Ship recycling – ongoing liabilities for shipowners

The Maran Centaurus (the vessel) was a crude oil tanker owned by the Liberian company Centaurus Special Maritime Enterprise (the owner), and operated and managed by Maran Tankers Management (the manager), another Liberian company.

In 2013, the manager engaged Maran (UK) Limited (the agent), an English company, to provide agency and shipbroking services to the manager in respect of the vessel. The owner, the manager and the agent were all part of the same shipping group.

In August 2017, the agent sought offers for the sale of the vessel for demolition and conducted negotiations. An agreement (MOA) was eventually concluded with a cash buyer which required, inter alia, that the cash buyer should only sell the vessel to a “ship breaker’s yard that is competent and will perform the demolition and recycling of the vessel in an environmentally sound manner and in accordance with good health and safety working practice” (clause 22). The cash buyer ultimately sold the vessel to a shipyard in Chittagong, Bangladesh where it was beached on 30 September 2017.
In March 2018, a worker at the shipyard, Mohammed Khalil Mollah, fell to his death while working on the demolition of the vessel. In April 2019, his widow (the claimant) issued proceedings in England against the agent on her own behalf and that of the deceased’s estate, claiming damages for negligence (under English, alternatively Bangladeshi, law).

In February 2020, the agent applied to the English court for summary judgment dismissing the claim on the basis that, among other things, the agent did not owe the deceased any duty of care. The High Court rejected the agent’s application but granted the agent permission to appeal.

Court of Appeal’s decision

As this was an appeal from a summary judgment application, the question for the Court was not whether a duty of care was owed but whether there was a “realistic as opposed to fanciful prospect” of a duty of care being established and thereby the claim succeeding. Like the High Court, the Court of Appeal held that, whilst the Claimant may encounter significant hurdles in establishing the duty of care at trial, there was a realistic prospect of success and on that basis, the claim should proceed to trial and not be struck out. In particular, the Court of Appeal opined that the claimant’s case would be most likely to succeed by establishing a duty of care on the basis of the agent’s creation of a “state of danger” (the beaching of the vessel at Chittagong) which was then exploited by others (the owner of the yard and the deceased’s employer).

At first instance, the agent’s application was determined by reference to, amongst others, the following assumed facts:

• the agent had a choice as to whether to entrust the vessel to a buyer who would convey it to a yard which was either safe or unsafe;
• the agent had control and full autonomy over the sale;
• the agent knew or ought to have known that the vessel could only have been destined for breaking in Bangladesh; and
• the agent knew that the modus operandi at many shipyards in Bangladesh entailed scant regard for human life.

The Court of Appeal stated that if the claimant is able to prove these assumed facts at trial then they would be capable of establishing a duty of care. Furthermore, having reviewed previous cases on this “creation of danger” principle, the Court noted that the scope and extent of this principle is one of the fastest-developing areas of the law of negligence and that it would therefore be inappropriate to strike out the claim before the principle, and the underlying facts of this case, could be fully explored at trial.

In addition to the High Court’s decision on the duty of care, the agent also appealed the High Court’s decision that the claimant had an arguable case that its claim was not time-barred. In the High Court, Mr Justice Jay found that the law of Bangladesh applied to this case and therefore a 1 year limitation period would ordinarily apply. However, he also found that the claimant had an arguable case that this was a claim “arising out of environmental damage” which could have the effect of replacing the one-year period with the three-year period applicable in England. This was rejected by the Court of Appeal who stated that the claim did not arise out of environmental damage. Notwithstanding this, the Court of Appeal still declined to strike out the claimant’s claim. The claimant’s secondary argument in relation to the time-bar was that the Bangladeshi limitation period should be dis-applied as it would cause “undue hardship” to the claimant. With respect to this argument, the Court of Appeal refused to reach a definite conclusion and instead ordered that this issue should be returned to the High Court to be determined as a preliminary issue. If the claimant succeeds with these preliminary issues and the High Court determines that the Bangladeshi limitation period may be dis-applied, then the claimant’s claim will proceed to trial.

Comment

As will be apparent, the claimant clearly has a number of obstacles to overcome for her claim to succeed. Not only must she succeed in dis-applying the Bangladeshi limitation period, she must also prove the factual assumptions referred to above. This will not be an easy task. Despite this, this judgment should keep shipowners on notice that they may be held liable for injuries sustained by workers in notoriously unsafe demolition yards and that they should take steps to ensure that their vessels are disposed of in a safe and environmentally sound way. Ultimately, even if the claimant in this case is unsuccessful on the particular facts of her claim, the judgment shows that in the right circumstances, English law (and other jurisdictions for that matter) may be capable of imposing liability on shipowners in similar situations.

From a practical perspective, it is worth highlighting the Court of Appeal’s concern that, whilst it is common for demolition MoAs to require the intermediate cash buyer to sell to a yard that would perform the demolition “in accordance with good health and safety working practices”, these contractual requirements often seem to be largely cosmetic and are in fact often ignored. Whilst a number of vessel operators, in addition to carefully vetting the yards that are to be used to demolish their vessels, already engage independent supervisors to monitor yard’s compliance with their safety and environmental obligations, this still seems to be the exception rather than the rule.

It is therefore important for shipowners to keep in mind that the closing of the sale of a vessel for demolition does not bring their exposure or responsibilities to an end and we hope that cases such as this will raise awareness among shipowners of the considerations, both legal and moral, that ought to be factored into a decision to sell a vessel for demolition, the choice of yard and the sale process itself.

Wikborg Rein works work closely with sellers, regulators, brokers, ship recycling supervisors, hazardous materials experts and a small number of reputable intermediate buyers and recycling yards in Europe and elsewhere and has extensive experience of handling related Basel Convention applications to regulators in many jurisdictions around the world.