#ShipRecycling Market - Week 50 - SUBDUED! The recycling markets remained subdued this week again, with very few (… https://t.co/ix59gcS7Uj

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#ProudMoment We are delighted to announce that Dr. Anil Sharma, Founder & CEO of GMS, has been listed in the annual… https://t.co/qnfwdzZdxk

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Lloyd's List has named Dr. Anil Sharma among the Top 100 Most Influential People in Shipping for the twelfth year in a row

December 3rd, 2021: We are delighted to announce that Dr. Anil Sharma, Founder & CEO of GMS, has been listed in the annual Lloyd's List Top 100 Most Influential People in the Shipping Industry for the twelfth year in a row. He joins a select group of shipping professionals and global leaders who have received this honor from the world's most prominent and respected maritime publication. GMS is the only institution from the ship recycling industry that has been nominated to this globally respected list.

In this year's ranking, Lloyd's List quoted that Dr. Sharma has spearheaded several key initiatives aimed at making ship recycling cleaner, greener, and more sustainable over the years. As complemented by Lloyd's List – "With nerves of steel and an abundance of patience, Dr. Sharma continues to reduce the shipping industry's global footprint by upgrading ship recycling safety standards, mitigating risk incidents and improving the workplace environment."

Dr. Anil Sharma commented: "I would like to express my sincere thanks to the editorial board of Lloyd's List for this distinguished award. A quick review of the Top 100 shows the titans that have made a monumental impact on our wonderful industry. I am genuinely humbled and honored to be in this select group. This award is the most meaningful in the industry since it's based on demonstrated actions and does not entail self-nominations, lobbying, or sponsorships. This award recognizes our tireless efforts to improve ship recycling standards to global ESG standards without decimating this vital asset's residual value.

The significance of Ship Recycling to the maritime industry remains undeniable. As citizens of the world, it's our sacred responsibility to leave a cleaner and greener world for our children and grandchildren. Ship Recycling is indeed a GREEN industry; the best example of a circular economy, and it must be conducted in nations that can recycle the vessels best in accordance with international standards, reduce our carbon footprint, reuse and recycle the majority of the components and also provide an economic value to owners of these assets and the workers who work at these yards.

For the last two decades, together with the assistance of ship owners, capital providers, class societies, regulators and yard owners, we have worked relentlessly towards improving safety and environmental standards in the Indian subcontinent, where most of the world's ships are recycled. I am delighted to see the industry's impressive advancements over time. As a testament to the industry's collective efforts, in about ten years, we have gone from less than 5% green vessels to 100% green vessels in India this year!

Green recycling at any cost is not a viable solution to this urgent and critical matter. Therefore, we continue to invest significant capital and human resources to ensure that vessels are recycled sustainably according to international standards by considering Environmental, Social, & Governance issues while assuring the optimal residual value of the asset.”

The full Lloyd's List Top 100 review of Dr. Sharma can be found at: https://lloydslist.maritimeintelligence.informa.com/LL1138839/73-Anil-Sharma-GMS

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GMS Sustainable Ship & Offshore Recycling Program (SSORP) is a finalist for the Seatrade "Safety at Sea Award” category

19th October 2021: October 16, 2021: Global Marketing Systems (GMS) is honored to be shortlisted as a finalist for the Safety at Sea Award at the 2021 Seatrade Awards, in association with Lloyd's List.

Seatrade Awards is the leading awards programme for the global shipping and maritime industries. Established in 1989, Seatrade Awards takes place every two years and welcomes entries across a diverse range of categories from businesses of all sectors.

The Safety at Sea Award celebrates the company or individual who has reduced risks to human life in the maritime industry through significant technical or procedural improvements. Out of a record-breaking number of entries, GMS’ end-to-end sustainable ship recycling solution—Sustainable Ship and Offshore Recycling Program (SSORP)—was selected as a top finalist by the judging panel.

"To be shortlisted for the Safety for Sea Award is a testament to the hard work the GMS team puts in every day to ensure safety and the sustainable recycling of ships and offshore vessels,” said Dr. Anil Sharma, Founder & CEO of GMS. “Efforts by the GMS SSORP team to provide regular safety awareness sessions to ship recycling yard owners and workers are part of GMS' commitment to be a responsible leader who aims to drive all stakeholders in a sustainable direction. We are extremely proud of the fact that 100% of the ships committed to recycling yards in India, have been for GREEN recycling! Once again, providing leadership where it matters most."

SSORP is the first and unique ship recycling supervision program in the industry in which every activity of recycling is periodically monitored & documented to ensure the latest & most protective safety standards are implemented every step of the way from start to finish. An on-the-ground SSORP team provides technical consultation to recycling yards to develop infrastructures such as the impermeable floor, temporary storage of hazardous wastes, waste oil management, and stormwater management so that ships recycled under SSORP have a minimum impact on the environment. In addition, the SSORP team regularly hosts a variety of hazard-specific and first aid trainings, technical skill workshops, and risk prevention briefings to thousands of yard workers to promote the highest culture of safety within the yards and eliminate any unsafe practices. During the COVID-19 pandemic, the team also created specific health and safety awareness trainings to help protect these invaluable essential workers. We are proud to say that ZERO fatalities were reported during the recycling process of 95 vessels under the SSORP.

Seatrade Awards, in association with Lloyd's List, 2021 winners will be announced on November 3, 2021.

 

ABOUT GMS


Founded in the USA in 1992, GMS is the world's largest Buyer of ships and offshore assets. The firm's mission is to create value in safely disposing aging assets while improving health, safety and environmental standards across the various recycling destinations and to generate awareness about the significance of recycling in the maritime world.

For further information or inquiries, please feel free to reach out to us at bd@gmsinc.net

 

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[Tank]ing contracts: Doctrine of ‘Good faith’ versus ‘WOG’ and other exclusionary terms

2021 has been a very important year for the Shipping industry with the issue of carbon emissions, radical changes in the supply chain logistics, and with countries and corporations coming together to address larger issues at hand. What is fascinating to a novice to the industry are carriers particularly designed for the carriage of oil cargoes… e.g., Motor Tankers, Oil carriers, crude carriers, FPSO/FSO’s, etc., (will be referred to as Tankers collectively). If you have gasped at the size of the recent Ever Given vessel that halted world traffic at the Suez Canal, or the oil rigs in the movie Deepwater Horizon, try googling ULCC’s and VLCC’s. The Oil & Gas industry obscures as much as it reveals, whether it is with respect to allegations of oil spills, carriage of cargo from sanctioned countries, or the general manipulation of market forces determining prices of the commodity.

It is no secret that the ship-recycling industry has always been under scrutiny, with ‘end of life’ Tankers being sold for safe-recycling to the Indian sub-continent to the West’s distress. This article aims to address nuanced issues arising at the time of sale of Tankers for demolition and representations and warranties (express/implied) made at the time by sellers and various commercial considerations.

Method/mode of sale: Tankers, often due to their inability to be worthy of carriage for another journey or (increasingly of late) to battle the uncertainties and protect oneself against the uncertainties of the freight market, are circulated for sale by owners through brokers/broking houses for sale. Negotiations ensue between direct buyers/intermediary buyers and sellers: a crucial stage where contracts are concluded in the course of the day, two at most due to volatile markets, competitive bidders, etc. If the terms and conditions for sale asserted by the Sellers cannot be agreed upon at the earliest, the negotiations die down and the deal withers away elusively, making a prompt cost-benefit analysis of the deal a determining factor in the prices put in for the bids. This is a time-sensitive and extremely competitive process in a niche and concentrated market.

Particularly, sellers are always on an inexorable march to be unrelenting in the incorporation of exclusion terms that only favor one side and have repercussions on fair dealing in trade. One of the key themes of this article converges on the declaration of the quantity of ‘Sludges/Slops’ present onboard the Tankers. Specific and technical definitions can be found in The International Convention for the Prevention of Pollution from Ships (MARPOL), but below is a paraphrased version:

A Tanker (specifically designed to carry cargoes of Oil & Gas of complex compositions) over the years (also depending on the number of years it has been chartered/commissioned as a carrier for crude/oil) accumulates residues/sludge/slops in the Tanks used for storage of cargo.

  • Slop - This mostly includes oily water that can be pumped out, and cleaning is relatively quick and convenient.
  • Sludge – Depending on the density of cargoes the carrier has carried onboard, the semi-solid residues requiring precise cleaning and Hot wash;
  • Residue – Residues are mostly solid in form and require manual labor for removal, which is a time- and resource-consuming process (mostly found in older tankers that have been out of commission for a long time). [“SSR”]

Tankers, even when markets showcase a conservative trend, fetch a decent recycling price. Sellers usually give an estimate of sludge and slops present onboard the vessel in MT/Cbm that determines the bids to be received from intermediary/end buyers who shall further sell the vessel for recycling or purchase the vessel themselves. These bids are not only placed keeping profit margins in mind but also delivering clean and safe Tankers following best recycling practices.

The Tanker needs to be thoroughly cleaned and freed of SSR, gas-free certificates must be provided to the ultimate recycler as a pre-condition of sale, and an inspection by safety officers and a state environment agency is required before any demolition permits are granted.

However, the position of parties in negotiations is often adversarial and parties are entitled to pursue their own best interests, as long as they avoid misrepresentations. This duty to negotiate ‘in good faith' is often cited as being unworkable in practice as it is believed to be inherently inconsistent with the position of negotiating parties. The declaration of the quantity of sludge and slops onboard the vessel is directly proportional to the price the intermediary/end buyer will offer for the purchase of the vessel--cleaning costs of the residual sludge and slops being factored into the offered price to ensure that vessel is free of any potential hazard when finally delivered to compliant yards employing safe recycling practices.

 

Without Guarantee: Legal Implications
 

At the time of these contract negotiations, the estimate of sludge and slops stipulated in the MOA is preceded with the qualified condition that the same is ‘… given in good faith but without guarantee.’ The requirement of negotiating in good faith seeks to promote fair and open dealing to prevent unfair surprises and the absence of real choice [1].T[2]? Yet, the inclusion of the word ‘without guarantee’ in itself should be enough to raise serious questions about the good faith aspect of negotiations, especially when bargaining positions of parties differ by and large.

Now, this is not to suggest that it is always so only in case of unscrupulous sellers who want to limit their liability knowingly, but also in cases of unsuspecting sellers who may want to cash in and hedge their position when freight markets are underperforming without making a  good faith AND reasonable attempt to determine the sludge quantities, or, make inadequate attempts that do not qualify as reasonable to determine the quantities, therefore jeopardizing accuracies.

Under English Law, the position of the meaning of ‘good faith’ is evolving jurisprudence, the effect of caveating any representation with the term ‘without guarantee’ is seemingly resolute; Dickensian descriptions would be [Pickwick Papers]- “…what can’t be cured, must be endured.”

For example, the leading Judgment on the effect that this disclaimer would have in a maritime contract (Lenodoudis Evangelos II) The Lipa[3], held that a standard deviation of 5%-10% shall be tolerated in case of short loading/cargo disputes, etc. as long as there are no major deviations from the material terms of the contract. Interestingly, it was also observed that when parties are involved in similar trade/businesses, the question of either party’s ‘reliance’ on representations hardly arises till the time a dispute surfaces.

In an alternate observation by an Arbitral Tribunal, the treatment of qualifying reservations on representations made in correspondence between parties is rather stringent, i.e. absent bad faith any such qualified notice preceded with Without Guarantee/ Without Prejudice is accepted by the party at their own peril and an unqualified declaration/Notice should be sought.[4]

What is abundantly clear is that on the basis of the above, when estimates are preceded with WOG, the burden of proof to be discharged is the proof of bad faith on the part of the party making representations. A buyer having an equal bargaining power may be able to factor in the cleaning costs for sludge and slops already in 10%-15% excess of declared quantities because of the qualified reservation of WOG, but serious issues arise when quantities are found to exceed any budgeted calculations a prudent buyer may elect to set aside as cleaning costs.

This begets an important question on which there seem to be none to limited answers in legal textbooks:

Can exclusion clauses like Without Guarantee extend to deviations in excess of tolerable/acceptable industry standards and yet not qualify as misrepresentations on the seller’s part? Recent examples of Tanker sales to intermediary/end buyers are proving detrimental to trade practices where on ‘as is where is’ sale of vessels, the quantities observed onboard are found to be 100 % - 300% in excess of declared quantities.

The Tankers are sometimes in the Seller’s ownership for more than 10 years with a specialized crew, Masters, and team of engineers employed onboard to ensure smooth functioning and are specifically trained in management and cleaning of these vessels. In all probability, the seller’s crew may even be attempting to obtain this estimate in good faith, but with the quantum that is at the time observed and inspected on sale, it comes across as manifest misdeclaration, given the resources that were at the seller's disposal to provide an accurate and good faith estimate. The parties find themselves in a closed-loop, and sellers in these cases are often quick to resort to asserting their ‘Without Guarantee’ exclusion that they have insisted upon at the time of contract negotiation, raising the question of whether the estimates were accurate, to begin with.

In most cases, buyers may be forced to salvage their losses elsewhere with no hope of recovery. Most of the brokers/broking houses will sit on the fence and not provide either party with any inputs in such a situation. The reason for this sometimes can range from brokers failure to communicate the party’s requirement and insistence clearly, their own lack of understanding of the repercussions aforesaid misdeclarations have on the party’s commercial position, to the mere nonchalance that their role is confined to the ultimate delivery of goods from seller to the buyer and nothing beyond.

There are special marine & offshore services companies providing services specifically targeted to cleaning of SSR onboard the vessels to ensure that a vessel safe and clean for recycling is being sold. It comes as no surprise that these costs, in case of a non-trading/dormant FSO/Tankers are comparatively high, and therefore, sellers deliberately choose to cut corners to hide behind the draconian clause of ‘WOG’ and retreat, taking no responsibility for consequences that would follow. This sets the standard so low for good faith business practices, that even reputable Tanker owners have participated in orchestrating such manifest misdeclarations to avoid cleaning.

To add to this conundrum, sometimes Buyers are offered no inspection of the Tanks to ascertain the SSR leaving no recourse to the Buyers on arrival in the sub-continent where the unsafe and subpar job of cleaning has to be undertaken before she could be gas-free for hot works.

‘Contra Proferentem’: Solving the ambiguity of exclusion clauses

 

While Courts have insisted on parties’ freedom to contract and not interfere with solving and assisting with minor inconveniences caused to parties by virtue of their own conduct [agreeing to exclusion terms in a contract], the liberties provided as a result of freedom to contract cannot leave one party with losses that they cannot breakeven on a deal while affording the other unqualified freedom to retreat into patterns where they continue to indulge in practices deterrent to fair trade. Legally, the principle of Contra Proferentem means:

if there is any doubt about the meaning or scope of an exclusion clause, the ambiguity should be resolved against the party seeking to rely on the exclusion clause on the basis that parties are not lightly to be taken to have intended to cut down the remedies the law provides for breach of contract, unless the contract contains clear words to that effect. In the case of exclusion clauses this means the narrower interpretation should be applied.”

One might argue that even with the best team of experts and reasonable efforts, only an estimate of sludge and slops onboard can be provided due to the inherent lack of scientific formula to determine the same, but with experts specifically dealing with the cleaning of Oil carriers to ensure safety, a clear and definite estimate (+/- 10%) is one phone call away. An alternate argument may be to suggest that rule of contra proferentem applies when there is an ambiguity/doubt about the meaning or scope of a term. We have already examined the flexibility offered by the term ‘Without Guarantee’ and implications thereof, but the reliance on the same cannot be sought upon by the Sellers in case the quantities so under-declared that had it not been for the misrepresentation, the Tanker would have been sold for a much lower price.

In light thereof, the interpretation of the meaning of Without Guarantee remains ambiguous and unclear vis-à-vis its scope w.r.t misrepresentations. Even with legal fiction created by yardsticks per the above case-laws, it is pertinent that contra proferentem apply and be construed against the sellers so narrow interpretation is given, especially in cases where sellers attempt to wriggle out of their obligation to provide an estimate in good faith by incorporating exclusion terms.

 

Author


Ms. Prachi Shah

In-House Counsel,
GMS Dubai
Email: legal@gmsinc.net

 


[1] BEATSON J., BURROWS A., CARTWRIGHT J., ANSON’S LAW of CONTRACT 65, OXFORD UNIVERSITY PRESS 2010

[2] [2001] UKHL 52, [2002] 1 AC 481, at 17

[3] [1997] 1 Lloyd’s Rep. 404

[4] IMT Shipping and Chartering GmbH v. Changsung Shipping Company Limited: THE ZENOVIA [2009] EWHC 739 (Comm)

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Awakening call to make regulations rationale for Sustainable Ship Recycling

Environmental issues are a growing concern for the maritime industry. Every industry should care about the sustainability of the environment and act responsibly, but stakeholders are often overwhelmed with multiple regulations created by various authorities worldwide. 

The IMO’s Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC) adopted in 2009 is the most widely accepted regulation impacting sustainable ship recycling. But at present, though ratified by a few nations, the HKC has not officially entered into force yet.

The European Union brought the EU Waste Shipment Regulation (EU WSR) into force in 2006. As per the EU WSR, the export of hazardous waste from EU member states to any developing (Non-OECD) country is forbidden. It allows the export of hazardous waste(s) from the EU to OECD countries, subject to prior agreement between the exporting and importing countries. The EU tries to enforce the EU WSR on end-of-life ships by classifying the end-of-life vessel itself as hazardous waste. The EU also developed another regulation in 2013, the EU Ship Recycling Regulation (EU SRR), which came into force in 2018.

Both EU WSR and EU SRR  are more “stringent” (for non-EU recyclers) than the HKC. As a result, ship owners are often accused of illegality when selling their vessels even to HKC compliant yards in the Indian sub-continent and Turkey. They are forced to take excessive and unnecessary actions that are economically disastrous and, at times, environmentally irresponsible. This results in a lose-lose situation for the owners, regulators, buyers, and even the environment. Consequently, well-intentioned regulations lead to the opposite consequence in reality. In the following paragraphs, we will study two such cases:

CASE 1: 

In May 2014, the owner of a 1987-built PCC decided to sell his vessel for recycling. It reached the end of its service life in the Mediterranean Sea, and the owner considered both Turkish and Indian ISO-certified Green yards. As is generally the case, there was a considerable price gap of around USD 200/Ton between the Turkish and Indian markets. The sellers completed the last cargo voyage from Antwerp, Belgium, to a West African port. As the vessel was not EU-flagged, EU WSR or EU SRR should not have applied—even if it was departing from an EU port / EU waters on a final cargo run. But, since the decision to recycle the vessel was made while she was in an EU port, the ship was arrested at Antwerp, and authorities forced the owner to complete the required paperwork to export hazardous materials. This expensive and time-consuming process cost the owner, and on top of that, they had to pay compensation to the Indian yard to cancel the sale. In the end, they had to resell the vessel to a Turkish yard at a significant price reduction. Was this particular yard truly better than the Indian yard? Did the delays in the recycling of the vessel benefit society and the environment?

CASE 2: 

In Oct 2020, a 1989-built small PCC came close to the end of its service. The sellers decided to recycle the vessel in Turkey as their last discharge port was Autoport, Turkey. When the ship sailed out from Vigo, Spain, to transport the cargo to Autoport, the Belgian authorities intervened and declared that the vessel had breached EU WSR. They further stated that the decision to recycle the ship was made while she was in an EU port. As a result, the owner had to bring the vessel back to Spain, complete the notification formalities, and pay high compensation to the Turkish yard for canceling the deal. Apart from that, the notification process took the owners more than seven months to complete because of discrepancies in some of the information provided to the authorities. The owner thereby had to resell the vessel to an EU-listed Turkish yard with a massive reduction in the price. For the seven months, the sellers waited for the paperwork to clear, the ship IDLED. What are the economic and environmental costs of idling a vessel for SEVEN months? Is the EU-approved yard TRULY better than an HKC certified yard? Professionals in the field believe that a well audited HKC yard is BETTER than an EU-approved yard in Europe that does not have to go through strict audits. If this is the case, to whom is the EU SRR benefitting? The so-called guardians of the environment and the regulators who blindly follow them should be ashamed of a monster they have created that helps no one and harms the environment and workers they seem to be protecting.

The Good, The Bad, and the Ugly (HKC, WSR, SRR)

Without evading our responsibility to protect the environment, we should reconsider the grey areas in the prescribed regulations. To make business more efficient and uniform worldwide, the IMO HKC should be treated as the precise regulation for ship recycling. The implications of both EU WSR and SRR are punitive and designed to discourage owners from going to HKC compliant – the good – yards. In other words, while HKC has been a big step towards sustainable ship recycling, the EU regulation has slowed the adoption of sustainable ship recycling. This concern should be dealt with with the utmost urgency by all stakeholders. More importantly, we ask owners, advisors, and regulators not to bow to stupidity and fear headline risks when true courage is needed.

 

Author


Mr. Amit Malhotra

Senior Trader,
GMS Japan
Email: snp@gmsinc.net

 

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29th June 2021: The GMS Group, the world’s largest cash buyer of ships, rigs and offshore assets for recycling and a leader in the maritime industry, is excited to announce the appointment of Mr. Nitin Mehta as its new Chief Financial and Strategy Officer. Nitin brings with him vast experience in the financial and maritime sector, most recently as Chief Executive of Tomini Group. In his new role, he will be responsible for all areas of the diversified group’s operations, including recycling and shipping. He will lead the existing team of talented professionals at GMS into a new era of opportunity and growth, with a mission to take the company to the next level and add value to all business areas.


ABOUT GMS

Founded in the USA in 1992, GMS is the world's largest Buyer of ships and offshore assets. The firm's mission is to create value in safely disposing aging assets while improving health, safety, and environmental standards across the various recycling destinations and to generate awareness about the significance of recycling in the maritime world.

For further information or inquiries, please feel free to reach out to us at bd@gmsinc.net

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