Time Charters. Oil Major Approval Charterers’ nomination

The issue is trust. Clearly some charterers do not entirely trust the reports that they have not commissioned themselves. The costs and consequences of mistakes in the tanker industry have ratcheted up over the years and so it is understandable that charterers want to protect themselves. It used to be the case that in the event of a tanker accident it was the owner who was pursued in legal terms. Now it could be the charterer as well as Total’s experience in the case of the Prestige spill showed. Increasingly litigants have recognised that it is the charterer who has the big bucks and have gone after them.
Tanker vetting and issues of trust by Ian Middleton, Tanker Correspondent, Seatrade Global

Inspection initiated by Charterers’ nomination

Secondly, the owners contended in Dolphin Tanker Srl v Westport Petroleum Inc (The Savina Caylyn) [2010] EWHC 2617 (Comm) that there was not ‘three consecutive inspections’, because BP had given the vessel a ‘pass’ inspection, albeit not following a nomination by Charterers to BP, but at Owners’ initiative. They make a point that it would be nonsensical for an approval which accorded with commercial purpose of the cl.50, i.e. improving the vessel’s marketability, not ‘to count’ so as to break a run of Qualifying Rejections.

The Charterers argued that any pass had to be the result of a vetting review or inspection following a ‘nomination by the Charterers to oil major.’ The Court supported this view and held that the definition of "inspection" under the charterparty meant one that had been initiated by Charterers’ nomination of the vessel to the oil major in question.

The justification for such literal approach is open to debate, especially bearing in mind the arbitrator’s finding that tradability of the vessel will be affected by a good or poor report from any of the oil majors (emphasis mine). It follows that an additional major’s inspection with positive result, and especially one such as BP, arranged for the owners’ account and at owners’ initiative would significantly strengthen charterers position on the market and must be heartily welcomed by them if they intended to trade the vessel rather than look for excuse to get rid of the contract when it has turned out to be a bad bargain.

Moreover, adopted by the court construction of cl.50 invariably leads to another controversy. As the owners pointed out, if the charterers exercised their option to send the vessel off-hire, rather than cancelling the charterparty, the vessel would be left in a permanent mercantile limbo, unless the owners were able to procure an approval without a requirement for a Charterers’ nomination.

The judge replied to this argument that ‘the answer may be that a term would be implied that, if the Charterers exercised the off-hire option, they would be bound to nominate to an oil major under §3.3 within a reasonable period.’ As far as §3.3 goes the charterers can only nominate a physical inspection, which at the same time can concur with several rejections based on major’s review of last SIRE report giving them new options to cancel. It open to argument that too literal approach to the matter of ‘three consecutive inspections’ left unnoticed certain strength and logic of the owners’ submission.

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