Legal aspects in charter party lack clarity ahead of IMO 2020

Murali Pany, managing partner at Joseph Tan Jude Benny LLP Murali Pany, managing partner at Joseph Tan Jude Benny LLP

With the IMO 2020 regulation just round the corner, shipowners are mostly catching up on understanding fuel compatibility and operational issues, but the equally important legal aspects have been largely left unsaid.

Murali Pany, managing partner at Joseph Tan Jude Benny LLP, said that lawyers are “feeling a bit left out” in the shipping industry’s heated discussions on the impending 1 January 2020 IMO Marpol Annex VI regulation requiring ships to burn bunker fuel with a maximum sulphur content of 0.5%.

Pany was one of the panellists speaking at a conference session of Sea Asia 2019 held in Singapore on Wednesday as part of the Singapore Maritime Week.

“The bulk of the focus on this (IMO 2020) topic has been, and rightly so, on operational and technical issues,” Pany said, adding that it would be good to throw some light from a legal perspective especially for ships under charter contracts.

“If you have a charter party that runs over 2020, or you are going to enter into a charter party that will run over 2020, you need to have a seriously good look at the charter party,” Pany advised.

He said that while the maintenance of scrubbers will have to be at the shipowner’s expense, it is unclear who will bear the cost of installing scrubbers if the charterer demands for it. “Even if the owner agrees to bear the cost of scrubber installation and the vessel goes to drydock, who is liable for the costs incurred during the vessel downtime?” he questioned.

Another grey area that will arise is when the scrubber suffers a mechanical failure making the vessel technically in breach of Marpol regulation. “In times of commercial pressures and the charterer wants to get out of a charter, this is an excellent way to do it,” Pany said.

Yet another element that is not addressed is the cost of bunkers on delivery. After 2020 when there is a price premium on compliant bunker fuels under a charter entered into before 2020, it is unclear who is going to pay for that extra bunker costs, Pany said.

“Also, all charter parties come with performance warranties without burning any fuel or without using scrubbers. And what happens if you can’t keep up with them? Do these performance warranties still apply?” he asked. “So contractually these are the issues that will come up and are important.”

Seatrade Maritime News is reporting Live from Sea Asia 2019

On an operational level, Capt. Rahul Choudhuri, managing director – AMEA at VPS, said he is “cautiously optimistic” about the use of the compliant 0.5% sulphur fuels based on testing results conducted over the last six months.

“These new fuels are pretty stable from what we see. Although if you dig a little deeper, we have seen a couple cases of poor stability, low flash point and some corrosive qualities,” Choudhuri observed.

Arun Sharma, vice chairman of International Association of Classification Societies (IACS) and executive chairman of Indian Register of Shipping (IRClass), has expressed little or no concerns over the IMO 2020 global regulation.

“The implications of 2020 may not be as profound as many thought it could be. It is not something worth losing sleep over and I don’t see any big surprises,” Sharma said.

He noted that test results of the blended 0.5% sulphur fuel have largely shown it to be of a fairly stable blend, and many refiners have confirmed that the blends will meet the ISO 8217 specifications.

“It is a good fuel; you just got to have the right implementation plans. Let the class help you. This just feels like the Y2K scare. Give it a couple weeks or a couple of months and it’ll settle,” Sharma said.

Posted 10 April 2019

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Lee Hong Liang

Asia Correspondent

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