Ship-to-ship (STS) transfer operations: does size matter?

1. The STS lightering clause in BPVOY4[1] requires prior approval of the owners if charterers (C) need to carry out ship-to-ship transfer operation and such approval is not to be unreasonably withheld by the owners (O). The court below[2] held that the disapproval by O was unreasonable. O appealed.

Fact

2. C intended to lighter O’s VLCC, F to another VLCC, Q of exactly the same length – 330 metres, at Pasir Gudang, Malaysia. C emailed their intention to O for approval and the email was forwarded by the latter to their London agents, A.

3. A’s Operations Manager, P responded and rejected C’s intention. The reasons for rejection were (i) contractually, STS operations had to be carried out in accordance with the recommendations set out in the latest edition of the ICS/OCIMF Ship to Ship Transfer Guide (Petroleum) and the guide does not provide any references/recommendations for STS transfer between two VLCCs; (ii) O’s difficult past experience with VLCC-VLCC operations off Pasir Gudang; and (iii) it is impossible to obtain satisfactory leads for both head lines and stern lines, coupled with the fact that upon commencement and completion of the operation the leads of other moorings, springs and breasts, will have a poor vertical aspect.[3] (The judge[4] treated that as the first withholding of approval – Withholding 1)

4. C consulted the STS specialist and service provider at Pasir Gudang, G, of O’s contentions. G asserted that STS operations between two VLCCs should not be undertaken lightly, although they are conducted on a regular basis both underway and at anchor.

5. In the subsequent discussions amongst the above parties, G proposed to use at least 14 mooring lines, or 16 if possible. G also provided observations like (i) the number of VLCC STS operations at Pasir Gudang; (ii) the competency of the pilot; (iii) adequate usage of fenders; (iv) traffic density at the STS location; (v) tugs deployment; and (vi) risk assessment processes.

6. C then executed plan B. That is to use two other vessels, T and FA for the STS operations. But those two vessels were also being rejected by O. In response, O repeated their first withholding word for word. (The judge called this “Withholding 2”)

7. C made a further unsuccessful attempt to secure O’s approval by offering to execute a Letter of Indemnity (LOI). That led to Withholding 3. Since it is not suggested that the offer of an LOI made a prior reasonable refusal unreasonable, the court of appeal deemed it not necessary to go into the details of what occurred.[5]

The issue

8. The question for the judge was whether or not O had acted reasonable in refusing to approve F. The Court of Appeal agrees with the judge that it was for C to prove that O had acted unreasonably. In order to entitle them to withhold approval it was not necessary that O’s 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.

Conclusion

9. The court of appeal agreed with the judge that the right to transfer was a right to transfer to any vessel, including a VLCC. Even if a VLCC-VLCC operations is in a sense be regarded as non-standard will not be a good ground for O’s refusal.

10. The judge was entitled to reach this conclusion, which was one of fact. It was one reached by an experienced commercial judge after hearing evidence over four days about the vessels concerned and the operation intended. Much of the evidence was expert evidence, whose significance it was for the judge to assess, in the light, inter alia, of his assessment of the quality and the cogency of what the witnesses had to say. His conclusion involved the consideration and weighing of a number of factors. That explains reluctance of the court of appeal to overturn his conclusion unless it was shown that he had misunderstood or misapplied the relevant legal principles, ignored some relevant, or taken account of some irrelevant, consideration, or reached a conclusion that was clearly erroneous or outside the bounds of what it was open to him to decide. The judge was guilty of none of these things.[6]

11. In addition, the court of appeal deemed that the judge was entitled to take into account O’s approach, in essence, (a) to claim that VLCC – VLCC transfer was not permitted; and (b) in pursuance of what amounted to an idée fixe about VLCC – VLCC transfers, to abandon discussion about the operation and repeat points about head lines, stern lines, and vertical aspect, which, on analysis, formed no reasonable basis for rejecting C’s nominated vessel on account of any characteristic of that vessel.[7]

Commentary

12. STS transfer operations occur mostly between tankers. It is sometimes being perceived as a much safer oil transfer operations as compared to to usual cargo oil transfer at berths and terminals. The operation is to lighten a VLCC (referred to as: Ship to be lightered (STBL)) through discharging of cargo oil to smaller tankers, ie AFRAMAX, SUEXMAX, due to the STBL’s drafts contraint at the receiving oil terminals. The situation in this case where STS transfer involve two tankers of a similar length would mostly be for commercial reason, ie transit cargo. Although it was mentioned as a non-standard operation in the above, it is in fact quite standard in that [sheltered] sea area for the above commercial reason.

13. This was a 2010 dispute where the latest STS transfer guide[8] at that time does not have a provision for an STS operations involving two vessels of a similar length. As mentioned in the postcript by the court of appeal, a 2013 edition of the guide was published and this new edition does have a provision for STS transfer operations involving vessels of a similar length.[9] Apparently, its cover page is a picture of two similar length tankers in an STS operations![10] The 2013 edition in fact supersedes the fourth edition of the Ship to ship transfer guide (petroleum) (2005), and other STS transfer guides involving liquefied gases.[11] This case could be one of the reasons for the publication of a new STS guide, but is not limited to petroleum tankers only.

14. Following an amendment to Annex I of MARPOL 73/78 through Resolution MEPC.186 (59), a new chapter 8[12] was added to require oil tankers of 150 gross tonnage and above engaged in STS operations to have on board a ship specific STS operations Plan approved by the Administration.[13] The requirements came into force on 1 April 2012. Classification Societies provide model STS operations Plan to facilitate tanker owners’ compliance to the above mandatory requirements. The model plan may not have provision for STS involving vessels of a similar length. As such, tanker owners should review their Plan and make the necessary amendment as applicable, if this is not already being advised by their respective classification societies.

15. Lastly, under the ambit of the ISM Code,[14] carrying out a risk assessment is a major component in the Safety Management System on board. Risk assessment shall be carried out prior to any STS transfer operations, regardless of the length of the vessels involved. A proper execution of a risk assessment may be a good ground to reasonably alter the process and progress of an STS operation with another tanker, and this may differ from withholding approval for the use of that vessel entirely. In this case, consultant for C had carried out risk assessment, etc. (See para 5 above) However, the contradictory reply from O’s agent, P, withholding approval was not specific but merely contained statement like “… following careful consideration of all safety considerations in respect of …”[15] Were the contradictory reply be specific, different issue might ensued.

Capt Cheong Kwee Thiam

26 Nov 2014

Note: All errors are the author’s.

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[1] “8.1 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 (the “Transfer Vessel”)…

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)”.

[2] Falkonera Shipping Company v Arcadia Energy Pte Ltd [2012] EWHC 3678 (Comm) (The M.T. “Falkonera”).

[3] Ibid, at [13] and [22].

[4] Ibid, at [22].

[5] [2014] EWCA Civ 713, at [35].

[6] Ibid, at [84].

[7] Ibid, at [85].

[8] Ship to ship transfer guide (petroleum), 4^th edn (2005), ICS/OCIMF.

[9] Section 2.1.2, SHIP TO SHIP Transfer Guide for Petroleum, Chemicals and Liquefied Gases, 1^st edition (2013), CDI/ICS/OCIMF/SIGTTO.

[10] Similar picture of two LNG ships with similar length involved in an STS transfer operations is found on the cover page of LNG Ship to Ship Transfer Guidelines, 1^st edn (2011).

[11] They are the second edition of the Ship to Ship Transfer Guide (Liquefied Gases) published in 1995, and the LNG Ship to Ship Transfer Guidelines published in 2011.

[12] Chapter 8 – Prevention of pollution during transfer of oil cargo between oil tankers at sea.

[13] The Flag State.

[14] The International Management Code for the Safe Operation of Ships and for Pollution Prevention.

[15] Falkonera Shipping Company v Arcadia Energy Pte Ltd [2012] EWHC 3678 (Comm) (The M.T. “Falkonera”), at [22].