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London arbitration award sheds light on key issues arising under Inter Club Agreement

London arbitration award sheds light on key issues arising under Inter Club Agreement | BDM Blog | BDM Law

This recent arbitration is worth a read for those interested in disputes arising under the Inter Club Agreement (“ICA”).

The facts are not of huge importance save to say that this is one of the many soyabean damage claims that come across the desks of our P&I Club colleagues. The claim was settled in China and the Owners and their insurers sought to recover the settlement under the ICA.

Notwithstanding that the ICA is designed to avoid arbitration proceedings between parties and their insurers, the claim spawned three legal arguments here.

The first was about the applicable version of the ICA.   The relevant words in the charter read as follows:

Liabilities for cargo claims, including customs fine if imposed, shall be borne by Owners/Charterers in accordance with the Interclub New York Produce Exchange Agreement of February 1970 and reprints of May 1984 and any amendments thereto.”

Three versions of the ICA have existed since 1984: the 1984 version, the 1996 version and the 2011 version. The 1984 version was “replaced” (as mentioned in the 1996 version preamble) by the 1996 version. The 2011 version preamble states that it is “made” on 1 September 2011 and “amends the Inter-Club New York Produce Exchange Agreement 1996”.

The Charterers argued that the parties intended to incorporate the 1984 version on the basis that only the 1984 version fulfilled the requirements of being “an amendment thereto”. The Tribunal rejected this argument and held that no formal distinction needed to be drawn between the technical meaning of “amendment” as opposed to “version” or “replacement”.

The Tribunal therefore found that the 1996 and 2011 versions of the ICA were amendments of the earlier versions for the purposes of the charterparty incorporation clause and, therefore, that in this case the latest 2011 version applied.

Next up was an imaginative argument that the claim was not a “cargo claim” as provided for under either the 1984 or 2011 ICA because the Uruguayan cargo was not damaged on arrival and/or that such damage had occurred during a long period of storage after discharge. That received short shrift from the Tribunal who held that all that was required was that it be alleged that the damage occurred during the course of the carriage.

Next up, the Charterers’ favourite was deployed: the argument that the claim was not “properly settled or compromised”. The Tribunal held that “properly settled or compromised” does not involve an assessment as delicate, nuanced or detailed as that which might be involved in the test of reasonableness for the purposes of an indemnity claim. As long as the claim was settled in good faith for reasons founded upon a genuine perception of the merits of the claim at the time, then it was “properly settled or compromised” under the ICA.

Finally, the Tribunal decided that inherent vice was not sufficient to make out a 100% apportionment under clause 8 (d). The 50/50 default apportionment was held to apply and there was no “clear and irrefutable evidence” of an “act or neglect” by either party to justify a 100% apportionment.

This decision once again reinforces the principle of the ICA, namely that it is there to apportion liability for cargo claims as between Owners and Charterers based on a simple review of the charter. These technical defences put forward by Charterers to seek to avoid the consequences of a contractual agreement to respect the principles of the ICA arise time and time again and were resolutely dismissed in this case.

Pav Samothrakis - author profile
Pav Samothrakis
Elli Marnerou - author profile
Elli Marnerou
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