New fuels will fire up new disputes

Paul Gunton

Paul Gunton · 13 January 2020

ShipInsight


When a former director for strategic planning on the White House National Security Council got in touch a few days ago and said he was in “full agreement” with my remarks three weeks ago about the variations in port state responses to IMO 2020 violations, I was reassured that mine was not a lone voice.

He is now a chief pilot for the US Coast Guard and wondered in his email to me whether “the likely asymmetry of IMO 2020 enforcement by port states … has the potential to influence trade flows in favour of accelerated trade volumes between countries that de-facto condone non compliance.”

Dispute

I think not, for reasons I discussed in a commentary in September, although – as I also mentioned in that item – there is clearly some ill-feeling about this among some IMO members so I would not be surprised if a few consider turning a blind-eye to non-compliance. However, any ships that take advantage of such laxity risk sanctions if they subsequently visit a compliant port.

I also heard from a reader who has written a thesis on IMO 2020 enforcement for his Master of Laws degree. He clearly knows far more about these things than I do and said that how port states “admonish breaches is a matter of municipal law and not international law” so he does not think that my dream of a common approach has any hope of being fulfilled. “Many states would probably not participate if the rules and regulations were very strict.” And this would be “especially the case for powerful states who want to remain relatively autonomous in the international system.”

This feedback reached me as I was reading a lengthy article published on 2 January by the law firm Clyde & Co which outlines potential disputes arising from bunkering IMO 2020-compliant fuels.

As far as port state control action is concerned, it says that disputes may arise where inspectors obtain and test their own bunker samples and find them to be above the 0.50% limit. In those cases “a vessel may be detained and/or forced to debunker,” leading to disputes over who covers the losses.

It was written by its Singapore-based senior associate Paul Collier and I asked him if he agreed with me that it is unhelpful to have a variety of legal responses to enforcing this global standard. “There is … a question as to whether there will be consistent implementation of the sulphur cap amongst states,” he said, but drew my attention to the 2019 Guidelines for Port State Control under MARPOL Annex VI. However, that mostly describes practical processes and how PSC should report violations; it does not concern itself with how they set their penalties beyond ship detentions.

Apart from PSC, Clyde & Co expects to see an increase in the number of disputes involving owners, time charterers, bunker buyers, bunker traders and suppliers.

For example, if a shipowner receives test results indicating that the fuel supplied by its charterer is off-spec and there are risks to the vessel in using that fuel, the “owners will be placed in a difficult position,” Mr Collier’s article notes. “Owners can demand charterers debunker off-specification fuel … and supply replacement bunkers, [but] there is no guarantee that charterers will comply with such a demand, particularly if the bunker supplier refuses to re-supply the vessel.”

In that case, “it may prudent for owners to carry out debunkering at first instance, and subsequently advance a claim against charterers for any losses they incur.”

That may be easier said than done. If the charterer cannot debunker the fuel, the ship’s owner may also struggle to find a local contractor who is willing and able to debunker the vessel. In that case, can the ship sail? It can hardly file a FONAR at the next port if compliant fuel was available elsewhere at the bunkering port: the ship’s problem would not be non-available bunkers, it would be non-available tank space to load it.

I put that point to Mr Collier and he suggested that it would be unlikely “that a port state would order the non-compliant fuel to be debunkered if there is no ability to replace it with compliant fuel. However, heavy penalties may be imposed on the vessel.” That is a slightly different scenario from what I had in mind, but helpful advice, nonetheless.

The IMO guidelines may offer a possible solution. They say that if non-compliance is established, the port state and the ship’s flag state “may permit, with the agreement of the destination port authority, a single voyage for bunkering of compliant fuel oil for the ship.” But that voyage “should be one way and minimum for bunkering.” That may not be where the ship was originally destined, of course and, in my scenario, its success still depends on there being debunkering facilities available at that port.

Compliance is not the only potential area of dispute. Engine damage from cat fines is another. In that case, it is important that evidence is gathered at an early stage of the incident, Mr Collier’s article says, “with surveyors inspecting the engine, samples of the fuel being taken [and] any damaged components being preserved for analysis.”

So I asked him whether it would be prudent for shipowners to take more fuel samples than in the past, in case a dispute arises. He agreed that would be worthwhile but pointed out a significant snag: bunker supply contracts often include provisions to the effect that the supplier’s sample is ‘final and binding’.

In the event of a dispute, “purchasers will likely have a very difficult task showing that the test results from the supplier’s sample were not representative of the bunkers supplied unless there is strong evidence from multiple other samples indicating that the test results from the supplier’s sample are an anomaly.”

It seems to me that this would be a difficult and expensive task and I am sure I have only scratched the surface of potential legal difficulties that will emerge as the new fuels come into use.

• Do you have any experience of dealing with non-compliance allegations or damage claims related to low-sulphur fuel, perhaps from operating in SECAs? Email me know to tell me what happened.

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