Risks of deliberately delaying discharge

A recent Commercial Court decision in Transgrain Shipping (Singapore) Pte Ltd -v- Yangtze Navigation (Hong Kong) Co Ltd [2016] EWHC 3132 (Comm), has held that a charterer is 100% responsible under the Inter-Club Agreement for damage to cargo arising from an order to the vessel to delay discharge until the receivers were able to pay for the cargo.

The cargo concerned was soya beans, and the vessel was kept waiting for 6 months off the discharge port, during which time it went lumpy and discoloured in two holds. This was not due to any improper monitoring on owners part, nor any breach on charterers part, but instead was caused by a combination of the inherent nature of the cargo and the lengthy delay prior to discharge. It led to a cargo damage claim from receivers which owners settled for EUR2,654,238. The issue before the Court was whether owners could claim a full indemnity under clause 8 (d) of the Inter Club Agreement on the basis that the claim arose from the charterer’s decision to delay discharge.

Inter Club Agreement clause 8 (d)

Clause 8 (d) says:
“(8) 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.”

Charterers argued that the words “act or neglect” should be read together, so that the fault element in “neglect” should also apply to “act”. The judge decided that since the Inter Club Agreement was a mechanical apportionment of liability, the word “act” should be read in accordance with its ordinary and natural meaning without regard to questions of fault. As such, charterers’ “act” in deciding to delay discharge, even though without fault, was enough to make them 100% responsible for the cargo claim which then arose as a result of the delay.

Permission has been granted for an appeal to the Court of Appeal.

Comment

This decision follows the non-fault approach underlying the Inter Club Agreement but questions could be raised in respect of the finding that the claim arose solely due to charterers’ decision to delay discharge. Given the time-sensitive nature of a cargo like soya beans it might be said that owners should have also considered whether they should have rejected the order from charterers to delay discharge on the grounds that it was likely to adversely affect the safety of the cargo and thus on their ability to deploy an inherent vice defence against receivers. Whilst the logic of the Court’s decision in this case may be difficult to dispute in other cases where there are delays in discharge it may be more difficult for owners to obtain a full indemnity where it can be shown that their decision to comply with charterers’ orders to delay discharge had failed to take sufficient account of the impact of a delay on the condition of the cargo on discharge.

Given the number of delayed shipments these days more disputes may be expected on these issues.

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