“Regulatory Unfitness to Trade”:
The New Seaworthiness Frontier in Decarbonisation Disputes (Part I – CII)

As the maritime industry enters the era of mandatory decarbonisation, the traditional legal boundaries of seaworthiness are being reshaped. Moving beyond physical and documentary fitness, this article explores the emerging frontier of “regulatory unfitness to trade”. Part I of this series focuses specifically on the IMO CII rating regime. It examines the strict technical and operational requirements, the severe penalties for non-compliance including Port State Control detention, and the growing legal friction between shipowners and charterers regarding whose employment orders ultimately dictate environmental liability.

Evolving Concept of Seaworthiness and Regulatory Unfitness to Trade

“Seaworthiness” is an evolving concept in English law. Originally, it was heavily anchored in the physical fitness of the vessel to safely carry out the contracted voyage—or, in the context of a time charter, the chartered service—and to encounter the ordinary perils of the sea on that voyage or any voyage the charterers could legitimately require the vessel to make (F. C. Bradley & Sons Ltd. v. Federal Steam Navigation Co. Ltd. Loyd’s Rep. [1926] 24 446).

The concept evolved beyond mere physical structure to encompass other essential attributes of the vessel such as the crew competency, adequate supply of bunkers and provisions, and possession of adequate and up-to-date navigational charts and plans (Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. [1961] 2 478 Lloyd’s Rep). That further expanded to include “documentary seaworthiness” or “legal fitness” (The Elli and the Frixos [2008] Lloyd’s Rep. 1 273). A ship lacking the necessary statutory certificates or clearances to enter a port has come to be considered unseaworthy, as the absence of such documentation can impede the voyage just as effectively as a hole in the hull. Courts have held that a vessel lacking a legally mandatory deratisation certificate from the port health authority was undeliverable in a seaworthy condition (The Madeleine [1967] 2 Lloyd’s Rep. 224).

That is not the end. The emerging question, as the global maritime industry sails into the era of mandatory decarbonisation, is whether and how the boundaries of seaworthiness will be reshaped to encompass “regulatory unfitness to trade”, which may render a vessel liable to detention.

In order to attempt answering the question, one will have to consider first (i) what these decarbonisation regulations are, (ii) what they require, (iii) what the effect of non-compliance with them is, and (iv) whose duty it is to comply with them (i.e., owner or charterer).

The three major maritime decarbonisation regulations are those relating to (a) IMO CII rating (effective since 1 January 2023), (b) EU ETS (effective since 1 January 2024), and (c) FuelEU Maritime (effective since 1 January 2025). This article (Part I) explores only the question of seaworthiness related to the first of them (IMO CII rating), and the second and third ones are reserved for future articles in this series.

IMO CII Rating

(a)        What is Required?

The CII related requirements originate from MARPOL Annex VI, which has undergone and continues to undergo substantial amendments incorporating decarbonisation measures. The IMO has also issued various guidelines, strategies and interpretative guidance relating to its implementation. Generally, ships under 400 GT are not affected by the regulations, while certain regulations apply to ships of 5,000 GT and above.

Design & Equipment: The regulations require new ships of 400 GT and above to maintain a ship-specific Energy Efficiency Design Index (EEDI) Technical File. Likewise, existing ships of 400 GT and above must meet Energy Efficiency Existing Ship Index (EEXI). This may require them to implement technical modifications such as installing an overridable Shaft/Engine Power Limitation (SHaPoLi/EPL) system to restrict the maximum power output of the ship’s engines.

Operational Energy Efficiency & Management: All ships of 400 GT and above must keep a Ship Energy Efficiency Management Plan (SEEMP) on board. Depending on the ship’s size, the SEEMP must include a management plan to improve energy efficiency through operational measures (for ships of 400 GT and above); a Data-Collection Plan detailing the methodology the ship will use to collect and report annual fuel oil consumption, distance travelled, and hours under way; and a Ship Operational Carbon Intensity Plan describing how the ship calculates its annual Operational Carbon Intensity Indicator (CII) (for ships of 5,00 GT and above), called IMO Data Collection System (DCS) (for ships of 5,00 GT and above).

CII Rating & Correction Actions: Based on the emission data reported by DCS, ships are given their annual operational CII rating from A (major superior) to E (inferior). The data, and thus the rating, is influenced by the trading activities and operation of the ship, including speed, route, and bunkers – which are determined by the charterer’s employment orders. If a ship is rated “D” for three consecutive years or “E” for a single year, the shipowner must develop a plan of corrective actions to achieve the required CII target, which must be strictly implemented.

Air Pollution Controls: Ships of 5,000 GT and above must ensure the sulphur content (SOx) of fuel oil used or carried on board does not exceed 0.50% m/m globally, and 0.10% m/m when operating within designated Emission Control Areas (ECAs).  They must retain Bunker Delivery Notes and representative fuel samples on board. Marine diesel engines must comply with specific Nitrogen Oxides (NOx) emission limits (Tier I, II, or III) depending on the ship’s construction date and operating area. Ships must maintain an ozone-depleting substances record book and, for tankers carrying crude oil, implement an approved Volatile Organic Compounds (VOC) management plan.

Required Certification: Ships must obtain and carry three certificates: (1) International Air Pollution Prevention (IAPP) Certificate; (2) International Energy Efficiency Certificate (IEEC); and an annual Statement of Compliance related to fuel oil consumption reporting and operational carbon intensity rating (for ships of 5,000 GT and above).

(b)        What is the Effect of Non-Compliance?

The regulations require sanctions severe enough to discourage non-compliance.

If a ship fails to maintain the required certificates, or a ship that has the certificates but her condition or equipment does not substantially match the certificates, or the crew is unfamiliar with the essential air pollution prevention procedures, a Port State Control will detain the ship, and may permit sailing only to proceed to the nearest appropriate repair yard.

When the equipment does not correspond to the certificate and no corrective action is taken, the certificate will be withdrawn by the ship’s Administration authority. If the required surveys are not completed within the specified timeframes, or if unapproved changes are made to the ship’s equipment or systems, the certificates will become invalid.

If a ship is rated “D” for three consecutive years or “E” for a single year, the ship will not be issued its annual Statement of Compliance until it develops a corrective action plan (CAP) and integrates it into the SEEMP and has it verified by the ship’s Administration authority.

(c)        Whose duty is it to comply?

The regulations place the duty on the shipowner to comply with, while the general policy in environmental law is that the polluter pays, which is the time charterer in the typical shipping business.

Charterparties frequently pass on the burden of compliance to the charterers. For example, the BIMCO CII Operations Clause for Time Charter Parties 2022 shifts the burden to the charterer. The Clause requires charterers to ensure an Agreed CII rating, which by default is C. If the trajectory of the C/P Attained CII is deviating from the Agreed CII, subclause (g) permits owners, subject to certain notice requirements and pre‑conditions, to slow steam or even refuse to comply with the charterers’ orders while keeping the vessel on hire — a drastic remedy for owners and a nightmare for charterers, who must continue to pay full hire for a vessel that refuses to perform the commercial voyage required.

Does Regulatory Unfitness equal Unseaworthy?

While some of the regulatory requirements are purely administrative, such as the duty to maintain a DCS and certificates – which are quite plainly for the shipowner to meet – the others are operation-influenced, i.e., influenced by the charterer’s employment orders, such as the CII rating and SOx limit on fuel oil.

In the case of non-compliance with purely administrative requirements, which renders the ship liable to detention, an argument that the non-compliance renders the ship unseaworthy is not only strong but also probably straightforward.

However, if is a non-compliance induced by employment orders of the charterers, the issue might not be that straightforward. As between the owners and the holders of the bills of lading (who are not charterers), the owner is liable to exercise due diligence to ensure seaworthiness at the beginning of the voyage. The fact that the unseaworthiness was induced by the charterer’s order is not relevant. It might be relevant as between the owner and the charterer, and its relevance will depend on the terms of the charterparty.

Conclusion

The argument that regulatory unfitness renders a vessel unseaworthy appears, generally, a strong one. When the concept of seaworthiness has evolved far beyond physical fitness and already covers cases where a vessel liable to detention for non-compliance with laws, there does not appear to be a reason why it should not extend to regulatory unfitness in relation to decarbonisation regulations.