QCR Autumn 2020: London Arbitration 3/20
Arbitration tribunal clarifies that a written notification under the Inter-Club Agreement does not need to refer to the ICA nor include details of the cargo claim and the claim amount for it to be valid.
London Arbitration 3/20
The Inter-Club Agreement (ICA), specifically incorporated into a charterparty, serves as a means for owners and charterers to resolve liabilities in respect of cargo claims quickly and at minimal cost.
In London Arbitration 3/20, the vessel was time-chartered on the NYPE form which incorporated the ICA 1996 as amended in September 2011, and a Clause Paramount. Charterers had contracted to carry a cargo of engine equipment (“the cargo”) from the US to North Africa and bills of lading were issued by charterers as carrier to the shipper. During the voyage, on 2 February 2015, the vessel’s crew accidentally pumped water into cargo hold no. 2 causing damage to part of the cargo. On the same day, charterers wrote to owners holding owners fully liable for all claims and costs arising from the crew’s negligence, and requested a joint survey of the cargo. A joint survey took place on board prior to the cargo being delivered on or about 8 March 2015. The shipper notified charterers of its intention to pursue a cargo claim against charterers but no claim was formally presented. Various email exchanges then took place between the shipper and charterers, and between charterers and owners wherein information from the shipper was passed up the chain by charterers to owners, and extensions of time were given by charterers to the shipper, and by owners to charterers.
Clause 6 (time bar) of the ICA states:
“Recovery under this Agreement by an Owner or charterer shall be deemed to be waived and absolutely barred unless written notification of the Cargo Claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo ………. Such notification shall if possible include details of the contract of carriage, the nature of the claim and the amount claimed.”
When 24 months from the date of delivery of the cargo passed without a formal quantified claim being presented against charterers, owners claimed that charterers had not given written “notification” of “the Cargo Claim” within the meaning of clause (6) above, and that accordingly any claim that charterers might have had against owners for an indemnity in respect of the shipper’s claim was deemed to be waived and absolutely barred. Owners said that such information as had been passed on to them by charterers within the 24-month period was not sufficient to constitute “written notification of the Cargo Claim” within the meaning of clause (6). While owners acknowledged that they had granted extensions of time to charterers within the 24-month period, they said that such extensions did not extend the time for giving “written notification” within the meaning of clause (6) above but related to the time within which to bring a cargo claim under the Hague Rules/Hague-Visby Rules/US COGSA.
The Tribunal had to determine as a preliminary issue whether charterers’ claim for an indemnity was “waived and absolutely barred” within the meaning of clause (6) of the ICA.
The Tribunal’s decision
The Tribunal concluded on the following grounds that the recourse claim which charterers wished to pursue against owners under the ICA was not deemed waived or barred;
- The clause 6 “notification” did not have to refer to the ICA, either expressly or impliedly. Clause 6 simply required “written notification of the Cargo Claim” to be given to the other party. The ICA terms, if applicable, were mandatory (see clauses 2 & 5 of the ICA), so there was no need to specify that the notice was given under clause 6 of the ICA. Charterers’ written notification to owners on 2 February 2015 in respect of cargo damage caused, and requesting a joint survey, was a valid written notification of the Cargo Claim.
- The first sentence in clause 6 clearly set out that in the absence of written notification within the 24-month period, the cargo claim would be “waived and absolutely barred” but the second sentence did not contain a similar provision. This distinction between the two sentences was highly significant in indicating that non-compliance with the second sentence, unlike with the first, would not result in the notified claim being waived and absolutely barred . The words “if possible” in the second sentence further suggested that the provision of details was not essential to the giving of notification and a failure to do so would only give rise to a right to damages if any loss could be established, which appeared unlikely in most situations.
- From the subsequent email exchanges and granting of time extensions, it was clear that owners were aware that cargo interests were likely to bring a claim against charterers and that charterers wished to preserve their rights to bring a formal claim against owners. As such, eventhough details which could have been provided were not provided, there was still a valid written notification by the charterer to the owners of a Cargo Claim within the meaning of clause (6) of the ICA within the 24-month period expiring on or about 8 March 2017.
It is helpful that the Tribunal has clarified that for an ICA notice to be valid, it is neither necessary to refer to the notice as an ICA notice nor is it necessary to include in the notice the details or quantum of the claim. The Club nevertheless recommends that as a matter of good practice and to avoid unnecessary disputes from arising, Members do describe a notice issued under clause 6 of the ICA as such a notice, and provide the recipient of such a notice with details of the potential claim(s) against them, further ensuring that the notice is provided timely within the period prescribed in clause (6).
For additional guidance on the application of the ICA, Members are directed to the Club’s publication on this subject here.
Legal Services Manager
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The issue of incorporation of charterparties into bills of lading is debated by the English courts on a fairly frequent basis; most recently in the Anna Bo (2015) and the Magellan Spirit (2016). So what's all the fuss about really and how do you avoid getting caught out?
The purpose of the ICA is to avoid lengthy and costly litigation on matters of liability and apportionment, and instead seeks to provide a ‘rough and ready’ split of liability between the parties. The Clubs recommend to their Members that they adopt the Agreement for the purpose of apportioning liability for claims in respect of cargo which arise under, out of or in connection with all charterparties on the NYPE Form 1946 or Asbatime Form 1981, whether or not this Agreement has been incorporated into such charterparties. However, unless the ICA is specifically incorporated into the charterparty, it may not be enforceable.