping, or lining up, to enter the channel on the starboard side, will the narrow channel rule apply in preference to the crossing rules.

What then if your tug is towing a vessel and constrained in its ability to manoeuvre? How that alters its duties and those of an oncoming vessel in a collision situation is for another day.

Source: rivieramm

At the International Maritime Organisation’s (IMO) 23rd session held in London at the start of December, member states adopted new guidelines on places of refuge, intended for use when a ship is in need of assistance but the safety of life is not immediately involved (in which case the provisions of the SAR Convention apply).

The guidelines recognise that when a ship has suffered an incident, the best way of preventing damage or pollution from its progressive deterioration is to transfer its cargo and bunkers and to repair the casualty, such an operation being best carried out in a ‘port of refuge’.

However, to bring such a ship to a place of refuge may endanger the particular coastal state, both economically and from the environmental point of view.

Furthermore, local authorities and populations might object strongly to the operation. The guidelines therefore recognise that granting access to a place of refuge could involve a political decision that can only be taken on a case-by-case basis. In doing so, consideration will need to be given to balancing the interests of the affected ship with those of the environment.

A second resolution recommended that all coastal states should establish a maritime assistance service (MAS).

The principal purposes would be to receive the various reports, consultations and notifications required in a number of IMO instruments; monitoring a ship’s situation if such a report indicates that an incident may give rise to a situation whereby the ship may be in need of assistance; serving as the point of contact if the ship’s situation is not a distress situation but nevertheless requires exchange of information between the ship and the coastal state, and for serving as the point of contact between those involved in a marine salvage operation undertaken by private facilities if the coastal state considers that it should monitor all phases of the operation.

The assembly also adopted guidelines on ship recycling, which have been developed to give advice to all stakeholders in the recycling process, including administrations of ship building and maritime equipment supplying countries, flag, port and recycling states, as well as intergovernmental organisations and commercial bodies such as ship-owners, ship builders, repairers and recycling yards.

Among the total of 30 resolutions passed on shipping matters, members also agreed on the need for an audit scheme to assess the effectiveness of the Organisation in implementing global shipping standards.

Source: gulfnews

The proposed measures seek to regulate both the design and operational efficiency of relevant vessels and present numerous commercial and legal challenges for all the main stakeholders in the physical transport chain. This article focuses on the important issues that are likely to arise under charterparties, and the steps that parties should consider taking now.

In line with the IMO’s Initial GHG Strategy, the Marine Environment Protection Committee (MEPC) has approved draft regulations aimed at reducing GHG emissions from the global shipping industry by at least 40% by 2030 (compared to 2008 levels) (the Regulations).

The Regulations represent amendments to Chapter 4 of MARPOL Annex VI, and apply on an individual vessel basis (as opposed to applying across fleets of vessels). It is expected that they will be formally adopted at MEPC 76 in June 2021, and will come into force on 1 January 2023.

The Regulations come at a time when a number of regional measures to reduce GHG emissions from maritime transport are also being discussed. For example, the EU has confirmed its intention to include shipping within its Emissions Trading System (see our previous article on this here), and China has likewise indicated that shipping may soon be covered under its national carbon trading scheme. The US has also indicated that it may be leaning towards a carbon tariff system of some nature.

The IMO’s approach, however, more directly monitors and incentivises the improvement of a vessel’s energy efficiency and reduction of carbon intensity by focusing on both its technical design and operations. In this regard, the Regulations go beyond simply imposing a tax on GHG emissions, although recent proposals from the Marshall Islands and the Solomon Islands to the IMO have again raised the possibility of a separate global levy.

Whilst the entry into force of the Regulations are just shy of two years away, careful planning, understanding and action is required now by the main stakeholders in the physical transport chain. In this article, we explain why.

The Regulations – EEXI and CII

There are two key elements to the Regulations:

1. Energy Efficiency Existing Ship Index (EEXI)

What is it?

EEXI is a technical framework to improve the energy efficiency of an applicable vessel’s design. Essentially, EEXI extends the Phase 2 targets under the Energy Efficiency Design Index (EEDI), which only applies to newbuild vessels, to all existing ships above 400 GT.

A vessel falling under the EEXI regime will be ascribed an Attained EEXI (calculated by reference to technical guidelines which are yet to be finalised by the IMO), which indicates the vessel’s estimated energy efficiency compared to a baseline. The information and specific formulas required to calculate the Attained EEXI will be contained in the vessel’s EEXI Technical File.

The vessel’s Attained EEXI will then be compared to a Required EEXI, based on an applicable reduction factor expressed as a percentage relative to the EEDI baseline depending on the vessel’s type and size. To the extent that the Attained EEXI is less efficient than the Required EEXI, the vessel will be required to take measures to meet the Required EEXI.

How to comply?

Given that the EEXI is concerned with energy efficiency arising from ship design, improvements to an individual vessel’s Attained EEXI can be achieved via technical modifications, such as engine/shaft power limitation, bow or propeller improvements, use of alternative fuels, and/or installation of energy efficiency technology (for example rotor sails).

The Regulations do not, however, prescribe which improvement method should be deployed.

A vessel’s EEXI Technical File will need to be approved by the vessel’s Flag State or Class at the first annual/intermediate/renewal IAPP survey taking place after 1 January 2023. Compliance with the EEXI regime will be reflected in the vessel’s IEEC certificate (the format of which is also to be amended).

2. Carbon Intensity Indicator (CII)

What is it?

The CII framework regulates the operational carbon intensity of a vessel (i.e. the carbon emissions per unit of ‘transport work’ or the operating mileage in a given year). The regime will apply to all vessels above 5,000 GT.¹

Each individual vessel covered by the CII regime will be given an annual carbon intensity rating (CII Rating) indicating their performance over the previous year. There are five CII Rating categories representing different performance levels – namely: A (major superior); B (minor superior); C (moderate); D (minor inferior); and E (inferior). The thresholds between the CII Rating categories will become increasingly stringent towards 2030.

A vessel’s CII Rating for a given year will be generated by monitoring/documenting the actual operational carbon intensity achieved by the vessel (Attained Annual Operational CII), and then comparing this against the required operational carbon intensity that the vessel must achieve under the framework (Required Annual Operational CII). The Attained Annual Operational CII of any given vessel should improve annually.

Vessels under the CII framework are also required to have an enhanced Ship Energy Efficiency Management Plan (SEEMP). The SEEMP, which the Regulations suggest is likely to form part of a vessel’s SMS, should include:

• the methodology used to monitor and calculate the relevant vessel’s Attained Annual Operational CII;
• an annual Required Annual Operational CII for the next three years;
• an implementation plan describing how the Required Annual Operational CII target will be achieved over the next three years (to achieve a continuous improvement); and
• a procedure for self-evaluation and improvement.

The minimum CII Rating required for compliance is C (moderate), and Flag States, port authorities and other stakeholders have received encouragement from the IMO to provide incentives to those vessels achieving a CII Rating of A or B.

A vessel rated D for three consecutive years, or rated E at any point, must develop a plan of corrective actions to achieve the Required Annual Operational CII for its age, type and size. The plan must be set out in the SEEMP within one month after reporting the vessel’s Attained Annual Operational CII, and will be verified by the Flag State.

How to comply?

The formal metric to calculate a vessel’s Attained Annual Operational CII is yet to be confirmed, with technical guidelines awaited from the IMO. The two options are:

• the Energy Efficiency Operational Indicator (EEOI), a metric previously developed by the IMO², which works by dividing a vessel’s annual carbon emissions by its annual cargo tonne miles; or
• the Annual Efficiency Ratio (AER), which works by dividing a vessel’s annual carbon emissions by its annual DWT miles.

At present, AER data is being collected and is readily available by virtue of the IMO’s Data Collection System (DCS). Whilst EEOI data would require further monitoring and reporting, it should be noted that such data is being used by signatories to the Sea Cargo Charter, which is a framework available to all bulk charterers in order to attempt to set standards for reporting emissions.

Irrespective of which CII metric (AER or EEOI) applies, broadly speaking, the vessel’s Attained Annual Operational CII can be improved by:

• operating at a reduced speed and/or slow steaming;
• diverting from the shortest or quickest route on a voyage/increasing distance sailed (including ballast voyages for AER);
• reducing cargo volume intake (for AER); and/or
• installing energy efficient technology.

Commercial and legal challenges under charterparties

Several issues arise when considering how the EEXI and CII regimes might be successfully implemented into contractual frameworks within the shipping industry.

Key considerations will be who bears the responsibility/risk/cost of compliance, the risk and exposure to third party claims and any impact on insurance coverage.

For the CII regime, uncertainty presides over which method(s) should be applied to achieve a continual CII improvement, and the nature and severity of the impact of a vessel’s CII Rating either being consistently rated C (moderate) or below, or being downgraded (for example, financial or other sanctions, impact on Class, reputation and trading).

Most notably, the CII regime has the potential to directly impact, and, in some cases, cut through the fundamental rights and obligations of Owners, Charterers and commercial operators in traditional commercial contracts – most notably time charterparties – and this is likely to lead to disputes. While uncertainty remains regarding exactly how the EEXI and CII regimes will be implemented, we identify some of the commercial and legal challenges that could arise.

EEXI

In relation to EEXI, it has to be understood that Owners bear primary responsibility for compliance with MARPOL, by virtue of the vessel’s Flag State (assuming it is a MARPOL contracting State). The vessel will also be subject to MARPOL when trading to a MARPOL State.

The terms of most standard time and voyage charterparties suggest that technical modifications to the vessel required in order to comply with international regulations such as EEXI may rest with Owners, due to either their seaworthiness/due diligence obligations (as modified by the Hague or Hague Visby Rules) or their legal fitness obligations. While the EEXI requirements do not mandate that technical modifications have to be made, nor do they prescribe which modifications should be made, it may be that this is the only realistic way to achieve compliance.

CII

Time charterparties

In a time charterparty context, following Charterers’ orders in relation to the employment of the vessel could negatively impact the vessel’s Attained Annual Operational CII and, in turn, it’s CII Rating. External factors outside of the parties’ control (e.g. bad weather affecting the carbon intensity of the vessel over a passage) could also play their part. On one hand, expecting Owners to bear full responsibility for this would appear unfair, especially as the CII regime is outside of Owners’ control. On the other hand, Charterers are entitled to insist that their orders are followed in return for payment of hire, as their use of the vessel would be otherwise prejudiced and they may face third party claims for failure to meet their obligations under sub-contracts.

Setting aside the installation of energy efficiency technology (responsibility for which, similarly to the position in relation to EEXI, may rest with Owners), the potential operational measures to improve a vessel’s Attained Annual Operational CII listed above may place Owners in breach of existing contractual obligations. For example:

• Slow steaming or diverting from the shortest or quickest route on a voyage could, in the absence of agreement between the parties, place Owners in breach of their obligations to proceed on voyages with utmost/due despatch and/or comply with Charterers’ orders and instructions, and also any speed and consumption warranties in the charterparty.
• Slowing steaming and/or prolonging voyages may also constitute a wrongful deviation, which could invalidate P&I coverage. Depending on the wording of applicable clauses and factual circumstances, this could also give rise to off-hire claims or alternatively claims for equitable set-off against hire.
• Reducing the vessel’s cargo intake (which would arise only under the AER metric) could place Owners in breach of express cargo capacity warranties (often found in the vessel description), the obligation to make sure the whole reach is available, and Charterers’ employment orders. Due diligence warranties may also be called into question.

Depending on the facts involved, there are likely to be limited defences to these breaches/non-performance. Whilst Owners can reject orders which are unlawful/illegitimate, it could be very difficult to identify a causative link between Charterers’ orders and a negative impact on a vessel’s CII Rating in a time charterparty context (especially in short to medium term). For example, pinpointing that a particular individual order (or series of consecutive orders) has in fact caused the vessel to surpass its Attained Annual Operational CII or detrimentally impacted the vessel’s CII Rating in real time may be a tall order.

Likewise, it is also difficult to see what exceptions might apply to relieve Owners of their obligations. Implied terms, the doctrine of frustration and any implied indemnity arguments are all likely to be difficult to succeed on, and even then the enquiry would be very fact specific.

The position is likely to be further complicated by a number of practical considerations:

• It will probably be very challenging for Owners to predict – with any real certainty – their Attained Annual Operational CII in advance for a period of three years in the SEEMP. As such, it will be difficult for Owners to monitor, assess and verify the vessel’s Attained Annual Operational CII in real time in circumstances where the vessel’s trading pattern may be unknown (unless she is on a fixed liner service) and where Charterers direct employment under a time charterparty.
• Secondly, given that the Regulations are not clear on the timeframe within which the Flag State must assess and verify a vessel’s Attained Annual Operational CII for the previous year, this would make it even more difficult to trace back and identify any Charterers’ orders which could have caused a negative impact to a vessel’s CII Rating.

Voyage charterparties

In a spot voyage charterparty, Owners may be better placed to identify the operational limits in which the vessel must work to maintain or improve its Attained Annual Operational CII and/or CII Rating, and might therefore be able to tailor the terms of the charterparty accordingly (for example, more narrowly defining warranties as to speed and performance).

However, if tailored clauses are not negotiated, potential issues could still arise if Owners take operational measures in light of the CII regime (some of which overlap with issues arising under time charterparties):

• Where it could be shown that, as a matter of fact, Owners intentionally opted to slow steam or divert from the shortest or quickest route, Owners may be in breach of their obligations to proceed on voyages with utmost/due despatch, and also any speed and consumption warranties. Alternatively, it could also constitute a wrongful deviation.
• While some standard form voyage charterparties allow a de minimis or negligible departure from the express cargo capacity warranties, Owners may be in breach of express cargo capacity warranties if (under the AER metric) the vessel’s cargo intake is reduced beyond this.
• Steps taken to conserve energy/limit power/reduce speed at the load/discharge ports could lead to laytime and demurrage issues.

Again, it is difficult to see what exceptions might be available to Owners in these circumstances. Rights of termination, subject to the particular facts and the terms of the relevant charterparty, may also exist. Failing this, Owners could face claims for damages for breach of contract.

That said, there exist clauses out there (such as the BIMCO Slow Steaming Clause 2012) which go some way to provide Owners with the toolkit to reduce speed in certain circumstances. However, care should also be taken here because, often, this right is given in return for a minimum speed and performance warranty, which itself could still fall foul of the CII regime depending on the particular facts and circumstances.

Contracts of Affreightment (COAs)

Likewise, under pre-existing long term COAs, it is conceivable that slow steaming or otherwise extending voyage lengths might reduce the total number of voyages made in any given year. This might reduce Owners’ earnings under the relevant COA, or potentially place Owners in breach of any term stipulating a minimum number of annual voyages.

In the absence of specific protective clauses, it would have to be argued that an implied term and/or an implied duty on the parties applies (i.e. to cooperate with each other in performance of the contract, which therefore requires them to factor in change of circumstances brought about by the Regulations). Again, such arguments will, inherently, be prone to difficulty.

Conclusions and potential solutions

The contractual rights and obligations that are likely to be impacted by the Regulations are of a fundamental nature to the effective and commercial operation of charterparties. Parties should therefore be giving thought as to how they can mitigate their risk and exposure here. There are unlikely to be any straightforward solutions, and bespoke clauses should be contemplated.

In relation to the EEXI regime, negotiated arrangements may be prudent in existing time charterparties. For example, in order to agree the details of when, where and how the vessel is to be modified in order to meet its Required EEXI. Depending on the circumstances, Charterers may also contribute expertise and possibly finance towards the modification(s), especially in long term time charterparties where this could lead to an improvement in energy efficiency.

In particular, under a time charterparty, close cooperation between the parties will be required to negotiate a commercially viable clause that addresses the CII regime. The parties will need to strike a balance between Owners’ requirements (for example, Owners’ need to meet their Attained Annual Operational CII and maintain the vessel’s CII Rating) and Charterers’ requirements (for example, Charterers’ right to employ the vessel and meet their obligations under third party contracts). Ultimately, it will depend on Charterers’ willingness to accept this compromise and commercial solutions may need to be explored.

Parties now need to give careful consideration as to how they allocate the risk and responsibility of compliance with the Regulations under their commercial contracts. At the end of the day, this requires deciding who will, ultimately, bear the cost of carbon emissions and at what price.

Source: lexology