General average guarantees and the actionable fault defence: The BSLE Sunrise [2019] EWHC 2860 (Comm)

Mon, 04 November, 2019

In a judgment handed down today following a hearing on a preliminary issue, the Commercial Court has held that the “actionable fault” defence under Rule D of the York Antwerp Rules is available to the issuer of a general average guarantee in the standard AAA / ILU form. Ruth Hosking appeared for the claimant shipowner. Benjamin Coffer appeared for the defendant insurers, instructed by Andrew Nicholas and Cameron Boyd of Clyde & Co.

The Case

The dispute arose from the grounding of the “BSLE SUNRISE” off Valencia in September 2012. The owners declared general average. Cargo interests issued general average bonds. The defendant insurers provided security for those bonds on the standard form general average guarantee approved by the Association of Average Adjusters and the Institute of London Underwriters.

Owners brought a claim under the guarantees for contribution in general average and it was agreed that the question of whether the wording of the guarantees made a Rule D defence available in principle to the guarantors would be decided by way of preliminary issue.

The guarantees provided that the insurers undertook to pay ‘“any contribution to General Average and/or Salvage and/or Special Charges which may hereafter be ascertained to be properly due in respect of the said goods.” 

Judgment

HHJ Pelling QC, siting as a High Court Judge, held that if the actionable fault defence was available to the receivers, no sums were payable under the guarantees. The standard form wording preserved the insurer’s right to rely on the defence available to the receivers under Rule D if the loss was caused by the shipowner’s actionable fault.

The Judge considered that the word “due” in the bonds signified a sum that was legally owing or payable. He relied on the judgment of Sheen J in The Jute Express [1991] 2 Lloyds Rep 55 in holding that “and which is payable” means “and which is legally due.” He noted that the payment was to be made “on behalf” of the cargo interests concerned, suggesting that what the insurer was agreeing to pay was what the parties to the adventure would otherwise have had to pay themselves.

The inclusion of the word “properly” served to put the point beyond doubt. The Judge found support in the success of insurers resisting claims under similarly worded guarantees in The Cape Bonny [2017] EWHC 3036 and The Kamsar Voyager [2002] 2 Lloyds Rep 57 (the Judge inferring that the guarantee in Kamsar was worded similarly to those in the present case).

Owners relied upon The Maersk Neuchatel [2014] EWHC 1643 in support of their interpretation. Hamblen J had held a that Letter of Undertaking assumed an obligation to pay the sum determined under the average adjustment. The Judge distinguished the case on the basis that the wording of the LOU in that case was different.

Conclusion

It is now clear that actionable fault is a defence available to insurers under the standard form ILU / AAA guarantee. The same is also likely to be true for most other forms of guarantee: the Judge considered that his conclusion was in accordance with the settled practice and understanding of the shipping industry, and that only very clear wording could justify departing from that practice and understanding. The Maersk Neuchatel looks to be the exception rather than the rule. 

> download a copy of the judgment here

        

Ruth Hosking

Ruth’s practice encompasses the broad range of general commercial litigation and arbitration.  Her particular areas of specialism include shipping, civil fraud, private international law and commodities.  She undertakes drafting and advisory work in all areas of her practice and regularly appears in court and in arbitration, both as sole counsel and as a junior.  Ruth also accepts appointments as an arbitrator (both as sole and as part of a panel).

Ruth has appeared in the House of Lords, Court of Appeal, High Court and has represented clients in a variety of international and trade arbitrations (including ICC, LCIA, LMAA, GAFTA and FOSFA).  She has been involved in a number of high profile cases, including "The Achilleas", a leading case on the contractual principles of remoteness of damage and "The Atlantik Confidence", the first case in which an English Court has determined that a person was barred from relying on the limits provided by the Limitation Convention. 

> view Ruth's full profile

ruth.hosking@quadrantchambers.com

Benjamin Coffer

Ben was named Shipping Junior of the Year 2019 at the Chambers & Partners Bar Awards. He is described by the directories as  "a rising star" (Legal 500, 2019); “a standout shipping and commodities junior" (Chambers & Partners, 2018) and “a star of the future” (Chambers & Partners, 2017). He is also recognised as a leading junior in the Legal 500 Asia Pacific Guide. His significant recent cases include: 

  • Volcafe v. CSAV [2019] AC 358, the Supreme Court's authoritative analysis of the inherent vice defence and the burden of proof in cargo claims;
  • The Lady M [2019] 2 Lloyd's Rep. 109 (Court of Appeal), the first modern decision on the meaning of 'barratry' and its effect on the defences under the Hague Rules;
  • Alba Exotic Fruit v MSC Mediterranean Shipping Co [2019] EWHC 1779 (Comm), considering the test to be applied on an application to strike out for intentional delay;
  • The Maersk Tangier [2018] 2 Lloyd’s Rep 59 (Court of Appeal), the leading English case on package limitation for containerised cargoes under the Hague-Visby Rules; 
  • Al Khattiya c/w Jag Laadki [2018] 2 Lloyd's Rep. 243, concerning the significance of the place of a collision in a forum non conveniens application; and,
  • The Aqasia [2018] 1 Lloyd's Rep 530 (Court of Appeal), settling a 90-year dispute as to whether Article IV.5 applies to bulk cargoes. 

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benjamin.coffer@quadrantchambers.com