In Transgrain Shipping (Singapore) Pte Ltd v Yangtze Navigation (Hong Kong) Ltd ( EWCA Civ 2107) the Court of Appeal recently provided important clarification in relation to the apportionment of liability for cargo claims as between shipowners and charterers under the Inter-club Agreement.
The issue before the Court of Appeal was whether the word ‘act’ in the phrase ‘act or neglect’ in Clause 8(d) of the Inter-club Agreement means a culpable act in the sense of fault or whether it means any act, culpable or not. In upholding Justice Teare’s decision at first instance, the Court of Appeal unanimously held that ‘act’ should be given its natural meaning and that there was no need to confine it to ‘culpable act’.
The issue before the court arose on an appeal from an award of arbitrators in London. The claimants in the arbitration were the owners of the Yangtze Xing Hua, which they had chartered to the respondents in the arbitration (the charterers) for a time charter trip carrying a cargo of soya bean meal from South America to Iran. The charterers ordered the vessel to wait off the discharge port for more than four months as they had not been paid by the receivers. During this period, the cargo overheated and when it was finally discharged, a claim was presented against the owners for damage to the cargo. The owners settled the cargo claim and sought an indemnity against the charterers under the Inter-club Agreement, which had been incorporated into the charterparty.
The parties agreed that liability was to be settled in accordance with the Interclub Agreement, and in particular Clause 8(d). Clause 8(d) – sometimes known as the ‘sweep up’ clause – provides for a 50-50 liability split between owners and charterers for all other cargo claims not covered by Clauses 8(a) to 8(c) of the Inter-club Agreement, unless there is clear and irrefutable evidence that the claim arose out of the “act or neglect” of either the owner or the charterers, in which case they will bear 100% of the claim.
In the arbitration, the tribunal found that the cause of the damage was a combination of inherent vice of the cargo and the prolonged waiting period off the discharge port. The tribunal rejected all allegations made against the owners and their crew that they had not properly monitored the cargo temperatures. Instead, it concluded that the charterers’ decision to delay discharge was an ‘act’ falling within Clause 8(d) of the Inter-club Agreement and that they should therefore bear 100% of the cargo claim liability.
On appeal to the High Court, the charterers argued that the tribunal’s construction of ‘act’ was incorrect because ‘act’ in Clause 8(d) of the Inter-club Agreement had to be a “culpable act”. Therefore, as the tribunal had not found that the charterers were at fault in ordering the vessel to wait off the discharge port, the proviso to Clause 8(d) did not apply and the correct apportionment should be 50-50. Teare disagreed and held that, as a mechanism for assigning cargo claim liability by reference to the cause of the cargo damage, the clause was not concerned with fault. The charterers appealed.
Court of Appeal decision
In upholding the High Court’s finding on the construction of the word ‘act’, the Court of Appeal reiterated that the Inter-club Agreement’s primary role is the mechanical apportionment of liability where the critical factual question is that of the causation of the underlying claim in question, without consideration of legal or moral culpability.
This decision is in line with the founding purpose of the Inter-club Agreement, which is to provide a ‘mechanistic’ formula for the apportionment of cargo claim liability between owners and charterers so as to avoid protracted and costly litigation. The introduction of a requirement of culpability would inevitably have added a layer of complexity to the apportionment of cargo claims under the Interclub Agreement and so this recent Court of Appeal decision will be welcomed by P&I clubs.
That said – and as the Court of Appeal acknowledged – issues of causation can be just as difficult to determine as ones of culpability. An example is Ann Stathatos ( 83 LLR 228), to which the Court of Appeal referred in its decision. In that case, Justice Devlin accepted that causation was an issue of fact for the arbitrator to decide, and that the arbitrator could not be faulted in holding that the cause of the coal gas explosion on board the vessel that led to the litigation was not the charterers’ order to load coal, but the spark during repair work organised by the owners after the coal had been loaded.
In Anthanasia Comninos ( 1 LLR 277) there were almost identical coal gas explosions during the voyages of two vessels, which the owners said were caused by the charterers’ order to load coal. However, in one case, the explosion was linked to a crewman smoking a cigarette, which broke the chain of causation; in the other, the charterers also alleged that a cigarette had caused the explosion but could not prove it, so their order to load was the proximate cause – even though a spark still had to have been caused to ignite the gas.
As such, there may well be much to argue about when it comes to causation and whose act or neglect was the proximate one when applying the Court of Appeal’s new test for interpreting Clause 8(d) of the Inter-club Agreement.