Law Report: Shipowners entitled to indemnity for false cargo claims: Triad Shipping Co v Stellar Chartering & Brokerage Inc - Court of Appeal (Sir Donald Nicholls, Vice Chancellor, Lord Justice Mann and Lord Justice Evans), 15 June 1994

Shipowners had an implied right to be indemnified by time charterers who directed the ship, albeit within the terms of the charterparty, to a port where false or exaggerated cargo shortage or damage claims would almost certainly be made against the ship, and would be supported by the local courts, resulting in financial penalties and delays being suffered by the owners.

The Court of Appeal dismissed an appeal by the defendant charterers, Stellar Chartering & Brokerage Inc, and affirmed the decision of Mr Justice Cresswell (1993) 2 Lloyd's Rep 388, allowing an appeal by the plaintiff shipowners, Triad Shipping Co, against the decision of the arbitrator, Bruce Anthony Harris, that their claim was time-barred, and, agreeing with the arbitrator, that the plaintiffs' claim for an indemnity, based on an implied term in the charterparty, should succeed.

Angus Glennie QC (Lovell White Durrant) for the charterers; Timothy Young (Richards Butler) for the shipowners.

LORD JUSTICE EVANS said in 1979 the plaintiffs chartered their ship Island Archon to the defendants for 36 months on the New York Produce Exchange form of time charterparty. The vessel was ordered on a voyage from European ports to Iraq. Iraqi receivers asserted claims that the cargo arrived damaged or short. In Basrah, the State Enterprise for Maritime Agency (SEMA) was the only agent that could be employed on behalf of the ship. SEMA were also the owners' P&I club correspondents. When cargoes were discharged, the port authorities issued certificates allegedly showing short-landing and/or damage. The arbitrator found that 'these were frequently, viewed objectively, of highly dubious reliability. Nonetheless, they would be produced in Iraqi courts in support of claims for shortage or damage and the courts accepted them effectively as conclusive evidence against the carrier.'

Moreover, whenever (as happened frequently, if not invariably) shortage or damage claims were intimated against a ship in the course of discharging, the agents (the State Enterprise for Maritime Agency) would require security to cover possible cargo claims before the ship sailed onwards.

The arbitrator described this as the 'Iraqi system'. At the relevant time, he found, 'chaos was prevalent in Iraqi ports' and 'put shortly, any ship ordered to discharge general cargo in Iraq was almost bound to have cargo claims made against it and to have those claims taken to court locally, leading to adverse judgments, regardless of whether there was any actual shortage or damage'.

The owners, who had to provide security before the ship was allowed to leave Basrah, leading to loss and delay, claimed that as the ship had been ordered to go to Iraq and had thereby been subjected to 'the Iraqi system', they were entitled to be indemnified against their losses by the charterers and that the charterparty should be held to contain an implied term to this effect.

The question was whether a promise to indemnify the shipowners against the consequences of complying with an order as to the employment of the ship could be implied when the order was lawfully given and was one the charterer was entitled to give.

There was no authority which explicitly supported the implied right to an indemnity in a case where the charterparty entitled the charterer to act as he did and the shipowner was bound to obey.

However, the implication was justified, in his Lordship's view, first by business efficacy, in the sense that if the charterer required to have the vessel at his disposal, and to be free to choose voyages and cargoes and bill of lading terms, then the owner must be expected to grant such freedom only if he was entitled to be indemnified against loss and liability resulting from it, subject to the express terms of the charterparty contract; and second by the legal principle underlying the 'lawful request' cases such as Sheffield Corporation v Barclay (1905) 392: in other words, an implication of law.

The award and judgment in this case in favour of the shipowners were consistent with the authorities and justified by relevant principles of law.

SIR DONALD NICHOLLS V-C, concurring, said the loss had to be one which, on a fair reading of the charterparty, the shipowner could not be taken to have accepted.

LORD JUSTICE MANN also concurred.