The Grand Amanda - the NYPE Implied Indemnity revisited

(Sino East Transportation Ltd v Grand Amazon Shipping Ltd) [2025]

The Commercial Court (Henshaw J) has dismissed an appeal by Charterers from an arbitral award in which Owners were granted an indemnity for their liability under a foreign court judgment for cargo damage caused by inherent vice.

MFB acted for the successful Owners, instructing Stewart Buckingham KC and Michael Proctor from Quadrant Chambers.

Background and the decision in Arbitration

The claim arose out of a 2014 time charterparty on an amended NYPE 1946 form of the MV Grand Amanda, for one trip carrying “lawful, harmless” cargoes from the East Coast of South America to the Far East.

On Charterers’ instructions, two parcels of soyabeans were loaded on board the Vessel; one in Montevideo, Uruguay, and the other in Bahia Blanca, Argentina. The cargo was lawful and harmless. During the voyage to China the Montevideo cargo (but not the Bahia Blanca cargo) was adversely affected by self-heating and mould. Upon discharge in China, it was found to be damaged. Owners contended that the damage was caused by inherent vice, which should have provided them with a defence under Chinese law and which applies similar defences to those applicable under the Hague/Hague Visby Rules. However, the Chinese courts found Owners liable to cargo interests for failing to take reasonable care of the cargo.

Owners brought arbitration proceedings against Charterers in London, seeking to recover their loss pursuant to the ICA 1996 (as amended September 2011) and, in the alternative, under the Clause 8 implied indemnity of the applicable NYPE charter form. It was common ground between the parties that the cargo damage was caused by inherent vice. The Tribunal found that payment pursuant to a court judgment did not satisfy the ICA pre-condition at 4(c) that the claim must be “properly settled or compromised” as the underlying claim was resolved by a judgment.  However, Owners succeeded in their claim under the implied indemnity.

The Appeal

Charterers appealed the award under section 69 of the Arbitration Act 1996 on a point of law, namely whether the implied indemnity in time charterparties applies to a liability wrongly imposed on an owner by a foreign court following shipment of a lawful, harmless and permitted cargo that is affected by inherent vice.

Submissions

The thrust of Charterers’ position was that a liability wrongly imposed by the PRC courts was not a natural or ordinary consequence of loading a cargo affected by inherent vice, and therefore the implied indemnity was not engaged.  In addition, Charterers said that the risk of an adverse judgment from the PRC courts was one which Owners must be taken to have known about when the Charterparty was fixed (referring to The Island Archon), and thus accepted.

The Island Archon concerned a vessel which had been ordered to discharge cargo in Iraq.  At the time the notorious “Iraqi system” was in place and involved a state of affairs where cargo claims were both inevitable and successful, regardless of the actual state of the cargo.  The risk was known at the time of the order to proceed to Iraq but not at the time the Charter was fixed.  The implied indemnity was held to apply.

In this matter, Charterers said that where a risk has not changed between the time of chartering and the time when it causes loss, and arises under bills of lading with terms no more onerous than those envisaged by the charterparty, the implied indemnity should not operate.

Charterers also argued that the ICA constituted a “complete code” for dealing with cargo claims, such that no separate indemnity could arise if the ICA was not applicable.

Finally, Charterers suggested that Owners were contending for a special rule for inherent vice, which they said was not justifiable.

Decision

In a lengthy and detailed judgment, Mr Justice Henshaw dismissed the appeal, holding that the Tribunal had applied the correct legal principles and made no error of law. Owners’ loss fell squarely within the scope of the implied indemnity, which protects Owners from losses that arise from Charterers’ lawful orders, provided the loss is not one which Owners have agreed to bear under the charterparty.

Whether the implied indemnity applies requires an assessment of both the construction of the contract and a broader evaluation of the commercial context. Here, there was no provision in the charter allocating the risk of damage arising from inherent vice to Owners, and the cargo in question, though lawful, carried an unusual risk which Owners had not agreed to assume.

The Court accepted the Tribunal’s finding that the shipment of the particular Montevideo cargo, with its tendency to self-heat, was the effective cause of the cargo claims. Owners’ compliance with Charterers’ orders to load a cargo with these characteristics and to carry the cargo to China triggered the loss; there was thus no break in the chain of causation. Owners had not acted unreasonably in defending the PRC proceedings on the merits.

Henshaw J did not agree that the decision in The Island Archon was founded on a change of circumstances between the time of the charterparty and the time of the loss (a factor not applicable in the present case).  The Court in The Island Archon was merely saying that if the “Iraqi system” had been notorious when the charterparty was fixed, then there “might be substance” in an argument that the owners had implicitly agreed to bear those risks.  However, the Tribunal in this matter had found that such claims in China were not “almost inevitable” and that there had also been damage to the cargo. There was therefore no basis to say that Owners had implicitly assumed the risk of wrongful foreign judgments.

The Court rejected the “complete code” submission, confirming that where the ICA does not apply, the ordinary law, including the implied indemnity, remains available and whether it applies depends on the circumstances.

Henshaw J also rejected any suggestion that the outcome turned on inherent vice as a matter of principle. There is no “special rule” for inherent vice; rather, the question is whether, on the construction of the charterparty, owners have agreed to accept the specific risk of loss in question. Here, they had not.

Inter-Club Agreement

It is worth noting that, in addition to claiming under the implied indemnity, Owners had also initially claimed under the ICA. In arbitration, Charterers had argued that the ICA did not apply and the Tribunal ultimately found, on separate grounds, that the requirements of 4(c) were not met where liability had been imposed by a foreign court judgment. Charterers’ application to appeal this issue was rejected.

On 14 July 2025, the International Group of P&I Clubs published a revised ICA. This includes an amended clause 4(c) which now clarifies that a cargo claim is considered “settled” not only when resolved by agreement but also when determined by a court or tribunal.

Conclusion

In trading worldwide, an owner can be exposed to wide ranging and unknown risks pursuant to the orders of time charterers.  Such trading inevitably carries with it risk of exposure to unexpected outcomes in foreign jurisdictions.  This “unknown” risk can be difficult to mitigate, and the decision gives helpful guidance on the scope of the implied indemnity under time charterparties.  It will reassure owners in the protection it affords. Provided the charterparty does not allocate responsibility to owners and where the liability is not “an ordinary cost or risk associated with the performance of the chartered service”, such as applies to navigation, owners can look to their time charterers to indemnify them. For charterers, it serves as a reminder that the right to direct the vessel’s employment comes with corresponding responsibility and potential liabilities, even where the cargo is “lawful and permitted”.

Contact Nick Wilson or Nico Saunders in case of any questions concerning the issues in this case.