The "Asia Star"
Singapore Court of Appeal; Judgment delivered by Belinda Ang J, 27 March 2007:
 SCGA 17
Gurbani and Co for the claimant/respondents, Pacific Inter-Link Sdn Bhd
Kelvin Chia Partnership for the Owners of the "Asia Star"/appellants
CARRIAGE OF GOODS BY SEA: VEGOILVOY CHARTERPARTY FOR CARRIAGE OF REFINED PALM
OIL: EPOXY COATING IN CARGO TANK BROKEN DOWN: WHETHER BREACH OF TERM THAT CARGO
TANKS WERE TO BE "EPOXY COATED": WHETHER VESSEL UNFIT TO CARRY CARGO:
WHETHER FAILURE OF DUE DILIGENCE TO MAKE VESSEL CARGOWORTHY: WHETHER LIABILITY
EXEMPTED UNDER TERMS OF CONTRACTUAL RIGHT OF CANCELLATION
Where, under a charterparty incorporating terms of the Vegoilvoy charterparty,
the shipowner contracted to provide a ship with epoxy-coated tanks, it could not
take advantage of the option to cancel free of liability set out in clause 1(b)
of that charter, if the reason for the rejection of the tanks was the
substantial failure of their epoxy coatings. Obiter,
that option was, however, available to relieve the shipowner from the
consequences of its failure under cl 1(a) to exercise due diligence in
respect of defective cargo tanks leading to the cancellation of the fixture
prior to loading, where the parties had not separately and expressly
contracted for epoxy-coated tanks.
DMC Rating Category: Confirmed
This Case Note was contributed by Ang
& Partners, the Website’s International Contributors for Singapore
The claimant, Pacific Inter-Link Sdn Bhd ("Pacific") chartered the
product tanker the "Asia Star" from her owners, Shun Da Marine
Transportation Co (S) Pte Ltd ("Owner"), on a Vegoilvoy form to carry
a cargo of refined bleached and deodorised palm oil ("RBD palm oil").
The cargo was to be loaded at one to two safe ports at Belawan in Indonesia, and
in Malaysia, for discharge at one to three safe ports (at the Charterers’
option) in the Gulf of Aqaba, in the eastern Mediterranean Sea, in Turkey, and
at Odessa in Russia.
Pacific required epoxy-coated tanks for the carriage of the
cargo. The answer to "the Standard Tanker Voyage Chartering Questionnaire
1988" stated that the vessel’s cargo tanks were fully coated with epoxy
and the fixture note stated that the vessel was "epoxy coated". During
the pre-loading tank inspection at Belawan in January 2004, the claimant’s
surveyor found that 40% of the epoxy coating of the cargo tanks had broken down.
The claimant rejected the vessel. Owner exercised its option under the
charterparty to cancel the charterparty, arguing that it could do so without
liability where repairs could not be effected within 24 hours and at reasonable
expense (clause 1(b) of the Vegoilvoy form), or its tanks were rejected by the
charterer (clause 15).* The claimant sued the Owner for loss and damage for
breach of charterparty.
At first instance, Tan Lee Meng J allowed the claim. The Owner
appealed but, on appeal, dropped the argument based on clause 15.
(1) The fixture was for epoxy-coated cargo tanks.
The words of description in reference to the cargo capacity and the epoxy-coated
tanks formed part of the contractual description of the vessel.
(2) The coatings would not be adequate for the fixture
if coating failure was of such a magnitude that it undermined the contract for
coated tanks or affected the vessel’s cargoworthiness. On the facts, the Owner
was in breach of the express term of the fixture by presenting a vessel with a
coating breakdown of 40%.
(3) Clause 1(a) of Part II of the Vegoilvoy charterparty
altered the shipowner’s absolute obligation at common law to furnish a
cargoworthy ship to an obligation to exercise due diligence to "make the
tanks, holds and other spaces in which cargo is carried fit and safe for its
carriage and preservation." The vessel was uncargoworthy at the time she
was presented for loading. The Owner had not discharged its burden of
showing that it had acted with due diligence. It was therefore in breach of its
duty of due diligence under clause 1(a).
(4) The option to cancel under Clause 1(b) did not avail the
Owner for several reasons. First, clause 1(b) was aimed at the due diligence
obligation under clause 1(a). It did not apply to the express contractual
obligation of the Owner to provide epoxy-coated tanks, which was a separate and
independent obligation from the seaworthiness obligation under clause 1(a).
Secondly, giving effect to clause 1(b) would deny the term relating to the
vessel’s description as epoxy-coated of contractual effect. Thirdly, the terms
of the typewritten clause describing the vessel as epoxy-coated
overrode the printed clause 1(b), which could not be read to give the party in
default the right to cancel for its breach of the coating description.
(5) Contrary to the conclusion of the judge at first instance,
clause 1(a) would not be rendered meaningless if effect were given to clause
1(b). The shipowner was given an opportunity to either repair the defect or
cancel the charterparty. This discretion of the shipowner was to be exercised
honestly and in good faith. "The concluding words in cl 1(b),"
the Court said at paragraph 64, "are apt to relieve the Owners from the
consequences of the Owners’ failure under cl 1(a) to exercise due
diligence in respect of defective cargo tanks leading to the cancellation of the
fixture prior to loading where the parties have not separately and
expressly contracted for epoxy-coated tanks."
(6) However, as the court had found that the Owner was in breach of the express
term on epoxy-coating, which was not excused by clause 1(b), its appeal
was dismissed with costs.
There is a dearth of reported judgments on the Vegoilvoy charterparty, so
this case is important in setting out the relationships between a term relating
to the description of the vessel, the seaworthiness obligation in clause 1(a) of
the Vegoilvoy charterparty and the shipowner’s rights of cancellation under
clauses 1(b) and 15. It is also noteworthy for judicial recognition of good
faith as a criterion in the exercise of the shipowner’s option to cancel the
charterparty under clause 1(a), perhaps marking the slow but steady inroad made
by this predominantly civil law concept into common law contractual analysis.
* The relevant clauses of the Vegoilvoy form read
(a) The Owner shall, before and at the commencement of the voyage, exercise
due diligence to make the Vessel seaworthy, properly manned, equipped, and
supplied for and during the voyage, and to make the pipes, pumps, and heater
coils tight, staunch, and strong, in every respect fit for the voyage, and
to make the tanks, holds, and other spaces in which cargo is carried fit and
safe for its carriage and preservation.
(b) It is
understood that if the tank or tanks, into which the particular cargo
covered by this Charter is to be placed, upon testing prove to be defective
the Owner undertakes to execute the necessary repairs, provided repairs can
be effected within 24 hours and at reasonable expense; otherwise, Owner has
the option of cancelling this Charter in which case no responsibility shall
rest with the Vessel, Owners, or Agents.
15. Cleaning. Prior
to loading, Charterer shall inspect the designated tanks for the purpose of
determining that they are in suitable condition for the loading and carriage
of the cargo specified hereunder. Acceptance of the tanks by Charterer’s
representative shall be conclusive as to their suitability for such
purposes. If Charterer’s representative does not accept the tanks as
suitable for the cargo, the Owner shall have the right, as its option, to
cancel this Charter Party, without any resulting liability on the part of
either party, or to again clean the tanks, subject to inspection as above.
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