Ship arrest and Decarbonization: is the 1952 Brussels Convention still actual?
10 February, 2025
491
By Alberto Batini, LLM, PhD (Senior Partner at BTG Legal, London Office)
The issue of shipowners breaching decarbonization clauses in charterparties, resulting in ship arrest, is becoming an increasingly significant concern within the maritime industry. This is due to rising environmental regulations aimed at reducing the sector’s carbon emissions and the growing emphasis on sustainability within the global shipping industry. Below is an expanded exploration of the subject, focusing on the legal, practical, and commercial implications of breaches of decarbonization clauses and how ship arrest might come into play.
1. Decarbonization Clauses in Charterparties
In recent years, as part of global efforts to mitigate climate change, more decarbonization clauses have been incorporated into charterparties (particularly time charter parties). These clauses typically establish specific environmental performance standards that shipowners must adhere to during the duration of the charter. Such clauses are part of a wider shift toward greener shipping practices and aim to ensure that vessels operate in line with national and international climate goals.
The key elements that might be included in a decarbonization clause are:
- Compliance with International Regulations: Most decarbonization clauses require shipowners to ensure their vessel complies with the latest international emission standards, such as those set by the International Maritime Organization (IMO). For example, the IMO’s 2020 sulphur cap mandates ships to use fuels with a sulphur content of no more than 0.5%, and its long-term targets include reducing greenhouse gas (GHG) emissions by 50% by 2050 compared to 2008 levels. A breach could occur if the shipowner uses fuel that exceeds these sulphur limits or fails to meet the reduction targets.
- Use of Cleaner Fuels or Emission-Reducing Technologies: As part of the decarbonization efforts, clauses might require the shipowner to utilize low-emission fuels like LNG, biofuels, or ammonia, or adopt technologies like exhaust gas cleaning systems (scrubbers) or carbon capture and storage (CCS) technologies. These measures help to reduce the vessel’s carbon footprint. If a shipowner fails to implement or maintain such technologies, they may be in breach of the charterparty.
- Carbon Offsetting and Credits: Some charterparties may also contain provisions that require shipowners to participate in carbon offset programs or purchase carbon credits to offset the emissions of their vessels. If a shipowner fails to meet these obligations, it could be considered a breach of contract.
- Operational Requirements: Certain decarbonization clauses may impose operational changes on shipowners, such as requiring the use of cleaner fuels during specific voyages or encouraging energy efficiency measures, like slow steaming (operating a vessel at reduced speeds to save fuel). A failure to meet these operational requirements would also likely result in a breach of the charterparty.
Given that the shipping industry is under immense pressure to meet these standards, charterers are increasingly using decarbonization clauses to ensure compliance with environmental regulations, especially when signing long-term charters.
2. Breach of Decarbonization Clauses
A breach of decarbonization clauses occurs when the shipowner fails to meet the environmental standards specified in the charterparty. These breaches can arise from various failures:
- Failure to Use the Required Fuels or Technologies: If the shipowner does not use the fuel specified in the charterparty or fails to install and maintain the required technologies, such as scrubbers or carbon capture systems, this would constitute a breach. For example, if a shipowner opts for higher-sulphur fuel to reduce costs, despite a clause requiring compliance with the IMO 2020 sulphur cap, this would be a breach of the decarbonization clause.
- Non-Compliance with Carbon Credit or Offsetting Obligations: If the shipowner does not buy or retire the necessary carbon credits to offset emissions, they could be found in breach of the charterparty. The specific carbon offset requirements are often negotiated at the outset of the charter, and failure to meet these obligations may be seen as a violation of contract terms.
- Operational Failures: Operational shortcomings, such as a failure to implement fuel efficiency measures or disregarding operational restrictions on emissions, would also be a breach. This could include operating at higher speeds than allowed or failing to reduce fuel consumption through energy-saving measures.
When breaches occur, the charterer can potentially seek damages or terminate the charterparty altogether, depending on the severity of the breach and the contract’s terms.
3. Ship Arrest as a Remedy
When a shipowner breaches the decarbonization clauses in a charterparty, the charterer or creditor may pursue legal remedies to enforce compliance. One such remedy is the arrest of the vessel.
While the 1952 Brussels Convention on the Arrest of Ships and breach of decarbonization clauses are distinct legal concepts, they may intersect in cases where:
- Environmental disputes: If a party involved in a charterparty breach of decarbonization clauses, such as a shipowner failing to comply with environmental obligations, faces a claim for environmental damages (e.g., fines for exceeding emissions limits), the aggrieved party could attempt to arrest the vessel under the 1952 Brussels Convention to secure payment or compensation.
- Ship arrests related to contractual disputes: In cases where decarbonization failures lead to breach of contract disputes, such as the shipowner failing to meet performance or emission standards agreed upon in a charterparty, the affected party may seek to arrest the ship to secure the claim for damages, performance, or penalties.
For breach of decarbonization clauses, a ship arrest could be initiated under the following circumstances:
- Non-Performance of Critical Contractual Terms: If the breach of decarbonization clauses is deemed serious—such as the shipowner’s failure to implement carbon-reducing technologies or use low-sulphur fuels—the charterer may view this as a material breach of the charterparty. Ship arrest can be sought to compel compliance or secure damages for the failure to meet environmental obligations.
- Unpaid Penalties or Damages: If the breach results in penalties for the shipowner, such as a fine from an environmental authority or a compensation demand from the charterer, the charterer may seek to arrest the vessel to secure payment of the penalties or damages. If the shipowner does not comply with the contractual obligations to pay these sums, ship arrest becomes an option for the charterer to ensure they are paid.
- Security for Potential Claims: In certain cases, even if the breach has not resulted in an immediate financial loss, the charterer may arrest the vessel as security for future claims. This could be a proactive measure to prevent the shipowner from avoiding payment or to ensure that they are held accountable for any future breaches of the decarbonization clauses.
4. Jurisdictional and Legal Considerations
While ship arrest is a powerful legal remedy, it is subject to jurisdictional rules. The process and grounds for ship arrest vary from one legal system to another. Some of the important legal considerations include:
- International conventions, such as the International Convention on Arrest of Ships (1952 & 1999), govern the arrest of ships for specific claims. While breaches of environmental standards or decarbonization clauses are not always considered maritime claims under international law, and therefore, the specific grounds for arrest may not always be applicable in every jurisdiction, the 1952 Arrest Convention offers the “dispute arising out of a breach of a charterparty” as a specific maritime claim allowing arrest of the ship.
- Maritime Claims: In some countries, ship arrest is only allowed for specific maritime claims, such as unpaid freight, crew wages, or collision damage. Breach of decarbonization clauses might not always be viewed as a “maritime claim” under national laws. Therefore, the specific legal systems and the terms of the charterparty will determine whether the breach qualifies for arrest.
- Enforcement Across Jurisdictions: If the ship arrest occurs in one jurisdiction, enforcing the arrest in other jurisdictions might be complicated, particularly if the shipowner disputes the breach or challenges the arrest in court. The complexity of international law, combined with differing national standards, can affect how swiftly a ship arrest may be executed.
5. Practical Implications for the Shipping Industry
The shipping industry is under growing pressure to decarbonize, and environmental regulations are tightening. As a result, decarbonization clauses are increasingly being included in charterparties to enforce compliance. For shipowners, this means that the financial and operational risks associated with failing to comply with these clauses have increased, with ship arrest becoming a potential consequence of non-compliance.
- Financial Impact: The financial impact of a ship arrest can be substantial. Aside from the direct costs related to legal proceedings and the loss of revenue from being unable to operate, a shipowner’s reputation may be damaged, leading to potential future losses. Furthermore, penalties for non-compliance with environmental standards can add significant costs to operations.
- Legal and Commercial Risks: Breaching decarbonization clauses not only exposes shipowners to legal action, including ship arrest, but also increases their commercial risks. Charterers may become less willing to engage with shipowners who fail to meet environmental standards, leading to difficulties in securing future contracts. In some cases, a breach may result in the termination of the charterparty, further damaging the shipowner’s financial position.
Conclusion
As the global maritime industry works toward reducing its environmental impact, the implementation of decarbonization clauses in charterparties is becoming an essential tool for ensuring compliance with international regulations. A breach of these clauses can lead to serious legal consequences, including ship arrest, especially when non-compliance results in significant financial penalties or reputational harm. Both shipowners and charterers must be aware of their obligations and the potential legal remedies available, including the possibility of ship arrest, when negotiating and enforcing decarbonization clauses. Legal practitioners in the maritime industry will need to stay informed about evolving regulations and the enforcement mechanisms that may come into play, as environmental compliance becomes a growing focus within the industry.
