Member Alert

Member Alert

Göteborg: 3 April 2018

Shipowners face risk of criminal liability for illegal demolition of end-of-life vessels

A Rotterdam court has found Dutch reefer operator Seatrade and two of its directors criminally liable last week for illegally selling
vessels for demolition in South Asian yards in breach of the EU Waste Shipment Regulation.

The decision appears to be the first time an EU shipowner has been held criminally liable for the illegal export of vessels for
demolition to South Asian yards. The Dutch public prosecutor brought the cases against Seatrade over historic sales of vessels for
demolition in India, Bangladesh and Turkey in 2012. The sales of the vessels took place via cash buyers. All vessels departed from
Rotterdam and Hamburg on their last voyage to the South Asian yards.

Seatrade and its directors were fined up to 750,000 euros and the directors have been banned from working in the shipping industry
for a year. The public prosecutor also sought prison sentences for the directors, but the court did not impose these.
The decision sets a precedent in the Netherlands. It makes it clear that shipowners who sell vessels for demolition in South Asian
scrap yards in breach of the EU Waste Shipment Regulation risk facing criminal liability. It is the first successful prosecution of a
shipowner for non-compliance with the EU Waste Shipment Regulation, which prohibits the export of hazardous waste to non-OECD
countries, and bans the export of waste for disposal.

Importantly, the case reflects the political climate and the greater interest shown by European countries in environmental issues and
may be followed by other European countries. Cases of illegal demolition of vessels are currently being investigated by national
authorities, such as the UK and Norway. In Norway for example, the vessel the MV “Tide Carrier” was arrested by the Norwegian
environmental authorities, and these have been investigating its owners for illegally selling the vessel to a South Asian yard for
demolition.

Shipowners should therefore take greater notice of the regulations when considering demolition.

International law and the demolition of end-of-life vessels

Any shipowner considering selling an end-of-life vessel for demolition should first consider whether the sale complies with the Basel
Convention. An end-of-life vessel will likely be considered as “waste” under the Basel Convention, since waste is defined broadly to
include ‘substances or objects which are disposed of or are intended to be disposed of or are required to be disposed of by the
provisions of national law’. Therefore, a sale of a vessel for demolition is likely to be considered a ‘transboundary movement of
waste’ under the Basel Convention.

Shipowners should be aware that if there is anything onboard the vessel that could be considered ‘hazardous’ waste under the Basel
Convention or under the national laws of the destination country of the vessel being scrapped, the country of import and any countries
of transit will need to be notified of the movement of waste. In addition, the countries of import and transit will need to give their
consent for the movement of waste.

The Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships was adopted in 2009, but has still not been
ratified by enough shipowning and scrapping countries so the Basel Convention remains the main international regulation.While an
increasing number of demolition yards have been obtaining certificates and statements of compliance with the Hong Kong
Convention, shipowners should be mindful that the Hong Kong Convention is not yet in force. There may be different certification
providers and their standards of issuing the certification may not be entirely clear. Shipowners should therefore not decide on
demolition yards solely based on a yard’s statement of compliance with the Hong Kong Convention.

EU rules and the demolition of end-of-life vessels

The Dutch case brought against Seatrade concerned the illegal sale of a vessel in breach of the EU Waste Shipment Regulation (the
“Regulation”) that applies to ship demolition.

EU Shipowners with vessels trading in EU waters are advised to consider whether the sale of the end-of-life vessel for demolition
complies with the Regulation. Importantly, the Regulation applies also to vessels of all flags that trade within EU waters – not just
EU-flagged vessels.

Under the Regulation ship demolition of end-of-life vessels moving in EU waters is likely to be considered as ‘waste’, which is
defined as ‘any substance or object which the holder discards or intends or is required to discard’. Shipowners should note that it is
enough for an intention to discard the end-of-life vessel to arise for the vessel to be considered ‘waste’ under the Regulation.
If the intention to discard arises when the vessel is in EU waters, it is possible that the intention to scrap the vessel will make it
‘waste’ for the purposes of the Regulation. If the end-of-life vessel leaves an EU port destined for demolition in another country, the
sale of the vessel is likely to be considered a shipment of waste; whether within the EU, exported from the EU to a third country, in
transit through the EU to a third country, or imported into an EU state from a third country.

Shipowners should note that under the Regulation, the shipment of waste for disposal is prohibited from EU countries to non-EU, and
non-OECD countries. The shipment of hazardous waste for recovery from the EU to non-EU and non-OECD countries is also
prohibited.

There may be the possibility that the end-of-life vessel is a ‘green-listed’ vessel destined for recovery. If it is destined for recovery in
an OECD country, it will be subject to the written notification and consent procedure under the Regulation. If the vessel is ‘greenlisted’
waste destined for recovery to a non-OECD country, such as India, Pakistan or Bangladesh, it is important to check whether
such countries have notified their position with the EU authorities as to the requirements of the import of such waste.

EU Shipowners with vessels trading in EU waters should therefore be aware that sales of vessels for demolition in a non-OECD
country may be considered as shipment of waste for disposal, and therefore be prohibited by the Regulation. The decision of the
Rotterdam court makes it clear that if a vessel is sold for demolition in a non-OECD country in breach of the Regulation criminal
liability including fines and possible imprisonment for the directors making those decisions may follow.

Ship Recycling Regulation

While the Hong Kong Convention is not yet in force, the EU has adopted the “Ship Recycling Regulation”, which effectively
implements the Hong Kong Convention.

The Ship Recycling Regulation is effective, but at the time of writing is not yet applicable. The Ship Recycling Regulation applies to
vessels flying the flag of an EU Member State. Vessels flying the flag of an EU Member State may be recycled only in safe and sound
ship recycling facilities included in the European List of ship recycling facilities, which currently contains 18 shipyards, all located
within the EU. The EU has also seen applications from yards in India, Turkey, China and the US hoping to be approved and included
on the European List.

Conclusion

Recent increased national investigations into sales of end-of-life vessels for demolition in South Asian yards, and in particular the
retrospective criminal charges brought against Seatrade emphasise the need for shipowners to be extremely careful when selling ships
for demolition. In addition, a voluntary alliance of banks in northern Europe and Scandinavia has been encouraging their shipowner
clients to declare their policies on scrapping to encourage best practice of demolition of end-of-life vessels. Given banks’ reputational
risks, this may become an even more important consideration in future financings for shipowners. It is advisable for shipowners to
seek legal guidance on the laws applicable to their particular proposed sale before executing the same or face the consequences.

Please note that the information above has been provided by Reed Smith LLP.


Member Alert is published by The Swedish Club as a service to members. While the information is believed correct, the Club cannot assume responsibility for completeness or accuracy.

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