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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Sino East Transportation Ltd v Grand Amazon Shipping Ltd [2025] EWHC 1990 (Comm) (30 July 2025) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2025/1990.html Cite as: [2025] EWHC 1990 (Comm) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN LMAA ARBITRATION
Rolls Building, Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
| SINO EAST TRANSPORTATION LTD |
Claimant ("Charterers") (Respondent in arbitration) |
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| - and - |
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| GRAND AMAZON SHIPPING LTD |
Defendant ("Owners") (Claimant in arbitration) |
____________________
Stewart Buckingham KC and Michael Proctor (instructed by MFB Solicitors) for the Defendant
Hearing date: 26 March 2025
Further written submissions: 21 and 23 May 2025
Draft judgment circulated to parties: 25 July 2025
____________________
Crown Copyright ©
Mr Justice Henshaw:
| (A) | INTRODUCTION | 2 |
| (B) | BACKGROUND | 3 |
| (1) | Facts | 3 |
| (2) | The Charterparty | 4 |
| (C) | THE ARBITRATION | 6 |
| (1) | The cases before the tribunal | 6 |
| (2) | The Tribunal's findings | 7 |
| (D) | GROUNDS OF APPEAL | 10 |
| (E) | THE PARTIES' ARGUMENTS | 12 |
| (F) | PRINCIPLES | 13 |
| (1) | Appeals on a point of law | 13 |
| (2) | The implied indemnity | 14 |
| (a) | Basic principles | 14 |
| (b) | More onerous terms in bills of lading | 20 |
| (c) | Limitation on the implied indemnity | 22 |
| (d) | The Island Archon | 25 |
| (e) | Pre-Island Archon decisions relied on | 32 |
| (f) | Later cases and awards | 36 |
| (3) | Incorporation of the Inter-Club Agreement into charterparties | 37 |
| (G) | APPLICATION | 38 |
| (1) | The Tribunal's reasoning and conclusion | 38 |
| (2) | Grounds on which leave was given | 39 |
| (3) | Effect of the express terms of the Charterparty | 39 |
| (4) | Effect of The "Island Archon" and other case law | 42 |
| (5) | Other commercial considerations | 44 |
| (6) | A special rule for inherent vice? | 47 |
| (H) | CONCLUSION | 48 |
(A) INTRODUCTION
(B) BACKGROUND
(1) Facts
(2) The Charterparty
"(4) Apportionment under this Agreement shall only be applied to Cargo Claims where:
…
(c) the claim has been properly settled or compromised or paid.
…
(8) Cargo Claims shall be apportioned as follows:
(a) Claims in fact arising out of unseaworthiness and/or error or fault in navigation or management of the vessel:
100% Owners
save where the Owner proves that the unseaworthiness was caused by the loading, stowage, lashing, discharge or other handling of the cargo, in which case the claim shall be apportioned under sub-clause (b).
(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 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 properly to load, stow, lash, discharge or handle the cargo was caused by the unseaworthiness of the vessel in which case:
100% Owners
(c) Subject to (a) and (b) above, claims for shortage or overcarriage:
50% Charterers 50% Owners
unless there is clear and irrefutable evidence that the claim arose out of pilferage or act or neglect by one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.
(d) 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."
"Clause 59 - Protective Clauses :
Clause Paramount, U.S. Clause Paramount, Canadian Clause Paramount, wherever applicable, shall be deemed to form part of this Charter Party and shall be contained in Bill(s) of Lading issued hereunder. Conwartime 2004 War Risk Clause, Both-to-Blame Collision Clause and New Jason Clause, also form part of this Charter Party."
The Clause Paramount stated:-
"The Bill of Lading shall have effect subject to the provisions of the Carriage of Goods by Sea Act of the United States, approved April 16, 1936, which shall be deemed to be incorporated herein, and nothing herein contained shall be deemed a surrender by the carrier or any of its rights or immunities or an increase of any of its responsibilities or liabilities under said Act. If any term of this Bill of Lading repugnant to said applicable Act to any extent, such term shall be void to that extent, but no further."
Paragraph 4(2)(m) of the US Carriage of Goods by Sea Act 1936 ("USCOGSA") provides that "[n]either the carrier nor the ship shall be responsible for … loss or damage arising from inherent defect, quality, or vice of the goods".
(C) THE ARBITRATION
(1) The cases before the tribunal
(2) The Tribunal's findings
"123. In the light of the findings we have made on Chinese law, we have had little difficulty reaching the conclusion that Grand Amazon acted reasonably in dealing with the cargo claims brought by the Cargo Interests in the PRC. Obtaining a London arbitration award containing a declaration of non-liability (or an award of damages, if it were possible) would not have assisted Grand Amazon as such an award would not in practice have been enforced in the PRC against Cargo Interests. Nor would an English High Court anti-suit injunction against Cargo Interests have assisted as the injunction would not have been enforceable against the Cargo Interests in the PRC. Nor would it have been of any practical assistance to Grand Amazon to seek to challenge the jurisdiction of the PRC Courts as such a challenge would have had no realistic prospect of success. Further, we find that it was not unreasonable for Grand Amazon to have defended the cargo claims in the PRC on the ground that the Vessel's crew had properly ventilated and cared for the cargo during the voyage.
…
131. The critical question under clause 8(d) is one of causation. In our view it is difficult to see why the shipment of an unstable cargo which gives rise to cargo claims should not be an "act" of the charterers (within the meaning of clause 8(d) of the ICA) for which the charterers are responsible. It was from the loading of the Montevideo Cargo (with its particular characteristics) and the instruction for the carriage of the Montevideo Cargo to the PRC that the Charterer's responsibility arose under the ICA. The relevant "act" is not the mere shipment of a cargo, but the shipment of an unstable cargo. The conclusion we have reached is consistent with the analysis of Teare J and the Court of Appeal in The Yangtze Xing Hua as to the meaning of the word "act" where it appears in clause 8(d) of the ICA.
132. This is not an end to the matter, however. The Charterer has two further arguments. First, it contends that the "act" was not an act of the Charterers, their sub-contractors or servants; and, secondly, for the purposes of clause 8(d), the Charterer contends that it cannot be said that there is clear and irrefutable evidence that the cargo claims "arose out of" any "act" by the Charterer. We can deal with these submissions shortly.
(1) In our view it was from the loading of the Montevideo Cargo (with its particular characteristics) and the instruction for the carriage of the Montevideo Cargo to the PRC that the Charterer's responsibility would have arisen under the ICA. This was the relevant "act".
(2) Further, it was this act which gave rise to the cargo claims by Cargo Interests."
"136. The Charterer also points out that this is not a case where the cargo itself caused damage but where liability has been wrongly imposed by the Chinese Courts, and where the cause of Grand Amazon's complaint against the Charterer should not have led to any liability being incurred by them. Whether analysed as a matter of the scope of the indemnity or causation, the Charterer says, there is no basis for imposing liability upon the Charterer for a loss that cannot be said to have been the natural or ordinary consequence of the loading of a cargo affected by inherent vice. The Charterer submits that this is particularly so in circumstances where the risk of their being an adverse judgment from the Chinese Courts was one Grand Amazon must be taken to have known about when the Charterparty was fixed. It is not a risk which was unknown at the time of contracting. In this regard it referred the Tribunal to The Island Archon [1994] 2 Lloyd's Rep 277 and to the 36th Donald O'May lecture delivered by Sir Nicholas Hamblen, Under charterers' orders - to indemnify or not to indemnify, reported at [2019] LMCLQ 200.
137. In our view the alleged defence is without merit. Grand Amazon's liability to Cargo Interests in respect of the damaged Montevideo Cargo was not an ordinary cost or risk associated with the performance of the chartered service. It was not one of the broad range of physical and commercial hazards which are normally incidental to the chartered service. It was a loss arising from a cost or risk which it had not expressly or impliedly agreed in the Charterparty to bear. For such liability Grand Amazon was not being remunerated. A cargo with a propensity to self-heat is outside the limits of the Charterparty, and outside the kind of risk which Grand Amazon agreed to bear under the Charterparty…
140. … In the present case the Charterer's direction gave rise to a loss suffered by Grand Amazon without its fault, arising directly from the delivery of the Montevideo cargo in accordance with the Charterer's instructions. In our view the loss is squarely within the scope of the implied indemnity. It arose directly from the Charterer's orders and, on a fair reading of the Charterparty, Grand Amazon cannot be understood to have accepted this risk when it agreed to act on the Charterer's instructions.
141. In this context, the issue of causation is whether the chain of causation between the Charterer's "act" and the loss suffered by Grand Amazon was broken. The Tribunal's findings on causation in the context of a claim under the ICA are dealt with at paragraph 123 above. The position is a fortiori in this context. Grand Amazon did not fail to take reasonable steps to enforce its rights in London arbitration proceedings and the cause of its loss was not any failure on its part. Grand Amazon's loss arose out of compliance with the Charterer's orders under the Charterparty."
"138. The Island Archon, on which the Charterer relies, concerned a very different set of circumstances. It concerned the chaos prevalent in Iraqi courts at the time of the facts giving rise to that dispute, chaos referred to as the "Iraqi system". The arbitrator found that:
"At the relevant time – and this was well-known in shipping circles – chaos was prevalent in Iraqi ports, and in all aspects of their operation including the handling and supervision of cargoes and the pursuit of cargo claims … put shortly, any ship ordered to discharge general cargo in Iraq was almost bound to have cargo claims made against it and to have those claims taken to court locally, leading to adverse judgments, regardless of whether there was any actual shortage or damage, or otherwise any liability on the ship under the bills of lading."
139. As regards the carriage of general cargoes to China in 2014 the position was very different. Cargo claims were not almost inevitable. Cargo claims were only brought in respect of damaged cargo. The risk of unjustified cargo claims was not a risk which had been accepted by Grand Amazon."
(D) GROUNDS OF APPEAL
"Where liability is wrongly imposed on an owner by a foreign court following shipment of a lawful harmless and permitted cargo that is affected by inherent vice, can the owner recover that liability from a time charterer under the general implied indemnity?"
"(ix) Question 3 concerns the ground on which the arbitrators upheld the owner's implied indemnity claim. Their essential reasoning was that on the proper construction of the subject time charter, the owner had not expressly or impliedly agreed to bear the relevant risk. I consider the correctness or otherwise of that reasoning, in the context of facts such as those of the present case, to be a question of general public importance, and in my view the correctness of the arbitrators' reasoning (and therefore of their decision that the Island Archon claim should be upheld) is open to serious doubt.
(x) I note in particular that there seems to be both (a) what may be a contradiction in the Reasons, in that the arbitrators appear to accept (or proceed on the basis) that the cargo was a lawful and permitted cargo under the charter, the inherent vice notwithstanding, and yet also say that it was a cargo "outside the limits of the Charterparty", and (b) what may be a misunderstanding of The Island Archon, which (in relevant respect) did not turn on the near inevitability of a cargo claim under the "Iraqi system", but on the fact that the existence of that system, and thus the risk of suffering loss under it, was not notorious when the charter was concluded – Evans LJ expressly contemplated that otherwise the result might have been different (ibid at 236 rhc), and an appeal here may provide an opportunity for that to be explored and tested in a case where it will be determinative."
"(1) Does the ICA apply or potentially apply to Cargo Claims
(2) Does the loading of a lawful harmless and permitted cargo that is affected by inherent vice amount to an "act" of the charterers for the purposes of Clause 8(d) of the ICA, such that any cargo claims caused thereby are borne 100% by the charterers rather than 50/50 between the charterers and the owners?"
as to which Andrew Baker J noted that:
"… it was the charterer's case that Inter-Club Agreement apportionment did not apply so that the owner had no claim under that Agreement and was limited (on the facts of this case) to an Island Archon indemnity claim, which the charterer in turn defended on grounds now giving rise to [the question on which leave was granted]. In fact, according to the award, it was common ground, at all events at the final hearing, that Inter-Club Agreement apportionment did not apply."
(E) THE PARTIES' ARGUMENTS
i) The express terms of the Charterparty made detailed provision concerning which cargoes and ports were outside the bounds of the charterparty. They did not preclude the cargo and destination involved in this voyage. That was an indication that Owners accepted the risks arising from such carriage. Charterers also contended (in an argument elaborated in oral and post-hearing submissions) that the ICA provided a complete code for the allocation of responsibility for cargo claims, such that the implied indemnity should not operate, alternatively should operate only to the extent that the ICA would have operated i.e. a 50% apportionment.
ii) A proper interpretation of The Island Archon and other authorities suggest that a risk such as that in the present case is not covered by the implied indemnity. In particular, where a risk has not changed between the time of chartering and the time when it causes loss, and where liability arises under bills of lading with terms no more onerous than those envisaged by the charterparty, the implied indemnity should not operate.
iii) Commercial considerations support the allocation of risk for which Charterers contend.
iv) There should be no difference in principle between situations where the cargo has suffered from inherent vice, or where it has not. In either case the owner has accepted the risk of cargo claims consequent on carrying lawful, permitted, harmless cargo to a port within the bounds of the charterparty.
i) Charterers are seeking to appeal a finding of fact.
ii) The Tribunal's analysis of The Island Archon and other relevant case law was correct.
iii) The risk which gave rise to Owners' loss was not an ordinary trading risk that Owners had agreed to bear.
iv) The express terms of the Charterparty point towards the allocation of risk for which Owners contend.
v) The incorporation of the ICA did not preclude an implied indemnity in cases to which the ICA did not apply.
(F) PRINCIPLES
(1) Appeals on a point of law
i) Ascertaining the facts, which includes findings on any facts which are in dispute.
ii) Ascertaining the law. This includes identification of the relevant legal principles, the identification and interpretation of the relevant parts of the contract and the identification of facts which must be taken into account.
iii) Reaching a decision, in light of the facts and law ascertained.
"First, as a matter of general approach, the courts strive to uphold awards. This means that, when looking at an award, it has to be read in a reasonable and commercial way, rather than with a view to picking holes, or finding inconsistencies or faults, in a tribunal's reasoning…"
"Secondly, where a tribunal's experience assists it in determining a question of law, such as the interpretation of contractual documents, the court will accord some deference to the tribunal's decision on that question. It will reverse the decision only if satisfied that, despite the benefit of that experience, the tribunal has still come to the wrong answer…".
Thirdly, it is for the tribunal to make the findings of fact…and any question of law arising from an award must be decided on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators…".
"Fourthly, when a tribunal has reached a conclusion of mixed fact and law, the court cannot interfere with that conclusion just because it would not have reached the same conclusion itself. It can interfere only when convinced that no reasonable person, applying the correct legal test, could have reached the conclusion which the tribunal did: or, to put it another way, it has to be shown that the tribunal's conclusion was necessarily inconsistent with the application of the right test… The same extremely circumscribed power of intervention applies when it is complained that a tribunal has incorrectly applied the law to the facts. It is only if the correct application of the law leads inevitably to one answer, and the tribunal has given another, that the court can interfere. Once a court has concluded that a tribunal which correctly understood the law could have arrived at the same answer as the one reached…the fact that the individual judge himself would have come to a different conclusion is no ground for disturbing the award…".
(2) The implied indemnity
(a) Basic principles
"When an act is done by one person at the request of another which act is not manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done."
The court in Dugdale itself traced the principle back to earlier cases, including Toplis v Grane (1839) 15 Bing. N. C. 636 where Tindal CJ said:
"We think this evidence brings the case before us within the principle laid down in Betts v. Gibbins (1834) 2 Ad. & E. 57, that when an act has been done by the plaintiff under the express directions of the defendant which occasions an injury to the rights of third persons, yet if such an act is not apparently illegal in itself, but is done honestly and bona fide in compliance with the defendant's directions, he shall be bound to indemnify the plaintiff against the consequences thereof."
"… The Captain (although appointed by the Owners), shall be under the orders and directions of the Charterers as regards employment and agency."
the principle gives rise to a prima facie implied right of indemnity in favour of the owner for losses or liabilities arising from the charterer's orders. Wilford, "Time Charters" (7th ed., 2014) explains the matter in this way:-
"In the New York Produce form (unlike the Baltime form) there is no express indemnity given to the owners. But an indemnity will normally be implied against loss or damage suffered, or liability incurred, by the owners as a consequence of complying with the charterers' orders or directions unless, by the charter, the owners consented to bear the loss, damage or liability in question. The owners have put their ship at the disposal of the charterers, who can choose (within the agreed limits) what cargoes to load and where to send the ship, and for that arrangement to work effectively the master must be entitled and bound to follow the charterers' orders without undue question. It is therefore said to be not only reasonable, but necessary to give business efficacy to the contract, that the charterers should bear the consequences of their choices." (§ 19.15)
"Under a time charterparty the shipowner puts the vessel at the disposal of the charterer, who can choose for himself what cargoes he shall load and where he shall send the ship, provided that the limits prescribed by the contract are not exceeded. When deciding who has to bear the consequences of a choice being made in one way rather than the other, it is reasonable to assume that the consequences shall fall upon the person who made the choice, for it is the charterer who has the opportunity to decide upon the wisdom of the selection which he makes."
That passage was in turn cited by Evans LJ in Triad Shipping Co v Stellar Chartering & Brokerage Inc. (The "Island Archon") [1994] 2 Lloyd's Rep. 227, 237, [1994] C.L.C. 734, who added:-
"… the implication is justified, in my view, first by 'business efficacy' in the sense that if the charterer requires to have the vessel at his disposal, and to be free to; choose voyages and cargoes and bill of lading terms also, then the owner must be expected to grant such freedom only if he is entitled to be indemnified against loss and liability resulting from it, subject always to the express terms of the charterparty contract; and secondly by the legal principle underlying the 'lawful request' cases such as Sheffield Corporation v Barclay; in other words, an implication of law."
"… The Master shall be under the orders of the Charterers as regards employment, agency, or other arrangements. The Charterers shall indemnify the Owners against all consequences or liabilities arising from the Master, officers or Agents signing Bills of Lading or other documents or otherwise complying with such orders, as well as from any irregularity in the Vessel's papers or for overcarrying goods. The Owners shall not be responsible for shortage, mixture, marks, nor for number of pieces or packages, nor for damage to or claims on cargo caused by bad stowage or otherwise. …"
As Sir Nicholas Hamblen in the article entitled "Under charterers'' orders – to indemnify or not to indemnify" ([2019] LMCLQ 200) said, ["t]he terms of the general right of indemnity are similar to the express general indemnity given under the Baltime form, namely a right to be indemnified against the consequences of compliance with the charterers' orders as to the employment of the vessel". Similar wording also appears in the Shelltime 4 form:-
"The master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the vessel, agency and other arrangements, and shall sign bills of lading as Charterers or their agents may direct (subject always to Clause 35(a) [War Risks] and 40 [Export Restrictions]) without prejudice to this charter. Charterers hereby indemnify Owners against all consequences or liabilities that may arise:
from signing bills of lading in accordance with the directions of Charterers or their agents, to the extent that the terms of such bills of lading fail to conform to the requirements of this charter, or (except as provided in Clause 13(b) [discharge without or otherwise than in accordance with bills of lading] from the master otherwise complying with Charterers' or their agents' orders;
from any irregularities in papers supplied by Charterers or their agents." (clause 13(a))
"to indemnify the owners from all consequences or liabilities that may arise from the captain signing bills of lading by the orders of charterers or of their agents, or in otherwise complying with the same."
The charterers sub-chartered the vessel by a voyage charterparty for a voyage from Rangoon to China. On arrival in China some of the goods were delivered without the production of the bills of lading but against letters of guarantee. That was done on the instructions of the charterers' agents. In proceedings in Scotland, the owners were found liable to the pledgees of the bills of lading for misdelivery, and they claimed an indemnity from the charterers. The owners relied on clause 16 of the charterparty, but also claimed a right to indemnity at common law, relying on a letter dated 5 August 1924 from the charterers' agents instructing the master to deliver against bills of lading or in the absence of bills against guarantees. The points of claim alleged that:-
"as the said goods.. were released or delivered by the master on the orders or directions or at the request of the [charterers'] agents, the [charterers] were and are bound to pay the said claim and to indemnify the [owners] against the same."
Lord Hanworth M.R. considered the claim based on the letter of 5 August and applied the words of Tindal C.J. in Toplis v. Grane quoted in § 46 above. Slesser LJ agreed, citing the same passage from Toplis and adding:-
"as it seems to me, in the facts of this case all the constituents of an implied promise to indemnify arise." (p.194)
Romer L.J. also agreed , but in addition also considered the matter on the basis of wrongful delivery by the ship's agents at the instigation of the charterers. He said:
"Now, if the agents for the ship do a wrong to their own principals at the instigation of the time charterers, then plainly in accordance with the principle which was applied in the case of Kruger & Co. Ltd. v. Moel Tryvan Ship Co. Ltd. [1907] AC 272, the time charterers became liable to indemnify the principals against the consequences of the agents acting on their direction. For these reasons, as well as those given by the other members of the court, I think this appeal fails." (p.195)
"an order to load a particular cargo has been held to be an order regarding employment. If the order to load that cargo causes loss to the owners, then the right to indemnity from the charterers arises." (§ 19.30)
"I am conscious that to grant to Clause 9 all the width which it literally demands might in some cases produce startling results and would certainly bring it into conflict with many other clauses. On the other hand, I see nothing incongruous in the idea that the clause was intended to have, as it were a life of its own and to be more than a bin for odds and ends left over from other clauses. Dangerous cargoes, trades, ports and places can all be prohibited by express provision; but many cases may arise which are outside the rigid framework of a prohibition clause, but where an owner, if he were free to choose, might prefer not to go to a particular place or take a particular cargo, not necessarily because he foresees any definite danger but because he feels it might lead to trouble. If he is to surrender his freedom of choice and put his master under the orders of the charterer, there is nothing unreasonable in his stipulating for a complete indemnity in return. (p.234 lhc)
…
Accordingly, I hold that an order to load a particular cargo is an order as to employment of the ship … and that the consequences of complying with such an order are within the scope of the indemnity provided by Clause 9. (p.235)
…
If the damage to the ship in the present case had resulted from an accident in the course of loading, it might well be argued that the damage could not in law flow from the order to load. But if the damage results from the nature of the cargo loaded and from particular properties which it possesses, it is, in my judgment, open to an arbitrator to find that the order to load caused the damage." (p. 235 rhc)
Citing the first of these passages, Wilford notes that "implied indemnities do not have to be limited to matters outside the scope of other charter clauses … and an overlap of subject matter with such express clauses does not necessarily involve inconsistency" (§ 19.20, also citing Timothy Walker J's decision in Deutsche Ost-Afrika-Linie v Legent Maritime (The Marie H) [1998] 2 Lloyd's Rep. 71).
Scrutton on Charterparties and Bills of Lading (25th ed., 2024) § 17-044 cites The "Ann Stathatos" and The "Marie H" for the proposition that "an order to load a particular cargo is an order as to employment and the consequences of complying with such an order are within the scope of the indemnity", adding that this so even if the cargo is not dangerous or unusual (citing The Athanasia Comninos and Georges Chr. Lemos: see below).
"Clause 8 of the time charter reads as follows: —
8 . . . The Captain (although appointed by the Owners) shall be under the orders and direction of the Charterers as regards employment …"
It has long been established that a provision in this form impliedly requires the charterer to indemnify the shipowner against the consequences of complying with an order as to the employment of the ship. Mr. Tomlinson, for the time charterers, did not dispute that an order as to the receipt of cargo on board the vessel falls within the scope of the indemnity." (p.290rhc)
and:
"It seems to me perfectly possible to have a loss which is caused by the shipment of a cargo having certain properties, even if the properties of the cargo in question are no different from those of other cargoes of the same description. In the present case, if one asks the question (eliminating the possibility of fault on the part of the shipowner) "Why was there an explosion?", the answer is - "Because there was methane in the hold". And if one goes on to ask "Why was there methane in the hold?" the answer is - "Because the Time Charterers called on the vessel to load coal". This answer is in my opinion sufficient to found an indemnity, without proof that the coal was in any way unusual." (p.296)
"Finally, I must deal with a point raised by Mr. Tomlinson in relation to art. IV, r. 3 of the Hague Rules, which were incorporated into the charter-party by reference. This reads as follows—
3. The shipper shall not be responsible for loss or damage sustained by the carrier or the ship arising or resulting from any cause without the act, fault or neglect of the shipper, his agents or servants.
Mr. Tomlinson maintains that the finding that the plaintiffs have failed to prove a breach of contract entails that they have also failed to prove "act, fault or neglect" of the shipper; that "the shipper" in the context of a time charter means the charterer; and that accordingly his clients are free from liability.
This is not the place for a full discussion of the difficult problems raised by the incorporation of the Hague Rules into the inapposite context of a time charter. I will merely say that whatever result the parties may have intended to achieve when including the rules, and even if "shipper" can be read as meaning "charterer", they would need to use much clearer language than this to introduce the idea of fault into the shipowner's implied indemnity, where it has never been before. It may be that art. IV, r. 3 means nothing at all in the context of a time charter. It is unnecessary to decide this, but whatever the rule means in this context, I do not accept the interpretation for which Mr. Tomlinson contends."
(b) More onerous terms in bills of lading
"In those cases [Kruger and Elder, Dempster] I was counsel for the successful parties, and I remember that considerable discussion took place as to the lines upon which the claim to indemnity should be put. Some of the judges and law lords said that the charterers were liable on two grounds. The first of these was that a right to indemnity followed from the terms of the charterparty, because it required the master to sign bills of lading in a particular form, and consequently that the charterers must be liable if loss followed in consequence of presenting inaccurate bills of lading. The second ground — and this has nothing to do with the charterparty but turns upon the principle stated in Sheffield Corporation v. Barclay [1905] AC 392, and Birmingham and District Land Co. v. London and North Western Railway Co (1886) 34 Ch.D 261 , 272 — that a mere request from the charterers, involving, as it did, the shipowners in a liability in which otherwise they would not have been involved, raised the implication of an indemnity against those consequences. Some of the judges and law lords took one view, some the other, and some both. In this case it is sufficient to say that as the master was required to sign the bill of lading as presented to him, the charterers were bound to present an accurate bill of lading as to the weight shipped. The shippers were the charterers' agent to supply the cargo and present the bill of lading; they presented an inaccurate bill of lading with consequent loss. The charterers must therefore make good that loss." (p.439)
Greer LJ stated:-
".. I regard [Elder, Dempster and Kruger] as meaning this and no more, that if the charterer or some person for whom he is responsible, presents a bill of lading to the master which the latter is bound to sign as part of the terms of the contract, there may be implied from the act of presenting the bill of lading, taken together with the terms of the contract, a warranty of the correctness of the figures, description, or marks stated in the bill of lading." (p.440)
Slesser LJ agreed with Greer LJ.
(c) Limitation on the implied indemnity
"11. In the first place, it has to be read in the context of the owners' obligations under the charterparty as a whole. The owners are not entitled to an indemnity against things for which they are being remunerated by the payment of hire. There is therefore no indemnity in respect of the ordinary risks and costs associated with the performance of the chartered service. The purpose of the indemnity is to protect them against losses arising from risks or costs which they have not expressly or implicitly agreed in the charterparty to bear. What risks or costs the owners have agreed to bear may depend on the construction of other relevant provisions of the contract, or on an informed judgment of the broad range of physical and commercial hazards which are normally incidental to the chartered service, or on some combination of the two. The classic example of a loss within the indemnity, and probably the commonest in practice, is one which arises from the master complying with the charterers' direction to sign bills of lading on terms of carriage more onerous than those of the charterparty. But the indemnity has been held to be applicable in principle to a wide variety of other circumstances, including compliance with an order to load cargo which is dangerous even on the footing that appropriate care is taken of it, or an order to proceed to a legally unsafe port. On the other hand, the indemnity will not apply to risks which the owners have contractually assumed, which will usually be the case where they arise from, for example, their own negligence or breach of contract or consequences such as marine fouling which are incidental to the service for which the vessel was required to be available.
12. Secondly, clause 13 itself limits the indemnity to losses which were caused by complying with the charterers' orders. Like all questions of causation, this one is sensitive to the legal context in which it arises. It depends on the intended scope of the indemnity as a matter of construction, which is necessarily informed by its purpose. We are not therefore concerned with question of remoteness and foreseeability of the kind which would arise in the law of damages, where the object is to limit the range of consequences for which a wrongdoer may be said to have assumed responsibility in the eyes of the law. Indeed, as Sir Donald Nicholls V-C pointed out in Triad Shipping Co v Stellar Chartering & Brokerage Inc (The Island Archon) [1994] 2 Lloyd's Rep 227, 238, the more foreseeable the owners' loss, the more likely it is to be an ordinary incident of the chartered service and therefore outside the scope of the indemnity. The real question is whether the charterers' order was an effective cause of the owner having to bear a risk or cost of a kind which he had not contractually agreed to bear. I use the expression "effective cause" in contrast to a mere "but for" cause which does no more than provide the occasion for some other factor unrelated to the charterers' order to operate. If the charterers' order was an effective cause in this sense, it does not matter whether it was the only one."
"24. I accept Mr. Turner's submission that just because a particular risk of loss or expense is foreseen or foreseeable at the time a charter-party is made, that is not conclusive to determine whether that loss or expense is within the scope of an implied indemnity. But it is clear from the judgments of both Lord Justice Evans and Nicholls, V.-C. in The Island Archon that if, at the time that the charter-party is concluded, the occurrence and type of loss or expense to the shipowner flowing from the order as to employment of the vessel were unforeseen, then that will be a potent factor in deciding that the loss or expense will fall within the scope of the implied indemnity: particularly when the order was lawful.
25. It is also apparent from the decision of the Court of Appeal in The Island Archon that when a tribunal of fact has to decide whether particular expenses are within the scope of an implied indemnity under an NYPE charter-party, it is entitled, as a matter of law, to ask the question: was this type of risk one that the shipowners agreed to bear, at the time the charter was concluded: see p. 236. In the present case ''this type of risk'' means the risk that the vessel will suffer hull-fouling because the vessel was inactive at a warm water port for 22 days as a result of a legitimate order as to employment by the charterers and the risk that the owners will suffer expense in hull-cleaning as a consequence. If, as I find, the arbitrators have concluded that ''this type of risk'' was one that was foreseeable and foreseen by both parties at the time the charter-party was concluded, then, given the approach of the Court of Appeal in The Island Archon, the arbitrators were entitled to conclude that ''this type of risk'' was one that the owners agreed to accept at the time the charter-party was made. That is, essentially, a finding of mixed fact and law. It is precisely the conclusion that the arbitrators did reach in par. 32 of their award."
"19.17 The precise scope of this principle is not entirely clear. As formulated above, the indemnity extends to lawful orders that expose the owners or the ship to risks the owners have not consented to bear. Yet Lord Hobhouse said in The Hill Harmony, at page 160: "If an order is given compliance with which exposes the vessel to a risk which the owners have not agreed to bear, the master is entitled to refuse to obey it." It is suggested that Lord Hobhouse's equation is not universally true. But it does reflect a certain instinct that agreeing to run a risk and agreeing to bear the consequences ordinarily go hand in hand. That in turn makes the identification of risks that the owners have agreed to run, but not to bear, a little elusive. The facts of The Island Archon itself might be taken to be an example, although on the arbitrator's findings the order seems to have been an order to proceed to a (legally) unsafe port and therefore unlawful all along. A surer example, which the Court of Appeal drew upon to show that the implied indemnity is not limited to unlawful orders, is an order to sign a bill of lading committing the owners to more onerous cargo responsibilities than they have undertaken by the charter ... It is suggested that the basis and scope of the implied indemnity would benefit from definitive consideration by the Supreme Court, but the end result seems right, namely that where it is found that loss, damage, or liability has resulted from following the charterers' orders, the charterers must indemnify the owners unless they prove that the effective cause of the loss, damage or liability was a risk the owners had agreed by the charter to bear. That it is for the charterers to show why they are not liable is sufficient to explain why the claim in The Island Archon succeeded, although the owners did not set out to prove an unlawful order, and also to explain the successful indemnity claim by the owners of the Georges Chr. Lemos in The Athanasia Comninos …, which proceeded from Mustill, J.'s conclusion that "on the evidence given at the trial. . . the cause of the explosion is unknown"."
(d) The Island Archon
"whether a promise to indemnify the shipowners against the consequences of complying with an order as to the employment of the ship can be implied when the order was lawfully given; when it was an order which the charterer was entitled to give." (p. 231 per Evans LJ)
"When a bill of lading is issued or is transferred to the owner or person entitled to possession of the cargo, who is not the charterer, then it contains or evidences a separate contract between the shipowner and that other person. If the shipowner's liability under the bill of lading is more onerous than under the charterparty, then the extent to which, if at all, he can recover an indemnity against the excess from the charterer is governed by the charterparty, or it may arise under the general principles of law recognised in Kruger v Moel Tryvan as a consequence of the master's compliance with the charterers' request.
The terms of the bill of lading as presented for signature may be different from those 'required' by the charterparty (per Scrutton LJ in Dawson Line Ltd v Adler [1932] 1 KB at p. 439 ) and in such cases a breach of contract is established from the fact of presentment alone, as in Kruger v Moel Tryvan itself. Conversely, if the bill of lading is in a form which is required by the charterparty, even though its terms are different from those of the charterparty itself, then it is difficult to imply a promise that the charterer will indemnify the shipowner against the consequences of doing what the charter required him to do. If no promise is implied, the effect is that the shipowner has agreed to the charter terms as between himself and the charterer, and other terms with the holders of the bill of lading; and this was held to be the true construction of the charterparty contract in The C Joyce (above).
The intermediate case, which arises for consideration in the light of Mr Glennie's submissions, is where the charterparty permits the charterer to present and to require the master to sign a bill of lading whose terms and conditions of carriage differ from those found in the charterparty itself. In these circumstances, there is no breach of charterparty by the charterer, nor can the charterer's direction or request to the master be said to lie outside the charterparty; it is permitted by the charterparty and he is entitled by contract to act as he has done." (p.232 rhc to p.233 lhc)
"The situation therefore may often arise, where, far from the charterers being in breach by reason of presenting for signature a bill of lading containing different terms and conditions of carriage from the charterparty, the master would place the shipowners in breach of contract if he refused to sign, assuming only that the bill is accurate as to the apparent condition of the cargo loaded and is not in terms which can be said to be outside the scope of any which were contemplated by the charterparty. Does the implied right to be indemnified arise in such a case?
In my judgment, there is no reason in principle why it should not do so in accordance with the general rule founded on Sheffield Corporation v Barclay [1905] AC 392 . If the rule applies when the charterer makes a request outside the terms of the charterparty, as Mr Glennie concedes that it does, then why should it not also apply when the same request has been contemplated by the charter itself? The fact that the request is a direction which the master is under a contractual duty to obey does not mean that the rule cannot operate (see Nogar Marin at p. 417). In such circumstances, the correct legal analysis in my judgment is that the right to an indemnity exists under an implied term of the charterparty. Nor is there any reason why the implied term should be limited to the consequences of complying with one kind of direction only, that is, to sign bills of lading in a particular form.
…
… when Mustill J said in The Athanasia Comninos in 1979 that this 'has long been established', without suggesting that the right was limited to cases where the charterer's order was given in breach of contract, or was extra-contractual in the sense that the shipowner or master was not under a duty to obey it, he was referring to a long-held general belief among maritime lawyers including, and perhaps especially, maritime arbitrators that no such qualification was necessary. Although not expressly decided in any reported case, the view was supported by leading text-book writers, as it has continued to be. In my judgment, he correctly stated the law."
(p.233rhc, my emphasis)
For these reasons, I would reject Mr Glennie's submission and hold that the shipowners are entitled to rely upon an implied right to be indemnified against the consequences of complying with the time-charterers' order to proceed to Basrah and deliver cargo there, notwithstanding that it was an order which the time-charterers were entitled to give and the shipowners were bound to obey. There is an express finding that the losses claimed were the direct consequence of complying with the order and on this basis the shipowners are entitled to succeed and the appeal should be dismissed." (p.233rhc to p.234 rhc)
That conclusion makes clear that the implied indemnity is not limited to the effects of charterers' orders that are inconsistent with the terms of the charterparty. Nor was it expressed to be dependent on the imposition of liabilities by the Iraqi court being "extraordinary" (a suggestion which Charterers in the present case have made).
"It is clear, however, that even when there is an express indemnity, time-charterers are not liable for all consequences which may result from compliance with their order. First, the shipowners may themselves have been at fault: see The Nogar Marin [[1988] 1 Lloyd's Rep. 412], at p. 417. This exception, however, may be more apparent than real, because the intervening fault can readily be seen to have broken the chain of consequences flowing from the charterers' order, in accordance with established general principles. Secondly, it has been held that the shipowner remains responsible for the safe navigation of the ship (see Larrinaga Steamship Co v R (1944) 78 Ll L Rep 167 ) and The Erechthion [[1987] 2 Lloyd's Rep. 180]…" (p.234rhc to p.235 lhc)
"Ordinary expenses and navigational risks
Moreover, the owners are not entitled to recover from the charterers under their indemnity the ordinary expenses and losses of trading, despite the fact that in a broad sense these are incurred as a result of their obedience to the orders of the charterers. This was expressed by Lloyd J in The Aquacharm in the following words:
"It is of course well settled that owners can recover under an implied indemnity for the direct consequences of complying with the charterers' orders. But it is not every loss arising in the course of the voyage that can be recovered. For example, the owners cannot recover heavy weather damage merely because had the charterers ordered the vessel on a different voyage, the heavy weather would not have been encountered. The connection is too remote. Similarly, the owners cannot recover the expenses incurred in the course of ordinary navigation, for example, the cost of ballasting, even though in one sense the cost of ballasting is incurred as a consequence of complying with the charterers' orders: see Weir v Union Steamship Co Ltd [1900] AC 525. The same considerations apply in the present case. The costs of transshipment were an ordinary expense incurred in the course of navigation.""
Evans LJ added at p.236 lhc that claims under an express indemnity failed in two cases where the vessel suffered a loss resulting, not from the charterer's orders, but from navigational risks to which she was exposed in the course of carrying them out (citing Larrinaga SS Co v R (1945) 78 Ll L Rep 167 (HL) and Stag Line Ltd v Ellerman & Papayanou Lines Ltd (1949) 82 Ll L Rep 826, 835–837)).
"The authorities show, therefore, that time-charterers may be held liable under an express indemnity for the consequences of ordering the chartered vessel to load a particular cargo or to proceed to a named port, even though the order is one which the charterer is entitled to give and the master is bound to obey. But the consequences for which the charterer is liable do not include two categories of loss. First, the loss may be regarded as caused in law by some subsequent or intervening event. An act of negligence may often, but not invariably, break the chain of causation in this sense: see Portsmouth Steamship Co Ltd v Liverpool & Glasgow Exchange Association (1929) 34 Ll L Rep 459 (per Roche J) and The White Rose , at p. 59. Secondly, the loss although a consequence 'in a broad sense' (Wilford, at p. 241) may have arisen from a risk which the shipowner has agreed to run, hence the exclusion of navigational risks and also the distinction which has been held to exist between time and voyage charterparties (per Devlin J in The Ann Stathatos and Mustill J in The Georges C Lemos (3rd party proceedings) [1991]2 Ll Rep 107.
This does not mean that a rigid distinction between time and voyage charters must always be made. If the question is whether the shipowner has accepted the risk to which in the event the vessel has been exposed, there could be voyage charters giving the charterer a wide range of options to choose a cargo or port where it would be 'reasonable' for the shipowner to expect the indemnity to apply, and conversely, time charters with a narrow range e.g. charters for the period of a specified voyage or 'trip', where it would not.
…
What risks the shipowner has agreed to bear must depend upon the true construction of the charterparty and therefore upon the situation when the charterparty was entered into."
(p.236)
"In my judgment, therefore, the award and the judgment in the present case in favour of the shipowners are consistent with the authorities and justified by the relevant principles of law. The right to be indemnified may be implied, but it is subject to the same restrictions as regards consequences as have been held to apply to an express right, and in both cases the right is subject to the shipowners' acceptance of risk, including the risk of liabilities to third parties, as between himself and the charterers on the true construction of the charterparty itself." (p.237 lhc)
"In the present case the charterer's direction gave rise to an unforeseen type of loss, suffered by the shipowner without his fault, arising directly from the delivery of cargo in accordance with the charterer's instructions. In my view this loss is within the scope of the implied indemnity. It arose directly from the charterer's orders. And on a fair reading of the charterparty the shipowner cannot be understood to have accepted this risk when he agreed to act on the charterer's instructions.
Indeed the loss suffered by the shipowner here is an example par excellence of the type of loss to which the well-established indemnity implied from complying with charterer's orders applies. I can see no reason for disagreeing with the conclusion of the experienced arbitrator and of the experienced trial judge." (p.238 rhc)
"What risks the shipowner has agreed to bear must depend upon the true construction of the charterparty and therefore upon the situation when the charterparty was entered into. If there had been a finding in the present case that the 'Iraqi system' was notorious at the date of the charterparty in March 1979 then there might be substance in the charterers' contention that the shipowners' had consented to bear the consequences of ordering the vessel to discharge at an Iraqi port, which they could have excluded from the agreed limits if they had sought to do so. But the findings are that the Iraqi system was well known only when the vessel was ordered there in June/July 1980, and the Iran/ Iraq war which may have been responsible for the problem did not begin until September 1980. In these circumstances, the shipowners' failure to guard against the difficulties over a year before cannot provide grounds for barring their claim" (pp.236 rhc to 237 lhc)
"This does not mean that a rigid distinction between time and voyage charters must always be made. If the question is whether the shipowner has accepted the risk to which in the event the vessel has been exposed, there could be voyage charters giving the charterer a wide range of options to choose a cargo or port where it would be 'reasonable' for the shipowner to expect the indemnity to apply, and conversely, time charters with a narrow range e.g. charters for the period of a specified voyage or 'trip', where it would not." (p.236rhc)
The whole premise of the time/voyage charter distinction in this context, and Evans LJ's gloss on it quoted above, is that the owner is not taken necessarily to have implicitly consented to the loading of particular cargos or the visiting of particular ports unless they were sufficiently foreseeable at the time of the charterparty for such consent reasonably to be inferred.
(e) Pre-Island Archon decisions relied on
"[u]nless it can be said that [Minnesota law] was so unusual as to constitute Duluth a legally unsafe port to which the vessel should not have been ordered…or that the time charterers engaged stevedores who were incompetent by local standards…I do not consider that it can be said that there is the necessary causal connection between the order to load and the loss". (pp. 59-60)
"Applying the same analysis to the facts of The White Rose, the shipowners could be said to have accepted the normal incidents of loading cargo at a US port, including the risk of liability under the local State law to an injured stevedore when the shipowners themselves were not at fault, but this would not bar them from recovering an indemnity from the time charterers if the local law was 'unusual', as contemplated by Donaldson J in the passage quoted above." (p.236 rhc)
Leaving aside the fact that that was an obiter dictum, and did not reflect the ratio of either The White Rose or The Island Archon, it is anyway of limited import. The risk of liability for injury to a stevedore is similar to the other types of risk pertaining to the operation of a vessel – navigation, heavy weather damage, ballasting costs, transhipment costs and marine fouling – discussed in see Larrinaga Steamship Co (grounding damage), The Erechthion (consequences of following pilotage advice), The Aquacharm, Kitsa and Kos.
i) a statement in Carver on Charterparties (3rd ed, 2024) that, whereas an indemnity is triggered where the charterer presents bills of lading imposing more onerous terms than those provided for in the charterparty, "[b]y contrast, where the obligations under the bill of lading are not more onerous than contemplated by the charterparty, no indemnity can be recovered" (§ 7-290, citing Gesellschaft Bürgerlichen Rechts v Stockholms Rederiaktiebolag Svea (The Brabant) [1967] 1 Q.B. 588, 598; Western Sealanes Corp v Unimarine SA (The Pythia) [1982] 2 Lloyd's Rep. 160; and Ben Shipping Co (Pte) Ltd v An-Board Bainne (The C. Joyce) [1986] 2 All E.R. 177, [1986] 2 Lloyd's Rep. 285); and
ii) a similar statement in the article by Sir Nicholas Hamblen referred to earlier, to the effect that the ordinary risks of time-chartered service which owners assume including "liabilities arising from signing bills of lading the terms of which are not more onerous than those under or contemplated by the charterparty" (p. 204, citing The C Joyce). For completeness, though, I note that in the same article, Sir Nicholas said:-
"Handing over the control of the vessel to the charterers necessarily involves risks for the owners. Carrying out the charterers' orders may involve the owners suffering loss or damage, such as damage to the vessel as a result of being ordered to an unsafe port, or incurring liability to third parties, such as to the holders of bill of lading for cargo damage for which the owners are not responsible under the charterparty or for misdelivery.
It has long been recognised that, if owners are to place their vessel and crew at the disposal of the charterer, it is entirely reasonable to seek protection against the adverse consequences of compliance with the charterers' orders by stipulating for an indemnity." (p.201)
(clause 9) "The charterers to indemnify the owners against all consequences or liabilities arising from the master ... signing bills of lading or other documents. ..."
(clause 13) "The owners only to be responsible ... for loss or damage to goods on board, if such ... loss has been caused by want of due diligence on the part of the owners or their manager in making the vessel seaworthy and fitted for the voyage or any other personal act or omission or default of the owners or their manager. The owners not to be responsible in any other case nor for damage ... whatsoever and howsoever caused even if caused by the neglect or default of their servants."
(typed clause 28) "The decks and holds and other cargo spaces to be properly cleaned at owners' risk and expense before loading."
"Accordingly, the vital point here is whether on the facts of this case and on the true construction of the documents the bills of lading did impose more onerous terms on the owners than the charterparty. Or, to put the question the other way round, would the owners have become liable to the charterers if the goods had been shipped by the charterers themselves on their own account under the terms of the charterparty and no bills of lading had been issued conferring rights according to their terms on third parties, holders or indorsees of the bills of lading?" (p.498)
McNair J concluded that clause 28 prevailed (p.602), with the result that the charterers succeeded.
"Is it necessary to be implied from these terms that, if the shipowners should become liable to a bill of lading holder on grounds which would not make them liable to the charterers under cl 2, they should be entitled to be indemnified by the charterers against that liability? I do not think so. It was clearly stipulated that all bills of lading signed under the charterparty should include the clause paramount. This stipulation necessarily exposed the shipowners to Hague Rules liability to an indorsee of the bills.
…
It is undoubtedly anomalous that the charterers' voluntary act of negotiating the bills should have the effect of exposing the shipowners to a liability the owners could not have been under to the charterers, but that is what the contract provides and I do not think it can be said to be unworkable."
Bingham J went on to consider the irregular bill of lading cases Kruger, Elder Dempster and Dawson Line, noting that it was critical to both grounds of decision in Dawson Line that there was a disparity between the bills the charterers were entitled to present and the bills they did present, adding:
"The contrast with the present case is stark. The charterers were not in breach of contract in tendering for signature bills containing a clause paramount. They would strictly have been in breach had they issued bills in any other form. By the same token the charterers did not request the shipowners to do anything which the shipowners had not expressly bound themselves to do. …"
"Moreover, from a strictly practical point of view, we cannot see the point of the suggested term. Two situations may be envisaged. First, the defects in the goods are not such as to be apparent on a reasonable examination at the point of shipment. It is a common place that in such a situation the signature of the bill of lading without qualification does not preclude the owners from establishing the true condition of the goods. There is thus no enhanced exposure, beyond that which existed under the charter, and no need for an implied term to protect the owners against it. …"
(f) Later cases and awards
"55. As to clause 8, in a broad sense the tax was incurred in consequence of the order to proceed to the US. But owners are not entitled to recover from charterers under the implied indemnity the ordinary expenses and losses of trading or those of which the owner has accepted the risk: The Island Archon, page 235; Antiparos ENE v SK Shipping Co Ltd (The Antiparos) [2008] 2 Lloyd's Rep 237, page 243. In the case of voyages to or from the USA USGTT is, as it seems to me, an ordinary expense of trading and not an unusual feature. In any event the risk of incurring or being liable for this very tax has been dealt with by clause 112 and, to the extent that the owners are not entitled to recover under that clause, the risk of having to bear the cost of the tax is one which they must be taken to have accepted."
(3) Incorporation of the Inter-Club Agreement into charterparties
"Insofar as any cargo claim might fall outside the scope of the Inter-Club Agreement the question of indemnity would have to be dealt with under the ordinary law and the other provisions of the charter-party if applicable". (p.57 rhc)
"Clause 4(b)(ii) [of the ICA] deals specifically with another very common amendment, providing that if "cargo claims" is added to the second sentence of Clause 26 of the form then apportionment under the Agreement shall not apply. The 1984 Agreement went on to state that in that case, "Owners shall bear all cargo claims subject to Charterers' contribution under the Berth Standard of Average Clause/Charterers' Contribution Clause (1971), if applicable". By contrast, the 1996 Agreement appears merely to disapply apportionment under the Agreement, leaving liability to be dealt with independently of it. Although, then Clause 26 will render the owners "responsible for … cargo claims", it is suggested that this will not prevent them from making a claim against the charterers in respect of a cargo claim brought against the owners if, independently of the Agreement, the owners had some such claim, for example because a breach by the charterers of some provision of the time charter gave rise to the cargo claim".
By way of brief explanation, the 1984 version of the ICA contained provisions detailed whether, and if so how, the ICA would apply depending on whether amendments had been made to clauses 8 and/or 26 making liability for cargo claims clear as between owners and charterers.
(G) APPLICATION
(1) The Tribunal's reasoning and conclusion
i) Charterers' orders to load the Montevideo cargo (with its particular characteristics) and to carry it to the PRC caused the loss;
ii) Owners' liability to Cargo Interests in respect of the damaged Montevideo Cargo was not an ordinary cost or risk associated with the performance of the chartered service, or one of the broad range of physical and commercial hazards which are normally incidental to the chartered service, or one which Owners had expressly or impliedly agreed in the Charterparty to bear; and
iii) the loss accordingly fell within the implied indemnity.
(2) Grounds on which leave was given
(3) Effect of the express terms of the Charterparty
i) Clause 6 of the Recap identified its subject matter as one trip for the carriage of "HARMLESS LAWFUL CARGOES" from the East Coast of South America to the Far East. The carriage of a dangerous or unlawful cargo would have been a breach of the Charterparty. This Cargo was both harmless and lawful.
ii) Clause 12 of the Recap identified certain "trading exclusions", which were destinations to which the Vessel could not be ordered to trade because of the perceived physical or legal risks associated with going there. The PRC was not listed. Since the trip was to the Far East, the parties must have contemplated the PRC as a likely destination.
iii) Clause 12 also required trading to be "VIA SAFE PORT(S), SAFE BERTH(S), SAFE ANCHORAGE(S)". A port can be 'legally unsafe' where there are political or similar risks, such as where there is the risk of unjustified confiscation (The "Greek Fighter" [2006] CLC 497 at [317]). It was not alleged that the PRC was a 'legally unsafe' place.
iv) Clause 45 of the Pro Forma section of the Charterparty expressly allocated to Charterers all risks associated with the importation of genetically modified grain cargo into the PRC.
v) Clause 82 of the Pro Forma set out a lengthy list of cargo exclusions, identifying cargoes that Charterers were either not entitled to ship, or where Owners enjoyed additional protections (such as in relation to salt/sulphur and petcoke/cement/clinker). The Cargo did not engage any of those exclusions or protections.
vi) Clause 43 of the Pro Forma provided that "[l]iabilities for cargo claims shall be borne by the Owners and the Charterers in accordance with the NYPE Inter-Club Agreement 1996 or latest updated version". It was designed to "provide a simple mechanism for apportioning cargo claims as between owners and charterers". It was therefore intended precisely to regulate the kind of risk that led to the PRC Proceedings.
i) the risks of carrying particular cargoes, both in relation to dangerous or unlawful cargoes, and more specifically by reference to identified cargoes in clauses 45 and 82;
ii) the risks of trading to particular countries, both by requiring the Vessel to be traded to "safe ports", and more specifically by defining trading limits; and
iii) the allocation of risks for cargo claims through the incorporation of the ICA.
None of those provisions made carriage of the Cargo a breach of the Charterparty or otherwise sought to impose liability on Charterers. That is so even though the parties might have adopted any number of terms that would have had the effect of imposing such liability on the facts of this case, such as by excluding soya beans (either generally, or at least those with a propensity to self-heat), or by excluding the PRC, or by providing for all soya bean cargo claims made in the PRC to be for Charterers' account. Whether or not any such clauses would have been agreed would be a matter of negotiation and commercial bargain.
(4) Effect of The "Island Archon" and other case law
(5) Other commercial considerations
i) The charterparty terms which address specific risks/costs associated with the cargoes carried allocate that risk to Charterers. See, e.g. (a) clause 2 of the NYPE form, which allocates (inter alia) the cost of fumigation arising due to the cargoes or ports visited on Charterers; (b) clause 8 of the NYPE form, which allocates the costs and risks of cargo operations on Charterers; (c) clause 30, which allocates the cost of cargo separation on Charterers and provides that Owners are not responsible for risks arising from mixing cargoes; (d) clause 41, which allocates the risk of stevedore damage to Charterers; (e) clause 45, which allocates the costs/risks of non-compliance of PRC cargo regulations to Charterers; and (f) cargo exclusion/protection clauses at clause 82.
ii) By contrast, Owners accepted responsibility for the Vessel, her crew and equipment. See, by way of example: (a) clause 1 of the NYPE form; (b) clause 22 of the NYPE form and clause 40, which required Owners to maintain the Vessel's equipment and ensure that it was certified; (c) clause 71, which provided that Owners were responsible to ensure that the hatch covers were watertight, and (d) Owners' seaworthiness obligation in the USCOGSA §3(1).
(6) A special rule for inherent vice?
i) Inherent vice usually provides a defence to a carrier, and should have done in the present case (since the bills of lading correctly included the relevant exclusion of liability): there is "no indemnity against the risk of a foreign court getting a case "wrong" on the facts".
ii) The claims in The Ann Stathatos and The Athanasia Comninos (a) do not appear to have involved inherent vice and (b) succeeded because physical damage caused by a cargo is a qualitatively different type of risk from a cargo claim.
iii) The risk that a cargo might become damaged by inherent vice is one that will be both foreseeable and foreseen. Inherent vice is an identified defence under the Hague or Hague-Visby Rules and a common cause of cargo damage. The question of inherent vice often cannot be separated from the question as to whether or not the carrier has properly and carefully carried the cargo: see Volcafe Ltd v Compania Sud Americana de Vapores SA [2019] 1 Lloyd's Rep 21 at [34]. The rights and liabilities of owners and time charterers inter se where cargo claims arise out of inherent vice has been addressed since the 1996 version of the ICA. These are issues the industry has been alive to for a long time.
iv) The risk that a court or tribunal might get the answer "wrong", finding that the carrier was at fault when the cargo was actually damaged by inherent vice, was both foreseen and foreseeable. There was no finding that the decisions of the PRC courts were bogus or improper, unlike the "Iraqi system" in The "Island Archon". To the contrary, the Tribunal found that cargo claims "were not almost inevitable" and "were only brought in respect of damaged cargo" (Reasons § 139).
i) Point (i) above is essentially a causation point, as to which there is no appeal. Insofar as it might be presented as concerning risk allocation, there is no logical reason why (assuming no break in the chain of causation) owners should be taken to have assumed the risk of liability incorrectly being imposed by a foreign court for a loss caused by charterers' orders.
ii) There is, in my view, no principled reason to treat physical damage and cargo claims differently, once one overcomes the incorrect blanket assumption that owners should be taken to have assumed the risk of 'ordinary' cargo claims as between themselves and Charterers.
iii) The foreseeability in theory of cargo claims arising in the event that a cargo with inherent risk is carried does not mean that owners accept such risks and does not preclude the implied indemnity: see § 135 above.
iv) The fact that cargo claims in PRC Courts, unlike the courts in The "Island Archon", were not almost inevitable and were only brought in respect of damaged cargo detracts from, rather than supports, Charterers' contention that the risks in the present case were foreseen and foreseeable at the time of the Charterparty.
(H) CONCLUSION