General Average, “actionable fault” under Rule D of the York Antwerp Rules and General Average guarantee: The “BLSE SUNRISE”

In this case, a ship ran aground, the owner declared GA and cargo interests issued GA Bonds in standard terms.  They maintained, however, that they had a defence to any claim for GA in that, they alleged, the loss arose out of the owner’s failure to exercise due diligence to make the vessel seaworthy, together with the associated obligations, under Article III.I of the Hague-Visby Rules.  This, in turn, would activate the “actionable fault” defence under Rule D of the York Antwerp Rules.

To back up the GA Bonds the insurers of the cargo interests issued GA guarantees.  Again, these were in very standard industry terms approved both by the London insurance market and the average adjusters’ professional association.

The relevant part of the guarantee is that the insurers undertook to pay any GA contributions “on behalf” the cargo interests.

“…which may hereafter be ascertained to be properly due in respect of the said goods.”

In due course, the GA adjusters got to work on their calculations and issued their adjustments (under which two separate liabilities of around USD 500,000 each would be payable).

The owner claimed for cargo interests’ contributions to GA not against the cargo interests under the GA bonds but directly against the insurers.  They did so in the hope of short circuiting the process in that, so they argued, even if cargo interests had a potential defence arising out of the “due diligence” provisions, that defence did not extend in any shape or form to the insurers and their guarantees.  The owner said, therefore, they were entitled to immediate payment.

This point was considered as a preliminary issue by the High Court.  (Under this process the parties agree a set of facts without prejudicing their future rights beyond the issue, or issues, that the court has been asked to decide.) The owner did have some authority in their favour.  In The “MAERSK NEUCHATEL” [2014] EWHC 1643 (Comm), a charterer issued a LOU undertaking to pay anything that was due “…under an Adjustment”Here it was found that they did indeed have to pay simply against an adjustment because they had “contracted out” of any rights to challenge this once issued.

The judge in the present case contrasted that with what had been agreed here.  He concentrated on three areas of the wordings.  Firstly, he was satisfied that “due” when applied to a monetary obligation means that it is legally payable.

The judge found that the word “properly” served to “put the matter beyond doubt.”  This had to mean that the GA contributions only became due, or not due, once the merits of a legal defence to them had been decided by the court.

Secondly, the guarantees were given “on behalf” of the cargo interests.  He pointed out that this must suggest that “due” must mean a sum which the cargo interests would be obliged to pay.  No such obligation to contribute in GA would arise if the cargo interests could establish a defence to this.  The judge could see “no commercial or other reason” why the insurer would, in this case, agree to provide security excluding such defences.

Thirdly, he found that the word “properly” served to “put the matter beyond doubt.”  This had to mean that the GA contributions only became due, or not due, once the merits of a legal defence to them had been decided by the court.  Remember again in this, that this was a hearing purely on a preliminary issue.

As the judge himself said:

“Not merely does the language used when considered in its correct factual and commercial context lead to the conclusion I have reached but the settled practice I have referred to is such that only very clear wording could justify a departure of the sort contended for by the owner in this case.”

This is a very strong and clear judgment.  It does though concern standard industry wordings in an area where doubt certainly exists.

Navalmar UK Ltd v Ergo Versicherung AG & Anor (The “BSLE SUNRISE”) [2019] EWHC 2860 (Comm)

Related resources

Get in touch

Bentleys, Stokes and Lowless, International House, 1 St Katharine's Way, London E1W 1YL - Tel: +44 (0)20 7782 0990

This form collects your contact details so that we can respond to your request. We will never share your personal information with a third party. Please read our privacy policy; to proceed, you will need to check the box below to indicate your acknowledgement:

* Required fields