Reed Smith Client Alert

Authors: Diane Galloway Richard M. Gunn

Type: Client Alerts

Following a review by the Correspondence Group established by the Marine Environment Protection Committee in 2006, various amendments to MARPOL Annex V Regulations for the Prevention of Pollution by Garbage from Ships took effect on 1 January 2013.

The revised Annex now prohibits the discharge of all garbage into the sea, with limited exceptions. Importantly, this prohibition now affects the disposal of cargo residues and this client alert will focus on those amendments which change the way cargo residues are considered, especially when they are classified as harmful to the marine environment (“HME”).

Cargo residues now “Garbage”

Prior to the revisions, in the majority of cases operators of bulk carriers were free to clean their holds of cargo residues with wash water and discharge this waste to the sea, regardless of the cargo that they had loaded.

Now, as a result of the amendments to MARPOL Annex V, cargo residues are included within the definition of “Garbage”, defined in Regulation 1.9.

MARPOL Annex V prohibits the discharge of all garbage into the sea, with limited exceptions. Therefore, this new treatment of cargo residues, defined widely in Regulation 1.21, will have significant implications for Owners who could face disputes over costs/delays if they are left to deal with cargo residues that cannot be discharged into the sea. Further, since Owners will seek contractual certainty in order to mitigate the risk of potentially significant losses, this changed definition is likely to have a knock-on effect on charterers and therefore buyers and sellers under any sale contract.

To be discharged into the sea or not to be?

Discharge at sea for cargo residues is permitted provided that certain criteria are met. However, where the cargo or the washing material used is classified as HME the cargo residues cannot be discharged into the sea.

Under MARPOL Annex V, shippers are responsible for classifying whether or not cargos are HME and for declaring this to the Vessel, pursuant to section 5.4 of the International Maritime Solid Bulk Cargoes Code.

Deciding whether the cargo is harmful to the marine environment (“HME”)?

In order to establish whether the cargo should be classified as HME it is necessary to refer to section 3.2 of the guidance note provided by the International Maritime Organisation2(“IMO”).

A substance will be HME if it is designated as such by the shipper (or whoever this obligation has been passed on to) after considering seven criteria set out in the United Nations Globally Harmonized System for the Classification and Labelling of Chemicals (the “UN GHS”). Ultimately there will be a harmonised database which should specify whether different cargoes are or are not HME and which will therefore save the time and costs associated with considering the seven criteria. However, unfortunately this database is not yet complete, an issue that the IMO acknowledges, and currently only a limited list of substances that are HME under MARPOL Annex V exists.

The database system is not expected to be fully operational until 2015 and in the interim period (whilst shippers are building up a database for each cargo) any declaration provided can be limited to three of the seven criteria under the guidelines3, namely:

  1. data concerning acute aquatic toxicity;
  2. data concerning chronic aquatic toxicity; and
  3. data concerning the synthetic polymer, rubber, plastic or plastic feedstock content of solid bulk cargoes.

However, the note on provisional classification of solid bulk cargoes4 states that shippers of solid bulk cargoes should still make every effort to classify the cargoes within the seven criteria stated in the guidance note and found inteh UN GHS.

Difficulties with classification and associated penalties.

Without the database, this classification obligation is a high burden: It is unlikely that this declaration, even limited to three criteria, can be made without input from a chemical expert and therefore without incurring additional costs. Moreover, the guidance suggests that governments draft appropriate legislation to enforce compliance with the new Annex. Considering the potential environmental implications of non-compliance any incorrect declaration is likely to result in a criminal penalty which even for the least serious offences will likely amount to a significant fine.

Further, the difficulty of classifying cargoes in this way is that a blanket classification for a certain type of cargo may not be sufficient. The chemistry of an ore, for example, may differ depending on which mine it is extracted from and the other components that are mined with the ore. Accordingly, it appears that it will be necessary to test ore from each mine and possibly each different seam in order to ensure that the HME criteria are declared correctly and even when the database of classification is fully operational there may be occasions when the testing of a particular cargo may be necessary.

It is also necessary to ensure that in circumstances where the cargo is not HME the cleaning agents are also not HME. This is likely to be solved with a compliance statement from the manufacturer but great care should be taken when using old stock. Lastly, we recommend any choice of environmental contractor is considered carefully.

What to do with HME cargo residues which cannot be discharged into the sea?

The changes to MARPOL Annex V are likely to have the greatest effect once the cargo is discharged. If the cargo is HME then it has been suggested that the Master of the vessel may be prevented from discharging cargo bilges at sea and therefore there may be an accumulation of water that they will have needed to store in a ship’s tank on passage.

Once the hold has been discharged, if the Master needs to clean the hold for the next cargo he will have to retain that wash water on-board for discharge ashore. It will then be necessary to land that water into a reception facility at the next port of arrival or remain alongside at the discharge port whilst washing (provided that a reception facility is available)

Under Regulation 8 of Annex V, governments must ensure that adequate port reception facilities for garbage from ships are provided. However, currently it is acknowledged by the IMO that reception facilities are not available in all of the world’s ports and no guidance is provided in the event that this is the case which is likely to lead to difficulties.

Implications of these revisions for Owners/Charterers

Where the cargoes are not HME then the changes should have little effect and it should be possible to purchase cleaning agents that allow discharge to the sea. However, the circumstances will be very different where a cargo is classified as HME: Owners or charterers will need to make arrangements for these cargo residues to be dealt with.

P&I Clubs have advised their Members to liaise with charterers, shippers and ports of discharge to determine whether the cargo they are carrying is classified as HME under MARPOL Annex V prior to loading and, if it is, to ensure suitable reception facilities are available. However, as discussed above, due to the current lack of suitable reception facilities, the revised Regulations are likely to cause operational problems resulting in commercial disputes.

The costs of dealing with any HME cargo residues will depend on the extent to which a cargo is harmful and the availability of reception facilities. However, the potential expenses arising out of dealing with a HME cargo are not currently allocated in standard form contracts and so it is not clear where this liability will fall in the case of a dispute. Therefore, we advise that existing standard form charters currently in use are closely examined.

BIMCO have provided a cargo residues clause (for time charters) which, at least on its face, deals with the issue as to where the costs will fall. However, the clause does appear to have far reaching consequences for charterers and would potentially allow owners to divert, at charterers’ expense, to dispose of cargo residues, where reception facilities are not available at the discharge port. If this is the case, charterers would require a reciprocal arrangement with any sub-charterers.

Further, P&I clubs have produced standard clauses to insert into charterparties which can then act as a basis for negotiation between owners and charterers. Unsurprisingly, these clauses put the onus on charterers to provide the ship’s master with a declaration signed by the shippers that the cargo is not HME at the loadport and owners will be under no obligation to load where no such declaration is provided. Any time lost as a result of charterers’ non-compliance shall be for charterer’s account and charterers shall indemnify owners against all costs arising if the cargo is later determined as HME.

What is less clear, however, is where the liability may fall if the cargo is not correctly disposed of, or indeed is incorrectly declared, and this leads to a pollution incident. In these circumstances, where environmental damage occurs, the costs of clean-up and reputational damage could be significant for whichever organisation retains the liability. Accordingly, we would advise that clear contractual mechanisms are put in place to deal with this issue.

Implications for Buyers/Sellers of HME cargoes

Since owners are likely to place increased obligations on charterers in order to ensure compliance under the new MARPOL Annex V, these revisions will almost certainly have a knock-on effect on the parties to any sale contract.

Currently there appears to be a lacuna in the contractual delivery terms commonly used for the international sale of goods in respect of which party would have the obligation to comply with the classification requirements under MARPOL Annex V; there are no provisions dealing with this new requirement in Incoterms or, for example, in the GAFTA, BP or SCoTA standard terms.

In a FOB contract, the buyer (whether or not also acting as the charterer) will wish to pass the obligation to classify the cargo onto the seller who will be more likely to have the required information about the cargo. The seller may be happy to give the information, but may wish to do so without responsibility for any consequences. However, the buyer will also want some kind of indemnity if the provided information is wrong and the buyer suffers loss as a result.

In both a CIF and DES contract where the seller is responsible for shipping the cargo, the obligation to classify the cargo will also be likely to sit with the seller (whether or not the charterer).

In FOB, CIF and DES contracts, any quality testing at loadport may not be sufficient for the purposes of classifying the cargo as HME or not HME and the results may also not be available before the cargo loads and sails. If this is the case and further chemical tests have to be carried out, there will be associated costs and delays which need to be allocated.

The question in all of these cases therefore remains (a) what information can be used to classify the cargo; (b) who will bear the costs if further tests are required/delays at loadport incurred and (c) what happens if the information is incorrect?

Next Steps

Since the amendments under MARPOL Annex V have only recently taken effect, it is difficult to foresee all of the practical and legal implications that the new definition of garbage will have.

Certainly without the database having been completed, the obligation to classify a cargo as HME or not HME is an onerous and potentially expensive burden.

Therefore we would recommend reviewing any existing charterparties/standard form charterparties to ensure that they contain appropriate clauses specifying each party’s obligations.

Finally, all sale contracts should now contain clauses dealing with MARPOL Annex V obligations, indemnities (especially in respect of environmental liabilities) and delays in providing information. As always, the allocation of the risks will be dependent upon the bargaining power and realisation of what the risks involved are. We anticipate disagreements between buyer and seller concerning correct classification and cost allocations, particularly before the database is completed.

1. “Cargo residues” are widely defined by Annex V, in Regulation 1.2, as “remnants of the cargo which are not covered by other Annexes… which remain on the deck or in holds following loading or unloading…whether in wet or dry condition or entrained in wash water but does not include cargo dust remaining on the deck after sweeping or dust on the external surfaces of the ship”.

2 MPEC/63/23/Add.1 Annex 24 which was provided in order to assist in implementation of the new Annex V.

3. 3.2.1, 3.2.2 and 3.2.7

4. MPEC.1/Circ.791