9 April, 2020
The effects of the COVID-19 pandemic, including worldwide restrictions on movement and disruptions to almost every industry and supply chain, have unexpectedly presented shipbuilders with great difficulties in meeting vessel construction schedules. As a result many shipyards expect that the vessel delivery dates will be delayed as a result of COVID-19 and have issued force majeure notices under their shipbuilding contracts accordingly.
One issue that has caused great concern to shipyards and buyers is the incoming 1 July 2020 deadline for full implementation of the goal-based standards under SOLAS II-1/3-10. Regulation 3-10 requires that newly constructed oil tankers or bulk carriers over 150 metres in length which are delivered after 1 July 2020 comply with the goal based environmental and safety standards set out in the Regulation.
A number of shipyards have been constructing vessels which do not comply with the goal-based standards with delivery originally intended before the 1 July 2020 deadline. Some shipyards, most notably in China, have raised concerns that owing to the delays caused by COVID-19, they will only be able to deliver vessels which have not been constructed in line with the goal-based standards after the 1 July 2020 deadline.
IMO Circular – Coronavirus (COVID-19) – Guidance concerning unforeseen delays in the delivery of ships
The IMO has issued some welcome guidance to shipyards and buyers, through which they have indicated that ships originally scheduled to be delivered before the 1 July 2020 deadline that are delayed beyond that date due to "unforeseen circumstances beyond the control of the shipbuilder and owner", may potentially nonetheless be accepted by flag administrations as if they were delivered before that date.
The guidance, referencing previous guidelines, effectively requests flag administrations to consider applications on a case-by-case basis in accordance with recommended practices, bearing in mind the particular circumstances. The guidance also suggests that if vessels are accepted by the flag administration, such ships should also be accepted as such by port States. Although the Maritime Safety Committee will not have an opportunity to determine the proposed unified interpretation of the term "unforeseen delay in the delivery of ships" under SOLAS regulation II-1/3-10 before 1 July 2020, the term is meant to reflect the IMO guidance above on accepting such ships delivered after the specified regulation date, and IMO is seeking Member States to consider its application.
What are the relevant considerations for shipbuilders and buyers?
Whilst a full unified interpretation has not been approved by Member States, it is now apparent that vessels delivered after 1 July 2020 which are not compliant with the goal-based standards may be able to be accepted by flag administrations and port States, providing the delay in construction was unforeseen and beyond the control of the shipbuilder and owner.
The draft interpretation, annexed to the IMO guidance, sets out recommended practices as follows:
- Flag administrations should thoroughly consider applications on a case by case basis, and may require a formal report from the authorities of the country in which the ship was built, stating that the delay was due to unforeseen circumstances beyond the control of the shipbuilder and the shipowner;
- When a ship is accepted by a flag administration, the Cargo Ship Safety Construction Certificate or Cargo Ship Certificate should be footnoted to indicate that the ship is accepted by the flag administration according to the interpretation set out in the IMO guidance; and
- The flag administration should report to the IMO on the identity of the ship and the grounds on which the ship has been accepted.
It is advisable that shipbuilders and owners which are potentially affected by the impact of the 1 July 2020 deadline apprise themselves carefully of the content of the latest IMO circular, as it suggests that vessels not compliant with the goal-based standards may be capable of delivery and acceptance by flag administrations and port States post 1 July 2020, and also keep apprised of future developments.
Given that flag administrations are likely to require evidence that the delay in delivery beyond 1 July 2020 was solely due to issues beyond the control of the shipyard and buyer, it is advisable that parties collate evidence proving that the construction was delayed due to the impact of COVID-19, and where possible obtain a formal report from the authorities of the country of construction supporting this.
For further information, please contact:
Ik Wei Chong, Partner, Clyde & Co
ikwei.chong@clydeco.com
