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Oil Major Vetting and Approvals

Each time a vessel is nominated to a charterer and considered for lifting cargo at a terminal which requires the consent of an oil major, the oil major will "vet" the vessel. This may involve a physical inspection at which the inspector completes a Vessel Inspection Questionnaire and uploads this to the SIRE (Ship Inspection Report programme) System. If no inspection is required (because, for example, the ship has been inspected in the last 6 months), the oil major may review previous SIRE reports. Owners must also provide and maintain a Vessel Particulars Questionnaire. 

The vetting criteria vary amongst the oil majors but, typically, a vessel must satisfy the following criteria if it is not to be rejected:
1. There must be an up-to-date (no more than six months old) report on the SIRE database evidencing no more than minimal problems with the vessel and its onboard systems and maintenance;
2. The vessel must have a good safety record;
3. The 'crew matrix' and shore-based management systems must be adequate; and
4. Any other vessels within the same managed fleet should have a good safety record.
Before the "ERIKA" casualty in 1999, it was usual practice for oil majors to "approve" a vessel for a fixed period. Now, vessels are vetted on a case by case basis and are accepted, or rejected, for a particular voyage. Reasons for rejection are not automatically given. Following a positive vetting, an oil major will often provide the owner with a letter similar to the following example:
We have now received sufficient information... and will not normally require re-inspecting the vessel for a 12 month period from the date of the inspection.
Please note, however, that this letter does not constitute a blanket approval of the vessel for our business or for visits to our terminals or facilities. The vessel will be screened by us on each occasion it is tended for our business or intends to visit one of our terminals or facilities.
Confusion often arises when vessels are marketed as having 'oil major approvals' stated to be valid for a certain period. In such cases, owners and brokers are often referring to the period until another inspection is required. In reality, an owner cannot be certain that the vessel “is” acceptable because, as well as looking at the vessel itself, an oil major will consider the cargo, load and discharge ports on a case by case basis and each oil major will give different weight to the various criteria. The same vessel might even be accepted by one oil major and rejected by another on the basis of the same SIRE report. Potential problems for Owners who have warranted that the vessel has or will maintain certain approvals are illustrated in “The Rowan” [2012] EWCA Civ 198.
The Dispute
In 2007, Owners chartered the "ROWAN" to SJB for a voyage from the Black Sea to the US Gulf. The Vessel loaded cargo in Odessa and Batumi and Charterers exercised their option to discharge and reload at Antwerp. 
The charterparty was evidenced by a recap which read:
• "Vessel Info...TBOOK [to best of owners' knowledge] WOG VSL is approved by: BP/ LITASCO/STATOIL – EXXON VIA SIRE
Clause 18 of the VITOL terms states:
"Owner warrants that the vessel is approved by the following companies and will remain so throughout the duration of this charterparty (owner(s) to advise, including inspection dates and expiry dates)."
Shell, which was not one of the oil majors listed in the Charterparty, had agreed with Charterers to buy the Vessel’s cargo, subject to successful vetting. The Vessel was inspected at Antwerp by Shell and Class. Various defects were revealed, conditions of class were imposed and the Vessel was rejected by Shell. Charterers claimed that they had no option but to sell the cargo elsewhere and claimed the difference in price (some US$1.25 million) by way of damages from Owners on the basis that Owners had never had oil major approval within the meaning of the charterparty, alternatively that the Vessel had lost its oil major approval and so was in breach of the continuing warranty at Clause 18.
The First Instance Decision
At first instance, Owners relied on letters provided at the outset of the Charterparty from the majors named in the recap which stated that the Vessel had been inspected, no further information was needed, but that this did not constitute a “blanket approval” and the Vessel would be screened by the major on each occasion it was offered for business. The judge, HHJ Mackie QC, accepted that such letters were at the time regarded as “approvals” for the purpose of clauses such as Clause 18 of the Vitol Terms. However, he found for Charterers that Owners had warranted that, to the best of their knowledge and belief, the Vessel would remain approved by the oil majors specified throughout the Charterparty. He also accepted Charterers’ expert evidence that oil major approval was not only lost when an oil major rejected a vessel, but could be lost automatically if the Vessel fell into a condition that would lead a fresh vetting to fail. Therefore, the Vessel lost its oil major approval at Antwerp, even though Shell was not one of the majors named in the Charterparty, Owners were in breach, and Charterers were entitled to damages. 
The Appeal
Owners’ Appeal was allowed. The Court of Appeal held:
1. The wording in the recap was not to be read together with Vitol Clause 18 but in substitution for it.
2. There was no reason to incorporate the words "without guarantee" from the vessel information into the new clause 18.
3. The Vitol clause was a continuing warranty for the duration of the charter, but the new clause 18 was not. On its true construction the new clause was limited to a promise at the time when it was made.
4. On this basis, whether there was a breach of the Charterparty depended on whether the Vessel was approved by the named oil companies at the date of the charter, and whether Owners knew anything at that date which would cause the approval of the oil companies to be lost.
5. Owners had obtained approvals from the named majors at the date of the charter, in the sense that the majors had indicated by letter that the Vessel was acceptable to them. On the facts found at first instance, there was no evidence that at the date of the charter that Owners knew anything about the Vessel that would cause the named oil companies to disapprove the vessel or alter the terms of the approval letters. Therefore there was no breach of the charter. 
The Appeal focused on the construction of the Charterparty, and the Court was not required to consider the two more interesting questions posed at first instance, namely (1) whether the vague letters from oil majors following vetting can properly be called “approvals” and (2) what needs to happen for an owner to lose that approval.
The decision that the letters, such as the example given above, which expressly state that they are not blanket approvals, are to be taken to comply with Vitol Clause 18 was described as “curious” by Longmore LJ but was not considered further. It seems that this decision was influenced by the evidence that such letters are typical and Owners would be hard pressed to obtain anything less guarded. The decision at first instance on issue (2) attracted more criticism from ship owners who, after all, would not necessarily know whether a particular deficiency would result in rejection until vetting took place. This was addressed in Owners’ appeal submissions. Longmore LJ has made some helpful obiter comments, that it would be a very far reaching warranty if an Owner were to find himself in breach if any fact existed which would cause the approval letters to be amended or withdrawn whether or not he had had any opportunity to put right the defect, but declined to express any final view. Until this question is finally resolved, Owners should be aware that oil major approval might be lost more easily than they realise.

Date: August 22,2012                                                                                                      

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