Recent Judgments

(and clauses)
about Inspections,
Vetting and Oil Major Approvals
The Silver Constellation

What the Judge said about Rightship approval

Vetting and employment

Shelltime 2003 provisions about inspections,
vetting and oil major approvals

Clause 1(m)
Clause 3(d) and (e), and their effect on clause 3(f)
Clause 43
The Savina Caylyn

[2010] EWHC 2617 (Comm)

The Rowan

[2011] EWHC 3374 (Comm)

The Silver Constellation

This judgment relates to a dry cargo charterparty.

But it may be significant, because it indicates what the

position would be under English law if there were no
specific provisions with regard to inspections and
approvals.
about Rightship approval - substance

In a time charter, requirements at ports of

call/certificates required for a trade will be interpreted as
meaning certificates (etc) required by law/by the local
authorities
about Rightship approval - substance

in all respects eligible for trading might, taken in

isolation, extend to conditions imposed by shippers
and/or terminals (as distinct from local authorities)

However, in context, what was meant was only

certificates showing the vessels seaworthiness and the
requirements of local authorities
on Rightship approval - rhetoric

the extra-legal and private nature of the system

exposes the owners to the unpublished requirements of

a third party without any period of grace.
Vetting and Employment

It would have been easy simply to hold that employment

includes a right for Charterers to put inspectors on board
(not only their own supercargo, but (for example) the
shippers surveyor) and therefore owners must permit
Rightship inspectors on board
Vetting and Employment

However, the Judges reasoning was that being vetted

was essential to the trading of the vessel

Therefore, it is a part of employment that Charterers

may require Owners/the Master to complete vetting
questionnaires and co-operate with vetting inspections
Background

The SIRE system, as officially presented:

1. The inspector inspects, but only reports facts

2. The oil major (etc) approves or not, usually on paper
on the basis of the SIRE inspectors report (and
other information)
Background

There is wording in 2003 clause 3(e) with regard to failing

an inspection, but this cannot relate to a SIRE inspection,
so long as the position is that there is no pass/fail on a SIRE
report.
Background

Usually the official position is that an oil company will not

approve for a period ahead of any commercial interest in the
vessel, but will only approve for an individual fixture (or a
call at a terminal, etc) when the vessel is proposed by the oil
companys commercial side to the oil companys vetting
department.
Background

The system of letters

Not an actual approval

Background
A letter is not a guarantee that when the vessel is
proposed for actual business there will be an actual
approval [a favourable vetting decision]
Background
However, a letter from a major is the best assurance
which a trader can have that actual approval would be
forthcoming from the major in question
Background
Thus, a letter may mean that a trader can buy a cargo
and put it on a vessel with reasonable confidence that
they can then sell the cargo to the major, or sell the cargo
for discharge at a terminal belonging to that major.
Shelltime 2003 provisions about inspections,
vetting and oil major approvals

Clause 1(m)
Clause 3(d) and (e), and their effect on clause 3(f)
Clause 43
Inspection results

The provisions in case the vessel has an adverse finding or

fails an inspection are slotted in by amendments to clause 3.
Inspection results

These provisions will only apply when there has been a

physical inspection. If (as I understand) in the case of
tankers Rightship do not conduct physical inspections,
then these provisions cannot apply in relation to Rightship
approval.

If Charterers wish to provide for Rightship approval, then

it may be best to amend clause 43
Inspection results

Shelltime 1984 Clause 3(iii)

Let Charterers escape from the restrictions on

repudiatory breach under English Law.
but allowed Owners a period to put things right 30 days,
before Charterers could put the vessel wholly off-hire and
have the right to terminate.
Inspection results

In the provisions which 2003 inserts in clause 3, there is no

period for Owners to put things right.

As soon as there is an adverse finding, or the vessel fails

on inspection, and this interferes (to the extent required)
with Charterers commercial use of the vessel, Charterers
can put the vessel wholly off-hire
Inspection results

After there has been an adverse finding, and Charterers

have put the vessel off-hire, Charterers are immediately
entitled to terminate the charter.
Inspection results

Complications

prevents normal commercial operations / commercially

inoperable.
Inspection results

Complications

If there is only an adverse finding without any failure,

Charterers can put the vessel off-hire but cannot
terminate.
Inspection results

(It is submitted) for Charterers to be entitled to terminate

immediately (without any period of grace) following the
failure of one inspection is overkill.
Oil major approvals

Shelltime 2003 Clause 43

If, at any time during the charter period, the vessel

becomes unacceptable to any Oil Major Charterers shall
have the right to terminate the charter.
Oil Major approvals
Complications

Oil Major now defined by a list of six companies:

BP, Shell, Exxon Mobil, Chevron Texaco, Total Fina Elf
and Conoco Phillips.

The Savina Caylyn [2010] EWHC 2617 (Comm)

(21 October 2010) at [37]
Oil Major approvals
Complications

unacceptable

It is suggested that the clause is speaking about actual rejections by a

vetting department, and not in terms of the system of letters.

(In Shelltime 2003, there is no obligation upon Owners to obtain an

approval letters.)
Oil Major approvals

Complications

becomes unacceptable
Oil Major approvals

As the system is now, the rhetoric of David Steel J will

also apply to what is done by the vetting departments of
oil majors:

it is clear that matters extend well beyond the physical

state of the vessel

the relative weight accorded to the factors is not

disclosed
Oil Major approvals

Thus, David Steel Js conclusion will also apply to the

Shelltime 2003 clause

exposes the owners to the unpublished requirements of

a third party without any period of grace.
Oil Major approvals

(It is submitted) in general Charterers who are fixing on

Shelltime 2003 should be sufficiently protected by the
provisions with regard to inspections/findings of
inspections inserted in clause 3, and should not require
an oil major approval clause at all.
Oil Major approvals

(It is submitted) if in a particular case Charterers intended

trade depends on approvals from particular companies,
then it may be appropriate to adopt an (amended version
of) a previous Vitol clause
Oil Major approvals
Owners advise that at time of fixing the Vessel is approved by [NAMES]

If the vessel becomes blacklisted and/or boycotted and/or unpreferred

by any of the above oil companies hindering the Vessels free trade
within this charter, Owners shall immediately take steps to rectify the
deficiencies. Charterers shall have the option of declaring the Vessel
off-hire during period(s) where the Vessel is blacklisted and/or boycotted
and/or unpreferred by two or more of the above oil companies hindering
the Vessels free trade within this charter. If the Vessel has been
continuously off-hire under this clause for 30 days or more, then
Charterers may give notice to terminate this charter . . .
The Savina Caylyn

[2010] EWHC 2617 (Comm)

The Savina Caylyn

1. Definition of Oil Major

(see above)
The Savina Caylyn

2.
A vetting review/inspection is defined as a nomination
by the charterers to an oil major and the oil major
reviewing the vessel by either a physical inspection or
latest SIRE inspection report
The Savina Caylyn

2. Held that if the Owners arranged a SIRE inspection by

an oil major and obtained an approval following that
inspection, this was not a vetting review/inspection as
defined
The Savina Caylyn

3.
A failed vetting inspection under the SIRE system
The Savina Caylyn

3. Held it was not necessary for Charterers to prove that the

SIRE report had caused the vetting rejection this could
be presumed.
The Savina Caylyn

3.
A failure would consist of the oil major rejecting the
vessel during this process.
The Rowan

[2011] EWHC 3374 (Comm)

The Rowan

Owners gave an undertaking based on/related to letters

from 5 companies (not including Shell).

The vessel was inspected by Shell, who found

deficiencies.

Shells vetting department rejected the vessel.

The Rowan

Charterers were in process of selling the cargo on the

vessel to Shell.

As a result of the vetting rejection, Charterers sale fell

through.

Charterers had to sell the cargo as a distressed cargo

The Rowan

Charterers recovered damages for the loss of their sale to

Shell on the basis of a breach of Owners undertaking
about acceptability to 5 other companies.

How did this come about?

The Rowan

Main terms (vessel info):

TBOOK WOG VSL IS APPROVED BY . . .

Attaching to Vitol 1999 clause:

TBOOK VSL APPROVED BY [list of 5 companies]

The Rowan

The Judge did not give priority to the main terms.

The Judge was perhaps correct, because the fixture recap

included comments/amendments to the Vitol clause.
The Rowan

Approved

The Judge was willing to understand this in terms of the

system of letters.
The Rowan

The Vitol clause:

Owner warrants that the vessel is approved by [list] and

will remain so . . .
The Rowan

TBOOK VSL APPROVED BY [list]

The Judge does not interpret this as Owner warrants to the best of
Owners knowledge that:

the vessel is approved by, and will remain so.

The Rowan
Rather, the Judge interprets it as Owner warrants that
the vessel is to the best of Owners knowledge approved
by, and the vessel will remain to the best of Owners
knowledge approved by
The Rowan

The Judge does not interpret this simply in terms of having

letters which have not lapsed/been withdrawn.
The Rowan

Rather, the Judge interprets this as an undertaking by

Owners that at all times throughout the charter period the
position will be that to the best of Owners knowledge the
5 companies would each write a letter indicating the
vessel was acceptable to them.
The Rowan
Thus Owners are treated as having undertaken that the
vessel will be such that the 5 companies would write a
letter indicating acceptability.
The Rowan

After the inspections by Shell (and also by Chevron)

which both found lists of deficiencies, none of the 5
companies would have written a letter indicating
acceptability

(and Owners would surely have realised this)

The Rowan

Thus, the Judge was able to hold that Owners were in

breach of their undertaking.
The Rowan
If the vessel had been such that the 5 companies would
have written letters indicating acceptability, then Shell
would not have rejected the vessel.
The Rowan
Thus, the Judge was able to hold that Charterers loss
resulted from Owners breach of their undertaking.
The Rowan - suggestions

First, if confronted by a clause in terms of will remain

approved try to attach WOG to the whole clause.
The Rowan - suggestions

Second (if Charterers will not accept WOG)

Avoid TBOOK approved

Instead, speak explicitly about letters.

The Rowan - suggestions

Second (continued)

The vessel has acceptability letters from X,Y,Z. Owners

give no undertaking with regard to any other company.