Legal Disputes – Covid-19 Disruption

Use of tankers as floating storage and legal disputes between the owner of the stored oil products and the owners of the shore-based storage as a consequence of the Covid-19 disruption.

One of the many consequences of COVID-19 is the unprecedent increase of the use of tankers as floating storage for oil and petroleum products.

Spain, with almost 7,000 kms of coastline, has witnessed collapsing oil refineries and storage facilities capacity and, therefore, a high demand for floating storage. The geographical situation of Spain has increased this situation.

It seems that this will continue during some long period and in this situation many legal issues may arise where owners accept chartereres´requests to employ their tankers as floating storage:

  • Where to wait
  • Duration of storage
  • Impact on the condition of cargo (Cargo degradation), the vessel tanks, valves and pipework
  • Potential oil spills
  • Ship to Ship transfer operations 
  • Proper Insurance 
  • Hull fouling; hull cleaning issues 
  • Provisions of crew, etc. 

All these and other issues are to be carefully considered by owners and charterers at the time of allocating the risks to avoid legally and potentially expensive consequences.

On the other hand, in the other side of the coin, we also have the legal relationship between the owner of the stored oil products and the owners of the shore -based storage.

Due to Covid-19 disruption, storage companies in occasions were and are not able to provide the storage capacity ashore and connected services in Spanish ports.

Could the State of sanitary Alarm or similar measures be considered as force majeure? Would be, for instance, the charterers of a vessel used as a floating storage entitled to invoke force majeure because it is unable to discharge the vessel?

Force majeure: events that could not been foresee in the ordinary and normal course of life, unusual and extraordinary, completely unpredictable and unavoidable, which adverse consequences cannot be avoided even if there is a prudent and diligent conduct by the parties.

Situations arising from Covid-19 could be or not considered as a case of force major and shall be analyzed on a case-by-case basis.

However, the rebus sic stantibus rule could also apply to these situations: clauses of a contract are agreed according to the circumstances at the time of its signature, so if circumstances change substantially, the clauses should be modified accordingly.