Falkonera Shipping Company v Arcadia Energy Pte Ltd, Re "Falkonera"

Where a charterparty gives charterers an option to transfer cargo to any other vessel, including one of the same size, approval cannot be withheld merely because the proposed operation is non-standard or carries inherent risks. Approval concerns the suitability of the nominated receiving vessel, considered in context, rather than prior approval of the detailed transfer plan. Refusal may be reasonable where a characteristic of the vessel makes the proposed operation unsafe. The charterer bears the burden of proving unreasonable withholding. The question is whether no reasonable shipowner could have treated the concerns as sufficient. Appellate intervention in that factual assessment is limited.

Owners chartered the Falkonera to Charterers to carry crude oil from Yemen to the Far East. The charterparty permitted ship-to-ship transfer and required owners’ approval of receiving tankers, not to be unreasonably withheld. Charterers sought approval of VLCCs, including the same-sized Front Queen, for discharge at Pasir Gudang. Owners refused approval three times, relying on a previous incident, the absence of specific guidance and mooring concerns. Eder J held that the refusals were unreasonable in [2012] EWHC 3678 (COMM). Owners appealed on contractual construction and the application of the reasonableness standard.

Christopher Clarke LJ delivered the judgment, with Floyd LJ and Sir Stanley Burnton agreeing.

1. Disposition. The appeal was dismissed. The judge was entitled to conclude that all three withholdings of approval were unreasonable.
2. Construction of the charterparty. The cargo-transfer option extended to any other vessel, including a VLCC. The fact that a VLCC-to-VLCC transfer was less common or non-standard did not itself justify refusal. Otherwise the contractual right to make such a transfer would be illusory, and the owners had accepted the risks inevitably attendant on it.
3. Scope of approval. Approval concerned the nominated receiving vessel, not prior approval of the detailed STS operation. The proposed operation remained relevant. Owners could reasonably refuse approval if an inherent characteristic of the receiving vessel, or an insufficiency of information about it, meant that the proposed transfer would be unsafe. They could not reserve approval until operational planning had been completed.
4. Planning and safety. The parties’ obligations under the STS provisions required substantial cooperation and an iterative planning process. Each master remained responsible for the safety of his vessel, crew, cargo and equipment. Owners retained a safety veto if the proposed operation presented a risk which could not adequately be mitigated.
5. Reasonableness and application. Charterers bore the burden of proving unreasonable conduct. Owners would be in breach only if no reasonable shipowner could have regarded their concerns as sufficient, even though the concerns might be factually incorrect. The concerns about conventional head and stern lines, vertical aspect, location, pilot competence and planning time did not provide a reasonable basis for refusal. The receiving vessels had no relevant peculiarity or defect, and the identified issues could be addressed through planning and adjustment. Owners’ settled opposition to VLCC-to-VLCC transfers and their mistaken view that the Guide prohibited them reinforced the conclusion that the refusals were unreasonable.

• Court of Appeal (Civil Division): dismissed Owners’ appeal and upheld the conclusion that the three refusals were unreasonable.
• High Court, Queen’s Bench Division, Commercial Court: Eder J held that Owners had unreasonably withheld approval of the proposed receiving vessels in [2012] EWHC 3678 (COMM).