Recently, Lloyd's Maritime Law Newsletter reported on a recent arbitration award in which Reed Smith acted, regarding the requirements for notice under the 1996 Inter-Club Agreement (ICA), as amended in 2011.
The decision concerned a notice that, on the face of it, bore no resemblance to a usual ICA notice as it: a) was given by Charterers prior to the cargo being discharged and hence cargo interests becoming aware of the damage, let alone asserting a cargo claim; b) did not say it was an ICA notice; c) primarily concerned Owners and Charterers arranging a joint survey at discharge; and d) did not contain certain mandatory information prescribed by the ICA.
The notice read as follows:
"As you know there has been an accident on [the vessel] where the crew have pumped the seawater into the cargo hold instead of pumping it out. Therefore we hold the Owners fully liable for all claims and costs arising from the crew's negligence. We will arrange for a surveyor to attend at the discharge port to protect [the charterer's] interests thus please let us know if you want to arrange for a joint survey. Please acknowledge receipt of this notification."
The ICA clause 6 provides:
'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 or the date the cargo should have been delivered .... Such notification shall if possible include details of the contract of carriage, the nature of the claim and the amount claimed.'
The Tribunal held that there were two separate obligations: the first obligation is to provide a written notification of the cargo claim within 24 months of the relevant date, and the second requires such notice to include details of the contract of carriage and claim amount, if available.
The Tribunal found the notice met the first obligation as it made clear to Owners that they would be held "fully liable for all claims and costs arising from the crew's negligence", should a claim be brought by cargo interests. Regarding the second obligation, the ICA is flexible in that, if information is not available (e.g. claim amount) then it does not need to be included in the notice. However where the information is available (e.g. details of the contract of carriage) then it must be provided. The Tribunal concluded that the Charterers had not complied with their ICA obligation in this regard, however such a failure would not attract the consequence of a failure to notify (i.e. a bar on recovery). Rather it would amount to a breach which would give rise to a damages claim only and in most situations no loss would occur and therefore the breach would not have any substantive consequences.
Notification of ICA claims is an important consideration for P&I clubs who will wish to make appropriate reserves for the notified claim. This is, of course, why the ICA expressly provides such notices be given, prescribes the information the notices are required to contain and mandates that a failure to give notice will prevent a claim from being brought later on.
The Award, if followed, may introduce considerable uncertainty for P&I claims handlers in that:
- it seems to require them to divine from survey requests and other routine correspondence that their counterparty intended for such notice to be given. A P&I case handler may of course never see such correspondence in the first place; and
- it found that a notice which failed to include required information is sufficient for its purpose, although a breach of the ICA. This would mean that a notice which failed to disclose the amount of the claim where that information was available, thus affecting the ability of the Club to enter an appropriate reserve, would have no substantive consequence for the party who gave the notice. This seems to be a surprising consequence.
Originally published by Reed Smith, July 2020
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.