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Off specification bunkers: Legal issues arising from the supply of fuel containing chlorinated hydrocarbons in Singapore

05 Apr 2022

The following article ‘Legal issues arising from the supply of fuel containing chlorinated hydrocarbons in Singapore’ has been written by Paul Collier, Senior Associate at global law firm Clyde & Co:

There have been a number of cases of chlorinated hydrocarbons being detected in recent bunker deliveries in Singapore, and reports of vessels suffering from fuel system failures, resulting in loss of power and propulsion in main and auxiliary engines.

Whilst initial test results indicated that the fuel supplied met ISO 8217 table 2 specifications, advanced Gas Chromatography-Mass Spectrometry head space (GC/MS) testing by VPS identified the presence of a number of contaminants, including dichloroethane, trichloroethane, trichloromethane, tetrachloroethylene and chloro-benzene in fuel supplies. These contaminants could potentially cause wear and seizure of fuel pumps, fuel valve problems and corrosion, and in serious cases could cause engine blackouts.

The difficulty for vessel owners, time charterers and bunker traders is that fuel may have been supplied to vessels that has been identified as complying the ISO 8217 table 2 specifications but contains latent contaminants which can only be detected through advanced GC/MS testing. The risk is similar to that faced with the “Houston problem” cases of 2018, in that vessels may consume contaminated fuel, and suffer engine damage before it becomes apparent that the fuel is in fact contaminated and unsafe to consume.

There are a number of issues which are worth considering at the outset if it is suspected that off-specification fuel may have been supplied to a vessel.

Sampling

The samples taken at the time of the bunker supply are of critical importance; testing of these samples can indicate whether the fuel supplied is off-specification, or alternatively if is safe to consume. The samples taken are also likely to be key to the outcome of any future dispute.

Given that current reports suggest that the alleged contaminants can only be identified through advanced testing, if possible, it is advisable for GC/MS testing to be undertaken before fuel is consumed, and for parties not to solely rely on initial ISO 8217 table 2 tests only. In the meantime, it is also likely to be advisable to keep any fuel which could potentially be contaminated segregated, in order so it can be isolated and, if necessary in the future, debunkered.

Fuel quality

Whilst initial fuel tests may indicate that fuel complies with ISO 8217 table 2 standards, latent contaminants may nonetheless render the fuel off-specification. In this regard, buyers may be able to argue that the supply breaches the requirements of clause 5 of ISO 8217 which provides “fuel shall be free from any material that renders the fuel unacceptable for use in marine applications” and/or Regulation 18.3 of MARPOL Annex VI which provides “the fuel oil shall not include any substance or chemical waste which … jeopardises the safety of ships or adversely affects the performance of machinery”.

In the context of time charters, owners may also be able to argue that time charterers are under an obligation to supply fuel that is of reasonable general quality and suitable for the type of engines on the vessel.

Time bars

Bunker supply contracts often impose an obligation on buyers to notify any quality claims within a fixed number of days from the date of supply. This timeframe ranges, generally between 7 days and 30 days, and contracts generally include wording providing that if quality claims are not notified within this period, claims are waived or barred.

Where latent contaminants are present in fuel, and fuel quality problems have only materialised after a short contractual time bar has expired, buyers may seek to argue the time bar ought not to be enforceable. For example, buyers may seek to argue that they could not have reasonably been expected to notify the quality claim within the time bar period, and the time bar should not therefore be enforced. However, on a practical perspective, it is likely to be beneficial for buyers to seek to establish whether or not fuel is off specification as soon as possible after the fuel is delivered, to seek to avoid any potential arguments from suppliers alleging that claims are barred following the expiry of a contractual time bar.

Mitigation and evidence gathering

A. Claims for engine damage

Where off-specification fuel has been supplied to a vessel and there is engine damage, to successfully claim against the bunker supplier, in addition to proving the fuel supplied was off specification, the buyer will also need to be able to show the fuel supplied caused the engine damage.

On the face of it, this might appear simple to establish, but parties should be mindful that bunker suppliers or time charterers may seek to argue that (i) a previous bunker stem caused the engine damage (ii) the engine was not maintained properly, and/or (iii) there was poor fuel management (such as the mixing of incompatible fuels) and this caused the damage.

If such arguments are raised, the outcome of any dispute will largely depend on the quality of the available evidence. As a result, if engine damage is alleged to be the consequence of the supply of contaminated bunkers, it is advisable that evidence is gathered at an early stage. This includes instructing surveyors to inspect the engine, taking fuel samples and retaining documentary records (including log books, oil record books and maintenance records).

B. Where fuel has not been consumed

Where fuel has tested as off-specification but has not yet been consumed, then there is likely to be a question as to whether the fuel should be debunkered, or whether steps can be taken to allow the fuel to be safely burned. This is primarily a technical question for fuel / engine experts.

Both options expose the vessel owners to risk. If the fuel is consumed, then owners may run the risk of engine damage, as well as facing a possible argument that in burning the fuel, they failed to mitigate their losses. On the other hand, if fuel is debunkered, then owners may face an argument that the fuel should have been consumed, providing it was safe to do so.

Given the risks, it is highly advisable that vessel owners rely on expert advice and act in a cautious and prudent manner. It may also be worthwhile owners requesting their supplier or time charterer arrange the debunkering of off-specification fuel, even though such a request may not be agreed, as it will likely assist in showing that owners sought to mitigate their losses.

 

Paul Collier
Senior Associate, Clyde & Co Clasis Singapore Pte. Ltd.
Direct Dial: +65 6544 6569
Email: Paul.Collier@clydeco.com

 

Photo credit: Manifold Times
Published: 5 April, 2022

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