Web Alert: Important update regarding the recoverability of costs under the ICA following the successful defence of a cargo claim

In the club’s previous web alert, we alerted members of a decision holding that the costs of successfully defending a cargo claim were not recoverable. While it was questioned by the club whether this was the true intention of the Inter-Club Agreement 1996 (“ICA”), it remained to be seen if this decision would be followed by other tribunals or the English courts.

In an important update, the tribunal in London Arbitration 30/16 has declined to follow the decision in London Arbitration 10/15 and instead allowed the owners to recover their costs of successfully defending a cargo claim under the ICA.

Background

The ship was time chartered on an amended 1993 NYPE form. The charterparty provided that cargo claims as between owners and charterers would be settled in accordance with the ICA.

The underlying cargo claim was brought by the receivers in the country of discharge against the ship’s owners. The local court considered that the inherent poor quality of some of the cargo was the cause of the damage and held that the charterers were the responsible party. The court found that the other defendants, including the owners, were not liable.

Arbitration

The owners commenced London arbitration proceedings against the charterers for their costs including legal, correspondent and expert’s costs incurred in defending the claim in the foreign court. This was brought primarily under clause 8(d) of the ICA on the grounds that, “the claim arose from the charterers’ ‘act or neglect’ in shipping cargo with an excess moisture content and by ordering the vessel to carry the cargo for a prolonged period of time.” Furthermore, the foreign court judgment had confirmed the owners were not at fault in any way.

As part of their defence, the charterers asserted that a claim for the costs of successfully defending a cargo claim did not fall within clause 3 of the ICA. Furthermore, charterers argued that clause 4(c) of the ICA stated that a claim had to be ‘properly settled or compromised and paid’ and that this requirement was not satisfied when costs are incurred in a successful defence of the cargo claim. Charterers sought to rely on London Arbitration 10/15 in arguing that owners could only claim these costs where a payment was made in respect of the original cargo claim.

On the issue of whether a claim for costs could be recoverable under the ICA, the tribunal were reluctant to follow the decision in London Arbitration 10/15. They instead read clause 3(c) of the ICA, which includes in the definition of cargo claims all costs reasonably incurred in the defence or settlement of the original claim, to allow for the possibility that the underlying claim might be successfully defended and therefore no amount would be paid to the claimants. As the cargo claim would then include the costs of a successful defence, similarly, they found that clause 4(c) should be read in light of this and so the requirement for the claim to be ‘properly settled or compromised and paid’ is met if these costs have been paid.

The tribunal also took into consideration the argument that the previous interpretation provided for an uncommercial result, namely that if the receivers’ claim had been settled at, for example, 10%, then all costs incurred could be recovered from the charterers but, if the receivers’ claim was defeated, no costs could be recovered.

Comment

This case demonstrates that whilst the intention of the ICA is to apportion cargo claims as between owners and charterers on a simple, mechanical basis, disputes can still arise. In this case, it was noted by the tribunal that difficulties can occur when trying to determine the intention behind the drafting of particular ICA clauses. In any event, this decision seems to be a sensible one and produced a logical result.