Commercial Court Construes Oil Major Approval Provision In Time Charter Party

Dolphin Tanker Srl v Westport Petroleum Inc (MT Savina Caylyn) [2010] EWHC 2617 (Comm)

In this case, the arbitrator and subsequently the Commercial Court judge had to construe what the judge described as a "lengthy and somewhat opaque" provision in a time charter relating to oil major approvals. They both chose to interpret the oil major clause in such a way as to give it commercial sense and avoid a construction that would lead to a "commercially absurd result".

Background to dispute

This dispute arose out of the termination by charterers of a five year time charterparty on an amended Shelltime 4 form. The matter went to arbitration and the tribunal held that the charterers were entitled to terminate pursuant to clause 50 of the charter party.

The relevant sections of clause 50 are as follows:

"50. Vessel's approval clause (Amended)

1.1 Upon delivery from shipyard: owners shall use best endeavours to obtain pre-approvals, which shall include, but not limited to, inspection of the vessel in the shipyard or at first bunkering operation if/when possible. If pre-approvals are not obtained when the vessel is in the building yard or at the first bunkering, owners will use best endeavours to obtain the minimum 3 (three) major oil company approvals as soon as possible, however, said approvals must be in place not later than 60 (sixty) days from date of delivery (subject to vessel's trading areas and availability of inspectors)

1.2 (1) If owners fail to secure the 3 (three) minimum approvals after 60 (sixty) days of delivery from the shipyard, charterers have the option to extend the 60 (sixty) day period or to place the vessel off-hire from the date and time that she fails to hold the minimum 3 (three) approvals.

1.3 If owners subsequently fail to secure the 3 (three) minimum approvals after an additional period of 60 days, charterers may, without prejudice to any other terms of this charter, terminate the charter party by serving notice of early redelivery to owners.

2.1 During the currency of this charter party: owners will (if so requested by the charterers) co-operate in having the vessel inspected by oil companies if any current SIRE report has to be renewed.

2.2 Owners will use best endeavours to have the vessel inspected and approved by a minimum of 3 of BP, Shell, Exxonmobil, Chevtex and Total Fin Elf within 60 days of the delivery of the vessel into this charter........

3.1 A failed vetting inspection under the SIRE system by the...