The Documentary Evidence Taken In Consideration By The Courts In Quantity Disputes Related To Crude Oil Cargoes
The quantity of crude oil cargoes transported by sea is measured and calculated at each point of transfer of responsibility and then comparisons are made to see if there is any difference.
Since the crude oil cargoes are traded based on volume, the figures used for comparison are volume figures and the reference to quantity is a reference to volume. The relevant volume figures are the Total Calculated Volume (TCV) figures, i.e. the volume of cargo at a standard temperature, Gross Standard Volume (GSV), i.e. the volume of cargo at a standard temperature without free water, and Net Standard Volume (NSV), i.e. the volume of cargo at a standard temperature without free water and sediment and water content. If the crude oil cargo does not contain free water, the Total Calculated Volume (TCV) figure is not different from the Gross Standard Volume (GSV) figure.
In case of crude oil cargoes delivered from shore tanks to vessel, the cargo quantity is first measured in shore tanks before loading. The cargo quantity is again measured during loading by flow metering. After loading of cargo in vessel`s tanks is completed, the cargo quantity is once again measured. Then the TCV, GSV and NSV figures resulting from shore tanks measurement are compared with the TCV, GSV and NSV figures resulting from flow metering measurements and the TCV, GSV and NSV figures resulting from ship`s tanks ullage readings to see if there are any differences1. The relevant documents for comparison are the Shore Tanks Measurement Report, Meter Report and Ship`s Ullage Report.
The TCV and NSV figures stated in the Meter Report are considered the most accurate by oil traders which calculate the FOB price in the commercial invoice based on NSV figure stated in the Meter Report. Hence, the Bills of Lading and Certificate of Quantity must show the same information2.
Upon the vessel`s arrival at discharge port, the cargo quantity is measured again and a comparison between the vessel`s Total Calculated Volume figures calculated after loading and before discharge is made to see if there was any in-transit loss during the voyage. The vessel`s arrival Total Calculated Volume is then compared with the Out-turn Total Calculated Volume measured by the receiving terminal after discharge. The relevant documents for comparison are the Ship`s Ullage Report made before discharge and out-turn certificate of quantity.
The Institute Bulk Oil Clauses published initially by the Institute of London Underwriters and now by the International Underwriting Association of London and the American Institute of Marine Underwriters` Bulk Oil Clauses cover the marine risks, including the risk of shortage, from the time the oil cargo leaves the shore tanks at the port of loading until the oil cargo is delivered into the shore tanks at the port of discharge3. Therefore, the adjustment of shortage claims for bulk oil cargoes is normally made based on the comparison between the Bill of Lading`s Total Calculated Volume figure and Out-turn Certificate`s Total Calculated Volume figure, with no deductions for free water and sediment and water4.
Disputes occurred in the past between the insurers and tanker shipping companies due to the fact that the insurers paid the shortage claims based on the evidence provided by the Bills of Lading and the out-turn certificate of quantity and then tried to recover from the carriers on similar basis. The point of content in such claims was that while the insurer`s liability for oil cargo commences from the time the oil leaves the shore tanks at the loading terminal and ends when the oil is delivered in the shore tanks of destination terminal, according to Art.1(e) of Hague-Visby Rules the carrier`s responsibility for the goods begins from the time when the goods are loaded on board the ship and ends when they are discharged from the ship which means that in case of an oil cargo the carrier`s responsibility for the oil cargo begins when the oil passes the ship`s manifold at port of loading and ends when the oil leaves the ship`s manifold at port of discharge.
This matter has been explained in the English law case Amoco Oil Co. v. Parpada Shipping Co. Ltd. (The "George S")5 in the paragraph quoted below:
"The responsibility of the shipowners begins when the oil passes into the ship on loading and ends when it leaves the ship upon discharge at the port of destination …
[Shipowners] are responsible for loss only if it occurred between the time when the oil came on board the ship and the time when it left the ship …
[L]osses which may occur between a shore tank or meter and the ship are not the shipowner`s responsibility."
Whilst the Bill of Lading remains a prima facie evidence of the quantity stated to have been shipped, the tanker voyage charter parties include provisions stating that carrier`s responsibility for the cargo begins when the cargo passes the vessel`s manifold at loading port and ends when the cargo leaves the ship`s manifold at the port of discharge and any in-transit loss is to be determined as the difference between the quantity measured on board the vessel after loading and the quantity measured on board the vessel before discharge. An example is Clause 10 of Asbatankvoy tanker voyage charter party form which has the following provisions:
"The cargo shall be pumped into the Vessel at the expense, risk and peril of the Charterer, and shall be pumped out of the Vessel at the expense of the Vessel, but at the risk and peril of the Vessel only so far as the Vessel`s permanent hose connections, where delivery of the cargo shall be taken by the Charterer or its consignee6."
In the US law cases Northeast Petroleum Corp. v. S.S. Prairie Grove7, Kerr-McGee Refining Corporation v. M/V La Libertad8, New England Petroleum Co. v. OT SONJA9, the US District Court for the Southern District of New York held that in case of a carriage subject to such charter party provisions, a cargo receiver may not base a shortage claim upon computations made at a point subsequent to the point of delivery defined in the charter party, i.e. vessel`s permanent hose connections, and the in-transit loss has to be determined by comparing the volume figures stated in vessel`s ullage reports after loading and before discharge.
If the Bills of Lading incorporate such charter party terms and the vessel`s ullage readings were verified by independent surveyors, in case of shortage claims the Courts would normally give preference to the quantity figures stated in vessel`s ullage reports, notwithstanding the prima facie evidence provided by the Bills of Lading.
However, the rule adopted in the US and English case law is to consider all relevant and reliable evidence and determine the degree of reliability of each. This means that the Courts have to decide which of the various quantity figures stated in Bill of Lading, vessel`s ullage reports and out-turn certificate of quantity are the most reliable to determine carrier`s liability. The case which set this rule was S.T.S. International Ltd. v. M/V Michael C and Neptunea Astro Oceanico S.A.10. In that case both US District Court and the US Court of Appeals for the Fifth Circuit held that the Bill of Lading`s quantity figures based on shore meter readings were more reliable than the quantity figures stated in vessel`s ullage report made after loading because the departure ullage measurement was not independently verified. As out-turn quantity, the Court preferred the quantity measured on board the vessel before discharge, because Conoco, which was the final buyer and terminal operator, refused to permit the vessel`s crew to perform customary line tests during discharge and there was no independent verification of Conoco`s shore meter readings.
For similar reasons, in the English law case Amoco Oil Co. v. Parpada Shipping Co. Ltd. (The "George S")11 the English Court of Appeal held that the in-transit loss had to be calculated as a difference between the Bills of Lading`s quantity figure based on shore meter readings made at loading terminal and the out-turn certificate`s quantity figure based on shore meter readings made at receiving terminal.
In Amoco Oil v. Lorenzo Halcoussi12, the carrier`s liability was established based on the comparison of shore tank figures because the quantity figures stated in the vessel`s ullage reports were based on inaccurate measurements.
In New England Petroleum Co. v. OT SONJA13 there was a difference between the Bill of Lading`s quantity figure and the quantity stated in the vessel`s ullage report. The Court found that this difference was due to a discrepancy in the surveyor`s report and as a result, it decided that the quantity figure stated in the vessel`s ullage report was more accurate than the Bill of Lading`s quantity figure.
The Bill of Lading and out-turn certificate figures were preferred by Courts and arbitration panels over the vessel`s ullage report figures in case of claims for cargo thefts14.
The differences between the Bill of Lading`s figures and out-turn certificate`s figures are often apparent losses. One reason why such apparent losses occur it is that there are oil-producing countries, most notably Saudi Arabia, Qatar, Indonesia, which require the calculation of Total Calculated Volume based on the 1956`s API Table 6 volume correction factors in order to obtain greater quantity figures and thus more money. When comparing the Bill of Lading`s figures with the out-turn certificate`s figures calculated based on 1980 API Tables 6A, the Bill of Lading`s figures need to be corrected to avoid apparent losses. Apparent losses may also occur in case of Russian crude oil cargoes due to the fact that the Russian regulations require the calculation of density "in vacuum". If the destination terminal determines the density "in air", the Bill of Lading`s quantity figures need to be recalculated for comparison, because the quantities calculated based on density "in vacuum" are greater than quantities calculated based on density "in air".
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Oil Trade Review Edition No. 4.
1. Crude oil shippers such as Saudi Aramco stipulate in their terminal information books a tolerance of +/- 0.3% for the shore/ship differences. If the difference between the shore and ship`s quantity figures is outside the allowable tolerance, then the loading terminal supervisor and the ship`s Chief Officer shall undertake a new ullage measurement of vessel`s tanks until either the difference is resolved or the Master will issue a Letter of Protest for the shore/ship difference. See Saudi Aramco Ports and Terminals Book.
2. If the crude oil is delivered to vessel from a floating storage and offloading (FSO) vessel, the cargo quantity stated in the Bills of Lading is calculated based upon the FSO vessel`s ullage readings. In case of crude oil cargoes delivered by ship-to-ship transfer, the surveyors calculate first the quantity of cargo on board the tanker vessel delivering the cargo, referred to as "mother vessel", and then the quantity of cargo delivered on board the receiving vessel, referred to as "daughter vessel". The price of crude oil cargoes delivered by ship-to-ship transfer is calculated based on the quantity and quality determined on board the "mother vessel", so that the cargo quantity stated in the Bills of Lading shall be based upon the mother vessel`s ullage readings.
3. In CIF sale contracts, the sellers are required to procure marine insurance covering the sea carriage of oil cargo from the time the risk passes from the sellers to buyers, i.e. from the time the oil passes the vessel`s permanent hose connection at the loading terminal. In this case, the insurance must cover the sea carriage of oil cargo from the time the oil passes the vessel`s permanent hose connection at the loading terminal until the time the oil passes the vessel`s permanent hose connection at the discharge terminal.
4. Unless the Assured can prove that the amount of water has increased abnormally during the insured transit due to the operation of a risk covered by the insurance in which case the shortage claim is to be adjusted based on the difference between the Bill of Lading`s Net Standard Volume figure and Out-turn Certificate`s Net Standard Volume figure.
5.  1 Lloyd`s Rep. 369
6. For similar provisions see Sub-clause 15(a) of Texacovoy 94.
7. 1977 AMC 2139 (S.D.N.Y. 1977)
8. 529 F. Supp. 78 (S.D.N.Y. 1981)
9. 732 F. Supp. 1276 (S.D.N.Y. 1990)
10. 932 F.2d 437 (5th Cir. 1993)
11.  1 Lloyd`s Rep. 369
12. 1984 A.M.C. 1608 (E. D. La 1983)
13. 732 F. Supp. 1276 (S.D.N.Y. 1990)
14. See Armada Supply, Inc. v. S/T Agios Nikolas, 613 F. Supp. 1459 (S.D.N.Y. 1985); Burmah Oil Tankers Ltd. v. Trisun Tankers Ltd., 687 F. Supp. 897 (S.D.N.Y. 1988); Kerr-McGee Refining Corp. v. M/T Triumph, 924 F. 2d 467 (2nd Cir. 1991); Anonima Petroli Italiana SpA and Neste Oy v. Marlucidez Armadora SA (The "Filiatra Legacy"),  2 Lloyd`s Rep. 337 (CA).