374. Falkonera Shipping Company v Arcadia Energy Pte Ltd (“the Falkonera”) [2012] EWHC 3678 (Comm); [2014] EWCA Civ 713

Ship-to-Ship transfers involving two VLCC’s – not precluded by terms of agreement – owners’ refusal to consent to such transfers held unreasonable

The Facts

The vessel, a VLCC, was chartered in a recap email to perform a single voyage to carry crude oil from the Yemen to 1-2 ports, Far East on amended BP Voy 4 terms.

Charterers nominated Pasir Gudang, Malaysia as discharge port.

Material provisions of the charter were as follows:

“8.1 Charterers shall have the option of transferring the whole or part of the cargo…to or from any other vessel including, but not limited to, an ocean-going vessel, barge and/or lighter (the “Transfer Vessel”)…. All transfers of cargo to or from Transfer Vessels shall be carried out in accordance with the recommendations set out in the latest edition of the “ICS/OCIMF Ship to Ship Transfer Guide (Petroleum)”. Owners undertake that the Vessel and her crew shall comply with such recommendations, and similarly Charterers undertake that the Transfer Vessel and her crew shall comply with such recommendations. Charterers shall provide and pay for all necessary equipment including suitable fenders and cargo hoses. Charterers shall have the right, at their expense, to appoint supervisory personnel to attend on board the Vessel, including a mooring master, to assist in such transfers of cargo.”

“(i)…if charterers require a ship-to-ship transfer operation or lightening by lightering barges to be performed then all tankers and/or lightering barges to be used in the transhipment/lightening shall be subject to prior approval of owners, which not to be unreasonably withheld, and all relevant certificates must be valid.   
(ii)        all ship-to-ship transfer operations shall be conducted in accordance with the recommendations set out in the latest edition of the ics/ocimf ship-to-ship transfer guide (petroleum).    
(iii)       all such lightering ships must have a fully working inert gas system (igs), unless the cargo flash point exceeds 60f and only with express approval of the owners/master.”

 Charterers provided owners with a proposed STS schedule which involved ship-to-ship transfers from the vessel to 3 different vessels, two of which were VLCC’s.

Owners refused their consent to the VLCC’s on four main grounds:

  1. That the ICS/OCIMF ship-to-ship transfer guide (Petroleum) did not permit the transfer from one VLCC to another;
  2. Past experience of a problematic VLCC to VLCC transfer;
  3. Potentially unsatisfactory headline and sternline moorings
  4. Potentially poor vertical aspect of the moorings.

 Charterers were unsuccessful in their attempts to persuade owners to accept the nominated vessels and sought to hold owners liable for demurrage and other expenses incurred by having to make alternative discharge arrangements.

 Findings

In a trial before Eder J, both parties led evidence of communications between them leading up to the owners’ refusal.  Technical evidence was also led relating to the feasibility of ship-to-ship transfers between vessels of the same size, in particular between VLCC’s in the specific port conditions of Pasir Gudang.

Eder J found that the fact that the ICS/OCIMF STS transfer Guide contained no specific recommendations for VLCC to VLCC ship-to-ship transfers, did not give rise to the inference that such operations were proscribed.  He found that ship-to-ship transfers between VLCC’s, although “non-standard”, did occur and could be carried out safely; owners’ past unsuccessful experience of such a transfer was not representative of the norm. 

He accepted the owners’ submission that they were only in breach if no reasonable shipowner could have regarded their concerns as sufficient reason to decline approval.

In the light of his factual findings, owners’ refusal was unreasonable and charterers were entitled to damages.

The Court of Appeal (Christopher Clarke LJ with Floyd LJ and Sir Stanley Burnton concurring) agreed.

Commentary

It is surprising that leave was given to appeal on this reasonably straightforward question of fact.

 

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