The Court of Appeal Considers Apportionment of Claims under the Inter Club Agreement

Image

The Court of Appeal has upheld the High Court decision that Charterers of the “Yangtze Xing Hua” should fully indemnify the shipowners for their settlement of the cargo claim.

Background

The ship had been fixed on a time charter trip to carry soya bean meal from South America to Iran. The Charterers ordered the ship to wait off the discharge port for more than four months. When the ship did discharge the cargo, receivers protested that the cargo was damaged, and claimed € 5 million. Expert evidence was that the cargo had deteriorated as a result of the long delay. The Owners settled the cargo claim at over €2.6m and sought an indemnity from the Charterers under the terms of the Inter Club Agreement (“ICA”) incorporated into the charterparty, and in particular under Clause 8 (d) of the ICA which holds that:

“(d) All other cargo claims whatsoever (including claims for delay to cargo) [shall be apportioned as follows]:
50% Charterers
50% Owners
unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim."

The High Court decided that the word “act” in this case should have its ordinary and natural meaning, and did not require any fault of the charterers, so that the Charterers should bear 100% of the claim because of their acts that delayed discharge for four months.

Decision

At the Court of Appeal it was noted that the ICA was devised by the International Group of P&I Clubs as a simple and mechanical method for apportioning liability for cargo claims between owners and charterers, with apportionment based on the cause of the claim rather than fault or culpability. The Appeal Court judges sought to give the ordinary meaning to the words of the ICA as incorporated into the charterparty, and were not persuaded by the Charterers’ arguments that they should examine the history, or “archaeology”, of the ICA, or consider any conflict with other parts of the ICA that did talk of “fault”. Hamblen J. held that “The critical factual question under clause 8 is that of causation.  Does the claim “in fact” arise out of the act, operation or state of affairs described?  It does not depend upon legal or moral culpability...”.

Comment

This decision confirms that the ICA should operate as a simple method of apportioning cargo claims, without the need to consider complex issues of fault or culpability. Charterers, and owners, should note that they might be found liable for cargo claims even if they have not committed any wrongful or culpable act or breach of the charterparty.

Article by Bill Kirrane