Falkonera Shipping Co v Arcadia Energy Pte Ltd

Introduction

These proceedings concern the m.t. Falkonera (the “vessel”), a very large crude carrier (or VLCC), which was at all material times owned by the Claimants (the “Owners”). The vessel was built in 1991. Her overall length is 330 metres. Her deadweight is 264,892 tonnes.

The London agents of the Owners’ managers are and were at all material times Andros Maritime Agencies Ltd (“Andros”). Embiricos Shipbrokers Limited (“ESL”) are and were at all material times exclusive shipbrokers for a number of vessels managed by Andros including the Falkonera. In the course of these proceedings, certain of those vessels have been referred to as “Embiricos vessels” or vessels within the “Embiricos Group” but I should make plain that such nomenclature has no legal significance. It is only shorthand used to refer to vessels whose owners are represented by ESL.

By an agreement contained in or evidenced by a recap email dated 18 November 2011, the Falkonera was chartered to the Defendants (the “Charterers” or “Arcadia”) to perform a single voyage to carry crude oil from the Yemen to “1-2 ports far east”. The charter was never signed but it is common ground that, as set out in the recap, the charter was on the terms of the BPVOY4 charter form with certain additions/amendments and, for convenience, I shall refer to the agreement between the parties as the “charter”.

In the event, the Charterers chose to discharge at Pasir Gudang, Malaysia by way of a ship-to-ship (“STS”) transfer. Initially, the Charterers nominated two other VLCCs which the Charterers were using as floating storage units to receive cargo by way of STS transfers from the Falkonera ie the Front Queen - built 2009, length overall 330 metres, deadweight 297,936 tonnes - and the Front Ace – built 1993, length overall 326.2 metres, deadweight 274,999 tonnes. I will refer to these two vessels collectively as the “Frontline Vessels”. However, the Owners withheld their approval of these vessels for the proposed STS transfer and the Falkonera subsequently discharged her cargo into other smaller vessels.

In essence, the Charterers say that the Owners’ withholding of approval of the Frontline Vessels to carry out the STS transfer was a breach of the charter and led to delay and increased costs which are for the Owners’ account.

This judgment is concerned solely with liability. The parties have agreed that all issues of quantum are, if necessary, to be determined separately at a later stage. However, subject to the impact, if any, of such alleged breach of the charter, it is common ground that pursuant to the charter, the Charterers owe the Owners the sum of US$485,688.55, made up as follows viz US$75,608.26 to reimburse additional war risk premium; US$2,031.25 for waiting time at Ras Isa (one of the loading terminals); US$30,769.74 for deviation to avoid the risk of piracy; and US$377,279.30 in demurrage.

The charter

Part 2 of the standard form contained wording in Clause 8 which provided in material part as follows:

“8.1

Charterers shall have the option of transferring the whole or part of the cargo…to or from any other vessel including, but not limited to, an ocean-going vessel, barge and/or lighter (the “Transfer Vessel”)…. All transfers of cargo to or from Transfer Vessels shall be carried out in accordance with the recommendations set out in the latest edition of the “ICS/OCIMF Ship to Ship Transfer Guide (Petroleum)”. Owners undertake that the Vessel and her crew shall comply with such recommendations, and similarly Charterers undertake that the Transfer Vessel and her crew shall comply with such recommendations. Charterers shall provide and pay for all necessary equipment including suitable fenders and cargo hoses. Charterers shall have the right, at their expense, to appoint supervisory personnel to attend on board the Vessel, including a mooring master, to assist in such transfers of cargo.”

The charter also contained by way of addition to Part 1 a specific clause headed “sts lightering clause” which was in the following terms (with numbering added for ease of reference):-

“(i)

if charterers require a ship-to-ship transfer operation or lightening by lightering barges to be performed then all tankers and/or lightering barges to be used in the transhipment/lightening shall be subject to prior approval of owners, which not to be unreasonably withheld, and all relevant certificates must be valid.
(ii) all ship-to-ship transfer operations shall be conducted in accordance with the recommendations set out in the latest edition of the ics/ocimf ship-to-ship transfer guide (petroleum).
(iii) all such lightering ships must have a fully working inert gas system (igs), unless the cargo flash point exceeds 60f and only with express approval of the owners/master.”

The ICS/OCIMF Ship to Ship Transfer Guide (the “Guide”) referred to in both Clause 8.1 and the “sts lightering clause” is a substantial standard reference publication. At the date of the charter, the publication was in its 4^th Edition (2005). That remains the current edition although I was told that a new edition is in preparation.

The main issues

The Owners’ primary case was that on the true construction of Clause 8 and/or the “sts lightering clause”, VLCC-VLCC transfers were precluded; alternatively that the Owners acted reasonably (or, at least, not unreasonably) in withholding their approval of the Frontline Vessels. (No different issue arises as between the two Frontline Vessels: the point on construction is the same; Owners’ alleged factual concerns were the same, and were equally reasonable or unreasonable, as the case may be, as regards both vessels.)

With regard, in particular, to the Owners’ primary case on construction, the Charterers relied upon certain oral discussions which allegedly took place in a restaurant and thereafter the Lantern Bar at the Fullerton Bay Hotel in Singapore on the night of 8 October 2010 (ie some 6 weeks prior to the recap) between, in particular, Mr Stephen Gibbons of the Charterers and Mr Philip Embiricos on behalf of the Owners when two other individuals namely Mr Jan Scheepers and Mr Alexander Rocos were also present. In summary, as pleaded in their Defence, it was the Charterers’ case that:

The Charterers submitted that these oral discussions were admissible by way of “factual matrix” alternatively in the event that I were to consider (contrary to the Charterers’ primary case) that the wording of the charter was “ambiguous”, as an aid to construction of the charter to show that the Owners were well aware of the Charterers’ practice of carrying out STS operations between VLCCs and, in effect, to counter the Owners’ case that, as a matter of construction, STS transfers between VLCCs were precluded under the terms of the charter. In the further alternative, the Charterers sought to rely upon these discussions on the basis that they would assist in informing the court of the unreasonableness of the Owners’ actions in withholding their approval. The admissibility of such discussions was disputed by the Owners but without prejudice thereto, they submitted that although certain discussions did take place in Singapore they were not to the effect alleged by the Charterers and, in any event, were irrelevant to the current dispute.

I should mention that in their Defence, the Charterers also relied upon certain matters allegedly discussed on the telephone in the course of negotiations between brokers immediately before the recap email; but this point was not pursued.

The evidence

On behalf of the Owners, the following provided signed statements and gave oral evidence:

On behalf of the Charterers, the following provided signed statements and gave oral evidence:

The parties also served expert evidence in the form of written reports from the following:

In each case, a Joint Memorandum was prepared by the two groups of experts, that is by Captain Ireland and Captain Battye and by Mr Leschaeve and Mr Corlett respectively setting out areas of agreement and disagreement. These experts also gave oral evidence.

Issue 1: Were STS transfers between VLCCs precluded under the charter ?

It is convenient to deal at the outset with the Owners’ primary case ie that STS transfers between the Falkonera and any other VLCC were precluded by the terms of the charter. As submitted by Mr Baker QC, it is of course trite law that in construing any agreement, one must have regard to the whole of such agreement; and that it is wrong in principle to adopt what Mr Baker QC described as a “sequential approach” ie to reach a firm view as to the effect of one particular provision and then to allow that firm view to constrain consideration of one or more other provisions. I agree. However, one has to start somewhere and, in my view, the convenient starting point is clause 8 of the BPVOY4 form quoted above.

Pursuant to this provision, the Charterers were afforded an unqualified right to order Falkonera to perform an STS transfer “…to and from any other vessel including, but not limited to, an ocean-going vessel….”. These are wide words. On their face and subject, of course, to a proper consideration of all other relevant terms, it seems to me that they are wide enough to allow an STS transfer from Falkonera to any other VLCC. In my judgment, the effect of the clause is as follows:

As to the “sts lightering clause” inserted into Part 1 of the charter which I have already quoted above, this overlaps with clause 8 and divides into two parts. The first part limits the right of the Charterers to nominate a vessel to perform an STS transfer with Falkonera: any vessel nominated by the Charterers must also be approved by the Owners (which approval cannot be unreasonably withheld). The second part reiterates the obligation imposed by clause 8 of the BPVOY Form: once a vessel has been nominated for STS operations by the Charterers, and approved by the Owners, the parties are obliged to conduct the STS transfer in accordance with the Guide.

Thus, under the charter, the Owners are not entitled to approve (or to refuse) the proposed STS transfer: their right of approval is limited to a right to review the details of the nominated vessel and to decide whether or not she is suitable for STS operations. In my judgment, this makes commercial sense. Once the nominated vessel is approved as suitable, all STS transfers require proper detailed planning.

There was some debate between the experts as to the amount of work involved and the time necessary to carry out such planning. Captain Ireland suggested that a detailed plan for an STS operation between Falkonera and the Frontline Vessels would have taken five days to complete whereas Capt Battye suggested that 48 hours would be sufficient time. I consider this further below. For the time being, it seems to me that the important point is that, as submitted by the Charterers, it would be nonsensical if Owners were entitled to reserve their approval of the vessel until after the detailed planning had been performed. If the Charterers were chartering in tonnage to perform an STS operation with Falkonera, they would be in an impossible position. Until they had fixed the nominated vessel, the owners of that vessel would be under no obligation to cooperate in the planning of the operation. The only way to remedy this would be to fix the nominated vessel. This would be even more problematic. If, at the end of the planning process, the Owners refused to allow the STS transfer to proceed, the Charterers would have chartered in a vessel that they could not use. It makes far more sense that the Owners should have a right to review the particulars of the nominated vessel; and to approve (or to reject) that vessel based on her inherent characteristics. (Indeed, although not strictly relevant, that is what happened with the other vessels that performed STS transfers with Falkonera: the Owners approved Kythira based on the documentation supplied by the Charterers on 5 December 2010. It was only after they had approved Kythira that the Owners made enquiries about the proposed STS operation. Similarly, following the rejection of the Frontline Vessels, the Owners approved True without any reference to the detail of the proposed STS operations.) Again, I revert to this topic further below.

As to the Guide itself, the Owners submitted, in support of their primary case, that it is properly to be understood as a set of recommendations for what they described as “standard STS operations”, ie ordinary commercial transfers (as opposed to casualty situations) between tankers of different sizes, as modelled in the Transfer Study published as Appendix 3 to the Guide; that that underlying assumption or implicit limitation is made explicit twice ie in Clause 6.2 and 6.5 of the Guide where the text refers to “One of the two ships, normally the larger, …”; that the Guide contains no specific recommendations for VLCC-VLCC STS operations; and that it follows that VLCC-VLCC STS operations cannot be conducted in accordance with recommendations in the Guide.

In addition, the Owners relied upon the explanations provided by Capt Ireland in his first report as follows:

“The Guide does not reference or provide specific guidance or checklists for VLCC to VLCC STS transfer operations or similar size vessel STS operations generally. When the Guide was published, same ship size STS operations were not very common; in fact they rarely took place at all, hence were not considered to warrant a specific reference. Undertaking such operations was more likely for non-standard reasons, such as transferring cargo from a disabled vessel during salvage and for these non-standard operations it would be considered essential to conduct an operational specific plan and risk assessment prior to commencement.”

In cross-examination, Capt Battye disagreed with this comment. His evidence was that, in his experience, “….VLCC to VLCC ship to ship transfers are carried out all over the world by all sorts of companies including oil majors. It would cause concern in the tanker industry if it were decided that such operations were contrary to OCIMF recommendations or guidelines”; that STS transfers between same size vessels including between VLCCs had been carried out for many years going back to the 80s and 90s; and that although such transfers were not as common as between smaller ships or different sized ships, they were certainly not uncommon. In truth, I am not sure that there was much difference on this point between these two experts since, as appears in the quoted passage, Capt Ireland did not say that such operations never happened, rather that they were “not very common”. I was not shown any statistics but it seems to me likely that the (slight) difference in view between these experts on this point is probably to be explained simply by reference to their own individual experiences. Certainly, there is no reason not to accept Capt Battye’s evidence as summarised above; and that, at least in his experience, STS transfers between VLCCs were “not uncommon”.

It is right that the Guide itself contains no specific section dealing with same-size-ship transfers still less STS transfers between VLCCs. However, it seems to me that it is impossible to read out of such omission what the Owners, in effect, say ie that the Guide is to be read as precluding such transfers. There is nothing in the Guide to that effect; and I do not consider that the references relied upon by the Owners in Clauses 6.2 or 6.5 could be said to warrant such conclusion. It is certainly right that the Guide contains diagrams eg Figure 6.2 entitled “Typical STS Mooring Arrangement” showing what is described as a “typical and proven mooring plan” for an STS transfer operation between what are obviously two ships of different sizes. But, again, I do not read that as suggesting that STS transfers between VLCCs or same-size-ships are, in effect, precluded by the Guide.

Nor do I consider that Mr Baker QC is right in his submission on behalf of the Owners that because there is no section dealing specifically with STS transfers between same-size-ships and in particular between VLCCs, such operations cannot be conducted in accordance with recommendations in the Guide. In my view, the Guide provides general guidance and is of general application. It deals generally with STS operations. Thus, the forward to the Guide states that: “… the guide is not a book of rules. It contains recommendations on safety, minimum equipment level and good operating practices…”. In Chapter 1, under the heading “General Principles: Scope”, it states: “….The recommendations apply to seagoing ships when it is intended that they moor alongside each other…”“Seagoing ships” is not a defined term; but there is no suggestion that those words are to be read as excluding VLCCs and I see no reason why that should be the case. At section 1.3, it records that “[t]he guide is directly concerned with ship to ship transfer operations undertaken at sea…. [t]he recommendations apply to seagoing ships when it is intended they moor alongside each other”. Furthermore, it envisages STS operations between vessels of the same size: when discussing wave encounter at page 32 it starts a sentence with the words “when both ships are of similar size...”. By way of further example, the Guide contains guidance and recommendations that information relating to the overall dimensions, freeboard, position of manifolds, mooring points and fenders should be passed to the Masters of the ships at the earliest opportunity (Clause 2.1); that before committing to an STS transfer operation, the parties involved should carry out a risk assessment (including certain matters “as a minimum”) and that such risk assessment should be carried out for “each ‘non-standard’ activity” (Clause 3.1.1); and that certain “Check-Lists” should be used not only at the time of transfer but also when organisers are planning an operation (Clause 3.3). In addition, it provides guidance and advice with regard to the provision of communications and instructions (Clause 4.3), the preparation of anchoring arrangements and risk assessment to evaluate the necessity of tug assistance (Clause 6.3) as well as mooring preparations and arrangements (Clause 6.4 and 6.5) and fendering (Clause 9). These provisions would seem to apply without limit both generally to all kinds of STS transfers including same-ship-size operations and transfers between VLCCs; and, in my judgment, there is nothing to justify a different conclusion.

In the course of the hearing, there was some debate as to whether STS transfers between VLCCs were properly to be described as “non-standard”. For present purposes, it seems to me that that is an arid dispute: even on the assumption that they are to be regarded as “non-standard”, it does not mean that they are prohibited by the Guide although it may be necessary to consider this further in the context of the Owners’ alternative case and the question whether the Owners acted unreasonably in refusing to approve the proposed STS transfers to the Frontline vessels.

Given my conclusion as to the proper construction of the charter, the Charterers’ reliance upon the oral discussions in Singapore becomes academic and irrelevant. In any event, it would have been my conclusion that such discussions were inadmissible as an aid to the proper construction of the charter. Indeed, it strikes me as somewhat extraordinary that the proper construction of the charter in this case should be affected by what was (allegedly) said in a restaurant and bar late at night some six weeks or so before the recap particularly where, as here, there is considerable dispute about what was, in fact, said. I fully recognise that such material might, of course, be relevant, for example, in a case of misrepresentation or rectification but that is not the present case. As stated by Lord Clarke in Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2010] UKSC 44, [2011] 1 AC 662 at [39], it may sometimes not be a straightforward task to distinguish between material which forms part of the pre-contractual negotiations which is part of the factual matrix and therefore admissible as an aid to interpretation and material which is not part of the factual matrix and is not therefore admissible. However, I share the strong doubts expressed by Staughton LJ in Scottish Power Plc v Britoil (Exploration) Ltd (1997), unreported, but referred to in Chitty on Contracts, 31^st Edition, Vol 1 para 12-120; and I also strongly deprecate what appears to be an increasing trend of attempts to introduce evidence of what parties say or do in the course of negotiations for the purpose of drawing inferences about what the contract means. Such evidence is generally inadmissible for that purpose as confirmed by the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101; and, in my view, the oral discussions relied upon by the Charterers in the present case fell on the wrong side of the line.

Nor do I consider that these discussions would assist in the context of considering the reasonableness of the Owners’ subsequent withholding of approval. In my view, the question of reasonableness must necessarily depend on the circumstances existing at the time of such withholding of approval.

However, on the assumption that my conclusions as stated above are wrong, I should refer briefly to the evidence in relation to such discussions and my conclusions as set out below.

It is common ground that Mr Philip Embiricos was in Singapore when the Charterers’ traders were convening there for a global meeting on 8 October 2010; that after that meeting, the Charterers’ principals and employees went first to a restaurant and then to the Lantern bar at the Fullerton Bay Hotel, which was an open-air bar with live music; that Mr Jan Scheepers was also in attendance; that, in the course of the evening, Mr Alexander Rocos and Mr Philip Embiricos also joined the party; and that Mr Philip Embiricos met and talked to Mr Gibbons. There was a suggestion that the last was not in fact a chance encounter but one engineered by Mr Rocos who identified a business opportunity; but it is unnecessary to resolve that dispute.

It was Mr Gibbons’ evidence that when Mr Philip Embiricos attended the party, Mr Gibbons recognised the business opportunity; that he explained the Arcadia business model in detail to him in the bar of the Fullerton Bay Hotel; that at the time, the Charterers used single hull VLCCs as storage vessels at Pasir Gudang and that he knew that the Embiricos Group had four such vessels which, as Mr Gibbons remarked in evidence, had been in “good condition”: they were in better condition than the rest of the single hull VLCCs in the market. According to Mr Gibbons, he therefore seized his chance to “talk to Mr Embiricos at length about the business”; and the discussions about the Arcadia business model lasted for about half an hour. There is no dispute that the following points were discussed: (i) Arcadia used VLCCs as floating storage vessels in the Singapore range; (ii) VLCCs were used to deliver cargo to the Singapore range; and (iii) cargo was transferred between vessels by STS operations.

All that is in issue is the question of whether or not VLCC to VLCC transfers were specifically mentioned or discussed. In evidence, both Mr Gibbons and Mr Scheepers were adamant that they were. Mr Gibbons, referring to his conversation with Mr Philip Embiricos, said in terms that “I talked about ship to ship ... I spelt it out in graphic detail because it was my chance really to meet him and tell him and I was pretty sure it would be interesting to him...” Mr Scheepers said that he recalled mention of VLCC to VLCC discharge “very well”: “from the onset it was very clear that the business would entail VLCC to VLCC as [inaudible] operations”.

Mr Rocos’ evidence was that after meeting at the restaurant, a group of about 8 people went to and spent about 60-90 minutes together at the Lantern Bar where Mr Gibbons and Mr Scheepers sat with Mr Philip Embiricos; that he was not sitting immediately next to them; that it was the sort of gathering, in the sort of environment, where not everybody could necessarily hears all of what everybody else is saying; that although he was aware that Mr Philip Embiricos was talking to Mr Scheepers and Mr Gibbons, he was not listening closely to what they were talking about and so was unable to say much about the detail of what they were discussing; but that it was his impression at the end of the evening that there had been some discussions about using Mr Philip Embiricos’ single hull VLCCs as floating storage for the Arcadia operation in Singapore.

Mr Philip Embiricos’ evidence in his witness statement and orally was that he was not terribly interested in the Charterers, or their business – although it was the Charterers’ submission that given his role at ESL and the state of the hardening market, this should be taken with a substantial pinch of salt. According to Mr Philip Embiricos, Mr Gibbons only told him that the Charterers “were using single hulls, that they were loading in places that could load single hulls, take them to the Singapore area and then lighter them”. Mr Philip Embiricos was adamant that the possibility of a VLCC to VLCC transfer had not been mentioned to him.

On behalf of the Charterers, Mr Allen QC invited me to reject that evidence of Mr Philip Embiricos. In particular, he submitted that Mr Philip Embiricos’ apparent certainty as to the limited extent of his discussions sits uneasily with the fact that he did not have a clear recollection of what had passed in Singapore. Thus, in his first witness statement he suggested that he had had dinner with Mr Rocos, before meeting Messrs Gibbons and Scheepers. He then realised – on receipt of the Charterers’ evidence – that he was wrong, eliding two different events: the Arcadia party on 8 October 2010; and dinner with Mr Rocos on the evening of 9 October 2010. Further, Mr Philip Embiricos also suggested (again in his first witness statement) that he had run into Messrs Gibbons and Scheepers in a bar and spoke to them for no more than 20 minutes whereas, in fact, Mr Allen QC submitted that he (ie Mr Philip Embiricos) had been invited (albeit on an entirely ad hoc basis) to join the Charterers’ private party; and, when that came to a close, he had accompanied them to another bar to continue talking.

Mr Philip Embiricos endeavoured to bolster his account of what was discussed in Singapore by reference to ESL’s attitude to VLCC to VLCC operations. In particular, he referred to an incident in the course of an STS transfer between two VLCC vessels viz the Kos (for which ESL also acted as broker) and the Aker Smart 3, and stated that “I would not have taken discharge into VLCC because we had a problem with a VLCC to VLCC discharge”. However, as submitted by Mr Allen QC, it seems to me that such evidence is of limited probative value as far as the Owners’ case is concerned: the suggestion that the Owners may have had what appears to be a policy against VLCC to VLCC transfers does not necessarily mean that Mr Philip Embiricos was not told of Arcadia’s practice of effecting such transfers at the meeting in Singapore.

Further, Mr Allen QC submitted that even if Mr Embiricos was not told in terms that VLCC to VLCC transfers occurred at Pasir Gudang, he had more than enough information to identify that that was a real possibility given that the Charterers were running a trading operation; that, as Mr Gibbons pointed out, economies of scale are central to the business model; and that if a VLCC was delivering or collecting a cargo from Pasir Gudang, the Charterers would obviously look to perform the cargo transfer directly between the two VLCCs, rather than incurring the additional costs of a lightering vessel. That may be; but it is, at best, a very slender foundation for the case sought to be advanced in this context.

On behalf of the Owners, Mr Baker QC submitted that the court should prefer Mr Philip Embiricos’ evidence generally for a number of reasons. First, he had been strongly corroborated as to how the meeting came about by Mr Rocos’ late-served evidence. Second, the reliability of Mr Gibbons’ and Mr Scheepers’ evidence is called into question by the collective process of reconstruction by which it was produced and by the fact that upon being found wanting, due to Mr Rocos’ statement, on an aspect of which they had chosen to make a meal, they found themselves both now remembering Mr Rocos’ version of events. Third, in cross-examination, Mr Gibbons could not even remember what his original evidence had been as to who was supposed to have taken Mr Rocos’ phantom phone-call setting up the meeting; and when asked simply to run through what was said, Mr Gibbons did not include anything about types of vessels discharging to the Frontline Vessels or VLCC-VLCC transfers in particular, and appeared to confirm (on another point of which a meal had been made) that Mr Philip Embiricos was right all along to think that business was talked about for a minority of the time.

Further, Mr Baker QC submitted that Mr Philip Embiricos’ evidence was supported by what he (Mr Baker QC) described as the “inherent probabilities”. In particular, he submitted that (i) it is hugely unlikely that the account of the discussion given by Messrs Gibbons and Scheepers should be correct, yet the Charterers said nothing about it at a later stage when the problem arose, or when they put the Owners on notice for unreasonable failure to approve the Frontline Vessels, but instead sat on the point until required to plead a Defence; (ii) it is equally unlikely that Mr Philip Embiricos would have bothered at all with the follow-up exploration of the possibility of doing something if he had been told that VLCC-VLCC transfers were or might be involved; (iii) certain of the contemporaneous documents with regard to having to find “the cargo/trade” to make any deal work and to looking “…at other voyages or storage at the other end” are consistent (or at least more consistent) with Mr Philip Embiricos’ account of the Arcadia model described to him, and not really consistent with the Gibbons/Scheepers account; and (iv) likewise, Arcadia’s purpose and plan in fixing Falkonera, as belatedly emerging through cross-examination of Ms Ong. Finally, Mr Baker QC submitted that despite Mr Gibbons’ and Mr Scheepers’ contrary assertions, VLCC-VLCC transfers were in fact a very occasional rarity for the Charterers and not at all the fundamental tenet of their business, such that it is entirely likely they might not be mentioned.

In seeking to resolve this conflict of evidence, I should make plain that I regarded all three individuals who gave oral evidence on this topic – Mr Embiricos, Mr Gibbons and Mr Scheepers – as entirely honest witnesses doing the best they could to recollect what was discussed. However, each admitted some errors at least in the evidence they had given. This is regrettable but the human mind is not infallible. As to the “inherent probabilities”, I do not accept that they necessarily point one way or the other. If, as is common ground, there was a discussion about the Charterers’ business, I would not be surprised if something might well have been said with regard to transfers between VLCCs but whether such possibility could be described as inherently probable seems rather doubtful. I rather suspect that Mr Gibbons might well have made some reference to transfers between VLCCs but that, for whatever reason, it made no real impression on Mr Philip Embiricos. But it does not seem to me that such suspicion could properly form the basis of a positive finding in favour of the Charterers – and I decline to do so.

What does, however, seem relatively clear is that at the very least there must have been some discussion about the possibility of Arcadia chartering in one or more VLCCs for use as storage units through ESL. That is supported by the independent evidence of Mr Rocos and also subsequent events arising out of separate negotiations which it appears were initiated by Mr Philip Embiricos after the meeting on 8 October and, as Mr Philip Embiricos accepted, after reporting back to his cousin, Mr Empaminondas Embiricos. In response, Mr Rocos emailed Mr Philip Embiricos on 20 October 2010 stating:

“Dear Philip, It was very good to hear from you. I have spoken with Arcadia and they are well disposed towards the idea of trying to do something on your single hull(s). They currently have one vessel anchored at Pasir Gudang which is about 1.95 million barrels. Their idea would be to ‘pro-rate’ a smaller unit of 1.8 mio bbls so that the same ‘cost- per-barrel’ for storage could be achieved”.

Mr Philip Embiricos responded, referring back to the detail of the discussion in Singapore: “... [g]iven our discussions in Singapore and their way of prorating on a 1.95M bbls VLCC, I have looked at Cubics more than deadweight to satisfy their needs”. He proposed a VLCC called Tinos. Shortly thereafter, the instant charter was negotiated between the Owners and the Charterers through the offices of Genesis. In these negotiations, Mr Nicholas Embiricos of ESL acted on behalf of the Owners. In the wake of the conclusion of the charter, on 19 November 2010, Mr Philip Embiricos emailed Mr Rocos. He said: “your crystal ball was very limpid this time…It would be good to have their terms (what you sent last time only related to the body of the charter. Are they looking at other voyages or storage at the other end?” The Charterers submitted that this email was significant because it appeared from it that Mr Philip Embiricos was congratulating Mr Rocos on his prescience in introducing him (ie Mr Philip Embiricos) to the Charterers, since it had led to the charter; that it demonstrated that, whatever had been discussed in Singapore, by this stage Mr Philip Embiricos knew (a) that the Charterers used VLCCs to carry cargo; and (b) that they used VLCCs as storage; and that it followed as a matter of logic that he must have known that they transferred cargoes between VLCCs. I agree that this email shows that by this stage Mr Philip Embiricos knew what is stated in (a) and (b) but I do not consider that it necessarily shows that he must have known that the Charterers transferred cargoes between VLCCs.

In evidence, Mr Philip Embiricos suggested that he had not understood at the time that what was under discussion was the possibility of a VLCC vessel being used as a storage unit. He maintained that “my understanding is that these ships are loading and then coming and discharging. They were not sort of sitting and being filled.” However, he was then shown his own (earlier) email of 20 October 2010 already quoted above thanking Mr Rocos “for your kind message regarding a possible storage C/P for a single hull with Arcadia” which indicated otherwise as he appeared to recognise when he stated in cross-examination: “I will be bound by what is written”. Again, this shows that Mr Philip Embiricos’ recollection was mistaken – a point strongly relied upon by Mr Allen QC. Even so, my view remains that it does not necessarily follow that Mr Philip Embiricos was aware (even at this stage) that it was the practice of the Charterers to transfer cargoes between VLCCs and, on a balance of probability, I am not satisfied that this was the case. In any event, for the reasons stated above, I do not consider that this conclusion is relevant to the construction of the charter.

Mr Baker QC submitted that even if something was said, that would mean only that a director of ESL who (as the Charterers were aware and were indeed told) played no part in the later, quite separate, negotiation of the subject fixture, was aware that Arcadia sometimes did VLCC-VLCC transfers; that that does not fix the Owners with such knowledge for the purpose of resolving ambiguities in the meaning or effect of the “sts lightering clause” in that separate fixture; nor is it part of the background knowledge with which the Owners and the Charterers mutually came to conclude the subject spot fixture. On this basis, Mr Baker QC submitted that whatever may have been said is irrelevant. I see considerable force in such submission but it is unnecessary to say anything more on this sub-sub-topic save only to repeat my view that such discussions would, in any event, be inadmissible for the reasons stated above.

Thus, in summary, it is my conclusion that the Owners’ primary case fails ie the charter did not preclude STS transfers with other VLCCs from/to Falkonera; that this conclusion is based on the wording of the charter itself read as a whole (and by reference to the Guide referred to in the charter); that the issue with regard to the oral discussions in Singapore is therefore academic and irrelevant; that, in any event, such discussions are inadmissible and therefore irrelevant for that reason; and that, further in any event, I do not feel able to make a positive finding which might otherwise assist the Charterers.

Issue 2: Did the Owners act reasonably (or, at least, not unreasonably) in withholding their approval of the Frontline Vessels ?

Before considering the parties’ respective submissions in relation to this issue, it is convenient to set out a summary of the relevant events and communications which passed between them and others.

So far as the Falkonera herself is concerned, on 24 November 2010, Ms Ong sent voyage orders to the Owners to load approximately 600kb of Masila Blend and approximately 1,350kb of Marib Light at terminals in the Yemen; and then to proceed to Singapore for orders. Pursuant to such instructions, Falkonera completed loading at Ras Isa on 2 December and then proceeded on her laden voyage to Singapore for further orders. On 10 December, Falkonera gave an ETA Pasir Gudang of 0001 hours on 16 December. After sending two ETA updates, Falkonera arrived at Pasir Gudang and gave NOR at 1100 hours on 16 December.

Meanwhile, following on from the emails already referred to above, on 25 November, Mr Rocos wrote to Mr Philip Embiricos to discuss terms on which the Charterers might charter a VLCC to be used as a storage facility. Although terms were discussed, no charter was concluded. It is not necessary to rehearse the negotiations in any detail. For present purposes, it is sufficient to note that the Charterers placed reliance on the fact that in the course of these negotiations, Mr Rocos said:

“I have had the chance to explain/reiterate to Steve the quality of your vessels over recent weeks. As such he instructed his people to take the Falkonera for this voyage and he genuinely hopes to build on this for longer term business...”

The Charterers submitted that this showed that, in the Charterers’ mind at least, the charter was part of a developing relationship with the Embiricos Group, pursuant to which the charterers envisaged chartering VLCCs to act as storage at Pasir Gudang.

On 5 December, Mr Zhang of the Charterers asked the Owners to approve two vessels for STS operations with the Falkonera: Thaioil 12 and Kythira. Attached to the covering email were various documents, including copies of “INTERTANKO’S STANDARD TANKER CHARTERING QUESTIONNAIRE 88 (Q88)” that had been completed for both vessels. These questionnaires – referred to as “Q88s” – were in standard form and set out detailed information about the vessels.

Later on the same day, the Owners responded asking for further certificates for Thaioil 12, but approving Kythira. The balance of that email set out a detailed list of questions about the proposed STS operation, including (for example) requests for:

The Charterers submitted that this was important because it showed that the Owners were, therefore, prepared to approve Kythira for an STS transfer on the strength of the paperwork supplied; and before they knew any details of the proposed STS operation. They did not know where it was scheduled to take place, who would oversee it, whether or not there would be a tug on standby, or how low in the water Kythira would be on arrival.

On 13 December, Kelvin Yap of the Charterers sent a proposed STS schedule for the rest of the month to Intertek, an organisation that monitors cargo operations on behalf of the Charterers to ensure that any cargo complies with specification and is not contaminated. This schedule – referred to as Plan A – included the following proposed STS transfers.

It will be seen from the above table that the Charterers intended to perform two separate groups of STS transfers:

These two sets of STS operations could run in parallel, because they involved two separate groups of vessels. The only vessel that was involved in both sets of transfers was Front Queen: she was scheduled to discharge the Nile Blend parcel onto Olympic Sponsor, and then to receive a parcel of Marib Light from Falkonera.

On 13 December, Ms Ong sent to the owners of the Frontline Vessels an email asking them to “confirm if MT. Falkonera is acceptable to perform STS with MT. Front Queen”. Attached to Ms Ong’s email were various documents including Falkonera’s Q88 form. This revealed, inter alia, that the length overall of Falkonera was 330 metres (Item 1.25). She was, therefore, exactly the same length as Front Queen.

Daniel Moore, of Frontline, responded almost immediately: “[c]onfirm acceptance of MT Falkonera for STS ops with Front Queen which have always to be in accordance with OCIMF guidelines”. It appears from this that Frontline had no concerns about a VLCC to VLCC operation.

On the same day ie 13 December, Ms Ong sent a similar request to the Owners via broking channels: “please confirm if Front Queen is acceptable to perform STS with Falkonera”. Attached to that email was a copy of Front Queen’s Q88 form. This recorded, in material part, that:

Ms Ong’s email was forwarded to Captain Papapostolou at 11:08 hours on the same day. He responded very quickly indeed ie in just over half an hour at 11:44 hours, stating, in material part, as follows:

“With regards to Charterers request for Owners acceptance to discharge into another VLCC Front Queen, we would like to discuss some subjects in relation to this STS operation between two (2) VLCCs.

We having reviewed the ICS/OCIMF Ship to Ship Transfer Guide (Petroleum) do not, at this juncture, consider that discharge of the vessel by ship-to-ship transfer into another VLCC is permitted.

The ICS/OCIMF Ship to Ship Transfer Guide (Petroleum) does not contain any recommendations for Ship-to-Ship transfer between two VLCC’s and, additionally, when reviewing these guidelines it is apparent that the requested operation may fall outside the parameters of the recommendations in respect of both the manoeuvring operation and Fender requirements. There are also no recommendations contained within the Guide in respect of the mooring recommendations, which only refer to VLCC’s being lightered into Aframax vessels.

A further consideration, which Owners know from a difficult past experience, is the fact that Front Queen (another VLCC) is identical in size to M.V Falkonera and hence it will be impossible to obtain satisfactory leads for both headlines and stern lines, coupled with the fact that upon commencement and completion of the operation the leads of other moorings, springs and breasts, will have a poor vertical aspect.

Thank you very much for your kind attention and understanding to this very-very important matter. ”

I shall refer to this email as “the Owners’ first response”.

As Capt Papapostolou explained in his witness statement, the reference to “a difficult past experience” in this email relates to an incident in January 2007 when he was the Master of another VLCC, the Kos, and instructed to discharge cargo by way of an STS operation to a floating storage unit, Aker Smart 3, another VLCC albeit slightly smaller than the Kos off Pasir Gudang.As described in his witness statement:

“8.

During the afternoon of 13 February 2007, difficulties were experienced by the Kos while mooring alongside the Aker Smart 3 in preparation for the VLCC to VLCC STS transfer off Pasir Gudang. On two occasions during the mooring operation, contact was made between hulls causing very minor structural damage to both vessels. It became increasingly clear that Aker Smart 3 could not provide a stable berthing platform, particularly in the event of strong tidal currents and/or poor weather and therefore I decided that the STS could not continue and with the agreement of the pilots and the charterer’s Representatives on board, it was agreed to terminate the STS.

“9.

I had expressed concerns prior to the STS operation about the preparations for the operation and the equipment to be used, for example in relation to the number and position of the fenders, as well as ensuring that satisfactory leads were obtained from the headlines and sternlines but ultimately, I had to place trust in the Johor pilots who perform the pilotage duties during STS manoeuvres at Pasir Gudang as they lead the operation.

“10.

It is my opinion that the similar size of the vessels was a key problem in carrying out the STS transfer. This was also not assisted by the strong currents and congestion which are experienced at Pasir Gudang."

It was the Charterers’ case that this incident had peculiar features and provided no basis whatsoever for the Owners to refuse to perform STS operations in the present case into the Frontline Vessels still less for refusing to approve those vessels. I revert to this further below when considering the parties’ submissions.

In any event, following receipt of this email from Capt Papapostolou, Mr Scheepers emailed Frontline asking them to assist. Frontline responded in the following terms:

“We have encountered some resistance to STS between VL and VL from one or two people in the past, but it is done frequently now.

Actually I think the best people to fully reply to the Owners of Falkonera might be the STS company (safests). They would certainly be able to explain the mooring and fendering arrangements that they would utilised. That would hopefully give the Owners some comfort.”

The Charterers followed Mr Scheepers’ advice (in fact, Mr Yap had already contacted SafeSTS to seek their assistance). On 14 December, Capt Gilchrist sent an email to the Charterers addressing the Owners’ stated concerns about the proposed STS operation:

“Fully understand their concerns regarding VLCC to VLCC. These operations should not be undertaken lightly, although they are conducted on a regular basis both underway and at anchor.

Each operation needs to be risk assessed individually and mitigation measures put in place.

The OCIMF STS guide does provide guidance for all STS operations, including same size vessels, but quite rightly it is pointed out that this information is very generic in that it does not specify VLCC same size operation. This is going to be addressed through the Implementation of Marpol Chapter 8 in that the OCIMF Guide will complement the Vessel Specific plan that needs to be written for every vessel over 150 GRT.

So far a number of VLCC to VLCC operations have been carried out at Pasir Gudang including for Oil Majors. These operations have all been carried out without problems.

Part of the risk assessment process is attached along with reports on the pilots etc.

Any further questions can be directed to me and more than happy to discuss and explain.

If we have the vessels plans sent to the office we can draw up the mooring plan in advance, otherwise the Mooring Masters will prepare this at pre-transfer conference.”

Attached to Capt Gilchrist’s email were four documents setting out information relevant to STS operations at Pasir Gudang:

Ms Ong forwarded Capt Gilchrist’s email to the Owners at 1230 hours on the same day (14 December) together with a covering email which stated in material part as follows:

“We refer to owner’s response yesterday on subjects in relation to the STS operation between two (2) VLCCs. To that extent, we have discussed your concerns with the STS company (SafeSTS) attending all our STS operations at Pasir Gudang and reference below is their input which hopefully will address the owner’s concerns.

Please note that Captain Robert Gilchrist has kindly offered his assistance to answer any other questions related to this issue. We await owner’s reconsideration for granting approval of proposed STS operations between MT. Falkonera and MT. Front Queen to proceed around 17-18 December”.

Captain Papapostolou responded very shortly thereafter at 14:30 hours on 14 December stating, in material part, as follows:

“We refer to charterers below message, Owners concerns, flowing from a past difficult experience in similar sheltered waters, regarding the fact that the vessels are identical in size and the difficulties this poses in respect of leads for both headlines and sternlines, coupled with the fact that upon commencement and completion of the operation the leads of other moorings, springs and breasts, will have a poor vertical aspect, have not been allayed at all.

Regrettably, Owners, following careful consideration of all safety considerations in respect of the vessel, cargo her personnel and the environment, must therefore decline Charterer’s request for acceptance to discharge into another VLCC.

Contractually, there is agreement under the Charter Party which allows for the vessel to discharge the cargo by trans-shipment and that this shall be carried out in accordance with the recommendations set out in the latest edition of the ICS/OCIMF Ship to Ship Transfer Guide (Petroleum) and it is clear that this does not contain any references/recommendations for Ship to Ship transfer between two VLCC’s.”

I shall refer to this as “Withholding 1”.

Later that day, Capt Gilchrist spoke to Capt Papapostolou over the telephone. Although it is common ground that this call did take place, there was some dispute as to what was actually said. For present purposes, it is sufficient to note that Capt Gilchrist would seem to have summarised the role of SafeSTS; and that they also discussed the position of the Owners viz that the Owners would not allow a VLCC-VLCC operation and his (ie Capt Papapostolou’s) previous experience with the Kos. According to Capt Papapostolou, Capt Gilchrist agreed that STS operations were difficult at Pasir Gudang due to congestion and strong currents. Capt Gilchrist agreed that he may well have said this but (as I accept) he did not say that the current was too strong to perform STS operations safely which was his view provided, of course, this was properly planned and appropriate precautions taken in accordance with the Guide. The conversation ended with Capt Gilchrist requesting the mooring arrangements of the vessel to enable him to prepare a mooring plan; and saying that he would send through some further information and risk assessments in writing .

This conversation was referred to in an email from Paul Cash of Blue Ocean (Charterers’ port agent) to Ms Ong later on 14 December:

“Bob has spoken to Capt Christos at the owners and seems they are adamant that they will not allow a VL to VL op. The reason being is that they had a steel to steel in Pasir Gudang recently (on a Titan vessel) where the fendering was not done properly. These owners have also refused to allow a V to V op in the Gulf of Mexico recently, although over there STS is done underway, not at anchor.

Anyway, Bob is still talking with Capt Christos and is going through the mooring plan for both vessels and will send owners a copy of the fendering plan as well in the hope that they will change their mind.”

In cross-examination, Capt Papapostolou disagreed that he had said that the Owners were “adamant” that they would not allow a VLCC to VLCC operation and maintained that his role was only to investigate the information and give his opinion to his supervisor. Thus, he stated in evidence: “…the decision is made by the management, not me.” That may be. But, in my judgment, this contemporaneous email strongly suggests that, whatever words were used, Capt Papapostolou must have expressed himself in the course of the conversation with Capt Gilchrist in terms which made it plain that Owners’ position was that they would not allow a VLCC-VLCC operation. However, it is unnecessary to make any final determination on this point because events did not stand still. In particular, following the call, Capt Papapostolou sent to Capt Gilchrist a diagram of Falkonera’s mooring arrangement which, submitted Mr Baker QC, was inconsistent with the Charterers’ suggestion that the Owners were “adamant” that they would not perform the requested STS transfer.

The diagram provided by Capt Papapostolou did not include the dimensions of the mooring arrangements. Capt Gilchrist responded immediately: “[i]s it possible you can send me the dimensions for the mooring plan as in Front Queen drawing (attached). This will allow us to get an accurate picture of the final result”. Captain Papapostolou’s response was curt: “unfortunately are not available all these dimensions”. According to Capt Papapostolou, this was the only type of diagram that had ever needed to be provided, in his experience; and was of a type that would suffice for routine, standard STS operations. To similar effect, Capt Ireland’s evidence was that a mooring plan showing dimensions would not ordinarily be possessed by a trading VLCC.

Be that as it may, Capt Gilchrist worked with the information available. Later that evening, he sent Capt Papapostolou an email with a proposed mooring arrangement. Capt Gilchrist also sought to change the Owners’ mind by setting out comments on the proposed operation and the issues identified by Capt Papapostolou in the course of their earlier telephone conversation. In particular, Capt Gilchrist stated, in material part, as follows:

“... We have done a number of VLCC STS operations at this location, including one for Shell, after which they gave the area full approval...

1

Pilot competence

..... Our mooring masters are all themselves experienced pilots for STS and it has been suggested by the Port Authority we provide some of the training for new pilots.

We can request particular pilots from the port authority, for the VLCC job, who we deem the most competent and experienced.

...

Fender rigging

As mentioned I know that previously only 4 fenders are used when the steel to steel incident occurred. This is outside OCIMF recommendations and steel to steel is not surprising. SafeSTS utilise six pcs of 3.3 x 6.5 fenders plus secondary fenders and provides good protection from steel to steel occurring.

Our fenders are all in excellent condition with valid test certificates.

Congestion

The location SafeSTS carry out the operation is at the most easterly area of the port. Congestion is not an issue in this area as the port and SafeSTS work together to police traffic and the coastguard will immediately go on board any vessel who anchors nearby illegally. Lines of communication are excellent with the port authority and security forces who patrol the area constantly.

Typically the nearest anchored vessel is 1nm

Vessels are not allowed to anchor between the Traffic separation scheme and the STS area so it is a straight run in for the arriving vessel.

...

5 Tugs

Four tugs would normally be used for berthing although additional tugs are available.

Risk assessment

Attached to this email are the generic SafeSTS risk assessments

Pasir Gudang risk assessments

Pasir Gudang location information...

...

If there are any elements we missed that you require to review please contact me directly.”

There was never any response to this last email. However, Capt Gilchrist did follow it up with a further telephone call to Capt Papapostolou. Although he (ie Capt Gilchrist) could not remember the precise words Capt Papapostolou used, it was his evidence (which I accept) that Capt Papapostolou stated that the Owner's position had not changed due to their company policy of not permitting VLCC-VLCC operations to be carried out; that Capt Papapostolou specifically mentioned that the decision regarding the consent of the proposed operation was not his to make; that his owner in America would not allow VLCC-VLCC STS operations; and that it was very unlikely he would change his mind although Capt Papapostolou said that he would send the information supplied to his owner.

Given the imminent arrival of the Falkonera and the absence of any positive response from the Owners, the Charterers began to consider how they could discharge Falkonera. Mr Yap wrote to Mr Han saying “[s]hort of any other cheaper freight options, we will move on for Plan B (True). But still not giving up on our efforts to convince Falkonera (Die Hard fan)”. This requires some explanation. The True was a vessel that had been chartered in to replace Olympic Sponsor. (As noted above, Olympic Sponsor had been chartered by the Charterers for use as another storage vessel. She had however been delayed on her trip to Pasir Gudang). The Charterers’ original intention was therefore to use True as a storage vessel. However, when it became apparent that the Owners would not allow Falkonera to discharge into the Frontline Vessels, it was decided that rather than charter in yet more tonnage to shuttle the cargoes between the VLCCs, the Charterers would ask True to perform this task. This proposal was referred to as “Plan B”.

In order to begin to effect Plan B, on 15 December, Ms Ong asked the Owners to confirm that True would be an acceptable candidate for STS transfers with Falkonera. At the same time Ms Ong invited Owners to approve Front Ace. The Owners were at the same time pressing for discharging instructions for Falkonera (as she was, at this time, nearing Pasir Gudang). In response, Ms Ong stated that the Charterers still required Falkonera to discharge onto the Frontline Vessels; she pressed the Owners to confirm acceptance of those vessels.

In response, the Owners rejected both vessels in an email at 0846 on 15 December. This stated, in material part as follows:

“We refer to charterers below message, Owners concerns, flowing from a past difficult experience in similar sheltered waters, regarding the fact that the vessels are identical in size and the difficulties this poses in respect of leads for both headlines and sternlines, coupled with the fact that upon commencement and completion of the operation the leads of other moorings, springs and breasts, will have a poor vertical aspect, have not been allayed at all.

Regrettably, Owners, following careful consideration of all safety considerations in respect of the vessel, cargo, her personnel and the environment, must therefore decline Charterer’s request for acceptance to discharge into another VLCC.

Contractually, there is agreement under the Charter Party which allows for the vessel to discharge the cargo by trans-shipment and that this shall be carried out in accordance with the recommendations set out in the latest edition of the ICS/OCIMF Ship to Ship Transfer Guide (Petroleum) and it is clear that this does not contain any references/recommendations for Ship to Ship transfer between two VLCC’s.

We trust that Charterers fully appreciate and understand the reasons behind Owners’ decision, which has only been taken after deep and careful consideration of all factors involved. ”

I shall refer to this as “Withholding 2” and again will consider this further below.

On 15 December, Capt Papapostolou approved True for STS operations with Falkonera.

Falkonera arrived at Pasir Gudang at 11:00 hours on 16 December and tendered Notice of Readiness.

Meanwhile, shortly before arrival of the Falkonera, the Charterers had begun to consider offering the Owners an indemnity against any damage that might be sustained in the course of STS transfers between Falkonera and the Frontline Vessels. This idea appears to have been mooted at an internal meeting in the Charterers’ offices on the morning of 15 December. In an email of that date, Mr Yap asked his colleagues: “[f]urther to meeting this morning, do we now move to discussed offer of LOI to Falkonera owners asap this pm”. Mr Scheepers suggested caution: “[w]e waiting to speak to owner himself late on this PM as he is in US time zone. Until then let’s hold off sending anything to owners”.

Practically simultaneously, the Charterers gave orders for Falkonera to perform the first scheduled STS transfer, onto Kythira. In response, Capt Papapostolou sent the Charterers the list of questions about the proposed operation that he had first sent on 5 December. This list of questions included demands for detailed information about the proposed transfer. Mr Cash stated that these questions had already been answered on 11 December.

On the morning of 17 December, Mr Han of the Charterers told his colleagues that “[w]e need to try one more time from the operational channel by providing owner with an LOI”. The Charterers produced a draft. Ms Ong sent it to the Owners through broking channels. The draft letter offered a full indemnity against “any problem, cost, or consequence whatsoever that may arise” from an STS transfer between Falkonera and the Frontline Vessels.

The proposal was rejected by email at 11.58 on 17 December. This stated, in material part, as follows:

“We thank charterers for the attached LOI, however Owners remain as per our previously advised and Regrettably, Owners, following careful consideration of all safety considerations in respect of the vessel, cargo, her personnel and the environment, must therefore decline Charterer’s request for acceptance to discharge into another VLCC.

We trust that Charterers fully appreciate and understand the reasons behind Owners’ decision, which has only been taken after deep and careful consideration of all factors involved.”

A manuscript note, which appears to have been made by Thomas Sommer of the brokers, records “spoke to Capt Christos re LOI, he advised that Owners will not accept a VL to VL sts”. Capt Papapostolou confirmed that, even with the offered letter of indemnity, the Owners would not consent to an STS operation between Falkonera and another VLCC. I shall refer to this email and conversation as “Withholding 3”.

In response, the Charterers put the Owners on notice that they held them liable for the costs and losses consequent upon the rejection of the Frontline Vessels; and began to put Plan B into effect. For present purposes, it is unnecessary to consider the detailed steps that were effected in implementing Plan B. It is sufficient to note that the Charterers’ case is that such steps involved significant delay and increased cost which they say are for the Owners’ account; and that following the final STS transfer to the True, Falkonera weighed anchor at1400 hours on 30 December and departed shortly thereafter at 1430 hours.

Against that outline summary of main events, I turn to consider the parties’ respective submissions. I deal first with a number of preliminary points.

First, it was common ground that the question of whether the Owners were in breach of the charter turns on whether they acted reasonably (or at least not unreasonably) in withholding their approval of the Frontline Vessels to carry out the STS operations. Under the sts lightering clause, the Owners’ approval was “not to be unreasonably withheld”. As to the meaning of these words, I was referred to a number of authorities including Porton Capital v Ploughshare Innovations [2011] EWHC 2895 (Comm). The subject-matter of that case was very different from the present ie it concerned the sale of a company and whether the vendors of that company had acted unreasonably in withholding certain consents. Nevertheless, Mr Allen QC submitted that it was helpful because of the review of the earlier authorities and the summary of the law as stated by Hamblen J in his judgment in particular at para 223. In particular, as he submitted, such wording involves an objective test; in the present context, it means that the Owners were not entitled to refuse to allow Falkonera to perform an STS transfer with the Frontline Vessels by reason of “something wholly extraneous and completely dissociated from the subject matter of the contract”: Houlder Bros & Co. Ltd. v. Gibbs [1925] Ch 575 at 587; Ashworth v Frazer [2001] 1 W.L.R. 2180, 2182. I did not understand Mr Baker QC to disagree with any of the foregoing.

Second, as to the burden of proof, there was some debate as to whether this lay on the Owners to show that they acted reasonably in withholding approval; or whether it fell on the Charterers to prove that the Owners’ approval was unreasonably withheld and therefore a breach of the charter. Both as a matter of principle and in light of the authorities, it seems to me that the burden of proof fell on the Charterers; and I proceed on that basis. That said, it is important to note that the question is not whether the Owners’ conduct was right (or wrong) but only whether they acted unreasonably in withholding their approval. Thus, the question is not whether the Owners’ conclusions that led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances, even though that conclusion might in fact be incorrect or some other persons might take a different view: see Ashworth v Frazer, ibid., 2183. Thus, I accept the Owners’ submission that they were only in breach if no reasonable shipowner could have regarded their concerns as sufficient reason to decline approval.

Third, when referring to “a” breach of the charter, it is potentially important to note that in the present case, there is not necessarily a single breach and that it is necessary to consider the Owners’ conduct over a period of time. That is why I have identified various points in time to consider the Owners’ conduct. Potentially at least, this may be important should it be necessary to determine in the context of any future quantum hearing what, if any, delay or extra expense has been caused by what, if any, breach.

Fourth, it is necessary to consider what Mr Baker QC said was a general and “sufficient” submission which may be summarised as follows:

As to such submission, whether VLCC-VLCC STS operations were “not very common” (as Capt Ireland stated) or “not uncommon” (as Capt Battye stated), I accept that there may well be some force in the submission that the proposed STS transfer in the present case was, in a sense, “non-standard”; but in my view, it does not follow that the Owners were therefore acting reasonably in withholding their approval of the Frontline Vessels. That is a non-sequitur although I recognise, of course, that it is essential to consider what, if any, particular grounds there may be for the Owners to withhold their approval and whether they acted unreasonably in so doing.

This email set out three main assertions: (a) that VLCC to VLCC operations were not permitted by the Guide; (b) that it would be “impossible” to obtain satisfactory leads for both headlines and sternlines; and (c) that the other mooring lines would have a poor vertical aspect.

I have already dealt with the first assertion viz although it is right that the Guide contains no specific recommendations with regards to STS transfers between VLCCs, it is, in my view, of general application and does not preclude such transfers. For the avoidance of doubt, I do not consider that it can properly be said that the Owners’ withholding of approval on the basis that the Guide was to the contrary effect was reasonable.

As to the second and third assertions, these were apparently based on what the email states the Owners knew from a previous past experience. As I have already explained, this related to the incident between the Kos and the Aker Smart 3 some years previously. Mr Allen QC submitted that, in truth, it was as a result of this incident that both Capt Papapostolou and the Owners had a closed mind and general policy against any STS operation between VLCCs; and that this was confirmed by the speed, tone and content of Capt Papapostolou’s emails in December 2010 as well as (i) what Capt Papapostolou stated in the course of his conversations with Capt Gilchrist; and (ii) what Mr Philip Embiricos had said with regard to the discussions in Singapore. Despite Capt Papapaostolou’s protestations to the contrary, it seems to me that whether or not he himself had a closed mind, it would appear from the email exchanges and telephone calls that the Owners did indeed seem to have had a blanket policy to object to any STS operation between VLCCs. However, it is unnecessary to determine that point. For present purposes, it is sufficient to note that there were special reasons why the incident between the Kos and the Aker Smart 3 occurred. First, as Mr Gilchrist explained, the Aker Smart 3 has a square bow which made her very directionally unstable; she is, therefore, prone to fishtailing and is notorious for steel to steel incidents. Second, again as Mr Gilchrist explained, it is plain that on that occasion the fendering was not done properly ie only four fenders were used which was not compliant with the Guide; and that in such circumstances steel to steel contact was not surprising. Third, it is unclear (and Capt Papapostolou could not say) how many tugs (if any) assisted in the operation; or whether or not an independent STS service provider had been used. In my judgment, the experience of Capt Papapostolou (and the Owners) with regard to this incident provides no reasonable basis for withholding approval of the proposed STS operation between the Falkonera and the Frontline Vessels.

As to the substance of the second and third assertions, the Charterers raised an important threshold point viz that these matters were, in effect, irrelevant to the question of approval of the Front Queen (or indeed any proposed vessel) although the Charterers accepted that, once a particular vessel was approved, these matters might be relevant at the subsequent stage in carrying out an appropriate risk assessment for the particular STS transfer operation and as part of an iterative process in deciding whether or not it was safe to perform such operation and when and how such operation might be carried out. The Charterers submitted that this followed from a proper construction of the charter. In particular, the Charterers submitted that the fundamental mistake made by the Owners – initially by Capt Papapostolou and in the current proceedings – is to conflate the right to approve a nominated vessel with the obligation on both the Charterers and the Owners to perform any STS transfer in accordance with the Guide. In my judgment, this submission goes somewhat too far. In principle, I accept that the sts lightering clause in effect looks to a two-stage process ie (i) the approval of the vessel and (ii) the actual conduct of the transfer operation in accordance with the recommendations of the Guide; and that the former ie the right of the Owners to refuse to approve a vessel is to be determined by reference generally to the inherent characteristics of that vessel. However, as submitted by Mr Baker QC, it seems to me that the subject-matter of the first part of the sts lightering clause is not STS transfer operations in the abstract, but a particular proposed operation with the “Falkonera”, to load or to discharge cargo under the charter; that the issue is thus whether it was reasonable for the Owners to withhold approval for the Frontline Vessels, anchored as they were off Pasir Gudang, for the particular STS discharge operations proposed for mid-December 2010; and that there is no warrant for excluding from consideration the nature and requirements, in prospect, of the particular operation, nor (in particular) for artificially limiting the exercise to a verification from Q88s that, in the abstract, the Frontline vessels were suitably fitted and equipped to be capable of conducting STS operations. Thus, I accept as a matter of construction that although the inherent characteristics of the proposed other vessel might be entirely suitable in the abstract, nevertheless the Owners might be entitled to withhold approval because, for whatever reason, it might reasonably be considered that the proposed STS operation involving that other vessel would in any event be unsafe.

Be that as it may, it does not seem to me that this potential debate is of any ultimate relevance in the circumstances of the present case. To my mind, that is so for two main reasons.

First, the starting point at least is the inherent characteristics of the nominated vessel. Here, there is no suggestion from any of the witnesses on either side of this case that the Frontline Vessels were subject to some kind of peculiarity or defect that rendered them unsuitable for STS transfers. To the contrary, Capt Battye stated in terms that there was no discernible reason for the Owners to reject the Front Queen (nor the Front Ace). In reaching that conclusion, he drew attention, in particular, to the fact that Front Queen (and also the Front Ace) had been screened by a number of oil majors including Shell and BP. This meant that she had been maintained to their exacting standards.

On the Owners’ side, Capt Papapostolou accepted that there was nothing in the Q88 for the Frontline Vessels which would suggest that they were inherently unsuitable for an STS transfer with the Falkonera apart from their length (as to which see further below). Thus, as to the Front Queen’s Q88, he stated that “there is nothing on the basis it is unsuitable for the OCIMF’s but on the size of the vessel, we requested further information in order to get assurances that it would be safe to have the STS transfer safely.” The suggestion (which was his constant refrain) that the Owners had asked for more information to allow them to consider the proposed operations in more detail is not borne out by the facts as summarised above. Be that as it may, the important point is that, so far as he was concerned, there was no apparent bar to the approval of Front Queen herself, save for the length of the vessel.

As to Capt Ireland’s evidence, the main thrust of his first report was not that there was any impediment as such to an STS transfer operation generally between VLCCs nor specifically from the Falkonera to the Frontline Vessels but that such an operation required a significant amount of planning; and that there was insufficient time before the proposed STS transfers to perform that planning. His conclusion included the following statements:

“5.1.4

In the particular case of the VLCC to VLCC operation proposed by these Charterers:

The proposed operation was requested without regard to the time required to conduct a proper assessment of the operation.

There was no proper and full exchange of detailed information for the vessel proposed for the STS operation, with the STS provider driving such a process with specific requests for the relevant information.

There was no individual risk assessment undertaken for the proposed operation.

There was no properly considered plan put forward for the safe and effective mooring of the vessels.

There was no load/ballast plan put forward to control the potentially large freeboard differential between the vessels.

5.1.5

Concerns regarding the proposed STS operation put forward by the Owners of FALKONERA were not adequately addressed by the Charterers, in my opinion.

5.1.6

In view of the foregoing, it is considered that in all the circumstances of the case, a prudent owner would not be in a position to confirm approval of such an operation.”

So far as relevant, the legitimacy (or otherwise) of these criticisms is discussed below. For present purposes, such criticisms are, in my view, of little, if any, relevance to the question of whether the Owners were entitled to withhold approval of the nominated vessel. They relate to the detail of the proposed operation. Moreover, it is implicit from Capt Ireland’s analysis that, subject to the question of timing and proper planning, the Falkonera could have performed an STS transfer with each of the Frontline Vessels as he appeared to accept in evidence when he stated: “…the principal dimensions vis a vis the length of the vessel, which is a characteristic of the vessel, in my estimation makes this operation a non-standard operation so therefore, in my view, there is a principal characteristic of the vessel which prohibits conducting the STS until such time as it is properly planned”. All that was required was a significant degree of planning: there was no inherent problem with the Frontline Vessels that justified the Owners’ withholding of approval. That obviously falls far short of saying that there was something inherent in the Frontline Vessels that meant that the operation could not be performed or might provide a reasonable basis for withholding approval of the vessels. In the event, when specifically asked: “Is there anything in the characteristics of the vessel that prevents this operation?”, Capt Ireland agreed that there was not.

For these reasons, I accept Mr Allen QC’s submission that there was here no reasonable basis for the Owners to withhold their approval of the Frontline Vessels when they were nominated with what Mr Allen QC described as “flawless” Q88s; that once approved, as envisaged by the STS lightering clause and the Guide, the Owners should have started and then continued the iterative process of operational planning for the STS transfer in cooperation with the Charterers; that, as Mr Allen QC accepted, if any particular problems had arisen or manifested themselves in the course of that iterative process or even during the operation itself, the Owners would, at that stage, have had what Mr Allen QC referred to as a “safety veto”; but that such possibility did not reasonably entitle the Owners to withhold their approval of the Frontline Vessels.

Second, the objections raised by Capt Papapostolou with regard to (i) the headlines and sternlines and (ii) the mooring arrangements generally and the “poor vertical aspect” did not, in my judgment, provide any proper or reasonable foundation for withholding approval of the Frontline Vessels for the reasons set out below.

As appears below, the evidence in relation to this topic was somewhat confusing – in particular because of certain confusion with regard to terminology and because it was not specifically dealt with by Capt Ireland at least in his first report.

At the outset, it is right to say (as Mr Allen QC acknowledged) that, in one sense, Capt Papapostolou was correct: as a matter of definition, it was indeed impossible to obtain satisfactory headlines and sternlines. But this requires some explanation. In summary, as a matter of terminology, when a vessel is moored alongside a berth, a headline is a line running from the bow of the vessel to a mooring point forward of the vessel; a sternline runs from the stern of the vessel to a mooring point aft of the vessel. These are to be distinguished from breastlines, which run roughly perpendicular to the heading of the ship. They do not, therefore, extend forward beyond the foremost point of the vessel; or aft behind the hindmost part of the vessel. If an Aframax comes alongside a VLCC to perform an STS operation, then the mooring configuration may well involve headlines and sternlines. If the bow of the Aframax is moored to the bow of the VLCC then that mooring line will by definition be a headline: it will stretch forward from the bow of the Aframax to the bow of the VLCC. By the same token, a line from the stern of the Aframax to the stern of the VLCC will, by definition, be a sternline.

It is obvious that the same configuration is impossible between any two vessels of the same sizes (not just VLCCs). Because they are approximately the same length, any mooring line that runs from the bow of one vessel to the bow of the other will effectively be a breastline (ie perpendicular to the heading of both vessels); and a mooring line from the stern of one vessel to the stern of the other will also be a breastline.

In this sense, Capt Papapostolou was correct therefore to say that it is impossible to run headlines and sternlines between two VLCCs of the same size as those terms are generally understood. However, he was, in my judgment, both wrong and unreasonable to assume that this was a problem. As explained by Capt Battye, breastlines are, in fact, preferable to headlines and sternlines. OCIMF publishes guidance on mooring equipment, entitled “OCIMF Mooring Equipment Guidelines” (“OCIMF MEG”). This guide contains diagrams showing an “IDEALISED MOORING LINE LAYOUT” for a vessel alongside a jetty. This layout only uses breast lines and spring lines – lines that run almost parallel to the heading of the vessel; it does not employ headlines and sternlines. That is for a reason. As stated by Capt Battye: “headlines and sternlines are less effective than breastlines and the aim of jetty design is to avoid these as much as possible”. Thus, it was Capt Battye’s evidence that he did not understand why Owners were concerned that it would not be possible to run headlines and sternlines between the two VLCCs engaged in an STS transfer.

Somewhat surprisingly, Capt Ireland’s first report did not address this element of the Owners’ original complaint. In that report, he does not suggest that the lack of headlines and sternlines would be a problem. All that he says is that Capt Gilchrist should have addressed Owners’ specific concerns by performing an “individual operational risk assessment”. In his concluding remarks, Capt Ireland stated merely that “concerns regarding the proposed STS operation put forward by the Owners of FALKONERA were not adequately addressed by the Charterers, in my opinion”. This is not the same as saying that the Owners’ complaints were legitimate or reasonable. In the circumstances, his criticism is, in my view, unfair. If the Owners were operating under a misapprehension as to the relative desirability of headlines and sternlines, there is no principled basis on which it can be said that the Charterers were responsible for disabusing them.

In his second report, Capt Ireland sought to remedy the deficiency in his first report. At paragraph 6.5.13, he stated that “for the proposed operation, headlines and stern-lines would be the most efficient lines”. (He purported to be agreeing with a comment to the same effect in Capt Battye’s first report. However, Capt Battye said no such thing. In context, he simply acknowledged that where two vessels are of different sizes, such that there are headlines and sternlines running between them, such lines will be efficient if they are parallel to the prevailing wind or current.) This gave rise to some debate as to the concept of “efficiency”. However, in my view, it is unnecessary to engage in that question. Here, the important question is one of safety. As to that, Mr Baker QC submitted that Capt Battye’s reference to the material in OCIMF MEG referred to above was founded upon the erroneous assumption that mooring Falkonera to one of the Frontline Vessels was properly to be compared to mooring her to a VLCC berth in static conditions. As submitted by Mr Baker QC, it is right that in Section 4 of his Supplementary Report, Capt Ireland expressed the view that a jetty mooring configuration is “idealized” and cannot be compared to a dynamic STS operation. However, in that same section of his Supplementary Report, Capt Ireland stated:

“With regard to Capt Battye’s comments that berthing one vessel onto another vessel at anchor is similar to berthing a vessel onto a jetty, I do not disagree with these remarks but that does not equate with meaning that the mooring arrangement produced can be the same, for the reasons noted above. Indeed the Guide itself states that the approach is similar but that a risk assessment should be undertaken by the organizers to evaluate the requirements of tug assistance…”

Thus, I did not understand Capt Ireland’s evidence to be that the absence of headlines or sternlines properly so called was a matter of concern although, as was common ground, the STS operation could only be carried out with proper planning and risk assessment. In support of his submission that the Owners’ alleged concerns with regard to the absence of proper headlines and sternlines were reasonable, Mr Baker QC further relied upon certain passages in the cross-examination of both Capt Gilchrist (in particular at Day 2/126-127) and Capt Battye (in particular at Day 3/89). One of the difficulties in considering that evidence is the confusion in terminology. However, in my view, a proper reading of those passages provides no support whatsoever for Mr Baker QC’s submission. On the contrary, Capt Battye’s evidence was clear viz for the reasons he gave he saw no reason why any Owner should be concerned about the absence of headlines and strernlines properly so called and that “the idealised or best way of mooring a ship is actually having breast lines perpendicular to the ship” (Day 3/92). Equally, Capt Gilchrist’s evidence was that the mooring arrangement which he proposed was, in principle, safe. I accept that evidence.

Similar considerations apply to the assertion that at the beginning and end of STS operations, the mooring lines would have a “poor vertical aspect”. This again requires some explanation. The suggestion is that where a laden VLCC discharges the entirety of its cargo to a VLCC in ballast, at the start of the operation the laden vessel will be sitting low in the water, and the ballast vessel will be sitting relatively high in the water. All other things being equal, the mooring ropes will not run horizontally between the two vessels, but rather will be at an angle to the horizontal plane. As the STS transfer proceeds, the drafts of the two vessels will change, as the discharging vessel discharges the cargo and the receiving ship becomes increasingly more laden; and the mooring ropes will pass through the horizontal plane. By the end, the mooring ropes will again be at an angle to the horizontal. However, this is not rocket science – and it is not exclusive to a VLCC to VLCC transfer. The Owners’ complaint is not directed at VLCCs in particular, but rather to a general feature of STS operations. However, as Capt Battye pointed out in his report: “Smaller ships have a smaller laden freeboard than large ships. The difference in freeboard at the start or end of the operation, depending on the direction of the transfer, will therefore be greater than a transfer from/to a larger ship. The vertical angle of the ropes will therefore be greater on a small ship.” This is unsurprising: if there is a large difference between the freeboards of two VLCCs, one of which is laden and the other is in ballast, there will be an even bigger difference between the freeboard of an Aframax that is laden and a VLCC that is in ballast. Although Capt Ireland accepted that the vertical aspect of the lines would in fact be worse discharging to a smaller vessel, his evidence was that the Owners’ concerns were nevertheless “intuitively correct” because “…it would be reasonable to assume that headlines and sternlines between similar sized vessels would be considerably shorter, and that therefore that at maximum freeboard differential the vertical aspect of such lines could potentially be unacceptable.” In my view, this reasoning is flawed. First, it is to be noted that Capt Ireland does not suggest that the vertical aspect of the lines used would be unacceptable – rather that they “could potentially be unacceptable”. Second, as already noted, any intuitive concerns would be no different from those in any STS transfer between same-size-ships. Third, even taking this comment at face value, it does not, in my view, provide any reasonable basis or justification for withholding approval of the nominated vessel(s) under the charter: it is all a matter of proper planning and, if necessary, adjustment. That was the role of Capt Gilchrist as with any provider like SafeSTS ie to ensure a proper risk assessment and planning of the particular operation. In my view, therefore, this expressed concern was not a good reason for rejecting the Frontline Vessels and did not provide a reasonable basis for withholding approval of those vessels.

That the Owners’ expressed views were without foundation is reinforced by a consideration of the mooring arrangement subsequently proposed by Capt Gilchrist at the time of the withholding of approval. As stated above, later on 14 December, Capt Gilchrist sent the Owners a proposed mooring arrangement showing a minimum 14 and maximum 16 proposed lines with their direction, mooring points and lengths. These included lines running from the bow of Front Queen to the forward breast of Falkonera and from the stern of Front Queen to mooring points to the aft of Falkonera. Whatever the adequacy of these lines in isolation, they were supplemented by additional (a) breastlines running between the centre panamas and the poops of the two vessels; and (b) springlines running nearly parallel to the centre lines of the two vessels. At the time, apart from the general objections, there was no specific suggestion by Capt Papapostolou or the Owners that such proposed mooring arrangement was inadequate. Capt Gilchrist’s proposed mooring arrangement did, therefore, address the Owners’ concerns subject to one point which emerged in evidence about the vertical aspects of these lines (ie the stated concern that because the two VLCCs were the same size, some of the lines would be short, and that if there was a big change in the relative freeboards of the vessels, they might be placed under excessive strain). In particular, Capt Gilchrist observed in his oral evidence that there might be concerns about two of the sets of lines (viz the effective stern lines with lengths of 25 metres each). This point was taken up by Mr Baker QC with Capt Battye in cross-examination, who agreed that these lines were or at least might be a “little short”, and said that although this would not concern him “…..it would be something to look at and maybe adjust”. However, in my judgment, this point is of no significance in the present context because it would not justify a withholding of approval: at best, this would be an aspect of the mooring arrangement that might need adjusting.

For the purpose of the present proceedings, the mooring arrangement proposed by Capt Gilchrist was reviewed by the experts, Messrs Corlett and Leschaeve. However, I accept that this evidence is in reality irrelevant because in deciding whether the Owners’ withholding of approval was unreasonable, the question of reasonableness must, in my judgment, be viewed at the time such withholding took place on the basis of the evidence reasonably available to Capt Papapostolou (and the Owners) at such time. In my view, it cannot depend upon the very detailed review carried out by Mr Corlett (and also by Mr Leschaeve) which involved extensive calculations and analysis performed in their capacity as expert naval architects in the context of the present proceedings ex hypothesi because such calculations and analysis were not reasonably available at the relevant time. Be that as it may, I propose to summarise this evidence and set out briefly my conclusions.

In his first report, Mr Corlett tested the proposed mooring arrangement on the basis of five sets of assumptions about the prevailing conditions. The table below records the five different sets of assumptions:

The assumed wind speed of 44 knots is the maximum wind speed at which, according to SafeSTS, vessels performing STS transfers should stay alongside each other. According to research performed by Mr Corlett, the wind was very unlikely to reach speeds of 44 knots at the STS location in December (when the proposed operations were scheduled to take place). His conclusion was that even in these extreme – and unlikely – conditions, the proposed mooring arrangement would be stable.

As to the “vertical aspect” of the mooring lines, Section 2.4.2 of OCIMF MEG records that (ideally) no mooring should be at an angle of more than 25° from the horizontal. Mr Corlett calculated the angle of each of the mooring lines to the horizontal when Falkonera would have been alongside Front Queen and on her departure. At no point would any of the mooring lines have exceeded an angle of 25°.

Mr Leschaeve reviewed Mr Corlett’s calculations in his report. His two main conclusions were (a) that “performing the STS between two VLCCs in 44 knots of northerly wind 3 knot west-going current would have been unsafe”; and (b) that if the current increased to 5 knots, it would have been unsafe to perform an STS operation in anything more than 12 knots of wind. In my view, this reasoning is at least arguably flawed because it is based upon certain assumptions which are, or at least may be, incorrect. First, Mr Leschaeve assumed that the two vessels would have been left to swing freely at anchor ie they would have been completely free to “weathervane”. However, this ignores the presence of the tug – and possibly more than one tug – which would have been available to assist. Mr Baker QC submitted that according to Capt Gilchrist, such tug would only have been used in the event of an emergency. The difficulty is that this aspect was not fully explored in the evidence; but I did not understand Capt Gilchrist’s evidence to be so limited. On the contrary, according to Capt Battye, the standby tug would have been used to limit the extent of weathervaning so that a large drift angle (greater than about 10 degrees) relative to the current would not have been allowed to develop. If that were so, Mr Leschaeve agreed that the tensions in the mooring lines would have been acceptable even in 44 knots of wind from the NNE and 3 knots of current. Second, both Capt Gilchrist and Capt Battye expressed the view that it would, in any event, have been wrong even to attempt an STS transfer in a current of five knots. So that situation contemplated by Mr Leschaeve would never have arisen.

In any event, as submitted by the Owners, it seems to me that these considerations are something of a red herring when considering whether or not the Owners acted unreasonably in withholding approval of the vessels. This is not a case where it might be said that the foreseeable conditions rendered the proposed operation unsafe as such. No one was proposing that the STS operations should be carried out blindly without reference to the prevailing conditions. The whole point of appointing SafeSTS to assist in the conduct of the operations was to ensure that the transfers were not performed in adverse conditions that would render them unsafe. Consequently if on arrival at the location the conditions were not conducive to a safe transfer, the operation would be delayed pending more favourable conditions. By the same token, if the operation was started in benign conditions, which then deteriorated, the operation would be suspended.

Thus, in summary, it is my conclusion that none of the points raised by Capt Papapostolou in the Owners’ First Response provided any reasonable basis for the Owners to withhold their approval of the Frontline Vessels.

Although not raised specifically in the Owners’ First Response, Mr Baker QC identified two additional particular concerns referred to in the statement of Capt Papapostolou viz (i) the Frontline Vessels’ location was a difficult one for STS operations, due to congestion and current; and (ii) dealing with “Falkonera” and one of the Frontline Vessels was at or possibly beyondthe limits of the capabilities of the Johor pilots.

As to the former (ie concerning congestion and current), Capt Gilchrist fairly acknowledged both in his emails at the time and in evidence that he fully understood the concerns regarding STS operations between VLCCs. In particular, as he stated in his first email on 14 December, such operations should not be undertaken lightly; and he specifically addressed such concerns in some detail in his second email on 14 December (which I have already quoted in relevant part above) and also (for the purpose of the present proceedings) in paragraphs 17-26 of his first witness statement and paragraphs 4-19 of his supplementary statement. I do not believe it is necessary to set out verbatim what is there stated. In my view, it is sufficient to state that I found Capt Gilchrist a very impressive witness with considerable expertise and local knowledge and an appropriately cautious and thorough approach to the task of performing STS operations; and that I accept his overall conclusion viz “Although there are risks and dangers involved, [Pasir Gudang] is no different from any other STS location in that so long as precautions are taken to manage those risks, STS transfers can be conducted safely there…”. As to the latter (ie concerning pilotage), Mr Baker QC sought to rely, in particular, upon certain operational reports produced by SafeSTS with regard to other previous STS operations involving other vessels to suggest that the pilots lacked sufficient experience. Mr Gilchrist fairly accepted that these showed a number of concerns as to certain aspects of the pilots’ performance on some of those operations. But again this evidence demonstrated in my view the care and thoroughness of Capt Gilchrist in performing his role in relation to such operations. He confirmed that any operations at that time were done by a cadre of pilots that his company trusted and were experienced. I accept that evidence and reject the suggestion that the alleged concerns with regard to pilotage provided any reasonable basis or justification for Owners’ withholding of approval of the Frontline Vessels.

Another point which appears from the report of Capt Ireland (but which was not pleaded) is the assertion that there was not sufficient time to plan these operations before they were scheduled to begin. I do not accept that assertion. As indicated above, approval of the Front Queen was first sought on 13 December. At this stage, the Falkonera was not due to arrive until the early hours on 16 December and cargo operations were, it would seem, scheduled for around 17-18 December. On that basis, there were at least 2 and perhaps 4 days or more to arrange planning of the operation. In evidence, Capt Papapostolou suggested that, based upon his experience, such planning would take a minimum of 15 days up to a month. However, that is, on any view, grossly excessive if only by reference to Capt Ireland’s own estimate which was 5 days. But even that estimate is, in my view, unreasonably long. According to Capt Gilchrist whose evidence is, in my view, to be preferred in particular because of his specialised expertise and local knowledge, they would normally only get “very short notice” for STS operations ie “probably a couple of days” in the planning which was ample time in the present case. In any event, even if the planning might have taken longer, this would not, in my judgment, have provided any reasonable basis for withholding approval.

For these reasons, I do not consider that these additional points assist the Owners; and it is my conclusion that the Owners had no reasonable basis for withholding approval when they sent their First Response.

It remains to consider whether or not the Owners’ First Response is properly to be regarded as an actual withholding of approval so as to constitute a breach of contract. Reading certain parts of the email, there seems to me a very strong argument that the Owners were indeed withholding their approval of the Front Queen even if they were not, at least at this stage, unequivocally refusing to perform the proposed operation. However, Mr Baker QC submitted that there was no actual withholding of approval at this stage at least when reading the email as a whole. In particular, he relied on the opening wording of the email which states: “With regards to Charterers request for Owners acceptance to discharge into another VLCC Front Queen, we would like to discuss some subjects in relation to this STS operation between two (2) VLCCs.” I agree that this opening wording, in particular the suggestion that the Owners “..would like to discuss some subjects…” and certain parts of the rest of the email (for example, the reference to “at this juncture”), are somewhat tentative. Moreover, in considering whether an owner is acting reasonably in this type of situation, it seems to me that such owner is entitled to a reasonable time to make a decision. These arguments are, in my view, finely balanced; but it seems to me that, on this point, the Owners have the better of the argument having regard, in particular, to the fact that, as I have already indicated, the burden is on the Charterers to establish a breach of the charter. On this basis, it is my conclusion that the Owners’ First Response did not constitute a breach of the charter.

Here, there can in my view be no doubt that the Owners did indeed withhold their approval, as Mr Baker QC fairly conceded; and the central issue is whether such withholding was unreasonable. As to this, it is important to bear in mind that by the time the Owners sent Withholding 1 they had received Capt Gilchrist’s email response earlier on 14 December. However, Mr Baker QC submitted that whilst the Charterers may have hoped that Capt Gilchrist’s information and comments would “address” Owners’ concerns, they did not allay them at all, as the Owners said at the time; that all their concerns were reasonable; and that Withholding 1 could only be said to be unreasonable if all of Owners’ concerns were unreasonable which was not the case. I have already dealt with most if not all of such alleged concerns but, at the risk of repetition, it is necessary to summarise what Mr Baker QC submitted were, in relation to Withholding 1, a number of specific reasonable concerns and my conclusions in relation thereto.

First, Mr Baker QC submitted that the Frontline Vessels’ anchorage location was indeed a difficult one; that it was reasonable to regard it as such; that strong currents and cross-winds, with rapidly developing squalls, presented challenges, as did congestion; and that although the Owners do not say that necessarily made it impossible to undertake a successful operation, they do not need to go that far. I have already dealt with the thrust of this alleged concern above. In summary, the short answer is that given by Capt Gilchrist which I have already quoted.

Second, Mr Baker QC repeated the alleged concern in relation to the Johor pilots relying in particular on the views expressed by Capt Papapostolou and Capt Ireland. Again, I have already dealt with that point. With regard to the initial information provided to the Owners, although it is true that Capt Battye accepted in cross-examination that certain of this information with regard to the pilots was very concerning, nevertheless his evidence (which I accept) was that his concerns would have been completely allayed by Capt Gilchrist’s follow-up. Mr Baker QC then suggested in cross-examination to Capt Battye that he would not call a colleague unreasonable if he took the view that his concerns were not completely allayed, to which Capt Battye said “okay” – an answer which Mr Baker QC relied upon. However, it seems to me that that answer needs to be read in the context of the rest of Capt Battye’s evidence. Although he was appearing to agree with the specific question put, I do not consider that he was accepting that the Owners were acting reasonably in withholding approval of the Frontline Vessels.

Third, Mr Baker QC submitted that in relation to the Guide, the Owners were entirely correct, and certainly reasonable, to understand that the Guide does not address specifically same-size STS operations (either generally or VLCC-VLCC in particular). I have already dealt with this point. It is unnecessary to say anything more.

Fourth, Mr Baker QC relied again on Capt Papapostolou’s concerns as regards headlines and sternlines. Again, I have already dealt with such alleged concerns above.

For all these reasons, it is my conclusion that with respect to Withholding 1, the Owners acted unreasonably in withholding their approval of the Frontline Vessels and were therefore in breach of the charter.

In summary, Mr Baker QC submitted that Capt Gilchrist’s further email and attachments did not allay Owners’ reasonable concerns and that therefore Withholding 2 was not unreasonable. In particular, Mr Baker QC relied on the following points:

First, Mr Baker QC submitted that it added nothing material to the information about the location and its difficulties. I do not agree. For example, the email confirmed that a number of VLCC STS operations had been carried out at this location including one for Shell after which they gave the area full approval and also addressed the question of congestion.

Second, Mr Baker QC submitted that it did not in fact allay Owners’ concerns about the pilots. I have already dealt with this above. So far as relevant, the email further confirmed that “our” mooring masters were themselves all experienced pilots for STS and that SafeSTS could request particular pilots from the port authority for the VLCC job who they deemed the most competent and experienced.

Third, Mr Baker QC submitted that it did not help the Owners with their concern about the specific usefulness of the Guide and the manner in which the proposed operations had been risk assessed, but rather reinforced the impression that only generic risk assessments had been done. I have already dealt with this above.

Fourth, Mr Baker QC submitted that the email did not deal with the Owners’ concern that the absence of proper headlines and sternlines was a problem. To a large extent I have already dealt with the substance of these points. In my judgment, there is nothing in them. Although it is true that the email did not specifically address the particular points raised earlier by the Owners, the opening part of the email contained a detailed summary of the proposed mooring arrangement confirming that a total minimum of 14 lines could be deployed, possibly 16, with their direction, mooring points and lengths giving what Capt Gilchrist confirmed was “..a safe effective mooring pattern for Ship to Ship Transfer...”. Subject to possible minor adjustment as I have already considered, that mooring was safe and would have been effective; and there was no reasonable basis for withholding approval on the basis of such proposed arrangement. Further, as already noted, the email also confirmed that a number of VLCC STS operations had been carried out at this location including one for Shell after which they gave the area full approval. In my judgment, whatever further discussions or “fine-tuning” may have been appropriate in the finalisation of the actual planning of the STS transfers, there was no reasonable basis or justification for withholding 2.

In my judgment, no further information or communication came to the Owners that could render this withholding of approval unreasonable, if reasonable before – or vice versa. The only additional point made by the Owners was the tentative suggestion that the decision by the Charterers to proffer a LOI tended to corroborate the Owners’ concerns but this point was (rightly) not pursued.

Thus, given my earlier conclusions, it follows that this withholding was also unreasonable and a breach of the charter by the Owners.

For all these reasons, it is my conclusion that Withholding 1, Withholding 2 and Withholding 3 constituted the unreasonably withholding by the Owners of the approval of the Front Queen and/or the Front Ace and thereby a breach of the charter by the Owners. It also follows that, unless otherwise agreed, it will be necessary to have a further hearing to determine the consequences of such breaches including quantum. Counsel are invited to agree an order (including costs and further directions) failing which I will deal with any outstanding issues.