Sino East Transportation Ltd v Grand Amazon Shipping Ltd

A time-charterer’s implied indemnity generally covers losses or liabilities which are an effective consequence of complying with the charterer’s orders, unless the owner agreed under the charterparty to bear the relevant risk. The indemnity can apply to lawful and permitted cargoes, regular bills of lading, and liabilities wrongly imposed by a foreign court. It is not confined to unusual risks or to external changes occurring after the charterparty was made.

The decisive question is whether the owner accepted the relevant risk under the charterparty, assessed by its express terms and, where appropriate, informed commercial judgment. Incorporation of the Inter-Club Agreement does not exclude the implied indemnity for cargo claims outside that agreement’s scope.

The claimant charterers appealed under section 69 of the Arbitration Act 1996 against an arbitration award requiring them to indemnify the defendant owners for liability and defence costs arising from cargo proceedings in China.

The vessel had carried lawful and permitted soyabeans under a time charter. One cargo deteriorated through inherent vice. Chinese courts held the owners liable, although the parties accepted in the arbitration that inherent vice had caused the damage. The tribunal held that the charterers’ orders to load and carry the particular cargo caused the loss and that the loss fell within the implied indemnity arising from the employment and agency clause.

The central question was whether that indemnity extended to liability wrongly imposed by a foreign court after carriage of lawful, permitted cargo affected by inherent vice.

The appeal was dismissed. The tribunal had made no error of law.

1. Applicable appellate restraint. A section 69 appeal concerns a question of law. The court must accept the tribunal’s factual findings and may interfere with a conclusion of mixed fact and law only where the correct legal test leads inevitably to a different answer. The tribunal’s experienced commercial assessment was therefore entitled to deference.
2. Scope of the implied indemnity. The employment and agency clause in the NYPE form gives rise to a prima facie implied indemnity for losses or liabilities arising from the charterer’s orders. The indemnity is unavailable where the owner agreed to bear the relevant risk, or where the order was not an effective cause of the loss. It is not limited to unlawful orders, dangerous cargoes, unsafe ports, or bills of lading containing more onerous terms.
3. Application to cargo liability. The principles in The “Island Archon” and the other authorities supported the conclusion that liability under a regular bill of lading may fall within the indemnity where the effective cause was another charterer’s order, such as an order to load and carry a particular cargo. The fact that the foreign court reached an incorrect conclusion on inherent vice did not break causation.
4. Risk allocation. The tribunal was entitled to find that liability arising from the particular microbiologically unstable cargo was not an ordinary cost or risk incidental to the chartered service and was not a risk the owners had expressly or impliedly accepted. Foreseeability was only a factor and did not create a rule excluding indemnity for ordinary or foreseeable cargo claims.
5. Express terms and ICA. The cargo exclusions, trading limits, bill of lading provisions and incorporation of the Inter-Club Agreement did not exclude the implied indemnity. The ICA governed apportionment only where its conditions were met. For claims outside its scope, the ordinary law and other charterparty provisions applied. The USCOGSA and Hague Rules exclusions governing the owner–cargo-interest relationship did not themselves allocate the risk as between owners and charterers.

The charterers’ orders to load and carry the cargo were effective causes of the owners’ loss. The award in favour of the owners was upheld.

The judgment was a first-instance appeal under section 69 of the Arbitration Act 1996 from an LMAA arbitration award dated 26 April 2024. Leave to appeal was granted by Andrew Baker J on 1 November 2024 on the implied-indemnity question. The Commercial Court dismissed the appeal.