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

THE ARBITRATION

Before the Tribunal, Owners argued that they were entitled to recover from Charterers their liability under the PRC Judgment and the costs of defending the PRC Proceedings. Owners based their claim alternatively on (a) the agreed allocation of liability under the ICA or (b) the implied indemnity arising from the employment and agency provision in clause 8 of the NYPE form.

Charterers contended before the Tribunal that FHS did not conclude the Charterparty as agent for Owners (as undisclosed principal), and that the terms of the Charterparty were inconsistent with FHS having done so. Charterers defended the claim under the ICA on the basis that the requirements in Clause 4(c) (in particular that “the claim has been properly compromised or settled and paid”) had not been met. They argued in the alternative that even if Clause 4(c) did apply, then under Clause 8(d) the correct apportionment of liability was 50% to each of Owners and Charterers.

Charterers submitted that the implied indemnity was not engaged by ordinary trading risks that Owners agreed to bear and for which they were remunerated by the payment of hire; and that, on the facts, hire was paid in consideration of Owners carrying lawful and permitted cargo within the permitted trading limits in the Charterparty, relying on paragraph [11] of The Kos [2012] 2 AC 165 (see § 60 below). In addition, Charterers pointed out that this was not a case where the cargo itself caused damage but where liability had been wrongly imposed by the PRC courts, and where the cause of Owners’ complaint against Charterers should not have led to any liability being incurred by them. Whether analysed as a matter of the scope of the indemnity or causation, Charterers said, there was no basis for imposing liability upon them for a loss that could not be said to have been the natural or ordinary consequence of the loading of a cargo affected by inherent vice. Charterers submitted that that was particularly so in circumstances where the risk of an adverse judgment from the PRC courts was one which Owners must be taken to have known about when the Charterparty was fixed (referring to The Island Archon and to a lecture delivered by Sir Nicholas Hamblen, both considered below).

The Tribunal concluded that FHS did conclude the Charterparty as agent for Owners, as undisclosed principal, and that the terms of the Charterparty were not inconsistent with such an arrangement.

Owners’ claim under the ICA failed. The Tribunal concluded that Clause 4(c) was not satisfied where a cargo claim is established by award or judgment, rather than by a consensual settlement. However, they stated that if the ICA had been applicable to the circumstances before them, then the amount of the cargo claims and associated costs should have been apportioned 100% to (i.e. payable by) Charterers. The following paragraphs regarding causation, forming part of the Tribunal’s reasoning in respect of the ICA claim, are also relevant context when considering the implied indemnity claim:-

“123.

In the light of the findings we have made on Chinese law, we have had little difficulty reaching the conclusion that Grand Amazon acted reasonably in dealing with the cargo claims brought by the Cargo Interests in the PRC. Obtaining a London arbitration award containing a declaration of non-liability (or an award of damages, if it were possible) would not have assisted Grand Amazon as such an award would not in practice have been enforced in the PRC against Cargo Interests. Nor would an English High Court anti-suit injunction against Cargo Interests have assisted as the injunction would not have been enforceable against the Cargo Interests in the PRC. Nor would it have been of any practical assistance to Grand Amazon to seek to challenge the jurisdiction of the PRC Courts as such a challenge would have had no realistic prospect of success. Further, we find that it was not unreasonable for Grand Amazon to have defended the cargo claims in the PRC on the ground that the Vessel’s crew had properly ventilated and cared for the cargo during the voyage.

…

131.

The critical question under clause 8(d) is one of causation. In our view it is difficult to see why the shipment of an unstable cargo which gives rise to cargo claims should not be an “act” of the charterers (within the meaning of clause 8(d) of the ICA) for which the charterers are responsible. It was from the loading of the Montevideo Cargo (with its particular characteristics) and the instruction for the carriage of the Montevideo Cargo to the PRC that the Charterer’s responsibility arose under the ICA. The relevant “act” is not the mere shipment of a cargo, but the shipment of an unstable cargo. The conclusion we have reached is consistent with the analysis of Teare J and the Court of Appeal in The Yangtze Xing Hua as to the meaning of the word “act” where it appears in clause 8(d) of the ICA.

132.

This is not an end to the matter, however. The Charterer has two further arguments. First, it contends that the “act” was not an act of the Charterers, their sub-contractors or servants; and, secondly, for the purposes of clause 8(d), the Charterer contends that it cannot be said that there is clear and irrefutable evidence that the cargo claims “arose out of” any “act” by the Charterer. We can deal with these submissions shortly.

(1)

In our view it was from the loading of the Montevideo Cargo (with its particular characteristics) and the instruction for the carriage of the Montevideo Cargo to the PRC that the Charterer’s responsibility would have arisen under the ICA. This was the relevant “act”.

(2)

Further, it was this act which gave rise to the cargo claims by Cargo Interests.”

Owners’ claim under the implied indemnity succeeded. The Tribunal referred to Charterers’ submissions that the implied indemnity was not engaged by ordinary trading risks that Owners agreed to bear and for which they were remunerated by the payment of hire; that hire was paid here for carrying lawful and permitted cargo within the permitted trading limits; and that § [11] of The “Kos” supported Charterers’ case. The Tribunal continued as follows:-

“136.

The Charterer also points out that this is not a case where the cargo itself caused damage but where liability has been wrongly imposed by the Chinese Courts, and where the cause of Grand Amazon’s complaint against the Charterer should not have led to any liability being incurred by them. Whether analysed as a matter of the scope of the indemnity or causation, the Charterer says, there is no basis for imposing liability upon the Charterer for a loss that cannot be said to have been the natural or ordinary consequence of the loading of a cargo affected by inherent vice. The Charterer submits that this is particularly so in circumstances where the risk of their being an adverse judgment from the Chinese Courts was one Grand Amazon must be taken to have known about when the Charterparty was fixed. It is not a risk which was unknown at the time of contracting. In this regard it referred the Tribunal to The Island Archon [1994] 2 Lloyd’s Rep 277 and to the 36th Donald O’May lecture delivered by Sir Nicholas Hamblen, Under charterers’ orders - to indemnify or not to indemnify, reported at [2019] LMCLQ 200.

137.

In our view the alleged defence is without merit. Grand Amazon’s 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. It was not one of the broad range of physical and commercial hazards which are normally incidental to the chartered service. It was a loss arising from a cost or risk which it had not expressly or impliedly agreed in the Charterparty to bear. For such liability Grand Amazon was not being remunerated. A cargo with a propensity to self-heat is outside the limits of the Charterparty, and outside the kind of risk which Grand Amazon agreed to bear under the Charterparty…

140.

… In the present case the Charterer’s direction gave rise to a loss suffered by Grand Amazon without its fault, arising directly from the delivery of the Montevideo cargo in accordance with the Charterer’s instructions. In our view the loss is squarely within the scope of the implied indemnity. It arose directly from the Charterer’s orders and, on a fair reading of the Charterparty, Grand Amazon cannot be understood to have accepted this risk when it agreed to act on the Charterer’s instructions.

141.

In this context, the issue of causation is whether the chain of causation between the Charterer’s “act” and the loss suffered by Grand Amazon was broken. The Tribunal’s findings on causation in the context of a claim under the ICA are dealt with at paragraph 123 above. The position is a fortiori in this context. Grand Amazon did not fail to take reasonable steps to enforce its rights in London arbitration proceedings and the cause of its loss was not any failure on its part. Grand Amazon’s loss arose out of compliance with the Charterer’s orders under the Charterparty.”

The Tribunal made the following comments in respect of The Island Archon, on which Charterers had relied:-

“138.

The Island Archon, on which the Charterer relies, concerned a very different set of circumstances. It concerned the chaos prevalent in Iraqi courts at the time of the facts giving rise to that dispute, chaos referred to as the “Iraqi system”. The arbitrator found that:

“At the relevant time – and this was well-known in shipping circles – chaos was prevalent in Iraqi ports, and in all aspects of their operation including the handling and supervision of cargoes and the pursuit of cargo claims … put shortly, any ship ordered to discharge general cargo in Iraq was almost bound to have cargo claims made against it and to have those claims taken to court locally, leading to adverse judgments, regardless of whether there was any actual shortage or damage, or otherwise any liability on the ship under the bills of lading.”

139.

As regards the carriage of general cargoes to China in 2014 the position was very different. Cargo claims were not almost inevitable. Cargo claims were only brought in respect of damaged cargo. The risk of unjustified cargo claims was not a risk which had been accepted by Grand Amazon.”

Accordingly the Tribunal concluded that Charterers were liable to indemnify Owners against their liability to Cargo Interests under the PRC Judgment and the costs incurred in the PRC Proceedings.