Inter-Club Agreement - Ante-Dated Bills of Lading

December 2001

(Sea Venture Volume 20)

For Owners and Charterers alike, the Inter-Club Agreement ("ICA") is intended to represent a simple method of apportioning liability for cargo claims where cargo interests have made a claim under a bill of lading. Whilst the details of the apportionment regime itself are beyond the scope of this article, the provisions of clause 1 of the ICA are directly relevant. Clause 1 provides:

"Application and interpretation of agreement. . .

(i)

It shall be a condition precedent to settlement under the Agreement that the cargo claim, including any legal costs incurred thereon, shall have been properly settled or compromised and the cargo carried under a bill or bills of lading incorporating the Hague or Hague-Visby Rules or containing terms no less favourable…".

The Commercial Court recently considered the effect of that clause in The "Elpa"¹. In that case, Owners appealed against an arbitration award made in Charterers’ favour. The terms of the time charterparty under which the "Elpa" was employed provided for the Master to sign bills of lading as presented by Charterers and expressly incorporated the terms of the ICA.

Because of the unseaworthy condition of the vessel, fire damaged the cargo during the sea passage and cargo interests claimed against Owners, who settled the claim. Owners commenced arbitration proceedings against Charterers under the charterparty for the amount of the settlement. The charterparty required cargo claims to be apportioned according to the ICA. Because the ICA provides that an owner is to meet in full claims for damage caused by unseaworthiness, Owners were keen to secure a finding that the ICA did not apply to the cargo claim, otherwise their claim would fail. If the ICA did not apply, Owners could have asserted that Charterers were liable under certain other terms of the charterparty, notwithstanding the cause of the damage to the cargo.

In seeking to demonstrate that the ICA was inapplicable, Owners relied on the fact that the Master of the "Elpa" had signed ante-dated bills of lading. Owners used that as the basis for their submission that a term should be implied into the ICA as a condition precedent to the effect that it should only apply to claims mounted under a bill of lading if it was an "authorised" bill. Of course, Owners argued that an ante-dated bill of lading was not authorised. It is at this point that earlier case law on this subject becomes interesting and a brief survey of certain previous cases dealing with the "authorised bill" point is warranted.

In The "Hawk"²(discussed in "Sea Venture" Vol.18) Owners asserted that Charterers had failed to issue bills of lading in conformity with the mate’s and tally clerk’s receipts as the governing charterparty required. As in The "Elpa", Owners maintained that a condition precedent should be implied into the ICA requiring any bills of lading to be "authorised" bills in order for the ICA to apply. In The "Hawk", the Judge considered the effect of the Court’s findings in the earlier test-case on this subject, The "Holstencruiser"³(discussed in "Sea Venture" Vol.16), and concluded that if the Charterers wished to rely on the ICA they needed to prove that the bill of lading under which the claim arose was authorised by the charterparty. That point was an essential element of the decision in The "Holstencruiser".

However, in The "Hawk" the Court was concerned to avoid the risk of "introducing unnecessary technicalities" into the operation of the ICA and concluded that the authorisation test should be applied "broadly and flexibly" so as to give effect to the intended purpose of the ICA. The Court pointed out that if there were any causal connection between the cargo claim and the discrepancies in the bills of lading, a claim for damages would exist under the charterparty. It is on this latter point that the latest case, The "Elpa", departs from the previous cases.

In The "Elpa", the Judge made the point that the charterparty determines the rights and obligations of Owners and Charterers as against each other and the ICA deals with the adjustment of successfully asserted third party claims. The Court also found that if goods were shipped but the bills of lading were not issued in accordance with the charterparty, the bills were still "authorised" in that the party issuing them at least had ostensible authority to do so. Accordingly, the Court concluded that the ICA will apply provided the claim is brought under a bill that is subject to the Hague or Hague-Visby Rules and confirmed that there "is no need to search for any implied term" in the ICA.

In The "Elpa", the Court went on to conclude that the effectiveness of the ICA would be undermined if it were to be made subject to issues arising out of charterparties, specifically as to the character of bills of lading. It is at this point that The "Elpa" may be distinguished from The "Hawk". In the latter case, the Judge found that it was appropriate to investigate whether the defect in the bill of lading was causative of the claim under it, whereas the Judge in The "Elpa" rejected that proposition, commenting that it was likely to lead to an increase in litigation – the very problem that the ICA was designed to avoid.

A party may therefore invoke the ICA even if the relevant bills of lading were ante-dated or otherwise discrepant under the charterparty, provided the bills were issued by an authorised party in respect of goods actually loaded and pursuant to the provisions of the Hague or Hague-Visby Rules. There is no need for the parties to consider whether the discrepancies in the bills were causative of the cargo claim. In The "Elpa" the Court struck a blow for commercial common sense and preserved the straightforward regime for resolving cargo claims that the ICA was intended to create.

With thanks to Andrew Meads of Middleton Potts for preparing this article.

^{1[2001] All ER (Comm) 937
2[1999] 1 Lloyd's Rep. 176
3[1992] 2 Lloyd's Rep. 378}