A shipowner wishing to reclaim losses from a time charterer may choose to base its claim on an indemnity against the consequences of obeying the charterer’s orders. The advantage of an indemnity claim is that it operates independently of any breach by the charterer. The disadvantages are the paucity of reported decisions where an indemnitybased claim has succeeded and the lack of any direct authority that such an indemnity will be implied. However, in the recent decision of the Court of Appeal in The Island Archon 1 such a claim not only succeeded, but did so on the basis of an implied indemnity. This note will examine the implications of the decision, particularly as they affect the adjustment of cargo claims as between shipowners and time charterers.

In The Island Archon the vessel was trading under a three-year charter concluded on 30 March 1979. During the currency of the charter, the shipowners were compelled to settle spurious cargo claims brought against them in the Iraqi courts in respect of cargo discharged in Iraq. From about June 1980 the position in Iraq had been such that any cargo discharge would result in the issue of Port Authority certificates noting damage or shortlanding, irrespective of the true state of affairs (“the Iraqi system”). The local courts would then invariably give judgment against the shipowners on the basis of these spurious certificates. The shipowners sought to recover the payments made pursuant to these claims from the time charterers. As there had been no breach of charter, the charterers’ orders that the vessel proceed to Iraqi ports being lawful, they made their claim on the basis of an indemnity; in the absence of an express indemnity in the charter, they claimed that one should be implied.2

Although there was no direct authority on the point, Evans, L.J., who gave the leading judgment, referred to a long-held general belief among maritime lawyers and arbitrators that such an implied indemnity did exist. He was prepared to go along with such a “reasonable” belief and imply such an indemnity on the basis that this is a reasonable quid pro quo for the shipowner in return for granting the charterer a wide power of selection as regards ports and cargoes. He then proceeded to look at the authorities on express indemnities for guidance as to how the implied indemnity should be applied. He first looked at those cases where the shipowner had claimed an indemnity as against the consequences of obeying the lawful orders of time charterers as regards the cargo to be carried. In particular, he examined the decision of Mustill, J., in The Athanasia Comninos