A recent English High Court judgment that will be welcomed by LNG traders and charterers has confirmed that loading LNG cargoes containing debris of a usual type and quantity does not breach charters on the “ShellLNGTime1” form. The decision in American Overseas Marine Corp v Golar Commodities Ltd (LNG Gemini) (7 May 2014) is in line with the industry’s acceptance, as reflected in current SIGTTO1 guidelines, that LNG carriers are unlikely to suffer damage from debris small enough to pass through a ship’s filters during loading.
Managing owners of LNG GEMINI contended that a cargo loaded on the vessel by the defendant charterers, Golar Commodities, was contaminated and that the contamination entitled them to carry out extensive work to the vessel’s cargo tanks, pumps and systems at charterers’ expense. Owners had discovered debris in the ship’s cargo tanks during an inspection in the course of a scheduled drydocking several months after the cargo in question had been loaded and after further cargo operations.
Owners claimed that the debris had come from the first cargo loaded by the charterers and relied upon the “injurious cargoes” clause in the “ShellLNGTime1” charter, which states:
“No acids, explosives or cargoes injurious to the Vessel shall be shipped and without prejudice to the foregoing any damage to the Vessel caused by the shipment of any such cargo, and the time taken to repair such damage, shall be for Charterers account”.
Owners argued that (1) no physical damage was necessary, because the ship was an “instrument of trade”and any interference with the ship’s use for trade, such as the need for cleaning, would be injurious; and (2) a propensity or tendency to cause physical damage was sufficient. The judge rejected the first argument. The second argument, which had not been contested by charterers, was accepted.
The wording of the clause anticipated physical damage. That was clear from the reference to other obviously damaging types of cargo, such as acid, and from the reference to “repairs” to the ship. There was no evidence that physical damage had actually been caused to the ship by the cargo in question. The judge therefore turned to the questions of whether the debris found in the ship’s cargo tanks and pumps had been loaded in the charterers’ cargo and if so, whether that debris had a tendency to cause physical damage.
The judge was referred to the SIGTTO guidelines which provide for LNG cargoes to be loaded through filters of a certain size at the ship’s manifold. The judge concluded that “there is no cogent reason to think the industry’s standards and practices too lax or that those responsible for them are wrong to disregard particles small enough to pass through...filters.” The judge accepted charterers’ evidence that the debris did not have a tendency to harm the vessel. In doing so, he observed that “it is not unusual for an LNG cargo to include some foreign particles”. He also found that the evidence strongly suggested that not all of the debris had come from charterers’ first cargo.
Traders of LNG will still need to consider liability arising under their sale contracts, which could result from delivery of LNG containing debris, but the position under charters has at least been clarified.