Shifting liability: Clause 8 of the Inter Club Agreement in focus again

Following hard upon the Court of Appeal decision of Transgrain Shipping (Singapore) Pte v Yangtze Navigation (Hong Kong) Co Ltd (The “YANGTZE XING HUA”) [2017] EWCA Civ. 2107, the High Court has now had the opportunity to consider another aspect of clause 8 of the Inter Club Agreement 1996 (the “ICA 1996”).

This time it was asked to consider clause 8(b), which apportions cargo claims 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. 

At issue was what is meant by “a similar amendment making the Master responsible for cargo handling”.

In deciding an appeal against an arbitration award, HH Judge Waksman QC has found in favour of the appellant owners and held  that for an amendment to be “similar” it must transfer all aspects of cargo handling generally back to the owner,  consistent with “the merit of simplicity and certainty which underpin the ICA regime”.

A preliminary point on leave to appeal applications was also dealt with in a similarly robust fashion by the judge.

Background

In early 2004, the claimant owner/appellant, let the vessel “MARIA" to the defendant charterer/respondent, on a trip time charter based on the NYPE 1946 form incorporating the ICA 1996  in force at the time. The cargo was a consignment of direct reduced iron (“DRI”) known to be highly reactive and combustible in the presence of heat or water.

In the course of loading the cargo onto the vessel by means of a conveyor belt at Port Lisas, Trinidad, the belt was seen to have caught fire.  The supercargo nevertheless advised that loading could continue. It transpired that the DRI continued to burn throughout the voyage and upon discharge in India.  The cargo interests, an associated company of the charterers, raised a claim against the owners at the time, although since then that claim had not progressed.

The owners commenced arbitration under the charterparty and sought a declaration for a full indemnity from the charterers in respect of the cargo claim, pursuant to the ICA 1996.

Clause 8 of the charterparty was unamended, providing that “… Charterers are to load, stow, and trim, tally and discharge the cargo at their expense under the supervision of the Captain…”.

There was a rider clause in the charterparty, however.  Clause 49 of the charter provided:

Stevedore Damage   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 unseaworthiness and safety of the vessel…”

In their arbitration award, the tribunal noted that charterers had accepted that loading a cargo of hot DRI would constitute improper loading, and they further found that a failure to stop the belt promptly when the fire was a failure properly to load.  The tribunal concluded that the claim must therefore be dealt with pursuant to clause (8)(b) of the ICA 1996.  However, having come to that conclusion the tribunal held that clause 49 was a “similar amendment making the Master responsible for cargo handling”. The result was that the cargo claim would be apportioned 50/50 between the parties and not 100% against charterers as owners had contended.

“It is obviously a very mechanistic and no doubt sometimes arbitrary regime

The appeal

On appeal, the question was whether clause 49 of the charterparty amounted to a “similar amendment”, the appellant owners contending that it did not.

It was common ground between the parties that the clause effected only a partial transfer of cargo handling responsibilities – stowage - back to the owner.

The charterers argued that a “similar amendment” could include cases where the parties chose to transfer responsibility for just parts of cargo handling.  The judge disagreed - such an interpretation would mean that the word “similar” could be dispensed with altogether.  The natural reading of “cargo handling” in clause 8(b) was cargo handling generally rather than some aspect of cargo handling.  Whilst recognising the first necessary step of a causal enquiry to decide whether (8)(b) is engaged at all, the charterers’ partial transfer approach would require a further detailed analysis of the charter terms “which would be wholly contrary to the intended simplicity of the agreement” and would be fertile ground for disputes.

The charterers argued that the total transfer approach could lead to anomalies or extreme cases, for instance if some minuscule aspect of cargo handling is not transferred.  On that he said, “if there could be such an extreme case, a de minimis exception might apply.  But all of that is a very long way from this case”.  The judge noted that the effect of a transfer of cargo handling responsibilities within clause 8(b) is to shift liability for cargo claims only partially – to 50/50.  “It is obviously a very mechanistic and no doubt sometimes arbitrary regime”.

The charterers referred to the 7th edition of Time Charters, paragraph 20.68 which cites The “TRADE YONDER”  “charterers are to load, stow, trim and discharge the cargo at their expense but such stowage shall be directed by and under the control of the Master”.  The editors of Time Charters suggest that under the ICA 1996 this could be regarded as an amendment similar to adding “and responsibility”.  The judge preferred the owners’ interpretation and decided that, “it all depends on what the words “such stowage” mean and whether they are intended to encompass all the preceding cargo handling functions, as I think they do”.  This extract was not therefore inconsistent with his decision.  Further, as regards decisions on the ICA pre-dating 1996 (which did not include the “similar amendment” wording) tribunals were reluctant to hold that provisions other than the addition of “and responsibility” were material amendments as that would disengage the ICA altogether.

The charterers also sought to argue that in order to rely on a “similar amendment” one should analyse whether or not it transfers a causally relevant aspect of cargo handling. Owners suggested that clause 49 could be regarded as an attempt to reverse the effect of the decision of Langley, J. in The “IMVROS” [1999] 1 Lloyd's Rep. 848 by carving out the effects of bad stowage leading to unseaworthiness, and was thus limited in its effect.  The judge held even if the drafting did not have that effect,  clause 49 alone was ineffective to engage the provision in Clause 8(b) as it was at most responsibility for stowage generally which was transferred to owners. The use of the word stowage alone did not connote any transfer back of other cargo handling responsibilities.  This was supported by the decision in The “SEA MIROR” [2015] 2 Lloyd’s Rep. 395.

The preliminary point

At the outset, the charterers had contended that the point of law which was the subject of the appeal had not been one that the arbitration tribunal had been asked to determine and thus that the owners could not overcome the threshold test set out in s69(3) of the Arbitration Act 1996. Owners contended that this point had been dealt with by Popplewell, J. when he considered whether or not to grant permission for the appeal.  Having done so, charterers were not at liberty to reopen the point. The judge was not prepared to suggest that there was an absolute bar against reopening the point but he noted:

 “There are strong policy reasons in my judgement for making the decision to grant leave as efficacious and immune from further consideration as possible”

In finding that in any event the tribunal had been asked to determine this issue, he observed “the emphasis placed on particular points which were advanced may well shift as between an arbitration and an appeal, as with other appeals”.  So the fact that the issue on the appeal may not have been owners’ central argument nor that the tribunal did not address it head on in their award was not ultimately determinative.

The Claimant was represented by Simon Rainey QC and Peter Stevenson of Quadrant Chambers and instructing solicitors were Paul Crane and Sarah Allan of Bentleys, Stokes and Lowless.

There are strong policy reasons in my judgement for making the decision to grant leave as efficacious and immune from further consideration as possible

HH Judge Waksman QC

Agile Holdings Corporation v Essar Shipping Ltd (The "MARIA") [2018] EWHC 1055 (Comm)

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