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What happens where the Owner successfully defends a cargo claim and suffered unrecoverable legal costs? Can he pursue a claim against his charterer for those costs under the ICA?

The Inter Club Agreement – just what is a “similar amendment” and why is it important| BDM Blog | BDM LawAccording to a recent LMAA decision*, the answer to the above is “No”.

The tribunal was asked to consider whether the owners, having successfully defended a cargo claim in Belgian court proceedings, were entitled to recover their legal costs from the charterers under the Inter-Club Agreement (the “ICA”).

The underlying cargo claim was dismissed by a final judgment of the Cour de Cassation in Belgium in February 2012. The owners faced a formidable claimant and, consequently, they incurred unrecoverable legal costs in the sum of EUR66,961.   They commenced arbitration proceedings to recover this sum from the charterers in arbitration proceedings. One of the grounds was whether the owners could recover half of this amount under clause 8(d) of the ICA.

Clause (3) of the ICA makes it clear that legal costs reasonably incurred in the defence of or in the settlement of the underlying claim can be included in the cargo claim when seeking apportionment.

Considering owners’ request, the tribunal remarked that the main purpose of the ICA was to provide a relatively simple mechanism to apportion liability for cargo claims between owners and charterers. With this in mind and reflecting upon the wording of clause (8), which contains the key provisions in relation to the apportionment of liability, they considered that liability to a third party had necessarily to be involved. This view was reinforced by clause (4)(c) which requires as a condition precedent to a right to indemnity that a claim has been properly settled or compromised and paid. In the tribunal’s view, clause (3) of the ICA had to be read in the light of those considerations, and consequently a claim for the costs of successfully defending a cargo claim was not intended to be covered. Accordingly, it was held that costs should lie where they fell, in this case with the owners and their P&I Club.

This award highlights the adverse consequences in relation to costs under the ICA when a defendant does not settle and subsequently goes on to win the case.   Some might say that the decision is suspect as this effectively encourages a defendant to consider settlement of a spurious claim purely on the basis that this would leave the way open for a recovery of costs under the ICA. In our view this is an area worthy of judicial consideration but it remains to be seen whether this case will find its way to the High Court on appeal.

*LMLN 10/15 – London Arbitration 10/15 (2015) 929 LMLN 4

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