Voyage Charters. Approval Clause Last updated 08-Oct-2014

If the judge were right, an owner would find himself in breach of the clause, if any fact existed which would cause the approval letters to be amended or withdrawn whether or not he knew of that fact and whether or not he had had any opportunity to put right the defect which would have caused the letters to be amended or withdrawn. That is a very far reaching warranty which would indeed cut across the warranty of seaworthiness in the Asbatankvoy form. The only way to avoid that conclusion would be to treat clause 18 as a warranty in relation to documentation not a warranty as to the underlying condition of the vessel.
Per Longmore LJ in Transpetrol Maritime Services Ltd v SJB (Marine Energy) BV (The Rowan) [2012] EWCA Civ 198 at para 24.

Scope of owners’ undertaking

Approval clauses in voyage charters impose similar duty on the owner as their analogues in time charter forms, namely, that the vessel has obtained a certain level of tradability as reflected by majors’ screening process. For obvious reasons time charterers insist on such level of tradability to be kept throughout the duration of charterparty and necessary measures are to be undertaken when major or majors reject vessel for his or their businesses. This state of things is not always mirrored exactly in voyage charters, where owners’ warranty as to "approvals" may not necessary be a continuous one. Nowadays charterers and owners agree the terms of the charterparty by way of a fixture recap e-mails and such recap is considered to have an individual legal value, independent from incorporated charterers’ rider clauses and terms to which it refers.

In The Rowan the Court of Appeal held that information provided by the owners in recap under heading VESSEL INFO … TBOOK WOG VSL IS APPROVED BY: BP/LITASCO/STATOIL-EXXON VIA SIRE, constitutes the description of the vessel and will be normally treated as a condition of the contract entitling the charterer to terminate the charterparty if the condition is not fulfilled. It was therefore not surprising that the parties might wish to limit the obligation in relation to approval by saying that it is without guarantee, i.e. that there is to be no liability in the absence of fraud or bad faith.

The Rowan was chartered to carry oil from Black Sea to US Gulf with an option on the part of the charterer to top up or discharge and re-load at Antwerp. While in Antwerp Annual Survey by Class took place which had revealed that the low suction sea-chest valve needed repair and Class had issued an interim certificate permitting the valve to be dealt with at the next port and a Condition of Class was imposed. At the same time owners attempted to pass Shell inspection, which was a failure with 33 observations. On sailing from Antwerp the charterers reported to the owner that Shell had said the vessel was not acceptable and that Shell had decided not to purchase the charterer's cargo. While Shell was not among the companies owners declared that vessel is approved by, the charterers said they suffered losses as a result of Shell rejection and claimed the difference in price by way of damages from the owners on the basis that the vessel was not in a fit state to be approved by any oil company and, in particular, the companies identified in the recap e-mail containing the charterparty.

Mackie judge in the High Court (Transpetrol Maritime Services Ltd v SJB (Marine Energy) BV [2011] EWHC 3374) held that the owners were in breach of cl.18 of recap which, in his view, was intended to be read together with Vitol Clause 18 which provides that "Owner warrants that the Vessel is approved by the following companies and will remain so throughout the duration of this charterparty".

Vitol Clause 18. Oil companies approvals clause
Owner warrants that the vessel is approved by the following companies and will remain so throughout the duration of this Charterparty (owner(s) to advise, including inspection dates and expiry dates)

Lord Justice Longmore found it difficult to construe recap clause and clause 18 of Vitol terms (see above) in a way it was done by the judge Mackie. He rejected Charterers’ submission that to express the whole obligation of clause cl.18 in recap and the printed Vitol terms, it would be sufficient to add TBOOK after the word "Charterparty" so that the full clause read:

"Owner warrants that the vessel is approved by the following companies and will remain so throughout the duration of this Charterparty to the best of owner’s knowledge: BP/EXXON/LUKOIL/STATOIL MOH."

His Lordship said that the "vessel info" clause and clause 18 perform entirely different functions, although they are both concerned with oil company approval. He added that:

…the concept of a "continuing warranty to the best of the owner's knowledge" is to say the least a curious one and I cannot believe that it is what the parties intended to agree.

In my view, therefore, clause 18 of the Vitol terms has been replaced by clause 18 of the recap which also, of course, contains a reference to approvals under the heading "VESSEL INFO". It is those two terms which have to be construed together without reference to the Vitol terms.

The court held that owners undertaking in recap was confined to a promise that the owner has, to the best of his knowledge, at the date of the charter, procured approvals from the named oil companies and secondly that, at the date of the charter, he knows of no facts which would cause the vessel to lose the approval of those oil companies in the course of the duration of the charter.

That limited in its scope promise was never broken by the owners because, as Longmore LJ stated at para 21, there was not:

…any evidence that at the date of the charter the Owner knew anything about the vessel that would cause the named oil companies to "disapprove" the vessels or alter the terms of the letters which they had given in relation to the vessel. The problem with the low suction sea-chest valve only emerged at Class’s Annual Survey conducted at Antwerp in July 2007 in the course of the voyage. The thirty three comments made by Shell (which caused Shell not to proceed with their contract of purchase from the Charterer) likewise only emerged at Antwerp. It is not suggested that the Owner knew anything in early June 2007 which could have warned it of these impending events, let alone anything which would have caused any of the named oil companies to alter or cancel the terms of their letters of "approval".

Although it was not necessary to express any final view on the construction of the unamended clause 18 of the Vitol terms (Approval Clause), his Lordship expressed his support to the owners’ argument that clause 18 of Vitol terms in its original and un-amended form is concerned with the existence or non-existence of "approvals" contained in documents not the "state" of the vessel and therefore was not a warranty about the condition of the vessel.

Longmore also LJ supported the owners’ view that construing wording of Approval Clause in a way it was done by the judge will form a far reaching warranty which would essentially cut across the warranty of seaworthiness in the Asbatankvoy form. Moreover, such construction leads to situation when the owner is in breach of the clause even if he knew nothing of the fact which would cause approval letters to be amended or withdrawn and had not had any opportunity to put right the defect which would have caused the letters to be amended or withdrawn. To avoid such situation his Lordship suggested to treat Approval Clause as a warranty in relation to documentation and not a warranty as to the underlying condition of the vessel. This conclusion is in line with the view of Rix LJ expressed in The Seaflower [2001] 1 Lloyd’s Rep 341 at para 64:

An oil company’s approval may reflect the vessel’s condition, but it is a matter of status rather than condition. Similarly, a vessel’s class is a matter of status � although that status may be affected in many different ways: at one extreme a vessel may be completely out of class, which is a most serious matter, because such a vessel cannot trade, but at another extreme there may be only a recommendation or even a mere notation of class that something relatively minor be attended to within a certain date. It was also stressed by Davis LJ that dominating appeals to "commercial sense" vigorously argued both in the High Court and in the Court of Appeal were lagerly counterproductive because of their self-cancelling nature, since both parties have had diametrically opposed views as to where commercial sense lay.

It was also stressed by Davis LJ that dominating appeals to "commercial sense" vigorously argued both in the High Court and in the Court of Appeal were largely counterproductive because of their self-cancelling nature, since both parties have had diametrically opposed views as to where commercial sense lay.

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