December, 2024 - BIMCO publishes FuelEU clause for time charters

After much deliberation BIMCO have now published a clause for use in time charters (the “Clause”), relating to the rights and responsibilities under the FuelEU Maritime (“FuelEU”) which comes into effect on 1st January, 2025, in respect of voyages into, out of and between ports in the EU. 

It is perhaps not surprising that the BIMCO drafting committee took some time to finalise a clause on FuelEU given its complexities. Not only does FuelEU provide for penalties in the case of non-compliance, and surpluses in the case of positive compliance, it has provisions relating to banking, borrowing, and, perhaps most importantly, pooling, which the committee had to take into account in its considerations. 

Again, perhaps unsurprisingly, the Clause follows the "polluter pays' principle, making the charterer responsible for penalties incurred by the ship as a result of non-compliance with FuelEU, on the basis that it is the charterer that is the party responsible for stemming and paying for bunkers. Clause (e)(ii) of the Clause provides that no account is to be taken of any banking, borrowing or pooling decisions made prior to the commencement of the charter period. In other words, the intention is that the Clause looks at compliance on a ship by ship basis.

For the purposes of calculating any surcharge (i.e. the penalty for non-compliance), fuel and energy consumed during any undisputed off-hire periods shall be excluded. Given that under the Clause, whether the ship has or has not complied with FuelEU is to be assessed against independently verified information provided within 15 days of the end of each month or voyage (as the parties may agree), it can be seen that disputes about off-hire could hold up settlements of surcharges; that is presumably why under the Clause only undisputed off- hire periods are to be excluded. The Club has seen examples of clauses under which account for these purposes will only be taken of off-hire periods, whether disputed or undisputed. 

Since it is the charterer that is to pay the owner in respect of any penalties, the Clause provides that the charterer will have the benefit of surpluses. These are dealt with in paragraph (g) and (m) of the Clause, though paragraph (m), which contains limiting provisions as to the owner’s obligation to pay a positive compliance, only arises where a figure for such payment has been agreed. 

The Clause also provides that the charterer may bank or pool any positive compliance balance but only where the charter period covers a complete reporting period (i.e. a period from 1st January to 31st December) and the instructions to bank or pool are given by an agreed period prior to 30th April of a verification period (i.e. the calendar year following a reporting period).The reason for the reference to a complete reporting period is there to recognise the difficulty of apportioning such rights between multiple charterers during one reporting period. It remains to be seen whether parties will make separate arrangements for pooling where the charter period is less than a complete reporting period. But if they do, careful drafting will be required to ensure that the parties’ rights are clear. 

The Clause also contains provisions relating to the charterer’s right to borrow where the charter period covers at least two reporting periods. 

The Clause now stretches to more than three pages and contains detailed provisions. In respect of the BIMCO clause relating to EU ETS for time charters, the industry saw some bespoke clauses, though many parties agreed to operate on the basis of the BIMCO clause but with various changes, for example, in respect of the time when the charterer’s obligation to provide for allowances arose. 

The BIMCO clause relating to FuelEU is necessarily more complex and it remains to be seen whether owners and charterers use the clause, with amendments, or choose instead to agree their own wording. One area of possible debate will be whether charterers will have the benefit of compliance surpluses. Even if that is agreed in principle, any clause will need to deal with borrowing and pooling, whether along the lines of the BIMCO clause or by way of some different arrangement.

For further information in respect of FuelEU and how it operates, please see the Club’s publication “FuelEU Maritime At a Glance".

As always, if Members have any questions in relation to the above issues they are invited to contact the Club for further information.