21-12-2016

UK: Culpability And Clause 8(D) Of The Inter-Club Agreement – The Yangtze Xing Hua

ReedSmith

This was an appeal from an LMAA arbitration award, considering the true construction of clause 8(d) of the Inter-Club Agreement 1996 (“ICA”); specifically, whether the meaning of the term “act” in the phrase “act or neglect” should be restricted to a culpable act.

The dispute concerned a trip time charter where the charterers (also the shippers) had, for their own purposes, ordered the ship to wait off the discharge port for over four months before discharging the cargo. During this time part of the cargo was damaged due to overheating, which was found by the Tribunal to have been caused by a combination of the prolonged delay at the discharge port and the inherent nature of the cargo.

The owners, as carrier, settled the receivers’ claims under the bills of lading and then sought to recover their losses (including hire) from the charterers.

The ICA had been incorporated into the time charterparty and it was common ground that liability was to be settled in accordance with it terms and that Clause 8(d) was the relevant part.

For the purposes of clause 8 of the ICA, sub-clause (d) is the sweep-up provision and provides that:

“All other cargo claims whatsoever (including claims for delay to cargo):

50% Charterers

50% Owners

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 Tribunal found that the charterers whilst not in “neglect” had, by their decisions to load the cargo and delay discharge (“to not only protect their position but we sense actually profit from it”), performed an “act” for the purposes of clause 8(d). Accordingly, the charterers were 100% liable under the provision.

The charterers argued on appeal that this decision was wrong as a matter of law, on the basis that, for these purposes, the word “act” must take its “colour” from its combination with “neglect” and thus be limited to a “culpable act”; and there was nothing culpable in the charterers’ “decision”.

However, the learned Admiralty Judge, Teare J, found that the meaning of the word “act” was not to be coloured by its association with “neglect” and upheld the broader, non-culpable, interpretation at which the Tribunal had arrived.

In the judgment, the origin of the ICA (as a blunt tool by which P&I insurers might circumvent perceived uncertainties associated with Clause 8 of the NYPE ’46 form), and its subsequent incorporation into NYPE based time charters, is rehearsed for the sake of finding the colour behind the word “act”.

Ultimately the learned judge found that the meaning of the word can only be determined in the context of the ICA and that other constructions surrounding the phrase in other contexts (with or without the additional word “fault”) were not of assistance.

As such the judgment means that the word “act” in Clause 8(d) of the ICA must now include any positive conduct of the parties (or their servants and sub-contractors).

Although the decision is robust in its assertion that the ICA provision is a “more or less” or “broadly” mechanical process, for the charterers, the Tribunal’s view as to the benefit of their decision might seem to have offered its own colour to the outcome.

The learned judge gave permission to appeal and it would seem surprising if this opportunity were not taken up. Whatever the outcome though, the judgment prompts further thought as to the role of the ICA within time charters.

Source: Reed Smith

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