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The Seatrade verdict: has scrapping just got a lot more onerous?

02.10.2018 Maritime

David Galea

David Galea Partner

The judgment of the District Court of Rotterdam in the Seatrade case in March 2018, in which a company and its two directors were found guilty of violating EU Regulation No. 1013/2006 of 14 June 2006 on shipments of waste (“EWSR”), has potentially wide-reaching implications for ship-owners based in Europe and beyond who are considering scrapping their vessels.

The background facts

In 2012, Seatrade sold four reefer vessels for scrapping. The vessels sailed from the ports of Rotterdam and Hamburg to India, Bangladesh and Turkey, where they were beached then scrapped. Three out of the four ships carried cargo en route to their destinations.

The Dutch public prosecutor charged the directors of Seatrade with violations of EWSR.

Seatrade defended the charges on the following grounds (amongst others):

>  that EWSR does not apply to the recycling of operational ships;

>  alternatively, that ships cannot be classified as waste under EWSR;

>  alternatively, if ships can be classified as waste in principle, certain factors should go into this decision, which were not present in this case; and

>  that there was no hazardous waste.

The Rotterdam District Court decision

The Court examined the internal email exchanges, as well as exchanges between the accused and the shipbrokers prior to and during the last voyages of the ships, which established that it had been the intention from the very beginning to sell the vessels for scrap. The Court rejected the argument that an operational ship could not be regarded as waste and found that “waste” is defined in the EU legislation as “any substance or object which the holder discards or intends or is required to discard.” The Court further found that all the circumstances of the case must be taken into account when assessing whether the holder of an object actually intended to discard it (which, in this case, it did) and that the term “discard” cannot be interpreted restrictively.

In the Court’s view, at the time that the ships left the ports of Rotterdam and Hamburg, they were within the meaning of waste under the EWSR. The Court emphasised that the fact that three of the ships were still in commercial service and carried a cargo during part of the voyage to their final destination did not affect this conclusion.

The Court also found that EWSR applies to ships as follows from EWSR’s recital 35, which states the need to ensure safe and environmentally friendly ship dismantling. Furthermore, having examined the exceptions to the scope of EWSR found in Article 1, the Court concluded that none of these exceptions applied in this case. The Court concluded that the ships were a combination of non-hazardous and hazardous waste and must, therefore, be regarded as hazardous waste.

The decision highlighted the interaction between EWSR and the EU Regulation No. 1257/2013 on ship recycling (“Recycling Regulation”). The Recycling Regulation clarifies that transboundary movement for the purpose of recycling ships is regulated by the Basel Convention on the Control of the Transboundary Movements of Hazardous Wastes and their Disposal and the EWSR, except for ships falling under the scope of the Recycling Regulation as defined in Article 2 of that Regulation.

Comment

In accordance with the Recycling Regulation, as of 31 December 2018 seagoing vessels flying the flag of an EU member state must be recycled at a recycling facility that meets the requirements set out in the Regulation. In December 2016, the EU adopted the list of approved ship recycling facilities, which was updated on 4 May 2018. As at September 2018, the list does not include any non-European yards. The EWSR will continue to apply to non-EU flagged vessels.

The Seatrade case demonstrates that the practice of selling vessels to buyers who then re-flag the vessels and scrap them may not help ship-owners avoid liability. There is reason to believe that law enforcement authorities across the EU may take a similar approach to that of the Rotterdam Court to the enforcement of the Recycling Regulation and the EWSR.

The case raises further interesting questions about the amount of due diligence that ship-owners will be expected to conduct when selling their vessels for scrap. Article 6(2) of the Recycling Regulation states that “ship owners shall ensure that ships destined to be recycled … are only recycled at ship recycling facilities that are included in the European List”, which arguably places the onus on ship-owners to ensure compliance with the Regulation. Ship-owners may, therefore, find themselves with extra due diligence obligations of establishing whether the buyer intends to scrap the vessel at one of the approved yards. It is unlikely that turning a blind eye would constitute a successful defence to liability.

The Court here took into account the fact that the scrapping of ships on the beaches of India, Bangladesh and Turkey is a common practice and that this is the first prosecution of its kind for scrapping ships in violation of EWSR. As a result, the Court did not impose a prison sentence on the directors in this case. However, it may well be that this could happen in future. Ship-owners should, therefore, bear in mind their obligations in this regard and should implement proper procedures for scrapping their vessels.

We have already seen the impact of the Seatrade case working its way into second-hand sale and purchase contracts, where sellers include substantial restrictions (and warranties) on resale scrapping. No doubt this area of law will develop further as the Recycling Regulation comes into force.

Article authors:

David Galea