the release of the vessel. Under English law, the right to security only crystallises when a party incurs a loss. With cargo claims, there may be a delay between shipowners issuing security to the cargo claimant and paying the cargo claim which would ordinarily trigger their legal right to security from the charterer. In 2011, following the financial credit crisis and in an environment of increased sensitivity to counter-party credit risk, the ICA was refined to create a contractual right to counter-security in respect of any security provided to the cargo claimant. Thus, in the usual scenario, once owners (or owners’ P&I club) have put up security to the cargo claimant, the charterer must provide security for the nascent ICA claim on a reciprocal basis.
Incorporation of the ICA into the charterparty
Although originally an agreement between the Clubs, as a matter of industry practice, the ICA is usually given contractual force as a result of express incorporation into NYPE charterparties. Some care is required in the wording of the incorporation to ensure that the correct version of the ICA and all of its terms apply. In London Arbitration 18/18, the Tribunal found that only the ICA allocation of liability was incorporated into the relevant charterparty, but not the terms creating a contractual right to security. Although there is some disagreement over whether that decision was right, the IG P&I clubs have since produced a standard clause to secure the incorporation of all the terms of the ICA as follows:
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“Cargo claims as between Owners and the Charterers shall be governed by, secured, apportioned and settled fully in accordance with the provisions of the Inter-Club New York Produce Exchange Agreement 1996 (as amended 2011), or any subsequent modification or replacement thereof. This clause shall take precedence over any other clause or clauses in this charterparty purporting to incorporate any other version of the Inter- Club New York Produce Exchange Agreement into this charterparty”.
Where properly incorporated, the ICA prevails in the event of any conflict with other charterparty provisions. In The Kamilla [2006] EWHC 509 (Comm), an ICA claim concerning the Algerian authorities’ rejection of an entire cargo due to a small quantity of cargo damaged by water ingress, the court commented, “The agreement prevails over the provisions of the charter-party, since it represents an agreed interpretation of the provisions of the charter-party dealing with liability for loss of or damage to cargo. Any questions as to the interpretation of the ICA must therefore depend on the construction of the ICA itself and not on the construction of the charter-party.” This extends to any contractual time- bar for claims, The Genius Star [2011] EWHC 3083 (Comm).
It was further recognized more recently in London Arbitration 10/22 that apportionment under the ICA is “a full and final remedy, and in light of its findings, the tribunal found that it need not consider the owners’ further and alternative case that the charterparty contained an implied right of indemnity in favour of the owners.” As such, the ICA operates as a complete code for allocating responsibility for cargo claims under the relevant charterparty.
Conditions for the application of the ICA apportionment
Cargo claims subject to apportionment:
- Must be made under a contract of carriage authorised under the charterparty and on terms no less favourable than the Hague-Visby Rules (or Hamburg Rules where compulsorily applicable).
- There must be no material amendment to the cargo responsibility clauses in the governing charterparty.
- The claim must have been properly settled or compromised and paid.
The ICA claim must be notified within 24 months of discharge or the date on which the cargo should have been delivered or 36 months
where the cargo was discharge in a jurisdiction applying the Hamburg Rules. Although the ICA refers to the inclusion of specific details in the notice, the absence of those details will not render the notification ineffective, London Arbitration 3/20. Provided the ICA claim has been notified, the standard six-year contractual limitation period will then apply under the Limitation Act 1980.
Legal costs
One of the more common arguments in resisting an ICA claim is that the claim was not “properly settled” usually implying that the cargo claim was defensible. Where a claim has been settled in accordance with legal advice or on the basis of the local correspondents’ recommendation, it is more likely to be accepted as properly settled. What about cases that are successfully defended – are legal and expert costs recoverable? Cargo claims are defined to mean not only the underlying cargo claim itself, but also the cargo claimant’s legal costs and interest as well as the costs incurred by the contractual counterparty who had to defend the incoming cargo claim, such as fees for lawyers, surveyors or experts. Where parties arrange operational or precautionary surveys in anticipation of a possible claim, these costs are unlikely to be recoverable as part of an ICA claim as they would always have been incurred whether or not a claim was presented. However, where a party successfully defends the incoming cargo claim and therefore has no third-party liability, there is authority in London Arbitration 30/16 that they will be entitled to recover the costs incurred in doing so as a Cargo Claim under the ICA. That said, this point may still be open for debate due to a conflicting decision in London Arbitration 10/15 where the Tribunal found that any ICA claim was qualified by the requirement that there was a third-party liability. The more commercial view is that the ICA includes recovery of the costs of successfully defending a claim. It would seem illogical if defence costs are recoverable under the ICA when the cargo claim is settled for USD 1, but not where the cargo claimant withdraws or loses the claim entirely.
The Report • June 2023 • Issue 104 | 71
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