Through solid planning, most ship-to-ship operations prove successful affairs, but where problems do occur, understanding the legal regime that governs the process can make all the difference to a successful outcome
The legal structure that covers a ship-to-ship (STS) operation is arguably as complicated and potentially dangerous as the operation itself. While safety is the overriding concern in such an operation, commercial factors inevitably come into play, and with many parties involved, from owners and operators to charterers and even component manufacturers, any legal dispute requires expert advice based on experience and case law.
Preston Turnbull partner Rob Collins is one such expert and explains that from a legal standpoint, an STS operation is like no other in shipping. “We all recognise the inherent risks in an STS transfer at sea,” he says. “We have guidelines and regulations that cover all sorts of areas, including the compatibility of the vessels, the transfer area, checklists for each of the vessels to follow, the plans that they need to put in place. But what happens if there is a problem? Unfortunately, we know from life experience that despite the best planning, there is invariably a problem at some point.”
When that problem does occur, the legal jurisdiction in which the operation is taking place can make all the difference. “There are two ways to establish law and jurisdiction,” says Mr Collins. “You either have a contract, or you have the law and jurisdiction of the place where the tort occurs. If there is a collision during an STS operation in a country in West Africa, for example, then that country is your law and jurisdiction, providing you do not agree otherwise.”
This last point is key, as Mr Collins notes that the parties can agree, after the fact, to submit to a different law jurisdiction.
But who has the contract? “If ship A collides with ship B in an STS operation, there is no contract between those two vessels,” explains Mr Collins. “There is likely to be a charterparty contract for both vessels and the position as regards the contractual liabilities flows between the charterer and the owner. It does not flow between the owner (or operators) of the vessels. Those contracts are designed to operate between a charterer and an owner and not between the owners or operators of the two separate vessels that are conducting the operation.”
Mr Collins goes on to note that when the exercise of due diligence is factored in, it is important to bear in mind that the exercise of that due diligence is by one of the parties in the contract. “An issue might occur between the two vessels, and that is where we come into problems,” he says. “When we assess the potential strict liability of vessel A towards, for example, pollution, personal injury or death, then we get into further problems because the true liability might lie elsewhere.”
It soon becomes clear talking to Mr Collins, that a deep understanding of the factors and parties involved is essential if one is to gain a clear picture of who may be at fault in the event of an accident or incident. That knowledge is generally predicated on case law and a thorough understanding of existing contracts, which can often differ in terms of liability.
“In SHELLTIME 4, the charterers must exercise due diligence to ensure that any STS operation shall conform to standards not less than the latest ICS/OCIMF Ship-to-Ship Transfer Guide,” explains Mr Collins. “In contract BPVOY4 we have the transfer carried out in accordance with the recommendations set out in the latest ICS/OCIMF STS Transfer Guide, but owners also undertake to comply with such recommendations and the charterers undertake that the transfer vessel and its crew shall comply. So, in BPVOY4 we have a divergence of responsibility.”
Mr Collins continues “In SHELLVOY6, again the charterers shall exercise due diligence to ensure the STS operations conform to standards not less than the latest ICS/OCIMF. So, we have all these standards at play and the charterparty between the owners and the charterers divides responsibility for the preparation and planning of these operations. When we talk about due diligence in each of these cases, we are talking about a reasonable level of investigation and risk assessment; ensuring that the STS operation plan has been conducted reasonably and in line with the regulations that we have looked at.”
What happens in the event of an incident, with so many competing interests involved?
“The applicable law and jurisdiction is such that if an owner decides not to pursue their charterer under their charterparty because of commercial reasons – they do not want to upset an oil major or a big client, or risk losing the next charter for example – then the obvious target is the other vessel. But there is no contract between the two vessels and the applicable law and jurisdiction, unless agreed otherwise, are those of the place where the STS transfer occurred. Those clauses in the contracts that we have looked at, and the due diligence aspects, are relevant to the underlying dispute only if you go through that contract.”
Beyond the STS operation itself, Mr Collins explains that further concerns, such as pollution, could place a huge burden on the owner. Millions of dollars could be at stake in liability and the owner will understandably turn to their insurer. But the insurer may have other ideas.
“If you have a contract that says the charterers are responsible for due diligence, yet, as an owner, you decide to sue the owner of the other vessel by claiming in tort, your P&I insurer – in circumstances where there is a strict liability for a huge amount of oil pollution for example – may decide that you are off cover and attempt to avoid a payout because you have an indemnity in your contract against the charterer. If you choose not to go against that charterer for commercial reasons, then the fact there might be a reasonable fight to be had with the other vessel is neither here nor there.”
Mr Collins was discussing the subject during a Riviera Maritime Media webinar, titled: STS operations: know your legal and operational responsibilities