Jurisdiction - Hong Kong
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Hong Kong – Scrapping And Recycling: Basel Or Hong Kong? Which Applies, Why Is It Important, And What Issues Do You Need To Be Aware Of?

9 October, 2014

 

 

Introduction

 

With the ever-increasing scrutiny of environmental campaign groups over the activities of those operating in the energy sector, the legal matrix applicable to the scrapping and recycling of drilling units and vessels has never been more significant.

 

This article explores the two main international conventions dealing with the scrapping and recycling of units/vessels, the position in the European Union, and some of the key issues to be aware of when considering the scrapping or recycling of a unit/vessel.

 

Basel Convention

 

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (the “Basel Convention”) is a UN international treaty which came into force in 1992. It has been ratified by 181 countries including all member states of the European Union and the OECD, except for the United States, which, along with Haiti, has at present only signed the Basel Convention but not ratified it. The principal aims of the Basel Convention are:

 

  • the reduction of hazardous waste generation and the promotion of environmentally sound management of hazardous wastes, wherever the place of disposal;
  • the restriction of transboundary movements of hazardous wastes except where it is perceived to be in accordance with the principles of environmentally sound management; and
  • a regulatory system applying to cases where transboundary movements are permissible.

 

The regulatory regime under the Basel Convention requires that the state of export or the generator or exporter of the waste must provide advance written notification to the relevant authorities in the state of export and import, and obtain the necessary consent(s) before the movement can commence. In addition, the movement of the waste must be accompanied by appropriate documentation, and a contract specifying the environmentally sound management of the wastes must be in existence at the time the consents are sought to be obtained. Consents may also be required from transiting states.

 

The exact regulatory requirements, however, are dependent upon the national law of each contracting state party which enacts the principles of the Basel Convention. The Basel Convention also permits party states to impose additional requirements to those laid down by the Basel Convention in order to better protect human health and the environment. As such, it is essential when considering the scrapping or recycling of a unit/vessel that comprehensive legal advice is obtained in all relevant jurisdictions. It is also important to bear in mind that the consent process in some jurisdictions can be long and protracted.

 

Hong Kong Convention

 

The Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships (the “Hong Kong Convention”) was adopted on 15 May 2009, but at present is not yet in force. It will enter into force 24 months after ratification by 15 states representing 40% of the world’s merchant shipping by gross tonnage, provided that those states’ combined maximum annual ship recycling volume is not less than 3% of their combined tonnage.

 

Ship” under the Hong Kong Convention is defined as “a vessel of any type whatsoever operating or having operated in the marine environment and includes submersibles, floating craft, floating platforms, self elevating platforms, Floating Storage Units (FSUs), and Floating Production Storage and Offloading Units (FPSOs), including a vessel stripped of equipment being towed.” As such, when in force, the Hong Kong Convention will apply to offshore drilling units, FPSOs and FSUs as well as other vessels which are flagged to a State Party to the Hong Kong Convention, or are destined for recycling at a facility that is within the territory of a State Party.

 

Unlike the Basel Convention, which can place onerous consent requirements on the exporter/seller of a drilling unit or vessel, the Hong Kong Convention focusses primarily on environmentally sound recycling. The main requirements under the Hong Kong Convention are:

 

  • the performance of an initial survey to verify and produce the inventory of hazardous materials;
  • a ship-specific recycling plan; and
  • that the recycling must take place at an authorised ship recycling facility.

 

Despite the Hong Kong Convention not being in force, the IMO has issued several guidelines to assist states with the early implementation of the Hong Kong Convention’s technical standards.

 

The European Union

 

The EU has decided to implement the principles of the Hong Kong Convention early through Regulation 1257/2013, which applies to all EU flagged ships, which by definition includes offshore drilling units, FPSOs and FSUs as well as other vessels.

 

Although Regulation 1257/2013 came into force on 30 December 2013, it will not apply until the earlier of the two following dates, but no earlier than 31 December 2015:

 

  • six months after the date that the combined maximum annual ship recycling output of the ship recycling facilities included in the European List constitutes not less than 2.5 million LDT; and
  • 31 December 2018.

 

Once Regulation 1257/2013 applies, the main impact will be that ships flying the flag of an EU Member State may be excluded from having to comply with Regulation 1013/2006, which currently implements the Basel Convention in the European Union.

 

However, from 31 December 2014 and once the European List of ship recycling facilities has been published, but before the whole of Regulation 1257/2013 applies, Member States may authorise the recycling of ships in ship recycling facilities included on the European List, and in such a case compliance with Regulation 1013/2006, implementing the Basel Convention, will not be necessary in respect of ships to be recycled at a facility on the European List regardless of where the ship is flagged.

 

In the interim period, before the publication of the European List of ship recycling facilities and the application of Regulation 1257/2013, those wishing to import or export a ship to/from the EU will have to comply with the requirements of the Basel Convention as set out in Regulation 1013/2006.

 

Some Key Issues Regarding The Scrapping/Recycling Of Units And Vessels

 

  • The Basel Convention is likely to be engaged as soon as an intention to dispose of the unit/vessel has been formed.
  • Most units/vessels are likely to come within the definition of “hazardous wastes” under the Basel Convention due to their typical composition, which usually includes substances such as polychlorinated biphenyls (PCBs) and asbestos.
  • The exact regulatory regime implementing the Basel Convention varies between countries. As such, complete legal advice on compliance and the necessary procedures must be obtained in the countries of export and import, and potentially also any transiting states.
  • The sale of the unit/vessel to an intermediate buyer, who sells on the asset to a recycling/scrapping facility, will not necessarily insulate the original owner from future liability or reputational damage.
  • In order to minimise any residual liability or negative PR to the original owner it is important that the sale contract is carefully drafted and adequate due diligence and monitoring of the buyer and scrapping/recycling facility is carried out.
  • A breach of the requirements under the Basel Convention may lead to criminal sanctions at a national level, and under some jurisdictions this may include individual criminal liability for directors as well as the company.
  • The requirement under the Basel Convention for there to be a contract in place with the facility providing for the environmentally sound recycling of the unit/vessel means that the facilities that may potentially be used, and often the countries in which they are situated, are likely to be restricted.
  • Once Regulation 1257/2013 applies, ships not flagged to an EU member state being imported into or exported from the EU may still need to comply with the Basel Convention as set out in Regulation 1013/2006, as any exclusion will only apply to EU flagged ships.
  • Regulation 1257/2013 is a complex piece of legislation. As such, legal advice should be sought as to what procedures should be complied with for your specific situation.
 

Ince & Co 

 

For further information, please contact:

 

Renaud Barbier-Emery, Partner, Ince & Co

rbe@incelaw.com

 

Ince & Co Shipping Maritime & Aviation Practice Profile in Hong Kong

 

 

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