Rightship is a ship approval system maintained by 3 of the major operators in the coal and iron ore market - BHP, Cargill and Rio Tinto. Its aim is to identify suitable vessels for that trade. Significant dry bulk operators in, for example Australia and Brazil, require vessels to be approved by Rightship. Rightship rates vessels in 3 categories:
- Three, four or five star rating means ship is an acceptable risk
- Two star rating means Rightship must be contacted for further review; and
- One star rating means a more detailed investigation is required.
The rating is added on algorithm software which takes account of 50 factors. Of those factors that are known, these include such things as yard, owner, PSC history and ISP certificates. Vessels over 18 years of age are automatically downgraded to a two star rating and require a physical inspection.
David Steel J recently gave judgment on appeal from a London arbitration award on the requirement to obtain that approval. The vessel was on long-term charter to Glencore and had previously carried a three star rating but on reaching 18 years was downgraded to two stars.
The charter made no mention expressly of a requirement to have Rightship approval. However the charter did require the vessel to be kept in a thoroughly efficient state in terms of “hull, machinery and equipment, with all certificates necessary to comply with current requirements of all ports of call” and had the usual rider clause that she was to be in possession of certificates required for the trade. Clause 8 of the NYPE form, obliging owners to follow charterers’ orders was also present.
Charterers asked owners to complete the necessary vetting questionnaire so as to allow her rating with Rightship to be upgraded, for which owners contended an increased hire rate was payable. On charterers’ refusal, owners declined to allow a Rightship inspection to take place. Charterers contended that owners were obliged to secure Rightship approval as the charter required all documents necessary for trading and that, pursuant to clause 8, owners were obliged to allow the Rightship inspection.
The arbitrators agreed with the charterers on both counts. They found that the documentary clauses extended beyond regulatory and government requirements to eligibility for trading in its widest interpretation.
On appeal, Steel J found there was no obligation on owners to obtain Rightship approval. The documentary clauses were restricted to those legally imposed by the law of the flag or the law of the country of call. They could not extend to a privately owned system like Rightship.
However, Steel J found that owners’ refusal to allow the Rightship inspection was a breach of clause 8. Charterers’ orders to complete the questionnaire and allow an inspection were orders as to employment and owners’ refusal meant the vessel was effectively unemployable on permissible trades under the charter.
Both owners and charterers were given leave to appeal. It would seem best for a charterer going forward to make Rightship approval an express requirement of the charterparty and for owners to think twice before refusing a request for an inspection.
Seagate Shipping Ltd v Glencore International AG “The Silver Constellation” [2008] EWHC 1904 (Comm) 31 July 2008
Update - March 2012
A website article relating to RightShip Approval clauses has recently been published: RightShip Approval Clauses - The Right Idea?
