Falkonera Shipping Co v Arcadia Energy Pte Ltd

A contractual approval obligation qualified by the requirement that approval not be unreasonably withheld requires an objective assessment. The question is whether a reasonable owner could have regarded the stated concerns as sufficient, not whether the owner’s conclusion was correct.

Where a charter separates approval of a nominated vessel from the later conduct of an operation, approval ordinarily concerns the vessel’s inherent suitability, while operational risks are addressed through detailed planning and risk assessment. A prior incident and generic safety concerns do not justify refusal where the nominated vessels have no relevant defect and the proposed operation can be safely planned.

The claimant owners chartered the vessel Falkonera to the defendant charterers for a voyage charter. The charter permitted ship-to-ship transfers, subject to an inserted lightering clause requiring prior owner approval of the receiving vessel, such approval not to be unreasonably withheld.

The charterers nominated two VLCCs for transfers at Pasir Gudang. The owners refused approval, relying principally on the absence of specific VLCC-to-VLCC recommendations in the ICS/OCIMF Guide, the vessels’ identical size, mooring concerns, local conditions and a previous incident. The central issues were whether the charter precluded VLCC-to-VLCC transfers and whether the refusals were reasonable.

1. Construction. Clause 8 gave the charterers a wide right to order ship-to-ship transfer to or from any other vessel. Read with the inserted lightering clause, the charter did not preclude transfers between VLCCs. The ICS/OCIMF Guide provided general guidance for ship-to-ship operations and did not exclude same-size or VLCC-to-VLCC transfers merely because it contained no dedicated section on them.
2. Approval and operational planning. The lightering clause involved a two-stage process. The owners first considered approval of the nominated vessel, generally by reference to its inherent characteristics, although the particular proposed operation and foreseeable safety requirements could also be relevant. Once approval was given, the parties were required to undertake detailed, iterative planning and risk assessment. If a specific safety problem emerged, the owners could retain a safety veto at that later stage.
3. Objective reasonableness. The burden lay on the charterers to prove unreasonable withholding. The test was not whether the owners’ conclusion was right, but whether no reasonable shipowner could have regarded the concerns as sufficient. A refusal based on something wholly extraneous to the contract would be unreasonable: Houlder Bros & Co Ltd v Gibbs [1925] Ch 575; Ashworth v Frazer [2001] 1 WLR 2180.
4. The Frontline vessels showed no inherent defect or peculiarity making them unsuitable for ship-to-ship transfer. The prior Kos/Aker Smart 3 incident had materially different features, including a directionally unstable receiving vessel and inadequate fendering. The absence of conventional headlines and sternlines, the alleged poor vertical aspect of moorings, local congestion, pilotage concerns and the time available for planning did not provide a reasonable basis for refusal. The proposed operation could be addressed through proper planning, suitable fendering, tugs and risk assessment.
5. The first response was sufficiently tentative, and the charterers had not shown that it itself constituted a breach. The subsequent Withholding 1, Withholding 2 and Withholding 3 were unequivocal and unreasonable. They therefore breached the charter in respect of the Front Queen and/or Front Ace. A further hearing was required, unless agreed, to determine the consequences and quantum.
6. Negotiations. The alleged Singapore discussions were academic on the construction issue. In any event, the judge considered them inadmissible as an aid to construction and irrelevant to the reasonableness question, which had to be assessed by reference to circumstances existing when approval was withheld. The approach was consistent with Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38.