Ship-to-ship transfer – whether reasonable to refuse permission

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

The parties entered into a voyage charter of the Falkonera, a VLCC, on BPVOY4 with amendments, which included:

"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 …

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 shall be subject to prior approval of owners, which not to be unreasonably withheld, and all relevant certificates must be valid"

The Falkonera loaded oil in Yemen. Charterers asked owners to approve STS transfers into three vessels (Kythira, Front Queen and Front Ace). Kythira was smaller than Falkonera, while Front Queen and Front Ace were both VLCCs, the same size as Falkonera. Owners approved transfer to Kythira, but refused to allow transfer from the Falkonera into either the Front Queen or the Front Ace, in spite of a number of efforts to deal with owners' safety concerns. Charterers then proposed an alternative vessel, True, and eventually permission for discharge into True was given, and the cargo was transferred into True and Kythira.

Charterers claimed that implementing the plan of bringing in the True involved significant delay and increased cost which were for owners' account. They argued that owners had unreasonably refused permission for the proposed STS transfers, as their opposition was based on aversion to any VLCC-VLCC transfer, rather than to the characteristics of a particular vessel.

Charterers' claim succeeded, and owners appealed:

Held:
 
The appeal was dismissed.
 
1     It was for charterers to prove that owners had acted unreasonably. In order to entitle owners to withold approval it was not necessary that their conduct was correct or their conclusions right. They would only be in breach if no reasonable shipowner could have regarded their concerns as sufficient reason to decline approval.

2     The right to transfer was "to … any other vessel", including a VLCC. The fact that transfer VLCC to VLCC could be regarded as non-standard was not of itself reasonable ground for refusal. Owners were taken to have agreed in the contract to have accepted such risks as were inevitably attendant on a VLCC-VLCC transfer. It was necessary for there to be some other basis on which the withholding of approval could be said to be unreasonable.

3     The issue was not whether owners were satisfied with the planning of the STS transfer, but whether there was some characteristic of the receiving vessel which meant that the STS would be unsafe.

4     The judge's conclusion was one of fact, reached after extensive consideration of expert evidence. He had applied the correct legal test.

(Falkonera Shipping v Arcadia Energy [ 2014 ] EWCA Civ 713)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

LNG time charter on Shelltime 4 – meaning of injurious cargo

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

In an LNG time charter based on Shelltime 4, a clause provided: "No acids, explosives or cargoes injurious to the vessel shall be shipped".

G (the charterers) loaded a cargo of LNG onto the vessel in the United States. M (the owners) alleged that the cargo was injurious to the vessel because it contained debris, in particular metal particles, which had contaminated the vessel's cargo pumps and tanks, causing abrasion, rust and risk of electrical short and pump failure, and that consequently major repairs to the vessel were required after it was dry-docked.

G disputed that the cargo was injurious. There was no previous authority on the meaning of "injurious" cargoes.

Held:

M's claim failed.

1     In order to be "injurious", cargo had to either cause physical damage to the vessel or have a tendency or propensity to cause damage.

2     The evidence about the loading of the cargo justified the inference that some small particles had passed through the mesh filters in the manifolds before they clogged on two occasions, and that some of the particles, maybe as many as one-third of them, were metallic. However, no more could be inferred: the evidence did not establish that larger particles were loaded in any significant number, and it provided no basis for inferring how much particulate debris was loaded. The evidence did not support M's reasoning that the bulk of the debris found in the tanks was from the loading, nor did it establish M's case that debris from the loading created a risk of damage to the vessel. Some of the debris found in the vessel's tanks after it was dry-docked was debris from the loading, but M had not proved that much of it was shipped by G at the loading terminal. It was more likely that the greater part of it was from elsewhere.

3     On the facts, owners had failed to prove that the charterers had shipped a cargo which was injurious to the vessel, or that metallic particles in the cargo had created potential dangers to the vessel.

(American Overseas Marine v Golar Commodities [ 2014 ] EWHC 1347 (COMM))

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Trip time charter – whether vessel off-hire during detention

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

A vessel was chartered by NYK to Cargill for a time charter trip. Cargill sub-chartered to Sigma. The cargo was a shipment sold by Transclear to IBG. (Transclear were a sub-charterer, but it was not clear whether this was from Sigma or from an intermediate charterer.)

A dispute concerning unpaid demurrage arose between Transclear and IBG and Transclear had the vessel arrested. Cargill withheld hire for the period of the arrest, relying on clause 49 of the charterparty:

"Should the vessel be captured or seizured [sic] or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents."

The arbitral tribunal held that Cargill were entitled to put the vessel off hire. On appeal Field J held that Cargill were not so entitled. Cargill appealed.

 Held:

The appeal was dismissed. Cargill were not entitled to put the vessel off hire, as the arrest had been "occasioned by any personal act or omission or default of the Charterers or their agents".

1     The word "agents" in clause 49 was not limited to agents strictly so called. Delegates of Cargill could be its agents for the purposes of the clause, irrespective of the precise contractual relationship existing between the delegate and the party above him in the contractual chain. The word “agents” was accordingly capable of extending to sub-charterers, sub-sub-charterers and receivers.

2     The acts or omissions or defaults in question were not restricted to those occurring "in the course of the performance by the delegate of the delegated task".

3     The general scheme of clause 49 was that the vessel would be off-hire where the relevant matters were either on NYK's side of the line or were the acts or omissions of third parties (eg government authorities) unconnected to either NYK or Cargill.

4     However, the dispute between Transclear and IBG clearly fell on Cargill's side of the line. The dispute arose out of Cargill's trading arrangements. The result was that hire continued to run over the relevant period (subject to questions of causation). The acts or omissions of both Transclear and IBG led to that result.

(The Global Santosh [ 2014 ] 2 Lloyd's Rep 103)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Foreign insolvency – whether termination of contract of affreightment prevented

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

F, a party to a contract of affreightment which was expressly subject to English law, had an express right to terminate the contract on the insolvency of the other party, P (a Korean company). P entered into an insolvency process in Korea, and that process was recognised by an order of the English Court as a "foreign main proceeding under the Cross-Border Insolvency Regulations 2006 ("the CBIR").

F terminated the contract of affreightment under its express contractual right. The administrator of P applied to the English Court for an order that F should not exercise its right to terminate.

Held:

The application was rejected by Morgan J.

1     The Court's power under CBIR to order a stay of "the commencement or continuation of individual actions or individual proceedings" did not apply. The service of a notice terminating the contract was not the commencement or continuation of an individual action or individual proceeding.

2     

The Court had power under CBIR to grant "any appropriate relief". However:
2.1     that did not give the Court power to order that F should not terminate the contract. The Court's power was limited to relief which would be available to the court when dealing with a domestic insolvency.

2.2     Even if the court had such a power, the judge would not have exercised it. It was appropriate for the Companies Court to apply English law and to give effect to the parties' choice of English law.

(Fibria v Pan Ocean [ 2014 ] EWHC 2124 (Ch))

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Sale of contaminated sunflower seed oil – measure of damages

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

A FOSFA tribunal considered a claim by Saipol as FOB buyers for contamination of sunflower seed oil. The sale contract was for 3,000 MT sunflower seed oil, which was shipped as part of a total cargo of 16,600 MT. Saipol were buyers of all the cargo from 5 different sellers. Before shipment all 5 consignments had been commingled. On discharge it was discovered that the entire cargo was contaminated.

The buyers claimed the difference in value between sound and contaminated cargo, and also consequential losses. Their claim against Saipol related to all 16,600 MT on the basis that each seller was in breach of contract, and each seller had contributed to the contamination of the whole; accordingly each seller was liable for the whole of the losses. The tribunal held:

1     There being no special circumstances, the applicable measure of damages was that laid down in Sale of Goods Act, s 53(3). Buyers were entitled only to the difference between goods as warranted and their actual value.

2     Sellers' liability extended only to the 3,000 MT.

Buyers appealed.

Held:

The appeal was allowed:
1     The tribunal had proceeded on the basis that the only potentially applicable measures were s 53(3) and s 54. The correct starting point was s 53(2). Under 53(2) there can be, depending upon the facts, a claim for consequential losses on the basis that they will arise in the usual course of things.

2     The tribunal had given no proper reasons for rejecting the contention as to joint contribution in breach of contract relating to the contaminated cargo as a whole.

The matter would be remitted to the tribunal to consider, applying the law as it should have been applied.

(Saipol v Inerco Trade [ 2014 ] EWHC 2211)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO