Model clause

Energy Efficiency in Shipping

Otto's Clause

A contractual duty in charterparties for both parties (charterers and owners) to take all reasonable steps to maximise energy efficiency.

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Why use this?

Companies and their legal representatives can incorporate this clause into any charterparty. It should be easy to lift into any charterparty or precedent as another obligation on owners and charterers.

It will then be up to the commercial parties to set appropriate actions to realise the intended change of reducing emissions.

How it promotes a net zero future

This solution would act as a practical step towards achieving the IMO's initial strategy on GHG emission reductions, which includes a target to reduce the total annual GHG emissions from international shipping by at least 50% by 2050 compared to 2008 emissions levels.

It also promotes collaboration between multiple stakeholders which is required to reduce GHG emissions. Encouraging parties to actively consider measures to promote fuel efficiency will encourage the development of new market practices.

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The clause

Additional Definitions 

EEOI shall have the meaning given to it in clause [1.3].

EEOI Guidelines shall mean the Guidelines for Voluntary Use of the Ship Energy Efficiency Operational Indicator (MEPC.1/Circ.684) published by the IMO on 17 August 2009.

[Fuel Efficiency shall mean the ratio of mass of carbon dioxide emitted per unit of transport work, calculated in accordance with the EEOI Guidelines.]

Fuel Efficiency Fee shall have the meaning given to it in clause [2.3].

 

Additional Clauses

1. Energy Efficiency Clause 

1.1. Each party agrees to take all reasonable measures to maximise the Fuel Efficiency of the Vessel during the term of this Charterparty.

1.2. The measures taken by the parties under clause 1.1 shall include but not be limited to:

1.2.1. using all reasonable efforts to ensure the Vessel slow steams when travelling pursuant to this Charterparty;

1.2.2. cooperating [with each other and the other party’s relevant representatives and contractors] to promote the fuel-efficient operation of the Vessel, such as collaborating with respect to weather routing, speed optimisation, and other measures as proposed by the EEOI Guidelines;

1.2.3. cooperating and liaising with relevant third parties such as port operators, agents and cargo interests in order to maximise fuel efficiency.

1.3. For the purposes of this clause, Fuel Efficiency shall be measured by reference to the energy efficiency operational indicator as set out in the EEOI Guidelines (EEOI).

1.4. Upon request, the [Parties] shall disclose to one another all information required to calculate the EEOI for the requested period. This information is to be disclosed within seven (7) days after completion of the relevant voyage or within seven (7) days of the relevant information becoming available (whichever is the earlier).

1.5. If a [Party] is in breach of clauses [1.1] or [1.4], the other [Party] may within [2] days of becoming aware of the breach, serve a notice identifying the breach and requiring rectification of the breach. If the breach is not rectified (i) in the case of breach of clause [1.1] within [14] days and (ii) in the case of a breach of clause [1.4] within [2] days, the [Party] in breach agrees to pay liquidated damages in accordance with clause [2] below.

1.6. At no time should this clause be construed as requiring the [Parties] to take any measures which [may compromise/ conflict with any legal obligation relating to]:

(i) the safety of the Vessel or her crew;

(ii) assistance of vessels in distress; or

(iii) attempts to save life or property at sea.  

1.7. The [Parties] shall ensure that clauses [1] and [2] with minimal amendments to ensure that the objectives of those provisions are preserved (or equivalent clauses that are no less onerous than clauses [1] and [2]) are included in all sub-charterparties concerning obligations under this Charterparty in a manner that binds any relevant third parties engaged to meet or facilitate the meeting of those obligations.      

2. Fuel Efficiency Fee 

2.1. The [Parties] acknowledge and agree that, in respect of any breach of clause [1], the breaching party may cause losses to the other party that are wide ranging in nature and difficult to quantify with precision, including losses related to damage to the climate and the environment, consequential breaches of environmental laws, diminished standing with states, governments and regulators,  and damage to that party’s reputation (all of which the Parties accept for the purpose of this [Charterparty] as being losses incurred by a breach of clause [1]). 

2.2. Without prejudice to the Parties’ right to damages, the Party in breach agrees to pay the Fuel Efficiency Fee as defined in and determined in accordance with clause [2.3] as liquidated damages for the relevant breach. The parties agree that any Fuel Efficiency Fee payable under this [Charterparty] to provide compensation for damage caused by a Party’s breach of clause [1] is reasonable and proportionate to the legitimate interests of the other Party in the performance of obligations under clause [1] and the adoption of sustainable business practices, as well as mitigating, setting off, counteracting, and repairing that damage (and preventing future damage). Each Party agrees that it has been properly advised regarding the negotiation of this [Charterparty], and in particular regarding the inclusion of the Fuel Efficiency Fee as a remedy for breaches of clause [1].           

2.3. If a Party fails to rectify its breach of clause [1] in accordance with clause [1.5], the Party in breach shall pay, as liquidated damages, [£/$ [-]] for each [day’s] default for the period determined in accordance with clause [2.4], [up to a maximum of £/$ [ – ]] (the Fuel Efficiency Fee).      

2.4. The liquidated damages payable under clause [2.3] shall accrue from [the calendar day after the last day of the remediation period specified in clause [1.5] and shall continue until the earlier of:

2.4.1. Rectification of default by the Party in breach;

2.4.2. Termination of this [Charterparty] in accordance with its terms; or

2.4.3. Abandonment of this [Charterparty] by the Parties.

2.5. The non-breaching party may invoice at any time for any amount of the Fuel Efficiency Fee that is payable by the breaching party (including in circumstances in which the Fuel Efficiency Fee continues to accrue). The Fuel Efficiency Fee is to be paid within [14] days of the breaching party’s receipt of an invoice under this clause [2.5] to [an initiative aiming to research low-carbon technologies for shipping chosen by the non-defaulting Party]. The Party in breach shall provide the other Party with reasonable proof of permanent, unconditional payment to this initiative. 

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