The "Asia Star"

Singapore Court of Appeal; Judgment delivered by Belinda Ang J, 27 March 2007: [2007] SCGA 17

Gurbani and Co for the claimant/respondents, Pacific Inter-Link Sdn Bhd

Kelvin Chia Partnership for the Owners of the "Asia Star"/appellants

Carriage of Goods by Sea: vegoilvoy charterparty for carriage of refined palm oil: epoxy coating in cargo tank broken down: whether breach of term that cargo tank broken down: whether breach of term that cargo tanks were to be "epoxy coated": whether vessel unfit to carry cargo: whether failure of due diligence to make vessel cargo worthy: whether liability exempted under terms of contractual right of cancellation

Summary

Where, under a charterparty incorporating terms of the Vegoilvoy charterparty, the shipowner contracted to provide a ship with epoxy-coated tanks, it could not take advantage of the option to cancel free of liability set out in clause 1(b) of that charter, if the reason for the rejection of the tanks was the substantial failure of their epoxy coatings. Obiter, that option was, however, available to relieve the shipowner from the consequences of its failure under cl 1(a) to exercise due diligence in respect of defective cargo tanks leading to the cancellation of the fixture prior to loading, where the parties had not separately and expressly contracted for epoxy-coated tanks.

DMC Rating Category: Confirmed

This Case Note was contributed by Ang & Partners, the Website's International Contributors for Singapore

Facts

The claimant, Pacific Inter-Link Sdn Bhd ("Pacific") chartered the product tanker the "Asia Star" from her owners, Shun Da Marine Transportation Co (S) Pte Ltd ("Owner"), on a Vegoilvoy form to carry a cargo of refined bleached and deodorised palm oil ("RBD palm oil"). The cargo was to be loaded at one to two safe ports at Belawan in Indonesia, and in Malaysia, for discharge at one to three safe ports (at the Charterers' option) in the Gulf of Aqaba, in the eastern Mediterranean Sea, in Turkey, and at Odessa in Russia.

Pacific required epoxy-coated tanks for the carriage of the cargo. The answer to "the Standard Tanker Voyage Chartering Questionnaire 1988" stated that the vessel's cargo tanks were fully coated with epoxy and the fixture note stated that the vessel was "epoxy coated". During the pre-loading tank inspection at Belawan in January 2004, the claimant's surveyor found that 40% of the epoxy coating of the cargo tanks had broken down. The claimant rejected the vessel. Owner exercised its option under the charterparty to cancel the charterparty, arguing that it could do so without liability where repairs could not be effected within 24 hours and at reasonable expense (clause 1(b) of the Vegoilvoy form), or its tanks were rejected by the charterer (clause 15).* The claimant sued the Owner for loss and damage for breach of charterparty.

At first instance, Tan Lee Meng J allowed the claim. The Owner appealed but, on appeal, dropped the argument based on clause 15.

Judgment

(1) The fixture was for epoxy-coated cargo tanks. The words of description in reference to the cargo capacity and the epoxy-coated tanks formed part of the contractual description of the vessel.

(2) The coatings would not be adequate for the fixture if coating failure was of such a magnitude that it undermined the contract for coated tanks or affected the vessel's cargoworthiness. On the facts, the Owner was in breach of the express term of the fixture by presenting a vessel with a coating breakdown of 40%.

(3) Clause 1(a) of Part II of the Vegoilvoy charterparty altered the shipowner's absolute obligation at common law to furnish a cargoworthy ship to an obligation to exercise due diligence to "make the tanks, holds and other spaces in which cargo is carried fit and safe for its carriage and preservation." The vessel was uncargoworthy at the time she was presented for loading. The Owner had not discharged its burden of showing that it had acted with due diligence. It was therefore in breach of its duty of due diligence under clause 1(a).

(4) The option to cancel under Clause 1(b) did not avail the Owner for several reasons. First, clause 1(b) was aimed at the due diligence obligation under clause 1(a). It did not apply to the express contractual obligation of the Owner to provide epoxy-coated tanks, which was a separate and independent obligation from the seaworthiness obligation under clause 1(a). Secondly, giving effect to clause 1(b) would deny the term relating to the vessel's description as epoxy-coated of contractual effect. Thirdly, the terms of the typewritten clause describing the vessel as epoxy-coated overrode the printed clause 1(b), which could not be read to give the party in default the right to cancel for its breach of the coating description.

(5) Contrary to the conclusion of the judge at first instance, clause 1(a) would not be rendered meaningless if effect were given to clause 1(b). The shipowner was given an opportunity to either repair the defect or cancel the charterparty. This discretion of the shipowner was to be exercised honestly and in good faith. "The concluding words in cl 1(b)," the Court said at paragraph 64, "are apt to relieve the Owners from the consequences of the Owners' failure under cl 1(a) to exercise due diligence in respect of defective cargo tanks leading to the cancellation of the fixture prior to loading where the parties have not separately and expressly contracted for epoxy-coated tanks."

(6) However, as the court had found that the Owner was in breach of the express term on epoxy-coating, which was not excused by clause 1(b), its appeal was dismissed with costs.

Comment

There is a dearth of reported judgments on the Vegoilvoy charterparty, so this case is important in setting out the relationships between a term relating to the description of the vessel, the seaworthiness obligation in clause 1(a) of the Vegoilvoy charterparty and the shipowner's rights of cancellation under clauses 1(b) and 15. It is also noteworthy for judicial recognition of good faith as a criterion in the exercise of the shipowner's option to cancel the charterparty under clause 1(a), perhaps marking the slow but steady inroad made by this predominantly civil law concept into common law contractual analysis.

The relevant clauses of the Vegoilvoy form read as follows:

1. Warranty. (a) The Owner shall, before and at the commencement of the voyage, exercise due diligence to make the Vessel seaworthy, properly manned, equipped, and supplied for and during the voyage, and to make the pipes, pumps, and heater coils tight, staunch, and strong, in every respect fit for the voyage, and to make the tanks, holds, and other spaces in which cargo is carried fit and safe for its carriage and preservation.

(b) It is understood that if the tank or tanks, into which the particular cargo covered by this Charter is to be placed, upon testing prove to be defective the Owner undertakes to execute the necessary repairs, provided repairs can be effected within 24 hours and at reasonable expense; otherwise, Owner has the option of cancelling this Charter in which case no responsibility shall rest with the Vessel, Owners, or Agents.

15. Cleaning. Prior to loading, Charterer shall inspect the designated tanks for the purpose of determining that they are in suitable condition for the loading and carriage of the cargo specified hereunder. Acceptance of the tanks by Charterer's representative shall be conclusive as to their suitability for such purposes. If Charterer's representative does not accept the tanks as suitable for the cargo, the Owner shall have the right, as its option, to cancel this Charter Party, without any resulting liability on the part of either party, or to again clean the tanks, subject to inspection as above.