Court of Appeal: ICA remains rough and ready, but not looking to find fault

In December 2016 we reported on our successful defence on behalf of the owners of the MV “YANGTZE XING HUA” of an appeal on a point of law from a London arbitration award. The point concerned the true construction of the word “act” in the phrase “act or neglect” in clause 8(d) of the Inter-Club Agreement 1996 (“ICA”)

Of critical importance is establishing the cause of the cargo claim in every case, irrespective of whether that cause arises from the fault of either party.  The test does not depend upon legal or moral culpability.

On 13 December the Court of Appeal has upheld the Commercial Court’s decision, confirming that the ICA is a mechanism for assigning liability for cargo claims by reference to the cause of the damage to the cargo regardless of fault.

The background to the case is summarised in our 2016 note. In essence the matter concerns a cargo claim liability incurred by the owners to Iranian receivers as a result of heating damage to a consignment of soybean meal. The damage was caused by a combination of the inherent nature of the cargo and the time charterers’ orders for the vessel to wait for an extended period at anchor off the discharge port, essentially using the vessel as a form of floating storage. The cause of the damage therefore arose out of the act of the charterers in giving legitimate orders. As between owners and charterers, liability for the cargo claim fell to be determined by the ICA clause 8(d) ‘sweep-up’ provision, and the Tribunal found that that there was ‘clear and irrefutable evidence’ that the damage was caused by the charterers, so that they should bear 100% of the liability under the 8(d) proviso.

The charterers objected to this interpretation on several grounds, and in particular on the basis that such interpretation means that the mere act of ordering the loading of a cargo (with an inherent vice for example) might lead to a 100% apportionment to them and therefore an unacceptably wide liability. The Lord Justices dismissed this argument, emphasising the critical importance of establishing the cause of the cargo claim in every case, irrespective of whether that cause arises from the fault of either party and stating that the test is: “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, nor is there any stated or obvious criterion against which such culpability is to be judged.”

The mere order to load a cargo might not therefore be sufficient to apportion liability to the charterers unless that act can be established as the cause of the cargo claim, and as Lord Justice Hamblen went on to state, “The issue of causation is the same whether one is considering the consequence of an identified act or an act of neglect…”. He also highlighted the requirement in the clause 8(d) proviso for ‘clear and irrefutable evidence’, a test not easily met (the facts of the present case being fairly unusual). In cases falling within the clause 8(d) ‘sweep-up’ where it is not possible to determine causation attributable to one or other party to that standard, the default 50/50 apportionment will continue to apply.

The Lord Justices also rejected the argument that fault was a requirement of the apportionment provisions elsewhere in clause 8, for example in clause 8(a). It was noted that claims arising out of unseaworthiness would be 100% for owners’ account regardless of whether there had been a failure to exercise due diligence; an “error” in navigation or management would lead to the same result, the Lord Justices accepting that “error” in this context could include something for which the owners were not at fault (in line with the interpretation applied by Bingham J. in the “EMMANUEL C” [1983] 1 Lloyd’s Rep. 310 in the context of a charterparty exception for ‘errors of navigation’).

In addition to confirming that the word “act” in the context of the ICA has its normal meaning of ‘something which is done’ and not something which requires the party in question to be at fault, this latest decision confirms the continued role of the ICA as a ‘rough and ready’ mechanism to apportion liability for cargo claims between owners and charterers, where fault is not a requirement but determination of the cause of the underlying cargo claim is key.

Owners were represented by Stewart Buckingham of Quadrant Chambers and instructing solicitors were Nicholas Wilson and Andrew Powell of Bentleys, Stokes and Lowless.

The critical factual question under clause 8 is that of the causation ... The issue of causation is the same whether one is considering the consequence of an identified act or an act of neglect.

Lord Justice Hamblen

Transgrain Shipping (Singapore) Pte v Yangtze Navigation (Hong Kong) Co Ltd (The "YANGTZE XING HUA") [2017] EWCA Civ. 2107

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