Grand Victory for Owners in ICA/CP Cargo Indemnity Claims!

The English High Court has just given people handling inherent vice cargo damage claims needed clarity in The Grand Amanda.

A soyabean cargo was discharged with self-heating damage in China. The owners defended the cargo claim brought in the Chinese court. They said the damage was due to the cargo’s pre-shipment self-heating nature, an inherent vice for which they were exempted under Article IV rule 2(m) of the bill of lading-applied Hague/Hague-Visby Rules). The Chinese court disagreed and held them liable for the cargo damage.

The owners claimed in London arbitration a 100% indemnity from the time charterers under (i) the charterparty-applied Inter-Club Agreement (the “ICA”); or (ii) the charterparty’s clause 8 implied indemnity. The tribunal comprising two well-known KCs and a senior LMAA Full Member upheld their claim, as did the High Court on appeal.

They decided this:

1. Tribunal: the cargo was damaged by the inherent vice. (The tribunal was not bound by the Chinese court’s ruling and was entitled to consider the evidence afresh. See e.g. The Labrador.)
2. Tribunal: the owners were not required to (i) obtain against the cargo interests a declaration of no liability from a London tribunal or an anti-suit injunction from the English High Court (for bringing the cargo claim in China in breach of the bill of lading’s English law/London arbitration provision); or (ii) contest the Chinese court’s jurisdiction. That would have achieved nothing.
3. Tribunal: the ICA did not apply – it only applies per its clause 4(c) where the cargo claim is “properly settled or compromised” under a consensual settlement rather than by an award/court judgment. (This part of the decision seems debatable since “settle” can also mean ‘decide’ or ‘resolve’ and would be duplicative if limited to a consensual settlement that is covered by “compromised”. See e.g. London Arbitration 30/16. At any rate, this decision has resulted in the ICA now being amended to expressly apply to cargo claim awards/judgments.)
4. Tribunal: if the ICA had applied, shipment of this unstable cargo would have been an “act” for which the charterers would have been 100% liable under ICA clause 8(d). (This non-binding decision is in line with London Arbitration 30/16 and takes the High Court decision in The Yangtze Xing Hua a slight step further, compared with the contrary decision on particular facts in London Arbitration 10/22.)
5. High Court & Tribunal: the owners were entitled to recover all their cargo claim loss (including their legal expense in China) under the clause 8 implied indemnity. The loss to the owners arose from loading this cargo as per the charterers’ instructions without the vessel’s fault. It was not an ordinary physical or commercial risk incidental to the charter service or one which the owners had borne under the charterparty in return for payment of hire. An indemnity can also be implied for a lawful cargo under the charterparty and it requires no change of or unusual circumstances to apply. Finally, the ICA is not an ‘all or nothing’ exclusive code: where it does not apply then an alternative charterparty claim may be possible.

The decision is a sensible one and provides needed clarity to people handling inherent vice cargo damage claims.