Transgrain Shipping (Singapore) Pte. Ltd. v Yangtze Navigation (Hong Kong) Co. Ltd. (The Yangtze Xing Hua)  EWCA Civ 2107 (Comm)
The English Court of Appeal has affirmed the decision of the High Court (on appeal from an arbitration award) that the meaning of “act” in clause 8(d) of the Inter-Club Agreement (ICA) should be given its ordinary meaning and does not require the act to be negligent or to depend on legal or moral culpability.
The owners chartered the vessel to the charterers for a single time trip charter on an amended NYPE form. The charterparty incorporated the ICA. The voyage involved the carriage of soya bean meal from South America to Iran. On arrival in Iran the charterers had still not been paid for the goods so they ordered the vessel to sit off the discharge port. The vessel ultimately waited there for over four months during which time the cargo was damaged as a result of over-heating. After the cargo was eventually discharged the cargo interests made a claim against the owners for approximately Euros 5 million and which was eventually settled for just over Euros 2.5 million. The owners sought an indemnity against charterers pursuant to clause 8(d) of the ICA which provides:
“Cargo claims shall be apportioned as follows: ….(d) All other cargo claims whatsoever (including claims for delay to cargo) 50% Charterers 50% Owners
unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.” (emphasis added)
The owners argued that the cause of the loss was the delay in waiting off the discharge port and that therefore the claim arose out of the “act” of the charterers, such that they should bear 100% of the claim. The charterers argued that “act or neglect” meant that the “act” had to be negligent or involve fault on the part of the charterers such that the claim ought to be shared 50/50.
The Court of Appeal agreed with the owners and the charterers had to bear 100% of the loss. In coming to its decision (which affirmed that of the Tribunal and High Court) it said that the words “act or neglect” meant any causative act, whether culpable or not. “Act” should be given its ordinary meaning – “The critical factual question under clause 8 is that of causation. Does the claim in fact arise out of the act, operation or state of affairs described. It does not depend upon legal or moral culpability”.
The Court also highlighted that the ICA was designed as a simple, mechanistic regime for the apportionment of cargo claims, primarily for the benefit of the parties’ P&I insurers, with apportionment being set out in a simple framework that had the character of a ‘knock for knock’ agreement.
This judgment makes clear that in apportioning claims between owners and charterers, the ICA is concerned with questions of causation rather than culpability. The word “act” was given its ordinary meaning. Applying considerations of culpability would involve more detailed investigations, to some extent defeating the purpose and rationale behind the ICA. This judgment is therefore to be welcomed, but is a salutary warning to both owners and charterers alike of the potential consequences of their actions during a cargo carrying voyage to which the ICA applies.