‘Properly due’ in General Average Guarantee. Guarantor’s reliance on Rule D of YAR 1974.

 

 

The BSLE Sunrise [2019] EWHC 2860 (Comm) involved a preliminary  issue as to whether the issuer of the GA guarantee can raise a defence under Rule D of YAR 1974 as to their liability under the GA guarantee.

Following a grounding off Valencia in 2012, owners incurred expenses in attempting to refloat vessel and in conducting temporary repairs. General Average Bonds and General Average Guarantees were issued. Each GA bond provided

“In consideration of the delivery to us or our order, on payment of the freight due, of the goods noted above we agree to pay the proper proportion of any … general average

… which may hereafter be ascertained to be properly and legally due from the goods or the shippers or owners thereof …”

Each of the GA guarantees, in the wording approved by the Association of Average Adjusters and the Institute of London Underwriters, provided:

“In consideration of the delivery in due course of the goods specified below to the consignees thereof without collection of a deposit, we the undersigned insurers, hereby undertake to pay to the ship owners … on behalf of the various parties to the adventure as their interest may appear any contributions to General Average … which may hereafter be ascertained to be properly due in respect of the said goods.

Cargo interests maintained that the grounding was due to owners’ breach of their obligation of seaworthiness under art III.1 of the Hague/Hague-Visby Rules which were incorporated into each of the bills of lading, and accordingly under Rule D of YAR 1974 which was incorporated into those contracts, no general average was due from them.

Judge Pelling QC held that this defence also applied in respect of the general average guarantees. The wording in the bonds and the guarantees should be construed in the same word and that the word “due” when applied to a monetary obligation meant that it is legally owing or payable. No sum becomes legally due or payable “ … on behalf of the various parties to the adventure as their interest may appear …” by way of contribution to general average unless and until it has been decided whether the Rule D defence  succeeds or fails. The inclusion of the word “properly” served to put the point beyond doubt.

The Maersk Neuchâtel, [2014] EWHC1643 (Comm); [2014] 2 Lloyds Rep 377 on which owners relied contained different wording whereby the undertaking was to pay “ … on behalf of the various parties to the adventure as their interest may appear …” the GA “… which may hereafter be ascertained to be properly due in respect of the said goods”. This was construed as requiring the charterer to pay the sum ascertained to be due in the adjustment, with the omission of the words in the standard bond such as ‘is payable’ and ‘properly due’, making the contract akin to an on-demand guarantee, payment being due upon here certification.

Accordingly the Preliminary Issue was resolved in favour of the guarantors. Nothing was payable under the GA guarantees issued by them if the loss was caused by the owner’s actionable default or until that issue has been resolved.

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Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to five editions and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment. He has also written and taught extensively on commercial law, trusts and environmental law. Simon will be a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he will teach on both the LLM (Carriage of Goods by Sea, Land and Air and Oil and Gas Law) and LLB programmes at Swansea.

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