CL-2024-000292 - [2025] EWHC 1990 (Comm)

APPLICATION

As set out in section (C)(2) above, the Tribunal’s essential findings were that:

Those findings at least prima facie indicate that the Tribunal addressed itself to the correct legal questions, and made findings of fact which logically led to the overall conclusion that the implied indemnity applied.

As set out in section (D) above, Andrew Baker J highlighted two particular points when granting leave.

The first was that the Tribunal’s Reasons may have been contradictory, in that it appeared to accept (or proceed on the basis) that the cargo was lawful and permitted, but also said that it was “outside the limits of the Charterparty”.

In my view, reading Reasons § 137 as a whole, there is in reality no contradiction. The gist of the Tribunal’s conclusion, applying the test set out in The “Island Archon” and the other cases summarised in section (F)(2) above, was that the risks of loss arising from carrying a cargo with inherent vice were not risks which Owners had expressly or impliedly agreed to bear. The Tribunal did not find, and did not need to find, that the cargo was unlawful or not permitted under the Charterparty. The case law makes clear that the implied indemnity can arise – indeed, it is most likely to be relevant – in situations where the cargo is lawful and permitted yet nonetheless gives rise to a loss (see, e.g., The “Ann Stathatos” and The “Island Archon” itself).

Secondly, the judge felt that the Tribunal might have misunderstood The “Island Archon”, which (he said) turned on the fact that the existence of the Iraqi system was not notorious at the time of the charterparty, whereas the result might otherwise have been different. As set out in §§ 76-79 above, The “Island Archon” turned on that point only in the sense that, had the Iraqi system been notorious when the charterparty was fixed, it might have been regarded as a risk the owners had impliedly agreed to assume. In any event, the point the Tribunal was addressing in Reasons § 139 was Charterers’ submission, recorded at § 136, to the effect that “the risk of there being an adverse judgment from the Chinese Courts was one [Owners’ must be taken to have know[n] about when the Charterparty was fixed”, citing The “Island Archon”. Thus, Charterers were arguing that the present case was like the hypothetical situation envisaged by Evans LJ, in the dictum to which Andrew Baker J referred, where a risk is notorious at the time of the charterparty, which might in turn have justified the inference that Owners had taken the risk. I read the Tribunal’s use of the words “almost inevitable” simply as a way of denoting a notorious risk. However, on the Tribunal’s findings, that was not the position here: there was no such notorious risk at the time of the Charterparty, just as there was not on the facts of The “Island Archon”. I do not consider that the Tribunal misunderstood The “Island Archon”.

Charterers cite the statement in The “Kos” that the scope of the implied indemnity “has to be read in the context of the owners’ obligations under the charterparty as a whole…[w]hat risks or costs the owners have agreed to bear may depend on the construction of other relevant provisions of the contract” ([11]). Charterers draw attention to the clauses of the Charterparty listed below, along with their commentary:-

Charterers submit that the Charterparty therefore contained detailed and negotiated provisions concerning:

Charterers submit that these provisions are an unpromising start for Owners’ indemnity claim, citing The “Berge Sund” and Wilford § 19.17 (see §§ 62-64 above), and that it would be unusual for owners to be able to deploy the implied indemnity to cut through sophisticated contractual terms designed to address precisely the risks that arose here.

I do not accept those submissions. The justification for the implied indemnity is the freedom granted to the charterer to give directions as to the employment of the ship, as recognised in the passages from The Georges Christos Lemos (third party proceedings) and The “Island Archon” quoted in § 48 above. As Devlin J recognised in the statement at p.234 lhc quoted in § 52 above, clauses making express provision for particular ports or cargoes may be used, but are realistically unlikely to be comprehensive. On the facts of any given case, it is not difficult with the benefit of hindsight to envisage express clauses that might have addressed the situation. However, that has never been regarded as a reason for excluding the implied indemnity, any more than it has been regarded as cutting down the effect of the express indemnity contained in the Baltime form which the implied indemnity is commonly regarded as mirroring. As Wilford notes, implied indemnities do not have to be limited to matters outside the scope of other charter clauses, and in this context an overlap to subject-matter does not necessarily involve inconsistency: see the passage quoted in § 52 above. An example is that the fact that the charterer is permitted to give a particular instruction does not prevent reliance on an express or implied indemnity: see the passages from The “Island Archon” quoted in § 66 above.

So far as the ICA is concerned, Charterers submit that it provides a ‘complete code’ for the imposition of liability in respect of cargo claims, in the same way that clause 112 did in The “Dimitris L (No 2), with the result that no claim can lie under the implied indemnity. The arbitrators concluded that the ICA did not apply to the circumstances of the present case, because (in their view) ICA § 4(c) has the effect that the ICA applies only where a cargo claim is settled, not where it results in a court judgment. Accordingly, Charterers submit, the parties must be taken to have agreed that no indemnity claim may lie at all in such circumstances.

I see no merit in that contention. The effect of ICA § 4(c) is that apportionment under the ICA shall be applied only to cargo claims within the scope of the clause. That does not imply that the parties have agreed that no liability can arise, independently of the ICA, in respect of cargo claims falling outside the clause. Such a reading would, moreover, have arbitrary results. It would mean, for example, that a settled cargo claim could result in a 100% apportionment against charterers, yet a judgment in respect of the same claim would result in zero liability. Presumably the same would apply too under a charterparty containing an express indemnity, such as the Baltime form, if it also incorporated the ICA.

The correct position in my view is that, as Hobhouse J indicated in The Benlawers, the other provisions of the charterparty, if applicable, and the ordinary law apply. Those provisions include the implied indemnity. That view is also consistent with the third sentence Wilford §20.69, quoted in § 100 above, indicating that the 1996 ICA appears merely to disapply apportionment under the Agreement, leaving liability to be dealt with independently of it. The situation is not analogous to that in The “Dimitris (No. 2)”, where the limitation on the right of recovery imposed by the words “under this charterparty” was held to be a sensible provision for the distribution of the burden of USGTT (see § 29 (quoted § 32) and § 53). The ICA cannot realistically be regarded as a provision for the distribution of the burden of cargo claims falling outside its scope.

Conversely, I do not accept Owners’ contention that the incorporation by the Clause Paramount of the USCOGSA, which excludes liability for inherent vice, necessarily establishes the allocation of risk as between owners and charterers. As noted in § 55, Mustill LJ in The “Athanasia Comninos” referred to the difficulty in working out the effect of incorporating into a charterparty contractual terms designed primarily to govern the relationship between owner and the shipper/consignee. Particular risks may be allocated differently in the various limbs of the tripartite relationship of owner, charterer and bill of lading holder. For example, proper stowage is classically a responsibility undertaken by the owner vis a vis the shipper (as reflected in Article III.2 of the Hague Rules) but the charterparty will often impose responsibility for stowage on the charterer as between owner and charterer. Equally, as Charterers point out, negligent navigation is an excluded peril under Article IV.2(a) of the Hague Rules, but as between owner and charterer is a responsibility assumed by owners (see, e.g., The “Aquacharm”). Probably the most that can be said, in my view, is that if (as in the present case) the stipulated form of bill of lading excludes owners’ liability for a particular risk, such as inherent vice, then charterers cannot rely on the fact that the Clause Paramount requires that form of bill of lading to be signed in support of an argument that owners have assumed the risk in question.

I have largely addressed Charterers’ submissions on The “Island Archon” in section (F)(2) above. They suggest that the key to The “Island Archon” was not merely the absence of fault by the owners, but the change in the risk associated with trading to Iraq after the charterparty was entered into, with the consequence that the parties had no opportunity to address those risks before contracting. The irregular and unforeseen system of bogus cargo claims that took The “Island Archon” outside the run of ordinary cargo claims only arose post-charter. Ordinary cargo claims would be more akin to the example of the injured stevedore that Evans LJ explained would not fall within the scope of the implied indemnity, even if liability were to be imposed when the owner was not at fault. Charterers cited a case note by Professor Simon Baughen, “Shipowners’ Implied Indemnity for Cargo Claims” [1996] LMCLQ 15, at p. 17, suggesting that it was only because the ‘Iraqi system’ was “sufficiently unusual” that the implied indemnity was engaged. The corollary, Charterers submit, is that the risk of an ordinary cargo claim is to be treated differently. Had it been enough for the owner to demonstrate that the cargo claim arose out of the shipment of the cargo simpliciter, Evans LJ would not have expressed himself in the terms set out above, and such an approach would also have run counter to the point he made that a “straightforward test of causation” was not sufficient.

I do not accept those submissions.

First, Lord Sumption in The “Kos” stated that the question of what risk or costs the owners have agreed to bear “may depend on the construction of other relevant provisions of the contract, or on an informed judgment of the broad range of physical and commercial hazards which are normally incidental to the chartered service, or on some combination of the two”. Aikens J in The “Kitsa” regarded it as a question of mixed fact and law (see § 61 above). I recognise that Evans LJ in The “Island Archon” stated that the answer “must depend on the true construction of the charterparty” (p.236 rhc), and that passages in Wilford and Carver speak in similar terms. However, as Lord Sumption’s statement indicates, it is a question which (whether strictly one of law or of mixed fact and law) may require an informed judgment about essentially commercial matters. In circumstances such as the present case where there are no specific provisions of the charterparty making clear that owners assumed the relevant risk, it is an issue on which deference should be accorded to the conclusion reached by the arbitrators. An experienced Tribunal in the present case unequivocally concluded that Owners’ liability to Cargo Interests in respect of the damaged Montevideo Cargo was not an ordinary cost or risk associated with the performance of the chartered service, that it was not one of the broad range of physical and commercial hazards which are normally incidental to the chartered service, and that it was a loss arising from a cost or risk which it had not expressly or impliedly agreed in the Charterparty to bear.

Secondly, and in any event, the decision in The “Island Archon” did not turn on the change of circumstances (or known circumstances) between the time of the charterparty and the time of the voyage, save in the limited sense identified in § 79 above, and the suggestion that no implied indemnity arises absent such a change is incorrect in law for the reasons I give there.

Thirdly, the implied indemnity is not limited to ‘unusual’ circumstances, and nor is there any rule of law or general principle that owners should be taken necessarily to have assumed the risks arising from ‘ordinary’ cargo claims (whatever that may mean). The starting point is that the implied indemnity is of general application, and is justified by the considerations referred to in the case law quoted in §§ 46, 48 and 52 above. Many cargo claims cannot realistically be ascribed to charterers’ orders, for example because they clearly arose from failures for which owners are responsible, or simply because there is no charterer’s order which was an effective cause of the loss. Others can be ascribed to charterers' orders of one sort or another. That was the case in The “Island Archon” and, on the Tribunal’s unchallenged findings as to causation, in the present case. Further, there is no difference in principle between the mechanism by which loss occurred in The Island Archon (local courts wrongly making adverse findings of shortage or damage) and the present case (local court wrongly making adverse finding as the cause of the cargo being defective on outturn).

Nor is there any rule that a restrictive approach must be taken where the loss takes the form of a cargo claim: see §§ 68-71 above. Evans LJ in The “Island Archon” envisaged that there might be a range of circumstances where owners could reasonably be expected to be indemnified as a result of charterers’ orders to visit particulars ports or carry particular cargos (see e.g. the passage quoted in § 79 above): and it is to be expected that the resulting loss will sometimes manifest itself in the form of a cargo claim. There is no reason why the indemnity should be regarded as inapplicable in such circumstances by reason of an a priori assumption that owners necessarily assume the risk of ‘ordinary’ cargo claims.

I have also addressed in section (F)(2) above the propositions which Charterers seek to derive from other authorities. For the reasons given in §§ 80-82 above, I do not consider The “White Rose” to support the view that no indemnity can arise in respect of liabilities imposed by local courts unless the local law is unusual or charterers are at fault. The “Kitsa” is simply an example of the kind of ordinary navigation-type risks which, adopting Lord Sumption’s phrase in The “Kos” are, on an informed judgment, among the broad range of physical and commercial hazards which are normally incidental to the chartered service. The “Dimitris L (No. 2) merely holds a particular type of tax liability to be among the ordinary risks which owners are taken to have accepted. The reference to the tax not being an “unusual feature” provides no broader indication as to the types of risk which owners can be assumed to have agreed to bear.

As Owners point out, the risk of a microbiologically unstable cargo resulting in cargo damage and liability arises directly out of the orders of charterers, who have discretion over the particular cargo selected for shipment and the selection of the ports of loading and discharge. Over those matters, the owners have no right of control (beyond the confines of the charterparty). There is no proper basis on which to fault the Tribunal’s conclusion that the risk of loss in fact caused by the shipment of a cargo such as the Montevideo Cargo, with particular (self-heating) characteristics, is not one ordinarily accepted by owners.

Charterers refer to a number of further commercial and practical reasons as to why the risk of cargo claims being made against Owners in these circumstances should be borne by them, absent express provision or breach by Charterers.

First, they submit that for Charterers to be held liable would be inconsistent with the principles established as to when an owner might be entitled to indemnification from a charterer for bill of lading liabilities absent breach. One of the risks for which owners are compensated by the payment of hire is the assumption of liabilities to cargo interests under bills of lading or other contracts of carriage, to the extent that they were required to assume those liabilities under the Charterparty. Thus, by clause 8 of the Pro Forma, the Master is required to sign such bills “as presented” if required by Charterers, the effect of which is that owners take on the risk of cargo claims. That is part and parcel of the commercial bargain struck in a time charter, except where the bills issued expose owners to liabilities more onerous than those undertaken under the charterparty. The corollary, Charterers submit, is that there is no indemnity when the bills of lading do not impose more onerous obligations than envisaged by the charterparty (citing the passages from Carver on Charterparties and The “Nogar Marin” quoted in §§ 83.i) and 93 above). Further, Charterers were not imposing on Owners the contractual risk of damage for inherent vice. Owners were liable only because the PRC courts got their decision “wrong” by reference to the facts as they stood in the London arbitration. But that could happen on any cargo claim, by reference to any number of matters which ought to be a defence to a cargo claim, such as insufficiency of packing.

I do not accept those submissions. Charterers’ assertion that liabilities under bills of lading are simply part and parcel of the bargain owners make simply begs the question of which particular types of risk owners can be assumed to accept. Whilst owners of course are expected to assume liabilities to cargo interests – subject to exceptions commonly specified (often including inherent vice) – there is in my view no proper basis on which to make any blanket assumption about the allocation of responsibility for the corresponding risks as between owners and charterers. Indeed, the frequent incorporation of the ICA might be regarded as an indication that there are a number of types of cargo claim which owners can not simply be assumed to accept as part of the bargain (and it would, again, be question-begging to assert that the need to incorporate the ICA shows that, in its absence, the owners accept all the risks of cargo claims).

Further, as I have explained in section (F)(2) above, the fact that the cases uphold implied indemnity claims where bills of lading impose more onerous obligations than envisaged by the charterparty does not mean that the converse is true. The ‘corollary’, in truth, is merely that if the bill complies with the charterparty, then the terms of the bill will not themselves found a right to indemnity. If, however, the loss was caused by some other order by charterers, then liability may arise. Equally, the fact that, on a proper approach to the bills of lading here, Owners ought not to have been held liable for the cargo claim does not mean no indemnity should lie. The fact is that a liability did arise, and on the Tribunal’s findings that was a result of Charterers’ orders to load and carry this particular cargo.

More broadly, I also see some force in Owners’ point that the terms of the Charterparty reflects a broad general division of responsibilities, whereby (1) Charterers were responsible for risks arising due to the cargo carried and; (2) Owners were responsible for the Vessel and her crew (as is often the case in time charterparties).

That broad division is in line with the distinction between navigation and employment risks summarised by Lord Hobhouse in The Hill Harmony [2001] 1 Lloyd’s Rep 147 at p.149 (“‘Employment’ embraces the economic aspect – the exploitation of the earning potential of the vessel. ‘Navigation’ embraces matters of seamanship”), and considered “entirely familiar” by Rix LJ in The “Doric Pride” [2006] Lloyd’s Rep. 175, who referred to “those matters which lie upon the owners’ side of responsibility, essentially the vessel and crew… and those matters relating to the charterers’ employment of the vessel and crew”. In the present case, on the Tribunal’s findings, the loss was caused by charterers’ economic use of the Vessel, rather than for example anything connected with the Vessel’s condition, navigation or crew, and (taking a broad commercial view) it is not unnatural to regard it as falling on the Charterers’ side of the line (contrast, for example, the loss in The C Joyce).

Secondly, Charterers make the point that the claims made in the PRC Proceedings were against Owners (and the Vessel’s head owners). Owners had control over the defence of those proceedings, including whether to defend them on the merits in the PRC (as distinct from taking action in London such as by seeking negative declaratory relief from a tribunal, or seeking anti-suit relief from this Court) and, if so, on what grounds. The Tribunal rejected an argument by Charterers that the defence of those proceedings was unreasonable (Reasons, § 123), but in considering the allocation of risk between the parties, Charterers submit that it is highly relevant that Charterers had no real opportunity to influence the conduct of cargo claims against Owners.

In my view this point carries little force. Owners had no influence over the commencement of the PRC Proceedings. Had Owners not defended the proceedings properly once commenced, the Tribunal’s conclusion on causation might have been different. It is not unusual for one party to have the task of defending proceedings in circumstances where another party may have ultimate responsibility for them. This factor provides no real pointer to the allocation of risks.

Thirdly, Charterers submit that cargo claims such as those made in the proceedings in China in the present case will ordinarily be covered by Owners’ P&I insurance. Males LJ said in The “Eternal Bliss” [2022] 1 Lloyd’s Rep 12 at [56] that “…the cost of insurance is one of the normal running expenses which the shipowner has to bear. A standard expense for a shipowner is the cost of P&I cover which is intended to protect it against precisely the loss suffered in this case, that is to say liability to cargo claims, whether justified or not”.

Whether it follows from the fact that owners’ insurance covers liability for cargo claims that owners can be taken to have accepted all such risks, as between themselves and charterers, is another matter. Males LJ’s comment was made in the context of considering whether owners could recover from charterers for damages, in addition to demurrage, arising from delays in cargo operations, rather than in the context of the scope of the implied indemnity. Males LJ considered that the demurrage clause, as a liquidated damages clause, was intended to protect charterers from being liable for unrestricted losses. In that context, the owners’ P&I insurance tended to support the view that the owners had assumed the risk of losses in excess of demurrage.

By contrast, the implied indemnity is intended to confer a right of recovery in respect of liabilities or loss which owners do prima facie incur, and there is no inconsistency between holding P&I cover for such exposure and also having a right of indemnity vis a vis charterers. Moreover, the typical existence of P&I insurance, covering risks arising in a wide range of circumstances, is of limited assistance in construing a charterparty or the scope of the implied indemnity. Moreover, it appears from the arbitrators’ Reasons in the present case that both Charterers and Owners had P&I cover (§ 29).

Fourthly, Charterers submit that ‘ordinary’ cargo claims such as those made in the PRC Proceedings are both foreseeable and foreseen (as demonstrated by inter alia the fact that the parties incorporated the ICA into the Charterparty). Risks that are both foreseeable and foreseen are, they say, less likely to be caught by the implied indemnity: see The “Island Archon” and The “Kitsa”. Charterers refer to Sir Nicholas Hamblen’s observation in the talk referred to earlier that “[t]he decision in The Island Archon makes clear the importance of foreseeability to the question whether the risk or expense is one which the owners have agreed to bear. Foreseeability is also linked to the question of ordinary expenses of the time-chartered service. The more foreseeable they are, the more likely they are to be ordinary expenses; conversely, the less foreseeable and the more unexpected they are, the less likely that is”. Charterers also cite a suggestion by Professor Baughen says, at pp. 16-17 of his article cited earlier, that absent a breach of charter, an owner will have to prove a third party intervention “of a type not contemplated by the parties at the conclusion of the charterparty” before the implied indemnity will be engaged.

However, as Aikens J noted in The “Kitsa”, foreseeability is no more than a relevant factor. In a broad sense, almost any type of loss that might result from charterers’ orders could be regarded as foreseeable, but that fact cannot preclude reliance on the implied indemnity. Further, the Tribunal in the present case 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, and it seems unlikely that it was. To the contrary, in Reasons §§ [136]-[137] the Tribunal rejected Charterers’ submission regarding foreseeability on the facts of the present case. It was not self-evidently foreseeable that inherent vice would fail to provide a defence in the PRC Proceedings.

The incorporation of the ICA does not in my view assist Charterers either. At a very general level, it might be regarded as showing that the parties foresaw in principle that losses might arise due to default by owners or charterers of various kind, or for other reasons. It would not, however, be logical to conclude that owners therefore assumed the risk of all similar losses (however caused, and even if resulting from charterers’ orders) in cases where the ICA did not apply. The statement relied on by Professor Baughen in my view proposes a restriction on the implied indemnity that is not supported by logic or by authority.

Charterers submit that Owners in substance contend for a special rule for inherent vice, but that no such rule is justifiable. Charterers say that:-

In my view Owners do not seek, and the Tribunal did not apply, any kind of special rule for inherent vice. The Tribunal applied established principles to a case whose particular facts involved the employment of a vessel to carry a cargo with inherent vice. I also do not consider that the points summarised above assist Charterers.