The commercial court in this case considered whether the ‘actionable fault’ defence under Rule D of the York Antwerp Rules (YAR) is available to the issuer of a general average (GA) guarantee in the standard Association of Average Adjusters (AAA) and Institute of London Underwriters (ILU) form.
The claimant shipowner’s motor vessel, the “BSLE SUNRISE” (the Vessel) had been time chartered for the carriage of about 774.733 MT of offshore pipes from Jebal Ali in Dubai to Antwerp in Belgium. The cargo was shipped under three bills of lading (BLs) on the standard Congenbill form, which provided for GA to be adjusted in accordance with the YAR 1974.
On 28 September 2012, the Vessel ran aground off Valencia and the shipowner incurred expenditure in attempting to refloat and repair her so that she could resume her voyage. On 5 October 2012, the claimant declared GA. The cargo interests issued GA bonds in the Lloyds Average Form agreeing to ‘pay the proper proportion of any… general average… ascertained to be properly and legally due’ in consideration for delivery of the cargo.
The first and second defendants, collectively referred to as the ‘insurers’, issued GA guarantees in the standard AAA and ILU form, undertaking 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.’
On 24 April 2013, the GA adjusters, appointed by the shipowner, certified the contributions due from the cargo interests. The cargo interests asserted that they had a defence under Rule D of the YAR because the shipowner had failed to exercise due diligence to ensure that the Vessel was seaworthy in breach of Article III.1 of the Hague/Hague Visby Rules (HVR), which were incorporated by reference into each of the contracts of carriage contained in or evidenced by the BLs.
It was common ground between the parties that if the casualty event occurred because of a breach of Article III.1 of the HVR, by the shipowner, then no GA is due from the cargo interests by operation of Rule D of the YAR. The issue was whether the same defence is available to the defendant insurers in relation to their liability under the GA guarantees.
The commercial court determined this preliminary issue by examining the construction of the GA guarantees given by the insurers. Mr Pelling QC (sitting as a judge of the High Court) considered the fundamental principles that apply in this area of commercial activity and found that the general principles applicable to the construction of contracts governed by English law apply to the construction of the GA guarantees.
The judge accepted the shipowner’s argument that the GA guarantees created a primary obligation between the relevant insurer and the owner, but decided that this did not lead to the conclusion that the obligation was greater, wider or more onerous than that which existed between the owner and the relevant cargo interest under the GA bonds. He decided that it was not appropriate to construe the GA guarantees without regard to the existence or terms of the GA bonds or the circumstances, that led to the provision of the GA guarantees.
As a matter of construction, the court held that there is an express link between the GA guarantees and the GA bonds. The judge considered the relevant factual and commercial matrix and found that there was no evidence which suggested that the GA guarantees would have been issued but for the need to provide security for the obligations arising from or acknowledged by the GA bonds. In his judgment, Mr Pelling QC applied the decision in Metall Market OOO -v- Vitorio Shipping Co Ltd (the “LEHMAN TIMBER”)  EWHC 844 (Comm) and commented that the language used by the parties proved that the GA guarantees were intended to operate in conjunction with the GA bonds in lieu of the cash deposit that would otherwise have been needed to secure the release of the cargo.
The judge determined that there would have been no practical purpose in the shipowner seeking the issue of the GA bonds from the cargo interests if the intended effect of the GA guarantees had been to create an obligation on the part of the insurers to pay the shipowner without regard to the ultimate liability of the cargo interests to the shipowner. He proceeded to examine the wording of the GA guarantees and found that the obligation to pay GA was expressly limited to the GA contribution ‘ascertained to be properly due’. The court accepted the defendant’s submission that ‘due’ meant legally owing or payable and the GA contribution did not become ‘properly’ payable unless and until the merits of a Rule D defence had been resolved by the court.
Mr Pelling QC rejected the shipowner’s submission that the decision in St Maximus Shipping Co Ltd -v- A P Moller-Maersk A/S (the “MAERSK NEUCHATEL”)  EWHC 1643 (Comm) should be followed and distinguished Hamblin J’s judgment on grounds, inter alia, that the “MAERSK NEUCHATEL” guarantee did not require the payment to be ‘properly’ due. The court concluded that the preliminary issue should be resolved in favour of the defendant and confirmed that nothing would be payable under the GA guarantees issued by the insurers if the loss was caused by the shipowner’s actionable fault or until that issue had been resolved.
This commercial court decision clarified that the actionable fault defence under Rule D of the YAR is available to the issuers of GA guarantees in the standard AAA and ILU form. The judge considered that this conclusion was in accordance with the settled practice of the shipping industry and that only very clear wording could justify a departure of the sort contended by the shipowner in this case