"Grand Amanda" - spur to the ICA2025 and inherent vice triggering the implied indemnity

The Commercial Court has handed down a judgment which provides welcome judicial guidance on the scope of the implied indemnity under a time charterparty. Along the way, frequently disputed issues, such as when a cargo claim is within the Inter-Club Agreement (“ICA”) and what the correct apportionment is under clause 8(d) of the ICA for a claim arising from inherent vice, have been provided with answers that will carry some weight going forward. The case is of general interest to owners and charterers, but particularly to those engaged in trades involving the carriage of soybeans from South America to China, with impacts on cases that may well be working their way through the Chinese Courts or London Arbitration at the moment.

The case arises on charterparty and bill of lading terms that are well recognised and on facts that are fairly straightforward and recognisable:

• Grand Amazon Shipping Ltd (“Owners”) and Sino East Transportation Ltd (“Charterers”) entered into a trip time charter dated 1 April 2014 (the “Charterparty”) for the carriage of lawful and harmless cargoes via East Coast of South America to the Far East.
• In May and June 2014 a cargo of soybeans was loaded in Montevideo and Bahia Blanco for discharge in China. Bills of lading on the Congenbill 2007 form were issued. These were subject to English law and London arbitration.
• On arrival at the discharge port in China in July 2014, the cargo was found to be mildewed, discoloured, caked and blackened. In short, the cargo had self-heated during carriage, with no fault of Owners. It was a cargo subject to inherent vice.
• Cargo interests commenced proceedings against Owners in China. Owners defended those proceedings but took no steps to obtain an anti-suit injunction or to obtain an Award in London.
• Judgment was entered against Owners in favour of cargo interests in the sum of US$5,374,756.66. Owners appealed the judgment in the higher courts of China, but those appeals failed. Owners’ Club paid the cargo interests and their subrogated insurers.
• Owners then turned to Charterers for an indemnity under the terms of the Charterparty for liability to cargo interests plus their costs of defending of the Chinese proceedings.
• The Charterparty was on an NYPE 46 charterparty on standard and usual terms, i.e. the employment clause at clause 8; a clause providing that liabilities for cargo claims should be apportioned pursuant to the ICA 1996; and a Clause Paramount, bringing the Hague Rules and/or Hague-Visby Rules into the Charterparty. 
   

The arbitration

• In the course of the arbitration Charterers argued amongst other things that Owners’ claim was not within the ICA because their claim did not meet the threshold requirement of a “Cargo Claim” under clause 4(c) of the ICA – a claim in respect of which a judgment had been entered was not a claim “properly settled or compromised and paid”.
• The Tribunal agreed and held that a judgment was not within the wording of clause 4(c). This has raised eyebrows among commentators as the intention of the ICA by its drafters was that ‘settled or compromised’ would include a claim that had been adjudicated in a foreign court and many claims have been dealt with and apportioned under the ICA on that basis over the years. Nonetheless, following the Award, the International Group moved to revise the ICA to make clear that a judgment is within the definition of a cargo claim and the ICA 2025 which came into effect in July 2025 is the result.
• The Tribunal went on to hold that had the claim been within the ICA then it would have been apportioned 100% to Charterers under 8(d) as the shipment of an unstable cargo was an act for the purposes of 8(d) sufficient to shift responsibility 100% to Charterers.
• In any event the Tribunal held that Owners succeeded on the implied indemnity on the basis that Owners’ liability to cargo interests in respect of the damaged cargo was not an ordinary cost or risk associated with the performance of the chartered service. Owners had not by the terms of the charter agreed to bear the risk. The risk of an adverse judgment in China was not “notorious” in the sense of the “Iraqi system” in The Island Archon – cargo claims in China were not almost inevitable, but only brought in respect of damaged cargo.
• Moreover, the chain of causation between Charterers’ order to load an unstable cargo giving rise to a liability to Chinese cargo interests was not broken by Owners’ decision to defend the claim in China instead of trying to enforce its rights in London arbitration.

Commercial Court

• Charterers appealed and were given leave to appeal on the implied indemnity only.
• In a wide-ranging judgment Mr Justice Henshaw held as follows:
  • The implied indemnity can arise even in respect of lawful contractual orders given by the charterers to carry a permitted cargo.
  • If a particular risk is foreseeable or foreseen at the time of the charterparty then it is possible that this could lead to a conclusion that it was a risk that owners agreed to accept, but there is no rule of law or presumption to this effect. It depends on the nature of the risk.
  • The implied indemnity can arise even where the charterer has presented a bill of lading in accordance with the terms of the charterparty and the owners’ loss takes the form of liability to the holder of the bill of lading, i.e. cargo claims arising in the usual course of business may well be subject to the implied indemnity subject to their being caused by some other order by the charterer to load a particular cargo or to visit a particular port. Owners do not necessarily assume the risk of ‘ordinary’ cargo claims.
  • Charterers said that The Island Archon should not be followed here because in that case, there had been a change in circumstances since the date of contracting and the date of the loss – there was no change here. However, the judge said that this does not make it implicit that Owners agree to bear all risks that do not arise from an external change of circumstances. The issue remained that Owners did not agree to bear the risk by the terms of the charter.
  • Where loss is suffered due to the decision of a local court, the local law does not need to be “unusual” before the owners can recover under the implied indemnity.
  • The ICA is not a complete code for the imposition of liability for cargo claims; if the ICA does not apply then the claim is to be dealt with under the terms of the charter as per The Benlawers. That includes the implied indemnity.
  • The risk of a microbiologically unstable cargo resulting in cargo damage and liability arise directly out of the orders of charterers, who have discretion over the particular cargo selected for shipment and the selection of the ports of loading and discharge. The risk of loss in fact caused by shipment of an unstable cargo with particular (self-heating) characteristics is not one ordinarily accepted by owners.
  • No finding was made by the Tribunal as to the foreseeability of the risk of incurring liability in the PRC due to cargo damage caused by inherent vice as at 2014. The judge said that “it was not self-evidently foreseeable that inherent vice would fail to provide a defence in the PRC proceedings”.
  • There is no special rule for inherent vice, but the foreseeability in theory of cargo claims arising in the event that a cargo with inherent risk is carried does not mean that owners accept such risks and does not preclude the implied indemnity.

Conclusion

The award and judgment will be of interest to both Owners and Charterers and will impact on the apportionment of cargo claims being dealt with not only in China, but also in the Courts of other jurisdictions where Owners may be exposed to claims that they would ordinarily be able to defend if the law and jurisdiction provisions in a bill of lading (assuming English law and London arbitration) were respected.

The applicability of the principles of this case to similar claims will depend on the facts of the individual case, the wording of the clause incorporating the ICA (and therefore which version of the ICA is incorporated) and whether there are any “material amendments” to the cargo liability regime within the relevant charter.  However, the following are of note:

• It is to be presumed that Charterers in this case ran the argument that the claim was outwith the ICA in the hope of making it more difficult for Owners to bring their claim. As the cargo was lawful and there was no breach of the charter by Charterers, this would force Owners down the route of seeking recourse under the implied indemnity, which it might have been thought, would be a harder claim to succeed on. It is also presumed that it was thought that this might make what might be regarded as the classic 50 / 50 apportionment under 8(d) where there had not been e.g. any orders to wait off the discharge port for a period of time or anything of that nature, more attractive to the Owners. However, it seems that, among other factors, the claim was of such high value that it seemed worth pushing on for 100%.
• The Tribunal’s ruling in respect of clause 8(d) was not subject to appeal in the Commercial Court, but will add weight to London Arbitration 30/16 which seems to be the purest inherent vice case in terms of apportioning liability 100% to Charterers for the mere act of loading an unstable cargo (cf The Yangtze Xing Hua and London Arbitration 10/22).
• If, for some reason, the version of the ICA applicable in a particular charter is not the ICA 2025, an Owner may be faced with an interesting question of whether they are better off defending a cargo claim in a foreign jurisdiction to a conclusion in the hope of obtaining a full indemnity.
• How best to advance or defend a claim for an indemnity in respect of a cargo claim under a time charter, whether under the ICA or under the terms of the charter generally will depend on, among other factors, the wording of the charter and the version of the ICA incorporated.
• It is not clear what evidence was led in the arbitration as regards the “notoriety” of the possibility of incurring liability for inherent vice cargoes in China, but notwithstanding the judgment this may continue to be a fertile ground for dispute, subject always to the terms of the charter as a whole and the question of what risks, on their construction, an owner can be taken to have agreed to bear.

The full judgment can be read here: https://www.bailii.org/ew/cases/EWHC/Comm/2025/1990.html