English High Court rules on Clause 8 (b) of the Inter-Club Agreement

On 11 May 2018 the English High Court handed down an interesting judgement dealing with the Inter Club Agreement (ICA). Most Assureds using the highly popular New York Produce Exchange Form (NYPE) charter party form will no doubt be familiar with the principles governing the ICA and its success in offering a swift and fair apportionment of liability for cargo claims between Owners and Charterers.

The effect of adding the words “and responsibility” to the familiar clause 8 of the NYPE 96 form dealing with the Captain’s role in the cargo handling (loading, stowing and discharging) is also well known in the shipping industry. Such amendment effectively restores the common law position which makes Owners responsible for claims relating to cargo handling. There is however less clarity in the interpretation of this or “similar” amendments in the context of the ICA and, more particularly, Clause 8 (b) which provides as follows:

  1. b) Claims in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo [emphasis]: 100% Charterers unless  the words “and responsibility” are added in clause 8 [of the NYPE form] or there is a similar amendment [emphasis] making the Master responsible for cargo handling in which case: 50% Charterers 50% Owner

In this case the judge was asked to determine what exactly is a “similar amendment” for the purpose of the above ICA clause in the absence of the words “and responsibility” in clause 8 of the NYPE 96 form.

The facts

The vessel was directed by Charterers to load direct reduced iron (DRI) at Port Lisas, Trinidad, for discharge in India. Despite the presence of fire in the cargo during loading, Charterers supercargo allowed cargo operations to continue. On discharge some cargo was found damaged by fire prompting cargo receivers to advance a claim against the Owners.

The Charterparty

While Clause 8 of the charter had not been amended with the words “and responsibility”, rider clause 49 stated that the stevedores were to be under the directions of the Master “who will be responsible for proper stowage and unseaworthiness and safety of the vessel”.

Arbitration

The charterparty was subject to English law and London arbitration. Owners sought a declaration from the tribunal they were not responsible for the cargo damage. The tribunal agreed with Owners that the claim was the result of the bad handling of the cargo meaning it was to be apportioned in accordance with the ICA clause 8 (b). However, the tribunal held that clause 49 constituted a “similar amendment” and as such the claim would have to be split 50/50 Owners/Charterers.

Appeal to the High Court

Pursuant to Section 49 of the Arbitration Act 1996 Owners were granted leave to appeal to the High Court. Owners argued that for an amendment to be similar to the addition of the words “and responsibility in Clause 8 it needed to have the same effect, that is, it required a TOTAL transfer of cargo handling responsibility to Owners. By way of alternative, Owners pleaded that Clause 49 only transferred responsibility to Owners for stowage leading to unseaworthiness and not stowage resulting in cargo damage.

On their part, Charterers argued that a “similar amendment” was one that transferred responsibility for “the relevant aspect of cargo handling”. If pursuant to clause 49 the responsibility for loading has been transferred to Owners and it was the cargo handling the resulted in the claim, that would be considered the relevant aspect of cargo handling.

Ruling in favour of Owners, the judge held that:

  • the word “similar” in Clause 8 (b) connotes a provision in the charterparty which is of the same kind or is to the same effect as the addition of the words “and responsibility” and not just “alike but not identical” as argued by the Charterers;
  • Charterers construction would be inconsistent with the simple approach to allocation envisaged by the ICA as it would require a two stage factual enquiry before liability can be allocated. First, a stage to determine whether the claim arose out of bad handling as opposed to other cause contemplated by the ICA, and second, what aspect of the cargo handling resulted in the claim;
  • The likely effect of clause 49 was not meant to transfer responsibility for stowage in general but to make Owners responsible for stowage only insofar it affects the vessel’s seaworthiness.

Conclusion

This decision highlights the tendency by the Courts to honour the very purpose of the ICA, that is, to lay down a clear (mechanical) formula of how liabilities are to be allocated between Owners and Charterers. In the absence of the words “and responsibility” in clause 8 of an NYPE 96 form, Charterers will require an express provision in the charterparty that unequivocally transfers the responsibility for cargo handling to Owners. This will result in the claim being divided 50/50 in accordance with Clause 8 (b) of the ICA.

To read the full judgment click here: http://www.bailii.org/ew/cases/EWHC/Comm/2018/1055.html

Download English High Court rules on Clause 8 (b) of the Inter-Club Agreement