Seaworthiness, Description of the Vessel and the Right to Cancellation June 06 2007 Facts Decision Comment Asia Star

[2007] SCGA 17 concerned, among other things, the right to cancel a Vegoilvoy charterparty where the pre-loading inspection reveals problems not covered in the fixture note or the answers to the chartering questionnaire. Facts The claimant, Pacific Inter-Link Sdn Bhd, chartered Asia Star from its owners, OAS, on a Vegoilvoy charterparty form to carry a cargo of refined palm oil from Belawan, Indonesia and Pasir Gudang, Malaysia to Turkey. Pacific required epoxy-coated tanks to carry the cargo. The answer to the Standard Tanker Voyage Chartering Questionnaire 1988 stated that the cargo tanks were fully coated with epoxy and the fixture note described the vessel as "epoxy coated/coiled". During the pre-loading tank inspection at Belawan, the claimant's surveyor found that 40% of the cargo tanks' epoxy coating had broken down. The claimant rejected the vessel. The shipowner exercised its option to cancel under the charterparty, arguing that it could do so without liability if the vessel could not be repaired within 24 hours and at reasonable expense (Clause 1(b) of the form) or its tanks were rejected by the charterer (Clause 15). The relevant clauses of the form read as follows: "1 Warranty, (a) The owner shall, before and at the commencement of the voyage, exercise due diligence to make the vessel seaworthy, properly manned, equipped and supplied for and during the voyage, and to make the pipes, pumps and heater coils tight, staunch, strong [and] in every respect fit for the voyage, and to make the tanks, holds and other spaces in which cargo is carried fit and safe for its carriage and preservation. (b) It is understood that if the tank or tanks into which the particular cargo covered by this charter is to be placed upon testing prove to be defective, the owner undertakes to execute the necessary repairs, provided repairs can be effected within 24 hours and at reasonable expense; otherwise, the owner has the option of cancelling this charter, in which case no responsibility shall rest with the vessel, owners or agents... 15. Cleaning. Prior to loading, the charterer shall inspect the designated tanks for the purpose of determining that they are in suitable condition for the loading and carriage of the cargo specified hereunder. Acceptance of the tanks by the charterer's representative shall be conclusive as to their suitability for such purposes. If the charterer's representative does not accept the tanks as suitable for the cargo, the owner shall have the right,

as its option, to cancel this charterparty without any resulting liability on the part of either party, or to again clean the tanks, subject to inspection as above." The claimant sued the shipowner for loss and damage for breach of charterparty. Decision The first instance judge allowed the claim and the decision was upheld on appeal. The shipowner dropped the Clause 15 point at the appeal stage after the first instance judge had held that it was overridden by the specific provision on tank cleanliness in Clause 5. The Court of Appeal found as follows: The fixture was for epoxy-coated cargo tanks. The description in reference to the cargo capacity and the epoxy-coated tanks formed part of the contractual description of the vessel. The coatings would be inadequate for the fixture if coating failure was of such a magnitude that it undermined the contract for coated tanks or affected the vessel's suitability for the cargo. On the facts, the shipowner was in breach of the express term of the fixture by presenting a vessel with a coating breakdown of 40%. Clause 1(a) of Part II of the charterparty altered the shipowner's absolute obligation under common law to furnish a ship fit for the cargo to an obligation to exercise due diligence to "make the tanks, holds and other spaces in which cargo is carried fit and safe for its carriage and preservation". The vessel was unfit for the cargo when it was presented for loading. The shipowner had discharged its burden in showing that it had acted with due diligence. Therefore, it was in breach of its due diligence obligation under Clause 1(a). Clause 1(b) did not avail the shipowner because:

it was aimed at the due diligence obligation under Clause 1(a) and did not apply to the shipowner's express contractual obligation to provide epoxy-coated tanks, which was an independent obligation unconnected to the seaworthiness obligation under Clause 1(a); o giving effect to Clause 1(b) would deny the contractual effect of the term relating to the vessel's description as 'epoxy coated'; and o the term of a typewritten clause describing the vessel overrode the printed Clause 1(b), which could not be read to give the party in default the right to cancel for its breach of the coating description.
o

Clause 1(a) would not be rendered meaningless if effect were given to Clause 1(b). The shipowner was given an opportunity either to repair the defect or to cancel the charterparty. This discretion was to be

exercised honestly and in good faith. However, as the court found that the shipowner was in breach of the express term on epoxy coating, which was not excused by Clause 1(b), the shipowner's appeal was dismissed with costs. Comment There is a dearth of reported judgments on the Vegoilvoy charter party, but this case sets out the relationships between a term relating to the description of the vessel, the seaworthiness obligation in Clause 1(a) and the shipowner's rights of cancellation under Clauses 1(b) and 15. It also demonstrates judicial recognition of good faith as a criterion in the exercise of the shipowner's option to cancel the charterparty under Clause 1(a), perhaps marking the slow but steady progress made by this predominantly civil law concept into common law contractual analysis.