UK: Oil Major Approvals - When Are They Required Throughout The Charter?

Last Updated: 18 April 2012
Article by David McInnes and Evangelos Catsambas

Transpetrol Maritime Services Limited v. SJB (Marine Energy) (BV Rowan) [2012] EWCA Civ 198

In our April 2011 E-Brief, we reviewed the Commercial Court decision in this dispute, where the judge upheld the charterers' claim for damages against the owners on the basis that the vessel was not in a fit state to be approved by any oil company and, in particular, the oil majors identified in the recap email containing the charterparty. The Court of Appeal has now allowed the owners' appeal against that decision.

The background facts

In 2007, Transpetrol Maritime voyage-chartered their tanker Rowan to SJB (Marine Energy) to carry fuel/vacuum gasoil from the Black Sea to the U.S. Gulf. The vessel loaded in the Black Sea. The charterers exercised their option to discharge at Antwerp and re-load there. The re-loaded vacuum gasoil cargo did not at that time have a buyer.

At Antwerp, she underwent her Class Annual Survey. Her low suction sea chest valve was found to be in need of repair. Class allowed this to be done at her next port of call in the U.S. and made this a Condition of Class. The charterers agreed to this so long as it did not adversely affect her vetting prospects with their U.S. customers.

The owners invited Shell to inspect the vessel, because Shell approval would have helped greatly with her marketing. Shell inspected her and noted 33 deficiencies in its SIRE report, though not the defective valve. The owners sent the customary letter commenting on the noted deficiencies. The next day, the charterers agreed to sell the cargo to Shell, subject to Shell vetting the ship.

The owners reported that the valve defect was fixed and that the Class surveyor should inspect it at the next port in order to delete the Condition of Class. Shell rejected the vessel and decided not to buy the cargo. The charterers said that the vessel's reputation was tarnished by what had happened and that the cargo could not be sold on satisfactory terms. They claimed damages for the difference between what Shell had provisionally agreed to buy it for and what it was ultimately sold for, alleging that the vessel had ceased to be in a fit state to be approved by any of the named oil majors. The charterers put their claim at US$3.2 million.

The charterparty terms

The charterparty was in the form of an email recap referring to Vitol's 1999 Voyage Chartering Terms. Clause 18 of Vitol's Terms (headed "Oil Company Approvals Clauses") stated that "Owner warrants that the Vessel is approved by the following companies and will remain so throughout the duration of this charterparty".

The recap referred to clause 18 and said "TBOOK VESSEL APPROVED BY:- BP/EXXON/LUKOIL/STATOIL/MOH". It also had a section headed "VESSEL INFO" saying: "TBOOK WOG VSL IS APPROVED BY:- BP/LITASCO/STATOIL-EXXON VIA SIRE".

At the charterparty date, the named oil majors had sent letters saying that they had received sufficient information with regard to the vessel and would not normally require her re-inspection for another year, though these letters were said not to constitute blanket approval of the vessel. Such cautious phraseology in oil major approvals has been common practice in recent years as a result of significant pollution incidents.

Clause 18 contained a warranty as to approval throughout the charter. However, the language of the recap fixture was different: "TBOOK" (to best of owners' knowledge) and "WOG" (without guarantee by owners, i.e. no liability in the absence of fraud/bad faith).

The charterers needed to show that clause 18 had to be read with the recap phrase "TBOOK VESSEL APPROVED BY:- BP/EXXON/LUKOIL/STATOIL/MOH". If it did, then it was potentially breached when she was rejected by Shell.

The Commercial Court decision

The charterers succeeded at first instance. The judge held that clause 18 had to be read with the recap phrase, in other words the recap added to it but did not replace it. The charterers had also argued that the oil major letters did not make the vessel "approved" at the charterparty date, given how they were phrased. The judge rejected this argument.

The Court of Appeal decision

The owners appealed to the Court of Appeal and won. The Court of Appeal thought that clause 18 went to the vessel's documentation and not to her condition: it required approval letters to be in place at all times, but did not prohibit her from being in a condition which might cause that approval to be lost. The Court of Appeal did not, however, decide firmly on this point, because it was unnecessary.

In the Court of Appeal's view, the recap phrase "TBOOK VESSEL APPROVED BY:- BP/EXXON/LUKOIL/STATOIL/MOH" replaced clause 18, so that there was no ongoing warranty. The appeal court also considered that clause 18 could not be read with the "TBOOK" recap provision because it was not possible for the owners to give a continuing warranty to the best of their knowledge. The appeal judges concluded that, at the charterparty date, the vessel was approved and the owners knew of nothing which would cause that approval to be lost. Furthermore, because clause 18 was not a term of the charterparty, there was no warranty as to approval continuing throughout the charter.

The owners had an additional argument that "WOG" in the section headed "VESSEL INFO" had to be read into the "TBOOK VESSEL APPROVED BY:- BP/EXXON/LUKOIL/STATOIL/MOH" phrase. The Court of Appeal rejected this argument. Whilst it was understandable for the owners to water down the description with "WOG" since the charterers could terminate the charterparty if the description was incorrect, the approvals requirement was different and "WOG" did not appear in the section dealing with that.

Comment

The Court of Appeal's judgment will make practical sense to many. It also highlights the importance of parties being clear in their recap fixtures as to what they intend to agree.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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