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Sulphur 2020: A perfect storm?

Low-sulphur fuel regulations have the potential to present the perfect storm for litigators dealing with disputes between owners, charterers and bunker suppliers in cases of non-compliance, warns Hill Dickinson.

The global sulphur cap, which is set to come into force on January 1, 2020, cuts the allowable sulphur content in marine fuel from 3.5 percent to 0.5 percent.

Shipowners bear the responsibility for complying with the global sulphur cap. Where a vessel is not fitted with a scrubber, ensuring compliance presents a number of complicated practical issues for shipowners, ranging from availability of compliant bunkers, completeness of paperwork on board, tank and line cleaning through to a detailed understanding of fuel stability, compatibility and fuel segregation issues.

Contractually, according to Hill Dickinson, shipowners tend to devolve the responsibility for supplying the vessel’s bunkers to their time charterers and this may give rise to contractual disputes, particularly where fuel supplied is found to be marginally above the 0.5 percent sulphur content absolute limit set by the IMO.

There is presently little guidance available as to the attitude that will be taken by the Marpol authorities to marginal breaches of the sulphur cap. Each authority is able to set its own regulations, and potentially enforcement, and the fines associated with breaches will be uneven.

Stressing the importance of having detailed and careful charter party arrangements post January 1, Beth Bradley, a Hill Dickinson partner, said: “There are a great number of issues which may radically impact on the liability situation. It is gearing up to the perfect storm for litigators.

“The interesting area is what happens where you have ordered a compliant fuel, it looks like a compliant fuel, but when it is tested it is just off-specification, just slightly over the 0.5 percent - whose responsibility is that?

“We know how bunker quality disputes usually work out between owners and time charterers and time charterers and bunker suppliers – there is always a fight about whether the problem arose from the fuel supplied or how it was handled on board. The sulphur cap adds a further layer of complication. If the relevant authority concludes that the vessel has to de-bunker, who is going to pay the costs? There will be a lot more focus on what has happened on board. Such as, were the lines completely clean? Were the tanks completely clean?

“Further, the potential disparity between the Marpol sample and commercial samples will come into sharper focus – owners will be fined on the basis of the Marpol sample and contractual disputes are likely to focus on the commercial sample and arguments around the applicable margin of error to test results as charterers and bunker suppliers seek to show that they delivered compliant fuel.”

Hill Dickinson strongly recommends that time charter parties and related bunker supply contracts should contain carefully worded provisions to clarify bunker specifications, sampling procedures and how the potential loss of time owing to inspections and de-bunkering operations is to be shared.

Bradley concluded: “The shipping industry has come a long way in terms of preparing for the introduction of the global sulphur cap, but there is a great deal of uncertainty around the availability of compliant fuel away from the main bunker hubs and how the cap will be enforced. A lot of the associated risks can be managed contractually and through on board procedures, but when disputes arise they are likely to be more complicated”.

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