International conventions and local regulations team up to create a complex legal regime, which is often overlooked. The sale of a ship or rig to an intermediate buyer, which then sells the asset on to a shipbreaking facility, will not necessarily insulate the original owner from future liability or reputational damage.
Therefore, Wikborg Rein, an international law firm, published the most common questions and their answers on ship and rig recycling.
- What is the Basel Convention?
The Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal made at Basel on 22 March 1989 is widely known as the Basel Convention.
It is an international treaty between 187 states, out of 193 UN member states. Therefore, most countries around the world are parties.
A notable exception is the United States, which signed the Basel Convention in 1990 but has never ratified it.
The Basel Convention was introduced to regulate, and to some extent discourage, the transboundary movement of hazardous wastes, by subjecting each such movement to the prior informed consent of the competent regulators in the state of export of the waste, the intended state of import and any transit states.
The movement of hazardous waste undertaken without such consent constitute illegal traffic under the convention.
- As the Convention is an agreement between states, it does not apply to private parties. However, each state party to the convention is required to implement the convention in its own legal system
The European Union has introduced additional requirements and prohibitions in respect of a number of hazardous substances.
Regional conventions have introduced regulatory regimes in Africa, the Mediterranean and elsewhere.
For owners of end-of-life marine assets, local due diligence is required to understand and manage the often conflicting requirements in states of export, import and transit.
- Why is the Basel Convention regime relevant to ship and rig recycling?
The convention does not refer specifically to ships or rigs. It refers instead to hazardous waste.
Waste is defined in such a way that a ship or rig becomes waste when its owner forms an intention to scrap or recycle it. Such intention is usually formed in advance of the owner contracting to sell the asset for recycling, and well in advance of the closing of the sale of the asset to the buyer.
The convention is therefore directly relevant to the transboundary movement of rigs and ships which their owners have identified for demolition, because these rigs and ships almost always contain quantities of hazardous materials, such as asbestos, mercury, polychlorinated biphenyls and other materials.
Under the EU Waste Shipment Regulation (1013/2006), the European Union has introduced legislation extending the Basel Convention’s obligations to all waste, whether hazardous or not. The regulation is directly applicable in all EU member states and bans the export of waste from the European Union for recovery to any location outside of the Organisation for Economic Cooperation and Development (and bans the export of waste from the European Union for disposal to any location outside of the European Free Trade Association).
The recent Rotterdam District Court decision in Seatrade confirms, that the position is exactly the same under the EU Waste Shipment Regulation.
- Why should the Basel Convention regime be complied with?
Compliance with law should not be considered as optional.
The convention requires each state party to introduce appropriate national or domestic legislation to prevent and punish illegal traffic.
In the European Union, the EU Waste Shipment Regulation requires member states to ensure that penalties are in place to punish infringements of the regulation, and that such penalties be effective, proportionate and dissuasive.
In addition, the EU Environmental Criminal Directive (2008/99/EC) requires member states to criminalise breaches of the EU Waste Shipment Regulation. Criminalisation extends to:
- The producer of the waste;undertakings involved in the shipment of waste or its recovery or disposal;
- Any party involved in inciting, aiding or abetting an offence under the regulation.
The cost of compliance with the Basel Convention regime is low. However, the potential cost of non-compliance is high and could include:
- Criminal prosecution of the owners of the ship or rig;
- Criminal prosecution of any other parties involved in the transboundary movement of the ship or rig; This may extend to directors, employees and agents of the owners or to the owners’ contractors and generally to the generator, the exporter, the importer, the individuals completing the paperwork (freight forwarder, broker, shipping facilitator or coordinator) and the disposer;
- Owners being potentially forced to incur the cost of taking the ship or rig back to the original place of export;
- A breach of representation or warranty in any financing, insurance or other contractual documents;
- Reputational damage.
On a more positive note, corporate social responsibility can enhance a company’s reputation and compliance with environmental laws should be a matter of reputational opportunity rather than risk.
- Is it sufficient to comply with the Hong Kong Convention?
The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships aims to minimise and eliminate accidents, injuries and other adverse effects on human health and the environment caused by ship recycling.
The Hong Kong Convention covers:
- The design, construction, operation and preparation of ships so as to facilitate safe and environmentally sound recycling;
- The operation of ship recycling facilities in a safe and environmentally sound manner;
- Certification and reporting requirements.
There are two major points to note in relation to the Hong Kong Convention. First, unlike the Basel Convention, the Hong Kong Convention is not yet in force.
It was adopted in 2009 but will only come into force 24 months after its ratification by 15 states representing 40% of the gross tonnage of the world’s merchant shipping, provided the combined maximum annual ship recycling volume of these states during the preceding 10 years constitutes no less than 3% of the gross tonnage of the combined merchant shipping of the same states.
- Will the regulation exempt EU-flagged ships from the Basel Convention regime?
Most of the provisions of the EU Ship Recycling Regulation came into force on 31 December 2018, and from that date, ships flying the flag of an EU member state will (unless otherwise excluded from the scope of the regulation) fall outside the scope of the EU Waste Shipment Regulation and only be permitted to be recycled at one of the ship recycling facilities listed in the European list of ship recycling facilities.
While most EU-flagged commercial ships will be subject to the EU Ship Recycling Regulation, some ships fall outside its scope, namely:
- Naval vessels and ships owned or operated by a state and used only on government non-commercial service;
- Ships of less than 500 gross tonnage;
- Ships operating throughout their life only in waters subject to the sovereignty or jurisdiction of the member state whose flag the ship is flying.
These will remain subject to the requirements of the EU Waste Shipment Regulation.
While the EU Ship Recycling Regulation seeks to exempt the vast majority of EU-flagged commercial ships from compliance with the EU Waste Shipment Regulation, it provides no exemption from compliance with a range of prohibitions which are directly relevant to the export of ships or rigs for demolition and recycling, for example prohibitions regarding the export of ozone depleting substances, fluorinated greenhouse gases and mercury.
The EU Ship Recycling Regulation will not exempt the owner of an EU-flagged ship which is physically located in, or transiting through, a non-EU state from compliance with domestic legislation implementing the Basel Convention in that non-EU state. In other words, a Maltese-flagged ship which is being sold “as is, where is” in Singapore for recycling purposes will be subject to Singapore’s laws implementing the Basel Convention.
However, the owner will also be required under the EU Ship Recycling Regulation to ensure that the ship is recycled only at a ship recycling facility that is included in the European list).
To the extent that an EU-flagged ship or rig is to be exported from a non-EU jurisdiction, the EU Ship Recycling Regulation seems ineffective in replacing the Basel Convention regime.
Where an EU-flagged ship or rig is to be exported from an EU jurisdiction to a non-EU jurisdiction, compliance with the EU Ship Recycling Regulation will not insulate the owner from:
- The risk of prosecution for breach of any domestic laws implementing the Basel Convention in any state of transit or the state of import; or
- The risk that take-back obligations might be imposed by the state of import.
- How will Brexit affect the EU Ship Recycling Regulation?
The Draft Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as agreed at negotiators’ level on 14 November 2018, contemplates that:
- There will be a transition period starting on the date of entry into force of that agreement and ending on 31 December 2020;
- During such transition period, unless otherwise provided in the agreement, EU law shall apply to and in the United Kingdom, with any reference to member states in EU law being interpreted as including the United Kingdom.
It therefore appears, subject to an agreement actually being reached on these terms, that the EU Ship Recycling Regulation will continue to apply to UK-flagged ships and to transboundary movements of EU-flagged ships from, to or through the United Kingdom beyond 29 March 2019 and for the remainder of the transition period in the same way as if the United Kingdom had remained an EU member state.