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Beware of The Yangtze: Charterers don’t be tardy

Member Advisory

The Yangtze provides a cautionary tale to the charterers who hastily order a time chartered vessel not to discharge and to remain static for long periods of time thus risking the cargo to perish. Although the charterers were not at fault for or in breach of the charter in loading the cargo, their determined decision to keep the cargo on board for a period of over 4 months constituted an "act" for the purposes of Clause 8(d) of ICA.

The legal issue before the Tribunal and subsequently on appeal before the High Court was whether or not construction of the word "act" in Clause 8(d) of the Inter-Club Agreement 1996 required fault or negligence of the charterers. Dismissing the charterers' appeal, Teare J upheld the Tribunal's construction of the word "act" should be given its natural meaning and did not require an element of fault.

Background

The "Yangtze Xing Hua"[1]  was chartered from the owners for a time charter trip on the NYPE form to carry soya meal from South America to Iran. The charterers had not received payment for the cargo and rather than discharging the cargo into a bonded warehouse ordered the vessel to wait off BIK for more than 4 months, effectively using the vessel as a floating storage.

Claim

As soon as the vessel discharged her cargo it was found to be damaged by overheating caused by microbiological and chemical processes. The receivers brought a claim under the bills against the owners for EUR 5 million which was eventually settled for EUR 2,654,238. In turn the owners brought a claim against the charterers pursuant to Inter-Club Agreement 1996 Clause 8(d) for the settled amount plus hire in the sum of USD 1,012,740.

Legal questions

In the first instance, the Arbitral Tribunal had to consider the cause of the damage and whether the owners were responsible for causing that damage. The Tribunal found that the owners had not failed in their obligation to properly monitor the cargo temperatures and further, that the overheating was caused by the inherent nature of the cargo coupled with the prolonged period of waiting credited to the charterers. An award was made in the owners' favour rejecting the charterers' claim emphasizing that their orders to keep the vessel waiting for over 4 months amounted to an "act" under Clause 8(d) which was pivotal to the cause of the cargo overheating and becoming damaged and that they must bear 100% of the consequences.

The charterers appealed the Tribunal's decision to the High Court on the grounds that they had erred in law and were wrong to hold that any act, culpable or not, constituted an "act" under Clause 8(d):

Clause 8(d) provides: 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 bear 100% of the claim.

The courts starting point was to look at the ICA Clause 8(d) provision but without going into the archeology of the "act and neglect" forms. The primary role of the ICA is to provide a strictly "mechanical apportionment of liability by reference to the nature of the claims put forward by the bills of lading holders"[2]. The charterers argued that an "act" must be construed as a fault by commission and therefore a breach of that obligation was required in order to trigger the 100% apportionment over the split 50/50 apportionment, whereas the owners argued that the mechanical 50/50 apportionment responded to cases where the cause of damage was not to be determined and/or could not be attributable to either party.

It follows, the simplest approach is to look at the context of the sweeping up clause, Clause 8(d) which seeks to mechanically apportion claims between the parties with regard to the cause of the claim.

Here, the claim arose as a result of the charterers "act" to order the vessel to remain idle for a prolonged period. Therefore, it is not necessary to be drawn into questions of fault where the ICA envisages a clear cut mechanical approach to apportionment of liability at 100%. The court considered the Tribunal's construction of "act" without regard of fault to be correct and dismissed the charterers' appeal.

The charterers applied for leave to appeal which was granted by Teare J on the grounds that there is no other authority on the point and that this case is a matter of public importance.

Other consequences

Other unanticipated problems could arise where the charterers have, without the approval of their P&I insurers, suspended performance of a sub-charter or exercised a lien over the cargo onboard and causing damage to that cargo. The time charterers' commercial decision to keep the vessel from discharging pending payment by the receivers may carry significant risks such as those which fall outside of the parameters of The Hague-Visby rules. Charterers should therefore always, in the first instance, discuss strategy with their club before instituting a remedy of this nature.


[1] Transgrain Shipping Pte Ltd v Yangtze Navigation Co Ltd [2016] EWHC 3132
[2] D/S A/S Idaho v Peninsular And Oriental Steam Navigation Co. (The "Strathnewton") [1983] 2 Lloyd's Reports 219 Kerr LJ at p.225

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Contact

Sarah Brooke

Senior Claims Executive, Lawyer
Direct: +47 22 00 22 78 Mobile: +47 952 92 278 E-mail: