Charter Party Vetting Clause

vetting clause is a charter provision under which the owner warrants as of the date of the vessels delivery and throughout the charter term that third party oil and/or chemical companies have accepted, and will accept, the vessel.

First, a clause will generally aim to ensure that a vessel inspection report has been entered into SIRE or that the vessel has been inspected in another manner. Secondly, the clause will aim to ensure the charterer that the vessel has been approved or accepted by an oil or chemical company, or by a range of such major companies.

A vetting clause also serve to allocate the risks for rejection of the vessel and the costs of inspections;

to set time bars for reinstatement in cases of non-compliance.;

to provide for decrease in hire during periods when the ship remains uninspected and for the option to place the vessel off hire; and to provide for the charterers right to terminate the contract in case of breach or other sanctions. constitute a warranty or guarantee of the owner that the vessel meets the standards of enumerated oil or chemical companies

Owners warrant at the time of delivery, the vessel and her management are approved by the major oil companies

or
Owner will endeavour to maintain all necessary oil company approvals during the course of this charter.

As seen in the Erika case, the question of the oil companys approval was of issue to the court. The vessel had been rejected by another oil company and Total chose to use her, possibly without knowledge of such rejection. The phrasing approval has since become problematic in that oil companies do not want to give the view that a stamp of approval means that they have agreed to use the vessel. Nor do they want to be held liable for their approval in case another company chooses to use the vessel referring to approval already in place. Therefore, approvals are no longer issued.

INTERTANKO also finds this wording problematic. The organization recommends that the reference to approvals is removed and replaced by a phrasing indicating that the vessel is not unacceptable to a certain company or that a rating of acceptable is used. Even so, many charter parties still contain clauses requiring the approval of oil major. These clauses are now difficult, if not impossible to comply with.

Owner warrants that for the duration of this charter the vessel will be kept in standard acceptable to all major oil producers and all major chemical companies.

Acceptance Catch 22
Problem with the vetting clause is that many major oil and chemical companies will not inspect or accept a vessel in which the company has no economic interest.

Another Catch 22 - Officially, the report is valid for twelve months. However, several charterers, after the Erika, will no longer accept reports older than six months.

Pass or Fail
Owners warrant that the vessel will be in all respects able to pass safety vetting inspections conducted by Charterers and cargo interests, such as not limited to Shell, Mobil, Exxon, BP, Texaco, etc. As one approval had expired, charterers withheld partial hire for their trading loss.

Catch is in the wording able to pass. The warranty that the ship was up to a certain standard could not be breached until the vessel had actually failed an inspection. BPs Vetting and Auditing Clause is formulated as follows: The Owner and performing vessel are to pass the BP Ship Inspection, Owner Audit, if necessary, prior to entering this Charter Party.

Time Bars for Reinstatement

Another issue oftentimes addressed in vetting clauses is the amount of time an owner has to have the vessel re-inspected or acceptance reinstated. BP requires that owners rectify defects or correct non-compliance within 30 days or the charterer may put the vessel off hire or cancel the contract. An additional ten days from non-compliance are given for the oil company to declare the option of enforcing the off-hire or cancellation clause or the charter party will remain in force

ChevronTexaco requires that the Owner reinstate the vessel at its earliest opportunity. Vessel is presently MOBIL (expiring 27/1/98) CONOCO (expiring 3/2/98) BP (expiring 28/1/98) and SHELL (expiring 14/1/98) acceptable. Owners guarantee to obtain within 60 days (sixty) EXXON approval in addition to present approvals. On delivery date hire rate will be discounted USD 250 for each approval missing If for any reason, Owners would lose even one of such acceptances they must advise charterers at once and they must reinstate same within 30 (thirty) days from such occurrence failing which Charterers will be at liberty to cancel charter party

INTERTANKO recommends that owners avoid accepting a wording that makes vetting a condition of contract or amounts to a guarantee

 Sample Vetting Clause by INTERTANKO & SHELLTIME4:

BIMCO Vetting Clause:

WARRANTY: An assurance by the seller of property that the goods or property are as represented or will be as promised. The insured's guarantee that the facts are as stated in reference to an insurance risk or that specified conditions will be fulfilled to keep the contract effective. A covenant by which the seller of land binds himself or herself and his or her heirs to defend the security of the estate conveyed. A judicial writ; a warrant. A guarantee given to the purchaser by a company stating that a product is reliable and free from known defects and that the seller will, without charge, repair or replace defective parts within a given time limit and under certain conditions.