Cargo Interests' Obligation to Contribute in General Average

Wednesday, 26 April 2017

A recent decision of the Federal Court of Australia1 has clarified whether a party who has an interest in a cargo carried, but is not the owner of that cargo, has a duty to contribute in General Average.

Held: The liability to contribute in General Average attaches only to a party who is the owner of the relevant freight or cargo that benefited from sacrifice and expense, or has a contractual obligation to the general average claimant either by a bill of lading or by a general salvage bond.

Background

Offshore Marine Services Alliance Pty Ltd (OMSA) was the disponent owner and operator of a flat top deck barge ‘JMC 2822’ and the time charterer of the ocean going tug ‘Miclyn Venture’. Pursuant to a contract between OMSA and Chevron, in November 2012 the barge carried cargo shipped by two shippers (Shippers) to be delivered to Chevron Pty Ltd (Chevron) on Barrow Island.

The Shippers had no written contract with OMSA. The Shippers supplied the cargoes to Chevron under a contract with Chevron which amongst other things provided that the Shippers were "responsible for the care, custody, control and safekeeping and preservation" of the cargoes until Chevron had received and accepted the cargoes at Barrow Island.

OMSA submitted that the Shippers were either (a) the owners of the cargoes, and/or (b) on risk and/or responsible for the care, custody, control, safekeeping and preservation of the cargoes. As such the Shippers had a relevant interest in the cargoes for the purposes of contribution in General Average.

The tug and barge departed the Australian Marine Complex in Henderson, Western Australia, bound for Barrow Island on 27 November 2012 with a total value of the cargoes on board the barge, including the cargoes shipped by the Shippers, of about $3.5 million. On 29 November 2012, in the course of the voyage, the towline parted at the tug’s towline pennant chain and the barge grounded on Ronsard Rocks.

OMSA incurred expenses and costs in securing the common safety of the barge and the cargo which exceeded $4 million. OMSA claimed, at common law and/or pursuant to s 72(3) of the Marine Insurance Act 1909 (Cth), an entitlement to a General Average contribution towards the expenses from each of the Shippers, in proportion to the value of their cargoes.

The Shippers denied liability, principally on the basis that as they were not owners of the cargoes they had no obligation to contribute in General Average unless they had a contractual obligation to do so which was not the case.

OMSA and the Shippers agreed to ask the Court to answer a preliminary question to the following effect:

  1. If it is not proven that the Shippers were the owners of the cargoes; and
  2. It is proven that the Shippers were ‘responsible for the care, custody, control and safekeeping and preservation’ thereof under their contracts with Chevron, does that interest in the cargoes (in B) attract liability to contribute in General Average either at common law or pursuant to s 72(3) of the Marine Insurance Act?

The parties also asked the Court to answer a second question but this proved superfluous in this matter.

The parties' submissions

OMSA submitted that under s 72(3) of the Marine Insurance Act the obligation to contribute is not limited only to cargo owners. Rather it falls on ‘parties interested’. Further, at common law, the basis for the obligation to contribute in General Average was the shared risk of the maritime adventure.

Therefore, OMSA argued, the Shippers, by reason of being ‘responsible for the care, custody, control, and safekeeping and preservation’ of the cargoes, bore the risk of damage or destruction of those cargoes before they were received and accepted by Chevron. If the cargoes on the barge had been damaged or lost, Chevron would have been entitled, pursuant to its contracts with the Shippers, to insist that the Shippers supply undamaged materials or replace the materials lost at a cost to be borne by the Shippers. Chevron would not have suffered the loss or damage and, unlike the Shippers, was therefore not at risk in the maritime adventure.

OMSA argued that the fundamental driving philosophy under common law, the Marine Insurance Act and/or the York-Antwerp Rules, is a principle that all those sharing the risks of a maritime adventure should contribute pro rata to any extraordinary sacrifice or expenditure necessary to ensure its success. In the context of this case, OMSA submitted that the exposure of the Shippers to the risk of the maritime adventure with respect to the cargoes was the same as if it was the owner. Because each of the Shippers shared the risks of the maritime adventure, the ordinary principles of general average require them also to bear a proportionate share of the burden and be liable to contribute in General Average.

The Shippers pointed out that there appeared not to be a single case in which a non-owner who bears some contractual risk in cargo vis a vis its owner, and who does not have any contract with the general average claimant (here OMSA), has been found liable to contribute in general average. The Shippers argued that no liability to contribute in General Average can arise merely from being at risk with respect to property.

Rather the liability to contribute in general average can arise from only one of two sources, namely:

  1. Ownership of the ‘property’ (ship, freight or cargo) that benefited from the General Average sacrifice or expense; or
  2. Contractual obligation (eg in a bill of lading or general average bond) to the general average claimant, that is, the party that made the general average sacrifice or incurred the general average expense.

The Shippers submitted that the obvious claim for contribution was not from them, but rather should be from the owner of the cargo in question, namely, Chevron. They said it might be inferred that the reason the claim is pursued against the Shippers was that OMSA ‘waived and released’ Chevron from any such claim by its contract with Chevron. It was for that reason it now pursued a claim against the Shippers.

The Court's findings

Justice McKerracher found that, although OMSA said that there was no case on point, he thought the better perspective was that every case indicated that liability will attach only to an owner or someone contractually liable. There was no case in which a party who bears some contractual risk in cargo in relationship to its owner, but which is not the owner and does not have any contract with a general average claimant, has been held liable to contribute to general average.

In Justice McKerracher's view, the liability to contribute in General Average attaches only to a party who is the owner of the relevant freight or cargo that benefited from the sacrifice and expense, or has a contractual obligation to the general average claimant in circumstances governed either by a bill of lading or by a general salvage bond.

Justice McKerracher concluded that the answer to the preliminary question was "No" and hence the Shippers succeeded.

HWL Ebsworth acted for the Shippers and their insurers.

For further information on this article and the potential impact it may have on your operations, please contact a member of our team.

This article was written by Joe Hurley, Partner and Jesper Martens, Special Counsel. 

Partner | Sydney
P +61 2 9334 8765
Special Counsel | Sydney
P +61 2 9334 8838

 

 

 

 

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1Offshore Marine Services Alliance Pty Ltd v Leighton Contractors Pty Ltd [2017] FCA 333

 

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Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 26 April 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.