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The IMO’s CII scheme and BIMCO’s contractual response – a venture into uncharted waters

Posted: 07/12/2022

The International Maritime Organisation (IMO) has been progressively legislating for the improved carbon efficiency of international shipping and 2023 is due to be a significant year. From 1 January, vessel monitoring and reporting under the new MARPOL Carbon Intensity Indicator (CII) rating scheme will begin.

All cargo, roll-on/roll-off, passenger and cruise vessels above 5,000 gross tonnage and trading internationally must monitor and report their CO₂ output per cargo-carrying capacity and distance travelled. This output is subject to voyage adjustments and correction factors for certain activities, such as sailing in ice conditions or for tankers engaged in STS voyages.

At the end of each calendar year, all such vessels will be given an annual CII rating from A to E. C is the lowest acceptable rating. A ship rated D for three consecutive years or E for a single year must submit a corrective action plan showing how the required index rating will be achieved.

For successive years, the rating thresholds will become increasingly stringent, as the IMO is aiming to reduce the carbon intensity of all ships by 40% by 2030 compared to 2008 levels. The target reduction by 2050 is 70%.

This legislation will introduce a new dimension to charter party performance. Shipowners customarily have obligations under their charter parties to proceed with the appropriate despatch, to not deviate, and to follow their charterer’s lawful orders, including any orders regarding service speed. From 2023, shipowners must also ensure their vessel is operated with an acceptable carbon efficiency for the purposes of the CII MARPOL scheme. These are potentially conflicting obligations. Without contractual provision, a shipowner may find they would need to breach their charter by reducing speed or altering course in order to achieve the target C rating by the end of the year.

The CII rating scheme is accordingly expected to figure significantly in new fixture negotiations with shipowners seeking to transfer some of the responsibility to their charterers. After all, it is normally the time charterers who determine the bunkers used, and the vessel’s speed and destination. In any time charter spanning most of the calendar year, the charterer will have a great deal of control over the operational carbon efficiency of the vessel and its consequent CII rating for the following year.

Indeed, BIMCO readily acknowledge this as the impetus behind their newly released CII Operations Clause for Time Charter Parties 2022. Under the BIMCO CII Clause, charterers take on the obligation of ensuring the vessel achieves an agreed gCO₂/dwt.nmile in accordance with the MARPOL CII calculation by the conclusion of the relevant calendar year or redelivery, if sooner. While time off hire may be excluded from this assessment, the apparent purpose of the BIMCO clause is to place owners in a back-to-back position with their charterers as regards the owners’ MARPOL CII obligations.

If charterers are contractually responsible for CII performance, this may introduce a further criterion for determining the legitimacy of voyage orders. It is well-established that an owner may reject a time charterers’ order if, say, it would cause the charter period to overrun or exceed the trading limits of the charter. If the charterer has guaranteed the time charter CII performance but issued an order which would place them in breach of that guarantee, it seems logical that the owner also ought to be able to reject that order.

The BIMCO clause leaves nothing to chance in this regard. It sets out a scheme providing for owners to give advance warning to charterers that their voyage orders would place the vessel on course for failing to meet the required CII performance. Ultimately, if charterers persist in such orders, owners may ignore the orders or slow steam, if that is a viable solution. If slow steaming would be insufficient to get the CII performance back on track, owners may demand new voyage orders.

These clearly structured consequences are characteristic of BIMCO’s modern drafting style, which aims to minimise legal ambiguity for commercial users. At over 2,000 words, a thorough reading of BIMCO’s CII clause is no meagre task but it should leave users in no doubt as to their obligations and the consequences of non-compliance. Some of the wording reiterates existing charter party law. It states that charterers may 'provide, … orders or instructions to adjust the Vessel’s speed or RPM … to meet a specified time of arrival, .. or to proceed at a specified main engine fuel consumption'. It even provides that 'Owners shall be entitled to claim from the Charterers' for losses 'caused by any breach by the Charterers of their obligations under this Clause'. Such material is arguably surplusage but may help to build a complete picture and narrow the issues for commercial users navigating this new area of law.

Under the clause, owners are required to exercise due diligence to ensure the vessel is operated in a manner which minimises fuel consumption and are obliged to ensure the performance data they supply to their charterers is true to the best of owners’ knowledge. Burdened with the strict obligation of ensuring the vessel’s CII compliance, charterers may feel some dissatisfaction at having to prove negligence or even dishonesty before they are in a position to justify failing to meet that obligation.

Of course, nothing is set in stone. BIMCO observe that their clause, which has been eight months in the making, 'serves as an excellent starting point for negotiations for owners and charterers'. They also advise that the clause will be reviewed as the CII regulatory regime develops. There does at least appear to be a consensus that we are in uncharted waters.

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