|
Specialists in Shipping, Marine Insurance & Transit Law, London |
    |
|
|
Your are here: Home >> Bulletins General AverageWhere can Average Bonds and Guarantees be Enforced?The vast majority of international contracts include a provision which identifies both the system of law that governs the contract and the jurisdiction in which any dispute between the parties is to be resolved. However, average bonds and guarantees which are used as a means of securing the payment of general average contributions often do not contain any such stipulation. Two recent court decisions have highlighted the difficulties that can arise whenever an attempt is made to enforce general average security when given in a form which does not include a proper law and jurisdiction clause. Mora Shipping Inc -v- Axa Corporate Solutions and Others (2005) was concerned with an attempt to recover GA contributions from six cargo insurers who had jointly signed a form of average guarantee by which they undertook to pay "to the shipowners or to the average adjusters, Richards Hogg Lindley Limited" such contribution to general average as was legally due in respect of the cargo. In January 2004 a GA adjustment was published which revealed that a contribution of more than US$1 million was payable in respect of cargo. However, the insurers declined to pay on the ground that the vessel was unseaworthy and that the grounding which had given rise to the GA expense was caused by the shipowners' breach of contract. The shipowners reacted by suing the insurers on the average guarantee they had provided. The proceedings were brought in England despite the fact that none of the insurers was an English company. The defendant insurers were in fact domiciled in France, Belgium, the Netherlands and Switzerland. In reliance on EC Council Regulation 44/2001 and the Lugano Convention the insurers argued that they could only be sued in the courts of the countries of their domicile, unless some special ground for English jurisdiction could be found in the Regulation or Convention. The shipowners submitted that a special ground for jurisdiction was contained in Article 5.1 of the Regulation and the Convention which, in relation to contractual matters, allows proceedings to be brought "in the courts for the place of performance of the obligation in question", even if the defendant is domiciled in a different jurisdiction. If, therefore, the average guarantee obliged the insurers to pay cargo's GA contribution in England, the English court had jurisdiction. However, in the absence of any such obligation there was no special ground for English jurisdiction. In affirming an earlier decision of the Commercial Court the Court of Appeal agreed that, on its true construction, the average guarantee gave the insurers a choice: the GA contribution could be paid either to the shipowners (in Liberia) or to the adjusters (in England). It followed that there was no "obligation" to pay in England and, therefore, no basis on which the English court could exercise jurisdiction. After setting out his reasons for dismissing the shipowners' appeal Lord Justice Clarke concluded his judgment with these words: "The moral of the story is that if shipowners wish to have the choice who is to be paid they should ensure that the average guarantee expressly says so and, more importantly, perhaps, if they want issues of liability and general average to be determined in England they should include an exclusive English jurisdiction clause." The enforcement of an average guarantee is not, of course, the only means by which a shipowner can compel payment of a GA contribution due from cargo. Rather than proceed against the cargo insurers, a shipowner might prefer to pursue his claim against the cargo receivers who, in practice, would have been compelled to provide the shipowner with a signed average bond in order to obtain delivery of their cargo. That was the course adopted by the shipowner claimants in another recent case, Galaxy Special Maritime Enterprise -v- Prima Ceylon Ltd (2005), in which the Commercial Court had to resolve another jurisdictional contest. This dispute related to a claim for contribution to general average declared as a result of the grounding of the vessel Olympic Galaxy off Trincomalee where, following successful salvage services, a cargo of Australian wheat had been delivered to Sri Lankan receivers in return for a signed Lloyd's Average Bond ("the LAB"). The shipowners had taken steps to pursue their claim in England, where the GA adjustment was to be prepared. However, the receivers challenged the jurisdiction of the English courts to deal with the dispute. They argued that this should be resolved in Sri Lanka, where they had commenced proceedings claiming a declaration of non-liability. In deciding whether the English courts could retain jurisdiction, the principal issue was whether English law applied to the contract contained in the LAB. (An unusual feature of the case was that the claimants had purchased the vessel only three days before the grounding. They were not, therefore, party to any contract of carriage with the receivers: the LAB was the only contract that the court could consider for the purpose of resolving the issue between the parties.) It was common ground that English law governed the adjustment. This was because the bill of lading held by the receivers incorporated the terms of a voyage charterparty which provided that general average was to be "settled and payable" in London. In the event, that stipulation proved sufficient to satisfy the judge that the LAB was also governed by English law. That finding, allied to the judge's conclusions that there was a serious issue to be tried and that England was the most appropriate forum, resulted in the dismissal of the receivers' challenge to English jurisdiction. There can be no doubt, however, that the shipowners would have succeeded much more easily if they had taken the advice of the next Master of the Rolls and ensured that general average security was taken in a form which provided expressly for the application of English law and jurisdiction. If you have any queries concerning the above, please do not hesitate to contact Mark Lloyd. September 2005 Return to Bulletins |
Casualty Reports
Added: 06 September 2010
Added: 10 August 2010 Emergency Contact NumbersChristopher J. Dunn: |