Sino East Transportation Ltd v Grand Amazon Shipping Ltd - The Grand Amanda
DMC/SandT/26/15
England
Sino East Transportation Ltd v Grand Amazon Shipping Ltd (The “Grand Amanda”)
English Commercial Court: Henshaw J: [2025] EWHC 1990 (Comm): 30 July 2025
Judgment available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2025/1990.html
Alexander Wright KC (instructed by Penningtons Manches Cooper LLP) for Sino East (Charterers)
Stewart Buckingham KC and Michael Proctor (instructed by MFB Solicitors) for Grand Amazon (Owners)
TIME CHARTER: TRIP CHARTER ON AMENDED NYPE 1946 FORM: IMPLIED INDEMNITY ARISING FROM CLAUSE 8 EMPLOYMENT AND AGENCY PROVISION: CARGO OF SOYABEANS DAMAGED IN TRANSIT BY INHERENT VICE: OWNERS HELD LIABLE TO CARGO INTERESTS BY PRC COURT NOTWITHSTANDING INHERENT VICE: OWNERS’ P&I CLUB PAID JUDGMENT SUMS: WHETHER IMPLIED INDEMNITY EXTENDS TO A LIABILITY WRONGLY IMPOSED BY A FOREIGN COURT FOLLOWING CARRIAGE OF A LAWFUL, HARMLESS AND PERMITTED CARGO AFFECTED BY INHERENT VICE: WHETHER THE LOSS AROSE FROM A RISK OWNERS HAD AGREED TO BEAR: WHETHER THE NYPE INTER-CLUB AGREEMENT 1996 (AS AMENDED 2011) IS A COMPLETE CODE PRECLUDING THE IMPLIED INDEMNITY: THE “ISLAND ARCHON”: ARBITRATION ACT 1996 SECTION 69 APPEAL ON A POINT OF LAW
Summary
Dismissing Charterers’ appeal under section 69 of the Arbitration Act 1996, the Commercial Court (Henshaw J) held that an LMAA tribunal had made no error of law in concluding that Owners were entitled, under the general implied indemnity in a time charter, to recover from Charterers the liability and costs Owners had incurred as a result of an adverse foreign court judgment in respect of a cargo damaged by inherent vice. The decisive question was whether the loss arose from a risk which Owners had, on the true construction of the charterparty (informed by an assessment of the commercial hazards ordinarily incidental to the service), agreed to bear.
Case note contributed by James Lamming, barrister at Twenty Essex chambers, London
Background
Facts
By a fixture recap dated 1 April 2014, Owners time-chartered the Vessel, “Grand Amanda”, to Sino East Transportation Ltd (“Charterers”) for a trip carrying lawful and harmless cargoes from the East Coast of South America to the Far East.
A cargo of Uruguayan soyabeans was loaded at Montevideo (the “Montevideo Cargo”) and a clean bill of lading on the CONGENBILL 2007 form was issued; a second cargo of Argentine soyabeans was loaded at Bahia Blanca (the “Bahia Blanca Cargo”). On arrival in China the Montevideo Cargo was found to be mildewed, discoloured, caked and blackened; the Bahia Blanca Cargo was sound. It was common ground, both before the Tribunal and on appeal, that the damage to the Montevideo Cargo was in fact caused by inherent vice.
Cargo interests commenced proceedings against Owners (and the registered owner) in the Wuhan Maritime Court. Owners’ P&I club (the Swedish Club) elected to defend on the merits in China rather than to challenge jurisdiction or to take steps in England. The PRC court found Owners liable for failing to take adequate care of the cargo, not being persuaded (contrary to the true position) that the damage was due to inherent vice. Successive appeals in the PRC were dismissed and the Swedish Club paid the judgment sums.
The Charterparty
The Charterparty was on an amended NYPE 1946 form with rider clauses. Clause 6 of the Recap provided for the carriage of harmless lawful cargoes. Clause 8 of the NYPE form placed the Master under Charterers’ orders and directions as regards employment and agency. Clause 43 provided that liability for cargo claims was to be borne in accordance with the NYPE Inter-Club Agreement 1996 or latest updated version (the “ICA”). Clause 59 (Protective Clauses) incorporated a US Clause Paramount, the effect of which was to incorporate the US Carriage of Goods by Sea Act 1936. The PRC was not a prohibited destination under the trading-limits clause, and neither cargo engaged the cargo-exclusion or additional-protection provisions of clause 82.
The Arbitration
Before the Tribunal, Owners advanced their claim on two alternative bases: the agreed allocation of cargo-claim liability under the ICA, and the implied indemnity arising from clause 8. Charterers resisted both, contending in particular that the implied indemnity was not engaged by ordinary trading risks which Owners were remunerated to bear by the payment of hire, that hire here was paid for carrying a lawful and permitted cargo within the contractual trading limits, and that this was not a case where the cargo itself had caused damage but one where liability had been wrongly imposed by the PRC courts. Charterers relied on The “Island Archon” (fn.1) and on the risk of an adverse PRC judgment being one Owners must be taken to have known about at the time of fixing.
The Tribunal held that Owners’ ICA claim failed, because clause 4(c) of the ICA (requiring that the claim has been “properly settled or compromised and paid”) was not satisfied where liability had been established by judgment rather than by consensual settlement. Had the ICA applied, the Tribunal would have apportioned the claim 100% to Charterers, on the footing that the shipment of an unstable cargo and the instruction to carry it to the PRC was an “act” of Charterers within clause 8(d). However, according to the Award, it was common ground, at least by the time of the final hearing, that ICA apportionment did not apply.
Owners’ implied indemnity claim succeeded. The Tribunal found that Owners’ liability to cargo interests was not an ordinary cost or risk of the chartered service, nor one of the broad range of physical and commercial hazards normally incidental to that service, nor one which Owners had expressly or impliedly agreed to bear; that a cargo with a propensity to self-heat lay outside the kind of risk Owners had accepted; and that the loss arose directly from Charterers’ orders to load and carry the Montevideo Cargo, the chain of causation not being broken by Owners’ (reasonable) conduct of the defence before the PRC courts.
Grounds of Appeal
Andrew Baker J granted leave to appeal on a single question of law: in substance, whether an owner can recover from a time charterer, under the general implied indemnity, a liability wrongly imposed by a foreign court following the shipment of a lawful, harmless and permitted cargo affected by inherent vice. Leave was refused on two ICA-related questions (whether the ICA applied, and whether the loading of such a cargo was an “act” of the charterers under clause 8(d)), Andrew Baker J noting that it had been Charterers’ case that ICA apportionment did not apply and that, according to the Award, this had become common ground by the final hearing ([37]).
Judgment
The Judge dismissed the appeal, holding that the Tribunal had directed itself to the correct legal questions and had made findings of fact that logically supported its conclusion.
The implied indemnity: principles. After reviewing the authorities, the Judge confirmed that, under a clause 8-type employment provision, an indemnity is normally implied against loss or liability arising as a consequence of complying with charterers’ orders, unless owners consented under the charter to bear the loss in question. The indemnity is of general application; it can arise from lawful orders to load a particular (even non-dangerous) cargo or to proceed to a particular port; and it operates independently of fault. It is subject to the two limitations that owners are not indemnified against risks or costs for which they are remunerated by hire (i.e. risks they have agreed to bear), and that the charterers’ order must have been an effective cause of the loss.
The “Island Archon”. The Judge held that The “Island Archon” did not require an external change of circumstances between fixing and the order. Evans LJ’s observation that, had the “Iraqi system” (under which cargo claims were almost inevitably made, and upheld by the local courts, regardless of the actual state of the cargo) been notorious at the date of the charterparty, there “might be substance” in the argument that owners had consented to bear the risk, went no further than that. The governing question is always whether owners had agreed to bear the relevant risk. That depends on the true construction of the charterparty (bearing in mind the time/voyage charter distinction), but may also call for an informed commercial judgment about the hazards normally incidental to the chartered service, on which deference is owed to an experienced tribunal ([117]). On a fair reading of the Tribunal’s Reasons for the Award, the Judge found that there was no real contradiction in the Tribunal describing a lawful and permitted cargo as “outside the limits of the Charterparty” (a cargo may be lawful and permitted yet still give rise to a risk owners had not agreed to bear), and the Tribunal had not misunderstood The “Island Archon”.
Express terms and the ICA. The Judge rejected Charterers’ argument that the detailed express terms (trading exclusions, cargo exclusions and specific risk allocations) showed that Owners had accepted the risk: such clauses are realistically unlikely to be comprehensive, and the implied indemnity is not confined to matters outside their scope ([110]). He also declined to treat the ICA as a “complete code” displacing the implied indemnity. Where, as here, it had been common ground before the Tribunal (so that permission to appeal on the point was refused) that the ICA did not apply on its own terms, the other provisions of the charterparty and the ordinary law (including the implied indemnity) governed. To read clause 4(c) as excluding all liability for cargo claims established by judgment would produce arbitrary results (a settled claim attracting 100% apportionment, an adjudicated one attracting nothing). Conversely, the Judge did not accept Owners’ submission that the Clause Paramount’s exclusion of liability for inherent vice itself fixed the allocation of risk as between Owners and Charterers; at most it prevented Charterers from arguing that, because that form of bill had to be signed, Owners had assumed the risk.
Commercial considerations. The Judge was not persuaded by Charterers’ further arguments: that bill of lading liabilities are simply “part and parcel” of the time-charter bargain (this begs the question of which risks Owners accept); that Owners controlled the PRC defence (this provides no real pointer to risk allocation, the Tribunal having found the defence reasonable); that cargo claims are ordinarily met by Owners’ P&I cover (the existence of liability insurance does not show that Owners have accepted the risk as against Charterers, and both parties here held P&I cover); and that the risk was foreseeable and foreseen (foreseeability is only a relevant, rather than a decisive, factor; the Tribunal made no finding that liability for inherent-vice damage in the PRC was foreseeable or foreseen at fixing; and it was not self-evidently foreseeable that inherent vice would fail as a defence there).
No special rule for inherent vice. The Judge held that Owners did not contend for, and the Tribunal did not apply, any special rule for inherent vice. The Tribunal had applied established principles to facts that happened to involve a cargo with inherent vice. There was no principled basis to distinguish physical damage from cargo-claim liability, nor to assume that Owners bear the risk of “ordinary” cargo claims. The risk of loss caused by the shipment of a microbiologically unstable cargo arose directly from Charterers’ choice of cargo and ports, matters over which Owners had no right of control (beyond the confines of the charterparty). Taking a broad commercial view, it was “not unnatural” to regard the loss as falling on Charterers’ side of the employment/navigation line (per The “Hill Harmony” fn.2).
Therefore, the Judge held that the Tribunal made no error of law and the appeal was dismissed.
Comment
The decision is the most sustained judicial treatment of the scope of the implied indemnity in recent years and helpfully reviews previous case law on the issue. Ultimately, it reinforces the well-established conclusion that, in determining whether liability can be passed on by owners to charterers, the critical question is whether owners have assumed the risk or whether the payment of hire is intended to compensate owners for such a risk. Put otherwise, the question is whether the risk was “one of the broad range of physical and commercial hazards which are normally incidental to the chartered service” and thus to be borne by owners.
In this case, in the writer’s view the answer to this question was clear and the Court’s conclusion was correct: (i) on the Tribunal’s unchallenged findings, Charterers had ordered Owners to load and carry a microbiologically unstable cargo to a destination of Charterers’ choice, and it was common ground that the cargo arrived in unsound condition as a result of its instability; and (ii) the PRC courts then imposed liability on Owners for that unsoundness.
Further (and usefully), the judgment clarifies the relationship between The “Island Archon” and any supposed requirement of a post-fixture change of circumstances. Henshaw J’s analysis (at [78]–[79]) is that no such change is required; the notoriety of a risk at the time of fixing is relevant only because it may justify the inference that owners agreed to bear it. It is, however, interesting to note that the judgment is in fact premised on the Tribunal’s logically antecedent decision on the ICA 1996 (as amended 2011) wording to the effect that the claim in China was not ‘settled’ within the meaning of clause 4(c) (“the claim has been properly settled or compromised and paid”) because it was adjudicated. Such a conclusion appears highly suspect (though, in fairness to the Tribunal, it appears that, by the time of the final hearing, it had become common ground that ICA apportionment did not apply: [37]).
In the context of a carefully negotiated agreement such as the ICA, it should be inferred that the drafters intended the words “settled or compromised” to have distinct meanings: by reading “settled” as essentially identical to “compromised”, the Tribunal collapsed the words “or compromised” into mere surplusage. In the writer’s view the proper reading of “settled” is “determined”, in the sense of: “The Court settled the dispute between the parties”. (Indeed, it is difficult to see a commercial rationale for distinguishing, for apportionment purposes, between claims which are settled and those which are adjudicated; Henshaw J made a similar point about the “arbitrary results” of such a distinction at [112].) Had the Tribunal reached that conclusion, the implied indemnity would not have arisen.
It is notable that the July 2025 amendment to the ICA (the “ICA 2025”) has added the following sentence: “Settled includes but is not limited to, claims adjudicated by any court or tribunal, or those resolved through an amicable settlement between the parties.” Accordingly, if the same dispute arose on the same facts under a charterparty concluded today on the same terms (which provided for incorporation of “NYPE Inter-Club Agreement 1996 or latest updated version”), it would be determined by reference to the ICA. Where the ICA 2025 is incorporated (or if a court or tribunal adopts the analysis of “settled” contended for above), the scope of the implied indemnity in relation to cargo claims will be much reduced. That is an attractive result: the ICA is a well-drafted agreement which promotes commercial certainty.
Footnote 1: [1994] 2 Lloyd’s Rep. 227
Footnote 2: [2001] 1 A.C. 638
