Due Diligence - Obligation to Maintain III

January 2009

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Following on from Mr Justice Cooke’s judgment in Golden Fleece Maritime v ST Shipping (“Elli”/”Frixos”) inAugust last year and the Court of Appeal judgment in May 2008, discussed issues 9 and 12 of Sea Venture (see also: Due Diligence - Obligation to Maintain II ) the House of Lords has now rejected owners’ application for leave to appeal. 

It will be recalled that the case focused on new MARPOL regulations concerning the carriage of fuel oil which came into effect in April 2005. As at October 2003, heavy grades of oil could only be carried within the EU in double-hulled vessels.   MARPOL regulation 13H in tandem required, as of April 2005, that fuel oil cargoes be carried in double-hulled vessels only, save for an exemption for vessels with “double-sides not used for the carriage of oil and extending to the entire cargo tank length.” A fully double-sided vessel is one where each cargo tank is protected on the outside by ballast tanks, forming a barrier to the cargo tanks in the event of a collision and thus reducing the likelihood of breach. 

The vessels had been described in the charters as “double-sided” but a small part of two slop tanks, aft of the cargo tanks, was bordered by bunker tanks rather than ballast tanks and Class had subsequently determined the vessels to be only “partially double-sided.” Accordingly, the vessels did not fall within the MARPOL exemption and, as at April 2005, could not lawfully carry fuel oil cargoes. The issue between owners and charterers was which of them should bear the risk of a change in international regulations which have the effect of restricting the cargoes which can be carried during the currency of a long term charter.

While it is always a matter of construing the particular charter as a whole the “Elli” / “Frixos” is now authority that this burden will most likely fall on owners where the change concerns due diligence obligations and warranties as to the vessel complying with international conventions.  

In light of the current market conditions, it is likely charterparty provisions will come under greater scrutiny than may otherwise have been the case and in a market where charterers seek to avail themselves of any opportunity to escape from an unfavourable fixture, owners need beware of the need to comply with all necessary obligations.