This Summary is concerned with the regulation of ships destined for decommissioning / recycling, with an emphasis on the regulatory provisions which may be enforced against the owners of vessels registered in the EU and the UK (including ‘Brexit’ post-implementation provisions).
See the following below:
- Decommissioning – hazards, industry, and the global response
- The Basel Convention, EU / UK transboundary shipments and ship recycling
- Hong Kong Convention and EU / UK ship recycling legislation
- EU and UK lists of yards
- Criminal offences and enforcement
- Non-legislative measures
- Company law in the UK: ESG
Decommissioning hazards, the industry and the global response
The hazards posed by ships which are past their useful working lives are well documented. They include perils both to human health and to the environment, especially in those less developed areas where ships are beached and broken up.
Statistics available from the United Nations Conference on Trade and Development “UNCTAD,” in 2019, show that, collectively, yards in Bangladesh, India and Pakistan accounted for 91.8% of all ships scrapped worldwide by gross tonnage, 2018. These are countries in which beaching is commonplace. By way of comparison, the UK accounted for just 0.078% of recycled tonnage.
Ship recycling provides opportunities for the recycling of waste and provides a valuable resource, for instance by way of raw materials for the Indian steel industry. There is an active market in the buying of ships for re-flagging and subsequent dismantling. De-commissioning is also a means of replacing old ships with new vessels designed for a more sustainable future.
Legislative and non-legislative responses
The global response to the risks involved in decommissioning has been both legislative and non-legislative.
Legislative developments in the late 20th century have centred round (i) the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (a UN-sponsored process in force since 1992) and (ii) the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (adopted in 2009 and promoted by the International Maritime Organisation (“IMO”), but not yet in force).
The Basel Convention is not ship-specific, but the Hong Kong Convention is ship-specific. Both have been givdben the force of law in the EU and the UK (see below).
Non-legislative developments include the activities of non-governmental organisations and pressure groups and also of trade bodies and professions eager for change.
A great deal of information will be found at http://recyclingships.blogspot.com/
The Basel Convention, EU / UK international shipments of waste and ship recycling
A Summary account of the Basel Convention is set out elsewhere on this website, as is Regulation 1013/2006/EC on Shipments of Waste as enforced in UK law by the Transfrontier Shipment of Waste Regulations 2007/1711.
The Shipments of Waste Regulation will continue to have effect in the UK at the end of the ‘Brexit’ implementation period by way of the amendments contained in the International Waste Shipments (Amendment) (EU Exit) Regulations 2019/590.
Regulation 1013/2006/EC and waste ships: Seatrade
The practical effects of Regulation 1013/2006/EC on ship recycling were brought dramatically home to shipowners after the successful prosecution of the shipowner Seatrade in Rotterdam in 2018. The Dutch authorities brought the prosecution under the Regulation as applied in Holland.
Seatrade concerned four reefer vessels which were being exported for dismantling in India and Bangladesh. The prosecution relied on a series of emails to show that the company had intended to discard the ships when they left Holland. It is an essential requirement of EU waste law, when it comes to the meaning of waste, that there should be an intention to discard the relevant item. The shipowner did not pretend to comply with the local requirements of the Shipments of Waste Regulation.
In Seatrade, the directors themselves faced charges which carried terms of imprisonment. Whilst the public prosecutor had sought their imprisonment, they were made to pay large fines and were disqualified from working int he industry for a period.
A key message to take home from Seatrade is that the officers of companies based in the EU and the UK are at risk of criminal conviction for breaches of international law concerning waste ships which give rise to potential risks abroad.
The Hong Kong Convention (“HKC”) and EU / UK ship recycling
The second legal measure concerning ship recycling arises from the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships adopted in 2009 and promoted by the International Maritime Organisation (“IMO”). It is still not yet in force, although the accession of India in 2019 has brought that a step closer.
If correctly enforced, the HKC should have a dramatic effect on the risks to the environment as well as to working conditions in the three biggest scrapping states. The IMO has done a great deal of detailed work to bring this about.
In order to bring forward the HKC in relation to ships flying the flags of Member States, the EU gave effect to its provisions by enacting the Ship Recycling Regulation on 20 November 2013 (1257/2013/EU: the “SRR”).
Both the EU Regulation and the HKC are framed to adopt circular economy provisions for the full lifetime of vessels. The EU Regulation expressly excludes ships themselves and their fittings from the scope of the Shipments of Waste Regulation and the Waste Framework Directive (which still apply to cargoes and to waste resulting from the operation of the ship).
In the UK, the Ship Recycling (Facilities and Requirements for Hazardous Materials on Ships) (Amendment) (EU Exit) Regulations 2019/277 will amend current UK secondary legislation and the EU Regulation so that the HKC (as enacted in EU law) will continue to apply to UK ships.
Since the UK statutory instrument largely replicates the contents of the SRR, it is convenient to examine the key requirements of the EU Regulation.
Article 4 of the SRR prohibits the use of certain hazardous materials which are itemised in an Annex to the Regulation (asbestos, ozone-depleting substances, etc.).
Article 5 requires each new build to have an inventory of hazardous materials forming part of the structure or equipment on board, the hazardous materials in question being listed in a separate Annex (but including the materials set out in Annex 1). The inventory must be maintained during the lifetime of the ship.
So far as practicable, existing ships must also comply with the requirement to have an inventory, and they are required to comply when they are sent for recycling. An inventory is required to be ship-specific.
Another ship-specific provision is the ship recycling plan which must be developed prior to recycling. It must identify any pre-treatment which may be required, identify hazards and identify where the ship is to be recycled, together with a plan for its arrival at the relevant facility.
Other important safety features are to be included in the ship recycling plan, and approval should be given to the plan by the competent authority of the State where the facility is located.
Article 8 also requires ships to be surveyed during their lifetimes, and at least every five years. A final survey is required before a ship is taken out of service and before the commencement of recycling. New ships must be subject to surveys at various stages throughout their lifetimes, leading to the award of an appropriate inventory certificate.
The main intention of the SRR is that when a ship is sent for recycling, the operator should be able to prepare a ship-specific recycling plan. This will enable hazardous material to be removed safely. The vessel should carry a “ready for recycling” certificate.
One difference between the HKC and the SRR is that the IMO has passed a resolution which would make it difficult to transfer a vessel prior to recycling (MEPC.222(64)). This is not reflected in the SRR.
Importantly, it is clear from the wording of the SRR that beaching is not an acceptable practice for EU-flagged ships. Beaching, however, is not prohibited by the wording of the HKC.
EU and UK lists of yards
The SRR also requires a ship to be recycled only at a facility which has been inspected, approved and included on a European List.
At the time of writing 34 facilities are on the List, of which four are outside the EU, EFTA and the UK. Three are in Turkey, one in the US and four in the UK. Certain yards have applied to be on the List and rejected. Articles 14 and 15 specify procedures for the approval of facilities.
The Ship Recycling (Facilities and Requirements for Hazardous Materials on Ships) (Amendment) (EU Exit) Regulations 2019/277 in the UK will have the effect of amending subordinate legislation so as to adopt the EU’s List.
The SRR applies criminal penalties to flag-owners of EU Member States who do not comply with its provisions. In the UK, the Ship Recycling (Requirements in relation to Hazardous Materials on Ships) (Amendment etc.) Regulations 2018/1122 provide different penalties for the different administrations making up the UK. The statutory instrument claims extra-territorial jurisdiction in that it applies wherever the ship is located.
A ship owner or master who is guilty of an offence is liable (a) on summary conviction in England and Wales to an unlimited fine, and (b) on conviction on indictment, to a fine or to imprisonment for a term not exceeding two years, or to both.
There are a number of NGOs, generally funded ultimately by the public and non-governmental groups, which are active in the area of ship recycling.
Recent initiatives have been made by the shipping industry itself and one is the Sustainable Shipping Initiative (“SSI”) whose members include banks and ship operators.
SSI has brought about the Ship Recycling Transparency Initiative (“SRTI”), an organisation which requires signatories to disclose, and therefore to make transparent, their ship recycling policies (including as to the transfer of flags). It is intended to have the practical effect of making it less likely that shipowners will be prepared to re-flag vessels prior to recycling.
Company law in the UK: ESG
The contemporary importance attached to environmental and social governance issues (“ESG”) is likely to be on the radar of companies wishing to obtain finance or to trade in accordance with sustainability standards in the more developed world. There is also a level of risk from activist shareholders, as well potential problems with regulatory sustainability standards.
Given the outcome of Seatrade and the potential criminal penalties for company officers, ESG issues will also be important for Directors’ and Officers’ liability insurers.
In the UK, s.172, Companies Act 2006, specifically requires that the director of a company, in acting to promote the success of the company, must “have regard to … the impact of the company’s operation on the community and the environment”. This is a section which is relied on by prosecutors when prosecuting company officers.
Where environmental damage has been caused abroad by subsidiaries or associated companies, the UK Courts have re-iterated that it may be appropriate to have a trial of the UK holding company. The potential civil liabilities can be enormous.
Whilst such corporate structure may not be reflected by the ship industry, and whilst the Supreme Court has reiterated that ‘piercing the corporate veil’ should be a rare phenomenon, one claimant is known to have achieved a significant hefty private settlement against a holding company because of the acts of its subsidiary shell companies. The claimants argued that they would be able to go on to pierce the defendant’s corporate veil at trial.
In respect of both civil and criminal liabilities (in particular the ESG risks for directors and other officers), regulators and claimants are showing more interest in securing redress for acts taking place abroad. This is particularly the case in respect of environmental damage which occurs far away from the domicile of the companies ultimately responsible and their officers.