Category: Vessel-Source Pollution

AI and Civil Liability. The EU Commission’s proposed AI Liability Directive.

 Over the past three years the EU has become involved in developing legislation to deal with the operation of Artificial Intelligence (AI) in the Union. There are three strands to this legislation: the overall regulatory AI Act; the updating of the 1986 Product Liability Directive; addressing civil liability arising out of the operation of AI systems.   On 22 October 2020 the European Parliament sent a draft regulation to the Commission for a new strict liability regime for operators of AI systems. The Parliament’s proposal was followed on 28 September 2022 by the European Commission’s proposal for the AI Liability Directive along with a proposed updating of the 1986 Product Liability Directive. This blog pointed out that the proposed Regulation could lead to a confusing overlap with maritime strict liability regimes in the context of vessels at MASS 3 and 4.

Unlike the Parliament’s proposal of October 2020, the Commission’s proposal is framed as a Directive, and contains no substantive rules regarding liability arising out of use of an AI system.   Instead, the proposed Directive applies to non-contractual fault-based civil law claims for damages, in cases where the damage caused by an AI system occurs after the end of the transposition period, but the Directive lays down two sets of common rules.

First, Article 3 deals with the disclosure of evidence on high-risk artificial intelligence (AI) systems to enable a claimant to substantiate a non-contractual fault-based civil law claim for damages. 

Second, Article 4 deals with the burden of proof in establishing causality in non-contractual fault-based civil law claims brought before national courts for damages caused by an AI system. For the presumption of causality to apply, the fault of the defendant should be established as a human act or omission which does not meet a duty of care under Union law or national law that is directly intended to protect against the damage that occurred.  It should also be necessary to establish that it can be considered reasonably likely, based on the circumstances of the case, that the fault has influenced the output produced by the AI system or the failure of the AI system to produce an output and the claimant should still be required to prove that the output or failure to produce an output gave rise to the damage.

However, fault still has to be proved under the applicable Union or national laws, although fault can be established in respect of non-compliance with Union rules which specifically regulate high-risk AI systems. It is likely that in the future such rules will apply to vessels at MASS 3 and 4 for entry into ports and the territorial sea of Member States. The Directive does not affect rules of Union law regulating conditions of liability in the field of transport. With maritime transport the only such rules of Union law concerning fault based civil law claims would be Directive 2009/20/EC on the insurance of shipowners for maritime claims.  

Art 5  provides for the Commission to submit a report to the Parliament, the Council, and the Economic and Social Committee, assessing the Directive’s achievement five years after its transposition.  In particular, that review should examine whether there is a need to create no-fault liability rules for claims against the operator combined with a mandatory insurance for the operation of certain AI systems, as suggested by the European Parliament resolution of 20 October 2020 on a civil liability regime for artificial intelligence.  

The restriction to fault-based liability regimes means that, in relation to MASS 3 and 4 vessels operating with the territory of the Union, the proposed Directive will have no application to the two current strict liability pollution regimes, the CLC and the Bunkers Convention, and will have no application to the HNS regime when it eventually comes into force. It will, though, have application in the Member States to fault based tort claims such as general pollution claims and collision claims, as regards the rebuttable presumption of a causal link in the case of fault provided for in Art 4, and almost certainly as regards the evidential provisions in Art 3 if MASS 3 and 4 vessels are eventually classified as ‘high risk’.  

The proposed Directive now has to go back to the Parliament and the Council, and may well be subject to amendment. The European Economic and Social Committee (EESC) adopted an opinion on the proposal on 25 January 2023 broadly welcoming the proposal but insisting  upon clear legal definitions, calling upon the Commission to closely monitor the development of financial guarantees or insurance covering AI liability and recommending the Directive be reviewed three years after entry into force.

Greenhouse gas emissions and international shipping. IMO sets new reduction targets.

At MEPC 80 on Friday 7 July the IMO revised its 2018 GHG reduction targets for international shipping with a new target for international shipping reaching ‘net zero’ close to 2050 and indicative checkpoints of a cut in total greenhouse gas emissions of at least 20% by 2030, but ‘striving’ to reach cuts of 30% by then, and 70% in 2040 but ‘striving’ for 80%.  GHG emissions are now to be calculated on a ‘well to wake’ basis. There is also a target that at least 5% of the energy used for international shipping by 2030 should be zero carbon, or near zero carbon, but ‘striving’ to reach 10% by then. There is no change to the 2018 target of reducing the carbon intensity (emissions produced per cargo and distance travelled) of international shipping by 40% by 2030, compared with 2008 levels.   The IMO has set a deadline of 2025 for the development of mid-term measures to support its GHG strategy, with them to come into effect in 2027.

No decision was made on the proposed carbon levy, but the proposal lives on for future discussion. Discussion on the application of on-board carbon capture and storage or utilization, has been postponed to the next intersessional meeting of the Working Group on GHG reductions.

Shipping and Emissions Trading Schemes. Latest from the EU and the UK.

The EU’s inclusion of shipping in the ETS comes into effect on 1 January under DIRECTIVE (EU) 2023/959 of 10 May 2023. The amended directive will also affect the position of storage of captured emissions from a registered emitter. Previously, a registered emitter was under no obligation to surrender allowances in respect of emissions which are verified as captured and transported by pipeline to a storage facility, authorised in accordance with the CCS Directive. The amended ETS Directive now removes the previous requirement that CCS had to be transported by pipeline to a storage facility. The reference to CCS in the table to Annex I to Directive 2003/87/EC is amended so as to read “Transport of greenhouse gases for geological storage in a storage site permitted under Directive 2009/31/EC, with the exclusion of those emissions covered by another activity under this Directive.”

This is amplified by article 69 of the Preamble which states:

 “As CO2 is also expected to be transported by means other than pipelines, such as by ship and by truck, the current coverage in Annex I to Directive 2003/87/EC for transport of greenhouse gases for the purpose of storage should be extended to all means of transport for reasons of equal treatment and irrespective of whether the means of transport are covered by the EU ETS. Where the emissions from the transport are also covered by another activity under Directive 2003/87/EC, the emissions should be accounted for under that other activity to prevent double counting.”

This means that captured carbon from a registered emitter can now be transported a permitted storage facility by ship without the emitter being obliged to surrender allowances in respect of its captured emissions.

As for the UK and its ETS scheme, on Monday 3 July the UK government announced that: domestic shipping for vessels above 5000 grt will be required to participate in the UK’s Emissions Trading Scheme starting in 2026.

The government would also: expand the existing scope of the scheme to create a level playing field between operators who use pipeline and non-pipeline modes of transportation of CO2, working with key regulatory partners to establish how Non-Pipeline Transport (NPT) should best be integrated into the existing UK ETS framework; and  review its policy of expanding the UK ETS to methane emissions from upstream oil and gas and other traded sectors.

It’s now Official. Shipping and the ETS.

On 16 May 2023 the Official Journal published Directive 2023/959, amending the 2003 ETS Directive, and Regulation 2023/957 amending the 2015 MRV Regulation. Shipping will enter the ETS as from 1 January 2024 as regards CO2 emissions, and from 1 January 2026 as regards emissions from two other greenhouse gases, Methane and Nitrous Oxide. The reporting obligations under the MRV will be extended from CO2 to these other two greenhouses gases as from1 January 2024. The emissions in both measures will be calculated on a tank to wake basis rather than on a wake to wake basis.

The amended ETS Directive

Vessels over 5000 gross tonnage for transporting for commercial purposes cargo or passengers will come within the scope of the EU ETS as from 1 January 2024, with a phased introduction of obligations for the shipping company to surrender each year 100% of allowances for verified CO2 emissions for intra-EU voyages within the ETS and emissions occurring at berth in an EU port, and 50% of verified CO2 emissions for extra-EU voyages from and to a port within the jurisdiction of a Member State. The phase-in means that 40% (20% for extra-EU voyages) allowances will need to be surrendered for calendar year 2024, 70% for 2025 (35%) and 100% (50% for extra-EU voyages) for 2026 and onwards. There will be no free allocation of allowances to shipping companies, which are defined as the shipowner, or the bareboat charterer or ship manager, that has assumed the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the IMO’s ISM Code.

 Emissions are calculated on a tank to wake basis as defined in amended Article 3 ‘(b)“emissions” means the release of greenhouse gases… from ships performing a maritime transport activity listed in Annex I of the gases specified in respect of that activity”. Offshore vessels of 5000 gross tonnage and above will be included in the ETS from 2027. There will be a review in 2026 of whether to included general cargo vessels and off-shore vessels between 400-5000 gross tonnage in the ETS.

The amended MRV Regulation

The 2015 MRV Regulation sees the following changes. As from 1 January 2024 the Regulation will apply to greenhouse gas emissions, CO2, Methane and Nitrous Oxide, from vessels of 5000 gross tonnage and above transporting for commercial purposes cargo or passengers on voyages from a port of call in the EU to their next port of call and from their last port of call to a port of call in a State in the EU as well as to intra EU voyages.

Three months from adoption on 5 June 2023, an updated ship monitoring plan which shall describe the method for monitoring and reporting of Methane and Nitrous Oxide must be verified by an accredited verifier and submitted to the administrating authority of the company. Greenhouse gas emissions are reported on a tank to wake basis. Offshore vessels of 5000 gross tonnage and above will be included in the ‘MRV’ Regulation from 1 January 2025, as will general cargo vessels and off-shore vessels between 400-5000 gross tonnage.

And then there is the FuelEU Maritime Regulation which is nearing the conclusion of its legislative journey. On 23 March  2023 the European Parliament and the Council agreed on the amendments to the Commissions 2021 proposed FuelEU Maritime Regulation and in the European Parliament, the Committee on transport and tourism (TRAN) approved the provisional agreement on 24 May 2023. The new rules will be published in the Official Journal of the European Union and enter into force 20 days after publication, with the Regulation to apply from 1 January 2025.

FuelEU Maritime sets maximum limits on the yearly greenhouse gas intensity of the energy used by a ship, with targets will becoming increasingly ambitious over time to stimulate and reflect the expected developments in technology and the increased production of renewable and low-carbon fuels. The Regulation applies to commercial vessels of 5000 gross tonnes and above, regardless of flag, with exemptions for naval vessels, fishing vessels, ships using non-mechanical propulsion. It covers all energy used on board when the ship is at port in the EU or EEA , all energy used by the ship on voyages between EU or EEA ports and 50% of the energy used on voyages departing from or arriving at an EU or EEA port. The schedule of reduction from a 2020 baseline is: -2% from 2025; -6% from 2030; -14.5% from 2035;-31% from 2040; -62% from 2045; -80% from 2050.

Emissions are calculated on a wake to wake basis, rather than the tank to wake basis in the amended ETS Directive and the amend MRV Regulation. The targets cover not only CO2, but also Methane (CH4) and Nitrous Oxide (N2O).

A podcast on the implications for Shipping of the EU’s ‘Fit for 55’ agenda can be found at

https://podcasts.apple.com/gb/podcast/the-ship-energy-podcast/id1567271142

Accrual of claim for purposes of six year tort limitation period. Offshore oil spill not a conintuing nuisance.


The Supreme Court has recently given judgment in Jalla and another (Appellants) v Shell International Trading and Shipping Co Ltd and another (Respondents) [2023] UKSC 16.

The case involved two Nigerian citizens who sued two companies within the Shell group in private nuisance in respect of damage to their land alleged to have resulted from an oil leak on 20 December 2011 lasting six hours during a cargo operation in the Bonga oil field, approximately 120km off the coast of Nigeria. An estimated equivalent of at least 40,000 barrels of crude oil leaked into the ocean. The defendants are alleged to be liable for the operation behind the Bonga Spill.

The appeal concerned the application of the limitation period for torts, which is usually six year, in respect of the claims for private nuisance. The claimants issued their claim form on 13 December 2017, just under six years after the spill occurred on 20 December 2011. In April 2018, over six years after the spill, the claimants purported to amend their claim form including changing one of the parties being sued from Shell International Ltd (a company which they had initially sued) to STASCO. In April, June and October 2019, they issued a series of applications to amend their claim form and particulars of claim. The claimants argue that so long as undue interference with their land is continuing, because oil on their land has not been removed or cleaned up, there is a continuing cause of action for the tort of private nuisance that is accruing afresh from day to day.

At first instance it was declared that declared that the nuisance as alleged by the Claimants in their original Particulars of Claim and/or their draft Amended Particulars of Claim and on the evidence before the Court at the hearings in September and October 2019 could not constitute a continuing nuisance and that accordingly the limitation period should not be extended by reference to the concept of a continuing nuisance. This was upheld by the Court of Appeal who found that the judge had been correct to decide that the claimants’ cause of action accrued when the oil struck their land. The Supreme Court have now unanimously rejected the appeal on the issue of whether there was a continuing nuisance.

For the purposes of the appeal it was it was assumed that some quantity of oil reached the Nigerian Atlantic shoreline within weeks of 20 December 2011 and that the tort of private nuisance may be committed where the nuisance emanates from the sea or is a single one-off event. The tort of private nuisance is committed where the defendant’s activity, or a state of affairs for which the defendant is responsible, unduly interferes with (or, as it has commonly been expressed, causes a substantial and unreasonable interference with) the use and enjoyment of the claimant’s land and is actionable only on proof of damage which is satisfied by establishing the undue interference with the use and enjoyment of the land.

A continuing nuisance is in principle no different from any other continuing tort or civil wrong and is one where, outside the claimant’s land and usually on the defendant’s land, there is repeated activity by the defendant or an ongoing state of affairs for which the defendant is responsible which causes continuing undue interference with the use and enjoyment of the claimant’s land. The cause of action therefore accrues afresh on a continuing basis.

However on the assumed facts of this case, that oil is still present on their land and has not been removed or cleaned up, there was no continuing nuisance. This is because outside the claimant’s land, there was no repeated activity by the defendants or an ongoing state of affairs for which the defendants were responsible that was causing continuing undue interference with the use and enjoyment of the claimants’ land. The leak was a one-off event or an isolated escape. The cause of action accrued and was complete once the claimants’ land had been affected by the oil. Accepting the claimants’ submission would be to extend the running of the limitation period indefinitely until the land is restored.

EU The ‘Fit for 55” package and shipping. It’s getting closer.

The EU’s ‘Fit for 55’ package, aimed at achieving a 55% reduction of greenhouse gases within the Union by 2030 over a 1990 baseline, was first published on 14 July 2021. Three proposed pieces of legislation will have an impact of shipping trading into and out of ports in an EU Member State and are coming very close to adoption.

1. Inclusion of shipping in the Emissions Trading Scheme. The Commission’s initial proposal included in the “Fit for 55” package was subject to amendments, on which a preliminary agreement was reached by the Council and Parliament on 18 December 2022, https://iistl.blog/2022/12/29/shipping-and-the-eu-emissions-trading-scheme-its-going-to-cost-you-from-2024-onwards/, with full publication of the amended Directive on 8 February 2023 https://iistl.blog/?s=Emissions+Trading.

On 18 April 2023, the legislative proposals were approved by the European Parliament, and on 25 April 2023 they were adopted by the Council. Once the new provisions are published in the Official Journal of the European Union, they will become law. The ETS will then apply to Shipping as from 1 January 2024.

2. FuelEU Maritime Regulation

The Commission proposed a Regulation mandating cuts from 2025 to 2050 to GHG intensity of energy used on board ships calling at ports within Member States of the European Union. The TRAN committee adopted the draft report of the TRAN rapporteur on the proposal on 3 October 2022. While keeping the Commission’s proposed cuts for 2025 and 2030, the report introduced higher cuts to GHG intensity of energy used on board ships than proposed by the Commission from 2035 onwards – 20% as of 2035, 38 % from 2040, 64 % as of 2045 and 80% as of 2050. It also introduces a target of 2% for the use of renewable fuels of non-biological origin from 2030. A dedicated Ocean Fund should be established to improve the energy efficiency of ships and support investment aimed at helping decarbonise maritime transport. Parliament adopted the report in Plenary on 19 October 2022.

On 23 March 2023, Parliament and Council reached a provisional agreement on the text of the new rules, which now needs to be formally approved by both institutions. https://iistl.blog/wp-admin/post.php?post=8318&action=edit

3. Regulation for the deployment of alternative fuels infrastructure (AFIR).

Maritime ports that see at least 50 port calls by large passenger vessels, or 100 port calls by container vessels, must provide shore-side electricity for such vessels by 2030. The amended AFIR is now consistent with the provisions in the FuelMaritime EU Regulation on shore-side electricity.

On 28 March 2023 the European Council and the European Parliament came to a provisional political agreement on the AFIR and is subject to formal approval by the two co-legislators.

What’s coming in 2023?

What’s coming in 2023?

Nearly two weeks into the New Year and the IISTL’s version of ‘Old Moore’s Almanack’ looks ahead to what 2023 is going to have in store us.

Brexit. EU Retained EU Law (Revocation and Reform) Bill will kick in at end of the year. It will be a major surprise if the two Conflicts Regulations, Rome I and Rome 2 aren’t retained, but not the Port Services Regulation.

Ebury Partners Belgium SA/NV v Technical Touch BV, Jan Berthels [2022] EWHC 2927 (Comm) is another recent decision in which an ASI has been granted to restrain proceedings in an EU Member State (Belgium) in respect of a contract subject to English jurisdiction.

Electronic bills of lading. Electronic Trade Documents Bill. Likely to become law in 2023 and to come into effect two months after getting Royal Assent. The Law Commission will publish a consultation paper “Digital assets: which law, which court?” dealing with conflicts of law issues in the second half of 2023.

Autonomous vessels. The Department for Transport consultation on MASS and possible amendments to the Merchant Shipping Act 1995 closed in November 2021. Maybe some results in 2023?

Supreme Court cases

Okpabi v Royal Dutch Shell. The case may well go to trial in 2023, although in May 2022 the High Court EWHC 989 (TCC), held it was premature to grant a  Group Litigation Order and directed that each individual claimant should specify additional details to formulate a proper cause of action for the defendants to respond to.

In similar proceedings in the Netherlands in which the Court of Appeal in the Hague gave judgment in January 2021 relating to multiple oil pipeline leaks in the Niger Delta, it was announced just before Christmas 2022 that Shell will pay 15 million euros ($15.9 million) to the affected communities in Nigeria in full and final settlement on a basis of no admission of liability.

The Eternal Bliss appeal to the Supreme Court is likely to be heard in 2023, with possibility of judgment given in 2023.

But there must be a question mark over London Steam-ship Owners’ Mutual Insurance Association Ltd (Respondent) v Kingdom of Spain (Appellant), Case ID: Case ID 2022/0062 where it is stated “This appeal has been adjourned by request of the parties.”

Climate Change

IMO  Two measures aimed at reducing shipping’s contribution to GHG emissions,   EEXI and Cii, both came into force as from 1 January 2023 and will be in the forefront of the minds of those negotiating new time charters.

EU. Shipping is likely to come into the ETS system with the amendments to the 2003 ETS Directive with phasing in from 1 January 2024. Here and here.

BIMCO has produced time charter clauses to deal with all three of these measures.

Ewan McGaughey et al v. Universities Superannuation Scheme Limited is a case involving whether the investments in fossil fuels by a large pension fund in the UK breach the directors’ fiduciary duties and duties towards contributors of the pension fund. On 24 May 2022, the High Court refused permission to bring a derivative action against USSL, but the Court of Appeal gave permission to appeal in October 2022, so a hearing in 2023 is “on the cards”.

European Union

On 15 July 2022, the EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities came into force on 4 August 2022 and has applied from 1 January 2023. A legal challenge against the Commission before the CJEU by various NGOs and two member states, Austria and/or Luxembourg has been threatened in connection for the inclusion of nuclear energy and natural gas in the Delegated Act. Climate mitigation and adaptation criteria for maritime shipping, were included in the EU Taxonomy Climate Delegated Act adopted in April 2021.

Previous requests from other NGOs asking the Commission to carry out an internal review of the inclusion of certain forestry and bioenergy activities in the EU green taxonomy had already been rejected by the Commission in 2022.

The Corporate sustainability reporting directive came into effect on 16 Dec, 2022

For EU companies already required to prepare a non-financial information statement, the CSRD is effective for periods commencing on or after 1 January 2024. Large UK and other non-EU companies listed on an EU regulated market (i.e. those meeting two of the three following criteria: more than €20 million total assets, more than €40 million net turnover and more than 250 employees) will be subject to the CSRD requirements for periods commencing on or after 1 January 2025. 

UK and other non-EU companies that are not listed in the EU but which have substantial activity in the EU will be subject to the CSRD for periods commencing on or after 1 January 2028.

Finally, a very happy 2023 to all our readers.

Shipping and the EU Emissions Trading Scheme. It’s going to cost you from 2024 onwards.

Over the last two years the proposed inclusion of shipping in the Emissions Trading Scheme has bounced around the organs of the EU in the trilogue procedure. The EU  Parliament’s initial proposal of 16 September 2020 was to amend  the MRV Regulation 2015/757 and to include ships of 5000 grt and over in the ETS for all voyages into and out of a port in the EU including from and to ports outside the EU, starting on 1 January 2022. The shipowner, demise charterer, and time charterer would all be responsible under the ETS for the costs of acquiring ETS allowances.

The Commission responded on 14 July 2021 https://iistl.blog/2021/07/14/bastille-day-eu-commissions-present-to-the-shipping-industry/with a proposal to amend the 2003/87/EC directive establishing the Emissions Trading Scheme (‘ETS Directive’) so as to include maritime transport within the ETS but with only 50%  cost for CO2 emissions on a voyage from or  port outside the EU to one in EU, and to a voyage from the EU to a port outside the EU. There would be a phase in period between 2023 and 2026 for surrender of allowances. Only the shipowner and demise charterer would be responsible for allowances.

The Parliament made various counter amendments in June 2022 as did the Council, noted in here  https://iistl.blog/2022/07/06/eu-inclusion-of-shipping-in-the-ets-latest-developments/.

On 18 December 2022, hopefully before the World Cup Final took place, the Parliament and Council made a provisional agreement as outlined in the press release quoted below. The text of the agreement has yet to be released but the press release quoted below indicates agreed amendments to the Commission’s proposed amending of the ETS Directive.

“EU ETS maritime

The Council and Parliament agreed to include maritime shipping emissions within the scope of the EU ETS. They agreed on a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026.

Most large vessels will be included in the scope of the EU ETS from the start. Big offshore vessels of 5000 gross tonnage and above will be included in the ‘MRV’ on the monitoring, reporting and verification of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore vessels between 400-5 000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed in 2026.

In addition, the agreement takes into account geographical specificities and proposes transitional measures for small islands, ice class ships and journeys relating to outermost regions and public service obligations and strengthens measures to combat the risk of evasion in the maritime sector.

Certain member states with a relatively high number of shipping companies will in addition receive 3.5% of the ceiling of the auctioned allowances to be distributed among them.

The co-legislators agreed to include non-CO2 emissions (methane and N2O) in the MRV regulation from 2024 and in the EU ETS from 2026.”

www.consilium.europa.eu/en/press/press-releases/2022/12/18/fit-for-55-council-and-parliament-reach-provisional-deal-on-eu-emissions-trading-system-and-the-social-climate-fund/

It now looks clear that shipping is going to be brought into the EU’s ETS in just over a year’s time. This will entail added costs to voyages into and out of the EU which will fall on owners and bareboat charterers. It should be noted that, although the UK has established its own ETS, this does not currently include shipping.

An example of these coming ETS costs was given by Safety4Sea in late September 2022, https://safety4sea.com/prepare-for-higher-shipping-costs-but-the-eu-ets-should-be-a-manageable-change/, who posited the example of a voyage from Brazil to Rotterdam, using a carbon credit price of $85 per metric tonne of carbon emitted, a similar figure to the current price of $85.20 per m/t. The example has been updated in line with the recently agreed phase-in period.

The example takes a Capesize dry bulk voyage carrying iron ore from Ponta da Madeira in Brazil to Rotterdam (4,100 nm). Assuming a Capesize speed of 14 knots this would take around 12 days: at 62 tonnes per day this corresponds to 744 tonnes of fuel consumed, emitting 2,300 tonnes of CO2. As the voyage starts outside Europe, only half of the emissions qualify for allowances – 1,150 tonnes.

40% of this will need to be covered for 2024– 460 tonnes. Therefore, at a carbon  credit price on 13 December 2022 of just over EUR 85/mt of carbon emitted, the total cost for the carbon allowance would be EUR 39,100, plus a small addition for consumption in port. This compares with a fuel cost for the voyage of around EUR 520,000 (equivalent to 8%).

But two years later, in 2026, the cost for the carbon allowance would rise to 100% almost EUR 100,000 – equivalent to 20% of the total fuel bill for the voyage

For voyage charters to and from the EU, these costs will likely be reflected in increased freight rates for voyages in and out and within the EU. For time charters, although charterers bear the cost of bunkering the vessel during the currency of the charter, that does not mean that owners will be able to recover the costs of ETS allowances from them. Assuming that the EU is a permitted trading area, there is no mechanism for owners under the standard form time charters by which to recover these additional costs. The express or implied indemnity will not work, as these costs will be regarded as the natural costs of trading, as was the case in The Dimitris L [2012] EWHC 2339; [2012] 2 Lloyd’s Rep. 354, where the time charterers’ orders to proceed to the United States did not entitle the owners to be indemnified against the cost of U.S. Gross Transportation Tax.

However, specific clauses may be developed to deal with the apportionment of ETS costs. One such clause was is BIMCO’s Emissions Trading Scheme Agreement for Time Charterparties released on 31 May 2022.

The clause, which is not limited to the EU ETS, provides a mechanism for making the time charterer responsible for providing and paying for emission allowances with both parties cooperating and exchanging data necessary to facilitate compliance with any applicable ETS scheme and to calculate the amount of allowances that need to be surrendered for the period of the charterparty.

While the vessel is off-hire the charterers have the right to offset any allowances due or to require owners to return a quantity of emission allowances equivalent to that for which the charterers would have been responsible for this period had the vessel been on hire.

If charterers fail to transfer any emission allowances in accordance with the provisions in the clause, owners may suspend performance of all or any of their obligations, on giving charterers five days notice, until the time owners receive the emissions allowances in full. During this period of suspension the vessel is to remain on hire and owners are to have no responsibility whatsoever for any consequences arising out of the valid exercise of this right. The right of suspension is without prejudice to any other rights or claims owners may have against charterers under the charterparty.

Unlike many BIMCO clauses, there is no provision for the incorporation into any bills of lading or waybills issued under the charter. This makes sense as ensuring the time charterers bear the financial consequences of acquiring ETS allowances required during the currency of the charter will not directly impact on third party holders of bills of transport documents. This may happen, though, with delay due to owners operating their rights to suspend services under the clause in which case owners would be able to pass on to charterers any resulting liabilities incurred to such third parties.

The Prestige case. Victory for Spain in the CJEU.

Back in March we noted the reference to the CJEU of three questions regarding the application of Article 34 in the London P&I Club’s appeal against the recognition of the Spanish judgment against it in The Prestige case. https://iistl.blog/2022/03/25/the-prestige-20-years-on-cjeu-reference-may-be-withdrawn-at-last-gasp/

The High Court stayed proceedings and referred three questions to the CJEU for a preliminary ruling:

1. Is a judgment granted pursuant to s.66 of the Arbitration Act 1996 capable of constituting a relevant “judgment” of the Member State in which recognition is sought for the purposes of Article 34(3)?

2. Is a judgment falling outside the material scope of Regulation No 44/2001 by reason of the Article 1(2)(d) arbitration exception, capable of constituting a relevant “judgment” of the Member State in which recognition is sought for the purposes of Article 34(3)?

3. If Article 34(3) does not apply, can Art 34(1) be relied on as a ground of refusing recognition and enforcement of a judgment of another Member State as being contrary to domestic public policy on the grounds that it would violate the principle of res judicata by reason of a prior domestic arbitration award or a prior judgment entered in the terms of the award granted by the court of the Member State in which recognition is sought?

The Court of Appeal set aside the Judge’s order referring the questions to the CJEU. However, only the referring judge has jurisdiction to withdraw the reference. The Court of Appeal referred to Butcher J, pursuant to CPR 52.20(2)(b), the question of whether, in the light its judgment, he should withdraw the reference he made to the CJEU on 21 December 2020.

  The reference was not withdrawn and on Monday the CJEU gave its decision on the three questions referred [2022] EUECJ C-700/20.

The answer to the first two questions is that Article 34(3) of Regulation No 44/2001 must be interpreted as meaning that a judgment entered by a court of a Member State in the terms of an arbitral award does not constitute a ‘judgment’, within the meaning of that provision, where a judicial decision resulting in an outcome equivalent to the outcome of that award could not have been adopted by a court of that Member State without infringing the provisions and the fundamental objectives of that regulation.

The infringement would be two fold. First, as regards the relative effect of an arbitration clause included in an insurance contract which does not extend to claims against a victim of insured damage who bring a direct action against the insurer, in tort, delict or quasi-delict, before the courts for the place where the harmful event occurred or before the courts for the place where the victim is domiciled (as per the CJEU judgment of 13 July 2017 in Assens Havn, C 368/16, EU:C:2017:546).

Second, as regards the rules on lis pendens in Article 27 which favour the court first seised where there are parallel proceedings between the same parties, and does not require effective participation in the proceedings in question. The proceedings in Spain and in England involved the same parties and the same cause of action, and the proceedings were already pending in Spain on 16 January 2012 when the arbitration proceedings were commenced. It is for the court seised with a view to entering a judgment in the terms of an arbitral award to verify that the provisions and fundamental objectives of Regulation No 44/2001 have been complied with, in order to prevent a circumvention of those provisions and objectives, such as a circumvention consisting in the completion of arbitration proceedings in disregard of both the relative effect of an arbitration clause included in an insurance contract and the rules on lis pendens laid down in Article 27 of that regulation. No such verification took place before either the High Court or the Court of Appeal and neither court made a reference to the CJEU for a preliminary ruling under Article 267 of the CJEU.

The answer to the third question is that Article 34(1) of Regulation No 44/2001 must be interpreted as meaning that, in the event that Article 34(3) of that regulation does not apply to a judgment entered in the terms of an arbitral award, the recognition or enforcement of a judgment from another Member State cannot be refused as being contrary to public policy on the ground that it would disregard the force of res judicata acquired by the judgment entered in the terms of an arbitral award.

The Prestige, 20 years on. CJEU reference may be withdrawn at last gasp.

The London Steam-Ship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain M/T “PRESTIGE” (No. 5) [2022] EWCA Civ 238 (01 March 2022),  concerns a reference to the CJEU by Butcher J, arising out of the longstanding litigation between Spain and the owners’ P&I Club in connection with the Prestige oil spill in 2002. The Club had appealed against an order registering the judgment of the Spanish Supreme Court on 28 May 2019. The appeal was fixed for a two-week trial from 2 December 2020 to determine (i) as a matter of law, whether the judgment entered by Hamblen J constituted a judgment within the meaning of Article 34(3) and, if not, whether that judgment and the arbitration award (and the res judicata to which they give rise as a matter of English law) could be relied upon and (ii) as a matter of fact and law, whether the Spanish Proceedings had breached the human rights of the defendants, including the Club.

Spain made an application seeking the reference of six questions to the CJEU (later adding a seventh) and invited  Butcher J to determine that application at the hearing of the appeal in order to be in a position to lodge any request with the CJEU before “the Brexit cut off”  with the end of the Implementation Period on 31 December 2020. On 21 December 2020 Butcher J then referred three issues to the CJEU.

“(1) Given the nature of the issues which the national court is required to determine in deciding whether to enter judgment in the terms of an award under Section 66 of the Arbitration Act 1996, is a judgment granted pursuant to that provision capable of constituting a relevant “judgment” of the Member State in which recognition is sought for the purposes of Article 34(3) of EC Regulation No 44/2001?

(2)  Given that a judgment entered in the terms of an award, such as a judgment under Section 66 of the Arbitration Act 1996, is a judgment falling outside the material scope of Regulation No 44/2001 by reason of the Article 1(2)(d) arbitration exception, is such a judgment capable of constituting a relevant “judgment” of the Member State in which recognition is sought for the purposes of Article 34(3) of the Regulation?

(3)  On the hypothesis that Article 34(3) of Regulation No 44/2001 does not apply, if recognition and enforcement of a judgment of another Member State would be contrary to domestic public policy on the grounds that it would violate the principle of res judicata by reason of a prior domestic arbitration award or a prior judgment entered in the terms of the award granted by the court of the Member State in which recognition is sought, is it permissible to rely on 34(1) of Regulation No 44/2001 as a ground of refusing recognition or enforcement or do Articles 34(3) and (4) of the Regulation provide the exhaustive grounds by which res judicata and/or irreconcilability can prevent recognition and enforcement of a Regulation judgment?”

At the time of making the reference Butcher J had not decided the Club’s human rights argument. That was decided against the Club in May 2021, after the end of the Implementation Period, and could not be referred to the CJEU. The reference, C-700/20, was heard by the CJEU on 31 January 2022 and the opinion of the Advocate General is expected on 5 May 2022, with the judgment of the CJEU to be delivered at any time thereafter.

The Club appealed the decision of Butcher J, and on 1 March 2022 the Court of Appeal held that Butcher J did not have the authority to refer the questions to the CJEU. The necessity test mandated in Art 267 of 267 of the Treaty on the Functioning of the European Union would only be satisfied if the European law question is conclusive of the issue which the national court has to decide on a particular occasion in accordance with its national procedure. The judge’s discretion as to whether to make a reference only arises once the test of necessity has been satisfied.  That was not the case here as Butcher J had not decided the human rights policy issue raised by the Club. Unless and until that issue had been determined against the Club, the questions referred could not be said to be conclusive or even substantially determinative of the appeal. The questions could have been resolved entirely in Spain’s favour, yet the Club could have won on the human rights issue. Looking at previous CJEU authority in Cartesio Oktato es Szolgaltato bt (Case 210/06) [2009] Ch 354 it was clear that as a matter of national law a reference can be set aside on appeal.

The Court of Appeal allowed the appeal and set aside the Judge’s order referring the questions to the CJEU. However, only the referring judge has jurisdiction to withdraw the reference. The Court of Appeal referred to Butcher J, pursuant to CPR 52.20(2)(b), the question of whether, in the light its judgment, he should withdraw the reference he made to the CJEU on 21 December 2020. The Court of Appeal indicated that the hearing should take place as soon as possible, and in any event in time for any decision to withdraw the reference to be effective.