Time Charter - Oil Major Approval Clauses

December 2001

(Sea Venture Volume 20)

The first instance decision in the "Seaflower"¹ was reported in "Sea Venture" Vol.19 ². The question for the court was whether the Charterers were entitled to terminate the charterparty as a result of the Owners' failure to obtain Exxon approval for the vessel. The first instance decision was appealed and the Court of Appeal³ decision is summarised below:

1. Each case will turn on its on facts but in this particular case much weight was given to the fact that if "even one" oil major approval was lost and the Owners were unable to reinstate within 30 days, the Charterers had the right to cancel the charterparty. The Court of Appeal decided that even though the Exxon approval was never obtained (and could not, therefore, be lost) it would be inconsistent to apply a different remedy to what was effectively an equivalent situation, despite the fact that it was never addressed directly in the terminology of the charterparty.
   

2. There has to be certainty: The Court of Appeal decided that if it had not interfered with the first instance decision, meaning that the Owners' failure to obtain Exxon approval within 60 days would entitle the Charterers to damages only, the Charterers would not have known where they stood and would have been unable to enter into a contract with Exxon themselves or to sub-charter on the same basis.
   

3. The use of the term "guarantee" ( "Owners guarantee to obtain within 60 (sixty) days Exxon approval") was to prove significant: Of itself, the term "guarantee" need not amount to a condition. However, in the context of this contract, in which other obligations were given using the term "warranty", the term "guarantee" was viewed by the Court of Appeal as having the status of a condition.
   

4. The point was made that the Court should not waste time too much time trying to construe the intention of the parties out of an uncertain wording to which the parties themselves had obviously not paid too much attention (a warning about the care which is required when drafting agreements.) Lord Justice Jonathan Parker made the following pertinent remark:

"…

On any reading of clause 46 of the charter, the conclusion is inescapable (to my mind at least) that the draftsmen of the clause gave insufficient consideration to the precise meaning and effect of the terms in which it is framed. That being so, it seems to me that, as a matter of general approach to the interpretation of the clause, the court should focus rather more closely than might otherwise have been appropriate on what may be taken to be the parties' underlying commercial aims and objectives in entering into the charter (with particular reference to the obtaining of the approvals of the major oil companies), and rather less closely on the precise words which the parties have chosen to use to express their contractual intention. Certainly it would in my view be inappropriate in the circumstances to subject the clause to a process of minute textual examination and analysis which the parties themselves plainly did not consider necessary.

…"

Accordingly, the first instance decision was overturned.

¹ [2000] 2 Lloyd’s Rep. 37
² Pages 88 to 89
³ [2001] 1 Lloyd’s Rep. 341