English High Court considers apportionment of claims under the Inter Club Agreement

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NB: this case has now been considered by the Court of Appeal: see our article on the Appeal decision at: www.steamshipmutual.com/publications/Articles/apportionmentofclaimsinterclub052018.htm

A recent English High Court decision has considered the effect of Clause 8 of the NYPE Inter Club Agreement, and in particular, the apportionment of “All other cargo claims” under clause 8 (d) where there is clear evidence that a claim arose out of an act of the Charterers.

The Yangtze Xing Hua [2016] EWHC 3132 (Comm) was fixed in a trip time-charter on the NYPE form, with the Inter Club Agreement (“ICA”) incorporated, and carried a cargo of soya bean meal from South America to Iran. She arrived off the discharge port in December 2012, but the charterers ordered the ship to wait off the port for over four months. When she discharged her cargo in May 2013 quantities of lumpy, discoloured cargo were found in two of the cargo holds. A claim for the cargo damage was eventually settled for over €2.6m, but Owners and Charterers then went to arbitration to decide which of them should bear liability for the claim.

It was common ground between the Owners and Charterers that liability for the cargo claim should be resolved in accordance with clause 8 (d) of the ICA, which states 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 arbitration tribunal found that the delay off the discharge port was too prolonged for the cargo to withstand damage, given its moisture content, and that the Charterer’s decision to hold the ship off the discharge port for over four months was the act that gave rise to the claim, so that the Charterers should be held 100% liable for the claim under the ICA.

The Charterers appealed, arguing that the tribunal’s construction of “act” was wrong, and that the phrase “act or neglect” implied that there had to be some fault or culpable act by the Charterers to render them 100% liable.

Teare J. held that the meaning of “act or neglect” in Clause 8 (d) of the Inter Club Agreement must depend on its context, and must be construed having regard to the language of the ICA as a whole. He noted that the ICA has been described as “a mechanical approach to the apportionment of liability” intended to avoid protracted and costly litigation, and considered that the word “act” would be understood to bear its ordinary and natural meaning, without regard to questions of fault.

The Charterers’ appeal was dismissed, however we understand that leave to appeal from this decision has been granted.

Article by Bill Kirrane