As is well known, RightShip is a private ship-vetting organization maintained by BHP Billiton, Cargill and Rio Tinto. Major dry-bulk shippers in Australia, Brazil and elsewhere increasingly require vessels to be approved by RightShip. Vessels which are not RightShip-approved face difficulties in finding employment in trades where those shippers predominate.

Accordingly, disputes between owners and charterers about RightShip approval are becoming more common. One of these was the subject of a judgment handed down yesterday by Mr Justice David Steel in The Silver Constellation, (Seagate Shipping v Glencore International [2008] EWHC 1904 (Comm)), on appeal from a London arbitration award.

The Silver Constellation was a Capesize on long-term time charter. The Charterparty imposed no express obligation on her Owners to obtain and maintain RightShip approval. However, the Charter did require the vessel to be kept in a thoroughly efficient state in terms of her ‘hull… machinery and equipment, with all certificates necessary to comply with current requirements of all ports of call’, and contained commonly-used rider clauses requiring the Owners to keep the vessel “in all respects eligible for trading to the ports, places or countries specified or not excluded in this Charter” and to ensure that she was in possession of “all valid certificates, records and other documents required for such trade”. Clause 8 of the NYPE form, requiring the Owners to obey Charterers’ orders for the vessel’s employment, was also included.

The Vessel had a 2-star rating from RightShip up to February 2007, at which point she was 21 years old. The Charterers asked the Owners to complete the RightShip vetting questionnaire for an intended iron ore voyage. In return for ‘reinstating’ the vessel’s RightShip status, the Owners asked for more hire. When the Charterers refused to pay up, the Owners refused to allow a Rightship inspection arranged by the Charterers to take place.

The ensuing dispute was referred to arbitration. Two issues were at the heart of the case:

  • Whether the Charter provisions calling for the vessel to be in possession of all documents required for trading obliged the Owners to secure RightShip approval; and or
  • Whether Owners were obliged to permit a RightShip inspection arranged by Charterers pursuant to clause 8.

The arbitrators answered both points in Charterers’ favour. They rejected the Owners’ arguments that the documentary clauses in the Charter were solely concerned with regulatory or governmental requirements, stating that the emphasis in the Charter was on eligibility for trading in its broadest sense. The panel appears to have been heavily influenced by broker evidence that this was a practical necessity if the vessel was to trade to Brazil and Australia – key markets for any Capesize.

The tribunal also said it was a breach of NYPE clause 8 for the Owners not to facilitate a RightShip inspection arranged by Charterers following Owners’ refusal to do this themselves. On appeal, Steel J found that, properly construed, there was no obligation on Owners to obtain RightShip approval. The rider clauses dealing with Owners’ documentary obligations were directed towards requirements legally imposed either by the law of the flag, the law of the country to which the vessel has been ordered or by the laws of the port of call. They could not apply to an extra-legal and privately-owned vetting system such as RightShip. The fact that the charterparty made specific reference to a range of certificates, but not to RightShip approval, was held to be significant. Accordingly, the Award was overturned on this point.

However, the Judge endorsed the Arbitrators’ finding that the refusal to co-operate with Charterers when they organised their own RightShip inspection was a breach of NYPE clause 8. He upheld the panel’s conclusion that a charterers’ order requiring a vetting questionnaire to be completed or to permit inspection by a vetting agency were orders as to employment. He agreed that the Owners’ refusal to co-operate with the Charterers’ efforts to obtain RightShip approval rendered the vessel unemployable on trades which were otherwise permissible under the Charter terms.

Both sides were given leave to appeal, but the decision provides welcome clarification to the industry. The lesson for charterers is that if they wish to employ a chartered ship between ports where RightShip approval is required by most shippers, then this needs to be an express term of the charter (as is the case with Oil Major Approvals in tanker charterparties). The lesson for owners is that they ignore a request by their charterer to allow access to inspectors employed by a private vetting agency at their peril.

The full text of the judgment can be read at: http://www.bailii.org/ew/cases/EWHC/Comm/2008/1904.html