De-harmonisation
Initially, the IMO aligned the date for compliance with the BWMS requirements set out in Regulation D-2 with the renewal of the International Oil Pollution Prevention (the IOPP) certification. To extend the compliance deadline up to 2022, many owners chose to de-harmonise the renewal of IOPP certificates and carry out the IOPP renewal survey earlier (or as close to 8 September 2017 as possible). The practice did not prove useful when, at the 71st session of the IMO’s Marine Environment Protection Committee in July 2017, the deadline for the installation of the BWMS was delayed, providing owners with a fleet compliance timeframe of between 8 September 2019 and 7 September 2024. In effect, those who de-harmonised, and carried out the IOPP renewal survey shortly before 8 September 2017 risked losing two additional years for compliance. To assist owners, some flag states, such as the UK, allowed re-harmonisation.
It would be rather unsympathetic to criticise owners for trying to delay the installation process. In the case of retrofits, the costs of installing BWMS are largely dependent on the individual technical specifications of ships, with reported estimates ranging from US$1 million to US$5 million per ship. From owners’ perspective, any additional time helps with the cost absorption.
Putting the installation off until as close to the ultimate 2024 deadline as possible may, however, result in practical difficulties.
Availability of systems
Regulation D-3 sets out approval requirements for the BWMS. The approval type depends on whether the BWMS makes use of “active substances” (such as bacteria) or not. For those systems which do, the active substance must be approved by the IMO. As of January 20191, there were 43 active substance BWMS which had received the IMO’s final approval. The total number of active and non-active substance systems approved as of January 2019 was 76.
Article 2(3) of the Convention states that individual states are free to employ “more stringent measures…”. Further, any non-signatory states are free to regulate the ballast water and sediments discharge as they please. While some countries may opt for less restrictive requirements, others may implement additional requirements. By way of example, as at the date of this article, there are only 20 systems fully approved by the USCG, with a further 10 under review.
Clause 1 of the Shelltime 4 form sets out seaworthiness and cargoworthiness obligations. Among others, these include:
“(g) shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service without delay”.
The choice of system may ultimately have a restricting effect on owners’ ability to provide a “seaworthy” or “cargo worthy” vessel for trade in certain geographical areas. From a regulatory perspective, the potential consequences of calling at a port with a non-compliant system are likely to be considerable. For instance, the relevant U.S. law, 33 CFR section 151.2080, imposes a civil penalty of US$ 35,000 per day for non-compliance, and criminal liability for those who “knowingly” violate the law.
From a contractual perspective, a failure to comply would likely lead to a delay including the possibility of the ship being ordered to leave port and/or deviate to a suitable reception facility for discharge of the ballast water. This would, in turn, translate into additional operational costs and a likely claim for damages by charterers and/or cargo interests. Owners will therefore be best advised to ensure that they are fully aware of any “more stringent” requirements which may be imposed by local laws.
The already limited number of compliant systems may be further reduced for individual vessels due to technical feasibility, operational concerns (availability of supplies), or reliability (availability of spares). This may translate into difficulties in procuring the right system and finding a suitable yard to install it. Those owners who wish to keep their options open should take steps to have arrangements in place considerably before the relevant IOPP renewal date.
Operational issues
Article 9 of the Convention states that compliance will be verified by inspection of a valid certificate and ballast water record book. As an option, sampling may be carried out but “the time required to analyse the samples shall not be used as a basis for unduly delaying the operation, movement or departure of the ship”. The practical reality is that most vessels will have samples taken only periodically.
Non-compliance is likely to arise in two ways:
- Regulation B-1 of the Convention stipulates that a ballast water management plan should, inter alia, “detail the procedures for the disposal of Sediments: .1 at sea; and .2 to shore”. U.S. law goes further and requires regular removal of sediments (33 CFR section 151.2050). For approval purposes, BWMS are likely to be tested in laboratory conditions or onboard ships with clean ballast tanks. Thus, for retrofits, unless prior cleaning is conducted, there is a risk that sediment already present in the tanks will prevent effective operation of the BWMS (particularly so when the BWMS filters on intake only). While owners may be operating on the basis of documentary inspections, when samples are finally taken the results may lead to non-compliance.
- Where the system fails, a prudent course of action will be to notify the relevant port authorities. All signatory states have an obligation to ensure that the ship does not discharge ballast water “until it can do so without presenting a threat of harm to the environment, human health, property or resources” (Article 9(3) of the Convention). The level of sanctions for breaches of the Convention are determined by individual states (Article 8(1)). It would seem logical that instances of duly reported mechanical failure not occasioned by negligence and not resulting in actual discharge, would not be heavily penalised, so as to promote the culture of transparency and a ‘lessons learned’ approach. Nonetheless, there is little doubt that the ship would be required to rectify the issue and could be directed to a specific facility to do so. This could result in delays and translate into charterparty and/or bill of lading claims.
Contractual arrangements with yards and manufacturers
The relationship between owners, manufacturers and yards will be dictated by the solution employed. Owners will either have to acquire equipment and arrange installation themselves or go for a turnkey solution. The clear benefit of the latter is clarity as to legal responsibility but prudence would demand that owners ensure that the supplier is reputable and financially sound.
The more general areas of contractual interest as regards owners, manufacturers and yards will be:
- The exact specification of the BWMS and its operating conditions. From a regulatory perspective, owners will doubtless wish to include performance guarantees and ideally have them linked to laboratory results. On the other hand, manufacturers will likely insist on differentiating between laboratory and actual operating conditions. Commercially, owners’ ability to meet scheduling requirements will depend on ballasting/de-ballasting estimations. BWMS may impact the ship’s capabilities in this regard and owners may wish to address this in the specification.
- The commissioning process. This should be set out in detail and ideally, although this may be difficult to achieve for retrofits, on-voyage performance should form part of it. It would seem sensible, at the very least with reference to any commissioning conducted in yard, to ensure that representatives from owners, the manufacturer and the yard all attend trials to ensure that the implementation meets the agreed scope.The post-installation service. The key aspects in this regard include the availability and reliability of the manufacturer’s support network when it comes to regular servicing, replenishment of consumables and spare parts, and provision of training to crew – adequately trained crew being a requirement under regulation B-6 of the Convention.
- The recoverability of liabilities. The default position under English law is that, unless expressly provided otherwise, the contract breaker is liable for losses directly arising from the breach. While this arguably means that owners ought to be able to seek recovery of any civil penalties from a manufacturer (or the yard, dependent on the arrangement), the owners may not be able to recover any lost profits or losses incurred to charterers as a result of non-compliance. These would be most likely too remote. Therefore, at least for the duration of the warranty, owners may wish to consider negotiating specific recoverability provisions. Naturally, given that potential liabilities could be considerable, and at this stage difficult to predict, these will be likely difficult negotiating points for the parties.
Conclusion
Presently, there are a limited number of BWMS satisfying both the Convention and the U.S. law. Further, following the widely adopted cycle of de-harmonisations and re-harmonisations aimed at extending the deadline for compliance with the Convention, there are voices within the industry suggesting that a considerable and perhaps overwhelming demand for both BWMS and available yards to install the same may be expected in the run up to 2024. If so, the safest approach would be to put arrangements for procurement and installation at the next IOPP survey in place without further delay. Although some may see merit in delaying any procurement as long as possible to see whether more and perhaps more desirable BWMS, satisfying the Convention and the US law, come to the market increasing the availability and potentially driving the costs down. This approach could, however, backfire if BWMS availability remains low and yards have no slots to accommodate installation.
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January is the date of the most recent list published by the IMO.
Client Alert 2019-183