Ship-to-ship transfer – whether reasonable to refuse permission

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

The parties entered into a voyage charter of the Falkonera, a VLCC, on BPVOY4 with amendments, which included:

"Charterers shall have the option of transferring the whole or part of the cargo … to or from any other vessel including, but not limited to, an ocean-going vessel, barge and/or lighter …

if charterers require a ship-to-ship transfer operation or lightening by lightering barges to be performed then all tankers and/or lightering barges to be used in the transhipment shall be subject to prior approval of owners, which not to be unreasonably withheld, and all relevant certificates must be valid"

The Falkonera loaded oil in Yemen. Charterers asked owners to approve STS transfers into three vessels (Kythira, Front Queen and Front Ace). Kythira was smaller than Falkonera, while Front Queen and Front Ace were both VLCCs, the same size as Falkonera. Owners approved transfer to Kythira, but refused to allow transfer from the Falkonera into either the Front Queen or the Front Ace, in spite of a number of efforts to deal with owners' safety concerns. Charterers then proposed an alternative vessel, True, and eventually permission for discharge into True was given, and the cargo was transferred into True and Kythira.

Charterers claimed that implementing the plan of bringing in the True involved significant delay and increased cost which were for owners' account. They argued that owners had unreasonably refused permission for the proposed STS transfers, as their opposition was based on aversion to any VLCC-VLCC transfer, rather than to the characteristics of a particular vessel.

Charterers' claim succeeded, and owners appealed:

The appeal was dismissed.
1     It was for charterers to prove that owners had acted unreasonably. In order to entitle owners to withold approval it was not necessary that their conduct was correct or their conclusions right. They would only be in breach if no reasonable shipowner could have regarded their concerns as sufficient reason to decline approval.

2     The right to transfer was "to … any other vessel", including a VLCC. The fact that transfer VLCC to VLCC could be regarded as non-standard was not of itself reasonable ground for refusal. Owners were taken to have agreed in the contract to have accepted such risks as were inevitably attendant on a VLCC-VLCC transfer. It was necessary for there to be some other basis on which the withholding of approval could be said to be unreasonable.

3     The issue was not whether owners were satisfied with the planning of the STS transfer, but whether there was some characteristic of the receiving vessel which meant that the STS would be unsafe.

4     The judge's conclusion was one of fact, reached after extensive consideration of expert evidence. He had applied the correct legal test.

(Falkonera Shipping v Arcadia Energy [ 2014 ] EWCA Civ 713)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Nicolas de Loisy

Advisory specialized in logistics, transportation, and supply chain management.