Category: General Average

Incorporation of charter terms into bills of lading. Is shipowner’s right to a general average contribution from cargo interests excluded?

The Polar ( [2021] EWCA Civ 1828) involved a claim by owners to recover cargo’s proportion of general average in relation to a payment to pirates who had detained the vessel in the Gulf of Aden. The cargo owners defended the claim on the ground that the shipowner’s only remedy in the event of having to pay a ransom to pirates was to recover under the terms of insurance policies, the premium for which had been paid by the voyage charterer.

The charter was on BPVOY 4 standard form, cl.39 of which provided a war risks clause which covered “acts of piracy”. There was also a Gulf of Aden clause which provided:

“Any additional insurance premia (including, but not limited to, those in respect of H&M, crew, P&I kidnap risks and ransoms), crew bonuses (which to be in accordance with the international standard) shall be for chrtrs account. Max USD 40,000 for charterer’s account for any additional insurance premium except for crew bonus which to be max USD 20,000 for charterers account.”

Six bills of lading were issued all of which incorporated the terms of the charterparty and five provided for general average to be settled under the York-Antwerp Rules 1974, with one providing for general average to be settled under the 1994 Rules. The insurance premium was just short of the $40,000 figure in the Gulf of Aden clause and the premiums were paid by the shipowner who was then reimbursed by the charterer.

The arbitrators on a determination of two preliminary issues found that: (1) the terms of the voyage charter, including in particular the war risks and Gulf of Aden clauses, were incorporated into the bills of lading; (2) the shipowner, on the true construction of the bills of lading and/or by implication, agree to look solely to its insurance cover under the war risks and/or K&R insurance in the event of a loss covered by that insurance.

On appeal Teare J held that the incorporating words in the bills of lading were wide enough to incorporate the war risks and Gulf of Aden clauses. However, the bills of lading holders were not liable for additional premium as it was not appropriate to substitute the “bills of lading holders” for “charterers” so as to impose a liability on them to pay the premium. As between the shipowner and charterers the parties had agreed that the shipowner would look to the insurers for indemnification in respect of losses under the Gulf of Aden clause and not to the charterer so that they were precluded from seeking a contribution from the charterer in respect of general average. However, the incorporated provisions of the charterparty did not have this effect as regards the bill of lading holders, who had not agreed to pay the premium.

The Court of Appeal has now upheld the decision. Males LJ, giving the judgment of the Court, noted that this was a weaker case than either The Evia (no 2) or the Ocean Victory for concluding that the shipowner had agreed not to claim a contribution in general average from the charterer. However, the question did not need to be decided, and the case could  proceed on the basis that there was an implicit agreement to this effect as between owners and charterers. As regard the bills of ladings, it was doubtful that the very wide words of incorporation were wide enough to encompass what was merely implicit in the express terms considered as a whole. To find in the bills of lading an agreement by the shipowner not to seek a general average contribution from the cargo owners, that must be because the express terms of the charterparty which are incorporated into the bills demonstrate that the same (or an equivalent) agreement was intended to apply also under the bills of lading.

Part of the additional war risks and Gulf of Aden clauses were prima facie incorporated into the bills of lading contracts, but the next issue was whether the requirement on the charterer to pay the premium should be “manipulated” so as to impose that obligation on the bill of lading holders. Males LJ found that is was not appropriated to engage in such manipulation. There was nothing in either the bills or the charter to say how liability for the premium would be apportioned between different bill of lading holders. The fact that neither the bills nor the charterparty addressed this question suggested that the bill of lading holders were not intended to be liable for the premium. However, the incorporation of these terms did serve a useful purpose as the basis on which the shipowner has agreed in the bill of lading contract that the voyage will be via Suez and the Gulf of Aden, without which there would be uncertainty as to the vessel’s route.

Cargo argued that the premium paid by the charterer could be regarded as paid for the benefit of the bill of lading holders on the basis that its counterparty would not seek contribution from them as the party for whose benefit the premium is paid in the event of an insured loss. Males LJ rejected the argument as the risks of piracy and the potential need to pay a ransom were foreseen by the parties to the bill of lading contract and dealt with expressly by them. There were no clear express words to rebut the presumption that the shipowner did not intend to abandon its right to a contribution from the cargo owners in general average. Any “implicit understanding” was not so clear as to show that this was what the parties intended, particularly as the charterer was not necessarily paying the whole of the additional premium which would be necessary to obtain the cover required.

 In this case both parties were insured against the risk of piracy and allowing the shipowner to claim would mean that each set of insurers would bear its proper share of the risk which it has agreed to cover. In contrast, if the bills of lading were construed so as to exclude a claim by the shipowner, the loss would be borne entirely by the shipowner’s insurers and  the cargo owners’ insurers would escape liability for a risk which they agreed to cover.

Permission to appeal to the Supreme Court was granted on 16 September 2022.

Article III(1) and IV(1) of the Hague Rules. Navigational errors by master in passage plan preparation before and at the beginning of the voyage.

Yesterday, the Supreme Court gave judgment in Alize 1954 and another (Appellants) v Allianz Elementar Versicherungs AG and others (Respondents) [2021] UKSC 51.

The case arose out of the grounding of the container vessel CMA CGM LIBRA on leaving the port of Xiamen, China, on a voyage to Hong Kong. The Admiralty Judge, Teare J, found that the vessel’s defective passage plan was causative of the grounding and that this involved a breach of the carrier’s seaworthiness obligation under article III rule 1 of the Hague Rules. The Court of Appeal upheld the decision. Owners contended that these decisions were wrong because the vessel was not unseaworthy and/or due diligence was exercised, and that any negligence in passage planning was a navigational fault which is exempted under article IV rule 2(a) of the Hague Rules.

Two issues were raised the appeal. First, is the carrier’s seaworthiness obligation under the Hague Rules subject to a category-based distinction between a vessel’s quality of seaworthiness, its attributes and equipment, or navigability and the crew’s act of navigating which concerns how the crew operates the vessel using those attributes? Second, what amounts to due diligence under article IV rule 1 of the Hague Rules? Has the carrier shown due diligence if it has equipped the vessel with all that is necessary for her to be safely navigated, including a competent crew?

The Supreme Court upheld the decisions of the Court of Appeal and the Admiralty Court. The carrier’s obligation under the Hague Rules was not subject to a category based distinction between a vessel’s quality of seaworthiness or navigability and the crew’s act of navigating. Given the “essential importance” of passage planning for the “safety … of navigation”, applying the prudent owner test, a vessel is likely to be unseaworthy if she begins her voyage without a passage plan or if she does so with a defective passage plan which endangers the safety of the vessel. The fact that the defective passage plan involves neglect or default in “the navigation of the ship” within the article IV rule 2(a) exception was no defence to a claim for loss or damage caused by the vessel being rendered unseaworthy before and at the beginning of the voyage as a result of that navigational  negligence. The vessel was therefore unseaworthy before and at the beginning of the voyage by reason of the defective passage plan.

The owners were unable to show that they had taken due diligence to make the vessel seaworthy. Their duty was non-delegable and the crew’s failure to navigate the ship safely was capable of constituting a lack of due diligence by the carrier. It made no difference that the delegated task of making the vessel seaworthy involved navigation. The carrier is liable for a failure to exercise due diligence by the master and deck officers of his vessel in the preparation of a passage plan for the vessel’s voyage, irrespective of the fact that navigation is the responsibility of the master and involves the exercise by the master and deck officers of their specialist skill and judgment.

Ever Given latest.

Yesterday, 23 May, the appeals chamber of the Ismailia Economic Court upheld a ruling issued by the Ismailia Court of First Instance on May 4, rejecting the appeal made by the owners of the ship (Shoei Kisen Kaisha) against keeping the ship under arrest. In a second case that was filed by the Suez Canal Authority (SCA) to keep the seizure of the ship valid, the Court recused itself and referred this case back to the Economic Court of First Instance to be considered on May 29.

The Suez Canal Authority initially demanded $916 million in compensation, which it later lowered to $600 million which would cover the salvage operation, costs of stalled canal traffic and lost transit fees for the week the Ever Given blocked the canal. It seems the claim for reputational damage totalling $300 million may have been jettisoned.

The vessel’s owners have denied that the accident was their fault and are claiming fault on the part of the SCA in allowing the vessel the ship to enter the canal amid bad weather, and claim that at least two tugs suitable for the vessel’s size should have been supplied. Owners are claiming $100,000 in initial compensation for losses related to the vessel’s seizure.

War Risks and Kidnap & Ransom in charter do not exclude GA claim for piracy under bills of lading.

The Polar [2020] EWHC 3318 (Comm) – HERCULITO MARITIME LIMITED v. GUNVOR INTERNATIONAL BV – involved an appeal pursuant to section 69 of the Arbitration Act 1996, in respect of a claim by shipowners against cargo owners under six bills of lading for general average  in respect of ransom payments made by owners to pirates. under the relevant bills of lading. The general average expenditure was the payment of a ransom to pirates to enable the release of the vessel so that she could complete her voyage.  Cargo owners contended that the GA claim was barred because the bills of lading incorporated the terms of the relevant charterparty under which the shipowners’ only remedy in the event of having to pay a ransom to pirates was to recover the same under the terms of a Kidnap and Ransom insurance policy and a War Risks policy taken out by the shipowners, the premium for which was, pursuant to the charterparty, payable by the charterers. Previous cases on incorporation had involved demurrage clauses and jurisdiction and arbitration clause. Incorporation of insurance terms and their possible constitution of a complete code excluding other remedies, such as claiming in GA, was a novelty.

The clauses were incorporated as directly germane to the loading, carriage and discharge of the cargo, but they provided  for payment of the premiums

by charterers and this language would not be manipulated so as to include bills of lading holders. Sir Nigel Teare, acting as a Judge of the High Court, held that “to substitute “bill of lading holders” for “Charterers” when reading clause 39 into the bills would be inconsistent with the obligation of the bill of lading holders to pay freight as per the charterparty as the price for the performance by the Owners of the contract of carriage. It would mean that the holders of the bills of lading, in the event that certain liberties were exercised by the Owners, had to pay may more than the agreed freight for the performance of the contract of carriage. Moreover, such additional sums would be unknown and unlimited.”  Similar provisions applied as regards kidnap and ransom insurance premiums payable under the Gulf of Aden clause.

As regards, the argument that the charter provisions on payment of the premiums constituted a ‘complete code’ excluding owners’ remedies in the event of piracy, this was certainly the position as regards the charterers. On the true construction of the charter the parties had agreed to look to the additional policies for the recovery of relevant losses and so the Owners were precluded by that agreement from seeking to recover that loss by way of a contribution in general average. However, as regards the position under the bill of lading, the only parts of the clauses in question which have been incorporated into the bills so as to bind the holders of the bills were the liberties conferred on the Owners not to complete the voyage or to depart from the usual or expected route. There was an important difference between the position under the Charter and the position under the bills of lading –  it could not be said of the bill of lading holders, as Lord Roskill said of the charterers in the Evia No.2, that theyhad paid the premiums not only for no benefit for themselves but without shedding any of their liability to contribute in general average in respect of losses caused by the additional insured perils. The point was not that the Owners had agreed to transit the Gulf of Aden at no cost to themselves, but that the charterers had agreed to pay for the insurance.

For these reasons the contract of carriage contained in or evidenced by the bills of lading did not contain an agreement by the Owners not to seek a contribution in general average from the holders of the bills from liability in respect of losses covered by the additional insurance taken out by the Owners.

Unseaworthy ship, or just a careless crew?

If you were mown down by a car, you would presumably think it a tad surreal if the driver got out, looked you over, and walked away, saying “I don’t have to pay you a penny. There was nothing wrong with my car. I merely drove it very badly.” Unless, of course, you were a lawyer dealing with carriage of goods by sea. In that case you would understand perfectly; after all, this merely reflects the distinction you will have imbibed with your mother’s milk between Article III r 1 and Article IV r 2(a) of the Hague-Visby Rules. The one says that anyone’s failure to show due diligence to make your vessel seaworthy makes you liable even when it’s not your fault; the other, that negligence in navigation excuses you from liability even where it was your fault.

Drawing the distinction between these has never been easy. The latest episode comes in the Court of Appeal’s decision today in The CGM Libra [2020] EWCA Civ 293. A sizeable container ship sailed from Xiamen in China (a pleasant subtropical spot which older readers may remember as Amoy) in the wee hours and grounded, rather expensively, a shortish distance outside. The reason she grounded was that when preparing the passage plan the owners had indolently failed to transcribe a Notice to Mariners indicating that outside the strict boundaries of the fairway the soundings on local charts were completely unreliable.

In a general average claim by owners against cargo, the issue arose: was this a matter of navigational fault (owners not liable and hence entitled to contribution) or unseaworthiness (owners liable and thus barred)? Teare J held for unseaworthiness. Owners appealed, on the basis that failing to make a note of possible shallows so as to avoid them was a clear navigational error. But the Court of Appeal was having none of it. Even if the failure to prepare an adequate passage plan was a navigational sin, there was no reason why it could not also amount to unseaworthiness in so far as it was due to someone’s negligence before the voyage began.

The holding itself is pretty unexceptionable. If lack of proper charts on board at the start of the voyage is unseaworthiness, it would be odd if the same did not apply to the absence of a proper passage plan, this having been regarded as more or less as essential for a dozen years or so at the time of the events in question.

On the other hand, cases like this do begin to raise the question: have we now reached the point that where there is any negligence before the voyage, there will be a case of unseaworthiness so as to leave the Article IV(2)(a) defence in effect a dead letter? Some incautious words suggest we might have. At [61] Flaux LJ was sceptical whether unseaworthiness had to stem from an attribute of the vessel at all, and Haddon-Cave LJ seems to have suggested that the distinction was simply temporal: negligence before departure is unseaworthiness, for owners’ account, and later negligence for cargo’s account.

But this would look odd, apart from being for obvious reasons unwelcome to P&I interests. Does it make sense to say that a vessel is unseaworthy even though we cannot say what it is about it that makes it unseaworthy? It seems doubtful. One strongly suspects that The CGM Libra will not be the last word, and that we may well see more litigation before too long aimed at clearing up the awkward distinction between bad ships and careless crews.

‘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.

Actionable fault and general average. Due diligence and unseaworthiness.

Actionable fault and general average. Due diligence and unseaworthiness.

 

In The CMA CGM Libra  [2019] EWHC 481 (Admlty), a container vessel grounded on leaving Xiamen on a shoal in an area in which there is a risk of uncharted shoals. Salvors refloated the vessel which then proceeded on her voyage. The shipowners funded the salvage and declared general average. 8% of cargo interests refused to pay their share on the grounds of actionable fault on the part of the shipowners. The vessel’s primary means of navigation was intended to be paper charts published by the United Kingdom Hydrographic Office (UKHO). Before leaving Xiamen the Second Officer prepared a passage plan which the Master approved. The plan was inadequate in that it did not refer to the existence of a crucial Preliminary Notice to Mariners (NM6274/P10) that had been issued by the UKHO approximately 5 months before the grounding, alerting mariners to the presence of numerous depths less than charted in the approaches to Xiamen and confirming that the charted depths within the dredged channel were sufficient for the vessel. Nor did the passage plan refer to any “no-go areas” which had not been marked or identified on the chart. At trial the Master confirmed that had the chart been marked up with the appropriate “no-go areas” he would not have attempted to execute the manoeuvre that ultimately led to the stranding of the vessel.

Teare J considered the burden of proof. The Supreme Court’s decision in Volcafe related to the burden of proof in relation to Article III.2 of the Hague Rules and did not deal with the burden of proof for Article III.1. There had been actionable fault through a breach of Article III.1 of the Hague Rules Article IV r.1 provides that where loss or damage results from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier. Thus it deals with the burden of proof for the purposes of Article III r.1. It is implicit in Article IV r.1 that the burden of proving causative unseaworthiness must lie upon the cargo owner for the article assumes that such unseaworthiness has been established.

Teare J then found that cargo interests had established a breach of Article III.1 in that the absence of an adequate passage plan was a cause of the grounding.. The presence on board a vessel of the appropriate chart is an aspect of seaworthiness. Where the Admiralty gives notice of a correction to the appropriate chart a vessel will not be seaworthy unless the chart has been corrected. If the vessel’s navigating officer fails, before the commencement of the voyage, to correct the chart the vessel is thereby rendered unseaworthy. The production of a defective passage plan is not merely “an error of navigation” but involves a breach of carrier’s obligation that the vessel is seaworthy “before and at the beginning of the voyage.” If there is a causative breach of Article III r.1 the fact that a cause of the subsequent casualty is also negligent navigation will not protect the carrier from liability. Passage planning by the master before the beginning of the voyage is necessary for safe navigation.

The carrier’s duty under Article III r.1 was not discharged by putting in place proper systems and ensuring that the requisite materials were on board to ensure that the master and navigating officer were able to prepare an adequate passage plan before the beginning of the voyage. As set out in Scrutton on Charterparties and Bills of Lading 23rd.ed at paragraph 14-046:

“The due diligence required is due diligence in the work itself by the carrier and all persons, whether servants or agents or independent contractors whom he employs or engages in the task of making the ship seaworthy; the carrier does not therefore discharge the burden of proving that due diligence has been exercised by proof that he engaged competent experts to perform and supervise the ask of making the ship seaworthy. The statute imposes an inescapable personal obligation.”

Due diligence was not exercised because the Owners’ SMS contained appropriate guidance for passage planning and that the auditors of the vessel’s practices were competent. To comply with Article III r.1, which imposes a non-delegable duty on thecarrier, it is not enough that the owner has itself exercised due diligence to make the ship seaworthy. It must be shown that those servants or agents relied upon by the owner to make the ship seaworthy before and at the beginning of the voyage have exercised due diligence. Negligence by the master or chief engineer or other officer before the commencement of a voyage can amount to a failure by the carrier to make the vessel seaworthy.

 

Accordingly there had been actionable fault by the shipowners and cargo were not required to contribute to general average.

 

Where is General Average?

Jurisdiction decisions in the shipping context follow each other in close succession. Yesterday we had another, from Males J, of some interest to insurers: namely, Griffin Underwriting Ltd v Varouxakis (The Free Goddess) [2018] EWHC 3259 (Comm).

The Free Goddess, a 22,000 dwt bulker owned by Freeseas, was seized by Somali pirates while en route to Thailand with steel coils. K & R insurers Griffin, based in Guernsey but doing business in London, paid out something over $6 million to free her, whereupon she sailed to Oman. Griffin clearly had a right to take over from Freeseas a pretty cast-iron GA claim against cargo interests: on arrival it duly entered into a settlement agreement with Freeseas under which Freeseas agreed to furnish all assistance, including preservation of security, in claiming GA and also to account to Griffin for all sums received on that basis. GA, as might be expected, was settlable and payable in London.

According to Griffin’s (as yet unestablished) allegations, Freeseas did no such thing. Instead of the obvious course of oncarrying the cargo to Thailand and claiming GA in due course, it sold the ship in Oman, destroying any security for GA and providing cargo with a counterclaim for damages which was likely to dwarf the GA liability in any case. In addition it had allegedly trousered a large sum in interim GA contributions without accounting for it. 

Freeseas not being worth powder and shot, Griffin sued one Ion Varouxakis, the Greek-domiciled owner of the company, for inducing it to break the settlement agreement. They alleged that the damage had been suffered in London and therefore they could invoke Art.7, the tort article of Brussels I Recast. Mr Varouxakis insisted that he could only be sued in Greece, arguing for good measure that this was a suit by an underwriter in a matter relating to insurance under Art.14, so the other exceptions did not apply.

In fact Mr Varouxakis was held to have waived any jurisdiction point, so the claim is going ahead in London anyway. But Males J did go on to give a view on the other points. On the issue of the loss of the right to GA, he regarded the issue of where the loss had been suffered as finely balanced, but expressed the view that the direct damage had been suffered in Oman, where he opined that the right to enforce GA had been effectively lost: the fact that GA had not been paid in London he regarded as a remoter consequence and not in account because of decisions such as Kronhofer v Mayer [2004] All ER (EC) 939. So there would have been no jurisdiction. On the other hand, he thought the loss had been suffered in London as regarded the failure to account, and so would have allowed the claim under that head to go ahead on that head in any event. As for the suggestion that this was a matter relating to insurance, he smartly rebuffed the point: insurance might be the background, but this arose out of an independent settlement agreement.

The second point was fairly obvious: if someone infringes my right to an accounting in London, it is difficult to think of anywhere apart from London where the damage occurs. The third is also welcome: the insurance rules under under Art.14 are ill-thought-out even by Euro-standards, and anything that prevents their becoming any more bloated than they already are can only be a good thing.  

This blog is less sure about the first. Saying the damage occurred in Oman gets pretty close to conflating damage with the act giving rise to it; it also means that the place of the damage in cases of this sort becomes wildly arbitrary, depending on which port a vessel happens to be in at the time. On the other hand, if GA is settled and negotiated in London, it seems fairly convincing to argue that preventing it being settled and paid there causes a direct loss within the Square Mile. Unfortunately, because the claimants won in any case, we are unlikely to see an appeal here. But this shouldn’t be regarded as necessarily the last word.


Barratry and the Hague-Visby Rules

Glencore Energy UK Ltd v Freeport Holdings Ltd [2017] EWHC 3348 (Comm) raised the question of  whether barratry affected owners’ entitlement to rely on two of the exceptions in art. IV (2) of the Hague-Visby Rules. A fire started inside the engine control room of the “Lady M” while the vessel was on a laden voyage from Russia to the USA.  The fire resulted in owners engaging salvors to tow the vessel to Las Palmas where owners declared general average. Cargo interests denied liability to contribute on the basis that there had been the fire had constituted a breach of the contract of carriage, which was subject to the Hague-Visby Rules. I

t was agreed that the fire was started deliberately by a member of the crew with the intent to cause damage and for the purposes of the preliminary issues the assumed facts were that:  the perpetrator was the Chief Engineer; he acted alone; at the time of starting the fire deliberately and with intent to cause damage he was: “a. under extreme emotional stress and/or anxiety due to the illness of his mother; b. alternatively, suffering from an unknown and undiagnosed personality disorder and/or mental illness;c. alternatively, neither a nor b above.”

Three preliminary issues came before Popplewell J.

(1)        Did the conduct of the chief engineer constitute barratry?

(2)        Is Article IV Rule 2(b) capable of exempting the Owners from liability if the fire was deliberately or barratrously caused?

(3)        Are the Owners exempt from liability under the “any other cause” exception in Article IV Rule 2(q)?

 

Popplewell J defined barratry as (i) a deliberate act or omission by the master, crew or other servant of the owners (ii) which is a wrongful act or omission (iii) to the prejudice of the interests of the owner of the ship or goods (whether or not such prejudice is intended) (iv) without the privity of the owner. A “wrongful act or omission” would be: one that is generally recognised as a crime, including the mental element necessary to make the conduct criminal; or (b) a serious breach of duty owed by the person in question to the shipowner, committed by him knowing it to be a breach of duty or reckless whether that be so. It would be necessary for the crew member to have had the necessary knowledge or intent that what he is doing is either a crime or a serious breach of duty owed towards his owners, or at least recklessness in that regard. On the assumed facts the chief engineer may or may not have constituted barratry, depending upon further facts as to his state of mind. However, the issue of barratry was not determinative of the second and third preliminary issues.

Popplewell J went on to find that the owners were able to rely on the fire exception in art. IV (2)(b) applied, whether or not the fire was caused by  barratry. However, they would not be able to rely on the “any other cause” exception in art. IV (2)(q) as the chief engineer was acting within the course of his employment on the agreed facts. His access to the control room arose directly from the field of activities entrusted to him by the owners and his setting fire to the control room, with intent to cause damage, was a misuse of his position in the field of activities for which he was employed.

 

Unseaworthiness and general average.  The Cape Bonny.

 

The Cape Bonny [2017] EWHC 3036 (Comm) gives us another general average judgment, following hot on the heels of the Supreme Court’s decision in The Longchamp. This time it was the effect of an actionable fault of the shipowner that was in issue.

An oil tanker suffered an engine breakdown on a voyage to China at a time when the vessel was endeavouring to avoid a tropical storm. The vessel required towage assistance and engaged a tow. She was not permitted to enter a port of refuge in Japan or to discharge at the Chinese discharge port and was taken to South Korea to transfer her cargo to another vessel by STS. At the time the vessel set sail, she had been unseaworthy in two respects. First, some of her filters were not seaworthy. Secondly, there was abnormal wear on one of the bearings. Cargo interests refused to pay their general average contribution on the basis that there had been actionable fault on the part of the shipowners, namely their failure  to exercise due diligence to make the vessel seaworthy as required by art III(1) of the Hague-Visby Rules which were incorporated into the contract of carriage.

Teare J found that owners had failed to exercise due diligence in respect of both of the instances of unseaworthiness, but that the first instance had not been causative of the breakdown.  A proper inspection of the filter candles prior to sailing would not necessarily have revealed that some had damaged mesh, as not all the candles were damaged. However, the deflection readings prior to sailing would have alerted a prudent engineer or superintendent to taking bearing clearance measurements. This failure to take due diligence was causative in that such measurements would have indicated abnormal wear requiring a repair before the voyage could safely be undertaken.

Accordingly, the general average expenditure incurred by the owners was due to their actionable fault and cargo interests were not liable to make a general average contribution. Teare J then went on to consider, obiter, whether the tow expenses would have been recoverable as being “reasonably made” as required by Rule A.  Although the vessel was immobilised at sea and not in danger of drifting aground, there was a tropical storm in the area and it was reasonable to engage a tug which could get to the vessel as soon as possible. Teare J approved the statement in Lowndes and Rudolf at para. A-42 to the effect that immobilisation caused by a main engine breakdown is a sufficient peril or danger in the law of general average “even if the accident occurs in fine weather. The cost of towage and/or salvage into a port of refuge will then unquestionably be treated as general average.” The actions of the owners in discharging the cargo by STS operations were also reasonable given that owners had failed in their attempts to get the vessel into a Japanese port of refuge and to get the receivers to accept delivery in the Chinese port of discharge.