Ship recyclers in Pakistan and Bangladesh have been hit by a spate of cargo claim arrests against beached tankers that could see them forced to shell out large sums of cash in legal fees or settlements.
The arrests — three in Pakistan and one in Bangladesh — came at the request of Middle East-based oil traders who have used to their advantage the Pakistani and Bangladeshi legal systems that grant arrest warrants against dead ships that have already been beached.
This has put the recyclers in a difficult position. Not only are they at risk of expensive legal bills from fighting claims filed against ships they now own, work-stoppage orders included in the arrest warrants effectively shut their ship-breaking plots for the duration of the disputes, which could potentially stretch over months.
Legal sources connected to the ship-recycling sector said it was difficult for recyclers to put up alternative security for claims as insurance coverage for vessels ends once a ship has been beached as the industry is credit-based rather than cash-based.
Recyclers acquire scrap tonnage from cash buyers against bank-issued letters of credit that require full repayment within 180 days, the estimated time during which most ships are dismantled.
Lawyers said that recyclers, who have until now been satisfied with non-encumbrance certificates, could protect themselves if they insisted on revised clauses stipulating that even if a vessel is arrested post-delivery, the sellers would indemnify the buyers and provide security.
Although commonplace in most ship-sale forms, not all cash buyers include such clauses in their sales contracts with recyclers.
“Some do it, some don’t, but I think the latest arrests will see more recyclers insist on its inclusion,” said one lawyer.
Pakistan arrests
Two of the arrests in Pakistan for which TradeWinds was able to obtain legal documentation highlight the complexity of the claims.
On 2 July, the High Court of Balochistan issued an arrest warrant against the 47,200-dwt product tanker Shay (built 1998), which had been beached at the plot of Al-Hamza Trading & Shipbreaking on 27 June.
The vessel previously operated as Shaybah in the fleet of Cairo-based Arab Maritime Petroleum, which did not respond to requests for comment.
QZY General Trading, a Yemeni oil trader, claimed to have been left with a shortfall of 2,059 metric tonnes of gasoil when the tanker delivered a 42,200 metric tonne cargo of gasoil to Yemen in January 2020.
Dubai-based oil trader OAM Energy, which sold the cargo to QZY on a cost and freight basis, had chartered the Shaybah for the spot voyage from its time charterer Diamond Energy Trading.
QZY alleged it had been unable to resolve the dispute with the vessel’s owners and charterers and was left with no choice but to lodge a claim against the ship even though it had changed owners and arrived in Pakistan for scrapping.
QZY’s $2.45m claim included $1.6m for the value of the undelivered cargo, and additional amounts for reputational damage, legal fees and other related costs.
Despite describing itself in a court affidavit as being “one of the largest importers and resellers of gasoil and other petroleum products in Yemen”, the company has no online presence.
A person who answered the phone at a number listed in a Dubai corporate directory for a company called QZY Trading claimed to have no knowledge of any entity with the QZY name.
In the second case, Cohenrich Energy, a fuel trader based in the United Arab Emirates, applied for an arrest warrant against the 46,700-dwt product tanker Mirage (built 1995).
The vessel was beached at the plot of Balochistan Ship Breaking on 18 June and the arrest warrant served on 7 July.
Cohenrich claimed it had contracted with Dubai-based Kader Management & Shipping to carry a cargo of gasoil from Hamriyah to Fujairah in January 2020.
Kader chartered the tanker from Emirates Shipping to perform the voyage.
However, Cohenrich alleged there was a shortfall of about 6,900 metric tonnes worth $4.3m after the cargo was transshipped to another tanker off Khor Fakkan. Interest and legal costs pushed its claim up to $5.4m.
TradeWinds called Cohenrich at the telephone number listed on its website but was told by a person who did not identify himself that it had closed down.
In late 2020, Kader was alleged to have been involved in the sanctioned Iranian oil trades and subsequently sold off its ships. The company has been uncontactable since.
Emirates Shipping was approached for comment.
