REGULUS SHIP SERVICES PTE LTD v (1) LUNDIN SERVICES BV (2) IKDAM PRODUCTION SA [2016] EWHC 2674 (Comm)

In this case, the meaning of the term “in light ballast condition” came up for consideration by the Court for a second time. The irony being that the earlier precedent derived from another dispute that the same claimant had brought before the Commercial Court a decade earlier.

This latest dispute concerned the relocation of an FPSO from the Mediterranean to Malaysia. The claimant was the owner of a 1980 built AHTS, engaged on TOWCON terms to tow the FPSO to her new field for a lump sum payment. The respondents were the owner of the FPSO and its affiliate and disclosed agent.

The FPSO had started life in 1971 as an Aframax size tanker, before being adapted to serve as a shuttle tanker for North Sea production and then converted to an FPSO.

The conversion required, amongst the more obvious changes, the ‘chopping-off’ of most of her bulbous bow, so as not to interfere with the mooring pendant (and combined risers) that, when on station as an FPSO, were rigged from her bow. As a result of this modification, the remnant of her bulbous bow presented a blunt vertical face.

The claimant wanted the FPSO to be de-ballasted to reduce drag through the water and to achieve a significant stern trim in order to increase the directional stability of the tow. They had towed a similar FPSO and were confident that this was the optimum disposition.

However, the respondents considered that the FPSO would tow better with her blunted forward appendage submerged. They clearly also had in mind that this disposition might reduce the structural fatigue imparted upon (and thus prolong the life of) the already aged FPSO.

As the FPSO would be manned during the tow, adjustments to her ballast could be made on passage. Therefore, in the end, the TOWCON charterparty was agreed and the convoy set-off with the drafts (forward and aft, and thus the trim) of the FPSO still under discussion. The claimant apparently comforted by the warranty that the tow would be “in light ballast condition”.

The marine warranty surveyors had imposed a speed limit of 4.5 knots for the convoy, which the claimant thought could be achieved even with the AHTS using only two of her four engines (which was the basis by which the lump sum was calculated). However, even in clement conditions, this speed was not achieved by the convoy.

The FPSO was then partially deballasted, but the claimant remained dissatisfied with the extent; believing that the duration of the tow was being further extended by this shortcoming (and thus their lump sum bargain prejudiced, in terms of additional time and fuel costs). As such, the claimant asserted a right to “sea demurrage” (delay payments) as compensation. The right to which was accepted by the respondents, at least up to the point when their deballasting operation was completed during the towage.

Eventually, the convoy reached Mauritius, where a stand-off ensued as the claimant tried to resolve its claims to sea demurrage with the respondents. After a couple of weeks, a partial compromise was reached and the convoy recommenced its passage. However, the convoy then made a deviation to Singapore for a showdown that culminated with both sides asserting that the other had repudiated the agreement and the FPSO eventually reached Malaysia under a new towage arrangement, without any further assistance from the claimant.

At trial, the respondents challenged the claimant’s and indeed their own earlier understanding (in their Defence) of what “in light ballast condition” meant.

They relied upon a paragraph in the earlier judgment that referred to the quantity of ballast as being sufficient to allow the tow to “properly” proceed, whereas their pleaded case was that the quantity of ballast was simply the minimum that would enable the tow “safely” to proceed “in a seaworthy condition” (on her intended voyage).

The respondents interpreted “properly” to mean “legally fit”, including for insurance purposes. By which they sought to argue (inter alia) that the tow had to be performed in accordance with the vagaries of a marine warranty surveyor’s requirements. Which was a little ironic given that one of the alleged reasons for commencing the tow without having agreed the sailing drafts was that the respondents wanted “no more iterations with [the marine warranty surveyors] to delay the tow commencement further”.

In any event, the judge dismissed this argument, recognising that the term was meant to protect the claimant and could not do so under the respondents’ interpretation. Further, the obtaining of insurance for the tow was the (separately) warranted responsibility of the respondents (particularly relevant, given the knock-for-knock liability regime under TOWCON).

Unfortunately, having won on the interpretation point, and having convinced the Court that the FPSO was never in the required ballast condition, the claimant then failed to prove that the excess ballast caused any loss of progress. In particular, the Court noted that the convoy failed to increase speed after the tow was (partially) deballasted on passage and that “such evidence as there is” suggests that trimming the FPSO by her stern (and thus raising blunt bow and increasing her wind resistance) was in fact detrimental.

The claimant thus achieved a Pyhrric victory in its second outing on this point and failed on a secondary argument that it was otherwise entitled to delay payments (under clause 17 of TOWCON).

The respondents also failed in their attempt to construe the incorporation of the marine warranty surveyor’s speed limit into the charterparty as a performance warranty: as to the overall average speed to be achieved on passage. However, the Court did find that the claimant had repudiated the charterparty (by serving an invalid cancellation notice when in Singapore), entitling the respondents to damages for the costs of the alternative tow to the FPSO’s destination in Malaysia.

It is not known if the case will be appealed, although it seems unlikely that the finding as to the meaning of “in light ballast condition” will be challenged: it being the minimum quantity of ballast that enables a vessel to proceed safely and in a seaworthy condition on the intended voyage.