Alan Curran, an Associate in our Dry Shipping group, reviews the recent decision in Golden Fleece Maritime Inc and another v St. Shipping and Transport Inc (the “ELLI” and the “FRIXOS”)  All ER (D) 16).
On 2 August 2007 the Commercial Court delivered its judgment in this case in which the Court considered the impact of the new MARPOL requirements for double-skinned tankers carrying fuel oil (Regulations 13 F-H) on charters made before those regulations came in to force.
The ELLI and the FRIXOS were both double sided vessels chartered on the Shelltime 4 form for the carriage of crude/dirty petroleum products. Although the sides of the cargo tanks were protected by a wing ballast tank they were defined by their classification society to be only partially double sided. The wing ballast tanks extended between the same frames as the cargo tanks but there were slop tanks that were not fully protected by a ballast tank but which were, for just 2.6 metres of an overall length of 223 metres, only protected by bunker tanks. Since these tanks were not protected by spaces “not used for the carriage of oil”, on the coming into force of the MARPOL requirements the cargoes that the vessels could carry were restricted; indeed the majority of commercially traded fuel oils could not be carried. The issue between Owners and Charterers that the Court had to consider was who bore the risk of this under the charters.
The charters required that at delivery the vessel must be:
- “in every way fit to carry crude petroleum and/or its products”; and
- “in every way fit for the service” required of her.
In addition there was an obligation on Owners that, throughout the charters, whenever required by “the passage of time, wear and tear, or any event” (emphasis added), they would exercise due diligence to maintain or restore the conditions mentioned above to make the vessel in every way fit for carriage of the stated cargoes and to perform the service required of her.
Many charters have obligations concerning fitness for service (e.g. NYPE line 22 or Baltime clause 1) but this is, more often than not, an obligation to be fulfilled at delivery which, if breached, could entitle a charterer to cancel. Here, the Court found that if the vessels had not been in compliance with MARPOL regulations at delivery, such that they could not have carried fuel oil as anticipated, then Owners would have been in breach.
The fact that the vessels were physically fit to carry the cargoes is not the only criteria to be assessed, as Owners had argued. The vessels were not “legally fit” for that carriage. They could not, therefore, be described as in every way fit to carry the permitted cargoes. The legal “unfitness”, such as an absence of the necessary documentation/certification for a particular trade/cargo as the case may be, will therefore render a vessel unfit for these purposes. The Court here, in reaching this conclusion, observed that an owner’s obligation as to a vessel’s seaworthiness includes cargoworthiness. A vessel that is unable to carry a permitted cargo as at delivery would therefore be unseaworthy. However, here the vessels were not in breach of the charter’s requirements at delivery. The issue of fitness to carry permitted cargoes only arose at a later stage on the coming into force of the MARPOL requirements.
Here, the wording of the charters (amended Shelltime 4) made it clear that the obligation regarding fitness for service was continuing. Owners were required to do more than just maintain the original condition but also to restore it if lost. When the MARPOL requirements came into force the ELLI and FRIXOS were no longer legally fit to carry fuel oil, a permitted cargo. They could not therefore be described as “in every way” fit to carry the cargoes permitted under their charterparties. As noted above, the physical characteristics of the ship are not the only issue. The vessel also has to have “legal fitness”. Although they were physically fit, when the MARPOL regulations came into force during the currency of the charters, the vessels’ legal fitness to carry fuel oil was lost.
There were a number of alternative arguments advanced by the Owners to avoid the burden that the MARPOL regulations would put on them. They argued that the new regulations meant that fuel oil could not be carried legally and was therefore an unlawful cargo under the Charterparty. This was quickly dismissed by the judge as an argument that turned the obligations of the charterparties on their head. The lawfulness of a cargo relates to the characteristics of the cargo, not a vessel’s ability, or lack thereof, to carry it lawfully. Owners also argued that the Vessel was fully compliant with the MARPOL regulations that applied to their vessels. They argued that they did not promise the vessels could carry all cargoes to which MARPOL applies. Again this was dismissed as turning the true position on its head. The warranty from Owners was as to the vessels’ ability to carry fuel oil: that was lost and had to be restored. In both these arguments Owners had sought to isolate particular clauses and construe them in a vacuum. It is normal to look at a contract as a whole and to view particular clauses in the context of the whole agreement. It is perhaps not surprising then that Owners failed to persuade the Court where they sought to construe clauses without reference to the balance of the charterparty, which clearly impacted on the meaning of those terms.
The loss of the ability to carry fuel oil triggered an obligation to restore the fitness for service that had existed at delivery. In failing to do so, Owners were in breach of the charterparty. The Owners were therefore obliged to make such alterations to the vessels as would be necessary to comply with the new MARPOL regulations. Unfortunately for the Owners that obligation existed regardless of the cost of the necessary alterations.