Ship Finance/Recycling: “From an asset to a liability…or even to “waste”?

by Grant Eldred & Robert Shearer

The legal environment surrounding ship recycling is a complicated area, involving a combination of International Treaties, EU Regulation and domestic Law. This can cause a major headache for shipowners when something that was once an asset (their ship) becomes a liability over which they may face prosecution if not handled correctly at the end of its life.

When considering recycling a vessel, a shipowner needs to bear in mind the following:

1. The main international convention in this area is the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal 1989, which is, in fact, a United Nations convention. While this does not expressly deal with ships, it sets out prohibitions on the transportation of hazardous waste, the definition of which will include many substances found on board older vessels.

2. Partly due to the fact the Basel Convention did not expressly deal with ships, a further convention, the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships 2009, was adopted by the IMO. This convention is, however, yet to enter fully into force due to a lack of ratifications (but see below). When this convention does enter into force shipowners worldwide will be required to be far more meticulous in their recycling practices.

3. At a European Union level, the Basel Convention was enacted into directly effective law by virtue of the EU Regulation nr. 1013/2006 on Shipments of Waste. The Hong Kong Convention has also partially been enacted by virtue of Regulation N° 1257/2013 on Ship Recycling. The EU Ship Recycling Regulation goes further than the Hong Kong Convention and explicitly prohibits the practice of “beaching” by requiring that recycling must be carried out in “built structures”.

4. Finally, at a domestic level in the United Kingdom, ship recycling is also governed by The Transfrontier Shipment of Waste Regulations 2007, as amended (in addition to the Regulations and Conventions listed above). This contains a wide definition of both “waste” and a “waste transporter” and so any party, which is subject to UK jurisdiction and which is involved in ship recycling in any way, may well find it is subject to its terms.

The aim of the most elements of above legislative framework is to prevent developed nations disposing of vessels at the end of their life to less developed countries in circumstances where the methods of disposal or recycling might be harmful to both life and/or the environment.

The UK Regulations are enforced by the Environment Agency, and a failure to comply with them can lead to an unlimited fine or to imprisonment for a term not exceeding two years or to both. Any party involved with the recycling of vessels (including brokers, agents and financiers as well as the owners of vessels in UK waters or flying the UK Flag) should ensure they are fully aware of the applicable liabilities and restrictions before making arrangements for the recycling of end-of-life vessels.

If you require advice in relation to the contents of this article or to discuss it further, please contact Grant Eldred or Robert Shearer on the respective email link below.

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About the contributors

  • Grant Eldred Partner

    Grant is a partner and the head of our Finance Group. He specialises in banking law including bilateral and syndicated secured and unsecured lending, trade finance and banking regulation and compliance.

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  • Robert Shearer Solicitor

    Robert works in our Shipping Department handing both wet and dry work with a particular emphasis on admiralty law.

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