LEGAL ASPECTS OF OIL MAJOR APPROVALS IN TANKER

LEGAL ASPECTS OF OIL MAJOR APPROVALS IN TANKER CHARTERPARTIES DAVID MCINNES PARTNER

“SHELLTIME 4” CHARTERPARTY, CLAUSE 43 > “IF AT ANY TIME DURING THE CHARTER PERIOD, THE VESSEL BECOMES UNACCEPTABLE TO ANY OIL MAJOR, CHARTERERS SHALL HAVE THE RIGHT TO TERMINATE THE CHARTER. ” > CLAUSE 43 DOES NOT DEFINE AN “OIL MAJOR” > UNTIL RECENTLY VERY LIMITED CASE LAW AND GUIDANCE IN RELATION TO OIL MAJOR APPROVALS > THE SEA FLOWER (NO. 2) [2000] 2 LLOYD’S REP 37; [2001] LLOYD’S REP 341. > RECENT CASES: 1. 2010 LMAA ARBITRATION THE M/V “L”; 2. DOLPHIN TANKERS SRL-v-WESTPORT PETROLEUM INC “M/T SAVINA CAYLYN” [2010] EWHC 2617; 3. TRANSPETROL MARITIME SERVICES LTD-v. SJB (MARINE ENERGY) BV “M/T ROWAN” [2010] EWHC 3374.

RECENT INCE ARBITRATION, M/V “L” “SHELLTIME 4”, CLAUSE 43 > “TO THE BEST OF OWNERS’ KNOWLEDGE, AT THE DATE OF THIS CHARTER THE VESSEL IS ACCEPTABLE TO BP, EXXON MOBIL, CDI – CEPSA, SHELL, STATOIL. WITH CHARTERERS’ ASSISTANCE (WHICH NOT TO BE LIMITED TO JUST TIMELY ADVISING DETAILS OF VESSEL’S LOADING/DISCHARGING PROGRAM AND OF CHARTERERS’ AGENTS), OWNERS SHALL ARRANGE INSPECTIONS, OR OBTAIN ACCETPTANCE OF THE VESSEL IN ACCORDANCE WITH THEIR TRADING PATTERN BY/FROM OTHER OIL MAJORS REASONABLY REQUIRED BY CHARTERERS IN PARTICULAR TOTAL AND RYTTSA IN ORDER TO TRADE THE VESSEL…IF, AT ANY TIME DURING THE CHARTER PERIOD, THE VESSEL HAS LESS THAN THREE OIL MAJORS’ APPROVALS THE CHARTERERS SHALL HAVE THE RIGHT TO TERMINATE THE CHARTER. ”

OWNERS’ OIL MAJOR INSPECTIONS AND APPROVALS LIST OF 2 MAY 2008 OIL MAJOR INSPECTION STATUS VALID BP INSPECTION NO SHELL INSPECTION NO REPSOL INSPECTION NO TOTAL INSPECTION NO INNOVENE SIRE YES PREEM INSPECTION NO BHP RIGHTSHIP INSPECTION YES SGS REPORT YES CDI INSPECTION YES

THE DEFENCES RAISED BY THE OWNERS TO THE CANCELLATION > AN “OIL MAJOR” UNDER CLAUSE 43 MEANS A “MAJOR PRODUCERS OF PETROCHEMICAL PRODUCTS AND/OR CHARTERERS OF PETROCHEMICAL TONNAGE AND/OR VESSEL ASSESSMENT AND APPROVAL AGENCIES TO WHICH SUCH PARTIES DELEGATE ASSESSMENT OF THE SUITABILITY OF THE VESSEL” THE VESSEL THEREFORE HAD THREE OIL MAJOR APPROVALS. > THE OBLIGATION UNDER CLAUSE 43 ON THE OWNERS WAS ONLY TO EXERCISE DUE DILIGENCE TO OBTAIN APPROVALS, NOT AN ABSOLUTE OBLIGATION. THE VESSEL’S TRADING PATTERN DID NOT PERMIT INSPECTION BY OIL MAJORS AND THEREFORE THERE WAS NO BREACH OF CLAUSE 43. > THE CHARTERERS WERE OR OUGHT TO HAVE BEEN AWARE THAT THE VESSEL DID NOT HAVE THREE OIL MAJOR APPROVALS FOR A CONSIDERABLE PERIOD OF TIME. THE CHARTERERS FAILED TO EXERCISE THEIR RIGHT TO CANCEL WITHIN A REASONABLE PERIOD OF TIME AND EXERCISED OTHER CONTRACTUAL RIGHTS CONTRARY TO THE SAME AND IN THE CIRCUMSTANCES WAIVED OR WERE ESTOPPED FROM THE RIGHT OF CANCELLATION. > FOLLOWING TERMINATION ON 6 MAY 2008 THE VESSEL WAS IN FACT ACCEPTED BY A NUMBER OF OIL MAJORS SHOWING THAT THE VESSEL WAS ACCEPTABLE TO OIL MAJORS.

DECISION OF THE TRIBUNAL > INNOVENE, BHP RIGHTSHIP, SGS AND CDI WERE NOT “OIL MAJORS”. THE VESSEL DID NOT HAVE THREE OIL MAJOR APPROVALS AT THE TIME THE CHARTERERS CANCELLED THE CHARTERPARTY ON 6 MAY. > CHARTERERS VALIDLY CANCELLED THE CHARTER ON 6 MAY 2008. EFFECTIVELY THE OBLIGATION WAS A CONDITION OR ABSOLUTE OBLIGATION. > THE OWNERS’ WAIVER/ESTOPPEL ARGUMENTS WERE REJECTED. IT WAS ONLY ON 2 MAY 2008 THAT THE CHARTERERS HAD SUFFICIENT KNOWLEDGE TO BE PUT TO AN ELECTION REGARDING HOW TO PROCEED AND FOLLOWING THIS THEY ACTED PROMPTLY TO EXERCISE THEIR RIGHTS TO CANCEL.

OTHER POINTS ARISING > THE REALITY IS THAT OIL MAJORS NOWADAYS DO NOT GIVE “APPROVALS” OF VESSELS. AS SUCH IT IS DIFFICULT TO DETERMINE IN PRACTICE WHETHER A VESSEL HAS OIL MAJOR APPROVALS. > IN ADDITION TO CANCELLATION DO THE CHARTERERS ALSO HAVE A RIGHT TO CLAIM DAMAGES?

DOLPHIN TANKERS –V- WESTPORT PETROLEUM > “. . SHOULD BE (SIC) VESSEL BE FAILED ON THREE (3) CONSECUTIVE OIL MAJOR VETTING REVIEWS / INSPECTIONS DUE TO OWNERS’ / VESSEL’S REASON, THE CHARTER’S (SIC) SHALL HAVE THE OPTION TO PUT THE VESSEL IMMEDIATELY OFF-HIRE UNTIL THE VESSEL NEXT PASSES A VETTING / INSPECTION. . . AND SHALL HAVE THE OPTION TO CANCEL THE CHARTER. . A VETTING REVIEW / INSPECTION IS DEFINED AS A NOMINATION BY THE CHARTERER’S (SIC) TO AN OIL MAJOR AND THE OIL MAJOR REVIEWING THE VESSEL BY EITHER A PHYSICAL INSPECTION OR LATEST SIRE INSPECTION REPORT. . ”

THE DEFENCES RAISED BY THE OWNERS TO THE CANCELLATION > CONOCO PHILLIPS, WHO HAD REJECTED THE VESSEL, WERE NOT AN “OIL MAJOR”. THE TRIBUNAL HELD THAT CONOCOPHILLIPS WERE AN OIL MAJOR. > THE VESSEL DID NOT FAIL THREE CONSECUTIVE OIL MAJOR VETTINGS BECAUSE THE VESSEL WAS APPROVED BY BP, ALTHOUGH THIS WAS AS A RESULT OF A UNILATERAL APPROACH BY BP TO THE OWNERS RATHER THAN A NOMINATION BY THE CHARTERERS OF BP. THIS DEFENCE WAS ALSO REJECTED AS THE CLAUSE SPECIFIED THAT THE VETTING HAD TO BE ONE NOMINATED BY THE CHARTERERS. > THE OWNES CONTENDED THAT THERE COULD ONLY BE A QUALIFYING REJECTION OF THE VESSEL FOLLOWING A VETTING REVIEW WHERE THE LATEST SIRE INSPECTION REPORT WAS THE OR AT LEAST AN EFFECTIVE CAUSE OF THE REJECTION BUT NONE OF THE REJECTIONS RELIED ON REFERRED TO REVIEW OF THE SIRE REPORT BEING AN EFFECTIVE CAUSE OF REJECTION. IT WAS HELD THAT THIS WAS NOT NECESSARY - IT SUFFICIENT THAT THE LATEST SIRE REPORT HAD BEEN CONSIDERED BY THE OIL MAJOR AS PART OF THE PROCESS.

TRANSPETROL MARITIME SERVICES –V- SJB > THE RECAP STATED: “TBOOK WOG VSL IS APPROVED BY: BP / LITASCO / STATOIL – EXXON VIA SIRE”. > THE RECAP ALSO INCORPORATED THE CHARTERERS STANDARD CHARTERING TERMS WHICH PROVIDED: “OWNER WARRANTS THAT THE VESSEL IS APPROVED BY THE FOLLOWING COMPANIES AND WILL REMAIN SO THROUGHOUT THE DURATION OF THE CHARTERPARTY. . . TBOOK VSL IS APPROVED BY: BP / EXXON / LUKOIL / STATOIL / MOH”.

ISSUES IN DISPUTE > THERE WAS AN ISSUE OF CONSTRUCTION OF THE CHARTERPARTY, THE OWNERS CONTENDING THAT THE WORDS “WOG” (WITHOUT GUARANTEE) MEANT THAT THERE WAS NO WARRANTY OF APPROVAL BY THE SPECIFIED OIL MAJORS. HOWEVER, THE COURT HELD THAT THIS DID NOT OVERRIDE AND THAT THE FURTHER CLAUSE HAD NOT BEEN CANCELLED, SO THE OWNERS HAD WARRANTED APPROVAL BY THE NAMED OIL MAJORS AND THAT THE VESSEL WOULD REMAIN APPROVED BY THEM THROUGHOUT THE CHARTERPARTY. > THE COURT CONSIDERED IN DETAIL WHAT CONSTITUTED AT THE RELEVANT TIME “APPROVAL” BY AN OIL MAJOR. THE COURT HELD THAT “APPROVED” MEANT “ACCEPTABLE TO” OIL MAJORS WHO MIGHT OR MIGHT NOT, WHEN THE PROSPECT OF A REAL TRANSACTION AROSE, DECIDE TO APPROVE THE VESSEL. HOWEVER, IT WAS NOT THE PRACTICE OF OIL MAJORS AT THAT TIME TO GRANT APPROVALS IN ADVANCE. EXPRESS APPROVALS WERE ONLY GIVEN FOR SPECIFIC VOYAGES, NOT FOR A SPECIFIED PERIOD OF TIME. > (CONTINUED. . )

ISSUES IN DISPUTE (CONTINUATION) > WITH REGARD TO QUALIFICATION OF “TBOOK” (TO THE BEST OF OWNERS’ KNOWLEDGE) IT WAS HELD THAT THIS CANNOT TAKE THE OBLIGATION BEYOND THE EXTENT OF THE OWNERS ACTUAL KNOWLEDGE AND DOES NOT REQUIRE THE OWNERS TO MAKE ENQUIRIES ADDITIONAL TO THOSE THAT WOULD ORDINARILY BE MADE. HOWEVER, IN THIS CASE IT WAS HELD THAT THE OWNERS HAD BREACHED THE CHARTEPARTY CLAUSE BECAUSE OF PROBLEMS EXPERIENCED AT ANTWERP. THE OWNERS COULD NOT POSSIBLY HAVE BELIEVED THAT APPROVALS REMAINED IN PLACE IN THE LIGHT OF THOSE PROBLEMS.

david. mcinnes@incelaw. com