Using a kamsarmax as a floating silo off Iran for four months seemed like a good idea until it generated a $3.8m bill for cargo damage and hire.

Now the shipowner, Sinotrans subsidiary Yangtze Navigation has won a London arbitration victory and defeated a court appeal by charterer Transgrain. The London High Court has ruled that under the charterparty, a claim arising from an “act or neglect” by one party triggers 100% fault for damages, no matter whether the act in question was culpable.

In December 2012, the 81,700-dwt Yangtze Xing Hua (built 2012) arrived at an unnamed Iranian discharge port with a cargo of soya bean meal from Brazil. Transgrain did not order discharge, however, as cargo receiver Nidera had not paid for the cargo. The ship ended up waiting until May 2013, by which time much of the cargo was unusable. A damage claim of EUR 5m was eventually negotiated down to something over EUR 2.65m, while hire came to just over $1m.

A three man London Maritime Arbitration Association (LMAA) panel found that under the Inter-Club Agreement (ICA) language that is standardly incorporated into charterparties on the New York Produce Exchange (NYPE) form, it was the charterer’s call to keep the vessel waiting, so the charterer had to foot the damage bill, not the owner.

Arbitrators Colin Sheppard, Roger Rookes and Michael Baker-Harber noted that the charterers had taken a “strangely relaxed approach” to the decision to wait outside for over four months.

“[It] seemed very clear that it actually suited the shippers/charterers, in money terms, to use the vessel as floating storage, at the receivers’ expense, rather than unloading it ashore into a bonded warehouse,” they wrote. “Cheap floating storage was one reason to keep the goods on board. The other was that the goods could be diverted easily if they remained on a vessel. Given the receiver’s slow pace of paying, it was perhaps not unreasonable of Nidera to keep the goods on board as necessary.”

But Transgrain took the arbitration award to appeal, with Queen’s Counselor Julian Kenny instructed by Clyde & Co arguing that the word “act” as used in the ICA must be understood in a culpable sense, taking its colour from its context. In the phrase “act or neglect”, the latter term clearly entails fault, and so “act or neglect” must mean a fault, positive or negative.

Justice Nigel Teare rejected that argument in large part based on the historical function of the ICA as a convenient arrangement among protection and indemnity (P&I) insurers, as “an agreement to facilitate the settlement of claims between the clubs”, even though it is now embodied in charterparties between voyage principals.

Citing late Law Lord John Hobhouse, Teare wrote that the ICA “has advantages and disadvantages for shipowners, but it is intended to work in that way: it solves insurance problems and is not concerned with such considerations as hardship or lack of moral culpability.”

On resolving shipowner-charterer disputes under the ICA, Teare recommended a soon to be published paper by Fednav director John Weale, “Cargo Liabilities under the NYPE Time Charter and the Inter-Club Agreement”, delivered as a conference paper in September at the International Colloquium on Charterparties at Swansea University.

In Yangtze Navigation’s successful High Court appeal, Queen’s Counselor Stewart Buckingham was instructed by Bentleys, Stokes and Lowless.