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Case No. DMC/ST/05/01

Transpacific Discovery SA v. Cargill International SA. – The Elpa

English Commercial Court: Morison J.          Unreported: April 2001


Where the Inter-Club Agreement (ICA) (which provides for the ‘rough and ready’ adjustment of cargo claims between owners and time-charterers under the NYPE form of C/P) is incorporated into the charter, it will apply provided the Bills of Lading, under which the cargo claims are brought, comply with the ICA - namely, are subject to the Hague/Hague-Visby Rules or equivalent). This is the case, even if the Bills may be in some respect defective under other terms of the C/P, for example, antedated Bills or Bills that are not claused in conformity with Mate’s receipts.

DMC Category Rating: Developed


The Facts   
The ‘ELPA’, owned by Transpacific Discovery fixed to Cargill on the NYPE form of charterparty to carry a cargo of cotton bales from the Russian Black Sea to Mexico. En route the cargo was damaged by fire, attributed for the purposes of the case to the ship’s unseaworthiness. Owners settled the cargo claim for US$521,000 and then claimed indemnity for this amount and additional expenses of about US$250,000 from the charterers in London arbitration.

The charterparty provided for the Inter-Club Agreement on the apportionment of cargo claims between owners and time-charterers to apply. Under the ICA, owners’ claim would fail, as the ICA allocated to owners 100% of the responsibility for claims arising from unseaworthiness. Owners argued however, that the ICA did not apply, since the bills of lading – signed by the Master – were defective, in that they were ante-dated and, contrary to the express terms of the charterparty were not claused in conformity with Mate’s receipts.

The relevant clause of the ICA reads as follows:

"1(i) It shall be a condition precedent to settlement under the Agreement that the cargo claim, including any legal costs incurred thereon, shall have been properly settled or compromised and the cargo carried under … bills of lading incorporating the Hague or Hague-Visby Rules or containing terms no less favourable."

The Arguments
Charterers argued that the ICA was not rendered inapplicable by an irregularity in the bills of lading which had no bearing on the cargo claim. So the requirements of clause 1(i) were met and owners’ claim therefore failed.

Previous Cases - 'The Hawk'
Issues of this nature had been considered in earlier cases, particularly in the case of ‘The Hawk’ in late 1998. The Judge in that case held that it was necessary to imply into clause 1(I) of the ICA "that to qualify for apportionment under the agreement the bill of lading must have been authorised under the charterparty….. however it is important that this test be applied broadly and flexibly and so as to give effect to the commercial purpose of the ICA."

His conclusions in that case were the following:

"2 Where a shortage claim is concerned and where a question arises as to whether the relevant goods were ever delivered into the possession of the owners or their agents at the port of loading, then, as held in ‘The Holstencruiser’, it is for the charterers to prove that the bill of lading was authorised in the sense that it was a bill which the master would have had the authority of the owners to sign…… The bill will be authorised to the extent that the goods acknowledged in it have in fact been received by the owners."

3 Where no issue arises of the kind mentioned in (2), then prima facie the bills will be authorised bills and any omission in the bills of notations to be found in the receipts will not, of itself, constitute a bar to recovery under the ICA.

4 Where however there is a causal connection between the cargo claims in respect of which indemnity is sought and the discrepancy between mate’s receipts and the relevant bill of lading, the owners may be able to recover damages for breach of [charter] and such damages may reduce or extinguish the contribution due to the charterers under the ICA agreement."

The Judgment
Morison J. said in the present case:

"Absent authority, I would take the following approach. The charter determined the rights and obligation of the parties inter se. The ICA is dealing with what should happen to third party claims successfully made against one or other of them. The ICA applies only to cargo claims which have been brought under bills of lading which contain the Hague-Visby Rules governing the carriage. If the goods were never shipped so that the bills never applied to the cargo then the claim would be outwith the ICA. If the goods were shipped but the bills were not issued in accordance with the Charter, provided the cargo claim was not affected, that is provided the claim was still a claim under the bill of lading and subject to the regime of the Rules, then the ICA applies. The ICA only ceases to apply if the cargo claim is not made under the bill…. or….. the protections and limits in the Rules are lost. There is no need to search for any implied term."

He expressed himself "troubled by the decision in ‘The Holstencruiser’". As for the decision in ‘The Hawk’, he felt, on balance, that conclusions 2 and 3 quoted above were correct. He differed from conclusion (4), "for the practical reason that it will not be possible where there has been a compromise of the cargo claims to say to what effect if any a particular contention has had on the ultimate agreed figure. There is, I think, no need to go beyond conclusion 3…"

He concluded: "Once it was established that the cargo claims were based upon bills of lading which incorporated the necessary limitations then that would be sufficient to cross the threshold into the application of the ICA".

He therefore found for the charterers and upheld the arbitrators’ award accordingly.

Cases  considered
The Holstencruiser [1992] 2 Lloyd’s Rep 378: Oceanfocus Shipping Ltd v. Hyundai Merchant Marine Co Ltd – The Hawk [1999] 1 Lloyd’s Rep 176


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