The Inter-Club Agreement: Amendments relating to Security come into force on 1 September 2011


The Inter-Club Agreement, which was last amended in 1996 (the "1996 Agreement"), has been further amended to incorporate a new provision dealing with the entitlement to security for cargo claims.

The position under the 1996 Agreement

Clause 4(c) of the 1996 Agreement provides:

"Apportionment under this Agreement shall only be applied to Cargo Claims where ... the claim has been properly settled or compromised and paid."

This provision makes the payment of a cargo claim a condition precedent to any right of indemnity under the 1996 Agreement. The result has been, to date, that if the claim has not been paid, the party sued in respect of a cargo claim has generally been unable to establish a claim upon which to enforce a request to the other party to the relevant charterparty to provide security.

While security could sometimes be obtained, it was often an expensive and time-consuming process. In one case which Reed Smith dealt with recently, a vessel was arrested as security for a claim under the 1996 Agreement. The arrest was strongly challenged in court proceedings, with the result that detailed legal opinions had to be obtained.

It is issues relating to the time and costs required to deal with demands for security under the 1996 Agreement, which have encouraged International Group of P&I Clubs (the "International Group") to resolve the unsatisfactory position under the 1996 Agreement in relation to security.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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