Arbitration Decision on ICA Counter-Security Finds in Favour of Charterers

A recent London arbitration tribunal has looked at the Inter-Club Agreement (ICA) 2011 and the right to security.

The owner provided security to cargo claimants and then sought counter-security from the charterer in accordance with Clause 9 of the ICA. Clause 9 was introduced as an amendment to the 1996 version of the ICA in 2011 and says that when one party to a charter provides security to a cargo claimant, that party is entitled to security from their counter-part under the charter. Charterers refused to provide the security requested and the issue was referred to arbitration.

The relevant charterparty contained the following provision:

“Liability for cargo claims, as between Charterers and Owners, shall be apportioned/settled as specified by the Interclub New York Produce Exchange Agreement effective from 1996 and its subsequent amendments.”

The tribunal held the charterer was right in their argument that the charterparty only incorporated those parts of ICA 2011 relating to apportionment and settlement of claims. The charter did not incorporate Clause 9 of the ICA 2011 which deals with the entitlement to security for claims. Therefore, the owner was not entitled to counter-security until the underlying cargo claim had been resolved and paid.

Permission to appeal was refused, which suggests a High Court judge did not consider the tribunal’s decision to be open to serious doubt.

The decision may come as a surprise to many in the industry as a technical obstacle to the spirit of the ICA. Members concluding new charterparties may wish to consult the Club to ensure ICA Clause 9 is properly brought into their charter. 

The International Group of P&I Clubs is currently looking into the issues arising from the decision.

If Members wish to discuss any of the issues raised in this article, then they should contact our FD&D team.

Author: David Richards 
Deputy Director (Cargo)