Last week, the International Group of P & I Clubs published a recommended Inter-Club Agreement (ICA) incorporation clause.

It is commonplace for charterparties to incorporate the ICA as a contract term. For decades, ICA incorporation clauses have been considered relatively uncontroversial. However, the recent London Arbitration 18/18 decision has thrown the cat amongst the pigeons; the Tribunal found the effect of the ICA incorporation clause in that charterparty was to incorporate, or contractually apply, those parts of the ICA dealing with apportionment but not clause 9 which deals with the provision of security.

Readers will recall that clause 9 comes from amendments to the ICA made in 2011 (see https://www.reedsmith.com/en/perspectives/2011/08/the-interclub-agreement-amendments-relating-to-sec). Prior to that, the ICA did not address the provision of security.

It is a matter of some debate whether the ICA incorporation clause in London Arbitration 18/18 is to be distinguished on its facts. As you will see below, it is quite different from the more typical ICA incorporation clause such as that found in D/S A/S Idaho v Peninsular and Oriental Steam Navigation Co. (The “Strathnewton”) [1983] 1 Lloyd’s Rep. 219 (C.A):

‘Liability for cargo claims, as between Charterers and Owners, shall be apportioned/ settled as specified by the Interclub New York Produce Exchange Agreement effective from 1996 and its subsequent amendments.’ (Clause 35, London Arbitration 18/18.)

‘Cargo claims under this Charterparty to be settled between Owners and Charterers under the Inter Club New York Produce Exchange Agreement.’ (Clause 55, the Strathnewton.)

It would seem that the words “liability” and “apportioned” are significantly narrower than the word “settled” and the phrase “as specified by” may suggest that the parties agreed that apportionment under the charterparty was to mirror that under the ICA, rather than to incorporate the ICA into the charterparty. Accordingly, it is arguable that the more common ICA incorporation clause would bring into effect ICA clause 9 and hence the ICA claimant would be entitled to security, provided the requirements of the clause are met.

However, to avoid any debate along these lines, the International Group has recommended an incorporation clause that makes the position very clear. The new clause is as follows:

“Cargo claims as between Owners and the Charterers shall be governed by, secured, apportioned and settled fully in accordance with the provisions of the Inter-Club New York Produce Exchange Agreement 1996 (as amended 2011), or any subsequent modification or replacement thereof. This clause shall take precedence over any other clause or clauses in this charterparty purporting to incorporate any other version of the Inter-Club New York Produce Exchange Agreement into this charterparty”.

Ship owners, who stand to benefit most from ICA clause 9 and the provision of security, are therefore recommended to use the International Group’s recommended clause.