Webinar: Standard Club Industry Expertise - Ship Recycling

There have been several high-profile cases where operators have suffered reputational and financial damage because of how their ships have been recycled at the end of the ship’s life. The absence of one international and uniformly applicable convention for the recycling of ships can make this a difficult field to navigate for operators. During this session, experts from Standard Club were joined by panelists from Sea2Cradle and Stephenson Harwood to discuss the applicable regulations, provide guidance on the factors that needs to be considered when it comes to ship recycling, and also take live audience questions on the subject.

Panellists

• Capt. Yves Vandenborn, Director of Loss Prevention, Standard Club
• Capt. Akshat Arora, Senior Surveyor, Standard Club
• Anna Kalogianni, Claims Executive, European Division, Standard Club
• Wouter Rozenveld, Director, Sea2Cradle
• Nick Barber, Partner, Stephenson Harwood

Recording

Watch here. The session was recorded on Wednesday 17 March, 2021 at 9:00 GMT / 11:00 EET /17:00 SGT.

Q&A

What is the status of UK ship recycling facilities?
The UK Maritime and Coast Guard Agency (MCA) has issued a marine information note (MIN 657 (M+F)) on the UK list of approved ship recycling facilities. See further details here.

How does IHM compliance fit with wider ship recycling initiatives?
The Inventory of Hazardous Materials (IHM) is a link between the ship’s operational phase and its end of life. So, even though the IHM is compiled and maintained throughout the ship’s operational life, its primary use comes when a ship is being recycled. The up-to-date information contained in the IHM helps recyclers make decisions about practices to employ to keep the recycling process as safe and environmentally sound as possible.

Due to the Covid-19 restrictions, my ship’s IHM is still not ready. Is it possible for my ship to call an EU port without facing any issues? 
On 20 October 2020, the European Commission (EC) issued guidelines recognising the challenges faced by the shipping industry and urging EU member states to apply a harmonised approach temporarily for a limited period of 6 months after the entry into force of the IHM-related obligations (i.e., until 30 June 2021).

As per the EC notice, ships arriving at an EU port after 31 December 2020 without carrying on board a valid IHM or semi-completed IHM will need to provide evidence of all the measures that were taken to undertake the IHM work.
The EU Member States may exercise certain discretion when it comes to enforcing the regulation, for example where a shipowner has endeavoured to achieve certification within the deadline but has been unable due to factors outside their control.
It is difficult to envisage what such discretion might look like or the likelihood that it will be consistent from port to port. Therefore, it is recommended that shipowners/managers concentrate on the elements within their control and ensure as a minimum that they have:

• contracted a HAZMAT specialist in good time to compile the sampling and make every effort to get the IHM work completed, and

• contact the relevant Flag State(s) of their vessels to conduct the approval and verification work required for the IHM certification.

Now that UK has left EU, will EU regulations be still applicable on the UK flag ships?
From 1 January 2021, the UK Ship Recycling Regulation (UK-SRR) retains the requirements of the EU Ship Recycling Regulation 1257/2013 (EU-SRR) in UK domestic legislation. The UK Maritime and Coastguard Agency (MCA) issued attached Marine Guidance Note (MGN 633 (M+F) Amendment 1) that provides guidance and clarification on certain aspects of both the EU-SRR and the UK-SRR. Further details are available here.

Does US and Canadian ships need to comply with EU regulations?
The provision of EU Waste Shipment Regulation (EU-WSR) will be applicable if the US or Canadian flagged vessel was geographically in EU/EEA waters when the decision to recycle the ship was taken.
US is a signatory to Basel Convention but not ratified it. International Shipbreaking Ltd. LLC has EU Ship Recycling Regulation (EU-SRR) accreditation for its site at Brownsville, Texas.
Canada operates around the Wrecked, Abandoned or Hazardous Vessel Act. While Canada has not ratified the HK convention, its government website mentions that ‘Canada continues to support the general intent of the Hong Kong Convention and is actively assessing the Convention requirements.’

Could owners of EU flagged ships change the flag and ownership with the intention of recycling at a facility not on the approved EU list?
Usually the sale of an end-of-life vessel to a cash buyer involves a brief change in ownership and consequently a new registration of the ship and even changing the ship’s name. When changing ownership, certain end-of-life registries are preferred by cash buyers due to their advantageous ‘end-of-life packages’.
As can be seen in the Seatrade case, the European regulators look closely at the decision-making process and owners could potentially face criminal prosecution or fines if they are found to have evaded the EU legislation.

Would P&I also cover the costs for scrapping/recycling in a CTL/WR scenario?
A distinction should be made between the operational decision as to what to do with a ship at the end of its life on the one hand, and a member’s liability for or incidental to the removal and/or destruction of the wreck. Scrapping of recycling following a casualty is more of an operational decision to make with regards to the future of the ship rather than a liability of the owner to remove the ship. But again, there may be cases that the costs for recycling/scrapping may be considered as liabilities for or incidental to the removal and thus falling under P&I cover. The answer is really that the position will be assess on a case-by-case basis.

It is common that ships will be sold to cash buyers for further recycling. Could there still be a risk for the previous owner in case of non-compliance?
Indeed, it is common that owners will sell the ship to a third buyer intermediary to undertake the recycling. However, this does not mean that owners avoid being in breach of or more of the applicable regulations and the owners may also be exposed to reputational or financial damage if environmentalists target them. For example, ships can still be tracked at their final destination and non-governmental organisations may still name and shame the original owners. It is worth noting that in the Maran Tankers case, the ship had been sold, yet the negligence claim was brought against the original owners. Owners should therefore ensure that the third party complies with the applicable regime and this can be done by including protective clauses in the sale contract. BIMCO has prepared a RECYCLECON form for green ship recycling, which can be considered in such cases.

Is it possible to unflag a vessel after being declared total loss?
Even if a ship is declared a total loss following a casualty, the registered owner still has responsibilities under the international regulations (particularly under the Nairobi International Convention on the Removal of Wrecks) which would need to be complied for the proper removal/ demolition. Depending on the location of incident and flag of the vessel, prior approval would need to be taken for any change of flag.

For more details, please refer to the club’s article on the wreck removal and the challenges of constructive total loss (CTL) here.

What is the status of a ship when grounded and not possible to remove anymore?
In accordance with the Nairobi International Convention on the Removal of Wrecks, such ship will come under the definition of a ‘wreck’. In common terms, a 'wreck' is a ship that has been destroyed at sea. For purposes of insurance, a ship can be an 'actual total loss' or a 'constructive total loss'.

What is the status of the EU approval of recycling yards outside Europe?
As of 17 March 2021, nine (9) EU approved ship recycling facilities are outside of Europe. This includes eight (8) facilities in Turkey and one (1) in USA.
The European Commission (EC) has issued detailed technical guidelines on the requirements and procedure for inclusion of facilities located in third countries in the European List.
The site inspection reports of yards located in third countries can be accessed here.

Can you think of a way where the EU can provide an exemption, so a vessel under EU flag can be recycled locally in case of total loss? How can adherence to the rules of the EU-SRR be monitored?
An exemption may be possible but only after approval of the EU flag state.
The European Maritime Safety Agency (EMSA) has released guidance on the inspections from EU port states to enforce the provisions of the EU-SRR. It is a reference document that provides both technical information and procedural guidance, thus contributing to harmonised implementation and enforcement of the provisions of the EU-SRR and the Port State Control (PSC) Directive.
Additionally, EMSA has issued a best practice guidance, a non-binding document, for the development and maintenance of the IHM in accordance with the EU-SRR.

Are there any downsides to the English court's approach to the duty of care?
The English court's approach may be developing towards being more prepared to find a duty of care. However, the Court of Appeal's recent judgment in The Maran Centaurus suggests that it will be reluctant to do so. We will know more if and when the High Court renders its judgment on the substantive dispute. If the High Court does find that the duty of care extends to workers in a recycling yard, we can expect Owners to take more creative steps to distance themselves from the eventual fate of their vessels, or to attempt to avoid English jurisdiction entirely. In that scenario, there is an increased risk of recycling moving towards an even less accountable environment.

Can an owner argue that it is still customary to beach vessels, so to do so is to exercise reasonable skill and care?
Generally speaking, it is established law that the fact that other parties are behaving badly is no excuse for a party to do so as well. In short, customary practice is no defence if it is patently wrong.

Does an owner have insurance cover for ship recycling liabilities?
Anna's presentation covered the usual position, which is that to the extent that liabilities arising from recycling do not fall within standard P&I cover, bespoke cover can be arranged. To take the scenario where an owner has entered into an arrangement which is plainly intended to circumvent the law applicable to a particular owner or vessel, it is likely that there will be no cover. For example, whilst P&I cover will usually respond to fines in the event of an accidental discharge of pollutants, it will not do so where the 'risk' in question is being caught in a deliberately illegal act. So those are the two ends of the scale, but there may well be cases in between where an owner has arguably simply been negligent, and these will have to be taken on their facts.