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Responsible ship recycling: criminal consequences for those who fail to comply

Posted: 19/08/2022

Earlier this year, the Gulating Court of Appeal in Norway upheld a six-month prison sentence imposed on a shipowner who attempted to illegally export hazardous waste from Norway in the form of the 38,282GT barge carrier named the Harrier.

The decision follows the first instance decision in 2020 when Georg Eide, the Norwegian shipowner, was first sentenced following the sale of the Harrier to a cash buyer before its attempted departure from Norwegian waters. 

As our marine, trade and energy team regularly advises on ship recycling questions, the purpose of this article is to look at the points to be noted from the Harrier case, the most striking of which is that a shipowner can be prosecuted for a failure to ensure safe recycling of their former vessel even when they no longer own it and it has been sold to a third party. 

We also consider the ship recycling regulatory landscape which is complex, wide-ranging and may affect not only the ship-owning company but also shipyards, brokers, insurance companies, banks and many other entities involved in the transaction chain with serious criminal, commercial and damaging reputational consequences for failure to comply.

Ship breaking: the process and the problem

Ship recycling is the process of stripping down end-of-life ships for their steel, machinery and anything else of value that can be removed. Historically, the lack of capacity of EU facilities and higher prices available for end-of-life vessels in jurisdictions with lower environmental and health and safety regulations has resulted in much of the global ship scrapping take place in non-OECD countries. 

The main South Asian ship breaking sites do not have docks or harbours. Instead, ships are run up the beach at high tide to be dismantled by hand by workers. With limited or no protective clothing or machinery, risks of gas explosions, death or serious injury from crushing and falling, and long-term health issues from working in an environment of heavy metallic paint, toxic chemicals and asbestos, it is dangerous work. 

In 2018, over 90% of the gross tonnage dismantled globally was broken down in this way on beaches and tidal flats in Bangladesh, India and Pakistan. More recently, according to NGO Ship Breaking, 129 ships were dismantled worldwide between January 2022 and March 2022 and of these 94 were dismantled on the beach.

The international framework regulating this area is set out very briefly below.

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (Basel Convention)

The Basel Convention is an international convention that controls the movement of 'hazardous waste' from developed countries to less developed countries. There are onerous consent requirements for the movement of hazardous waste - which include end-of-life ships - but the precise regulatory requirements are dependent upon the national laws of each contracting state.  

The Basel Convention Ban Amendment was an attempt to strengthen the Basel Convention and effectively ban the transfer of hazardous waste from OECD to non-OECD countries. It came into force on 5 December 2019 in most of the 101 signatories to the Basel Convention and is effectively in force in the EU through the EU Waste Shipment Regulation.

The EU Waste Shipment Regulation (EWSR)

The EWSR gives effect to the Basel Convention Ban Amendment and prohibits the shipment of 'waste' from the EU to non-OECD countries. End-of-life ships will constitute waste for the purposes of the EWSR.

The EWSR defines its scope territorially. The effect is that any ship flagged outside the EU that is departing EU waters for recycling, even in circumstances where it is only passing through EU waters as part of its final voyage, could be caught under the EWSR. Liability is not limited to the 'waste holder' or legal owner of the waste but can also attach to secondary parties such as the directors of the ship-owning company and marine insurers.

The EU Ship Recycling Regulation (ESRR)

The ESRR defines its scope on the basis of a ship’s flag. Except for some provisions that also apply to non-EU flagged ships regarding the maintenance of an inventory of the waste and hazardous materials on board, the ESRR applies to EU-flagged commercial ships above 500 GT that are to be scrapped. Under the regulation, the EU flagged ship must be recycled in a facility listed on the EU list of approved ship recycling facilities.

After Brexit, the UK Ship Recycling Regulation (UKSRR) retains the requirements of the ESRR in UK domestic legislation insofar as it affects members of UK flag ships of 500GT and over.

The Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships (Hong Kong Convention)

The Hong Kong Convention focuses specifically on ship recycling and will enter into force 24 months after ratification by 15 states that represent 40% of the world’s merchant shipping by gross tonnage. The target of ratification by 15 states has been achieved, however the Hong Kong Convention is not yet in force as the merchant fleets of those ratifying countries constitutes only a combined 29.77% of worldwide gross tonnage.

It is worth noting that in the EU, much of the Hong Kong Convention has been implemented through the ESSR.

Criminal liability

In March 2018, the Rotterdam District court fined the Dutch company Seatrade around €750,000 and convicted two of its executives for selling four non-EU flagged ships, three of which were ultimately scrapped in non-OECD countries. The ships were held to be 'waste' under the EWSR despite the fact that, on leaving EU waters, three of them were still operating and carrying commercial cargo. 

The Seatrade decision was overturned by the Court of Appeal in the Hague and has been returned to the Rotterdam District Court for a retrial. Irrespective of the eventual outcome, the case is a further reminder of the risk associated with ship disposal and recycling.

In the case of the Harrier, as referenced at the beginning of this article, the Norwegian ship owners sought to sell the vessel to a cash buyer, purportedly for her to then be sent to a repair yard in the Middle East. The Norwegian authorities had been tipped off about the potential scrapping of the vessel on South Asian beaches and were already monitoring the situation closely when, hours after her attempted departure from Norwegian waters, a salvage operation had to be mounted to prevent the stricken vessel from grounding following engine failure. A search onboard confirmed that the Harrier was indeed intended to be broken up on a beach in Gadani, Pakistan. 

The repercussions were not only severe for the shipowner but also detrimental to other parties involved. These included the marine warranty surveyor and the insurance company which had provided hull and machinery insurance for what was to be the Harrier’s final voyage, and both were placed under investigation for their involvement.

At a time when many more ships were scrapped at beaching yards in India, Pakistan and Bangladesh last year than in 2020, the case of the Harrier serves as a judicious reminder that ship owners, their marine insurance providers, financing banks and brokers should always seek legal advice as early as possible to ensure compliance when considering buying or selling a vessel to be scrapped.

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Penningtons Manches Cooper LLP