Risk of Removal: Anticipating the Environmental Costs of Salvage and Wreck Removal

There’s an increased appetite for regulation to protect our oceans, with regulations already beginning to bite in relation to the disposal of wrecks, and contractors should be careful to consider the risks when bidding for or negotiating such projects. Failure to take into account the proper disposal of wreckage can lead to significant delays, resulting in huge increases in costs incurred by the contractor with potentially little room to claim such costs back.

Fail to Plan, Plan to Fail…

Vinson & Elkins recently represented Party A in relation to claims arising out of a contract for the removal of a large vessel. The vessel, at the time of the incident, was carrying a large cargo of hydrocarbons and hazardous substances. Party B was appointed to carry out the removal and disposal of the wreck from the sea floor. The operation was complicated, with the methodology being changed by Party B throughout the project resulting in delays.

In view of the substantial volume of hydrocarbons, environmental risks were paramount to both parties even prior to entering into the contract. Party B agreed to take on the risk of the removal and disposal of any and all hazardous materials, including hydrocarbons and took on the risk of all disposal costs. Party B was provided with enough information to understand the risk of a significant volume of hydrocarbons but failed to properly plan for this risk. In particular, it failed to plan for the removal of large volumes of hydrocarbon sludge and contaminated soil.

As a result, Party B faced significant hurdles on-site (in respect of contamination of the surrounding water and clean-up costs) but when it came to scrap disposal. Two months into the project, Party B was forced to use a scrap yard in a different country than planned, due to not seeking or receiving proper clearances. The barge with the scrap had to travel a significant un-planned distance and was required to clean scrap on its barges before landing.

When Party B managed to remove the wreck’s final section in one piece, which it intended to dispose of in India, due to failing to properly consider contamination, Party B was unable to dispose of this section due to environmental regulations and attempted to dispose of the wreck in Malaysia, where it faced clean-up costs for leakage in the port. Party B was only able to dispose of the final piece eight months after removal because it failed to review environmental restrictions and plan the disposal.

The cost of failing to plan was in excess of US $20 million.

Key lessons

The risk of failing to plan for environmental issues can be costly, depending on the allocation of risk in the contract. There are a number of environmental issues to consider when preparing for a wreck salvage or removal project, particularly the disposal of scrap.

One of the key issues to consider in a tender is how much detail is provided regarding the volume and type of hazardous substances. If an employer is providing any rely upon information as part of a tender package, they should carefully consider any information as to the level and type of hazardous substances on board. The contract will need to allocate the risk of removal and disposal, and the provision of rely upon information could impact who takes responsibility for any hazardous substances over and above the information provided.

If an employer cannot give accurate information regarding hazardous substances, it should be careful in providing assumptions in relation to removal and disposal. The salvor should carefully review rely upon information, and take care to raise any issues prior to agreeing with the risk allocation. For example, the salvor may wish to put a volume limit on the amount, or type of hazardous materials to be disposed of.

If the wreck is carrying significant volumes of hydrocarbons or hazardous substances, both parties should consider the provision of information regarding the environmental plan for the safe removal of such substances but also the safe, lawful disposal of any substances and contaminated wreckage. The parties should consider the allocation of risk if the original scrap yard becomes unavailable (increased costs and delays). Specifically, the parties may wish to consider the risk allocation for any change in regulations/law resulting in a change of scrap yard. This may be particularly relevant for state parties, where disposal is planned at a scrap yard within that state.