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19 July 2017
A recent Commercial Court decision in Transgrain Shipping (Singapore) Pte Ltd v Yangtze Navigation (Hong Kong) Co Ltd (2016 EWHC 3132 Comm) held that a charterer is 100% responsible under the Inter-Club Agreement for damage to cargo arising from an order to the vessel to delay discharge until the receivers are able to pay for the cargo.
The cargo concerned was soya beans and the vessel was kept waiting for six months off the discharge port, during which time the soya beans went lumpy and discoloured in two holds. This was not due to any improper monitoring on the owner's part, nor any breach by the charterers, but was instead caused by a combination of the inherent nature of the cargo and the lengthy delay before discharge. It led to a cargo damage claim from the receivers, which was settled by the owners for €2,654,238. The issue before the court was whether the owners could claim full indemnity under Clause 8(d) of the Inter-Club Agreement on the basis that the claim arose from the charterer's decision to delay discharge.
Clause 8(d) of the Inter-Club Agreement states that:
"(8) Cargo claims shall be apportioned as follows:
(d) All other cargo claims whatsoever (including claims for delay to cargo):
Unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim."
The charterers argued that the words 'act or neglect' should be read together, so that the fault element in 'neglect' should also apply to 'act'. The judge decided that since the Inter-Club Agreement was a mechanical apportionment of liability, the word 'act' should be read in accordance with its ordinary and natural meaning without regard to questions of fault. As such, the charterers' 'act' in deciding to delay discharge, even though without fault, was enough to make them 100% responsible for the cargo claim which then arose as a result of the delay.
Permission has been granted for an appeal to the Court of Appeal.
This decision follows the non-fault approach underlying the Inter-Club Agreement, but raises questions in respect of the finding that the claim arose solely due to the charterers' decision to delay discharge. Given the time-sensitive nature of a cargo such as soya beans, it could be said that the owners should have rejected the order from the charterers to delay discharge on the grounds that it was likely to adversely affect the safety of the cargo and thus their ability to deploy an inherent vice defence against the receivers. While the logic of the court's decision in this case may be difficult to dispute in other cases where there are delays in discharge, it may be more difficult for an owner to obtain a full indemnity where it can be shown that their decision to comply with a charterers' order to delay discharge had failed to take sufficient account of the impact of a delay on the condition of the cargo on discharge.
Given that it is common for shipments to be delayed, more disputes relating to deliberately delaying discharge can be expected in the future.
For further information on this topic please contact Robert Joiner or Stewart Ian Munro at Wikborg Rein by telephone (+65 6438 4498) or email (firstname.lastname@example.org or email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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