Bunker Compliance Clause for Time Charterparties

7 December 2018

As with all INTERTANKO clauses, the INTERTANKO Bunker Compliance Clause for Time Charterparties (hereafter referred to as the INTERTANKO Bunker Compliance Clause) is a ‘model’ clause which can be negotiated and amended to meet the particular requirements of the charterparty or trade. For example, Members may use the Clause in full or may choose to use only the sections that deal with regulatory requirements and some or all of the best practice provisions.

The INTERTANKO Bunker Compliance Clause has ‘bolt on’ transitional provisions to deal with the run up and immediate aftermath of the implementation of the 2020 ‘Global Sulphur Cap’ regime on 1 January 2020. These are divided into two, with different responsibilities assigned to Owners and Charterers should the charterparty end late-2019 or continue into 2020.

This is a lengthy INTERTANKO Model Clause in comparison to most others produced by the Documentary Committee but the Committee considered it would be of benefit to spell out the obligations of the parties to reflect the importance and enormity of the task ahead for both Owners and Charterers. It is ready for immediate use by Owners ahead of the implementation of the 0.50% Sulphur Cap on 1 January 2020 including if your fixture ends during 2019, late-2019 or going forward into 2020 and beyond. If there is any uncertainty as to the redelivery date, we recommend Owners and Charterers use the clause in full.

INTERTANKO BUNKER COMPLIANCE CLAUSE for Time Charterparties – General Provisions

1.1.    Charterers warrant that they will supply bunkers (hereafter referred to as ‘Compliant Bunkers’):

a) of sufficient quantity and quality to enable the Vessel to:

  1. comply with the global limits on sulphur content of fuel oil under Regulation 14.1 of MARPOL Annex VI (as amended from time to time) (‘MARPOL Annex VI’), including the maximum 0.50% m/m for fuel oil used on board after 1 January 2020 (‘0.50% Sulphur Cap’) 
  2. comply with the limit of 0.10% m/m on sulphur content of fuel oil within designated Emission Control Areas under Regulation 14.3-4 of MARPOL Annex VI
  3. comply with Regulation 18.3 of MARPOL Annex VI regarding quality of fuel oil supplied to the Vessel
  4. comply with Regulation 4.2.1.1. of the International Convention for Safety of Life at Sea (SOLAS) Chapter II-2 regarding a minimum flashpoint for fuel oil of 60°C
  5. comply with any other local, regional or national laws or regulations relating to the limits on sulphur content of fuel oils, bunker specification, and bunkering procedures in any areas the Vessel is ordered to and does proceed
  6. avoid non-compatibility with any bunkers previously supplied under this charterparty.

 b) in accordance with the specifications in the latest version of ISO 8217 as at the time of supply and/or any other specifications and grades contained elsewhere in this charterparty.

 c) that are fit for purpose and suitable for burning in the main and auxiliary engines of the Vessel.

 1.2.    Charterers shall further ensure that their bunker suppliers shall provide:

  1. bunker delivery note in accordance with and containing the minimum information specified in Appendix V of MARPOL Annex VI; and
  2. representative sample of the bunkers delivered in accordance with Regulation 18.8.1 of MARPOL Annex VI and the guidelines set out in IMO Resolution MEPC.182(59) and any subsequent amendment thereto.

1.3.    Where bunkers are supplied by Charterers in a place where MARPOL Annex VI is in force, Charterers warrant that any bunker suppliers shall be registered if required, and shall comply with Regulations 14 and 18 of MARPOL Annex VI, including the provisions relating to sampling and bunker delivery notes.

1.4.    Charterers shall indemnify Owners for any loss, liability, damage, fines, delay, deviation, cost or expense arising from or connected to Charterers' failure to comply with the provisions of this Clause.

2.1.    Owners warrant that provided always that Charterers have fulfilled their obligations under this Clause:

  1. the Vessel shall comply with the global limits on sulphur content of fuel oil, the limits on sulphur content of fuel oil within designated Emission Control Areas and any other applicable requirements of Regulations 14 and 18 of MARPOL Annex VI and any other local, regional or national laws or regulations relating to the limits on sulphur content of fuel oil and bunkering procedures applicable in any areas the Vessel is ordered to and does proceed.
  2. the Vessel shall be able to consume Compliant Bunkers
  3. any bunkers supplied will be kept segregated and not commingled with any previous supply until a compatibility test has been carried out
  4. they participate in a recognised fuel testing programme.

2.2.    Owners shall indemnify Charterers for any loss, liability, damage, fines, delay, cost or expense arising from or connected with Owners' failure to comply with the provisions of this Clause.

3.        Any speed and performance undertaking in this Charterparty is based on use of Compliant Bunkers. Fuel changeover periods will be excluded from any speed and performance evaluation.

Additional provisions for Vessels to be redelivered in 2019

If the Vessel will be redelivered pursuant to this charterparty between (insert date to give sufficient time for below to occur) and 31 December 2019 the following additional provisions will apply:

4.1.    Charterers warrant that on redelivery:

  1. any fuel oil used or carried for use with a sulphur content in excess of 0.50% m/m (‘High Sulphur Fuel Oil’) remaining on board will not exceed [insert amount depends on ship type/date/trade etc] MT.
  2. there will be a minimum of [insert amount depends on ship type/date/trade] fuel oil with a sulphur content at or below 0.50%m/m MT (‘Low Sulphur Fuel Oil) on board to safely reach the next bunkering port (if after 1 January 2020) at which Compliant Bunkers are available.

4.2.    Charterers to allow Owners to prepare the Vessel to receive Compliant Bunkers at Owner’s expense provided same does not interfere with Charterer’s operations.

Additional provisions for Vessels to be redelivered after 31 December 2019

If the Vessel will be redelivered pursuant to this charterparty on or after 31st December 2019, the following additional provisions shall apply:

5.      By {1 October 2019/date in Ship Implementation Plan}, Owners and Charterers shall discuss in good faith the procedure for cleaning and/or flushing the tanks with gasoil in order to prepare the Vessel to receive Compliant Bunkers.

6.      By {1 December 2019/date in Ship Implementation Plan}, Charterers shall make arrangements to Owners’ satisfaction to supply sufficient Compliant Bunkers in accordance with Clause 1 above to enable the Vessel to reach the next bunkering port after 1 January 2020 at which Compliant Bunkers are available.

7.      From {1 December 2019/date in Ship Implementation Plan} Owners may burn any Low Sulphur Fuel Oil or Marine Gas Oil on board (up to 0.50% m/m) in order to prepare the Vessel for the introduction of the 0.50% Sulphur Cap.

8.      If Charterers have failed to advise Owners of their arrangements under Clause 6 above, Owners have the right to arrange an additional supply of Compliant Bunkers between {1 December 2019/ date in Ship Implementation Plan} and 31 December 2019 at Charterers’ expense provided same does not interfere with Charterers operations and to take the steps outlined in sub-Clause 9.1 below.

9.1.    Charterers shall:

  1. prior to 1 January 2020 order preparation of bunker tanks, including cleaning or flushing with gasoil as necessary, to Owners’ satisfaction in order to receive Compliant Bunkers;
    and
  2. prior to redelivery or 1 March 2020, whichever is earlier, remove all non-Compliant Bunkers and arrange disposal of the same and any residues ashore as necessary.

All costs relating to Clause 9.1 (save as provided in 9.2 below) shall be for Charterers’ account. Vessel will remain on hire.

9.2.    If tank cleaning is required in order to receive Compliant Bunkers, it shall be carried out at a time and place to be determined by Owners and all costs shall be for Owners’ account. Vessel will be off-hire.

Commentary

INTERTANKO Bunker Compliance Clause for Time Charterparties

General Provisions

Clause 1.1. a. i-v – requires Charterers to supply bunkers that comply with the regulatory requirements under MARPOL Annex VI (sulphur and quality); SOLAS (flashpoint) and any other similar sulphur content and bunkering requirements under local, regional or national laws. Charterers are thereby required to warrant that they will comply with the same regulations that Owners will be held to account for by the local authorities, including Port State Control.

Clause 1.1. a. vi – requires Charterers to take some responsibility for compatibility of consecutive bunker supplies to the Vessel under a time charterparty. This would serve as an additional precaution to avoid issues with non-compatibility that are predicted once blended fuels are used. Charterers are not expected to avoid compatibility issues with bunkers already on board at the time of delivery.

Clause 1.1. b – requires Charterers to warrant compliance with the most current ISO 8217 standard (at the time of writing ISO 8217:2017) and any other specification or grades set out in the charterparty. In the event that ISO produces a revised standard for 2020 (ISO 8217:2020) the Clause is drafted to cover this. Note that earlier ISO 8217 standards commonly seen in charterparties will not meet the 0.50% Sulphur Cap once implemented.

Clause 1.1. c – requires Charterers to provide bunkers that are fit for purpose. Bunkers may meet all the requirements of Clause 1.1.a and b but may still cause issues for the Vessel if they contain other impurities or contaminants that have an adverse effect on the engine/auxiliaries. The Clause therefore contains a ‘back stop’ provision to cover this.

Owners may wish to add to this specific provisions e.g. the INTERTANKO Documentary Committee has seen examples of clauses where the 0.10% low sulphur marine gas oil excluded bunkering by Charterers of biofuel (DFA or equivalent) with a Fatty Acid Methyl Esters (FAME) content exceeding 1.50% by volume. These may be particular to certain Vessels or to Owners’ experiences with fuels with these characteristics. However Owners need to bear in mind that imposing on Charterers very tight parameters on specification over and above the regulatory requirements could lead to issues with availability.  

Clause 1.2. – deals with further MARPOL Annex VI requirements on bunker suppliers with regard to Bunker Delivery Notes (BDNs) and sampling. Charterers, as the contractual party with the bunker supplier, should therefore ensure that these statutory requirements are met by the bunker supplier.

Clause 1.2. a – reflects the provisions of MARPOL Annex VI Regulation 14 and 18 which require certain minimum information about each consignment of bunkers to be recorded in a BDN that must be retained on board for inspection at any time by the authorities.

Clause 1.2. b – as above this reflects the sampling requirements of MARPOL Annex VI that provide that each BDN must be accompanied by a representative MARPOL fuel sample. IMO Resolution MEPC.182 (59) (referred to in the Clause) provides best practice for sampling bunkers in order to determine compliance with MARPOL Annex VI.

Clause 1.3. – provides for Charterers to use bunker suppliers who are registered on the lists maintained by local authorities in accordance with Reg 18.9.1 of MARPOL Annex VI. A number of jurisdictions do this including Singapore and Fujairah. Parties may wish to add that the bunker supplier should be certified in accordance with an internationally recognised standard (ISO 9001 or equivalent) as a separate measure of a quality supplier.

Clause 1.4. – provides for Charterers to indemnify Owners for breach of the Clause as a whole i.e. provision of non-Compliant Bunkers as defined. The consequences of breach could include sanctions and fines for breach of MARPOL Annex VI or losses that arise from off-spec bunkers that do not meet the ISO 8217 standard or are otherwise unfit to burn. It is preferable for such terms to be explicit in the charterparty in the event of a dispute.

Clause 2. – details the warranties that will be provided by Owners to Charterers provided first that Charterers have supplied Compliant Bunkers.

Clause 2.1. a – mirrors the regulatory provisions of Clause 1.1.a i-v, so that Owners and Charterers are held to the same mandatory standards.

Clause 2.1. b – provides that the Vessel will be able to consume Compliant Bunkers. If Charterers are to be held responsible for supply of Compliant Bunkers, Owners must be required to warrant that the Vessel can burn them. As such, the Vessel will be ‘fitted for the service’, as required under most charterparties.

Clause 2.1. c – Owners warrant they will provide segregation of fresh bunkers supplied from bunkers already on board unless a compatibility test is conducted. This is best practice and will apply even if the bunkers supplied are purportedly of the same grade and specification. This will be even more important post-2020 given the uncertainty that may exist over the compatibility of the blends of fuels that may be available to meet the 0.50% Sulphur Cap.

Clause 2.1. d – many Owners participate in fuel testing programmes. This is good practice albeit not obligatory. Owners may assume this obligation formally in the charterparty. If a particular testing programme is used this could be specified in the Clause or a reference added, for example, to say fuel sample testing is carried out at ISO 17025-accredited laboratories, or equivalent.

Clause 2.2. – this indemnity will apply where Charterers have fulfilled their obligation and the fault lies with the Owners/Vessel which cannot burn the Compliant Bunkers i.e. it is not fitted for service. Owners rightly then take responsibility once Compliant Bunkers are on board. Any remedial measures then required will fall to Owners e.g. difficulties that may arise from managing and segregating different fuel supplies on board.

Clause 3. – suspends speed and performance warranties unless Compliant Bunkers are being burned and when fuel changeover is taking place, at which time the Vessel may slow down. In either case there would be a false reading if these periods were to be included.

Transitional Provisions for 2019/2020

Clauses 4. to 9. – address the issues that will arise if a Vessel is to be redelivered close to or after 1 January 2020 when the 0.50% Sulphur Cap will be implemented under MARPOL Annex VI.

Members are advised to include both sets of Additional Provisions if the redelivery date is uncertain. For example for a time charterparty that provides for ‘+/- 30/60 days’ and/or adds on any periods of off hire, redelivery could be in 2019 or fall into 2020. Again these provisions are ‘model’ and will need to be tailored for the charterparty and trade in question, in particular with reference to the Vessel’s implementation plan for 2020. 

Additional Provisions – For Vessels to be redelivered in 2019

Clause 4. – will apply where a Vessel is delivered close to the end of the 2019, to ensure that any high sulphur fuel is depleted or consumed by redelivery. In addition, Charterers must ensure that the Vessel has sufficient Compliant Bunkers on board to take it into 2020 i.e. in short it is ‘compliant ready’. Without this provision, Charterers could be free to return the Vessel with the same types and specifications of bunkers onboard at delivery, including more high sulphur fuel oil than the Vessel can burn by 1 January 2020.

The amounts inserted must be filled in in accordance with the Fuel Management Plan. The Clause includes an option for Owners to bunker Compliant Bunkers for their own account if required.

Additional Provisions – For Vessels to be redelivered after 31 December 2019

Clause 5.-9. – will apply where redelivery will be on or after 1 January 2020, the implementation of the 0.50% Sulphur Cap. Charterers will have a duty post-1 January 2020 to supply Compliant Bunkers or face liability under the indemnity provisions above. They therefore need to partner with Owners to continue the charter under Clauses 1.-3. above but under the revised regime.

Much of this involves advance planning by the parties with regard to preparation and fuel management and reference to the 2020 Ship Implementation Plan. This is a practical rather than contractual issue. Note that the IMO has now issued the Guidance on the development of a Ship Implementation Plan (SIP) for the consistent implementation of the 0.50% sulphur limit under MARPOL Annex VI as MEPC.1/Circ.878 based on the proposals submitted by industry associations, including INTERTANKO. Appendix 1 of MEPC.1/Circ.878, provides an indicative example of the SIP – see Appendix A, page xx.

Clause 5. – provides for Owners and Charterers to have an implementation plan. This could be based on MEPC.1/Circ.878. The Clause can be modelled thereafter based on the decisions made for implementation.

Clause 6. – ensures that Charterers will make arrangements for the Vessel to be ‘compliant ready’ in advance of 1 January 2020.

Clause 7. – allows the Owner to burn low sulphur bunkers prior to 1 January 2020 as part of a transitional arrangement. This could be either 0.10% Marine Gas Oil (MGO), Ultra Low Sulphur Fuel Oil (ULSFO) (used in ECAs) or 0.50% low sulphur blends. Owners may wish to keep an option open to burn 0.10% MGO unless and until the position is clearer on the supply of 0.50% low sulphur blends. This is a straightforward route to achieving compliance with MARPOL Annex VI but will of course mean higher bunker costs for Charterers. Clause 7 provides for this and can be used or deleted as appropriate. It may be amended for example to say that this only applies once HSFO is exhausted (before 1 January 2020).

Clause 8. – allows Owners to take matters into their own hands at Charterers’ expense and bunker for their own account close to 1 January 2020 as well as to take practical steps that otherwise fall to Charterers under the Clause. Use of this provision will depend on how proactive Charterers are with regard to the implementation of the 0.50% Sulphur Cap. It can therefore be included or deleted as appropriate.

Clause 9. – provides for actions to be taken by Owners and Charterers in preparation for implementation of the 0.50% Sulphur Cap and the MARPOL Annex VI High Sulphur Fuel Oil (HSFO) carriage ban on 1 March 2020, should HSFO remain on board after 1 January 2020. This will include where redelivery takes place between 1 January 2020 and 1 March 2020.

In terms of preparation, it balances liabilities and responsibilities so that Charterers will bear the time and cost of removing any HSFO still being carried post 1 January 2020. Owners will pay for any tank cleaning necessary. This is in line with general time charter requirements whereby the Owner would be responsible for necessary maintenance of the Vessel and analogous to preparation and hold cleaning of cargo tanks as necessary to receive cargo. The practical aspects of this will again be covered by the implementation plan.

In summary

The INTERTANKO Bunker Compliance Clause for Time Charterparties provides Owners and Charterers with a complete code to prepare their fixtures starting now and up to 2020 and beyond. Given the enormous difference in Vessels, trades and approach to fuel management, it is impossible to provide a ‘one size fits all’ approach. As a model clause however, it gives Owners and Charterers the flexibility to adapt its provisions to suit their purposes. Members who already have Vessels on time charter that may extend into 2019 and 2020 may wish to seek to negotiate an Addendum to those fixtures to ensure that their Vessels will be compliant ready for 1 January 2020.

These transitional Additional Provisions will fall away after 1 January 2020 and will be removed from circulation leaving Clauses 1.-3. in place to deal with supply of Compliant Bunkers going forward thereafter.

INTERTANKO’s Documentary Committee will continue to monitor the 2020 chartering issues and will keep Members advised on how they impact on time charter provisions as discussions continue at the IMO and elsewhere.

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