Golden Fleece Maritime Inc & Anor –v- ST Shipping & Transport Inc “Elli”/”Frixos” [2007] EWHC 1890 (Comm) 2nd August 2007
Just before the summer vacation, the Commercial Court handed down a judgment concerning which of the parties to a long term time charter bears the risk of a change in international regulations which have the effect of restricting the cargoes which can be carried. The judgment merits a closer read as it has the potential to impact heavily on owners.
The case focused on new MARPOL regulations concerning the carriage of fuel oil which came into effect in April 2005. These were the result of work by the IMO to unify MARPOL with new EU legislation brought about by reason of the “Erika” and the “Prestige”.
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, at its essence, 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 claimants were the owners of the vessels, on charter on the Shelltime 4 form (amended) to the defendant. The cargo description clause expressly included fuel oil. The vessels had been described in the charters as “double-sided.” They were not double-bottomed.
The charters provided by clause 1 that the vessels were on delivery to be “in every way fit to carry crude and/or dirty petroleum products” and to be “tight, staunch, strong, in good order and condition, and in every way fit for the service...” Further, by clause 3, owners were obliged to exercise due diligence to maintain or restore the vessel to those conditions set out in clause 1. Clause 52 imposed an obligation on owners to comply with all applicable conventions, regulations etc. specifically including MARPOL 1973/1978 as amended.
It subsequently transpired that a small part of two slop tanks, aft of the cargo tanks, was bordered by bunker tanks rather than ballast tanks and that Class 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.
Modifying the vessels so as to complete the “double-sides” would have cost approximately US$600,000 each.
Owners submitted that the charters did not require them to “rebuild” the vessels so as to complete the double-sides and that clause 1 related only to the physical condition of the vessel, which had not changed since delivery. The Court declined to accept this argument. Following an established line of authority, the Court held that a vessel that was not legally fit to carry a permitted cargo could not be described as “in every way fit.” Those words mean the vessel is to be seaworthy in the widest sense of the word and are not restricted to physical matters. Legal fitness is as important as physical fitness: “the line between the two is not always easy to draw especially where legal incapacity results from physical characteristics”.
And so the maintenance obligation in clause 3 must be read in that context. That obligation is not limited to the physical condition of the vessel but also the documentary position and thus covers a change to MARPOL given the warranty of compliance at clause 52.
The maintenance obligation and the warranty as to compliance with MARPOL require the owners to take steps “to ensure compliance with MARPOL and fitness, both legal and physical, to carry fuel oil to and from places within the charterers’ trading limits.”
Limiting the maintenance obligation to one of due diligence does not lessen the obligation. Due diligence, the Court said, is equivalent to the common law duty of care and has no cap on the expense involved. There is no reason why the amount spent in complying with the maintenance obligation is of any relevance, unless an issue of frustration arises. There is no question of improvement to the vessel but rather “ the obligation is that of maintaining or restoring the fitness which was required on delivery by virtue of the warranty given in clause 1.”
Whilst the reasoning of the judgment is sound, the implications - read against the background of an ever regulated industry operating in a world where a tanker casualty can hold the front pages for days or weeks - may be far-reaching.
