Clyde & Co explains legal issues arising from contaminated bunker fuels and suggests action plan

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During 2018 a lot of issues with contaminated bunker fuels were reported. In a note, the well known law firm Clyde & Co refers to this hot case and the legal implications arising out of it, while it gives suggestions on how shipowners may protect their interests.

The phenomenon first appeared in Houston and then it was rapidly spread to Panama, Singapore and other ports globally. It is estimated that more than 200 vessels were affected. In most of the cases modest damages were reported but more serious issues such as black-outs and groundings also happened. The detailed fuel tests that followed showed that the problem arised from the inclusion of contaminants of non-petroleum origin in the bunker fuels.

The case becomes complicated for Shipowners since in fact the majority of those bunker fuels may comply with the ISO 8217 specification as required under the supply contract. Therefore, unless advanced analytical fuel testing takes place, the contamination will not be found and shipowners will identify the problem only after the bunkers (which appear to be on specification with ISO 8217 parameters) are consumed. Moreover, only few laboratories around the globe are capable of performing such advanced fuel tests and there are delays in the delivery of results creating further problems.

Clyde & Co suggests Shipowners in all cases to perform analytical fuel testing which will involve GC-MS techniques before they consume fuels. When fuel is found contaminated, then this fuel might not be suitable for consumption and it might need to be de-bunkered. And the main question here is: which party is contractually obliged to de-bunker the vessel?

According to Clyde & Co the approach is different depending on which party has supplied the contaminated bunker fuels. The Charterer under a time-charter party or the Shipowner under a bunker supply contract? In the first case, where the vessel is time chartered, the Shipowners may sue the charterers under the charter-party and pass on the liability to Charterer since, unless otherwise is expressly agreed between the parties, there is an implied condition that fuel supplied by the Charterers should be fit for consumption by a reasonably well maintained vessel; contaminated bunkers are in breach of this obligation.

On the other hand, if bunker fuels are supplied by the Shipowners themselves, the situation is much more complex since the parties’ responsibilities are regulated by the bunker supply contract which is drafted in favor of the seller and includes clauses which make it very difficult for Shipowners to recover any damages. Such clauses include (a) a short time bar of just a few days for the notification of claims; (b) a cap on liability up to the purchase price or even less; and (c) an exclusion of consequential damages from any potential claim. In most of the cases that contamination exists, owners may not even know they have a claim until after the notification period has expired.

At this point and taking into consideration the fears that contaminated bunkers may be increased as of the 1st Jan 2020 due to the growth in the use of blended fuels, it is interesting to see what measures Clyde & Co suggests Shipowners to take in order to protect themselves:

– Perform advanced analytical tests including GC-MS testing before use.

– If advanced testing is not possible, fuel to be consumed with extreme care and regular checks on the performance of the engines.

– If the fuel is found contaminated, an immediate notice to be sent to Charterer or supplier and the fuel not to be consumed.

– If there are doubts about the quality of the fuel, an early notice within the time bar to be sent to the counter-parties even if the claim is not fully documented.

As Clyde & Co says, it is hoped that market awareness and transparency will help the contaminants to be removed from the supply chain.

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