40. Telfair Shipping Corporation v Inersea Carriers S.A. (“The Caroline P”) [1984] 2 Lloyd’s Rep 466

Time charterparty – employment and agency clause – master signed bills of lading attracting liability to shipowners beyond that contained in the charterparty – nature and timing of cause of action.

The facts

Rice was shipped in bags from Houston to Iraq.

The NYPE charterparty contained the usual employment and agency clause reading as follows:

“Charterers are to load, stow, trim and discharge cargo at their expense under the supervision of the Captain, who is to sign Bills of Lading for cargo as presented, in conformity with Mate’s or Tally Clerk’s receipts without prejudice to this Charterparty”.

At discharge, in Iraq, many of the bags had been damaged and substantial re-bagging took place. The receivers successfully instituted action in Iraq against the shipowners for shortages.

As the obligation in the charterparty was on the charterers to stow the goods and whereas the owners incurred liability under the bills of lading for bad stowage, the owners claimed that it was implied in the charterparty that they would be indemnified by the charterers.

The charterers argued that the owner’s cause of action on the indemnity arose when the bad stowage occurred and was therefore time-barred.

The owners argued that the cause of action arose at the time of discharge at the earliest.

Findings

The Commercial Court (Neill J) found that the cause of the action arose when the owners liability was ascertained ie. upon discharge. The court analysed earlier authorities, including Moel Tryvan Steamship Co Ltd v Kruger & Co Ltd and found that indemnities fell into three broad categories:

(1) where A breaches his contract with B which causes B to become liable to C or
(2) express indemnity where conditions are explicitly set out which will trigger the indemnity and
(3) an implied indemnity arises simply from a situation where A requests B to do something which causes harm to C. i.e something which takes place naturally in a time charter not necessarily amouting to breach on the part of the charterer.

On the facts, the court found that there was an implied indemnity which did not become enforceable until the liability of the owners had been ascertained by the court of first instance in Iraq.

Commentary

There was no breach by the charterers in this case. The charterparty made provision for the signing of bills of lading by the master which he did. The charterers bore the risk of bad stowage which the shipowners incurred to the receivers of necessity by becoming party to the bills of lading. This was a situation clearly envisaged by the charterparty. Just as clearly, the charterparty envisaged that, should the owners incur liability to the receivers, the charterers would indemnify the owners.

The identification of the different categories of indemnity by the Commercial Court provides a framework to test the intention of the parties which, it is clear from the judgment, is the paramount enquiry.

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