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Davies Johnson’s Nico Saunders examines some recent decisions, and their significance for claims handled under the ICA.

 

Introduction

The ICA is designed to facilitate settlement of cargo claims as between Owners and Charterers, to avoid arbitration and protracted discussion by providing a more or less mechanical apportionment of liability depending on the nature of the underlying cargo claim.

Paragraph 8 of the ICA sets out the basis for apportionment, depending upon whether the claim arose out of: (a) unseaworthiness; (b) cargo handling; (c) shortage or overcarriage; or (d) all other claims. There are several provisos to this section, providing fertile breeding ground for disputes.

The ICA has doubtless reduced disputes for such claims. However, where high value and complex claims occur, parties are understandably keen to get the best result, particularly with deductibles and claims records in issue. Additionally, the cause of damage is often unclear or involves multiple factors. It is unsurprising, therefore, that the ICA itself has given rise to its fair share of disputes.

  1. Can a party recover costs of successfully defending the cargo claim?

The issue concerns two provisions of the ICA, namely 3(c) (by which costs incurred in defence or settlement of the underlying claim can be included in the apportionment) and 4(c) (that the underlying claim must have been properly settled or compromised and paid). Two contradictory arbitration decisions have considered the question:

London Arbitration 10/15

The Tribunal refused to allow apportionment of costs incurred in successful defence of a cargo claim. For the ICA to apply, there had to be liability to a third party.

London Arbitration 30/16

Owners incurred costs successfully defending the cargo claim and claimed apportionment under the ICA.

The Tribunal declined to follow London Arbitration 10/15. The ICA applied to costs incurred in the defence of the underlying cargo claim. 4(c) extended to costs incurred in defence of the claim as long as they had been paid.

  1. When will the first proviso to 8(b) apply?

NYPE Clause 8 transfers responsibility for loading, stowing and discharge from Owner (the position at common law) to Charterers (to be performed “under the supervision of the Captain”). A frequent amendment (adding “and responsibility”) transfers responsibility back to Owners.

The starting point under 8(b) of the ICA is that Charterers bear 100% liability for claims arising out of cargo handling. However, if the words “and responsibility” are added to NYPE Clause 8 “or there is a similar amendment making the Master responsible for cargo handling” apportionment will be 50/50 (the first proviso to 8(b)). The Commercial Court recently considered what constitutes a “similar amendment”:

AGILE HOLDINGS CORPORATION v ESSAR SHIPPING LTD [2018] EWHC 1055

Cargo damage arose from improper loading. Clause 8 of the NYPE charter was unamended, but Clause 49 transferred responsibility for stowage back to Owners. In arbitration, the Tribunal apportioned liability 50/50 under the first proviso to 8(b) because clause 49 was a “similar amendment making the Master responsible for cargo handling” as it made the Master “responsible for (part at least of) the loading process”.

The Court overturned the Award on appeal; the Arbitrators were wrong to treat a partial transfer of responsibility for cargo handling back to Owners (such as stowage under clause 49) as sufficient to engage the first proviso of 8(b). The required “similar amendment” must transfer responsibility for all aspects of cargo handling back to the owner.

  1. When will the proviso to 8(d) apply?

8(d) apportions all cargo claims which do not fall into 8(a), (b) or (c) equally between Owners and Charterers, unless the claim arose out of the act or neglect by one or the other (in which case that party will bear 100%). The question as to what constitutes “act or neglect” has been a contentious issue in numerous cases.

London Arbitration 30/16

A cargo of soyabeans was damaged as a result of self-heating causing caking and ship’s sweat producing condensation. The Tribunal held the single cause of damage was the shipment of an inherently unstable cargo.

Charterers were 100% liable under the proviso to 8(d) of the ICA. The relevant “act” of Charterers was either (i) the shipment of an inherently unstable cargo which was not fit for the voyage; alternatively (ii) shipping a cargo with a propensity to self-heat which took the cargo outside the limits of the charter, and outside the kind of risk which the owners agreed to bear.

London Arbitration 19/17

A cargo of steel products suffered condensation damage during a voyage from Asia to Antwerp, principally due to significantly different temperatures between the three load ports. There was also criticism of the vessel’s ventilation.

Applying the ICA, the cause of the damage was not exclusively due to stowage, so 8(b) did not apply.

The Tribunal ordered 50/50 apportionment under 8(d) of the ICA. The proviso did not apply because the damage was caused by a number of factors and not solely due to Charterers’ “act” of loading cargo into the same holds at different ports (as Owners argued). In the tribunal’s view, the word “act” was directed at some specific and definable event or occurrence, not at Charterers’ general compliance with the charter.

MV YANGTZE XING HUA [2017] EWCA Civ 2107 (CA)

A cargo of soyabean meal, carried from South America to Iran, suffered heating damage. Charterers had ordered the vessel to wait off the discharge port for 4 months (pending payment). Owners settled the cargo claim.

The cause of the damage was a combination of the inherent nature of the cargo (and its oil and moisture content) and the prolonged waiting time at the discharge port.

Charterers were found 100% liable under the proviso to 8(d) of the ICA. Although they were not “in breach or at fault or neglect”, their decision to use the vessel as floating storage (leading to cargo damage) constituted an “act” for the purposes of 8(d). This was upheld on appeal by Teare J and the Court of Appeal.

The word “act” is to be given its natural meaning and is not confined to a culpable act. The critical question is whether the claim “in fact” arose out of the act, operation or state of affairs described.

Whilst it is clear the word “act” does not require culpability, the application of 8(d) is likely to continue to fuel disagreement depending upon the apparent cause or causes of cargo damage.

 

Summary

The ICA is well-established and is here to stay. Whilst Tribunals and the Courts are keen to promote a mechanical application, parties will inevitably continue to dispute liability, using creative arguments where possible.

In most cases, a party faced with a cargo claim would be well advised to seek agreement from their charterparty counterpart before settling the underlying cargo claim (for an example of such an agreement being upheld, see London Arbitration 28/17) or at least put the other party on notice of the intended settlement and be prepared to explain the basis of the settlement when it comes to ICA apportionment.

Subtle distinctions may make all the difference. Multiple causes of damage will complicate matters and may preclude 100% liability either way. If the cause of damage (or the amount attributable to each in the case of multiple causes) is not identifiable, a Tribunal may take a broad brush approach to apportionment, in keeping with the ethos behind the ICA. In London Arbitration 28/17 for example, a West African bagged rice case, it was not possible to ascertain the proportion of damage arising from two competing causes, one of which was Owners’ responsibility and the other Charterers’. The Tribunal considered the fairest solution to be to apportion liability 50/50, for each side to bear its own costs and for the Tribunal’s fee to be shared.

Nico Saunders – Solicitor

+44 (0)7771 335 196

nico.saunders@tmlawltd.com