Distinguishing Cargo Loss and Damage Claims in Charterparty Disputes

February 2007

Owners chartered a vessel on an amended NYPE form charter.  An addendum to the charter (Addendum no. 1) provided that,

All and any shortage claims at Yemen, howsoever arising, and even if caused by Owners fault or neglect, to be 100% for Charterers account and Charterers are to indemnify Owners against all losses, damages, costs consequences arising therefrom

Addendum no. 1 amended clause 46 of the charter which required cargo claims to be settled in accordance with the InterClub Agreement.  

Charterers also provided owners with a letter of indemnity (LOI) in return for which owners agreed to charterers request to call at ports in the Yemen. The relevant part of the LOI provided that the charterers would, indemnify you and hold harmless in respect of any liability loss or damage of whatsoever nature which you may sustain by reason of your complying with this request.

The vessel carried a cargo of wheat from the US to Aden and Hodeidah. Prior to discharge at Aden the cargo was inspected by owners P&I Club surveyor who found it to be in a sound condition. On completion of discharge the receivers claimed that 55.520 mt of cargo was short landed although the vessels draft survey indicated that a surplus of 8.835 mt was discharged.   

The cargo was inspected before discharge at Hodeidah and found to be in a good condition. Damaged cargo was found subsequently during discharge and tests indicated that seawater ingress was the cause of the damage. The amount of damaged cargo was calculated to be 160.40 mt. In the event the receivers claimed against owners for 281.755 mt of damaged/rejected cargo, calculated by reference to stevedores outturn reports and short landed reports.

The vessel shifted to anchorage at Hodeidah where she was detained for two days pending the settlement of the receivers claims. Owners paid $71,500 to cargo claimants in order to obtain the release of the vessel from detention.

Owners commenced proceedings against charterers for that portion of the $71,500 which could be attributed to cargo shortage (as opposed to cargo damage). Owners also sought to recover hire which charterers had deducted in respect of the time spent in detention. 

Owners argued that, under Addendum no. 1 and the LOI, charterers were liable to reimburse them for all losses arising from their shortage claims at Aden and Hodeidah In their defence charterers argued that they were only liable to indemnify owners in respect of claims for cargo shortage and not for losses due to cargo damage caused by owners breaches of their seaworthiness obligations under the charter a argument which was accepted by the Tribunal. 

Owners further argued that it was irrelevant whether the shortages complained of were genuine as the provisions of Addendum no. 1 and the LOI did not require there to be an actual shortage, merely that there should be a claim for shortage. 

In support of their hire claim owners said that even if no cargo damage claim had existed the vessel would still have been detained. Charterers counter-argument was that the reason that the vessel was detained was so that the cause of the cargo damage could be investigated. 

The Tribunal held that the charterers were only liable to indemnify owners for the consequences of the cargo shortage claims, not for cargo damage claims. The Tribunal had to decide whether the payment to cargo interests and the vessels detention at Hodeidah was because of a claim for cargo shortage rather than a claim for cargo damage. The Tribunal found that the quantity of damaged cargo at Hodeidah was 160.40 mt and that the balance of the claim for 121.355 mt related to an alleged shortage. The Tribunal awarded owners a pro-rated portion of the US$71,500 which related to cargo shortage. 

In relation to the hire claim the Tribunal ruled that the cargo damage claim made the detention of the vessel a virtual certainty and therefore the proximate cause of the vessels detention was the cargo damage claim. They ruled that the vessel was off-hire during her detention at Hodeidah and owners hire claim failed.