Rory Macfarlane, Partner and Geraldine Koon, Senior Associate at international commercial law firm Ince & Co. in December published an article ‘BIMCO 2020 Sulphur Clauses: A fair allocation of responsibilities and liabilities?’ providing a critical analysis of the recently released sulphur clauses:

The implementation date for the MARPOL Annex VI Regulation 14 sulphur cap is fast approaching.

There are two key dates to keep firmly in mind:

• On 1 January 2020, the limit for the sulphur content of fuel used on board a vessel operating outside one of the 4 Emission Control Areas (“ECA”) decreases from 3.5% mm to 0.5% mm.  

In addition, from this date vessels will be required to produce a bunker delivery note stating the sulphur content of any fuel oil stemmed, to carry an IAPP Certificate, to have on board a written procedure for fuel oil change over when entering/leaving an Emission Control Area, and to maintain a log (as prescribed by their flag state) recording adherence to the change over procedure.

• Second, from 1 March 2020, the carriage of non-compliant fuel for combustion or propulsion purposes will be prohibited unless scrubbers are fitted on the vessel.

To assist owners and charterers to address the legal issues arising under any time charterparties, which will span the 1 January 2020 implementation date (or end shortly before), BIMCO has published two bunker clauses (accessible on the BIMCO website):

• The 2020 Marine Fuel Sulphur Content Clause for Time Charter Parties, which replaces the BIMCO Fuel Sulphur Content Clause 2005. This requires charterers to provide fuel that complies with the applicable sulphur cap; and
• The 2020 Fuel Transition Clause for Time Charter Parties, which deals with the one-off event of removing, if necessary, all non-complaint fuel from the vessel.

A third clause dealing with scrubbers is expected to be published by BIMCO early next year. This is likely to propose a regime under which the costs of installing scrubbers are allocated between owners and charterers.

The clauses are to be welcomed by the market as they provide a very helpful starting point for owners and charterers in amending their charterparties to address the different issues arising out of the sulphur cap. However, the BIMCO clauses have generally been drafted with a view to providing what the BIMCO drafting committee consider to be a “fair allocation of responsibilities and liabilities” in line with existing default charterparty contracting positions. Whether individual owners or charterers consider them to be fair, or even want them to be fair, when considering their own operational arrangements is a different matter.  

Operators would be well advised not to simply insert the new provisions into their charters. It is probable that they will want to amend the standard wording depending on how they wish to allocate risk and cost. Moreover, owners and charterers must ensure that the new clauses complement, rather than contradict, the other terms of the charter in question. Changes will almost certainly be needed to existing charterparty clauses to avoid disputes arising. For example, the clauses dealing with delay or deviation may need amending to address the risk of shortages in low sulphur fuel in particular ports or regions, force majeure events may need re-defining and the responsibility for payment of any penalties or fines imposed by flag and coastal states for breach of the regulations must be clarified.

There will undoubtedly be a period of operational disruption and freight/hire rate volatility in the early part of 2020, as the market gets to grips with the new provisions.  We recommend that owners set an ‘internal’ soft deadline in advance of 1/1/2020 for the amendment of their charters and the implementation of the protocols and procedures necessary to comply with the new cap. This pro-active approach should help iron out any teething problems and place owners in the prime position to take those opportunities that will inevitably arise in times of uncertainty, disruption and market volatility. 

We are currently working with clients on drafting bespoke provisions to suit their particular needs. If you would like any assistance in this regard, please do not hesitate to contact Rory Macfarlane or Geraldine Koon at Ince & Co in London, or your usual contact.

Source: Ince & Co.
Published: 28 December, 2018