Clause 8(b) of the ICA: What Counts as a "Similar Amendment"?

June 2018

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Having recently considered clause 8(d) of the Inter-Club Agreement, the “ICA”, (see the Club’s article on the Yangtze Xing Hua Court of Appeal decision here), the English High Court, in its judgment in Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055, has now turned its attention to clause 8(b), which concerns responsibility for cargo handling. Specifically, the court considered what constitutes a “similar amendment” for the purposes of clause 8(b).

Background

The "Maria" had been fixed on a time-charter that incorporated the ICA and received orders to carry a cargo of direct reduced iron (‘DRI’) – a cargo known to be highly reactive and combustible in the presence of heat or water – from Trinidad to India.

During loading operations, a fire was observed on the loading belt. Despite the supercargo advising that loading could continue, the DRI continued to burn through the voyage and upon discharge.

The Owners commenced an arbitration seeking a declaration that Charterers were obliged to indemnify them against any liability towards cargo interests.

Relevant Contractual Provisions

Clause 8(b) of the ICA provides as follows:

Claims in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo: 100% Charterers unless the words “and responsibility” are added in clause 8 [of the NYPE form] or there is a similar amendment making the Master responsible for cargo handling in which case: 50% Charterers 50% Owners.

The charterparty was on an amended NYPE ’46 form and clause 8 provided that:

“… Charterers are to load, stow, and trim, tally and discharge the cargo at their expense under the supervision of the Captain…”

However, clause 49 provided that:

“The Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage and seaworthiness and safety of the vessel…”

In light of this provision, there was a dispute as to who was ultimately responsible for cargo handling and how any cargo claim should be apportioned under the ICA and whether clause 49 constituted a “similar amendment”.

Decision of the Arbitral Tribunal

The Tribunal found that clause 8(b) of the ICA applied as the claim arose out of the handling of the cargo. In considering whether clause 49 constituted a “similar amendment” for the purposes of clause 8(b), the Tribunal held that the words “the Master … will be responsible for proper stowage and unseaworthiness and safety of the vessel” in clause 49 clearly made the Master responsible for at least part of the loading process, with the result that the first proviso to clause 8(b) was engaged and that liability should be split 50-50 accordingly.

The Appeal

Owners appealed the arbitral award under s.69 of the Arbitration Act 1996, on the basis that the Tribunal had erred in law in finding that clause 49 constituted a “similar amendment” for the purpose of clause 8(b).

The key issue was what was meant by a “similar amendment”. It was common ground between the parties that the clause only partially transferred responsibility for cargo handling to Owners - the responsibility for stowage. However, Owners argued that a “similar amendment” requires a total transfer of responsibility for cargo handling to Owners and failing this the cargo claim would fall to be 100% for Charterers’ account.

As an alternative position, Owners argued that clause 49 only transferred responsibility for stowage leading to unseaworthiness and not stowage resulting in cargo damage.

The judge agreed with Owners on their primary argument, holding that the word “similar” was “intended to connote a provision in the charter party which is of the same kind or is to the same effect as the addition of the words ‘and responsibility’”. On that basis, the judge held that “the amendment must be to the effect of transferring all cargo handling responsibilities back to the owner not just some of them, because this is the effect of adding the words ‘and responsibility’ to Clause 8”.

This interpretation was also consistent with a purposive construction of the ICA, which is fundamentally concerned with establishing a mechanical regime for allocating liability in cargo claims between owners and charterers.

Comment

This decision is important for two reasons.

First, the meaning of “similar amendment” in clause 8(b) had not previously been considered in any reported case, and it therefore provides welcome clarity on which party bears responsibility for cargo handling. The answer is that, unless there is a provision that effects a total transfer of responsibility for cargo handling to owners, claims arising out of cargo handling will fall 100% on charterers.

Second, the decision, coming hot on the heels of that in the Yangtze Xing Hua, further reinforces that the purpose of the ICA is to prescribe a formulaic mechanism for resolving cargo claims between owners and charterers that avoids the need for protracted and costly litigation.

 

Article by Constantin von Hirsch

Syndicate Executive

Eastern Syndicate