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STS Transfer – Withholding Consent

SSM Roundel

Steamship Mutual

Published: July 01, 2014

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Falkonera Shipping Company v Arcadia Energy PTE Ltd (The “Falkonera”) 2012 EWHC 3678 (Comm)

The Commercial Court was asked to decide whether a shipowner had acted reasonably in withholding approval for the transfer of oil from a very large crude carrier (“VLCC”) to two other VLCCs by means a ship to ship (“STS”) transfer.

By a charter dated 18 November 2011, the “Falkonera” was chartered to perform a single voyage to carry crude oil from the Yemen to "1-2 ports far east". The charter was on the terms of the BPVOY4 charter form with certain additions/amendments.   Charterers chose to discharge at Pasir Gudang, Malaysia by way of an STS transfer. They nominated two other VLCCs which they were using as floating storage units to receive cargo by way of STS transfers from the vessel.  Owners withheld approval of these vessels for the proposed STS transfer and the vessel subsequently discharged into other smaller vessels.

Charterers said that the owners' withholding of approval to carry out the STS transfer was a breach of the charter and led to delay and increased costs which are for owners' account.

Clause 8 of the charter provided as follows:

"8.1 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 (the "Transfer Vessel")…. All transfers of cargo to or from Transfer Vessels shall be carried out in accordance with the recommendations set out in the latest edition of the "ICS/OCIMF Ship to Ship Transfer Guide (Petroleum)". Owners undertake that the Vessel and her crew shall comply with such recommendations, and similarly Charterers undertake that the Transfer Vessel and her crew shall comply with such recommendations. Charterers shall provide and pay for all necessary equipment including suitable fenders and cargo hoses. Charterers shall have the right, at their expense, to appoint supervisory personnel to attend on board the Vessel, including a mooring master, to assist in such transfers of cargo."

The charter also contained a rider clause:

"sts lightering clause":

"(i) 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/lightening shall be subject to prior approval of owners, which not to be unreasonably withheld, and all relevant certificates must be valid.
(ii) all ship-to-ship transfer operations shall be conducted in accordance with the recommendations set out in the latest edition of the ics/ocimf ship-to-ship transfer guide (petroleum).
(iii) all such lightering ships must have a fully working inert gas system (igs), unless the cargo flash point exceeds 60f and only with express approval of the owners/master."

The ICS/OCIMF Ship to Ship Transfer Guide (the "Guide") referred to in both Clause 8.1 and the "sts lightering clause" is a weighty standard reference. The publication is in its 4th Edition (2005).

Owners' primary case was that on the true construction of Clause 8 and/or the "sts lightering clause", VLCC-VLCC transfers were not permitted; or, in the alternative, that owners acted reasonably (or, at least, not unreasonably) in withholding their approval.

Both parties relied upon expert evidence.

As to owners main case, the Judge considered that clause 8.1 gave charterers an unqualified right to order an STS transfer "…to and from any other vessel including, but not limited to, an ocean-going vessel…." They were wide words and wide enough to allow an STS transfer from the vessel to any other VLCC.

The effect of the clause was that:

i) If charterers exercised that right, then both parties were obliged to perform the STS transfer in accordance with the Guide.

ii) Owners were responsible for ensuring that the vessel and her crew complied with the Guide; and charterers were responsible for ensuring that the nominated vessel and her crew also did so.

iii) Charterers' right to order an STS transfer was entirely separate from the obligation subsequently to perform the STS transfer in accordance with the Guide.

iv) The clause did not envisage that the category of vessels that may perform STS transfers was dictated or delimited by the Guide

As to the "sts lightering clause":  the first part limits the right of charterers to nominate a vessel to perform an STS transfer: any vessel nominated by charterers must also be approved by owners (which approval cannot be unreasonably withheld);  the second part reiterates the obligation imposed by clause 8 of the BPVOY Form: once a vessel has been nominated for STS operations by charterers, and approved by owners, the parties are obliged to conduct the STS transfer in accordance with the Guide.

The court held therefore that owners were not entitled to approve (or to refuse) the proposed STS transfer: their right of approval was limited to a right to review the details of the nominated vessel and to decide whether or not she was suitable for STS operations.   The Judge considered that made commercial sense.

As to the Guide itself, whilst it contained no specific section dealing with same-size-ship transfers, still less STS transfers between VLCCs, the Judge held that it was impossible to read into that omission what owners contended; that the Guide is to be read as precluding such transfers. There was nothing in the Guide to that effect.

The court then considered owners’ alternative case and the issue of whether they had acted reasonably (or, at least, not unreasonably) in withholding their approval.  It was held that the burden of proof on this issue fell on charterers and owners would only be in breach if no reasonable shipowner could have regarded their concerns as sufficient reason to decline approval.  It was accepted that there may be some force in the submission that the proposed STS transfer was, in a sense, "non-standard"; but it did not follow that owners were therefore acting reasonably in withholding their approval.  Further, although it was right that the Guide contained no specific recommendations with regards to STS transfers between VLCCs, it was of general application and did not preclude such transfers. It could not properly be said that owners' withholding of approval on the basis that the Guide was to the contrary effect was reasonable.

Owners had also sought to argue that they had acted reasonably in withholding consent because of their previous experience of an STS transfer between two vessels of similar size in which difficulties arose. The Judge accepted expert evidence that there were special reasons why problems had occurred during owners’ previous STS transfer. Owners’ previous experience appeared to have caused them to develop a blanket policy of withholding consent for STS transfers between vessels of a similar size. In this matter, owners were informed of the proposed mooring arrangements and told that a number of parties, including an oil major, had previously carried out an STS transfer between VLCCs at the proposed location. Therefore, owners had no reasonable basis for withholding approval for the proposed transfers.

In reaching this conclusion, the court noted the VLCCs nominated had no kind of peculiarity nor defect that rendered them unsuitable for STS transfers.  The court was again persuaded by expert evidence that, subject to timing and proper planning, there was no reason why the vessel could not have performed a successful STS transfer with the nominated VLCCs.

The court therefore held that owners had breached the terms of the charterparty. This decision will be welcomed by traders chartering VLCCs who wish to opt for STS transfers.

Article by Sian Morris

 

Updated June 2014:

The Owners appeal against this decision was dismissed in early June, 2014. An article discussing the appeal decision will be published shortly.

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