UK: No Fault Regime Confirmed When Apportioning Liability Under The Inter-Club Agreement

Last Updated: 6 February 2018
Article by Eurof Lloyd-Lewis

The Court of Appeal has decided that the meaning of the word "act" in clause 8(d) of the New York Produce Exchange Form Inter-Club Agreement 1996 ("ICA"), which apportions liability between owners and charterers for cargo claims, should be widely interpreted to include any act regardless of fault. The Lord Justices confirmed that the only necessary consideration when determining apportionment was the cause of the cargo claim. The primary issue in the case, on appeal from the High Court following an LMAA arbitration, was whether the word "act" in the phrase "act or neglect" means a culpable act in the sense of legal or moral fault, or whether it captures any act, whether culpable or not. The decision is important as, whilst it provides some welcome clarity in relation to the apportionment of liability for cargo claims, charterers should be aware when incorporating the ICA into time charterparties that they may be held 100 per cent liable for all loss and damage in circumstances where lawful and legitimate instructions are found to be causative of a cargo claim.

The factual background

Clyde & Co acted for the time charterers of the "YANGTZE XING HUA". The underlying cargo claim arose out of a time charter trip for the carriage of a consignment of soya bean meal from Brazil to Iran. The charterparty was dated 3 August 2012 and was on an amended New York Produce Exchange Form. The vessel arrived in Iran in December 2012 and, not having been paid for the cargo, the charterers ordered the vessel to wait off the discharge port for over 4 months. The cargo became damaged (held by the tribunal to have been caused by a combination of the inherent nature of the goods and the extended period spent at anchor). A claim was made by the Iranian receivers and was eventually settled by the owners of the vessel for a sum of over €2.5m. The owners, in reliance on clause 8(d) ICA, claimed the full sum from the charterers, together with unpaid hire, in the total amount of US$ 1,012,740. It was common ground that liability was to be settled in accordance with the ICA, which had been incorporated into the charterparty. It was also common ground that the relevant part of clause 8 was sub-paragraph (d).

The question of law

The ICA is a widely-used standard form agreement, with the aim of facilitating the settlement of cargo claims between P&I Clubs by providing a relatively simple mechanism for apportioning liability between the parties to time charterparties. The apportionment is carried out in accordance with the rules in clause 8, under which every claim is to be apportioned either 100% for owners or 100% for charterers or split 50:50. The key clause in the appeal was 8(d) which provides:

"(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."

Clause 8(d) is intended as a "sweep up" provision that only applies where the claim does not fall within any of the preceding sub-paragraphs (a), (b) or (c). The key question was whether the charterers' decision to order the vessel to wait offshore constituted an "act" falling within clause 8(d) and, therefore, whether they were 100% liable to owners for the claim brought by the Iranian receivers.

The decision: an overview

The tribunal at first instance held that the word "act" in clause 8(d) was to be distinguished from something suggesting fault, breach or neglect. On appeal to the High Court the charterers argued before Mr Justice Teare that the phrase "act or neglect" must be read as a whole and that the coupling of "act" with "neglect" means that the two words have an equivalent or complementary meaning. Mr Justice Teare agreed that there were instances where "act" takes its colour from "neglect" but held that the meaning of "act or neglect" will depend on its context and must be construed having regard to the ICA as a whole. He found that sub-paragraphs (a), (b), and (c) of clause 8 required a wholly factual enquiry of which party's "sphere of risk" the claims fell into and therefore rejected the charterers' appeal and agreed with the tribunal that the word "act" can mean any act, whether culpable or not.

Before the Court of Appeal, charterers repeated the language and construction arguments and also argued that: (1) contrary to the judge's findings, fault was a trigger for liability throughout the ICA (referring to "error or fault in navigation" in clause 8(a) and "failure properly to load, stow lash" in clause 8(b)) and so it was natural to construe sub-paragraphs (c) and (d) on the same basis; (2) the judge's construction made the proviso to 8(d) into an indemnity against complying with charterers' orders, leading in turn to an unacceptably wide liability on the part of charterers; and (3) the draftsmen of the ICA had used in previous editions the word "act" to mean a "culpable act" and there was no sensible reason for construing those words differently in the 1996 version. The owners submitted that if the charterers were correct then there would be no criterion by which the existence of such fault could be determined because the ICA was intended to cut across liabilities under the charter.

The three Lord Justices rejected the charterers' arguments finding that the word "act" in the context of the ICA should be given its natural meaning, being something which is done. Following the reasoning of the tribunal and High Court, they clarified that "act" does not connote culpability. Lord Justice Hamblen stated that the critical factual question under clause 8 is that of causation and whether "...the claim "in fact" arise[s] out of the act, operation or state of affairs described? It does not depend upon legal or moral culpability, nor is there any stated or obvious criterion against which such culpability is judged." The Lord Justices ultimately concluded, by looking at the context and background of the ICA, that clause 8 was not concerned with fault but was rather a simple mechanism for assigning liability for cargo claims by reference to the cause of the damage regardless of fault. It was held that this reasoning supports the fundamental purpose of the ICA which is to solve insurance problems.


Lord Justice Hamblen noted that in order for a party to bear the full cost of the claim under clause 8(d) it is necessary to have "clear and irrefutable evidence" that the claim arose out of the act. Failing this, the default 50/50 apportionment would apply. However, given that every cargo claim arises from the charterers' actions in giving orders to load the contractual cargo, the Court of Appeal's decision turns the proviso to 8(d) into an indemnity against the consequences of the owners following the charterers' orders. It is, therefore, now much easier for the owners to prove that liability should be attributed 100% to the charterers. Therefore when agreeing to incorporate the ICA in future, time charterers may wish to bear in mind this decision and the fact that the ICA is concerned with the underlying cause of the loss and damages complained of as the criterion for apportionment, and not culpability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions