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Web alert: Recoverability of costs under ICA following successful defence of cargo claim

26 November 2014

In a recent unreported London Maritime Arbitrators Association (‘LMAA’) award [1], the tribunal was asked to consider whether the costs of successfully defending a cargo claim could be recovered under the Inter-Club New York Produce Exchange Agreement 1996 (‘the ICA’).
 
Background
Cargo interests claimed against the vessel owner, however their claim was ultimately unsuccessful. The owner incurred legal costs in defending the unsuccessful claim but were unable to recover full expenses due to the legal regime in place where the claim was decided. As a result, the owner turned to the charterer under the ICA in order to recover their costs.
 
Under the 1996 version of the ICA, which the club understands was applicable in this case, costs are dealt with at clause 3 as follows:
 
“…Cargo Claim(s)…include:
 
(a)   any legal costs claimed by the original person making any such claim;…
(c)    all legal, Club correspondents’ and experts’ costs reasonably incurred in the defence of or in the settlement of the claim made by the original person, but shall not include any costs of whatsoever nature incurred in making a claim under this Agreement or in seeking an indemnity under the Charterparty.”
 
In order for apportionment to take place under the ICA, clause 4(c) provides that the claim must have been ‘properly settled or compromised and paid’
 
The Owner’s Case
The owner argued that the costs incurred in defending the failed cargo claim fell under clause 3 of the ICA and that the claim had, in effect, been ‘settled’ by the court. Finally, they stated that the costs in defending the claim had, in fact, been paid. As a result, the costs should be capable of apportionment under the relevant section of the ICA.

The Charterer’s Case
In response, the charterer stated that it is a fundamental requirement of the ICA that there is an underlying liability – in this case cargo interest’s claim failed and therefore there was no such liability. While the owner may have been able to state that the claim had been ‘settled’ by the court, the second requirement for the claim to have been paid could not be met.

The Award
The tribunal found in favour of the charterer and in so doing stated:  

  • That there had to be an underlying liability in order for the terms of the ICA to apply; 
  • If the ICA had intended to apply to the costs of defending unsuccessful claims, it would have been drafted accordingly and there is no such relevant provision; 
  • That cargo claims may be made against charterers and owners and that it was consistent with the tenor and purpose of the ICA that the costs of successfully defending a cargo claim should lie where they fall. 

Comment
As far as we are aware, there are no other legal authorities on this point, as to whether or not the costs of successfully defending a cargo claim fall within the ambit of the ICA. This unreported award is the first commenting on the issue and it may well not be followed by other tribunals, or indeed by the English courts.
 
If correct, the position following this case appears to be that it is more beneficial for an owner or charterer to settle a cargo claim and seek an apportionment under the ICA, than to incur costs in fully and successfully defending a case, as such costs appear not to be recoverable under the ICA.
 
In so far as the tribunal in this case arrived at the correct conclusion (which is doubted by the authors of this article), then we believe this cannot have been the true intention behind the ICA as it currently stands, which is one of pragmatic compromise and of swift, fair, apportionment of liability for cargo claims, between P&I clubs.
 
The Standard Club intends to raise this issue at International Group level. In the meantime, members should be aware of this potential restriction on the recovery of costs under the ICA in circumstances where they successfully defend a claim made by cargo interests.


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[1] For further information, please see Fishers Solicitors’ website.