Claims under the NYPE Inter-Club Agreement

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The background factsnbspThe vessel was time chartered under an amended 1993 NYPE form, under which cargo claims would be settled under the 1996 ICAUpon discharge of a cargo of soyabeans following a 35 day wait at the anchorage, the vessel was arrested by the cargo receivers for a US1,054,550 claim for damage to the cargo The receivers claimed in the foreign court The Owners' experts opined that the damage had likely been caused by self-heating and subsequent ship's sweat The foreign court held the Charterers (not the Owners) liable for the damage on the basis that the cargo was of an inferior quality The Charterers appealed the decisionnbspThe Owners separately commenced London arbitration against the Charterers, claiming under the ICA for the US372,14836 of legal and experts' costs they had incurred defending the receivers' claimnbspThe ICAnbspClause 3 defines a Cargo Claim to which the ICA applies as a claim for, among other things, damage to cargo and includes legal, Club correspondents' and experts' costs reasonably incurred in the defence of the receivers' claimnbspClause 4 applies the ICA where the claim was made under a contract of carriage and properly settled or compromised and paidnbspClause 8(d) provides for all other cargo claims (ie apart from those referred to in Clauses 8(a) to (c), which includes claims for inherent vice or unsafety of the cargo) to be borne 50-50 between owners and charterers unless there is clear and irrefutable evidence that the claim arose out of in this case, the Charterers' act in which case the charterers bear 100 of the claimnbspThe Tribunal's decisionnbsp(1) Was the Tribunal bound by the foreign court's decision that the Charterers were liablenbspThe Owners argued that it was, but the Tribunal disagreed (1) the foreign court was not the applicable forum under the bill of lading and not the court which the Owners or the Charterers expected to or agreed would determine the claims (2) it might also not have had available to it the evidence that was before the Tribunal and (3) the decision was under appeal(2) Had the receivers claimed under a contract of carriage under Clause 4nbspThe Charterers argued (based on London Arbitration 1015) that the receivers had not brought their claim under a contract of carriage (the bills of lading) but under a foreign law concept similar to the English law concept of bailment' (under which the carrierowner must return the cargo in the same physical condition in which it received it) nbspSo, the Charterers said, the ICA was not triggered under Clause 4The Tribunal disagreed The receivers' claim had been made against the Owners under the bills of lading, which had been attached to their claim formnbsp(3) Were the legalexpert costs claimable under Clause 3The Charterers argued (based on London Arbitration 1015) that they were not recoverable They nbspcould only qualify as a Cargo Claim under Clause 3 if the receivers' costs claim (for all or part of the US1,054,550) had succeeded (and paid by the Owners under Clause 4)nbspThe Tribunal disagreed (and did not apply London Arbitration 1015, which it found difficult to follow) The words reasonably incurred in the defence allowed for the possibility that the receivers' claim might be successfully defended The argument was also uncommercial if the receivers' claim had been settled for eg 10, then it and the legal costs could be recovered from the Charterers but, if it was defeated in full, then no costs could be recovered and whilst the ICA's draftsmen might have envisaged the costs being recovered from the receivers instead (explaining this result), the Tribunal considered the more sensible result to be that the ICA allows the recovery of defence costs in such circumstancesnbspThe Tribunal, therefore, allowed the defence costs, except for US21,500 of duplication between the Owners' English lawyers and foreign lawyersnbsp(4) Was there an act of the Charterers under Clause 8(d)nbspThe Tribunal rejected the Charterers' argument that it was not an act under Clause 8(d) On the available evidence, the cargo was inherently unstable and unable to withstand the voyage it self-heated and produced the cakingship's sweat So, in the Tribunal's view1 nbspOrdering the loading of the cargo, and carrying out loading (for which the Charterers were responsible under the charterparty), which gave rise to the arrestclaim, constituted an act of the Charterers under Clause 8(d)nbsp2 nbspAlternatively, it was their act on the basis that (1) shipping cargo with a propensity to self-heat took the (non-permitted) cargo out of the limits of the charter and (1) if this was likely to result in delayan arrest, it was not a risk that the Owners had agreed to bear under the charterparty The Tribunal found convincing and cogent evidence of this and was not persuaded that the (higher) criminal standard of beyond a reasonable doubt was requirednbsp(5) Claim under the Clause 8 implied indemnityIn the Tribunal's view, even if the ICA did not apply, the Owners could recover their legaltechnical costs under the Clause 8 implied indemnity apart from the propensity to self-heat, had the vessel not waited at the anchorage, the cargo damage would have been negligiblenbspCommentnbspThe decision appears to be sensible The finding in (1) is also in accordance with The Labrador 1998 2 Lloyds Rep 387 and the finding in (4) is in accordance with the recent decision in the Yangtze Xing Hua 2016 EWHC 3132 (Comm) and with paragraph 2081 of Time Charters (7th ed) However, it is a good reminder of how claims under the ICA are often far from straightforward and can result in litigation which it actually purports to avoid

Jamila Khan

Jamila Khan Partner and Head of Office, Piraeus

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