The issue of oil major approvals is a critically important one in the context of tanker charterparties as it is almost impossible to trade a vessel profitably without such approvals.
It is most surprising therefore that an issue of such importance in tanker charterparties carries very little English case law on the subject. That said, a number of recent cases have provided much needed additional and useful guidance on the interpretation of oil major approval provisions.
- LMAA Arbitration: The M.V. “L” – the nature of Owners’ obligation
The most commonly used form of charterparty in the tanker industry is the Shelltime 4. Clause 43 of the Shelltime 4 (2003 revision) provides charterers with an express right of cancellation “If, at any time during the Charter period, the Vessel becomes unacceptable to any Oil Major Charterer…”, although in this case clause 43 had been amended in order that the right would crystallise if “the Vessel has less than three Oil Majors’ approvals”.
In finding for charterers, the arbitrators rejected owners’ argument that the obligation under Clause 43 was not an absolute obligation but only one to exercise due diligence.
- Dolphin Tanker Srl v. Westport Petroleum Inc (M.V. “Saviva Caylyn”) – the meaning of “Oil Major”
In this case both the arbitrator and subsequently the Commercial Court judge interpreted the oil major clause, and specifically, the meaning of “Oil Major” so as to avoid a “commercially absurd result”.
Owners' submission that the meaning of the expression “Oil Major” was confined to the five named companies in the charter party (BP, Shell, Exxonmobil, Chevtex and Total Fin Elf) was rejected. It was held that the ordinary and natural meaning of the unqualified words “Oil Major” includes all six major oil companies (i.e. the five listed plus ConocoPhillips).
This interpretation gave the clause commercial sense, as the tradability of any vessel would be affected by a good or poor report from any of the oil majors.
Further guidance on the meaning of oil major was also provided in The M.V. “L” arbitration (above) where the arbitrator rejected the interpretation of “Oil Major” as including petrochemical companies and/or vessel assessment and approval agencies.
- Transpetrol Marine Services Ltd v. SJB (Marine Energy) BV (The ROWAN)– the meaning of “Approval”
The Commercial Court in finding for charterers provided some guidance as to the meaning of the word “Approval” in the context of oil majors.
It is not the practice of oil majors to grant approvals in advance. Indeed, letters from the companies relied upon as “Approvals” will generally state that no such approval has been granted and should not be assumed.
In considering what constituted an “Approval” from an oil major, the Court held that “approved” in this context did not mean “approved by”, but “acceptable to” to oil majors who, subject to further approval, might or might not, when the prospect of a real transaction arose, decide to approve a vessel. Even then express approvals are only given for specific voyages, not for a specified period of time.
On appeal, the Court of Appeal found that the provision regarding approvals contained within the charterparty recap e-mail superseded that contained within the printed version of the incorporated Vitol terms. The original Vitol clause was an express, continuing warranty of approval for the duration of the charterparty. However the version contained within the recap did not contain an express continuing warranty.
The Court of Appeal further held that the term “TBOOK” (meaning that the vessel was approved by specified oil companies “to best of owners’ knowledge”) was a promise of limited futurity as owners would know perfectly well whether the vessel had been approved or not. The meaning of “TBOOK” was therefore that, at the date of the charter:-
- owners had, to the best of their knowledge, procured approvals from the named oil companies; and
- owners knew of no facts which would cause the vessel to lose approvals during the course of the duration of the charter.