“Regulatory Unfitness to Trade”:
The New Seaworthiness Frontier in Decarbonisation Disputes (Part III – FuelEU Maritime)

As the maritime industry enters the era of mandatory decarbonisation, the traditional legal boundaries of seaworthiness are being reshaped. Building upon the analyses of the previous articles in this series, the IMO CII rating regime in Part I and the EU ETS and MRV framework in Part II, this third instalment examines the FuelEU Maritime regulation. This article unpacks the strict operational targets on greenhouse gas intensity, the severe enforcement arsenal—including Port State Control detentions, stoppages, and EU-wide expulsion orders—and how these draconian mechanisms firmly cement “regulatory unfitness” as the modern equivalent of documentary unseaworthiness.

Introduction

As was explored in Parts I and II of this series, the traditional English law concept of seaworthiness has evolved far beyond the mere physical capacity of a ship to withstand the ordinary perils of the sea. Today, a lack of “documentary seaworthiness”—the absence of statutory certificates or legal clearances required to trade—can practically impede a contracted voyage just as effectively as a physical defect.

Following the analysis of the IMO CII rating regime and the EU ETS/MRV framework in the previous Parts of this series, this third instalment addresses the final major pillar of the EU’s maritime decarbonisation strategy: the FuelEU Maritime Regulation (Regulation (EU) 2023/1805). Taking effect from 1 January 2025, FuelEU Maritime introduces strict targets for the types of energy ships consume. Much like the EU ETS, it contains severe enforcement mechanisms—including detention, stoppage, expulsion, and banning—that firmly cement “regulatory unfitness” as the modern equivalent of documentary unseaworthiness.

What Does FuelEU Maritime Require?

FuelEU Maritime applies to commercial passenger and cargo ships above 5,000 GT when arriving at, staying within, or departing from EU ports.

The regulation imposes two primary operational obligations:

1. Greenhouse Gas (GHG) Intensity Limits: Ships must adhere to a limit on the yearly average GHG intensity, measured on a Well-to-Wake (WtW) basis, of the energy they use on board. The limit will progressively decrease—the reduction targets start at 2% in 2025, escalating to 14.5% by 2035, and reaching a massive 80% reduction by 2050—compared to a 2020 reference value. The maths of this have been covered in a previous article titled “The 20x Penalty Risk: The BIMCO FuelEU Blind Spot”, and are not repeated here.

2. On-Shore Power Supply (OPS): Starting 1 January 2030, containerships and passenger ships moored at the quayside in major EU ports must connect to an on-shore power supply and use it for all their electrical power needs at berth, heavily restricting the use of auxiliary engines while in port.

For each calendar year (“reporting period”), the relevant company must comply with the following condensed sequence:

1. By 31 January of the following year: submit verified FuelEU energy consumption data to an accredited verifier.

2. By 1 May: verifier records the final compliance balance in the FuelEU database.

3. By 30 June:

• pay any FuelEU penalty due; and

• obtain a valid FuelEU Document of Compliance (FuelEU DOC).

4. Validity: the FuelEU DOC remains valid until 30 June of the following year, subject to additional compliance checks.

If subsequent checks reveal a misstatement resulting in additional penalties, payment must be made within one month. Failure to do so results in the immediate removal of the FuelEU DOC from the FuelEU database.

Where a ship maintains a compliance deficit for two or more consecutive reporting periods, the financial penalty is subject to a progressive multiplier. Separate penalties apply for each hour of non‑compliance with OPS obligations at berth without a valid exception.

The relevant company is the shipowner, or an ISM manager or bareboat charterer where they have assumed the operational responsibility and agreed to take over all the duties and responsibilities imposed by the ISM Code for the Safe Operation of Ships and for Pollution Prevention.

The Consequences of Failing to Comply: A Sequential Enforcement Framework

The severe commercial and legal risk posed by FeulEU Maritime lies not in the penalties themselves, but in the graduated enforcement sequence that follows onc a vessel operates without a valid FuelEU DOC. The regulation interfaces directly with the EU Port State Control (PSC) Directive (Directive 2009/16/EC), integrating the FuelEU DOC into the mandatory list of ship certificates.

Once compliance fails, the regulatory consequences typically unfold as follows:

1. Detention and Stoppage under Port State Control: The absence of a valid FuelEU DOC constitutes “clear grounds” for a detailed PSC inspection. Where deficiencies are found that are clearly hazardous to the environment, the port State is obliged to ensure that the ship is detained, or that specific operations (such as cargo handling or bunkering) are stopped, until the hazard is remedied.

2. EU-Wide Expulsion Orders: Where a ship fails to hold a valid FuelEU DOC for two or more consecutive reporting periods, and other enforcement measures have proved ineffective, the competent authority of a port of call may, at its discretion, issue an expulsion order. Once such an order is issued, all EU Member States (other than the ship’s flag State) are legally obliged to refuse the vessel entry to their ports until compliance is restored.

3. Flag Detention: If the expelled ship flies the flag of an EU Member State and enters a port of that flag State, that flag administration must issue a flag detention order until the compliance is rectified.

4. Banning (Refusal of Access and Permanent Ban): Ships with a history of repeated detentions face escalating access refusal measures under the PSC Directive. A ship flying a black-listed or grey-listed flag that is detained multiple times will be issued a refusal of access order (banning it from all EU ports). If the operator persistently fails to take corrective action, this can ultimately escalate to a permanent refusal of access (a permanent ban) from the European Union.

Seaworthiness Implications and Commercial Friction

The intersection of these enforcement powers with charterparty obligations creates the new frontier of decarbonisation disputes. As established in landmark cases like The Madeleine [1967] 2 Lloyd’s Rep. 224 and The Derby [1985] 2 Lloyd’s Rep. 325, a ship liable to expulsion or detention from its intended ports of call due to missing compliance documentation suffers from “documentary unseaworthiness”.

Under FuelEU Maritime, the relevant company is strictly responsible for regulatory compliance and paying the penalties. However, in a time charter context, it is the charterer who dictates the vessel’s employment, controls the speed and route, and purchases the bunker fuel.

If a time charterer supplies high-emission fossil fuels that cause the vessel to exceed its FuelEU GHG intensity limits, or orders the vessel to a port without ensuring OPS compatibility, a compliance deficit will accrue. If the resulting penalty goes unpaid, the vessel will lose its FuelEU DOC. If that vessel is subsequently ordered to an EU port, it faces immediate detention or a fleet-wide expulsion order. At that exact moment, the vessel becomes documentarily unseaworthy, putting the owner in breach of its strict, non-delegable duty to cargo interests under the Hague/Hague-Visby Rules.

Anticipating this commercial friction, the FuelEU Maritime Regulation explicitly acknowledges the “polluter pays” principle, preserving the owner’s right to conclude contractual agreements that hold commercial operators liable to reimburse the costs of FuelEU penalties, as between the owner and the charterer.

The industry standard response to this is the newly published BIMCO FuelEU Maritime Clause for Time Charter Parties 2024. To protect owners from accumulating massive compliance deficits, the clause requires owners to periodically notify charterers of the vessel’s aggregated ‘Compliance Balance’. If the balance is negative, charterers are obligated to pay a periodic ‘Surcharge’ (usually monthly or per voyage) equal to the expected FuelEU Penalty.

Furthermore, to protect owners against the progressive penalty multiplier effect, the clause stipulates that if a vessel is redelivered with a negative compliance balance for two or more consecutive reporting periods, the charterer must pay liquidated damages to cover the owner’s future exposure to the FuelEU multiplier. Regarding On-Shore Power Supply (OPS), the clause allocates physical readiness to the owner (ensuring the vessel is fitted to connect), but places the financial burden of paying for the electricity at berth squarely on the charterer. Pragmatically, the clause, that is a helpful starting point, will require suitable modifications before adoption.

Conclusion

As we have seen across the CII, EU ETS, and now the FuelEU Maritime regimes, the era of decarbonisation has fundamentally altered the landscape of maritime law. When a charterer’s fuel procurement or employment orders lead to a revoked FuelEU DOC—triggering PSC detentions, stoppages, or EU-wide expulsion orders—the vessel is rendered legally unfit to trade.

Owners will increasingly seek to incorporate the BIMCO FuelEU Maritime Clause into their time charters, and rely on implied indemnities (such as The Island Archon [1994] 2 Lloyd’s Rep 227) to pass the crippling costs of FuelEU penalties back to the charterers. Crucially, if a charterer fails to pay the required FuelEU Surcharge, the BIMCO clause grants the owner the right to suspend the performance of any or all obligations under the charterparty.

As with the EU ETS regime, this suspension mechanism serves as a vital contractual shield. It allows owners to halt operations before the unpaid penalties trigger the revocation of the FuelEU DOC, thereby attempting to prevent the vessel from becoming documentarily unseaworthy in the first place. However, as far as third-party cargo interests and port authorities are concerned, regulatory unfitness remains the new, undeniable standard of unseaworthiness.