Andrew John Dyer, Partner at Hill Dickinson International, Piraeus, Greece has reported on a case for American Club where a vessel was used as a “floating warehouse”, resulting in the cargo being damaged during storage — Shipping (Singapore) Pte Ltd –v-Yangtze Navigation (Hong Kong) Co Ltd [2016] EWHC 3132).
The legal arguments eventually revolved around the question of what is meant by the word “act” as found in clause 8 of the Inter Club Agreement (ICA) 1996 when apportioning liability between Owners and Charterers.
The Claimants were the Owners of the Yangtze Xing Hua, who chartered out the Vessel on a time charter trip. The Vessel loaded a cargo of soya bean meal from South America to Iran. The Vessel arrived off the discharge port in Iran in December 2012. As the Charterers had not been paid for the cargo, they ordered the Vessel to stay off the disport for over 4 months, effectively utilizing the Vessel as a “floating warehouse”. When the cargo of soya bean meal was discharged it was found damaged in two of the Vessel’s six holds. The receivers brought a claim, which the Owners negotiated and paid. The Owners then brought a claim against Charterers under the ICA provisions in the charterparty. The damage was found to have resulted from a combination of the inherent nature of the cargo and the fact that it had remained on board the Vessel for a prolonged period. The Vessel was not found to be at fault.
The matter was referred to arbitration and the tribunal held that: (1) the claim fell under clause 8(d) of the ICA as an “other cargo claim”; (2) neither party was at fault and (3) apportionment of the cargo claim was not a 50/50 split but was 100% Charterers liability as it arose from an “act” of the Charterers in ordering the Vessel to remain off the disport for a prolonged period of time.
The commercial court confirmed the tribunal’s decision.
The Charterers argued that clause 8(d) of the ICA 1996, in order to make one party 100% liable, required proof of “act or neglect” and that the word “act” should be read as meaning fault. As such, the Charterers argued that the “act” of the Charterers in ordering to remain off the port did not amount to fault and Charterers should only be liable for 50% of the claim.
This argument was rejected by the court, which considered that clause 8 should be applied as a mechanical apportionment of liability and that the word “act” was to be read using its natural and ordinary meaning, without requiring fault.
Hill Dickinson International observed that the case served as a useful confirmation that damage to a cargo which is caused by the prolonged stay of the vessel at the port at the express orders of the Charterers will be treated as a cargo claim falling under the sweep-up clause 8(d) of the ICA 1996. Secondly, all else being equal, such orders would be treated as an “act” by Charterers, making them 100% responsible for such claims. Mr Dyer said that the 2011 amendments to the ICA did not, in his opinion, affect this conclusion.
A passing comment of the judge confirmed that, where the ICA is incorporated into a charterparty, if the damage arises out of the unseaworthiness of the vessel or an error in navigation or management of the vessel, then the Owners would be 100% responsible, without any defence available to the Owners that “due diligence” was exercised to make the vessel seaworthy. Further, the Owners could not rely on an exceptions clause in such circumstances. Mr Dyer thinks this would include, for example, where the Hague/Hague Visby rules are expressly incorporated into a charterparty and Owners then wish to argue that the defence of crew negligence applies against a claim for cargo damage due to unseaworthiness, if the negligence in question is related to navigation or management of the vessel.