In a previous post, we reported on the decision in Falkonera Shipping Co v Arcadia Energy Pte Ltd (The “Falkonera”), in which Owners were found to have unreasonably withheld their approval to discharge from the chartered VLCC to two other VLCCs by STS transfer. The key facts and charter clauses are set out in that previous post.

Owners’ appeal of this decision has recently been dismissed by the Court of Appeal ([2014] EWCA Civ 713).

Charterers had the right under the charter to transfer cargo to any vessel, including a VLCC. VLCC-VLCC transfers were permitted under the charter terms, and Owners were taken to have accepted the risks inevitably attendant on any VLCC-VLCC transfer. Although transfer to a VLCC could in a sense be regarded as “non-standard”, as submitted by Owners, this was not in itself a reasonable ground for Owners’ refusal.

In that context, the Court considered the precise nature of Owners’ right of approval under the charter terms. This was in respect of the vessel to be used, not in respect of the STS transfer operation as a whole.  Arguments based on the logistics of the transfer operation, such as uncertainty as to whether a suitable plan for the STS operation could be devised, or whether there was time to plan an STS operation, were not justifiable bases for withholding approval. The charter terms gave Owners no right of approval over such matters.

Charterers did not have to seek Owners’ approval of the plans for the STS operation and there was no allowance in the terms for Owners to vet the plans for the STS operation before deciding whether to approve the transferee vessel. The question was whether there was some characteristic of the receiving vessel which meant that the proposed STS transfer would give rise to a degree of risk which Owners who had agreed to allow VLCC-VLCC transfers would, or could, not reasonably be prepared to accept.

Comment

The Court of Appeal’s judgment highlights the importance of carefully considering any charter terms which give a party a right to provide or withhold approval. That party must consider precisely what they are entitled to approve. Here, Owners’ right of approval was in respect of the vessel to be used for the STS transfer, not the transfer itself.

This case also provides guidance as to the approach the courts will take when considering whether a party has unreasonably withheld approval. They will consider the charter terms in conjunction with the specific facts, and will consider the risks which the parties could be said to have accepted at the date of the charter. Parties must consider whether there are any specific risks which they wish to exclude when the charter is negotiated. If they do not, and then later seek to object or withhold approval to a specific operation, they run the risk of being found in breach of charter.