Due diligence to maintain a vessel’s condition

Friday, 1st December 2017

The owners of the vessels ELLI and FRIXOS let their vessels to the charterers utilising the well-known Shell time 4 form of charter party. During the charter and, indeed, with a considerable period of the charter still outstanding, international regulations regarding the transportation of certain liquid cargoes came into force. Whilst there were a number of issues before the court, the main or essential issue was which party should bear the commercial risk in the change in international regulations which would have a serious commercial effect on the cargoes that could be carried by the vessels if they were not modified in order to comply with those regulations.

The vessels
Both of these vessels were built in the mid to late 1980s. Each had a deadweight tonnage of just over 94,000 tonnes and both had an overall length of just under 230 metres. The vessels were described in each of the respective charter parties as “double side: yes”. The vessels had seven cargo tanks and these tanks were covered by wing ballast tanks. Aft of the cargo tanks were two slop tanks and these, too, were protected by wing ballast tanks for the vast majority of their length. There was, however, at the aft most part of these tanks, just some 2.6 metres (or slightly over one per cent of the vessel’s LOA), which was protected by bunker fuel oil tanks. It appears, nonetheless, that everyone, both owners and charterers, regarded the vessels as double-sided.

The charter party provisions
The charter parties were, for all intent and purposes, identical and contained the following terms:
“1. At the date of delivery of the vessel under this charter
b) She should be in every way fit to carry crude, petroleum, and/or its products; crude and/or dirty petroleum products always within vessel’s natural segregation.
c) She should be tight, staunch, strong and in good order and condition and in every way fit for service.
g) She shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service without delay.

  1. i) Throughout the charter service Owners shall, whenever the passage of time, wear and tear or any event (whether or not coming within clause 27 hereof) requires steps to maintain or restore the conditions stipulated in clauses 1 and 2 (a), exercise due diligence so to maintain and restore the vessel.
    4. …for the purpose of carrying all lawful merchandise crude and/or dirty petroleum products including fuel oil…
    52. Owners further warrant that the vessel does, and will, fully comply with all applicable convention, laws, regulations and ordnances of any international, national, State or local government entity having jurisdiction including, but not limited to, the US Port and Tanker Safety Act, as amended, the US Federal Water Pollution Control Act, as amended, MARPOL 1973/78 as amended and extended. “

The regulations
The regulations in question were regulations 13F, 13G and 13H of Annexe 1 of MARPOL 1973/1978. These regulations were adopted in December 2003 and came into effect as from 5th April 2005 – at that particular time the charters still had some 19 or 20 months to run. Regulation 13H applied to all tankers in excess of 600 DWT which carried “Heavy Grade Oil” as cargo. “Heavy Grade Oil” was defined to include both crude oils and fuel oils (subject to specific characteristics). The problem with both vessels was that whilst they were fitted with double sides (not used for the carriage of cargo) these did not extend to the entire length of the cargo tanks. It was also determined that fuel oil was one of the main cargoes to be carried pursuant to the charter parties.

The court’s decision
For purposes of this article there are two matters of importance: first, what constituted the requirement for the vessel to be “in every way fit” to carry lawfully permitted cargoes and secondly, what satisfied the owners’ obligation with regard to due diligence in order to restore the vessel to such a state whereby she was fit to carry lawfully permitted cargoes.

The court held that the vessel not only had to be physically fit to carry the cargo but also had to be “legally fit” to carry a permitted cargo. The court looked at the expression “in every way” and determined that the vessel should be “seaworthy” in the wider sense of the word. Accordingly, the court held that “legal fitness is just as important as physical fitness”.

The court then turned its attention to the element of due diligence and stated, as follows: “‘due diligence’ is equivalent to the common law duty of care and contains no limit on the expense involved in exercising that duty. Due diligence requires the exercising of reasonable care and skill so that, once the owners become aware of a deficiency or, more accurately once they should have become aware of a deficiency, the duty to exercise reasonable skill and care to remedy the position arises. There may be some element of latitude about when, where and how the work is done but there cannot be a financial limit to the obligation, unless issues of frustration arise, which is not here suggested … No question of proportionality in terms of financial expenditure arises”.

Accordingly, it would appear that once the owners became aware of the deficiency they were not obliged to remedy that deficiency immediately, but were to take steps within some reasonable period of time – the question of cost in doing so was not relevant to the issue.

The court has determined that the owners’ obligation with regard to a vessel’s “fitness” go beyond the mere physical attributes of the vessel and encompass legal attributes. The fact that cost may be incurred is not relevant when it comes to remedying defects in order to restore the vessel to a condition required by the terms of the charter party. Given the charter party in question is common usage, it may be wise to consider this decision and amend the provisions accordingly.

Source : Gard