Shifting liability: High Court focuses on clause 8 of the inter club agreement

Paul Crane and Sarah Allan, Partners at Bentleys, Stokes and Lowless in London, UK, have reported for American Club on the case of the Maria, which involved a Member vessel owner of the American Club.

The High Court had considered another aspect of Clause 8 of the Inter Club Agreement. It was asked to consider Clause 8(b), which apportions cargo claims.

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

In deciding an appeal which reversed an arbitration award, HH Judge Waksman QC 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”.

In early 2004 the claimant owner let Maria to the defendant charterer on a trip time charter based on the NYPE 1946 form, incorporating the ICA 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.

During the loading of the cargo 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, claimed against the owners at the time, although that claim has not been resolved.

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.

In the arbitration award, the tribunal noted that charterers had accepted that loading a cargo of hot DRI would constitute improper loading, and it further found that a failure to stop the belt promptly when the fire was a failure to properly load.

The tribunal concluded that the claim must therefore be dealt with pursuant to Clause (8) (b) of the ICA 1996. The tribunal also held that Clause 49 was a similar amendment, making the Master responsible for cargo handling. Therefore the cargo claim would be apportioned 50/50 between the parties and not 100% against charterers, as owners had contended.

On appeal the question before the High Court was whether Clause 49 of the charterparty amounted to a “similar amendment”.

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, ruling that such an interpretation would mean the word “similar” could be dispensed with altogether. The judge said that the natural reading of “cargo handling” in Clause 8(b) was cargo handling generally rather than some aspect of cargo handling.

The charterers argued that the total transfer approach could lead to anomalies or extreme cases, for instance if some minuscule aspect of cargo handling was not transferred. The judge said that “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 further 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. He said that it was “obviously a very mechanistic and no doubt sometimes arbitrary regime”. The charterers also sought to argue that in order to rely on a “similar amendment” one should analyze whether or not it transferred a causally relevant aspect of cargo handling. The owners suggested that clause 49 could be regarded as an attempt to reverse the effect of a 1999 case by carving out the effects of bad stowage leading to unseaworthiness and was thus limited in its effect.

The judge held that, 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.

The writers said that “the decision makes clear again that the ICA should be treated as a simple and mechanistic method of allocating cargo claims, and that attempts to get around it via complex points of construction are unlikely to find favour with the courts”.

Paul Crane and Sarah Allan of Bentleys, Stokes and Lowless were instructed by the American Club for the owners, who were represented by Simon Rainey QC and Peter Stevenson of Quadrant Chambers.