The English Court of Appeal has recently considered1 whether the word “act” in the phrase “act or neglect” means a culpable act in the sense of fault or whether it means any act, whether culpable or not. The question arose as a matter of construction of clause 8 of the Inter-Club Agreement 1996 (“the ICA”) made between Protection and Indemnity Associations (or “Clubs”) in relation to liability for cargo claims as between shipowners and charterers.
The Interclub Agreement
The ICA first came into being in 1970 as a means of resolving liability for cargo claims as between owners and charters under the New York Produce Exchange (“NYPE”) form of charter party. Since then it has been revised on a number of occasions notably in 1996 and more recently in 2011 when provisions for security were added. The ICA has been described2 as : “…an agreement which is primarily for the benefit of the respective parties’ insurers that is of the character of a knock-for knock agreement. …and is not concerned with such considerations as hardship or lack of moral culpability”.
Clause 8 of the ICA provides for various apportionment scenarios and concludes as follows:-
d) All other cargo claims whatsoever (including claims for delay to cargo):
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.”
The facts of Transgrain Shipping (Singapore) Pte Ltd v. Yangtze Navigation (Hong Kong) Co Ltd
Yangtze Navigation chartered the vessel “YANGTSE XING HUA” to Transgrain Shipping for a time charter trip carrying soya bean meal from South America to Iran. The charter party was on a NYPE form. The charterers had not been paid for the cargo and accordingly ordered the vessel to wait off the discharge port for over four months. When the cargo was finally discharged it was found to be damaged as a result of overheating. The owners Yangtze Navigation settled the claim of cargo interests and then claimed against the charterers Transgrain Shipping. It was common ground that liability was to be settled in accordance with the ICA. The issue was interpretation of clause 8 of the ICA.
The claim was referred to arbitration. The arbitrators found that the cause of the damage was a combination of the inherent nature of the cargo ( its oil and moisture content) together with the prolonged period at anchor at the discharge port. They concluded that under the ICA the Charterers’ decisions were an “act” falling within clause 8(d) and thus they should bear 100% of the consequences.”
The charterers appealed. At first instance the judge upheld the decision of the arbitrators. In doing so he expressed a view that clause 8 of the ICA was not concerned with fault but was rather a mechanism for assigning liability for cargo-claims by reference to the cause of the damage to the cargo regardless of fault. He took the view that the word “act” should be given its natural meaning.
The Court of Appeal decision
The Court of Appeal have now upheld the first instance decision and also concluded that that the word “act” in the context of the ICA should be given its natural meaning, and that there is no need to confine it to “culpable act”.
This decision from an appellate court provides a useful interpretation as regards the ICA. However, caution must be exercised if a wider application is to be considered. As stated by the Court of Appeal “everything must depend on the context”. Different views on the meaning of the term “act” have been taken by the courts in other cases involving different circumstances.
1Transgrain Shipping (Singapore) Pte Ltd v. Yangtze Navigation (Hong Kong) Co Ltd (Yangtze Xing Hua)  EWCA Civ 2107
2The Benlawers  2 Lloyd’s Reports 51 at p. 60