Paul Bugden, Bugden + Co., London
Ref: Sino East Transportation Ltd v Grand Amazon Shipping Ltd [2025] EWHC 1990 (Comm) Henshaw J.
This was an appeal from an arbitral award on the issue as to whether an owner could claim an indemnity from a time charterer under a general implied right of same where liability was wrongly imposed on an owner by a foreign court following shipment of a lawful harmless and permitted cargo affected by inherent vice.
The Tribunal found that the Owner’s liability fell within an implied right of indemnity as, a) the Charterers’ orders to load the Montevideo cargo (with its particular characteristics) and to carry it to the PRC caused the loss and, b) Owners’ liability to cargo Interests in respect of the damaged Montevideo Cargo was not an ordinary cost or risk associated with the performance of the chartered service, or one of the broad range of physical and commercial hazards which are normally incidental to the chartered service, or one which Owners had expressly or impliedly agreed in the Charterparty to bear.
Charterers argued on appeal that the implied indemnity should not cover a situation where liability to cargo interests is wrongly imposed on owners in respect of cargo damage caused by inherent vice, for essentially the following reasons:-
- i) The express terms of the Charterparty made detailed provision concerning which cargoes and ports were outside the bounds of the charterparty. They did not preclude the cargo and destination involved in this voyage. That was an indication that Owners accepted the risks arising from such carriage. Charterers also contended (in an argument elaborated in oral and post-hearing submissions) that the Inter-Club Agreement (ICA) provided a complete code for the allocation of responsibility for cargo claims, such that the implied indemnity should not operate, alternatively should operate only to the extent that the ICA would have operated i.e. a 50% apportionment.
- ii) A proper interpretation of the authorities was that a risk such as that in the present case was not covered by the implied indemnity. In particular, where a risk has not changed between the time of chartering and the time when it causes loss, and where liability arises under bills of lading with terms no more onerous than those envisaged by the charterparty, the implied indemnity should not operate.
Whereas Owners argued that the Award should be upheld, for reasons which can be briefly stated as follows:-
- i) The risk which gave rise to Owners’ loss was not an ordinary trading risk that Owners had agreed to bear.
- ii) The express terms of the Charterparty point towards the allocation of risk for which Owners contend.
iii) The incorporation of the ICA on apportioning cargo did not preclude an implied indemnity in cases to which the ICA did not apply.
The law as to an implied indemnity
The implied indemnity, so often a feature in time charters disputes, may be viewed as an application of the much more general principle recognised in Sheffield Corporation v Barclay [1905] AC 392, 397 where the Earl of Halsbury LC quoted with approval a submission made to, and adopted by, the Court of Common Pleas in Dugdale v Lovering (1875) L.R.10 C.P.196, 197:
“When an act is done by one person at the request of another which act is not manifestly tortious to the knowledge of the person doing it, and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done.”
The court in Dugdale itself traced the principle back to earlier cases, including Toplis v Grane (1839) 15 Bing. N. C. 636 where Tindal CJ said:
“We think this evidence brings the case before us within the principle laid down in Betts v. Gibbins (1834) 2 Ad. & E. 57, that when an act has been done by the plaintiff under the express directions of the defendant which occasions an injury to the rights of third persons, yet if such an act is not apparently illegal in itself, but is done honestly and bona fide in compliance with the defendant’s directions, he shall be bound to indemnify the plaintiff against the consequences thereof.”
This principle, which is at bottom one of risk distribution, gives rise to a prima facie implied right of indemnity in favour of the owner for losses or liabilities arising from the charterer’s orders coupled with the usual charterparty provision for the vessel’s master to be under the orders of the charterer as regards employment, agency or other arrangements as, for example clause 8 of the NYPE form charterparty in the present case.
The law in this respect is not confined simply to cases where the parties are in a contractual relationship; though in those cases nice questions arise as to whether the foundation of the indemnity arises in the law of restitution or by implication of an implied term in contract. In Dawson Line Ltd v AG Adler für Chemische Industrie of Berlin [1932] 1 KB 433 CA the charterparty required the master to sign bills of lading as presented by the charterers. The bills presented understated the weight of the cargo, leading to a dispute about the freight payable by the charterers to the owners, based on cargo weight and Scrutton LJ stated at p.439.
“In those cases [Kruger and Elder, Dempster] I was counsel for the successful parties, and I remember that considerable discussion took place as to the lines upon which the claim to indemnity should be put. Some of the judges and law lords said that the charterers were liable on two grounds. The first of these was that a right to indemnity followed from the terms of the charterparty, because it required the master to sign bills of lading in a particular form, and consequently that the charterers must be liable if loss followed in consequence of presenting inaccurate bills of lading. The second ground — and this has nothing to do with the charterparty but turns upon the principle stated in Sheffield Corporation v. Barclay [1905] AC 392, and Birmingham and District Land Co. v. London and North Western Railway Co (1886) 34 Ch.D 261 , 272 — that a mere request from the charterers, involving, as it did, the shipowners in a liability in which otherwise they would not have been involved, raised the implication of an indemnity against those consequences. Some of the judges and law lords took one view, some the other, and some both. In this case it is sufficient to say that as the master was required to sign the bill of lading as presented to him, the charterers were bound to present an accurate bill of lading as to the weight shipped. The shippers were the charterers’ agent to supply the cargo and present the bill of lading; they presented an inaccurate bill of lading with consequent loss. The charterers must therefore make good that loss.”
An order to load a particular cargo has been held to be an order regarding employment of the vessel. If the order to load that cargo causes loss to the owners, then the right to indemnity from the charterers arises and implied indemnities do not have to be limited to matters outside the scope of other charter clauses and an overlap of subject matter with such express clauses does not necessarily involve inconsistency. The indemnity can arise even in respect of lawful contractual orders given by the charterer to carry a permitted cargo, and “operates quite independently of any fault on the part of the charterers. One specific and common example of a charterer’s order leading to loss is liability incurred by the owner due to charterers’ presentation of a bill of lading containing terms more onerous than would be consistent with the terms of the charterparty.
Krüger & Co Ltd v Moel Tryvan Ship Co Ltd [1907] AC 272 HL is often cited as an example. In that case, the charterparty exempted the owner from liability for navigation accidents, even if caused by the master’s negligence, and provided that the master should sign clean bills of lading without prejudice to the charterparty. The charterer presented bills of lading which did not contain the negligence exemption. It was held in the House of Lords that the owner was entitled to an indemnity in respect of cargo lost through a navigation accident which was caused by the master’s negligence. The underlying loss did not result from charterers’ orders: to the contrary, it was caused by the master’s negligence but the loss flowed from charterers’ orders by reason of the presentation of a bill of lading in the irregular form.
The implied indemnity is however subject to two main limitations. Firstly, it does not apply where by the charter, the owners consented to bear the loss, damage or liability in question. Secondly, it applies only where the charterer’s order was an effective cause of the owner’s loss. Both limitations were summarised by Lord Sumption JSC in The Kos [2012] UKSC 17.
The first limitation, namely that an owner may not be indemnified against loss or expense arising out of risks which they agreed to bear, which was the focus of the present appeal and is exemplified by Action Navigation v Bottiglieri di Navigazione (The Kitsa) [2005] 1 Lloyd’s Rep. 432 where hull fouling was found to have been a foreseeable and foreseen , although not an inevitable consequence of the chartered service (remaining inactive in a warm water port) as at the date of the charterparty and Aikens J upheld the arbitrators’ conclusion that the owners were not entitled to an indemnity.
It is not every loss arising in the course of the voyage that can be recovered. For example, the owners cannot recover heavy weather damage merely because had the charterers ordered the vessel on a different voyage, the heavy weather would not have been encountered. The connection is too remote. Similarly, the owners cannot recover the expenses incurred in the course of ordinary navigation, for example, the cost of ballasting, even though in one sense the cost of ballasting is incurred as a consequence of complying with the charterers’ order
Where the ICA is incorporated into the Cp under the NYPE and ASBATIME charterparties it overrides other rights and liabilities as in Ben Line Steamers Ltd v Pacific Steam Navigation Co (The Benlawers) [1989] 2 Lloyd’s Rep. 51 where Hobhouse J held that the implied indemnity was not applicable, as the parties had agreed under the charterparty that liability for the subject cargo claims was to be apportioned under the ICA. As to cases where the ICA does not apply, Hobhouse J held the insofar as any cargo claim might fall outside the scope of the Inter-Club Agreement the question of indemnity must fall to be dealt with under the ordinary law and the other provisions of the charter-party if applicable.
Conclusions
The gist of the Tribunal’s conclusion, applying the test set above, was that the risks of loss arising from carrying a cargo with inherent vice were not risks which Owners had expressly or impliedly agreed to bear. The Tribunal did not find, and did not need to find, that the cargo was unlawful or not permitted under the Charterparty. The case law makes clear that the implied indemnity can arise in just that situation; indeed, it is most likely to be relevant in situations where the cargo is lawful and permitted yet nonetheless gives rise to a loss. Their findings at least prima facie indicated that the Tribunal addressed itself to the correct legal questions, and made findings of fact which logically led to the overall conclusion that the implied indemnity applied.
There was no logical reason why (assuming no break in the chain of causation) owners should be taken to have assumed the risk of liability incorrectly being imposed by a foreign court for a loss caused by charterers’ orders and there was no blanket assumption that owners should be taken to have assumed the risk of ‘ordinary’ cargo claims as between themselves and Charterers. The foreseeability of cargo claims arising in the event that a cargo with known inherent risk is carried does not mean that owners can be taken to have accepted such risks and did not preclude the implied indemnity.
The fact that the cases uphold implied indemnity claims where bills of lading impose more onerous obligations than envisaged by the charterparty did not mean that the converse is true. The corollary, in truth, is merely that if the bill complies with the charterparty, then the terms of the bill will not themselves found a right to indemnity. If, however, the loss was caused by some other order by charterers, then liability may arise. Equally, the fact that, on a proper approach to the bills of lading here, Owners ought not to have been held liable for the cargo claim does not mean no indemnity should lie. The fact is that a liability did arise, and on the Tribunal’s findings that was a result of Charterers’ orders to load and carry this particular cargo.
So far as incorporation of the ICA terms was concerned the arbitrators concluded that the ICA did not apply to the circumstances of the present case, because it has effect only where a cargo claim is settled, not where it results in a court judgment. ICA apportionment applies only to cargo claims within the scope of the ICA clause and does not give rise to the implication that the parties had agreed that no liability can arise, independently of the ICA, in respect of cargo claims falling outside the clause. Such a reading would, moreover, have arbitrary results. It would mean, for example, that a settled cargo claim could result in a 100% apportionment against charterers, yet a judgment in respect of the same claim would result in zero liability.
Accordingly the appeal failed.