Crankcase - Long case - Recovery of general average contribution

On a loaded voyage from Italy to the UK in 1991, a vessel entered with Assuranceforeningen Gard for the account of the shipowner suffered an explosion in the main engine crankcase and was towed to a port of refuge in France.¹ When the extent of damage and the time required to effect repairs became apparent, the decision was made to forward the cargo of new cars to its destination on another vessel. The shipowner declared general average. The contract of carriage provided that general average should be adjusted in accordance with the York-Antwerp Rules.

In 1992 the general average adjustment was issued, but cargo interests refused to settle their contribution of several hundred thousand US dollars on the basis of an "actionable fault" on the part of the shipowner.

The York-Antwerp Rules (Rule D) provide as follows:
"Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure; but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault."

Actionable fault may prevent a party from recovering GA contributions.

The purpose of Rule D is to keep the issue of fault outside the average adjustment. The first part of the Rule permits an adjustment to be prepared regardless of whether or not the casualty involved the fault of any party to the adventure. However, in England the second part of the rule has been interpreted by the courts as a proviso to the first, enabling the prima facie rights of the parties derived under the first part of the Rule to be defeated by the remedies which are preserved by the second part.²

Therefore, under English law a party is not entitled to recover general average contribution in respect of the consequences of his own "actionable fault". "Actionable fault" exists when the person claiming contribution would have been legally liable for damage which may have occurred to the property of the person from whom the contribution is claimed if the general average act had not been performed. Thus, whereas in this case the contract of carriage incorporates the Hague-Visby Rules, there would be no "actionable fault" if the event arose out of one of the specific exceptions to liability under those Rules. However, the same Rules make those exceptions subject to the fulfilment of certain obligations by the carrier. In the context of general average, attention often focuses (as it did in this case) upon whether the shipowner had fulfilled the overriding obligation to exercise due diligence to make the ship seaworthy at the commencement of the voyage.³

In this case, the cause of the crankcase explosion remained to be properly investigated. Given this and cargo interests' position, Gard became involved.

The first part of Rule 41 of Assuranceforeningen Gard's 2000 Statutes and Rules (Rule 17 in 1991) reads:
"The Association shall cover:
the proportion of general average, special charges or salvage which a Member may be entitled to claim from cargo or from any other party to the marine adventure and which is not legally recoverable solely by reason of a breach of the contract of carriage. Where contributing cargo or any other contributing asset belongs to the Member, the Member shall be entitled to recover from the Association as if that contributing asset had belonged to a third party (…)"

This case turned out to be very technical, but advice on the legal position was also necessary. Gard appointed a lawyer and a technical expert and co-ordinated the handling of the case with a significant and helpful contribution from the shipowner's superintendent. For the sake of simplicity, the technical aspects of the case will not be covered in this article. Suffice to say that there were a number of complex issues and by the end of the case cargo interests had raised more than half a dozen separate lines of argument in support of their contention that the vessel was unseaworthy at the commencement of the voyage and that due diligence had not been exercised.

It soon became apparent that the shipowner's efforts to recover the general average contribution were unlikely to be successful without considerable delay. In such circumstances, the P&I Club has a discretion to advance monies to Members in appropriate cases, provided that at least three months have passed from the issue of the final general average adjustment. Such advances are limited to a maximum of 80 per cent of cargo's proportion of general average, net of ship's sacrifices, and are paid in return for counter-security from the shipowner, together with a legal assignment to the Club of any recovery of contributions from cargo interests. This service was provided to the shipowner in this case.

The expert and legal advice was mostly in favour of the shipowner's position, the predominant view being that the cause of the incident was a latent defect not discoverable by the exercise of due diligence. However, cargo interests could not be persuaded to settle at an acceptable level and the distance between the two parties ultimately led to the commencement of court proceedings in 1995. Unfortunately, this meant that a number of witness statements had to be obtained and the shipowner was required to produce extensive documentary evidence at significant cost.

After further discussions some common ground was reached by the parties as to the most likely cause of the crankcase explosion, but much dispute remained on the issue of liability. In 1997, following a recommendation by the court judge, the parties agreed to refer the dispute to a non-binding arbitration before a sole arbitrator. The arbitrator found that the casualty was caused by a defective fuel injection valve and that the defect may have existed at the commencement of the voyage. More importantly, however, the arbitrator found that the defect could not have been detected by the exercise of due diligence. Disappointingly, cargo interests were not prepared to accept the arbitrator's findings and the matter proceeded towards trial with cargo interests raising more new arguments. Finally in 1998, with trial dates set and fast approaching, further discussions took place and an acceptable level of settlement was agreed. The recovery on the principal sum reflected the advice and views on owners' prospects of success at trial and a contribution towards interest and costs was also obtained.

Unfortunately, the subject dispute lasted longer than one would have desired and if an expert had been instructed to investigate the cause of the explosion (and possibly a lawyer to take statements) at the port of refuge the matter would probably have resolved much sooner. It is important that Members remember to notify Gard Services as soon as an incident occurs. It was also disappointing that cargo interests were not prepared to take a realistic view of the merits of the case until they were nearly at the court door. Fortunately, with the shipowner's committed approach, the Club's support and the endurance of the owner's lawyers and experts, a favourable conclusion was eventually reached.

The above case outlines the typical grounds on which cargo interests refuse to settle their general average contribution, how Gard is involved and the role it typically plays in assisting the Member resolve the ensuing dispute. Gard Services continues to provide this assistance to the Club's Members.