Interpretation of the Inter-Club Agreement 1996

By William Stansfield

Introduction

In The Jangtze Xing Hua[1], the court was asked to consider the meaning of “act or neglect” in clause 8(d) of the Inter-Club Agreement 1996 (the “ICA”).

The dispute concerned a vessel that was fixed on a time charter trip basis to carry soya bean meal from South America to Iran. The vessel arrived at the disport in December 2012. Due to not having been paid for the cargo, the charterers ordered the vessel to wait off the discharge port for over 4 months.

When the vessel finally discharged in May 2013, cargo damage was discovered.  A cargo claim was made against the vessel. That claim was settled and the owners then brought a recourse action against charterers under the terms of the time charterparty.

The point for determination

It was common ground that liability (as between owners and charterers) for the cargo claim was to be apportioned in accordance with clause 8(d) of the ICA which had been incorporated into the charter.  What was not agreed was how to interpret the “act or neglect” exception to the 50%/50% apportionment otherwise provided for by that sub-clause.

Clause 8(d) of the ICA is the general sweep up provision which applies when the cause of the cargo claim does not fall within one of the causes mentioned in clauses 8(a)-(c). Clause 8(d) of the ICA provides that:

a)    liability for all other cargo claims whatsoever is to be apportioned between owners and charterers 50%/50%;

b)    but if there is clear and irrefutable evidence that the cargo claim arose out of the “act or neglect” of one or the other, then that party shall bear 100% of the claim.

The decisions

An arbitral tribunal held that the charterers’ decision to keep the vessel at the disport anchorage for a prolonged period of time was an “act” falling within clause 8(d) of the ICA and so liability for the cargo claim would be apportioned 100% to charterers.

The charterers appealed. The question of law for the court to decide was whether the term “act” in clause 8(d) meant a culpable act in the sense of fault or whether it meant any act, whether culpable or not.

Mr Justice Teare noted that the meaning of clause 8(d) must depend on its context and it must be construed having regard to the language of the ICA as a whole.

In the court’s judgment, the word “act” in clause 8(d) would reasonably be understood to bear its ordinary and natural meaning of any act without regard to questions of fault.  In consequence, the court ruled that the tribunal’s construction of “act” in clause 8(d) was correct and dismissed the charterers’ appeal.

Comment

It is understood that there may be an appeal pending against Teare J’s judgment.

In the meantime, a time charterer should think carefully about ordering a vessel to wait outside a discharge port for a long period of time when the charterparty incorporates the ICA because such an order may be considered an “act” within the meaning of clause 8(d). If cargo damage occurs as a result of such an order, charterers are at risk of paying 100% of any resultant cargo claim.

 


[1] Transgrain Shipping (Singapore) Pte Ltd v Yangtze Navigation (Hong Kong) Co Ltd [2016] EWHC 3132 (Comm)

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About the contributor

  • William Stansfield Solicitor

    William is a solicitor based in the London office. He advises on "dry" shipping disputes (such as charterparty and bill of lading disputes) and is also experienced in "wet" shipping issues. He has been involved in a number of high-value, complex and

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