In Falkonera Shipping Co v Arcadia Energy Pte Ltd (The “Falkonera”), the Court considered issues arising from the Claimant Owners’ withholding of approval to discharge from the chartered VLCC to two other VLCCs by STS transfer.
Owners chartered the “FALKONERA”, a VLCC, to the Defendant Charterers on an amended BPVOY4 form. Clause 8.1 of Part 2 provided:
“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 … All transfers of cargo to or from Transfer Vessels shall be carried out in accordance with the recommendations set out in the latest edition of the ICS/OCIMF Ship to Ship Transfer Guide (Petroleum).”
The charter also contained an additional clause dealing with STS lightering, which provided:
“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/lightening shall be subject to prior approval of owners … not to be unreasonably withheld.”
Charterers chose to discharge by way of STS transfer, and nominated two VLCCs to receive the cargo. Owners withheld their approval of those two vessels, and the cargo was subsequently discharged into other, smaller, vessels. Owners’ reasoning was:
1. the charter terms precluded STS transfers between VLCCs, and the ICS/OCIMF Guide referred to in clause 8.1 did not contain any references to or recommendations for transfers between VLCCs; and
2. they were entitled to withhold approval in light of a previous difficult experience with STS transfers between VLCCs, and because the fact that the vessels were the same size created mooring difficulties.
Charterers claimed that Owners’ withholding of approval led to delays and increased costs. They argued that the withholding of approval was a breach of charter, and so those delays and costs should be for Owners’ account.
The Court found in favour of Charterers, holding that Owners had unreasonably withheld their approval.
On a proper construction of the charter, clause 8 and the lightering clause overlapped. Taking those clauses together, Owners were not entitled to approve or refuse the STS transfer. Rather, the right of approval was limited to deciding whether the nominated vessel was suitable for STS operations.
The fact that the ICS/OCIMF Guide did not refer to VLCC STS transfers did not mean that they were precluded, nor that they could not be conducted in accordance with the Guide. Subject to issues of timing and proper planning, the operation could have been performed with each of the nominated vessels in accordance with the Guide. As such, none of the reasons given by Owners provided a reasonable basis for withholding approval.
Where a charter term requires approval by one or other of the parties, there is often a requirement that such approval is “not to be unreasonably withheld”.
What amounts to “reasonable” or otherwise will depend on a close analysis of the facts in conjunction with all relevant charterparty terms. Withholding approval simply because the other party’s proposal will require additional time and planning is unlikely to be considered reasonable.
Unreasonably withholding approval can lead to a finding of liability for damages for breach of charter. Parties should, therefore, consider very carefully before withholding their approval.