Authored by Ms. Arnavi Panda, LLM (Maritime Law), Legal Advisor at GMS DMCC
Risk assessment and risk transfer are fundamental to every commercial contract. In English law, in the absence of any contract to the contrary, liability is traditionally assessed on the basis of fault. Emphasis should be laid on the phrase “in the absence of any contract to the contrary”. A knock for knock clause if one such regime whereby the parties can contractually agree that the liability and/or the losses lie where they fall irrespective of fault of either of the parties and without any further recourse against one another. The English Courts have upheld the validity of the knock for knock liability clause describing it to be “a crude but workable allocation of risk and responsibility” and would normally seek to give effect to the “natural and ordinary” meaning to the agreement between the parties so long as it is not repugnant to basic principle of contract.
Knock for knock clauses are a common feature in most maritime and offshore contracts adopted in numerous standard form contracts published by BIMCO. This article focuses on the knock for knock clause in the BIMCO Towcon 2008 contract. The knock for knock clause in a standard BIMCO Towcon appears in Clause 25 which essentially seeks to allocate risk and liability between the parties where each party agrees to bear responsibility for and indemnify the other party for any loss or damage sustained to their respective property i.e. either the tug in the case of the tugowner or the tow in the case of the Hirer, and any injury or death of their own (and their contractors and subcontractors) employees, irrespective of fault. While the rationale behind the knock for knock clause was to protect contractors from accepting liability for a client’s property that might involve significant high risks and to avoid the need of overlapping insurance coverage, and even though the liability regime has developed since 1970s from the time of it’s origin, the primary debate of this regime still focuses on whether the knock for knock regime exempts a party to the contract from gross negligence, material breach of performance of contract or willful misconduct.
This is particularly a cause of concern in the ship breaking and recycling market where the Hirer will be seen to waive off his rights to claim any damage for damage sustained to the physical property of the tow i.e. the Vessel and/or any other asset that is often towed from one destination to the recycling yard depending upon the condition of the Vessel to sail on her own power or in need of being towed. Such waiver includes but is not limited to pillage of material onboard the Vessel which might be of commercial value at the end destination i.e. the recycling yard where every part of the Vessel is either dismantled or reused. Furthermore, it is important to note that gross negligence is not recognized as a distinct concept with no set defined meaning in English law and is open to the interpretation of the Court from a case to case basis. Parties are only required to observe a minimum level of due diligence in conducting the towage operation based on the precedent established in the landmark judgment of ATurtle  EWHC 3034 and therefore in the absence of a specific provision in the contract must ensure to carefully word such knock for knock clauses in such contracts. Under English law, courts will usually give preference to enforce the contractual terms agreed to between the parties excluding negligence, gross negligence, material breach of contract, consequential losses or willful misconduct provided that the wording used of such exclusion is clear. Such amended clauses normally require the assessment and approval of the tugowners and the Hirer’s underwriters specially in the case of Towcons where the damages suffered may very well be over the cost of the asset. A clearly drafted knock for knock provision coupled with a complimenting insurance cover is therefore vital and needs particular attention when negotiating a towcon and assessing the potential recourses in the event of defaults, negligence, misconduct or material breach of contract amongst other primary terms of contract.
Myriads of responsibilities and possibilities for ship owners seeking to recycle end-of-life tonnage
By Dr. Kanu Priya Jain, GMS Green Team
For ship owners, it is critical to manage the recycling of end-of-life ships and offshore assets carefully, keeping in mind the relevant national and international regulations and the CSR policy of their company. However, most ship owners lack time and resources to dedicate specifically to such tasks because their main focus is on operations. In recent days, managing end-of-life ships is becoming increasingly complex due to revamped international and national regulatory landscape. Moreover, environmental protection has taken a spotlight amidst the talk of corporate social responsibility towards the environment and climate change. Therefore, ship owners, besides seeking the best possible monetary value for their end-of-lifeships and offshore assets, are also in need of partners capable of end-to-end management of such projects.
The entire end-to-end management of such projects includes memorandum of agreement between the ship owner, the last voyage owner and the end-buyer, i.e. the ship recycler; the technical management of the ship’s last voyage to the recycling yard; and the safe and environmentally sound management of the ship recycling process with continuous supply of technical expertise and supervision. All these tasks must be undertaken within the purview of a complex mesh of national and international regulatory regimes governing the shipping industry. With such tasks, responsibilities related to legal, technical, regulatory and social must be diligently undertaken by the concerned parties.
In the current market, India, Pakistan, Bangladesh, China and Turkey continue to be the major recycling countries in terms of recycled tonnage volumes. However, within each country many different types of ship recycling facilities co-exist. The facility types can be broadly classified as non-ISO-certified, ISO-certified and Hong Kong Convention (HKC)-compliant. Usually, ship owners are free to choose the type of yard they want their ships to recycle.
Since GMS’ inception over two decades ago, the company has successfully negotiated about 3200 ships for recycling. Our job goes beyond negotiating ships for our principals. We monitor the recycling process with monthly reports created by our Green Team of dedicated Ph.D. professionals from the moment a ship is sold to our principals till the completion of the recycling process, keeping the ship owner informed about and involved in the entire procedure. The decision on critical aspects such as the selection of the recycling yard is also left to the ship owners during initial negotiations. In the past few years, we have seen an increase in demand for the HKC-compliant facilities as more and more ship owners are seeking environmentally conscious options to dispose of end-of-life tonnage and we have been strongly advocating in favor of Responsible Ship Recycling at HKC compliant recycling facilities
Amongst major recycling centers, India is now emerging as a leader of HKC-compliant yards where almost half of the operational yards now have acquired a HKC Statement of Compliance (SOC) issued by reputed (IACS members) classification societies. Also, Turkey, that has recently taken legal steps towards ratifying the HKC, and China, too have several HKC-compliant yards. Interestingly, quite recently (19th Oct 2017) we saw the first recycling yard in Bangladesh receiving a SOC with HKC from classification society RINA. We hope this trend amongst yards to become HKC-compliant keeps growing in all major recycling countries. It will create a fair competition between major recycling regions and increase the options for ship owners seeking the services of ‘green’ yards.
For any questions or comments, please contact our Green Team at: email@example.com
Latest improvements in the ship recycling industry
By Dr. Kanu Priya Jain, GMS Green Team
Alang, a small town situated in the state of Gujarat on the west coast of India is considered as the global capital of the ship recycling industry. At present, there are about 120 active recycling yards dismantling end-of-life ships to extract various types of scraps for recycling and equipment for reusing. There were times when not many yards were considered operating in a safe and environmentally sound manner. However, the ground reality is now changing rapidly. Almost half of the active yards in Alang are now operating (or are in the process of operating) under the certification of the Hong Kong Convention compliance from reputed classification societies such as Class NK, RINA and IR Class (Figure 1). Yet, the perception of many in the industry fails to change. Certain groups, without knowing the technicalities of the ship recycling process, complain about ships being demolished on a beach. In fact, ‘beaching’ is just a way of docking ships and it does not have much bearing on the hazards posed by the recycling process as repeatedly mentioned by well-known expert on the subject, Dr. Nikos Mikelis in many of his articles. The fact that such yards have been issued statements of compliance under the Hong Kong Convention substantiates this statement.
We, at GMS, have developed a highly qualified ‘green team’ to lead our Responsible Ship Recycling Program (RSRP) on the field in major ship recycling centers. We provide a one-stop shop to ship owners interested in recycling their ships and offshore assets in a responsible way. We follow the procedures laid down by the IMOs Hong Kong International Convention on Safe and Environmentally Sound Recycling of Ships despite the Convention not being in-force yet. Our aim is to provide added value to ship owners who like to stay ahead of their peers and also to help yards develop their infrastructure and training programs to achieve safe and environmentally sound ship recycling.
The procedure we follow begins with the preparation of an Inventory of Hazardous Materials (IHM) as per IMO MEPC 269(68) followed by preparing a Ship Recycling Plan (SRP) as per IMO MEPC 196(62). The SRP is prepared by referring to IHM and by evaluating the adequacy of the Ship Recycling Facility Plan (SRFP) to recycle a given type of ship as per IMO MEPC 210(63). During the recycling process, we provide proper supervision to ensure safe and environmentally sound ship recycling. If requested, we also facilitate owners’ visits to yards undertaking the recycling of their ships. Weekly/Monthly reporting on the recycling status is carried out by our team as per the request of our clients. Within two weeks of the completion of a recycling project, we provide a “Statement of Completion of Recycling” certificate from an authorized government agency. In a first in the industry, for every ship recycled under RSRP, we also provide the estimated carbon dioxide emissions during the recycling process.
In the last two years, since we launched our RSRP, we have undertaken about 35 projects. These projects involved almost all ship types by shipping companies operating in different market sectors (Figure 2). All ships under our RSRP were recycled at HKC-certified yards achieving good value for money and peace of mind to our clients. In addition to focus on our core business of recycling ships and offshore assets, we have also developed a Workers’ Training Program (WTP) to voluntarily train the workers on our partner yards in India to create a safety culture amongst the yard workers. The workers are trained on basic safety procedures, safe-for-entry procedures, working safely in confined spaces, using self-contained breathing apparatus (SCBA) a.o.
It is in our endeavors to support an inclusive growth of the recycling yards located in Alang, India. Labelling a particular recycling method bad, without knowing what the ground reality is, is not the way forward for the ship recycling industry. We believe it is very important to appreciate and support the latest developments in the infrastructure of these yards, in an effort to achieve the required green recycling capacity. At the same time, we aim to create awareness within the maritime industry regarding the availability of yards capable of recycling ships and offshore assets in accordance with the upcoming international regulations.
For any questions or comments, please contact our Green Team at: firstname.lastname@example.org
Blogger of the Week
Mr. Rohan Murray, Head of Technical at GMS
Topic: Challenges faced by owners with technical management of single demolition voyages
Technical management for trading vessels has evolved over the years and ship owners prefer to manage their vessels either themselves through their in house technical team or through a third party ship manager.
For the single voyage delivery, on board management, is usually assigned to third party ship managers. The quick turnaround required in vessels going for recycling poses many a challenge for the managers.
The main issue faced is getting competent crew who are honest and transparent during their time on board. Honest to their profession and their duties on board a vessel, transparent with their managers/owners on the condition of the vessel and likely problems to be faced.
If these two issues are resolved it is easy for the owners to prepare for any eventualities during the voyage. It is often noticed that the crew try to hide the problems faced since it is a single voyage and owners end up with a bigger problem to tackle which is beyond the control of the managers.
Reliability of machinery is always a problem as few, if not most, sellers do not like to share the problems faced on board. However the buyer’s crew needs to try and understand the body language of the seller’s crew and focus on areas where there is a reluctance to show machinery operations.
The reliability also becomes an issue if the two qualities mentioned above for the crew are not met.
Repair and maintenance budgets are not required to be maintained for a year hence the managers need to be more accurate in their estimation of repairs to prepare for the usually short limited voyages.
Bunkers, stores and lub oils are handled by owners so they have a better control on costs.
Managers and their crew must be able to adjust to newer technologies, regulatory and environmental requirements which are rapidly changing.
Managers therefore have to adapt to the requirements of the Industry and improve their processes to be more competitive.
For any questions or comments, please contact me at: email@example.com