Birketts LLP’s Nicholas Woo questions if fuel provision clauses are fit for purpose in the face of IMO 2020
Clause 7 of the Shelltime 4 charter party form says, amongst other things: “Charterers shall provide and pay for all fuel (except fuel used for domestic services)….”
This provision is roughly mirrored in the NYPE form (for dry cargoes). It is a simple provision and reflects the commercial position of the parties in relation to time charters for at least the last 80 years.
Bunkers purchased by the charterers become their property. Charterers are responsible for stemming sufficient bunkers for the vessel to complete its voyage. It is generally accepted that there is an absolute duty on the charterers to provide bunkers that are of reasonable general quality and are suitable for the type of engines fitted to the particular ship.
Regulation 14 of MARPOL Annex IV states that “the sulphur content of fuel oil used on onboard ships” operating within ECAs must not exceed a certain limit. The recent amendments to Annex IV have greatly increased the number of ECAs which will by next year be found nearly all over the world. It is also to be remembered that Regulation 14.1 says that non-compliant fuel cannot be used on board ships at all, and not just within ECAs.
There is clearly a tension between what IMO requires of shipowners for the bunkers the vessel burns and the commercial situation where time-charterers are responsible for providing bunkers to those vessels. Two examples are the provision of the Fuel Oil Non-Availability Report (FONAR) provided in Regulation 18 and clause 2 of MPEC.320 (74) which requires the shipowner to prepare an implementation plan to show how the owner has prepared for sulphur content limits in fuels. Very often, shipowners will not have sufficient information to complete the FONAR properly or prepare an implementation plan, since they are not commercially responsible for providing the bunkers.
This tension is likely to produce a number of disputes between owners and charterers. There is currently no direct case law to give guidance on how these disputes will be resolved. The time charter clauses produced by BIMCO go some way to help, but are not a panacea for all problems.
Given the potential disputes that this disconnect is going to cause, the question this author asks – as a lawyer – is, will sulphur content requirements lead to a change in the way the commercial world currently looks at who provides the bunkers? After all, given that IMO now imposes a much stricter duty on the shipowner to be responsible for the bunkers the vessel burns, would it be simpler in future for the owner, in a time charter, to contractually provide and pay for the bunkers? The owner would have greater control over the bunkering process and will not have to rely on the charterer. The cost of the hire rate would obviously have to rise to include the cost of bunkers.
I often use the taxi analogy when describing the commercial shipping world to non-shipping people. A car hire with driver is similar to the current time charter. The hirer pays for the use of the car on a per diem basis and returns the vessel with the same amount of fuel. A voyage charter is like a mini-cab hire. The hirer pays a fixed fee depending on the journey and the taxi bears the cost of the fuel. The fixed fee has the cost of fuel built into it.
Will the time charter of the future evolve to resemble a ‘metered cab’ hire? The hirer pays on a per diem basis, but the taxi bears the cost of the fuel which is built into the hire.
It should not be complicated to change the fuel responsibility provisions in the charter party from charterers to owners, albeit there will be concurrent changes to various ancillary matters (briefly mentioned above). The more difficult question is whether such a change will bring about more benefits than burdens to the owners. This is something that owners may need to reflect on carefully.
Nicholas Woo is the head of the shipping and international trade team of Birkets LLP, a 500 lawyer-strong law firm based in East Anglia, specialising in both wet and dry litigation.