July 12, 2018

“MARIA” - Court Provides Clarification on Inter-Club Agreement

This was an appeal[1] on a question of law, under s.69 of the Arbitration Act 1996, regarding the interpretation of a provision in the Inter-Club New York Produce Exchange Agreement (ICA) and the corresponding distribution of liability between owners and charterers for a cargo claim. The key issue was the meaning of "similar amendment making the master responsible for cargo handling" in clause (8)(b) of the ICA. An interesting preliminary issue also arose regarding the requirements for an appeal to be granted under s.69.

Facts

In 2004, the vessel "MARIA" was chartered by the claimant/appellant owners (Agile) to the defendant/respondent charterers (Essar) on a time charter for a single trip from Tunisia to India, via Trinidad. The cargo was a consignment of direct reduced iron (DRI) and the charter was on the NYPE 46 form. Cargo claims between the owner and the charterer were to be settled in accordance with the ICA. In the course of loading, the conveyor belt carrying the cargo caught fire. The owners' representative inspected the holds and advised that loading could continue. The DRI was still on fire throughout the voyage and upon discharge, the cargo interests brought a claim against the owners. The owners commenced an arbitration seeking a declaration, from the charterers, that they were obliged to indemnify them against any liability they might be found to have to the cargo interests, under the ICA.

Contractual Provisions

By clause 8 of the charterparty:

“… Charterers are to load, stow, and trim, tally and discharge the cargo at their expense under the supervision of the Captain…”

Clause 8 of the ICA provided as follows:

(b) Claims in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo: 100% Charterers unless [1] the words “and responsibility” are added in clause 8 [of the charterparty] or there is a similar amendment making the Master responsible[2] for cargo handling in which case: 50% Charterers 50% Owners…”

Finally, by Clause 49 of the charterparty (“Clause 49”),

“Stevedore Damage

The Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage[3] and seaworthiness and safety of the vessel…”

In light of this provision, there was a dispute as to who was ultimately responsible for cargo handling, how any cargo claim should be apportioned under the ICA, and whether clause 49 constituted a “similar amendment”.

Arbitration

The Tribunal found that clause 8(b) of the ICA applied, as the claim arose out of the handling of the cargo. In considering whether clause 49 constituted a “similar amendment” for the purposes of clause 8(b), the Tribunal held that the words “the Master … will be responsible for proper stowage and unseaworthiness and safety of the vessel”, in clause 49, clearly made the Master responsible for, at least, part of the loading process, with the result that the first proviso to clause 8(b) was engaged, and that liability should be split 50-50 between the parties.

High Court

Owners argued, on appeal, that the Tribunal was wrong because, in order for there to be a "similar amendment", the relevant provision must transfer all cargo responsibilities (i.e. loading, stowing, discharge, trimming etc. – as per clause 8) to the master/owners, and a partial transfer was insufficient.

It was common ground that clause 49 effected only a partial transfer of cargo handling responsibilities back to the owners, as it only referred to one aspect of cargo handling, namely stowage. The judge held that a partial transfer was not sufficient, and that the arbitrators were wrong on this point of law. Accordingly, the owners were entitled to a complete indemnity in respect of claims made against them by the cargo interests.

Preliminary Issue

As a preliminary issue, the judge also had to decide whether the Court had jurisdiction to hear the appeal as the owners argued that one of the prerequisites set out in section 69(3)(b) of the Arbitration Act 1996 for the grant of leave to appeal had not been met: the scope of the phrase "similar amendment making the master responsible for cargo handling" was not something which the arbitral tribunal had been asked to determine. Accordingly, it was argued that the appeal did not involve a question of law arising out of the award or one which the tribunal was asked to determine.

The judge concluded that while threshold conditions must be satisfied, once a judge decides they are, the court has jurisdiction to determine an appeal. To hold otherwise would mean all threshold conditions could be re-argued on the basis that if a different view was taken, the court would then have no jurisdiction to deal with the appeal.

The judge reasoned that s.69 only permits appeals on questions of law arising from an award (s.69 (1)). The judge described this as "the Law Question" which he distinguished from the issue of whether the question of law was actually put to the tribunal (which he described as "the Determination Question"). With regard to the "Determination Question", it was difficult to see why that should arise at the merits' stage of an appeal. Further, it was reasoned that the route to appeal under section 69 was very narrow, and once a case reached that point, the court should move onto the merits of the question of law, without dealing with points already decided.

The judge held that whilst he was not prohibited from reconsidering whether the question of law raised in the appeal was one that the tribunal had been asked to determine, he emphasised that the Court should give "considerable weight" to the decision of the judge granting leave to appeal.

Comment

This decision regarding the meaning of “similar amendment” in clause 8(b) is important as it had not previously been considered in any reported case, and, therefore, provides clarity on which party bears responsibility for cargo handling. The answer is that, unless there is a provision that affects a total transfer of responsibility for cargo handling to owners, claims arising out of cargo handling will fall 100% on charterers. This is consistent with the intended purpose of the ICA, which is concerned with establishing a clear regime for allocating liability in cargo claims between owners and charterers.

The preliminary issue provided an interesting discussion between the decision for leave to appeal on a point of law and the appeal hearing itself. As noted by the judge, there were strong policy reasons for making the decision to grant leave as efficacious, and immune from further consideration, as possible. It was also commented that, given the exercise carried out by the judge at the permission stage involved a detailed consideration, "considerable weight" should be given to the original decision.


[1] Agile Holdings Corporation v Essar Shipping Ltd (The "MARIA") [2018] EWHC 1055 (Comm)

[2] Our emphasis

[3] Our emphasis