EPA’s Long-Anticipated VIDA Proposed Rule Now Available

Jeanne M. Grasso and Dana S. Merkel

NEW DEVELOPMENT

The U.S. Environmental Protection Agency (“EPA”) made available its long-anticipated standards for discharges incidental to the normal operation of vessels pursuant to the Vessel Incidental Discharge Act (“VIDA”) on October 6, 2020. Signed into law on December 4, 2018 as part of the Frank LoBiondo Coast Guard Authorization Act of 2018, VIDA established a new framework for the regulation of discharges incidental to the normal operation of vessels in an attempt to bring consistency and certainty to the regulation of discharges from U.S.- and foreign-flag vessels.

The first step in implementing VIDA requires EPA to develop federal performance standards for “marine pollution control devices,” which includes any equipment or management practice (or combination thereof) to manage incidental discharges from vessels. After some delays, EPA posted its notice of proposed rulemaking on October 6, available here, to set standards for 20 types of vessel discharges incidental to normal operations. The program implemented under VIDA will replace EPA’s Vessel General Permit and certain U.S. Coast Guard (“USCG”) regulations for ballast water a few years from now, after the USCG finalizes regulations to implement EPA’s standards, including compliance, monitoring, inspections, and enforcement.

BACKGROUND

VIDA was the culmination of years of discussion, debate, and litigation concerning discharges incidental to the normal operation of vessels. Although back in the 1970s EPA initially exempted these discharges from the Clean Water Act’s National Pollutant Discharge Elimination System (“NPDES”) permitting program due to the burden of permitting every vessel entering U.S. waters, a federal court ruled in 2006 that EPA must issue permits for vessel discharges. In response, EPA developed the 2008 Vessel General Permit (“VGP”). The 2008 VGP was eventually replaced by the 2013 VGP, which contained some more stringent requirements, such as numeric limits on ballast water discharges, a requirement to use environmentally acceptable lubricants, and new monitoring requirements for ballast water, bilge water, and graywater.

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Electronic Recordkeeping—The Maritime Industry, Including in the United States, Sails Forward

Jeanne M. Grasso and Dana S. Merkel

NEW DEVELOPMENT

Long-awaited amendments to the International Convention for the Prevention of Pollution from Ships (“MARPOL”) entered into force on October 1, 2020, which expressly permit the use of electronic record books for certain MARPOL required logs. Although the United States reserved its decision regarding adoption of the amendments when they were approved by the International Maritime Organization (“IMO”) in May 2019, the United States ultimately accepted their adoption in accordance with the tacit acceptance procedure. Nonetheless, it is yet unclear how the amendments will be implemented in the United States or what additional security safeguards the United States may require. Bottom line, this is a significant and welcomed development.

BACKGROUND

Electronic record books have been the subject of much debate and consideration at the IMO and within the United States for a number of years. During MEPC 74 in May 2019, amendments were approved, revising MARPOL Annexes I, II, V, and VI to allow the use of electronic record books approved by the vessels’ Administration for the Oil Record Book (“ORB”), Cargo Record Book, Garbage Record Book, and Annex VI air pollution prevention recordkeeping requirements. In adopting the amendments, the IMO stated the use of electronic record books “should be encouraged as it may have many benefits for the retention of records by companies, crew, and officers.” These amendments entered into force on October 1, 2020, although a number of flag States believed the previous MARPOL language provided them with the discretion to allow the use of electronic record books and had already approved their use on vessels for some years. Even so, the permissibility of using electronic record books to meet MARPOL requirements is now clear.

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Protecting the Supply Chain: U.S. Government Studies the Role of Federal Agencies in Ocean Carrier Bankruptcies

Rick Antonoff and Evan Jason Zucker

In December 2018, the Frank LoBiondo Coast Guard Authorization Act (the “LoBiondo Act”) was enacted to, among other things, improve and support the operation and administration of the Coast Guard and update maritime and environmental policy. Section 713 of the LoBiondo Act directs the Comptroller General of the United States to “conduct a study that examines the immediate aftermath of a major ocean carrier bankruptcy and its impact through the supply chain.” In accordance with that mandate, in January 2020, the U.S. Government Accountability Office (“GAO”) published a report on the role of the Federal Maritime Commission (the “FMC”) and Department of Commerce (“Commerce”) in an ocean carrier’s bankruptcy case.

The study was prompted by supply chain disruption at sea and at numerous ports caused by the bankruptcy of Hanjin Shipping Co., Ltd. in August 2016. At the time, Hanjin was one of the world’s largest integrated logistics and container shipping companies transporting cargo to and from ports throughout the world. The GAO concluded that the FMC and Commerce played an important monitoring function in the industry, but did not recommend any changes to either agency’s role in an ocean carrier bankruptcy. This is because the GAO found that industry participants have already taken steps to mitigate the effects of another ocean carrier bankruptcy and current law does not authorize these agencies to have a more active role.

The Ocean Carrier Industry

The maritime transport industry is the backbone of globalized trade and the manufacturing supply chain. According to the United Nations Conference on Trade and Development’s Review of Maritime Transport 2019, more than four-fifths of world merchandise trade by volume is carried by sea. Annually, more than one trillion dollars in U.S. exports and imports are moved by ocean vessels. Prior to the current pandemic, the industry was already coping with low-freight rates, reduced earnings, and oversupply as a result of increased global tariffs, volatility in demand, and new environmental regulations. These market conditions have led to the continued consolidation of ocean carriers. “In February 2019, the [top] 10 deep-sea container-shipping lines represented 90 per cent of deployed capacity and dominated the major East-West trade routes through three alliances.” This consolidation in the industry increases the risk of disruption that the financial instability of any one shipping company can have on the global supply chain.

Scope of the GAO Study

To address the objectives mandated in the LoBiondo Act, the GAO reviewed documents filed in Hanjin’s bankruptcy case and documents provided by the FMC and Commerce. Additionally, the GAO interviewed 15 industry stakeholders representing various roles in the supply chain including representatives from four ports, two ocean carriers, one association representing carriers, one association representing freight forwarders and customs brokers, five associations or companies representing transportation and equipment providers, one association representing retailers, one association representing agricultural cargo owners, and officials with the FMC and Commerce. Continue Reading

Offshore Wind Will Need Support Vessels – What Form Are You Going to Use?

Keith B. Letourneau and Douglas J. Shoemaker

As the United States develops offshore wind capacity, the need for vessels to support the industry for installation and maintenance will rapidly expand. While it may seem perfectly logical for the industry to adopt the BIMCO WINDTIME form, the SUPPLYTIME 2005 form is more common and generally known to the U.S. service and supply-vessel industry. In any case, we wholly expect that there will be a good deal of modifications to any form or perhaps use of bespoke agreements as the work comes online. We review here the various forms available and look at particular terms and issues we expect to be the subject of specific negotiation and modification.

SUPPLYTIME: Then and Now

The SUPPLYTIME form was first developed in 1975 to meet the rising demand for specialty vessels to support offshore oil and gas exploration and production. This form and its progeny became the leading time-charter terms for offshore-support vessels, and its use has spread beyond the oil and gas industry to include cable and pipe laying, seismic work, anchor handling, surveying, ROV and dive support, and other offshore and near-shore construction work. While there is a 2017 version of the SUPPLYTIME, it hasn’t been widely adopted in the United States, particularly since it came out after the substantial decrease in offshore oil and gas activity. (Interestingly, the drafting committee that developed the WINDTIME form differed from the SUPPLYTIME 2017 committee, and the difference is noticeable.) As for the U.S. offshore marine service and support industry, it appears that the SUPPLYTIME 2005 version remains prevalent at this time. (Obviously, any SUPPLYTIME form used with respect to the offshore wind industry would need to be logically amended to change oil and gas industry references to the appropriate wind-industry terms. For example, the term “offshore unit” in the SUPPLYTIME 2017 form is defined as “any vessel, offshore installation, structure and/or mobile unit used in offshore exploration, construction, pipe-laying or repair, exploitation or production.” There are also repeated reference to the defined term “well”.)

At the heart of the SUPPLYTIME form since the 1989 version came into play is a “knock-for-knock” indemnity provision, allocating liability regardless of fault with each party indemnifying the other for the injury or death of its personnel and for the loss of or damage to its property—without recourse. Initially, this was a difficult concept to accept in the United States—the idea that a party must indemnify another for a loss even though the loss was caused solely by the fault of the other party was a hard pill to swallow. However, in practice, the industry found it far more efficient for the parties to provide insurance for their own people and their own property and simply name the other party as an additional assured, rather than litigate every loss with each party claiming the other was at least partially to blame. The knock-for-knock indemnity concept is particularly efficient where a project involves a number of offshore contractors and all the parties agree to the same allocation of liability.

SUPPLYTIME vs. WINDTIME

The WINDTIME form, introduced in 2013, was primarily intended for offshore wind farm personnel transfer and support vessel services and was largely adopted from the SUPPPLYTIME 2005. Key differences from the SUPPLYTIME 2005 include:

  • the WINDTIME form expressly encompasses an indemnitee’s gross negligence, as well as simple negligence in the knock-for-knock indemnity obligations, but excludes intentional or willful misconduct, while the SUPPLTIME 2005 form only expressly addresses the indemnitee’s negligence;
  • the SUPPLYTIME 2005 form is more owner-friendly concerning cancellation with no provision for the recovery of damages; and
  • the WINDTIME form includes a broader waiver of consequential damages encompassing subcontractors.

It has been reported that the committee drafting the WINDTIME form initially considered, but quickly abandoned, the idea of including contract terms appropriate for installation vessels. We understand that industry practices for installation vessels were considered too varied and complex to reach consensus. Thus, the better option for installation vessels may be a SUPPLYTIME 2005 particularly modified to allocate liabilities and responsibilities, or a bespoke contract. Continue Reading

Implications of Jones Act Changes to the Offshore Energy Industry

Jonathan K. Waldron and Stefanos N. Roulakis

Vessels are the backbone of any offshore construction project, and the Jones Act, which celebrated its centennial this month, regulates their operations in U.S. waters on the Outer Continental Shelf. Originally promulgated as a transportation statute, the Jones Act has governed vessels engaging in offshore construction for nearly four decades. While offshore oil and gas construction operations have been conducted in compliance with the Jones Act for decades, with the burgeoning offshore wind sector there is renewed interest on how the Jones Act will be applied to such projects. Indeed, planning for Jones Act compliance is a major component of successful wind farm installation operations, as has been the case for years with oil and gas-related work. Interestingly, despite the fact that the Jones Act is now a century old, there have been recent significant regulatory and legal developments in its interpretation.

Specifically, after years of debate within the offshore industry, on December 19, 2019, U.S. Customs and Border Protection (“CBP”) issued its decision in its Customs Bulletin, “Modification and Revocation of Ruling Letters Relating to CBP’s Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Decision”). The Decision became effective on February 17, 2020. Offshore developers, vessel operators, and other stakeholders must now face the question: How does the Decision affect offshore activities?

Further, the Decision currently faces challenges both in Congress and the courts. Some members of Congress who are not pleased with CBP’s actions have been focused on legislating in this area and modifying the Jones Act to include restrictions on lifting operations undertaken by installation vessels. This would effectively overrule parts of the Decision. Stakeholders in the offshore wind, ocean renewable energy, and offshore oil and gas sectors should pay attention to these developments as they will intimately impact offshore construction activities.

Background on the CPB Decision

In both 2009 and 2017, CBP published notices to revoke or modify various rulings, which potentially could have overturned decades of precedent with regard to a sweeping range of offshore operations that have never been subject to the Jones Act. To be frank, CBP did not fully understand how the offshore industry operated offshore, and the proposals were potentially overbroad without CBP understanding the economic impacts on the various types of offshore operations these proposals would have adversely affected. As a result of strong industry backlash on both occasions, the proposals were withdrawn for reconsideration.  Finally, following the 2017 withdrawal, CBP undertook an intensive exchange of information with all facets of industry to fully understand how industry actually operates offshore and to fine-tune and focus its 2019 proposal on vessel equipment issues and lifting operations, which resulted in a decision that took into account comments and input from all stakeholders.

As far as substance, the Decision eliminates previous erroneous decisions that permitted non-coastwise-qualified vessels to transport items that should have been considered merchandise under the Jones Act. The Decision also clarifies that lifting operations may be conducted by non-Jones Act vessels. Specifically, as discussed in more detail below, the Decision 1) broadens the definition of merchandise to make it clear that non-Jones Act vessels can no longer carry out certain offshore activities that they have performed for years under a misguided and overly broad “mission of the vessel” theory, and 2) establishes a new interpretation of “Lifting Operations” to specify the movements that a non-Jones Act vessel can perform when conducting installation or decommissioning operations, which will not be considered “transportation” within the meaning of the Jones Act.

Should the Decision be overturned either in court or through legislation, it will have a significant impact on the market for offshore construction, whether for renewable energy or fossil fuel production. Currently, there are few or no Jones Act-qualified vessels that can perform the necessary lifting operations needed to undertake the multitude of varying construction projects offshore, depending on the crane capacity and vessel and stability characteristics required for a particular lifting operation. Continue Reading

Analyzing Maritime (or Non-Maritime) Contracts and Practical Considerations for Litigation Strategy

William R. Bennett, III, Charles S. Marion, and Anthony Yanez

In many civil disputes, the application of choice of law principles as well as the jurisdiction in which the lawsuit is filed can have a significant impact on the outcome of a case. This is especially true where one of the parties conducts business in the maritime industry and the other does not. Some parties may prefer that state law be applied to the dispute because of a favorable state statute (such as a statute of limitations) or because the state’s courts have rendered decisions that support the parties’ position on a substantive issue. Others may prefer that federal law apply where it is more advantageous to a party given the facts of the case. Of course, some parties prefer to litigate in federal court rather than state court, or vice versa, for cost or other reasons.

There is a small subset of cases in which the question of whether maritime or admiralty law should be applied arises. One of the most significant decisions addressing that question is Norfolk Southern R. Co. v. James N. Kirby Pty, Ltd., 543 U.S. 14 (2004). In Kirby, the U.S. Supreme Court held that the liability of a rail carrier that transported over land cargo that was brought to the United States from Australia on board ships, through bills of lading calling for carriage from Australia to Huntsville, Alabama, via the Port of Savannah, Georgia, for damage to the cargo that occurred during that leg of the journey should be determined by applying maritime law, because the entire contract of carriage, and not just the ocean segment of it, constituted a maritime contract. More specifically, the court in Kirby determined that the default liability rule in the Carriage of Goods by Sea Act (“COGSA”) ($500 per package) applied to a train wreck that allegedly caused $1.5 million in damages. Continue reading “Analyzing Maritime (or Non-Maritime) Contracts and Practical Considerations for Litigation Strategy”

U.S. Supreme Court Issues Safe Berth Warranty Decision

Jeffrey S. Moller

The final decision in the ATHOS I saga has recently been issued by the U.S. Supreme Court, upholding the decision of the U. S. Court of Appeals for the Third Circuit to the effect that a plain reading of the language found in the ASBATANKVOY charter form creates a warranty of safety rather than merely a duty of due diligence.

OPERATIVE FACTS

The facts were these: the voyage charterer of the fully laden tanker ATHOS I was also the owner of the refining complex in Paulsboro, New Jersey, which the vessel was approaching when its (single skin) hull was torn open by an anchor that had been lost/abandoned by some unknown vessel. The anchor was lying on the bottom of a federally-maintained anchorage ground through which the ship had to transit on its way to the berth from the federally-maintained ship channel. The anchor, which had not been previously discovered or removed by the U.S. Army Corps of Engineers, had evidently laid on the bottom with its flukes down for at least three years, during which time many ships had passed over it without incident. But, at some time prior to the ATHOS’ arrival, the anchor was somehow flipped over so that its flukes could be in position to rake the ATHOS I’s hull and tear open a number of its cargo tanks. ATHOS I’s cargo was Venezuelan heavy crude oil, which the charterer/wharfinger was importing to use in making asphalt. Because the anchorage was maintained by the federal government, the charterer/wharfinger had never expected that the anchorage would have obstructions within it so, although passage through the anchorage en route the berth commonly involved passage through the anchorage, the charterer/wharfinger never took steps on its own to conduct sonar surveys. An estimated 263,000 gallons of Venezuelan crude oil was released into the Delaware River when ATHOS I was punctured, giving rise to enormous (U.S. $180 million+) cleanup and business interruption expenses.

The vessel was the subject of two charter parties. The first was a time charter between the vessel’s owner and a fleet operating entity under which the latter agreed to exercise “due diligence” to ensure that the vessel was only sent to “safe places.” The time charterer then subchartered the vessel under a voyage charter to the operator of the Paulsboro refinery on the ASBATANKVOY form, which contained a “safe berth” or “safe berth” warranty that was not expressly limited to the exercise of due diligence. The owner of the ship was not a direct party to this subcharter. The owner of the ship remained its operator and was therefore the responsible party for the consequences of the oil spill under the Oil Pollution Act of 1990.

The origin of the anchor being unknown, the shipowner sued the charterer/wharfinger for breaches of both the contractual “warranty of safe berth” (Charterer “shall select . . .always safely afloat”) found in the ASBATANKVOY charter party and of the maritime law duty of care to properly maintain its berth and the approach(es) thereto. The United States was a party to the suit both for recovery of funds from the national Oil Spill Liability Trust Fund, which had made partial reimbursement payments to the innocent ATHOS I and her underwriters, and as the subject of a counterclaim for having failed to properly maintain the anchorage.

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Exercising Maritime Liens against Cargo and Sub-Freights

Thomas H. Belknap Jr.

Vessel owners rarely carry cargo for their own account. More commonly by far, a vessel owner will charter its vessel to another party to carry their (or their sub-charterer’s) cargo. The contracts can vary widely—from voyage charters or contracts of affreightment to time charters and negotiable bills of lading (not to mention the more complex arrangements that one often sees for container cargos). But in most instances, vessel owners are in the business of transporting cargo on behalf of others and, all going well, of being paid to do so. This article is about one mechanism the vessel owner may use to ensure that it gets paid: the maritime lien against cargo.

The Impracticalities of Settled U.S. Maritime Law

It has been settled for over a century under U.S. maritime law that a shipowner has a maritime lien against cargo for charges incurred during the course of its carriage. As the Supreme Court stated in its 1866 decision in Bird of Paridise,1 “Ship-owners, unquestionably, as a general rule, have a lien upon the cargo for the freight, and consequently may retain the goods after the arrival of the ship at port of destination until the payment is made.” Traditionally, a maritime lien against cargo for freight and demurrage was considered a “possessory” lien, meaning that the lien is lost upon the delivery of the cargo to the consignee. To exercise its maritime lien, in other words, the vessel owner was expected to retain possession and control of the cargo until payment; if no payment was received, it needed to enforce its lien by maritime arrest while the cargo remained in its possession. Continue reading “Exercising Maritime Liens against Cargo and Sub-Freights”

Potential Impacts of Offshore Legislation on Industry

Jonathan K. Waldron and Stefanos N. Roulakis

The U.S. House of Representatives has introduced legislation that could potentially greatly alter the landscape for oil, gas, and wind installation and decommissioning activities on the U.S. Outer Continental Shelf (“OCS”). Stakeholders should examine the legislation for impacts to their operations.

New Development

The House Committee on Transportation and Infrastructure marked up and approved H.R. 3409, the Coast Guard Authorization Act of 2019 (“2019 CGAA”) on June 26, 2019. This legislation, if enacted, could have significant impacts on how oil, gas, and wind vessel activities are conducted on the OCS. Of particular note, the legislation could have an outsized effect on offshore wind in the United States, which is at a nascent stage and requires installation activities of the type contemplated in the 2019 CGAA.

Background

In January 2017, U.S. Customs and Border Protection (“CBP”) proposed to overturn decades of precedent with regard to offshore operations potentially subject to the Jones Act in its “Proposed Modification and Revocation of Ruling Letters Relating to Customs Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Notice”). The Notice, which was published in the CBP Customs Bulletin, proposed the modification of approximately 25 CBP rulings that delineated the difference between “equipment of the vessel,” the transportation of which does not implicate the Jones Act, and “merchandise,” which may only be transported by qualified vessels under the Jones Act.

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The Supreme Court Rejects Punitive Damages in Unseaworthiness Claims

Keith B. Letourneau, William R. Bennett III, John D. Kimball, and Zachary J. Wyatte

A recent United States Supreme Court ruling held that a plaintiff may not recover punitive damages on a maritime claim of unseaworthiness. This new ruling has resolved a split among the circuits and has essentially reinforced an otherwise long-standing precedent.

On June 24, 2019, the United States Supreme Court decided Dutra Group v. Batterton, holding 6-3, that a plaintiff may not recover punitive damages on a claim of unseaworthiness. Justice Alito delivered the opinion of the Court in which Justices Roberts, Thomas, Kagan, Gorsuch, and Kavanaugh joined. Justice Ginsburg filed a dissenting opinion in which Justices Breyer and Sotomayor joined.

This case arose from a personal injury incident aboard a vessel. Christopher Batterton was working as a deckhand on the vessel, which The Dutra Group owned and operated, when a hatch cover blew open and severely injured his hand. Batterton sued Dutra, asserting a variety of claims, including unseaworthiness, and sought general and punitive damages. Dutra moved to dismiss the punitive damages claim, arguing that such damages were not available on claims for unseaworthiness. The District Court denied Dutra’s motion, and the Ninth Circuit affirmed. But the Supreme Court reversed.

The Court noted that the overwhelming historical evidence suggests that punitive damages are not available for unseaworthiness claims and that the lack of punitive damages in traditional maritime law cases is “practically dispositive.” The Court said, “because there is no historical basis for allowing punitive damages in unseaworthiness actions, and in order to promote uniformity with the way courts have applied parallel statutory causes of action, we hold that punitive damages remain unavailable in unseaworthiness actions.”

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