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05 August 2020
Shipowners routinely give buyers in demolition sales complete freedom to deal with ships as they please following a sale, but do so at their peril. Shipowners are generators of waste under the Basel Convention and other laws and remain liable as such following a sale.(1)
Further, shipowners and those assisting them in such transactions may also incur liabilities in tort to third parties in connection with shipyard worker injuries and environmental damage occurring after a sale, as noted in a recent High Court judgment.(2)
The Maran Centaurus (the vessel) was registered from 2004 to 2017 in the ownership of Centaurus Special Maritime Enterprise (the owner), a Liberian company. In 2009 Maran Tankers Management (the manager), another Liberian company, agreed, as independent contractor and not as agent, to operate and manage the vessel.
In 2013 the manager engaged Maran (UK) Ltd (the agent), an English company with its sole office premises in London, to provide agency and shipbroking services to the manager in respect of the vessel. The owner, the manager and the agent were all part of the same shipping group.
In August 2017 the agent sought quotations for the sale of the vessel for demolition and conducted the corresponding negotiations. Later that month an agreement (the MoA) was eventually concluded between the owner as seller and Hsejar Maritime Inc (the cash buyer), a Nevis company, as buyer, for the sale and purchase of the vessel for demolition.
The MoA required that the cash buyer should only sell the vessel to a "ship breaker's yard that is competent and will perform the demolition and recycling of the vessel in an environmentally sound manner and in accordance with good health and safety working practices". The MoA does not appear to have referred to any specific recycling location.
Completion of the sale took place in early September 2017, when the cash buyer reflagged the vessel from Greece to Palau, changed its name to Ekta and installed a new crew. From that moment, no entity in the owner's group had any direct involvement with the vessel. The vessel left Singapore later that month and was beached at Chittagong on 30 September 2017. The vessel must have come under the ownership of a local yard at approximately that time.
In March 2018 Mohammed Khalil Mollah fell to his death while working on the demolition of the vessel.
In April 2019 his widow (the claimant) issued proceedings in England against the agent claiming damages for negligence (under English, alternatively Bangladeshi, law) on her behalf and that of the deceased's estate.
In February 2020 the agent applied to the English court for summary judgment dismissing the claim on the basis that, among other things, the agent did not owe the deceased any duty of care (or, at the very least, that the claimant had no real prospect of establishing the existence of such a duty).
Under English law, an application for summary judgment may be granted only if the court can conclude – before evidence is exchanged and therefore reasonably assuming the claimant's factual allegations to be true – that the claim has no real prospect of succeeding. Notably, in this judgment the court assumed that:
While it is expected that the agent will challenge these assumptions at trial, it is worth noting the court's comment that "there is a real prospect that an examination of the complete evidential picture at any trial would support [the claimant's case that the agent had control over the sale]".
On the existence of a duty of care, the court declined to reach a definitive conclusion, but refused to rule that no duty of care was owed.
A potential basis on which a duty of care may have arisen, under English law principles, is that the agent may be responsible for the creation of a state of danger (the beaching of the vessel at Chittagong) which was then exploited by others (the owner of the yard and the deceased's employer).
In addition, the court found that the claimant's negligence claim may be governed by English law to the extent that it is a claim "arising out of environmental damage or damage sustained by persons or property as a result of such damage", as the event giving rise to the damage would be a tortious act or omission of the agent which occurred in England, where the agent had its sole offices.
Shipowners – and those, such as the agent, who act for or assist owners in sales for demolition – are now on notice that they may be held liable under English law for injuries sustained by demolition workers in demolition yards whose working practices are inherently dangerous and for damage sustained as a result of environmental damage in such yards.
This adds to the growing list of obligations (particularly those arising under the Basel Convention) imposed on shipowners and other parties (eg, agents) involved in sales for demolition and/or vessel movements prior to demolition.
A perfunctory requirement in a sale agreement that a vessel should be demolished only in an environmentally sound manner and in accordance with good health and safety practices (eg, the guidelines adopted by the International Maritime Organisation to assist in the early implementation of the technical standards of the Hong Kong Convention)(3) is unlikely to assist a shipowner or its agents if something goes wrong. Shipowners would be well advised to perform due diligence on the proposed buyers and their plans for demolition and insist that the sale agreement reserve to the sellers effective means of control over the movements and demolition of the vessel following the sale, so as to ensure that:
The EU Ship Recycling Regulation (1257/2013) was not fully in force at the time of the sale of the vessel and its importation into Bangladesh. The EU Ship Recycling Regulation is now fully in force and would have made it illegal for the vessel (as an EU-flagged vessel) to be taken for demolition anywhere other than a facility listed in the European List of ship recycling facilities (which would exclude India, Bangladesh and Pakistan). However, the EU Ship Recycling Regulation is ineffective outside the European Union to circumvent the Basel Convention. On the facts of this transaction, for example, the owners (as the generators of waste under the Basel Convention) would have had to comply with the EU Ship Recycling Regulation as well as the Basel Convention. The judgment here does not disclose whether any regulatory approvals were obtained prior to the export of the vessel from Singapore under the Basel Convention. That regime would have been relevant at the time of the sale.
For further information on this topic please contact Renaud Barbier-Emery, Ina Lutchmiah or Matthew Alker at Wikborg Rein by telephone (+44 20 7367 0300) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
(1) The Basel Convention refers to the Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, adopted at Basel on 22 March 1989 and legislation implementing that convention. Most countries are parties to that convention. A notable exception is the United States.
(3) Hong Kong Convention International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009, adopted at a diplomatic conference held in Hong Kong from 11 May 2009 to 15 May 2009.
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