VETTING IS BECOMING CRUCIAL TO AWARDING CHARTERS FOR TANKERS

The term “vetting” is not a household word in the United States. The expression is, however, commonly used in England to describe an appraisal or examination by an expert.

Until recently, the word “vetting” was seldom associated with shipping. the aftermath caused by the Exxon Valdez grounding began subjecting oil tankers plying U.S. waters to strict safety regulations and inspections. The Oil Pollution Act of 1990 is a prime example of legislation designed to improve tanker safety standards.

In a similar fashion, after the Valdez incident, many major oil and chemical companies began to focus on the operational safety aspects of ships they chartered from vessel owners. The majors began implementing their own vessel screening requirements and inspection procedures. This vessel approval process is referred to as “vetting” in the tanker trade.

Vetting inspections are arranged by the shipowner with the major oil and chemical companies. Inspection procedures vary from major to major. Inspections frequently critique shipboard safety and operational procedures, preventive maintenance programs, regulatory compliance plans and crew training programs. Inspection costs are customarily borne by the shipowner.

Lack of vetting can stop a charter
The chartering of tankers in the oil and chemical trade becomes very difficult without vetting approval. Lack of vetting will prevent a tanker from carrying a cargo that is owned by a major or any of its affiliates or which involves a shipment into or out of a terminal operated by a major or one of its affiliates.

Many tanker charter parties now contain vetting clauses. the typical clause may read as follows: Owners warrant that the vessel at all times shall be accepted by major oil companies and chemical companies under their vetting programs. . . Owners to arrange for inspections as and when required at their time and expense

To date, there have been no U.S. Court decisions dealing with the subject of vetting. However, there are two recent New York maritime arbitration awards that concern the interpretation of vetting clauses in tanker charter parties. The vetting clauses in both these arbitrations are identical and read as follows:

Owners warrant that for the duration of this charter the vessel will be kept in a standard acceptable to all major chemical producers and all major oil companies (e.g. BP, Shell, Exxon.).

Shipowner found responsible in 2 cases
In the American Energy Arbitration (S.M.A. No. 3141), the shipowner argued that the vetting clause did not require it to obtain vetting approval of any major prior to, or during the course of, the charter. Rather, the clause only required the shipowner to maintain the vessel in a condition such that, if inspected by a major, it would have been found acceptable. the arbitrators rejected the argument. They held the clause required vetting by the major and not simply an unspecified and unquantified standard of acceptance by those companies. The lack of vetting thus invalidated the notice of readiness and the shipowner lost a 30-day hire payment.

A similar argument was raised and rejected in the American Chemist Arbitration (S.M.A. No. 3189). The arbitrators held that the vetting clause amounted to a warranty for the duration of the charter. The clause also required the vessel to be kept in a standard acceptable to all majors. The shipowner was then ordered to pay $841,000 in restitution to the vessel’s charterer for breaching the vetting warranty.

The above two arbitration awards make it patently clear that the responsibility of obtaining vetting approval rests with the shipowner. The awards also illustrate that the failure to obtain vetting approval can be a costly mistake.


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