The shipping industry stands at a pivotal crossroads in its long history. As the world intensifies its efforts to confront climate change, the legal and commercial frameworks governing maritime trade are being reshaped to accommodate the pressing demand for decarbonisation. One of the clearest indicators of this shift can be seen in the increasing use of decarbonisation clauses in charterparties – contractual provisions that seek to hold shipowners or charterers to certain environmental performance standards.
What Are Decarbonisation Clauses in Charterparties?
These clauses might require a ship to operate on alternative fuels, comply with emissions intensity ratings such as the Carbon Intensity Indicator (CII), or participate in emissions trading systems like the EU ETS. Whatever form they take, they are a signal of a broader transformation within the industry: one where sustainability is no longer aspirational but contractual. Yet, what happens when such a clause is breached? Are the traditional tools of maritime law – such as damages, termination, or even the arrest of a ship – sufficient, or even appropriate, for enforcing these green obligations?
At the heart of this question lies the nature of the decarbonisation clause itself. Unlike classic charterparty obligations – such as the provision of a seaworthy vessel or the punctual payment of hire – decarbonisation clauses often impose obligations that are continuous, technical, and at times subjective. For instance, what does it mean to “operate in a manner consistent with achieving a CII rating of C or above”? If the shipowner installs scrubbers that fail to achieve the promised efficiency gains, has there been a breach or merely a failure of technology?
Legal Remedies for Breach of Decarbonisation Clauses
Where such a clause is breached, the first legal remedy to consider is, unsurprisingly, a claim for damages. This remains the most accessible and conventional course under English law and other common law systems. The innocent party – often the charterer – must demonstrate that a breach occurred, that it caused a quantifiable loss, and that the loss is not too remote. In the context of decarbonisation, such a loss could arise from increased emissions-related costs, reputational harm, or even penalties under environmental regulations. However, quantifying such losses, especially reputational damage or indirect costs, is far from straightforward.
Termination of Charterparty Agreements
Termination of the charterparty is another possible remedy, though it depends heavily on how the clause is drafted and the gravity of the breach. Suppose the clause is framed as a condition – a fundamental term going to the root of the contract – a breach may justify bringing the charter to an end. But in many cases, decarbonisation clauses may be seen as intermediate or “innominate” terms, where only a particularly serious breach (one that deprives the innocent party of substantially the whole benefit of the contract) would entitle them to terminate.
Can Ships Be Arrested for Breaching Green Clauses?
Then, there is the matter of enforcement beyond the contract itself. Could a charterer, for example, arrest the ship in question for failure to comply with a decarbonisation obligation? On the surface, the arrest of a vessel – a remedy that allows a claimant to detain a ship to secure a maritime claim – appears to be a dramatic yet powerful enforcement tool. Under instruments such as the 1999 Arrest Convention, ship arrest is available for a range of maritime claims, including disputes arising out of charterparties and claims for damages resulting from breach of contract.
The hypothetical legal remedy of a ship arrest for breach of decarbonisation clauses was discussed at a recent ship arrested conference in Cairo this year. It is a tantalising prospect but perhaps unattainable.
In principle, an arrest could encompass a breach of a decarbonisation clause. If, for instance, a charterer suffered financial harm because a vessel’s emissions performance fell short of agreed targets, that might give rise to a maritime claim capable of supporting arrest. However, the practical likelihood of ship arrest in such cases is relatively low. Courts are more accustomed to granting arrest for tangible, easily substantiated claims – such as crew wages or collision damage rather than abstract or performance-based obligations like emissions compliance. Moreover, ship arrest requires a clear link between the ship and the claim. If the vessel is operated by a charterer rather than the registered owner or if ownership has changed since the time of the breach, the claim may not satisfy the legal tests for arrest.
Alternative Enforcement Mechanisms
Perhaps more viable than arrest are alternative enforcement mechanisms. Some decarbonisation clauses now include bespoke remedies such as indemnities, performance warranties, or liquidated damages. These contractual devices help to avoid litigation over complex emissions data by providing predetermined consequences for non-compliance. Parties may also agree on security arrangements, such as the posting of performance bonds or the withholding of emissions allowances in escrow, to ensure compliance.
Drafting Effective Decarbonisation Clauses
In practice, the enforceability of decarbonisation clauses may depend less on dramatic legal remedies like ship arrest and more on the careful drafting of the contract itself. Clear, measurable obligations – supported by practical enforcement provisions – are far more likely to deliver results than relying on general legal principles or judicial interpretation.
Final Thoughts: Decarbonisation as a Legal Obligation
As decarbonisation moves from aspiration to obligation in the world of shipping, the legal framework must keep pace. While ship arrest might remain a rare remedy for breaches of green clauses, it serves as a reminder of the increasingly serious consequences of failing to engage with the realities of climate governance at sea. For charterers and shipowners alike, the message is clear: decarbonisation is no longer just good PR – it’s binding.
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