In this arbitration appeal under s.69 of the Arbitration Act 1996, Mr Justice Waksman QC clarified how the words ‘a similar amendment’ as set out in clause 8(b) of the Inter-Club Agreement are to be interpreted. In brief, in order to constitute a similar amendment to the words ‘and responsibility’ under the NYPE charter form there must be a complete transfer of all aspects of cargo handling back to the owner, meaning that a partial transfer would not be sufficient.

Factual background

The claimant owners, Agile Holdings Corporation (Agile) let their vessel, the “MARIA”, to the defendant charterer, Essar Shipping Ltd (Essar) for a time charter trip from Tunisia to India.

The cargo was a consignment of direct reduced iron (DRI) which is well known to be highly reactive and combustible in the presence of heat or water. Loading was carried out using a conveyor belt at the port and during the course of loading the conveyor was seen to catch fire. After an inspection of the cargo holds, loading was completed.

In the event, the DRI was on fire throughout the duration of the voyage and on discharge the cargo interests, Essar Steel (an associated company of Essar), brought a claim.

Despite the fact that the cargo interests had not yet pursued their claim, Agile commenced arbitration seeking a declaration that Essar was obliged to indemnify it against any liability it might be found to have to the cargo interests.

Relevant clauses

Clause 8 of the ICA provides that:

‘Cargo claims shall be apportioned as follows: …

(b) Claims in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo: 100% Charterers unless the words “and responsibility” are added in clause 8 [of the NYPE form] or there is a similar amendment making the Master responsible for cargo handling in which case: 50% Charterers 50% Owners save where the Charterer proves that the failure to load, stow, lash, discharge or handle the cargo was caused by the unseaworthiness of the vessel in which case: 100% Owners’

Clause 49 of the charterparty provided that:

“Stevedore Damage

The Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage and seaworthiness and safety of the vessel…”

The arbitration tribunal emphasised the wording of clause 49, confirming that the commercial purpose of the clause was to make it clear that the master was responsible for (part at least of) the loading process. The tribunal considered that the appropriate split of liability was 50/50 between Agile and Essar. Agile appealed.

Legal issues

Meaning of ‘similar amendment’

Agile argued that in order to constitute a ‘similar amendment’ the relevant provision had to transfer all cargo responsibilities (including loading, stowing, discharge, trimming, etc.) to the master/owner, and a partial transfer was insufficient.

By contrast, Essar argued that a partial transfer would be sufficient provided that that particular aspect of cargo handling was in issue in the particular case.

Mr Justice Waksman QC disagreed. He held that, in order for Essar’s position to be correct, one would be required to carry out a detailed analysis of which particular cargo handling functions were in issue so as to compare them with the cargo handling functions the subject of the ‘similar amendment’. Such a position would be contrary to the simplified and mechanistic approach of the ICA.

It would be commercially odd (and inconsistent with the effect of adding ‘and responsibility’), if the transfer of any part of cargo handling, would be enough to engage clause 8 (b) without more.

He went on to confirm that the only causal enquiry required for the clause to be engaged was to determine in broad terms whether the claim arose out of cargo mishandling (as opposed to unseaworthiness, navigation, shortage, etc.).

The judge took the clear view that the required ‘similar amendment’ was one which would have the same effect as the addition of the words ‘any responsibility’ and therefore, connoted the transfer of all aspects of cargo handling generally back to the owner.

The nature of clause 49

It was common ground that clause 49 effected only a partial transfer of cargo handling responsibilities back to the owner, being concerned specifically with one aspect of cargo handling namely stowage. On that basis, clause 49 was ineffective to engage clause 8 (b), and therefore liability was 100% on Essar.

The judge allowed the appeal and held that Agile was entitled to a complete indemnity in respect of any claim it might be liable for by cargo interests.

Case comment 

This case provides useful clarification on the interpretation of clause 8(b) and again emphasises the courts’ approach to the ICA: it is a commercial regime established to provide a simple and mechanistic apportionment of liability and the court will be reluctant to interfere with this.

This article originally appeared in the June 2018 edition of shipping case digest.