It now seems clear that the latest update to the ICA which we commented on here stemmed from an Award concerning the carriage of soybeans on the Grand Amanda.
We now have the benefit of the decision of Mr Justice Henshaw in that case. Those interested in that decision can read it here.
Soybean claims are common in China. Most soybeans come from South America and the voyage from South America to China is at the limits of what can be tolerated by a cargo that is inherently prone to deterioration. If the receivers see even a few blackened or brown beans then this can lead to the rejection of the entire cargo and an arrest of the ship. Many Club claims handlers will have had their weekends destroyed by that!
The most obvious defence to soybean claims is inherent vice and of course that is a defence available to a carrier under the Hague Visby Rules.
The problem is that the PRC Courts are reluctant to allow a carrier to resist a cargo claim pursued in China regardless of what the Hague Visby Rules might say.
This is what happened in the case of the Grand Amanda. Although it was seemingly accepted that there was inherent vice, the cargo claim succeeded in China landing the owners and their P&I Club with a whopping liability of some US$6 million.
Enter the ICA and the understanding that this is what it is or was designed to cover. The ICA is based on an assessment of what in fact caused the loss. Was it the ship or the cargo? The Tribunal in fact held that this was a cargo problem such that if the ICA applied then it would be 100% on the Charterers. However, due to some legal wrangling over the wording of the ICA (there were two KC’s on the Tribunal) it was held that the ICA did not apply to a cargo claim that was resolved as opposed to settled. We already gave our views on that but the point is now otiose: the International Group have been quick to squash what they consider to be an erroneous finding.
All was not lost however as the Tribunal had the sense to find that the implied indemnity covered the Owners and they could make a full recovery from the Charterers on the basis that the loss arose from a risk that the ship owners had not agreed to bear. That risk – the risk of “a microbiologically unstable cargo resulting in damage and liability” – arose directly from the Charterers orders to proceed to a port in a jurisdiction where there was no legal protection from that risk in the form of an inherent vice defence.
The Charterers sought to appeal the judgment which resulted in the decision of Henshaw J dismissing the appeal. In so doing the judge revisited the Island Archon (1) case which was a case where the corrupt system in place in Iraq was not in place when the charter was concluded. He pointed out that the Tribunal in the Grand Amanda made no finding that the risk of incurring liability in the PRC due to cargo damage caused by inherent vice was foreseeable or foreseen when the Charterparty was entered into. It was not therefore a risk that the Owners had agreed to bear which would prevent them from reliance on the implied indemnity.
Whilst it might have been argued back in 2014 that Chinese Courts were not “notorious” for ignoring the inherent vice provision in the Hague Visby Rules, it seems debatable as to whether that could be said now. Will it therefore be argued in future that going to China with soybeans is a risk that shipowners have consented to bear which was priced into the freight or hire they charged? The new ICA 2025 may protect them from this exposure but what if the charter includes an older version of the ICA? Does that mean that ship owners and Clubs are better off settling cases in China rather than fighting them? If they fight and lose then will they forego the protection they have under the ICA and be left with a problematic implied indemnity claim? Will this result in more anti-suit injunctions and parallel proceedings?
At first glance, this case seems like a win for owners but there is no guarantee that this decision will protect them from future exposure to soybean claims in China.
- The Island Archon [1994] 2 Lloyd Rep 227
Nick Burgess
Partner
