Seaworthiness, General Average and "Actionable Fault"

In a recent case involving General Average and the York-Antwerp Rules 1994 (Mount Isa Mines Ltd v The Ship “Thor Commander” [2018] FCA 1326), the Federal Court of Australia found that:

• The owner of the ship Thor Commander had failed to exercise due diligence before and at the beginning of the voyage to make the ship seaworthy in breach of Art 3(1)(a) and (b) of the Hague Visby Rules; and that therefore; and
• The owner of cargo carried on board Thor Commander had no obligation to contribute to General Average.

The case is interesting because it deals with a cargo owner’s right to refuse to contribute to General Average when the losses/sacrifices were caused by the shipowner’s so-called “actionable fault“.

Facts

On around 11 January 2015, the main engine of Thor Commander suffered a major breakdown in close proximity to the Great Barrier Reef while en route from Puerto Angamos, in Chile, to Townsville, in Australia. The ship was carrying a cargo of 3,044 bundles of altonorte copper anodes, owned by the Australian company Mount Isa Mines Ltd (Mount Isa).

After the main engine breakdown, Thor Commander drifted towards the Reef. A passing ship, Xinfa Hai came to tow Thor Commander away from the Reef to where she was met, on 13 January 2015, by Smit Leopard which then towed her to Gladstone.

For Xinfa Hai’s services, the owner and crew of Xinfa Hai received USD 1 million from Mount Isa and USD 100,000 from Thor Commander’s owner, MarShip GmbH & Co. KG MS “Sinus Aestuum” (MarShip).

On 13 January 2015, Marship declared general average.

There was a question whether the cargo was carried pursuant to a bill of lading that had been issued or a Gencon 1994 voyage charter party. The Court found that the cargo was carried pursuant to the bill of lading and hence the Hague Visby Rules applied. This article does not deal with the issue of which contract applied.

The parties’ claims

Mount Isa made a claim against MarShip for the USD 1 million it paid to Xinfa Hai’s owner, plus other expenses incurred due to the engine breakdown.

MarShip denied liability and maintained that Mount Isa had an obligation to contribute USD 1,163,681.77, being the amount that the general average adjustment had ascertained Mount Isa was liable to pay.

Mount Isa denied that it was liable to contribute to general average because of MarShip’s “actionable fault” within the meaning of rule D of the York-Antwerp Rules 1994 in respect of the maintenance of the Thor Commander’s main engine which it said caused the ship to be unseaworthy before and at the beginning of her voyage from Chile.

The cause of the engine breakdown

In a 3 week hearing, the Court heard competing expert evidence in respect of the likely cause of the engine breakdown. The expert witness appointed by MarShip submitted that the most likely cause was that the bottom end bearing failed because of a latent defect unconnected to the maintenance of the main engine. The expert appointed by Mount Isa submitted that the cause was the inadequate and faulty maintenance of the fuel injector valve and nozzle for cylinder 5.

The Court also heard detailed evidence from Thor Commander’s chief engineer and from the technical superintendent for the ship, employed by the ship’s technical manager.

After having considered the evidence provided by the two experts, the chief engineer and the technical superintendent, the Court was satisfied and found that:

• According to the engine manufacturer (Rolls Royce), at the time of the breakdown the expected life of a fuel injector nozzle was 4,000 running hours;
• Prior to the breakdown, the fuel injector nozzles of six of the eight fuel injector valves had not been cleaned or replaced for over 7,000 running hours and there was no planned, scheduled time for their maintenance;
• The records showing the fuel injector valve running hours deliberately disguised the accurate number of running hours; and
• The chief engineer and the technical superintendent both knew that replacement of the fuel injector nozzles was long overdue when the ship left Chile in December 2014.

The Court concluded that the chief engineer and the technical superintendent, and hence MarShip, all knew by November 2014 that the fuel injector nozzles needed to be replaced. Despite this, they did nothing to prepare for that to be done at any time before Thor Commander left Chile for Townsville on 13 December 2014. The Court found that the breakdown would not have occurred had the fuel injector nozzle in cylinder 5 been changed, as a reasonable technical superintendent and chief engineer exercising due diligence would have done.

Failure to exercise due diligence to make Thor Commander seaworthy

MarShip’s conduct was a failure to exercise due diligence before and at the beginning of the voyage from Chile to make the ship seaworthy and to properly equip and supply her in breach of Art 3(1)(a) and (b) of the Hague Visby Rules. The failure of MarShip to exercise due diligence to maintain the fuel injection nozzles was the operative cause of the main engine failure.

MarShip’s liability to Mount Isa

As a result of its breach of the Hague Visby Rules, the Court found that MarShip was liable to Mount Isa in respect of its claims except that the Court reduced the amount of USD 1 million to USD 909,000 due to its finding that this amount would have been the likely salvage award due to the owner of Xinfa Hai.

Contribution to General Average

The Court noted that the effect of the final part of rule D of the York-Antwerp Rules 1994 was that Mount Isa was entitled to recover the amount payable from MarShip because MarShip was guilty of “actionable fault” in that it had caused the need for the extraordinary sacrifice or expenditure for which the contribution was claimed.

Because Thor Commander and MarShip were liable for breach of Art 3(1)(a) and (b) of the Hague Visby Rules, the Court made a declaration that Mount Isa was not liable to contribute to general average in respect of the breakdown of Thor Commander’s main engine. It stated that this was but a direct reflection of the Court’s findings on the cause and responsibility for that breakdown and MarShip’s liability to Mount Isa.

Apart from General Average and seaworthiness, the Court also dealt with the law of salvage, the effect of destruction of evidence in breach of court orders, and a number of other issues that are not the subject of this article.

HWL Ebsworth (Joe Hurley and Jesper Martens) acted for Mount Isa and its insurers.

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