Which existing time charter clauses should be reviewed?

1. Description of scrubber system

1.1. What types of scrubbers are there?

A scrubber system is likely to be one of the following:

  • Open loop (requiring untreated seawater)
  • Closed loop (requiring fresh water and additives such as caustic soda or magnesium oxide)
  • Hybrid (open loop at sea/closed loop in port or as required)

A scrubber system will use a variety of substances including seawater, fresh water or dry substances e.g. caustic soda, to remove most of the sulphur oxides from exhaust gases.

All scrubber systems will create waste from the substance used for cleaning plus the sulphur oxides and particulate matter removed from the exhaust gases. 

1.2. What should I say about the scrubber system installed? 

The charter party should include a full description of the scrubber system fitted (or to be fitted) as described by the manufacturer.

This should include the % of sulphur content the system can handle to achieve the equivalent of 0.50% m/m or 0.10% m/m (in line with the scrubber manufacturer’s warranties).

2. Indemnity

In most time charter parties a general compliance clause establishes that the owners must comply with the relevant and applicable national and international laws and regulations, which includes MARPOL Annex VI. As the supply of bunkers under a time charter party is charterers’ obligation, care should be taken to avoid disputes by contractually allocating responsibility and liability for compliance with MARPOL Annex VI. Owners may face sanctions, fines, delay, detention or other losses but the fault may lie with charterers. In extreme cases, the fuel supplied by charterers may need to be removed.

You should consider including specific indemnity provisions to address situations where owners are in breach of MARPOL Annex VI, but the fault lies with charterers. To address these issues, we recommend incorporating the BIMCO 2020 Marine Fuel Sulphur Content Clause for Time Charter Parties or the INTERTANKO Bunker Compliance Clause for Time Charterparties – General Provisions. Both clauses allocate responsibilities and contain indemnity provisions for the scenarios mentioned above.

Although not specific to scrubbers, the parties might want to consider circumstances when the fuel oil supplied by charterers complies with MARPOL Annex VI requirements and is on specification for ISO 8217, but causes damage to the engine for other reasons. Depending on the terms of the charter party, the fuel oil can comply with the bunker description but nevertheless not be suitable for burning in the ship’s engines or auxiliaries, i.e. it is not ’fit for purpose’. This was the case with the recent spate of quality issues with bunkers emanating from the US Gulf and elsewhere. This issue is covered in the INTERTANKO Bunker Compliance Clause for Time Charterparties (see subclause 1.1(c)) and the BIMCO Bunker Quality and Liability Clause.

3. Breakdown/malfunction

It is important to consider what might happen if the scrubber breaks down or malfunctions and the ship needs to burn low sulphur fuel oil to continue the voyage. Does the charter party make it clear which party is to provide low sulphur fuel oil and who pays for it? If charterers are only obliged to provide high sulphur fuel oil there may be a dispute over the difference in cost for providing low sulphur fuel oil during the breakdown period.

4. Maintenance & repairs

You should review the maintenance and off-hire clauses to allocate responsibility for any costs and loss of time if the scrubber needs periodic maintenance or breaks down/malfunctions and needs repair.

4.1. What if the scrubber requires periodic maintenance?

The scrubber is essentially a piece of equipment on the ship which owners are obliged to maintain. It has no greater status than any other item of equipment on board. Where owners and charterers have shared the cost of installation (see Can owners ask charterers to pay towards the cost of installation of a scrubber?), they may therefore consider reviewing or including maintenance provisions or extending any existing grace period for maintenance of equipment for which no deduction from hire takes place.

4.2. Will the ship be off-hire if the scrubber breaks down/malfunctions?

A defective scrubber would be captured by standard off-hire clauses in NYPE 46 or Shelltime 4. How the off-hire is calculated will depend on the particular clause. Under so-called ’net loss of time’ off-hire clauses, charterers may invoke the clause only if they have suffered a loss of time as a result of the scrubber becoming defective. For a ‘period’ loss of time, i.e. from one event to another, the ship may be off-hire for the time of repairs and the duration of the breakdown. As with maintenance, owners may therefore negotiate a pre-agreed period of time for scrubber repair for which no deduction from hire takes place.

The breakdown or malfunction of a scrubber does not detract from the obligation to comply with MARPOL Annex VI. This will involve the immediate use of low sulphur fuel oil, if on board, which will carry with it a price differential for owner’s account unless otherwise specified. If there is no low sulphur fuel oil on board this will carry certain regulatory consequences (see What are the consequences of non-compliance with MARPOL Annex VI Regulations 14 and/or 18?).

5. Drydocking

When a scrubber is installed during the charter period, the potential loss of time may be covered under the existing dry-docking clause. If you are negotiating a time charter party for a ship on which a scrubber will be installed, you may want to consider allocating any costs and loss of time resulting from the installation.

 

 

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