Time Charters. Oil Major Approval Recognized oil major

The tradability of the vessel will be affected by a good or poor report from any of the oil majors.
Dolphin Tanker Srl v Westport Petroleum Inc [2010] EWHC 2617 (Comm)

Meaning of an ‘Oil major’ and ‘Recognised Oil Majors’

In Dolphin Tanker Srl v Westport Petroleum Inc (The Savina Caylyn) [2010] EWHC 2617 (Comm) the High Court considered the owners’ appeal in respect of questions of law concerned to proper construction of cl.50 of amended Shelltime4 form, which arose out of an arbitration award made by a sole arbitrator.

The Vessel was delivered into service in June 2008 (new-built from the shipyard) and traded without any vetting problems until beginning of December 2009, after the vessel suffered collision in the Strait of Malacca. The first Qualifying Rejection found by the Arbitrator was by ChevTex on 1 December 2009. On 9 December 2009, the vessel undertook a SIRE inspection carried out by BP. The inspection did not follow a nomination to BP by the Charterers; it was carried out at the Owners’ request. The result of that inspection was a pass, as communicated to Owners on 12 January 2010. Next three Qualifying Rejections were suffered by the owners on 12 February 2010 – two by Total and ConocoPhillips, and one on 24 February 2010 by ChevTex. On 26 February the Charterers gave to the Owners notice of cancellation under Clause 50.

50. VESSEL’S APPROVAL CLAUSE.

    1.1 UPON DELVERY FROM SHIPYARD: OWNERS SHALL USE BEST ENDEAVORS TO OBTAIN PRE-APPROVALS, WHICH SHALL INCLUDE, BUT NOT LIMITED TO, INSPECTION OF THE VESSEL IN THE SHIPYARD OR AT FIRST BUNKERING OPERATION IF/WHEN POSSIBLE. IF PRE-APPROVALS ARE NOT OBTAINED WHEN THE VESSEL IS IN THE BUILDING YARD OR AT THE FIRST BUNKERING, OWNERS WILL USE BEST ENDEAVORS TO OBTAIN THE MINIMUM 3 (THREE) MAJOR OIL COMPANY APPROVALS AS SOON AS POSSIBLE, HOWEVER, SAID APPROVALS MUST BE IN PLACE NOT LATER THAN 60 (SIXTY) DAYS FROM DATE OF DELIVERY (SUBJECT TO VESSEL’S TRADING AREAS AND AVAILABILITY OF INSPECTORS).
   1.2 (1) IF OWNERS FAILS TO SECURE THE 3 (THREE) MINIMUM APPROVALS AFTER 60 (SIXTY) DAYS OF DELIVERY FROM THE SHIPYARD, CHARTERER’S HAVE THE OPTION, TO EXTEND THE 60 (SIXTY) DAY PERIOD OR TO PLACE THE VESSEL OFF-HIRE FROM THE DATE AND TIME THAT SHE FAILS TO HOLD THE MINIMUM 3 (THREE) APPROVALS.
    1.3 IF OWNERS SUBSEQUENTLY FAIL TO SECURE THE 3 (THREE) MINIMUM APPROVALS AFTER AN ADDITIONAL PERIOD OF 60 DAYS, CHARTERER’S MAY, WITHOUT PREJUDICE TO ANY OTHER TERMS OF THIS CHARTER, TERMINATE THE CHARTER PARTY BY SERVING NOTICE OF EARLY REDELIVERY TO OWNERS.
    2.1 DURING THE CURRENCY OF THIS CHARTER PARTY: OWNERS WILL (IF SO REQUESTED BY THE CHARTERER’S) CO-OPERATE IN HAVING THE VESSEL INSPECTED BY OIL COMPANIES IF ANY CURRENT SIRE REPORT HAS TO BE RENEWED.
    2.2 OWNERS WILL USE BEST ENDEAVORS TO HAVE THE VESSEL INSPECTED AND APPROVED BY A MINIMUM OF 3 OF BP, SHELL, EXXONMOBIL, CHEVTEX AND TOTAL FINAL ELF WITHIN 60 DAYS OF THE DELIVERY OF THE VESSEL INTO THIS CHARTER.
    2.3 (i) IF THE VESSEL IS REJECTED OR REFUSED PERMISSION TO CARRY OUT CARGO OPERATIONS BY ANY SUB-CHARTERER OR TERMINAL OPERATOR CONSEQUENT UPON ANY VETTING INSPECTION CARRIED OUT UNDER THE SIRE SYSTEM, OWNERS WILL RECTIFY THE FAULTS IDENTIFIED IN THE VETTING INSPECTION AND HAVE THE VESSEL INSPECTED AGAIN AS SOON AS IS REASONABLY PRACTICABLE.
   2.4 (ii) SHOULD THE CHARTERER’S OTHERWISE REQUIRE VETTING INSPECTIONS OF THE VESSEL AND IF THESE INSPECTIONS ARE CARRIED OUT DURING THE CURRENCY OF THIS CHARTER, THEN ANY LOSS OF TIME, DEVIATION COSTS AND INSPECTION FEES IN CONNECTION WITH THE INSPECTION SHALL BE FOR THE CHARTERER’S ACCOUNT.
    3.1 A FAILED VETTING INSPECTION UNDER THE SIRE SYSTEM BY THE CHARTERER’S OR ANY OTHER COMPANY SHALL NOT OF ITSELF CONSTITUTE A REASON FOR THE CHARTERER’S TO PUT THE VESSEL OFF-HIRE OR ENABLE THE CHARTERER’S TO ASSERT A CLAIM UNDER THIS CHARTER.
    3.2 HOWEVER, SHOULD BE VESSEL BE FAILED ON THREE (3) CONSECUTIVE OIL MAJOR VETTING REVIEWS/INSPECTIONS DUE TO OWNERS’/VESSEL’S REASON, THE CHARTERER’S SHALL HAVE THE OPTION TO PUT THE VESSEL IMMEDIATELY OFF-HIRE UNTIL THE VESSEL NEXT PASSES A VETTING INSPECTION, SUCH FAILURE SHALL AMOUNT TO A BREACH OF THIS CHARTER AND CHARTERER’S SHALL HAVE THE OPTION TO CANCEL THECHARTER WITHOUT RECOURSE TO EITHER PARTY, GIVING 30 DAYS NOTICE OF SUCH CANCELLATION.
    3.3 A VETTING REVIEW / INSPECTION IS DEFINED AS A NOMINATION BY THE CHARTERER’S TO AN OIL MAJOR AND THE OIL MAJOR REVIEWING THE VESSEL BY EITHER A PHYSICAL INSPECTION OR LATEST SIRE INSPECTION REPORT. A FAILURE WOULD CONSIST OF THE OIL MAJOR REJECTING THE VESSEL DURING THIS PROCESS.
    4. THE VESSEL’S VPQ WILL BE MAINTAINED FULLY UP TO DATE BY OWNERS WHENEVER NECESSARY DURING THE CHARTER.

The first issue of the owners’ appeal was on the true construction of cl.50. The owners contented that an ‘oil major’ meant one of the five major oil companies named in §2.2 of clause 50, namely: BP, Shell, ExxonMobil, Chevtex and Total Fina Elf. The Charterers argued that it meant one of the six established oil majors, i.e. five already mentioned and ConocoPhillips. The significance of this argument was that one of the rejections identified by the arbitrator, and found by him to be a Qualifying Rejection, was by ConocoPhillips. The arbitrator and the High Court accepted charterers’ submissions on this point.

The judge disagreed with the owners’ construction of charterparty that five companies named in §2.2 were the oil majors for all purposes in clause 50, including §§3.2 and 3.3. He divided requirements contained in cl.50 in two: (i) on-delivery regime §§1.1-3 and §2.2; and (ii) in-service regime §§3.2 and 3.3. Accordingly the judge held that 5 companies identified in cl.50 §2.2 are simply those companies from whom the charterers would prefer some of the initial approvals to be obtained. He furthermore held that these 5 oil majors (the only which were specifically named in contract) are a sub-set of the major oil companies, and those duties which §2.2 impose on the owners in relation to these 5 companies had nothing at all to do with requirements not to fail vetting/reviews/inspection of any of unnamed ‘oil major’ mentioned in §§3.2 and 3.3 which would ordinarily be invoked long after the first 60 days of the charter.

While there is, of course, a good commercial sense in the arbitrator’s finding that ‘the tradability of the vessel will be affected by a good or poor report from any of the oil majors’, but proposed reading would require in-service approvals from virtually unlimited set of oil majors because in certain regions companies like Statoil, Cepsa, Repsol or Lukoil secured a significant market share and their good or poor report would certainly affect vessel’s tradability. Say nothing about the fact that both Conoco and Phillips recently began to conduct independent inspections.

Accurately drafted ‘approval clause’ would certainly add more certainty and prevent extending of the set of recognized oil majors far beyond five or six majors. That will also make scope of owners’ duties more explicit and less dependent on failure of ‘even one’ inspection of indefinite list of oil majors.

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