Time Charters. Oil Major Approval Effective cause of rejection

Negative vetting decisions are normally communicated to the party proposing the business without reasons and without the vetting company separately informing the operator. Thus a vessel operator will usually not know why the vessel has not been accepted.
Dolphin Tanker Srl v Westport Petroleum Inc (The Savina Caylyn) [2010] EWHC 2617 (Comm)

Effective cause of major’s rejection

The third issue was related to the tanker vetting system and to the Ship Inspection Report (SIRE) system in the vetting review. The Owners’ position was that there could only be a Qualifying Rejection following a vetting review where the latest SIRE inspection report was the (or an) effective cause of the rejection. The Owners supported this view on the basis that in none of the 3 Qualifying Rejections found by the Arbitrator (as being relevant to the issue) was there a reference to the review of the SIRE Inspection Report being the (or an) effective cause of the rejection. The Charterers, in their turn, argued that it was sufficient to found a Qualifying Rejection if the latest SIRE Inspection report had been considered by the oil major as part of the process.

The judge at paras 49 and 50 concluded that:

49. I do not accept the Owners’ argument that Charterers must prove that the latest SIRE Report was either the effective cause or an effective cause: neither the language of the clause nor the factual background found by the Arbitrator justify such a construction.
50. It is clear from §§21-22 of the Reasons that oil majors have recourse to the latest SIRE report as part of the information used to vet the vessel. This point was re-emphasised later in the Reasons. 45. …it is recognised that oil majors will have access to, and will always consider, a range of information when vetting (including earlier SIRE reports in order to assess whether the latest report shows an improvement or decline in standards); and, 104. …It is common ground on the expert evidence that oil majors look at the history of SIRE inspection reports as part of the vetting process in order to identify positive and negative trends.

Actually, what the arbitrator found at para 45 and 104 is only that ‘oil major will always consider’ and ‘look at the history’ but it does not necessary mean that only SIRE reports alone form the outcome of major’s decision. At least there was no finding on this point, but what the arbitrator found at para 17 is that:

negative vetting decisions are normally communicated to the party proposing the business without reasons and without the vetting company separately informing the operator. Thus a vessel operator will usually not know why the vessel has not been accepted.

In short the arbitrator says that no reasons of rejection are ever known and it was also unknown in this case. Such finding at the very least leave it open to suggest that there could be pure commercial reasons underlying all these rejections.

Furthermore, since no finding was made on the reasons of those rejections, it is also not clear how requirements of cl 50(3.2) , which attributes off-hire and cancellation events to the "failure due to owners/vessel’s reasons" can be possibly satisfied. The report is silent how the charterers, who were purporting to cancel charterparty, discharged the burden of proof that vessel failed majors’ reviews due to the owners’ reasons. In my view and on the basis of the arbitrator’s findings it is impossible to link rejection “communicated without reasons” to "failure due to owners/vessel’s reasons". The owners admitted that the collision in which vessel was involved in the Malacca Straits on 23 December 2009, was either the reason or one of the reasons for at least some of the vetting failures. But again, since no any definite reason of rejection was known, it is impossible to infer (and the charterers did not contend) that collision was such a reason.

Thus foundation of decision which deprived the owners from the benefits of a long term charterparty was the arbitrator’s findings that last three rejections took place because an oil major ‘probably referred to the latest SIRE report,’ or ‘probably did review the SIRE report,’ and ‘would have considered the latest report …’ There is quite a number of ‘probable causes’ which any major takes (or may take) into consideration during screening process, some of them, naturally, should influence major’s decision whether to charter tanker or not, whereas some would not. Construing cl.50 restrictively it seems that some stronger (than one of ‘probable causes’) causative link between major’s rejection and major’s review of SIRE Inspection Report required to give the charterers unfettered right of cancellation.

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