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Legal comment: Bunker contamination in the U.S. Gulf

The possibility of class actions in the U.S. against bunker suppliers ‘cannot be ruled out’, lawyers comment.

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Paul Dean, Partner, and Rory Grout, Senior Associate, of international law firm Holman Fenwick Willan briefly consider some of the issues arising for affected parties, including shipowners, time charterers and bunker suppliers affected by marine fuel contamination in the US Gulf:
 

BUNKER CONTAMINATION IN THE US GULF – LEGAL AND PRACTICAL IMPLICATIONS

 

Background

Reports suggest that possibly up to one hundred vessels may have been affected by contaminated marine fuel oil stemmed at ports in the Houston and US Gulf region, giving rise to significant concerns in the industry, as well as a range of both practical and legal issues.

Contaminated fuel supplies of blended fuel oils, such as IFO 380, were first reported in the US Gulf region earlier in February and appear to have persisted, with newly reported incidents still arising. Whilst the root source of the issue remains inconclusive, initial reports based on advanced fuel testing methods, such as Gas Chromatography Mass Spectrometry (GCMS), seem to point to adhesive phenolic compounds as the principal contaminant, although other products may also be involved.

Vessels affected report a range of technical problems. These include blocked fuel filters, fuel pump seizures and even the complete loss of main engine power, giving rise to the possibility of serious incidents such as collisions or groundings.

The issue appears to have been compounded due to the lack of detection of contaminants via conventional fuel testing analysis performed in accordance with the ISO 8217 requirements and fuel specifications, commonly incorporated into marine fuel supply contracts and also time charterparties.

The issue has affected a number of suppliers, leading some to speculate that the problem is linked to a refinery, or cutter stocks that are lighter petroleum products added to heavier fuel to reduce viscosity.
 

What are the issues?

Below we give some examples of the issues arising, proceeding on the basis that the supply of marine fuel oil was arranged by a time charterer.

Shipowners

  • The immediate question will be how to deal with the contaminated fuel remaining onboard and not yet burned. This will need to be assessed on a case by case basis and is likely to require the input of a marine fuel specialist in conjunction with an Owner's P&I Club and legal advisors. Options may include the blending or filtration of the contaminated fuel, or alternatively its complete discharge, as well as fuel tank and fuel system cleaning. Initial indications suggest that discharge may be the only option in many cases. Discharge of the contaminated fuel also presents challenges. For example, the contaminated fuel may be designated as a chemical waste requiring specialist handling and not suitable or permitted for onshore fuel storage facilities. The issues of where and how to dispose of the contaminated fuel will therefore need to be carefully checked in advance via local port agents and with the relevant authorities. Owners will be looking to their Charterers for assistance and cooperation in the arrangements, as well as putting them on notice of the claims.
  • Although circumstantial evidence may point to fuel contamination, when considering their potential claims against Charterers or Bunker Suppliers, Owners will need to consider and preserve the evidence necessary to prove that the cause of the problem is off-specification fuel oil and that the cause is not a ship related problem. This will include retaining samples of the contaminated fuel in question, as well as establishing that the relevant maintenance checks of their fuel filtration and pumping system are up to date and in order via documentary records. Evidence of previous bunker supplies, potentially going back over a period of time, may also be required to rule out problems caused by earlier stems. Owners are well advised to speak to their P&I Club and technical experts at an early stage in order to assess what evidence ought to be preserved.
  • Needless to say, in order to bring a claim in damages arising from a contaminated fuel supply, Owners will need to carefully consider the relevant Charterparty terms, seek legal advice and report to their insurers. They will also need to try and ensure that they take steps to minimise their losses, to ensure that their claims are not prejudiced. This could be a simple as switching the fuel supply to other fuels onboard (possibly even requiring the use of more expensive low sulphur fuel), or ensuring that repairs are performed as soon as possible.
  • Owners purchasing marine fuel from the US Gulf region would be well-advised to be vigilant and alert to potential technical problems, keeping their crew informed on the latest developments, circulating bulletins issued by P&I Clubs, the US Coastguard and Classification Societies, and on the lookout for the tell tale warnings signs of fuel contaminants, to be advised by their technical experts. Owners with ships regularly calling at the affected ports may, in an abundance of caution, also wish to check that they have onboard spare parts for their fuel pumps and systems, in case of need. Some Owners with a regular service to the US Gulf may also need to consider revising the wording to their existing charterparties for greater protection.

Time Charterers

  • The effects of the contamination, ranging from the need to clean and overhaul fuel pumping and filtration systems to the more serious main engine problems, will inevitably lead to downtime, in addition to any time spent deviating to a port of refuge, discharging, filtering or blending contaminated bunkers, as well as awaiting the arrival of spare parts and fuel analysis test results. This in turn is likely to result in off-hire issues. Owners will inevitably be saying that the vessel remains on hire for the period of any delays and claiming their costs in addition as damages. However, the burden remains with Owners to establish that the cause of any problems was due to the supply of contaminated fuel. Charterers will need to consider very carefully whether or not they intend to withhold hire for the time lost and the potential implications if they do so, such as the rights that Owners may have under the relevant Charterparty to withhold performance, cancel the contract or exercise liens over cargo and /or freight. In cases where contamination is clearly established, then Charterers should exercise extreme caution before deducting from hire.
  • Delays, whilst awaiting spare parts, repairs or discharge of the contaminated fuel will be particularly problematic for perishable cargoes. Having to deal with or dispose of the contaminated fuel or perform repairs may result in the need to deviate the vessel from its intended voyage. These issues will create problems for Charterers if they are the contractual carriers under bills of lading, so that they may face potential claims from shippers or receivers and will need to look to their P&I Clubs for support.
  • Owners will look to Charterers to take responsibility for any contaminated fuel supplied and take over the handling of the issue. Charterers will need to try and engage with their Suppliers to seek support (for example on the issue of the discharge and handling of the contaminated fuel) and carefully consider the terms of the relevant Bunker Supply contract, in particular the law and jurisdiction clause, time bar clauses and any clauses dealing with the limitation of liability. Charterers should be especially alive to the potential for short contractual time periods for bringing and notifying claims under the relevant Supply Contract. If bunkers were stemmed sometime ago and the contamination only recently discovered, Charterers could be at risk of potential time bars if not carefully checked and the necessary steps taken.

Bunker Suppliers

  • Suppliers concerned that they may have received contaminated fuel stocks, or in order to provide confidence to their buyers, may consider performing more advanced fuel testing analysis (such as GCMS) to try and rule out the risk of future fuel contamination problems and claims. Bunker suppliers will also need to consult with their insurers and put them on notice of any potential claims. They will also need to carefully review their supply chain in order to investigate any problems and pass on any claims brought by their customer to their own supplier under the relevant contract.
  • In cases where there is conclusive evidence that contaminated fuel has been supplied, a Supplier may wish to adopt a cooperative approach in order to try and minimise the claims brought against them, as well as looking to commercial resolution of the claims before legal costs rise.

Owners, Charterers and Bunker Suppliers

  • The existence of chains of marine fuel supply contracts on potentially back-to-back terms, entail that similar legal issues may arise at different stages of the supply chain, or in time charterparties where charterers are commonly obliged to supply and pay for bunkers. For example, the different versions of the ISO 8217 in use (i.e. 2005, 2010 and 2017 versions), are regularly incorporated into the terms of both time charterparties and bunker supply contracts, all prescribe, in slightly different language that the fuel should "not contain any additive at the concentration used in the fuel, or any added substance or chemical waste that a) jeopardizes the safety of the ship or adversely affects the performance of machinery..."[ISO 8217:2010 paragraph 5.5]. As such, parties involved in cases of allegedly contaminated fuel, will be currently seeking to identify whether the fuel supplied is compliant and whether or not there has been a breach entitling a claim in damages.
  • All parties will need to ensure that sealed samples of the fuel supplied are carefully retained for testing and testing protocols agreed in case of any allegations of contamination. In this regard, all parties are recommended to retain at an early stage of alleged fuel contamination a marine fuel expert to assist and attend at any testing and advise on how samples ought to be retained and stored. Note that due to the high number of recent fuel contamination incidents, there are reported delays at fuel testing houses due to the backlog of samples requiring analysis.

The applicable law?
Given that the majority of supplies were made in the US, it is anticipated that there will be a US law element to the claims brought against Suppliers, either due to the contractual terms of the local physical supplier, or by application of US tort law for claims to damage to property. Indeed, the possibility of class actions in the US against Suppliers cannot be ruled out.

The question of the applicable law is far from straightforward, and the existence of 'umbrella' bunker supply agreements entered into by larger ship operators with bunker traders and suppliers, means that English law could potentially apply to the relevant supply contract, for example, potentially incorporating the implied terms of fitness for purpose and satisfactory quality under section 14 the Sales of Goods Act 1979. The applicable law will need to be assessed on a case by case basis.

Comment

As matters still unfold, it remains to be seen whether recent reports of contamination are due to an earlier supply of contaminated bunkers, or whether there continues to be a problem with the stemming of new bunkers. At this stage, ship operators are well advised to exercise caution, whilst suppliers should be looking to try and restore confidence to those looking to purchase marine fuel from the affected areas.

Fuel contamination is not a new phenomenon and the issue for discussion is how it may be addressed in the longer term. Modern technologies such as blockchain, with point of origin traceability could be a solution in due course, such as being currently looked at as a method of controlling contamination in the food industry. Whether this could be a practical or feasible solution in marine fuel supply industry is unclear, especially in an industry of low margins and costs sensitivity.

Published: 23 July, 2018

 

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Vessel Arrest

Vietnam: Fishing vessel TH-92237-TS arrested over 80,000 litres of illegal diesel oil

Ship first spotted being surround by several other wooden hull fishing boats at a location about 100 nautical miles southeast of Con Da on 7 June.

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Kiem tra huong tien

The Vietnam Coast Guard on Saturday (8 June) said it arrested fishing vessel TH-92237-TS over the carriage of about 80,000 litres of illegal diesel oil.

It first spotted the vessel being surround by several other wooden hull fishing boats at a location about 100 nautical miles southeast of Con Da on 7 June.

The authority proceeded to inspect the vessel and found it to be transporting about 80,000 litres of diesel oil with no invoices or documents proving its legal origin.

Following, the coast guard conducted a record of administrative violations, established initial records, and sealed the violating goods.

It escorted the fishing vessel back to the port of Squadron 301 (in Vung Tau City) and handed it over to the Command of Coast Guard Region 3 for further investigation and handling in accordance with the provisions of law.

 

Photo credit: Vietnam Coast Guard
Published: 13 June 2024

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Alternative Fuels

IUMI: How can liability and compensation regimes adapt to alternative bunker fuels and cargoes?

Existing international liability and compensation regimes do not fully cater to the changes that the use of alternative marine fuels will bring.

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Dangerous cargo

By Tim Howse, Member of the IUMI Legal & Liability Committee and Vice President, Head of Industry Liaison, Gard (UK) Limited

The world economy is transitioning, with industries across the board seeking to reduce their carbon footprint and embrace more sustainable practices. As part of this, there is a huge effort within our industry to look to decarbonise, using alternative fuels such as biofuel, LNG, LPG, ammonia, methanol, and hydrogen.

Until now there has been much focus on carbon emissions and operational risks associated with the use of alternative fuels. This includes increased explosivity, flammability, and corrosivity. An ammonia leak causing an explosion in port could result in personal injuries, not to mention property damage, air, and sea pollution. In addition, alternative fuels may not be compatible with existing onboard systems, increasing the risk of breakdowns and fuel loss resulting in pollution. Apart from these safety concerns, which particularly concern crew, air pollution and other environmental impacts need to be addressed.

However, the green transition also presents us with a separate regulatory challenge, which has received less attention so far. So, whilst carbon emissions and safety concerns are rightly on top of the agenda now, the industry also needs to prioritise the potential barriers in the legal and regulatory frameworks which will come sharply into focus if there is an accident.

If anything, historic maritime disasters like the Torrey Canyon spill in 1967, have taught us that we should look at liability and compensation regimes early and with a degree of realism to ensure society is not caught off-guard. With our combined experience, this is perhaps where the insurance industry can really contribute to the transition.

Currently, existing international liability and compensation regimes do not fully cater to the changes that the use of alternative fuels will bring. For example, an ammonia fuel spill would not fall under the International Convention on Civil Liability for Bunker Oil Pollution Damage (Bunkers Convention), potentially resulting in a non-uniform approach to jurisdiction and liability. Similarly, an ammonia cargo incident would not fall under the International Convention on Civil Liability for Oil Pollution Damage (CLC). Uncertainties may also exist in the carriage of CO2 as part of Carbon Capture and Storage (CCS) projects, which may be treated as a pollutant, with corresponding penalties or fines.

A multitude of questions will arise depending on what happens, where it happens, and the values involved, many of which may end up as barriers for would be claimants. How will such claims be regulated, will there be scope for limitation of liability, and would there be a right of direct action against the insurers? In the absence of a uniform international liability, compensation and limitation framework, shipowners, managers, charterers, individual crew, and the insurers may be at the mercy of local actions. Increased concerns about seafarer criminalisation (even where international conventions exist, ‘wrongful’ criminalisation does still occur) may emerge, creating another disincentive to go to sea.

When being carried as a cargo, the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (HNS), which is not yet in force, may resolve some of these issues for alternative fuels and CO2. However, until HNS comes into force, there will be no international uniformity to liability and compensation for the carriage of alternative fuels and CO2 as cargoes. This creates uncertainties for potential victims and their insurers, who may face increased risks and costs, due to the potential inability of existing regulations to provide protections.

The situation is even less clear in the case of bunkers. The rules for using alternative fuels as bunkers might require a separate protocol to HNS, a protocol to the Bunkers Convention, or a whole new convention specifically for alternative fuels.  Relevant considerations for the appropriate legislative vehicle include states’ preparedness to reopen the Bunkers Convention, the ability to conclude a protocol to HNS before it comes into force, and whether a multi-tier fund structure is needed for alternative fuels as bunkers (perhaps unnecessary because bunkers are usually carried in smaller quantities compared to cargoes).

Until then, what we are left with are the existing international protective funds, designed to respond at the highest levels to pollution claims resulting from an oil spill, without any similar mechanism in place to respond to a spill of alternative fuels, which are themselves so central to a green transition. Somewhat perversely, victims of accidents involving an oil spill may therefore enjoy better protections than victims of an alternative fuels spill.

In summary, while the use of alternative fuels will no doubt help to reduce the industry's carbon footprint, there are safety and practical hurdles to overcome. Stakeholders must also come together to find solutions to complex - and urgent, in relative terms - legal and regulatory challenges.

 

Photo credit: Manifold Times
Source:  International Union of Marine Insurance
Published: 13 June 2024

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Legal

Malaysia: MMEA detains Singapore tugboat, barge for illegal anchoring in Johor

Inspection found that both vessels from Singapore were suspected of committing offences for failing to report their arrival and anchoring without permission from Malaysian Marine Department Director.

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Malaysia: MMEA detains Singapore tugboat, barge for illegal anchoring in Johor

The Malaysian Maritime Enforcement Agency (MMEA) on Tuesday (11 June) detained a Singapore-registered tugboat with a barge at approximately 3.5 nautical miles west of Pulau Harimau in Johor.

Mersing Zone MMEA director Maritime Commander Suhaizan Saadin said the tugboat and barge were apprehended at 11.00am by a MMEA patrol team during Ops Jaksa and Ops Tiris. 

“Inspection found that both vessels from Singapore were suspected of committing offences for failing to report their arrival and anchoring without permission from the Director of the Malaysian Marine Department,” he said. 

Investigation also revealed all seven crew members from both vessels were Indonesians, aged between 25 and 44 including the captain.

The detained vessels and crew were taken to Mersing Maritime Jetty to be handed over to MMEA investigators for investigation under the Merchant Shipping Ordinance 1952.

“MMEA will not compromise on any activities that are against the law and will always be committed in continuing operations and patrols along Malaysian Maritime Zone (ZMM) to curb illegal activities in the country's waters,” said Suhaizan.

 

Photo credit: Malaysian Maritime Enforcement Agency
Published: 12 June 2024

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