Odin ex Black watch: Environmental shipbreaking frustrated by Indian courts. Black Watch Cruise Ltd. v. Cruise Vessel Odin ex Name Black Watch

Overview

Built in 1972 to serve as a cruise liner, the end-of-life voyage of the ship known as the ODIN (formerly the BLACK WATCH and ROYAL VIKING STAR), was especially contentious. Ending up on the shipbreaking beaches at Alang, in India's westernmost coastal state of Gujarat, the ODIN sailed through a new loophole in the international regime against unsafe and environmentally unsound shipbreaking. ¹ European governments concerned with these consequences have taken various steps in recent years to keep shipowners from disposing of their ships in this manner, however shipbreaking activities at Alang contribute to the Indian economy both in terms of direct and secondary employment, and as a supply of high-quality recycled steel. ² As such, Indian authorities announced in September 2022, that the capacity of the Alang yards will be doubled over the next 10 to 15 years. ³

The last voyage of the ODIN to India began in September 2020, when Fred Olsen, then-owner of the ship known as BLACK WATCH, sold it to a Turkish company later identified in court filings as 2E Maritime. ⁴ The sale contract included a clause that the ship “shall be recycled in accordance with the terms of the Hong Kong Convention at a fully certified Turkish ship recycling facility able to perform proper green ship recycling.” ⁵ The Turkish buyer did not comply with this term. ⁶ At the end of March 2022, the ship was reflagged under a new owner, who then sold the ship to a subsidiary of a shipbreaking yard in Alang, where it was reflagged again and renamed ODIN. ⁷ While Fred Olsen tried to contact 2E Navigation and the buyers in India to find out what happened, the ship arrived in Indian waters on 30 April. ⁸

In May, Fred Olsen began arbitration against 2E Maritime in London, and on May 25, 2002, the High Court of Justice Business and Property Courts of England and Wales, Queen's Bench Devision, Commercial Court, issued a decree against 2E Maritime stating that 2E Maritime “must not take any steps to order or permit to cause the [Fred Olsen] vessel to be scrapped and/or recycled anywhere other than a fully certified Turkish ship recycling facility” until the final arbitration order is delivered. ⁹ This order also explicitly stated that it “shall not affect or concern any person outside the jurisdiction of the Courts of England and Wales.” ¹⁰ In June, Fred Olsen petitioned the High Court at Gujarat to arrest the vessel in order to satisfy their contract clause with 2E Maritime. ¹¹

Legal Background

The regulations for shipbreaking entail international, regional, and domestic laws, and apply to ship owners, flag states, and ship yards all in different countries. As early as 1992, the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposals applied to the breaking of end-of-life ships. ¹² This Convention, which includes India, Turkey, and England as members, provides that receiving nations have the capacity to prohibit the import of hazardous waste in certain situations. ¹³ Disputes over whether the ship itself was waste or if the Basel Convention would merely apply to toxins on the ship were clarified first with the 1995 passage of the Basel Ban Amendment which bans the transfer of hazardous waste rather than just requiring informed consent but did not come into force until 2019. ¹⁴ The 7th meeting of the Basel Convention Conference of Parties in 2004 recognized that end-of-life ships may not fall under Convention guidelines and suggested to the International Maritime Organization (IMO) that a new convention was necessary. ¹⁵ That convention became the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships in 2009 (which is not yet in force), while the Basel Ban Amendment (with regard to ship recycling) was essentially adopted by the European Union first in 2006 as the European Waste Ship Recycling Act (EWSR) then amended in 2013 as the EU Ship Recycling Regulations (ESRR). ¹⁶ Both the EU and Hong Kong regimes require that covered ships be recycled in certified yards, with the ESRR requiring that facilities, “operate[] from built structures,” while the Hong Kong Convention merely requires national certification that a variety of measures have been undertaken for the “[p]revention of adverse effects to human health and the environment.” ¹⁷ Post-Brexit, the ESRR has been transposed into English law under the Ship Recycling (Facilities and Requirements for Hazardous Materials on Ships) (Amendment) (EU Exit) Regulations 2019 and MGN 656, which provides the list of approved facilities where shipbreaking may take place. ¹⁸ While EU-based shipyards can be certified by their own countries, others must apply and then undergo inspection prior to approval. ¹⁹ The EU/UK list includes several facilities in Aliağa, Turkey, which was the destination specified by Fred Olsen in their sale contract. ²⁰

In India, the regulations surrounding shipbreaking are notably less restrictive and compliance with the Basel Convention, especially with regard to shipbreaking, has not been without trouble. Beginning in 2005, Indian shipbreaking policy developed in the courts through a series of cases filed by the Research Foundation for Science Technology Natural Resource Policy related to the breaking of famously toxic ships including the CLEMENCEAU, ²¹ BLUE LADY, ²² and ORIENTAL NICETY (formerly the EXXON VALDEZ). ²³ In the 2005 CLEMENCEAU case, the Supreme Court noted how a series of rules for restricting and monitoring hazardous waste had not been properly implemented, and instructed the shipbreaking industry to follow 18 guidelines set forth by the High-Powered Committee (HPC) related to inventorying, monitoring, and disposing of toxic wastes. ²⁴ The subsequent cases provide the basis for 2013 administrative rules called the “Ship Breaking Code” which tracked some of the language of the Hong Kong Convention related to requiring an Inventory of Hazardous Materials for incoming ships and some environmental regulations for approved shipbreaking yards. ²⁵ With passage of the Hong Kong Convention, India acceded to the Convention and passed most of it into domestic law as the Recycling of Ships Act, 2019. ²⁶ Noticeably, the standards for shipyards, which are already lowered from the ESRR to the Hong Kong Convention, are watered down even further in India, with the sections related to ship recycling facilities not even mentioning the environment when listening the authorization and certification procedure. ²⁷ However, Section 21 of the Act does require that ship recyclers “ensure safe and environmentally sound removal and management of hazardous materials from a ship” and “comply with such requirements related to basic infrastructure facilities including those related to environmentally safe disposal or management of wastes and hazardous materials, in such manner as may be specified by the regulations.” ²⁸ These limited provisions symbolize the low threshold of environmental standards for shipbreaking in India.

In determining whether an Indian court has proper Admiralty Jurisdiction to arrest a ship, the 2017 Admiralty (Jurisdiction and Settlement of Maritime Claims) Act provides 23 bases for jurisdiction and 5 circumstances for arresting a vessel. ²⁹ The High Court can hear claims related to a “dispute regarding the possession or ownership of a vessel or the ownership of any share therein” and a “dispute arising out of a contract for the sale of the vessel.” ³⁰ Jurisdiction is also available when there is “damage or threat of damage caused by the vessel to the environment, coastline or related interests.” ³¹ Arrests are only available when “the claim relates to the ownership or possession of the vessel” or there are maritime liens or mortgages against the present owner or demise charterer. ³²

The Court's Decisions

On June 6, 2022, the High Court of Gujarat issued an order to arrest the vessel that was presently lying at the Bhavnagar/Alang Port. ³³ The court based its jurisdiction on Fred Olsen having a “maritime claim under Section 4(1)(a) and (r) of the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017,” noting also that Fred Olsen “suffered loss and damage due to breach of terms and conditions and express undertaking recorded in the MA dated 17 September 2020.” ³⁴ The order also allowed the defendant, the Indian shipbreaking yard that owned the ship, to deposit 4,167,840 USD with the court to cover the costs of damages and litigation and allow the ship to continue its final journey to the yard. ³⁵ The specific arrest authority under the Admiralty Act is not provided by the court, but can be assumed to be related to the ownership claim.

Ten days after the arrest, the Gujarat High Court issued another order on an appeal filed by the new owners of the ODIN, Olivia Navigation, a subsidiary of Last Voyage DMCC, in order to release the vessel. ³⁶ This subsequent order first lays out the arguments made by the two parties, beginning with the Appellant. First, the new owners argue that jurisdiction exists only under Section 4(1)(r) of the Admiralty Act, agreeing that Fred Olsen “suffered loss and damage due to breach of terms and conditions and express undertaking recorded in the MA dated 17 September 2020.” ³⁷ However, they dispute the question of ownership, arguing that there is a clean bill of sale and thus no jurisdiction under Section 4(1)(a). ³⁸ They then note that the initial case was filed for the “money claim on the basis of difference between achievable market price in Turkey compared to demolishing the defendant vessel in India,” indicating the suit is for damages against the Turkish company, and not for recovery of the vessel. ³⁹ A similar argument is made with regard to the ongoing arbitration proceeding between the English and Turkish companies: so long as there is a valid sale, the recovery can be for damages, but the sold object is legally in the hands of a good faith purchaser and cannot be affected. ⁴⁰

Olivia Navigation then provides the specifics of the end-of-life sales and legal correspondence, beginning from Fred Olsen to 2E Maritime for $750,000 with a condition requiring “proper green ship recycling” after 6 to 8 months of use. ⁴¹ However there is no bill of sale in favor of 2E Maritime. ⁴² Eighteen months after the initial sale, the ship is reflagged to Comoros and the owner is listed as a company called Kepno Shipping Ltd. ⁴³ A week after the reflagging, there is sale agreement between Kepno and Olivia Navigation, indicating the vessel was sold “free of encumbrances” with a purchase price of $8,125,000. ⁴⁴ Documents from April 2022 show the vessel reflagged to Palau and renamed ODIN under the ownership of Olivia Navigation. ⁴⁵ Three weeks after the change in ownership, Olivia lists the correspondences between Fred Olsen and 2E Maritime and Best Oasis Limited (through its subsidiary Last Voyage DMCC) indicating that Fred Olsen wants to find out what happened, followed by responses indicating that the Indian companies are not bound by the contract clause between Fred Olsen and 2E Maritime. ⁴⁶ At the end of April and in early May, the Indian shipbreaking companies Best Oasis DMCC and Priya Blue provide another notice to Fred Olsen that 2E Maritime is no longer the owner of the vessel and thus there is no privity of contract between Fred Olsen the Indian companies that would provide the basis for a valid Maritime claim in Indian courts. ⁴⁷

Fred Olsen's response is cited next in the order, questioning the validity of the initial sale by 2E Maritime, claiming that they “did not have authority to sell the [ODIN] to any other party” because they did not have proper title. ⁴⁸ Thus, such a dispute of ownership would clearly give the court jurisdiction to hear the case under Sections 4(1)(a),(r). ⁴⁹ Power to arrest the vessel would exist not under Section 5(1)(a) of the Admiralty Act related to liabilities of the current owner of the vessel, but Section 5(1)(d) “relat[ing] to the ownership or possession of the vessel.” ⁵⁰ The appellee then suggests that the Comoros registration document is “false and fabricated” since it has an issuance date of January 2019 on it, preceding the sale. ⁵¹ Fred Olsen argues that on, “this ground alone[, Olivia Navigation's] application ought to be dismissed with heavy costs.” ⁵²

After reciting the arguments of both sides, the Court orders the Indian ODIN owners to furnish proof of security, stating that once such a security is received by the court, “the vessel … will be permitted to sail and order of arrest dated 06.06.2022 shall stand vacated.” ⁵³ The order goes on to stipulate future dates for the parties to make additional arguments, and the case is still ongoing to determine liability and damages. ⁵⁴ Similarly, the legal and arbitral proceedings in London appear to be ongoing, but only with regard to liability and damages. The environmental issue surrounding the ship is final, as shortly after the arrested order was lifted, the ship was beached at Alang for breaking. ⁵⁵

Analysis/Commentary

Even if Fred Olsen is able to recoup monetary damages from 2E Maritime, the environmental damage and health impacts caused by the beaching of the ship remains, undermining the EU/UK regulations. The existing European regimes can already be avoided by out-flagging, where EU owners send the ship on a dubious penultimate journey outside the EU, then sell the ship to a new non-EU owner who reflags it to a non-EU flag of convenience before selling it to the beaching yard. ⁵⁶ These gaps grow even wider if the European shipowners who do seek an environmentally responsible recycling of their ships can have their chosen breaking yards then sell the ships to ones not on the list.

To prevent incidents like this from occurring again, damages would have to be high enough to deter future offenders. Financial disparities between South Asian yards and approved yards will likely grow over time, so even a large recovery for Fred Olsen may not prevent future acts similar to those undertaken by 2E Maritime from eventually being profitable. The tangled financial web of corporations buying end-of-life ships and the yards that actually dismantle them means it is not a specific yard doing the buying and re-selling that could be sanctioned with removal from the approved list.

When this dispute came to India, the only argued issue was with regard to questions of rightful ownership in order to secure jurisdiction and arrest—environmental issues were not raised. The Admiralty Jurisdiction Act does include, at Section 4(u), the possibility of arresting a ship when there is “damage or threat of damage caused by the vessel to the environment, coastline or related interests.” ⁵⁷ Since Fred Olsen did not argue under this provision, it is unclear how Indian courts would interpret this language, which has not yet come before the court in the 6 years that the Admiralty Act has been in force. Extreme circumstances, such as those surrounding the CLEMENCEAU, ⁵⁸ or other radioactive or highly toxic ships like the PLATINUM-2 ⁵⁹ or PROBO KOALA/GULF JASH, ⁶⁰ would likely still be refused entry under this provision. However, general concerns about the environmental harms caused by shipbreaking would almost certainly not rise to this level. When the National Green Tribunal heard a challenge to the administrative order allowing for expansion of the Alang Yard in 2020, even this dedicated environmental court ruled that such growth would have “no serious adverse impact on the environment.” ⁶¹

In this instance, the ship was beached and decisions about liability and damages for Turkish company 2E Maritime will be made by courts and arbitrators in England. Indian courts correctly saw no wrongdoing attributable to the Indian parties and no reason to consider giving force to an order from an English court that is admittedly not binding. Thus, Fred Olsen's environmentally conscious intent is thwarted, and with it, another gap in the schemes to fight end-of-life ship waste is revealed.