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STS Transfer - Withholding Consent (Court of Appeal)

SSM Roundel

Steamship Mutual

Published: July 11, 2014

The Commercial Court decision in this Falkonera Shipping Company v Arcadia Energy PTE Ltd (The "Falkonera") (click here to see our previous article) has now been considered further by the Court of Appeal. The Commercial Court had concluded that Owners had no reasonable basis for withholding approval for the proposed STS transfers.

The “Falkonera” (the “Vessel”) had been 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 and had nominated two other very large crude carriers (“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.

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 referred to in both Clause 8.1 and the "sts lightering clause" was the 4th Edition (2005) of the publication.

Owners had argued before the Commercial Court that discharging the cargo of a VLCC by STS transfer into another VLCC of materially identical size is not a routine or standard operation, and therefore it was not unreasonable for them to refuse approval of the vessels nominated by Charterers, on the basis that they had concerns about the STS operation itself. On appeal Owners submitted that the point was well founded and that the judge had been wrong to reject it.

The Court of Appeal agreed with the judge's findings, and held that although there might be some merit in the contention that a VLCC-VLCC transfer was 'non-standard', it did not follow that the Owners had acted reasonably in withholding their approval of the VLCCs. The right to transfer was a right to transfer to any vessel, including a VLCC. The fact that the transfer could be regarded as non-standard was not of itself a reasonable ground for refusal. Owners must be taken to have contractually accepted risks attendant on any VLCC-VLCC transfer.

Owners were required to approve the vessel, and not the operation itself and the judge was right to have dismissed Owners' argument that the OCIMF Guide, in its then form, made no mention of VLCC-VLCC transfers, and that such operations were therefore not permitted by that publication.

Owners have indicated that they will be applying to the Supreme Court for permission to appeal.

It is of note that a year or so after the first instance decision a new edition of the OCIMF Guide was published containing a section dealing with STS transfers involving vessels of a similar length. The Court of Appeal did not admit the new edition as evidence, but it is noted in postscript that the Court of Appeal regarded it as underscoring the judge's decision that the previous version upon which Owners had relied, did not intend to outlaw VLCC-VLCC transfer.

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