VLCC Charterers Favored in STS Transfer Judgement
Specialist shipping law firm Clyde & Co says that a Court of Appeal decision whether owners had acted unreasonably in withholding their consent for the use of two nominated VLCCs in a Ship to Ship (STS) transfer of crude oil from another VLCC at the port of Pasir Gudang will provide reassurance to the tanker transshipment trade.
Facts of the case
Falkonera Shipping Company chartered the Falkonera to Arcadia Energy Pte Ltd to perform a voyage, carrying crude oil from Yemen to the Far East. Charterers nominated two VLCC storage vessels to receive the cargo at the discharge port by way of STS transfer.
Owners withheld their approval of the proposed VLCCs and the cargo therefore had to be discharged into smaller vessels which shuttled between the Falkonera and the VLCC storage vessels, causing delay. Owners brought a claim for demurrage. Charterers denied liability for demurrage and counter-claimed for additional expenses incurred.
At first instance the judge had found in favour of the Charterers, Arcadia Energy Pte Ltd (represented by Clyde & Co), ruling that the Owners, Falkonera Shipping Company, had acted unreasonably in withholding their approval.
The Owners obtained permission to appeal this judgment, the hearing of which took place on 27 and 28 January 2014. Judgment was handed down on 5 June 2014 in which the Court of Appeal upheld the High Court decision in favour of Charterers.
Owners should be aware that if they do not act reasonably when considering charterers' requests to perform STS transfers, they risk finding themselves in breach of charter.
This case will give comfort to Charterers that the industry practice of VLCC to VLCC STS transfers is not to be regarded as inherently suspect, but must be properly considered by Owners on a case by case basis.
It also gives some guidance to owners about the basis upon which they can and cannot exercise their right to withhold approval. It may, therefore, have wider implications for other situations involving the requirement that owners act reasonably in relation to their right to withhold approval for operations that are apparently permitted (subject only to such approval) by the charterparty.
Source: Maritime London/Clyde & Co.