DMC Category Rating: Confirmed

The essential issue was whether Golden or ST should bear the commercial risk of a change in international regulations. The effect of the international regulations was to restrict Elli and Frixos from carrying some of the cargoes specified in the charters within the geographic limits of trading within the charters.

The regulations in question were Regulations 13F, 13G and 13H of MARPOL (the International Convention for the Prevention of Pollution From Ships), the effect of which, on adoption on 4 December 2003, was to set out requirements for the carriage of fuel oil which were effective as from 5 April 2005, a date which fell 19-20 months before the end of the two charter periods.

It was common ground before the Commercial Court and Court of Appeal that the effect of Regulation 13H of MARPOL, when read with the requirements of Regulation 13F, was that fuel oil cargoes could only be carried in double-hulled vessels after 5 April 2005, subject only to the exemptions which arose as a result of Regulation 13H (5), (6) and (7). However, due to the fact that the slop tanks aft of the cargo tanks were segregated from the sides of the ship in part by bunker fuel tanks and not wholly by ballast tanks, the ships did not comply with the Regulation 13H(5) exemption and the Flag State of the vessels could not grant an exemption under Regulation 13H(6), as that exemption related to the carriage of crude oil only and not fuel oil. Even if exemptions applied, Regulation 13H(8)(b) allowed a party to MARPOL to deny entry to oil tankers, operated in accordance with the exemptions of Regulation 13H(5) or (6), into the ports or onshore terminals under its jurisdiction.

The result of the new MARPOL regulations was that the vessels could no longer carry fuel oil but only crude oil and other similar low-grade products. ST found it difficult to obtain contracts and, although the vessels were not redelivered, they were forced to do less attractive and less lucrative work. ST therefore withheld that part of the hire which had been agreed to be calculated by reference to profits made on carrying cargoes pursuant to the charters. Golden then claimed that hire and ST defended that claim and made a counterclaim for loss of profit on the basis that Golden were obliged to provide vessels fit for the carriage of fuel oil and had not done so.

At first instance, the judge, Mr Justice Cooke, upheld the charterer’s contentions. The shipowner appealed.

The critical question for the appeal was "whether the fact that the vessels did not comply with the new provisions of the MARPOL Convention for double-hulled vessels means that the Owners were in breach of charter after 5^th April 2005." The answer to the question depended on the terms of the charters, the relevant clauses of which were identical for both vessels.¹

Judgment
The leading judgment was given by Longmore LJ, with whom the Master of the Rolls and Lawrence Collins LJ agreed.

Longmore LJ emphasised that "the traditional seaworthiness obligation that the vessel ‘be tight staunch strong and in every way fitted for the service’ (… in clause 1(c)) is buttressed by further obligations:

i) that the vessel is fit to carry dirty petroleum products such as fuel oil (clause 1(b));

ii) that the vessel have on board certificates and documents required by any applicable
law (clause 1(g)); and

iii) that the vessel will comply with all applicable conventions including, specifically the 
MARPOL convention (clause 52)."

Upon analysis of the authorities Longmore LJ stated that they do not "yield any principle of law that the terms of a time charter as to fitness to carry the cargo or seaworthiness relate only to the physical condition of the vessel and can never embrace legal fitness to carry the cargo" there being "a number of cases where the seaworthiness obligation has been held to include the provision of appropriate documents."

In summarising the cases he stated they showed that "documents required by an officious outside body could not be regarded as documents relating to the seaworthiness of the vessel but documents required by a relevant law such as that of the vessel's flag or of any port to which the vessel might be ordered to go could fall within the category of documents relating to seaworthiness and thus be required before the Owners could be said to have fulfilled their obligations." This was "all a question of fact; to which one might add it would also be a question of construing the individual charterparties."

In returning to the interpretation of the particular charters, he considered that Golden’s submission would have strength if there were only clause 1(b) and (c), which were limited to the time of delivery. However, clauses 1(g) and 52 put the matter beyond doubt.

"In order to carry fuel oil, the vessels needed, as from April 2005, an exemption under Regulation 13H(5). That was a document required by law of the flag (Liberia). It was a document required at a particular time." But clause 1(g) did have an inconsistency between the opening words of clause 1, ‘at the date of delivery’, and the words ‘required from time to time’ in the body of (g). Longmore LJ however considered that "precedence should be given to the words in the body of (g) rather than the words in the introducing phrase on the basis that the ‘particular should prevail over the general’." As a result "this would be enough on its own to resolve the appeal in favour of the charterers".

The first two paragraphs of clause 52 were both relevant and led to the same conclusion according to Longmore LJ. This was because the "warranty in the first paragraph is not stated to be a warranty applicable only on delivery of the vessel under the charter and I would not construe it as such." The first paragraph warranted that "the vessel is in all respects eligible under applic[able] conventions, laws and regulations for trading to and from the ports and places specified in clause 4 of the Charter Party" and that "she shall have on board for inspection by the authorities all certificates … and other documents required for such services …" He then stated the fact that the "exemption required to enable the vessel to carry fuel oil was, after April 2005, a document required for the service of trading to the ports and places specified in clause 4 of the contract."

The second paragraph of clause 52 warranted that "the vessel does, and will, fully comply with all applicable conventions, laws, regulations and ordinances of any international … entity having jurisdiction including, but not limited to …. MARPOL 1973/1978 as amended and extended …" Longmore LJ stated that the "warranty explicitly applies to the future and expressly refers to the MARPOL Convention as amended and extended. Without the 13H(5) exemption the vessel did not, in my judgment, comply with the MARPOL Convention because she was designated fit to carry dirty petroleum products but could not do so unless she had the relevant exemption for double-sided vessels. The vessels were unable to obtain that exemption and there was thus on any view a breach of clause 52 even if there was no breach of the other clauses of the charter parties."

Longmore LJ finally noted that the "doctrine of frustration is, in theory, available if events occur which render the contracts radically different from what the parties contemplated at the outset" though that was not the present case. On the facts Lloyd's Register (the vessels’ classification society) indicated the solution "was that the slop tanks should become void spaces" which would only involve "a measure of construction work to shut off the pipes that introduced the slops into the slop tanks or to seal off the tanks in some other way" which did not amount to a rebuild of the vessels.

Comment
The appeal’s dismissal is to be welcomed. Commercial common sense dictates that the owner of a time chartered vessel ought to be responsible for ensuring the vessel complies with mandatory regulations, both physical and documentary. The owner has the more permanent interest and responsibility for the vessel whereas a charterer (other than a bareboat charterer) ordinarily has a considerably more limited interest and commitment.

The alternative reasoning for finding for ST given by the Court of Appeal on the interpretation of clause 1(g) though is less satisfactory particularly as the first and second paragraph of clause 52 aptly provide the answer to the question posed concerning the shipowner’s continuing obligations in relation to compliance with international conventions.

The interpretation of "time to time" in clause 1(g) is somewhat artificial. It is more natural to construe the clause to mean that documents required from time to time must already be onboard the vessel at the time of delivery. In isolation this constrains the documents to those ordinarily required at the time of delivery within the geographic trading range of the charter and does not, unless by reasonable and necessary implication of law, require the addition of documents that later become a mandatory requirement.

Footnote

(b) She shall be in every way fit to carry crude and/or dirty petroleum products always within vessels natural segregation, excluding lubes/casingheads/cbfs

(c) She shall be tight, staunch, strong, in good order and condition, and in every way fit for the service, with her machinery, boilers, hull and other equipment (including but not limited to hull stress calculator and radar) in a good and efficient state …

(g) she shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service without delay

(h) she shall comply with the description in Form B appended hereto, provided however that if there is any conflict between the provisions of Form B and any other provision, including this Clause 1, of this charter such other provision shall govern …

3. (i) Throughout the charter service Owners shall, whenever the passage of time, wear and tear or any event (whether or not coming within Clause 27 hereof) requires steps to be taken to maintain or restore the conditions stipulated in Clauses 1 and 2(a), exercise due diligence so to maintain and restore the vessel...

(iii) If the Owners are in breach of their obligations under Clause 3(i) Charterers may so notify Owners in writing: and if, after the expiry of 30 days following the receipt by Owners of any such notice, Owners have failed to demonstrate to Charterers' reasonable satisfaction the exercise of due diligence as required in Clause 3(i), the vessel shall be off-hire, and no further hire payments shall be due, until Owners have so demonstrated that they are exercising such due diligence.

4. Owners agree to let and Charterers agree to hire the vessel for a period of 6 months …. commencing from the time and date of delivery of the vessel, for the purpose of carrying all lawful merchandise crude and/or dirty petroleum products including fuel oil, lswr, cbfs, condensate, etc, maximum three grades within vessels natural segregation. …. in any part of the world, as Charterers shall direct, subject to the limits of the current British Institute Warranties limits and any subsequent amendments thereof...

39. Owners warrant they are members of ITOPF.
SPECIAL PROVISIONS:
1. LOA: 229.732 M
SLOPS: 3465 CBM
DOUBLE SIDE: YES
SBT [Segregated Ballast Tanks]: YES ...

4. TRADING WORLDWIDE ALWAYS WITHIN BRITISH INSTITUTE WARRANTY LIMITS INCLUDING US ...

52. ELIGIBILITY & COMPLIANCE
Owners warrant that the vessel is in all respects eligible under application (sic) conventions, laws and regulations for trading to and from the ports and places specified in Clause 4 of the Charter Party and that she shall have on board for inspection by the authorities all certificates, records, compliance letters and other documents required for such services, including, but not limited to, a U.S. Coast Guard Certificate of Financial Responsibility (Oil pollution) and the certificate required by Article VII of International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended.

Owners further warrant that the vessel does, and will, fully comply with all applicable conventions, laws, regulations and ordinances of any international, national, state or local government entity having jurisdiction including, but not limited to, the U.S. Port and Tanker Safety Act, as amended, the U.S. Federal Water Pollution Control Act, as amended, MARPOL 1973/1978 as amended and extended and SOLAS 1974/1978/1983 as amended and extended and OPA 1990...

Any delays, losses, expenses or damages arising as a result of failure to comply with this Clause shall be for the Owners' account and the Charterers shall not be liable for any delay caused by the vessel's failure to comply with the foregoing warranties."