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APRIL 2014 9th EDITION

Welcome readers. In this supplement to the 9th Edition of Obiter Dicta, you are invited to indulge in articles written by students and alumni that are of particular legal interest. The articles do not cover subjects that are taught on the BLC courses but they are relevant and interesting for all readers and graduates of the BLC course. Within these pages we give you articles on EU emissions laws, shipping mortgages and renewable energy in Bulgaria. We trust you will enjoy reading these pieces and if you are interested in contributing to the next edition, do not hesitate to email the editorial team!

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Legal aspects of low-emission shipping in the light of provisions of “sulphur directive” adopted by the European Union Beata Madejska Gdaosk BLC alumnus

Background The main sources of air pollution are transport, power generation, industry, agriculture and heating. Each of these sectors emits a variety of air pollutants – sulphur dioxide, nitrogen oxides, carbon dioxide and particulate matter (also known as particle pollution or PM, particulate matter is a complex mixture of extremely small particles and liquid droplets. Particle pollution is made up of a number of components, including acids (such as nitrates and sulfates), organic chemicals, metals, and soil or dust particles). Shipping is a large and growing source of various kinds of atmospheric emissions. Air pollutant emissions from maritime transport can be transported over

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long distances and thus increasingly contribute to air quality problems in the

European

Union.

Sulphur

emissions are harmful to our health and to the wider environment and need to be reduced. Ship emissions contribute to acid rain, air pollution, smog, and marine eutrophication in the European Union.

International legislation (IMO Convention)

The issue of controlling air pollution from ships, in particular noxious gases from ships’ exhausts, was discussed in the lead up to the adoption of the 1973 MARPOL Convention. However, it was decided not

to

include

regulations

concerning air pollution at the time, given the lack of studies which

could

confirm

the

hypothesis that air pollutants could travel several thousand kilometres before deposition and causing damage. This damage includes effects on crops and forests. Meanwhile, air pollution was being discussed in other arenas. The 1972 United Nations Conference on the Human Environment in Stockholm marked the start of active international cooperation in combating acidification, or acid rain. In 1979, a ministerial meeting on the protection of the environment in Geneva resulted in the signing of the Convention on Long-range Trans-boundary Air Pollution by 34 governments and the European 3


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Community. This was the first international legally binding instrument addressing problems of air pollution on a broad regional basis (source: IMO website). The MARPOL Convention is the main international convention covering prevention of pollution of the marine environment by ships either due to operational or accidental causes. It is a combination of two treaties adopted in 1973 and 1978 and also includes a Protocol of 1997 (Annex VI). It has been updated by amendments through the years such as Annex VI Prevention of Air Pollution from Ships which entered into force on 19th May 2005. The revision of Annex VI was adopted in October 2008 and entered into force on 1st July 2010. The regulations in this Annex set limits on sulphur dioxide and nitrogen oxide, emissions from ship exhausts and particulate matter. Annex VI contains provisions allowing for the creation of special Sulphur Emission Control Areas (SECAs) with more stringent controls on sulphur emissions. In these areas, the sulphur content of fuel oil used onboard ships must not exceed 1.5% by mass. The Baltic Sea Area is designated as a Sulphur Emission Control Area in the Protocol. The North Sea was adopted as Sulphur Emission Control Area in July 2005.

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European legal provisions reducing ship emissions At the European Union level, there have been subsequent steps over the last two decades to regulate sulphur content in liquid fuels and thereby reduce emissions into the atmosphere.

Historically, the sulphur content of certain liquid fuels was regulated by Directive 93/12/EC, adopted in 1993 (Council Directive 93/12/EEC of 23rd April 1993 relating to the sulphur content of certain liquid fuels), which placed restrictions on the marketing of diesel fuels used in road vehicles and gas oil used for off-road transport (but excluding aviation).

In subsequent it was deemed important to lay down limits for the sulphur content of other liquid fuels, in particular heavy fuel oil, marine gas oils and non-marine gas oils, on the basis of cost effectiveness studies and also in view of the regulation in Annex VI on sulphur content of marine fuel in the IMO’s MARPOL Protocol of 1997. The result was the Sulphur Content of Liquid Fuels Directive No 32 adopted on 26th April 1999 (Council Directive 1999/32/EC of 26th April 1999 relating to a reduction in the sulphur content of certain liquid fuels and amending Directive 93/12/EEC). It established limits for sulphur content in heavy fuel oil (1.0% after 1 st January 2003) and gas oil,

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including marine gas oil (0.2% after 1st January 2000 and 0.1% after 1st January 2008). The Directive also included a recommendation to continue the initiative to designate the North Sea, including the English Channel, as a sulphur emission control area (ECA). Member States were obliged to transpose the Directive into national legislation before 1 st June 2000.

Following the entry into force of MARPOL Annex VI in May 2005 a new Directive 2005/33/EC (Directive 2005/33/EC of the European Parliament and of the Council of 6th July 2005 amending Directive 1999/32/EC), was promulgated in July 2005, amending Directive No 32 adopted in 1999 (hereinafter referred to as the Sulphur Directive). Directive 2005/33/EC of the European Parliament and of the Council of 6th July 2005, amending the Sulphur Directive, introduced, inter alia, the IMO concept of Sulphur Emission Control Areas (SECAs) and associated stricter fuel standards. The maximum sulphur content of marine fuels was limited to a maximum of 1.5% for ships operating in the Baltic Sea from 2006 and in the North Sea and the English Channel from 2007. Member States were obliged to transpose the Directive into national legislation by 11th August 2006. 6


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The latest significant revision of the Sulphur Directive arises from the amendments to MARPOL Annex VI done in 2008, which included more stringent limits on the sulphur content of fuels to be used in Emission Control Areas. The EU rendered mandatory IMO rules on marine fuels through Directive no

12, effective as of 17th December 2012, amending Sulphur Directive No 32 adopted in 1999 (Directive 2012/33/EU of the European Parliament and of the Council of 21 st November 2012 amending Council Directive 1999/32/EC as regards the sulphur content of marine fuels). By 18th June 2014 at the latest, Member States will have to amend their existing legislation on the quality of marine fuels to align it with the new Directive. From 2015 onwards, Member States must ensure that ships use fuels with a sulphur content of not more than 0.10% in the Baltic Sea and the North Sea including English Channel. Equivalent compliance methods, such as exhaust cleaning systems, are permissible. From 2020 onwards, ships operating in all other European Sea areas will have to use fuels with sulphur content of 0.50% or less. Directive 2012/33/EU has been implemented by Luxembourg and Slovakia. Conclusions

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Emissions from shipping due to the combustion of marine fuels having a high sulphur content contribute to air pollution in the form of sulphur dioxide and particulate matter, which harm human health and the environment and contribute to acid deposition. Without the measures set out in this Directive, emissions from shipping would soon have been higher than emissions from all land-based sources. Compliance with the regulations of sulphur in marine fuels will lead to a remarkable increase in fuel costs for ships sailing inside SECA. Studies show that for 90-95% of the fleet, the fuel switch to middle distillates represents the most cost efficient method of ensuring compliance with the rules. Fuel price differences between the currently used heavy fuel oils and middle distillates in 2015 will create an additional cost to be faced by SECA maritime transporters. The additional fuel costs will amount to approximately 4.7 billion US dollars in 2015. The shipping market in the Baltic Sea is expected to go through a period of disruptive change in recent years, especially when the fuel prices increase considerably on 1 st January 2015, as a result of the lowering of fuel sulphur content limits from 1.0% to 0.1%. The freight rates for maritime transport are expected to increase by 20–40%, burdening both exporting and importing industries. Modal shifts from sea to road can be expected. Actions need to be taken by authorities, shipowners, ports, and freight owners, as well as by other components of the logistics chains, because of their significance for recognized ecological, socio-economic, economical attributes for marine sector. 8


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Shipping Mortgages in Polish and English law Gabriela Stoyanova BLC Student Sofia

The granting of mortgages to facilitate ship purchases is common in many legal systems. Equally, given the huge costs of building ships, money-lending arrangements similar to modern ship mortgages have existed for centuries. In the 19th century, such mortgages started to be the subject of international legislation initiated by the Comite Maritime International, whose 1992 convention created international standards regarding this matter. Poland and Great Britain both ratified this convention and there are many similarities in the construction of ship mortgage between both legal systems.

In both Polish and English law, ship mortgages are a privileged form of mortgage, protecting the mortgagee from later creditors of the mortgagor. Furthermore, in both legal systems such mortgages must be registered in order to enjoy such benefits. In Poland, vessels must be registered in the 'rejestr okrętowy' which is maintained by a special organ ('izba morska') which also deals with maritime law disputes. In England, ship mortgages are registered in the Registry General of Shipping and Seamen in 9


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Cardiff. Is it important to note that, in Poland, all registered vessels are capable of being the object of a shipping mortgage, whereas in England vessels which are registered in Part 3 of the Registry (Small Ships), are incapable of being the object

of

a

ship

mortgage.

However, in both Polish and English law it is possible for more than one mortgage to be registered against a single vessel. The priority given to ship mortgages over other claims is, however, subject to certain exceptions. In Polish law, certain payments have priority over the repayment of a ship mortgage: wages of the ship’s master and crew, claims under maritime contracts for repairs, supplies and other necessities which are essential to continue a journey, claims arising from salvage operations and claims for maritime torts, including personal injury and death. In English law, the scope of claims having priority over a ship mortgage is wider than in Poland. In addition to the aforementioned Polish law exceptions, priority is also given to claims for the breach of a charter-party, claims by the carrier of cargo for unpaid freight and demurrage. Another significant difference exists between the systems lies in the rights available to mortgagees. In English law, a mortgagee has the right to re-possess and sell the ship if his liability is not satisfied in a timely manner. The Polish Maritime Code does not automatically endow a mortgagee with equivalent rights. In the event of default in payment, a rigid legal procedure must be followed by either a notary or a bailiff. It takes more time for a mortgagee to satisfy his liability and, furthermore, if multiple mortgages exist over the same ship, the additional costs of the notary or a bailiff could render it impossible to fully satisfy the liability of other mortgagees.

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However, Article 84 of the Maritime Code states that if the parties (mortgagee and mortgagor) arrange thus in the mortgage contract, a mortgagee can repossess and sell the ship. Such mortgage contracts must be concluded in writing, with the signatures of the parties certified by notary, and must also be registered in the 'rejestr okrętowy'. Since the regulation of Polish ship mortgages appears to be creeping in the same direction as English law, Polish legal writings sometimes refer to mortgages arranged in accordance with Article 84 as a 'polski morgecz', this being the phonetic form of the English word mortgage, as opposed to the traditional Polish equivalent 'hipoteka morska'.

In conclusion, the international nature of maritime law means that the regulation of mortgages in both systems is quite similar. It is difficult to unambiguously assess which of the systems best regulates this matter but, in this author’s opinion, the Polish legal system is more friendly towards those investing in the maritime economy, since it recognises a narrower scope of claims having priority over ship mortgages, there are no exceptions to the possibility of creating ship mortgages over registered vessels, and it is possible to create more convenient modes for the execution of any unpaid debt.

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A New Fee on the Income from Production of Electricity Derived from Wind and Photovoltaic Power Plants in Bulgaria Vanya Georgieva BLC Sofia Alumnus

A 20% fee on income from the production of electricity by wind and photovoltaic (“PV”) power plants was approved on 5th December 2013 by the Bulgarian Parliament. Amendments to Bulgaria’s Energy from Renewable Sources Act were introduced within the Closing Provisions of the State Budget Act for 2014. The State Budget Act was published in the State Gazette on 20 th December 2013 and entered into force on 1st January 2014, i.e. the fee became payable on as of 1st January 2014. Characteristics of the fee The newly introduced fee has the characteristics of a tax. The difference between a fee and a tax is that a fee is paid for specific goods or services, whereas a tax has no connection to the benefits received by an individual. A tax is a financial charge or other levy imposed upon a taxpayer, with failure to pay being punishable by law.

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Even though the term “fee” is used in the legislation, the law does not provide for any services to be provided in consideration of such a fee. The relevant provision reads as follows: Bulgarian Energy from Renewable Sources Act “Art. 35a (1) A fee shall be collected for the production of electricity from wind and solar energy. (2) The amount of the fee under par. 1 shall be calculated with the following formula: ТПЕЕ = ПЦ х КПЕЕ х 20% where, ТПЕЕ is the fee for the production of electricity; ПЦ is the preferential price under art. 31, par. 1 excluding VAT (FiT); КИЕЕ is the quantity of electricity purchased by the Public provider and end supplier under art. 31, par. 5 (3) The producers of electricity from wind and solar energy are required to pay the fee under par. 1” Furthermore, the law provides that the due fee is non-refundable and will be deposited in the state budget. If unpaid, the fee is subject to enforcement proceedings. From the above, it may be inferred that the 20% fee in fact constitutes a discriminatory tax levied on the income of the production of electricity by wind and PV plants. Both Bulgarian and European tax legislation, as well as international acts ratified by Bulgaria, contain many requirements for the imposition of taxes, which are not observed in this case, since the tax purports to be a fee. Procedure 13


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The procedure for adopting a bill was not observed during the process for adopting the fee. The bill containing the amendments to the Bulgarian Energy from Renewable Sources Act contained no statement of motives and was not subject to any discussions in Parliament. This was in direct contravention to provisions of Bulgarian Law. The amendments were passed within the Closing Provisions of the State Budget Act for 2014, which is not a usual practice of the Parliament. The purpose for this might be to avoid suspension of the adoption of the Act by the President. The State Budget Act is subject to mandatory approval procedures by the end of the year, thereby effectively leaving the President without a veto against it.

A Similar fee has already been revoked by the court In 2012 the Bulgarian energy regulator imposed an access fee upon producers of energy from renewable sources. The fee varied between 2% to 40 %, depending upon the source of the renewable energy. Following a wave of litigation against this access fee, the court revoked the decision which led to its adoption. The court inferred that the regulator had failed to observe the correct procedure for adopting the fee. According to the court, no evidence for the necessity of the access fee was provided. Also, there were insufficient data for the manner of calculating the fee, which contravened the provisions of the Bulgarian Energy Act. The latter requires that fees must be determined on the basis of non-discriminatory and transparent criteria. In essence, the newly adopted fee is similar in design to the access fee already revoked by the court. Thus it is expected that the new fee will led to a new flood of litigation.

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What follows? The President announced that he intends to challenge the amendments before the Constitutional Court of Bulgaria, given the absence of public discussion and analysis on the impact of the adopted measure. According to the President, it is also unclear what the potential income from the implementation of the fee will be used for. However, the mere fact of proceedings before the Constitutional Court does not lead to the interim suspension of the law. This means that the fee shall be due until the moment it is cancelled by virtue of a court decision. Conclusion The 20% fee introduced at the end of last year was not adopted in accordance with the applicable Bulgarian law. The procedure for its adoption was not observed. It also has the characteristics of a tax, however it is not imposed in accordance with the relevant tax legislation of Bulgaria and the European Union. The fee discriminates against producers of energy from wind and PV Plants in comparison with producers of energy conventional sources, who are not charged such a fee. This is in violation of Directive 2009/28/EC of the European Parliament and of the Council of 23 rd April 2009 on the promotion of the use of energy from renewable sources. The latter establishes a common framework for the promotion of energy from renewable sources and sets the mandatory national target of 16 % for the overall share of energy from renewable sources in gross final consumption of energy. Given these defects in the procedure and the nature of the fee, as well as the impediment of the 16% national target, it is expected that the fee will be contested before the competent Bulgarian and European authorities in the near future. 15


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