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Case No: QBCMF 1999/1228/A3.
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT
Mr Justice David Steel
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 31 July 2000
B e f o r e :
LORD JUSTICE PILL
LORD JUSTICE CLARKE
and
MR JUSTICE BENNETT
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|
COMATRA
LIMITED
ARABIAN BULK TRADE LIMITED
|
Claimants/
Appellant
|
|
-
and -
|
|
|
VARIOUS
UNDERWRITERS
|
Defendants/
Respondents
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Mr Peter Gross QC and Mr Adam Fenton,
(instructed by Clifford Chance appeared for the Appellants)
Mr Alistair Schaff QC,
(instructed by Clyde and Co, appeared for the Respondents)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE CLARKE:
Introduction
1. In this action the owners of the ship ABT RASHA claim the sum of
US$787,426.28 plus interest from the defendants who are hull underwriters. As
I shall try to explain in a moment, that sum is known as "the excess Bigham
amount". This is an appeal from an order made by David Steel J on the
28th October 1999 on the determination of a preliminary issue in the
action. The appeal is brought with the permission of the judge, no doubt
because he regarded the issue (as he put it) as "an interesting and nicely
balanced one".
2. The issue was formulated as follows
"whether the amount of US$787,426.28 (the "excess Bigham amount") is
recoverable by the claimants from the defendants pursuant to clause 11.1 of the
Institute Time Clauses and/or section 66(4) of the Marine Insurance Act 1906 as
part of their proportion of general average".
The judge answered that question `No'. His judgment is reported at [2000] 1
Lloyds' Rep 8. The issue raises a somewhat arcane point which involves both a
consideration of what are fairly standard general average non-separation
agreements (which include what is known as the "Bigham clause") and a
consideration of clause 11.1 of the Institute Time Clauses Hulls and section
66, especially section 66(4), of the Marine Insurance Act 1906.
The Facts
3. The issue was determined on assumed facts (as directed by the order of
Moore-Bick dated the 16th July 1999) together with some
uncontroversial expert evidence.
4. The facts (which I take largely from the judgment) may be summarised as
follows. The ABT RASHA is a ULCC. She arrived off Durban on the
4th August 1992 in the course of a voyage from Saudi Arabia to
Rotterdam carrying 312,424 tonnes of crude oil. She came to anchor in order to
replace two hydraulic steering pumps which had been damaged during the course
of the voyage. She was able to resume her voyage at 2000 hours on the
7th August, but shortly afterwards she encountered severe weather.
During the course of the 8th August the replacement hydraulic pumps
became so heavily damaged that by about 1940 hours the vessel was no longer
navigable. Attempts to carry out repairs were only partially successful and
the vessel diverted towards Port Elizabeth as a port of refuge, such deviation
being for the common safety of ship and cargo. As a further precaution the
services of a large professional salvage tug were engaged on salvage terms.
5. Inspection at Algoa Bay made it evident that extensive repairs were required
to both the steering gear and the rudder for which purpose the vessel needed to
be moved to a suitable dry dock facility. To this end the cargo was
transshipped between the 19th and 22nd August into
another ULCC called the HELLESPONT CAPITOL, which was chartered by the
shipowners. She proceeded to Rotterdam where she arrived in September and the
cargo was successfully discharged.
6. Before commencing the transhipment operation and in order to establish
rights to claim a contribution in general average from cargo after discharge of
the cargo, the owners of the ABT RASHA entered into a number of non-separation
agreements with cargo interests. They were all in the same terms as
follows:
"It is agreed that in the event of the vessel's cargo or part thereof being
forwarded to original destination by other vessel, vessels or conveyances,
rights and liabilities in general average shall not be effected by such
forwarding, it being the intention to place the parties concerned as nearly as
possible in the same position in this respect as they would have been in the
absence of such forwarding and with the adventure continuing by the original
vessel for so long as justifiable under the laws applicable or under the
Contract of Affreightment.
The basis of contribution to general average of the property involved shall be
the values on delivery at the original destination unless sold or otherwise
disposed of short of that destination; but where none of her cargo is carried
forward in the vessel she shall contribute on the basis of her actual value on
the date she completes discharge of her cargo.
It is understood that the amount payable by cargo under this agreement shall
not exceed what it would have cost the cargo-owners if cargo had been delivered
to them at Algoa Bay (+ or - off Port Elizabeth South Africa) and forwarded by
them to destination."
For convenience, like counsel, I shall refer to the paragraphs of the
agreements as paragraphs 1, 2 and 3 respectively. In addition, because all the
agreements were in the same terms, I shall refer to them as if there were only
one.
7. At the end of August the ABT RASHA left Algoa Bay in tow bound for Dubai
where there was a suitable dry dock at which the necessary repairs could be
performed. The vessel arrived at Dubai on the 19th September. The
permanent repairs were completed on the 23rd November.
8. The defendants were the underwriters of the vessel on terms evidenced by a
cover note dated the 22nd July 1992. The insurance was subject to
the Institute Time Clauses - Hulls (Oct 1 1983), which included the following
provisions:
11 GENERAL AVERAGE AND SALVAGE
11.1 This insurance covers the Vessel's proportion of salvage, salvage
charges and/or general average, reduced in respect of any under-insurance, but
in the case of general average sacrifice of the Vessel the Assured may recover
in respect of the whole loss without first enforcing their right of
contribution from other parties.
11.2 Adjustment to be according to the law and practice obtaining at the place
where the adventure ends, as if the contract of affreightment contained no
special terms upon the subject; but where the contract of affreightment so
provides the adjustment shall be according to the York-Antwerp Rules. ...
11.4 No claim under this clause shall in any case be allowed where the loss was
not incurred to avoid or in connection with the avoidance of a peril insured
against. ...
16 WAGES AND MAINTENANCE
No claim shall be allowed, other than in general average, for wages and
maintenance of the Master, Officers and Crew, or any member thereof, except
when incurred solely for the necessary removal of the Vessel from one port to
another for the repair of damage covered by the Underwriters, or for trial
trips for such repairs, and then only for such wages and maintenance as are
incurred whilst the Vessel is under way.
It is common ground (for the purposes of the preliminary issue) that the damage
to the vessel was caused by an insured peril. It is also common ground that
the owners' liability in respect of general average, including that arising
from the execution of the non-separation agreement with the cargo interests,
was proximately caused by the same insured peril.
9. The owners appointed Messrs Manley Hopkins as average adjusters. They
produced an adjustment which showed total general average expenditure of
US$3,582,593.35, which included expenses arising both out of the breakdown at
Durban ("the first casualty") and out of the damage to the replacement
hydraulic pumps ("the second casualty"). The adjusters assessed the respective
contributions in respect of the second casualty as US$757,630.29 for ship,
US$129,133.84 for freight and US$2,695,829.22 for cargo. The hull underwriters
were not happy with that adjustment because they said that the adjusters had
failed to treat the cost of towing the vessel to Dubai for repairs as general
average in accordance with paragraph 1 of the non-separation agreement.
Following those complaints, an amended adjustment was produced in which the
total figure was increased to US$5,077,038.32. In order to arrive at that
figure the adjusters added the total sum of US$1,494,444.97 to the original sum
of US$3,582,593.35 in the first adjustment. They did so by transferring the
sum of US$1,288,147.57 in respect of the cost of towage from particular average
to general average and adding the further sum of US$206,297.40 in respect of
general average commission and interest, making a total sum added to general
average of US$1,494,444.97.
10. The effect of those alterations was to increase the potential contribution
of cargo-owners in respect of the second casualty, if calculated pro rata to
values assessed in accordance with paragraph 2 of the non-separation agreement,
from US$2,695,829.22 to US$3,601,776.22. The contributions of ship and freight
in respect of the second casualty were increased to US$1,134.054.05 and
US$172,529.92 respectively. The position of the shipowners was thus that their
potential liability to contribute in general average increased (if I have
understood the figures correctly) from US$757,630.29 to US$1,134,054.05, but
the position of hull underwriters had improved (or potentially improved)
because the effect of the adjustment (if carried over to the policy) would be
to deduct the sum of US$1,288,147.57 from the sum for which they would
otherwise have been liable for particular average.
11. On those figures the position of hull underwriters was potentially improved
by some US$952,723.27 as between the two adjustments. Even if the figures are
not precisely accurate, it is clear that, subject to one potentially important
consideration, underwriters' position would be substantially improved by
applying paragraphs 1 and 2 of the non-separation agreement, not only as
between shipowners and cargo-owners, but also as between shipowners and
themselves. The potentially important consideration is, however, that there
must be set against that figure the extra liability which falls or would fall
on underwriters as a result of the non-separation agreement, namely the cost of
wages and maintenance which would have been excluded from particular average
because of clause 16 of the Institute Time Clauses, but which form part of
general average expenses under the agreement and the shipowners' proportion of
which is recoverable under clause 11.1. In the first adjustment, as I
understand it, the adjusters included wages and maintenance as general average
expenses even though they excluded the cost of towage, so that it is not easy
(at least for me) to work out the precise figures on the material available to
us, but it is not in dispute that hull underwriters are or would be much better
off if general average is adjusted in accordance with paragraphs 1 and 2 of the
non-separation agreement on the facts of this case.
12. Curiously, in the part of the second adjustment which deals with the
position as between ship and cargo, the figures are set out as above and are
presented without reference to the effect of paragraph 3 of the non-separation
agreement and thus without reference to the Bigham cap. In the final part of
the adjustment, entitled "Policy", the adjusters calculate the effect of the
Bigham clause. They assess the cost to the cargo-owners if they had taken
delivery at Algoa Bay and then forwarded the cargo themselves to the original
port of destination as US$2,814,349.94. That sum is greater than the sum of
US$2,695,829.22, which would have been the cargo interests' contribution if the
cost of towage to Dubai had been excluded (as it was in the first adjustment),
but it is less than the sum of US$3,601,776.22 which would have been the cargo
interests' contribution but for the Bigham cap. That is it is more than would
have been the case if there had been no non-separation agreement, but less than
it would have been if cargo's contribution were assessed by reference only to
paragraphs 1 and 2, but not to paragraph 3 of the agreement. The effect of the
Bigham clause was to cap the cargo-owners' contribution at US$2,814,349.94.
13. The difference between the cargo-owners' contribution as capped and their
contribution without the Bigham clause is the sum of US$3,601,776.22 less the
sum of US$2,814,349.94, namely US$787,426.28. It is that sum which is known as
the excess Bigham amount, or the Bigham cap. The position in summary is,
however, that if cargo's position under the whole agreement is compared with
its position if there had been no agreement, its liability in general average
is greater, although not so much greater as it would have been if the
non-separation agreement had contained only paragraphs 1 and 2 and not
paragraph 3. Although (for the reasons given above) I do not have the precise
figures, the net liability of underwriters if it is calculated by reference to
all the terms of the non-separation agreement, including the Bigham clause, is
less than it would have been if it is calculated without regard to the
agreement at all.
The Question
14. The question is simply whether, on those assumed facts, the shipowners are
entitled to recover the amount of US$787,426.28 from hull underwriters under
the terms of the Institute Time Clauses-Hulls in addition to the amount of the
ship's contribution calculated by reference only to paragraph 2 of the
non-separation agreement.
15. It is common ground that, as the judge held, the scope of the cover
provided in clause 11 of the Institute Time Clauses must be considered in the
light of the relevant provisions of the Marine Insurance Act 1906. Section 66
of that Act provides:
"(1) A general average loss is a loss caused by or directly consequential on a
general average act. It includes a general average expenditure as well as a
general average sacrifice.
(2) There is a general average act where any extraordinary sacrifice or
expenditure is voluntarily and reasonably made or incurred in time of peril for
the purpose of preserving the property imperilled in the common adventure.
(3) Where there is a general average loss, the party on whom it falls is
entitled, subject to the conditions imposed by maritime law, to a rateable
contribution from the other parties interested, and such contribution is called
a general average contribution.
(4) Subject to any express provision in the policy where the assured has
incurred a general average expenditure, he may recover from the insurer in
respect of the proportion of the loss which falls upon him; and, in the case of
a general average sacrifice, he may recover from the insurer in respect of the
whole loss without having enforced his right of contribution from the other
parties liable to contribute.
(5) Subject to any express provision in the policy where the assured has paid,
or is liable to pay a general average contribution in respect of the subject
insured, he may recover therefor from the insurer.
(6) In the absence of express stipulation, the insurer is not liable for any
general average loss or contribution where the loss was not incurred for the
purpose of avoiding, or in connection with the avoidance of, a peril insured
against.
(7) Where ship, freight, and cargo, or any tow of those interests, are owned by
the same assured, the liability of the insurer in respect of general average
losses or contributions is to be determined as if those subjects were owned by
different persons.
16. The shipowners say that under the non-separation agreement, including the
Bigham clause, "the proportion of the loss which falls upon" them within the
meaning of section 66(4) of the 1906 Act includes the Bigham excess amount of
US$787,426.28. The underwriters, on the other hand, say that it does not and
that the expression "the proportion of loss which falls upon" them in section
66(4) means rateable proportion, that is rateable in accordance with the values
which must be taken for general average purposes. Before attempting to resolve
that question, it is I think appropriate to consider briefly the history of
non-separation agreements and the Bigham clause in the context of the
development of the York-Antwerp Rules.
Non-Separation Agreements and the Bigham Clause
17. As the judge observed at page 10, when a vessel is forced to call at a port
of refuge, there are obvious attractions in entering into a non-separation
agreement from the point of view of both shipowners and cargo-owners. I
consider first the benefits of such an agreement without a Bigham clause. The
benefit to cargo-owners is that they can promptly recover their cargo in
circumstances where substantial delay might otherwise ensue while the
shipowners, anxious to earn their freight, store the cargo, carry out repairs
and then resume the voyage. In this case it would have involved considerable
delay and large storage costs. The freight, which was payable at destination,
was of the order US$1,800,000.
18. From the shipowners' point of view, the advantage of entering into a
non-separation agreement is that they are able to treat the general average
situation as continuing when otherwise it would terminate with the result that
they can recover contribution pro rata to value for post-separation expenses
which would otherwise fall entirely on them during both the period leading up
to repairs and the repair period itself. There is the added attraction of
converting some ordinary running expenses, which would be excluded by clause 16
of the Institute Time Clauses, into general average expenditure, which in turn
would render them recoverable in part from hull underwriters. As the judge
observed (and as appears above), with the benefit of hindsight these
attractions were enhanced in the present case given that the total sums
involved were in the region of US$5 million and the value of the cargo was
nearly three times that of the vessel.
19. The expert evidence showed that, in circumstances such as the present,
non-separation agreements have been invariably executed for the past 100 years
or more. So far as I am aware, although they did not become part of the
York-Antwerp Rules until 1994, they were acted upon by adjusters and accepted
by underwriters without demur for very many years. The history and advantages
to ship and cargo interests of non-separation agreements are described in a
similar way to that set out above in Lowndes & Rudolf on The Law
of General Average and the York-Antwerp Rules, 12th edition
(1997) at paragraphs G10 to G14; see in particular paragraph G12, which
describes the position where the delay for repairs is not sufficient to
frustrate the adventure, and paragraphs G13 and G14, which focuses on the
position where the delay or prospective delay is sufficient to do so. There
are similar, if not identical, passages in the 11th edition (1990),
which was the current edition in 1992, at paragraphs G20 to G24.
20. The problem in the present case has arisen from the fact that the
non-separation agreements included paragraph 3, namely the Bigham clause. The
Bigham clause has been introduced into non-separation agreements only
comparatively recently. We were told that its name derives from Mr Bigham of
Bigham, Englar and Jones, who were the New York lawyers representing the
successful consignees in the Domingo De Larrinaga [1928] AMC 64. In
that case it was held by the United States Federal Court for the Southern
District of New York that consignees of damaged cargo, which had been
discharged at a port of refuge to permit inspections of the hull, were
entitled, on paying full freight, to refuse to have their goods reloaded so
that the vessel could be towed to destination and to demand their goods at the
port of refuge, even where the shipowners had arranged for towage of ship and
cargo to destination.
21. I am not sure when the Bigham clause was first devised, but the evidence
shows that the practice of including it in non-separation agreements was first
introduced at the instance of United States cargo underwriters during the
1970s. Again, as the judge put it, the rationale was that, since as a matter
of United States law (as demonstrated in the Domingo De Larrinaga) a
cargo-owner could insist on taking possession of his cargo at a port of refuge,
he should not be in any worse position than if he had done so. The practice
was not immediately introduced in England, but the judge said at page 10 that
it was probably introduced in the 1980s. He added that it has now become a
commonplace, although not invariable, practice to include the Bigham clause in
non-separation agreements. The expert evidence shows, however, that it is rare
for the cap to be invoked. Indeed one of the experts said that he had never
known it happen.
22. Although of considerable interest (albeit perhaps of a an arcane nature),
it seem unlikely that there are now many cases which will give rise to the same
question. That is because similar, if not identical, provisions to those in
this case were introduced in the York-Antwerp Rules 1994. Additions have been
made to rules G and XVII. Paragraph 1 of rule G essentially provides that
general average shall be adjusted as regards both loss and contribution upon
the basis of values at the time and place when and where the adventure ends.
The second paragraph is not relevant, but third and fourth paragraphs have been
added as follows: :
"When a ship is at any port or place in circumstances which would give rise to
an allowance in general average under the provisions of Rule X and XI, and the
cargo or part thereof is forwarded to destination by other means, rights and
liabilities in general average shall, subject to cargo interests being notified
if practicable, remain as nearly as possible the same as it would have been in
the absence of such forwarding, as if the adventure had continued in the
original ship for so long as just viable under the contract of affreightment
and the applicable law.
The proportion attaching the cargo of the allowances made in general average
by reason of applying the third paragraph of this rule shall not exceed the
cost which would have been borne by the owners of the cargo if the cargo had
been forwarded at their expense".
In addition the following paragraph has been added to Rule XVII:
"In the circumstances envisaged in the third paragraph of Rule G, the cargo
and other property shall contribute on the basis of its value upon delivery at
original destination unless sold or otherwise disposed of short of that
destination, and the ship shall contribute on its actual net value at the time
of completion of discharge of cargo".
It can thus be seen that the paragraphs added to rule G are essentially
paragraphs 1 and 3 of the non-separation agreements in the instant case and
that added to rule XVII is the equivalent of paragraph 2.
23. The fact that those provisions were added in the York-Antwerp Rules 1994
shows that the market viewed non-separation agreements including the Bigham
clause as reasonable agreements to make. That view is reflected in the
following extract from the 12th edition of Lowndes &
Rudolf at paragraph G15:
"The Clause is a sensible addition to the Non-Separation Agreement from the
point of view of cargo interests and it calls into question whether the cargo
interests have the right, if they consider that it will be cheaper for them to
take delivery of their cargo at the port of refuge rather than contribute to
any continuing general average expenses incurred after the discharge of their
cargo, to refuse to sign a Non-Separation Agreement in any form, but to insist
upon taking delivery at the port of refuge and to pay there the freight and any
other charges due upon the goods. Under the laws of Canada and the United
States it is clears that the cargo owner has this right"
In paragraph G16 the editors give the Canadian and United authorities for that
proposition including The Domingo de Larrinaga and in paragraph G17 they
say that, while there is no English authority on the point, there is much to
recommend it, provided that cargo-owners pay the freight. Paragraphs G25 to
G27 of the 11th edition of Lowndes & Rudolf are in the
same terms as paragraphs G15 to G17 of the 12th edition.
24. In all these circumstances, it appears to me that a non-separation
agreement with a Bigham clause is in principle a reasonable agreement for
shipowners and cargo-owners to make in a case of this kind. Whether it will be
reasonable on the facts of a particular case may depend upon the facts, but, so
far as this preliminary issue is concerned, it has been assumed that it was a
reasonable agreement here. Also, importantly, as already stated, it has been
assumed, not only that the agreement was reasonable, but that it was caused by
an insured peril.
Discussion.
25. In the instant case it is common ground that the contract of carriage
provided for general average to be adjusted in accordance with the York-Antwerp
Rules 1974 as amended in 1990, which did not of course include the paragraphs
which I have quoted above because they were not included until the York-Antwerp
Rules 1994. Mr Schaff submits that it is a crucial aspect of this case that
the non-separation agreements including the Bigham cap were not part of the
York-Antwerp Rules referred to in the contract of affreightment because clause
11.2 provides that the adjustment shall be in accordance with the York-Antwerp
Rules only where the contract of affreightment so provides. He recognises that
the position would be different under the York-Antwerp Rules 1994 because of
the express terms of section 66(4) of the Marine Insurance Act 1906, which make
sub-section (4) subject to any express provision in the policy. He submits,
however, that the position is different in the instant case because the
York-Antwerp Rules referred to in the contract of affreightment (and thus in
the policy) do not include reference to non-separation agreements containing
the Bigham clause and that there is no principle upon which underwriters can be
bound by agreements made only between shipowners and cargo-owners.
26. It might be thought that the logical application of that principle would
lead to the conclusion that underwriters' liability in respect of general
average should be assessed without reference to agreements between ship and
cargo which are not expressly recognised by the York-Antwerp Rules in
accordance with the policy. On that basis underwriters' liability would be
assessed without reference to the non-separation agreement at all. However,
underwriters' argument does not go so far. Mr Schaff accepts that the effect
of the non-separation agreement is to extend the scope of the expenses which
fall within general average and that the liabilities of ship and cargo
underwriters respectively should be calculated on that basis, but he submits
that the liability of hull underwriters should be calculated pro rata as to
values in accordance with paragraph 2 of the non-separation agreement, and not
on the basis of the Bigham clause. The judge accepted that submission and it
undoubtedly has force. It is not, however, to my mind an attractive
submission, especially on the facts of this case.
27. The reason why underwriters accept that their liability to reimburse the
shipowners should be assessed by reference to general average expenditure
calculated in accordance with paragraph 1 of the non-separation agreement is
that (as stated above) the effect of that paragraph is to treat as general
average substantial expenditure which would otherwise have been regarded as
particular average. It was for that reason that the underwriters objected to
the first adjustment. As I said earlier, it excluded over US$1.28 million in
respect of the cost of towage to Dubai for repairs. The advantage to them of
including that figure as general average expenditure was that, instead of being
liable for the whole of it as particular average, they were liable for only a
proportion of it as general average, given that (as is often the case) the
value of cargo was considerably greater than the value of the ship.
28. Mr Schaff submits that that consideration is irrelevant as a matter of
principle. He submits that it will or may be a matter of chance whether hull
underwriters will be better or worse off. That is because, while some
expenditure will become general average and be contributed to by cargo with the
result that hull underwriters' liability will be reduced, other expenditure,
namely wages and maintenance, will become general average which would otherwise
have been excluded by clause 16 of the Institute Time Clauses. In this regard
it is fair to say that I am not sure what the precise result is on the figures
here.
29. I see the force of that submission, but it seems to me in principle that if
paragraph 1 of the non-separation agreement has the effect, both as between
shipowners and cargo-owners and as between shipowners and their hull
underwriters, of treating certain expenses as general average expenses, it
makes no sense to treat the other paragraphs of the non-separation agreement
differently, provided of course that it was reasonable to enter into the whole
agreement and that entering into the agreement was caused by an insured peril.
As I understand it, it is accepted by underwriters that paragraph 2 of the
non-separation agreement had effect both as between shipowners and cargo-owners
and as between shipowners and their hull underwriters. Thus it is accepted
that general average should be adjusted on the basis of the values assessed as
set out in paragraph 2 of the non-separation agreement. As I understand it,
(leaving on one side the possibility of an assessment on the basis of
substituted expenses under rule F) values would not be assessed on that basis
but for the non-separation agreement: see rule XVII and the necessity to add
the new paragraph to that rule which is quoted above.
30. I accept the submission of Mr Gross that paragraph 3 of the non-separation
agreement is just as much a part of the whole agreement as paragraphs 1 and 2.
All three paragraphs are part of one indivisible agreement. He submits on that
basis that the correct view of the agreement is that the parties to it agreed
that certain expenditure was to be treated as general average, that their
respective contributions were to be assessed rateably in accordance with values
assessed as set out in paragraph 2 and that they were to pay contributions as
so assessed unless cargo-owners' contribution as so assessed was more than the
amount which it would have cost them if the cargo had been delivered to them at
Algoa Bay and forwarded by them to Rotterdam. I accept that submission.
31. Mr Gross further submits that in these circumstances the shipowners'
proportion of the general average expenses assessed in accordance with the
agreement must be arrived at by taking the whole of the expenses defined as
general average expenses by paragraph 1 of the agreement, assessing what
proportion of those expenses was attributable pro rata to ship and what pro
rata to cargo by reference to the values calculated by reference to the formula
in paragraph 2 and dividing them between ship and cargo on that basis unless
cargo's proportion assessed on that basis would be more than the Bigham cap (or
the Bigham excess amount), in which case cargo's share or proportion would be
the amount of the cap and the ship's share or proportion would be the
remainder. Again, I accept that submission.
32. Mr Schaff accepts that that is the correct approach as between ship and
cargo. The question is whether it is also the correct approach as between the
shipowners and their underwriters. In principle I would accept the submission
of Mr Gross that it is. It seems to me that, if underwriters' liability in
respect of general average expenditure (and indeed in respect of particular
average) is to be calculated by reference to expenditure which is to be treated
as general average expenditure because of paragraph 1 of the non-separation
agreement and, if the assessment of the shipowners' and cargo-owners' share is
to be made (for any purpose) by the formula set out in paragraph 2, principle
and logic lead to the conclusion that, where appropriate on the facts, their
respective shares should be calculated by reference to paragraph 3. Any other
view would involve treating part of an indivisible agreement as defining
underwriters' liability but not the whole.
33. Mr Schaff submits that such a conclusion is inconsistent with section 66(4)
of the Marine Insurance Act 1906, which I have set out above. He submits that
section 66(4) must be construed in its context, which includes section 66(3)
and indeed the whole basis upon which contributions are assessed in general
average, namely rateably as to value. He submits that in these circumstances
the expression "he may recover from the insurer in respect of the proportion of
the loss which falls upon him" means, and can only mean, rateable proportion.
Mr Gross submits, on the other hand, that there is no reference to rateable
proportion in section 66(4), that proportion simply means share and that there
is no reason to restrict the ordinary meaning of the word proportion to
rateable proportion.
34. I accept of course that every statutory provision must be construed in its
context and in accordance with its statutory purpose. I also accept Mr
Schaff's submission that the draftsman of section 66(4) had in mind the
ordinary principles of general average, which are set out in section 66(1) to
(3). There is no doubt that the draftsman had in mind the principle that
general average contributions are assessed rateably as to value. However, it
does not seem to me that there is any reason to hold that he meant to limit
proportion to rateable proportion, when the sub-section does not expressly do
so. As a matter of ordinary English, I do not see why the shipowner who, by
reason of an insured peril, reasonably incurs expenses which he reasonably
agrees with cargo should (a) be treated as general average expenses and (b) be
apportioned between them in a particular way, should not say that the
proportion of the expenses (ie the loss) which falls on him is the loss as so
apportioned and that it is recoverable from underwriters under section 66(4) as
his proportion of the loss caused by an insured peril. In this regard I do not
think that it is appropriate to treat the calculation of the proportion by
reference only to paragraph 2 of the non-separation agreement (which
underwriters accept) and not to paragraph 3 (which they do not).
35. The underwriters have not been able to point to any authority on the
construction of section 66(4) which supports their construction of the word
`proportion'. The shipowners have, on the other hand, been able to point to
the decision of Roche J in Green Star Shipping Company Limited v The London
Assurance [1933] 1 KB 378. Both Mr Gross and Mr Schaff recognise that
there are some aspects of that case which are not easy to unravel. I agree,
but I do not think that it is necessary to attempt to do so. The significance
of the case for present purposes is the approach of Roche J to section 66(4).
It is sufficient to note that the vessel sustained two casualties, first a fire
and then a collision. The shipowners were (as the judge put it a page 11)
faced with a shortfall in recovery of general average expenditure because of
the low value of the cargo after the casualty. The shipowners had entered into
an ordinary hull policy before the original voyage, but after the fire but
before the collision they also entered into a special risks policy to insure
cargo's proportion of general average. The owners' P&I Club also provided
cover in respect of cargo's proportion of general average not otherwise
recoverable. We are not concerned with the special risk insurers.
36. The relevant issue for present purposes was whether the shipowners were
entitled to recover from hull underwriters under or by reason of section 66(4)
that part of their general average expenditure which they had not recovered
from cargo. The statement of the facts at pages 380-1 includes this:
"The salved value of the steamer was about 63,000 dollars, and the salved
value of the cargo was about 44,000 dollars, which latter sum was paid by cargo
owners to the plaintiffs, and to which the general average liability of the
cargo owners was limited by the law and practice obtaining at Philadelphia
where the adventure terminated.
There was a substantial shortfall as between the amount of cargo's
contribution as so assessed under the law and practice of Philadelphia and the
amount of its contribution as assessed in accordance with the York-Antwerp
Rules. The relevant question for present purposes was whether the shipowners
could recover from hull underwriters the difference between the part of their
general average expenses which they in fact recovered from cargo and the part
which they would have recovered but for the law and practice of Philadelphia.
37. Roche J expressed his conclusion in this way at page 391:
"... if a shipowner, being the assured under a policy in the present form,
incurs expenditure for general average and the cargo's contribution falls short
of what is hoped or expected by reason of diminution or extinction of its value
before the adventure terminates, then I think that loss falls into the category
of the proportion of the loss which falls upon the assured, the shipowner, and
is within the meaning of those words in the Marine Insurance Act s 66, sub-s
4.
Before the judge the shipowners contended that the position there was directly
analogous to the present case, where cargo's contribution falls short, not by
diminution of its value, but by a contractual cap reasonably provided for in
the aftermath of the casualty. The judge did not accept that submission. For
my part, I would not hold that the position there was directly analogous to the
position here, but it does seem to me to be an example of a case where the
court permitted recovery under section 66(4) of general average loss on the
basis of an assessment not carried out pro rata as to values. The loss which
the shipowners were held entitled to recover was not simply that proportion of
its expenditure that the value of the ship bore to the total value of ship and
cargo. I do not think that the basis of the decision was that the principle of
rateable contribution in section 66(3) is expressed to be "subject to the
conditions of imposed by the Maritime Law", whatever that means, as is
suggested in the judgment at page 11 The result achieved by Roche J was thus
inconsistent with the argument advanced by Mr Schaff on behalf of underwriters.
38. In these circumstances, so far as it goes, the decision in the Green
Star Shipping case seems to me to support the shipowners' approach to the
meaning of proportion in section 66(4) rather than that of the underwriters,
namely that it is not limited to rateable proportion. There is no authority to
the contrary. The only other case of potential relevance to which we were
referred is The Mary Thomas [1894] P 108, where an attempt to recover
from underwriters the contribution to general average otherwise payable by
cargo but which was not recoverable by reason of the shipowners' fault failed.
The judge accepted the submission that the position in the instant case is
analogous to the position where shipowners are prevented from recovering what
would otherwise be cargo's proportion by virtue of actual fault. However I
have reached a different conclusion. On the facts of this case the shipowners
were not able to recover cargo's proportion from cargo because of their breach
of contract. The shipowners can recover their proportion from underwriters
regardless of whether they were in breach of the contract of carriage. The
shipowners' case is not that they are entitled to recover the cargo-owners'
proportion of the general average expenses but that they are entitled to their
own proportion of the expenses. The question is whether the amount claimed is
part of the shipowners' proportion within the meaning of section 66(4) of the
Act. I do not think that The Mary Thomas is of assistance in resolving
that question.
39. I agree with the judge that that question is an interesting and nicely
balanced one, but for the reasons which I have tried to give I have reached a
different conclusion. My reasons may be summarised briefly in this way.
a. On the assumed facts all the expenses which have been treated as general
average expenditure, and therefore general average loss, were both reasonably
incurred and proximately caused by an insured peril.
b. The non-separation agreement, including the Bigham clause, which is an
integral and indivisible part of it, was reasonably entered into. It was thus
reasonable to treat as general average expenses those expenses which the
agreement on its true construction treats as general average expenditure. In
these circumstances the ship's proportion of general average within the meaning
of clause 11.1 of the Institute Clauses includes its proportion of those
expenses, even though, but for the agreement, the expenses would not have been
general average expenses. The underwriters concession to that effect is
correctly made.
c. The ship's proportion of those expenses recoverable in general average is
the proportion provided by the agreement. Thus, the underwriters were correct
to concede that, if there were no paragraph 3 (ie no Bigham cap), the
shipowners' proportion would be calculated by reference to the values assessed
in accordance with paragraph 2. That is so, even if the values assessed in
accordance with then York-Antwerp Rules would provide a different result.
d. Since paragraph 3 is part of the non-separation agreement, just like
paragraphs 1 and 2, the proportion of ship and cargo must in principle be
calculated by reference, not only to paragraph 2 but also to paragraph 3.
Thus, where (as here) paragraph 3 applies on the facts, cargo's proportion is
the amount of the cap and (ignoring freight) ship's proportion is the rest.
e. In such a case the "proportion of the loss which falls on" the shipowner
within the meaning of section 66(4) of the Marine Insurance Act 1906 is the
proportion so calculated because there is no warrant for giving the sub-section
other than its natural meaning and, where a non-separation agreement is entered
into in circumstances such as this, "the vessel's proportion ... of general
average" within the meaning of clause 11.1 of the Institute Clauses is the
proportion calculated in accordance with the agreement, either paragraph 2 or
paragraph 3, as the case may be.
40. I would add just two further points by way of postscript. The first is
that I do not think that this approach will open the floodgates to all manner
of agreements between shipowners and cargo-owners. It is crucial to the
analysis that the agreement was made after the casualty, that it was reasonably
made and that both the relevant expenditure and the agreement were caused by an
insured peril. The York-Antwerp Rules 1994 and the extracts from Lowndes
& Rudolf to which I have referred show that non-separation agreements
including a Bigham clause are accepted as reasonable in the market, whereas it
will not be possible to say the same of most, if not all, of the other types of
agreement suggested in argument.
41. The second point is that I would have expected expenses of the kind
incurred here to be recoverable from underwriters and not left to be met by the
insured shipowners. Thus, as I have already said, the cost of towage would
have been recoverable as particular average but for the agreement. It would be
odd (as it seems to me) if the effect of entering into a reasonable agreement
of this kind was that such expenditure would not be fully recoverable. The
position might be different if the part of the general average expenditure not
recoverable from cargo because of the Bigham cap was recoverable as particular
average, but it is not because of the principle embodies in section 64(1) of
the Marine Insurance Act 1906. Section 64(1) provides that a particular
average loss is a loss which is not a general average loss, so that once it is
accepted that expenditure which would be recoverable as particular average is
general average expenditure, it is (as I understand it) common ground that it
cannot be recovered as particular average. Thus if the underwriters' argument
were accepted, it would mean that the effect of entering into the agreement
would be to make the cost of towage general average but, in a case where the
Bigham cap has effect, not fully recoverable from underwriters or cargo. It
seems to me that that would be an odd result, even though I recognise that it
would be mitigated by the fact that wages and maintenance become general
average under the non-separation agreement when they would otherwise be
irrecoverable because of clause 16 of the Institute Clauses.
Conclusion
42. For the reasons which I have tried to give, I would hold that on the
assumed facts the shipowners are entitled to recover the whole of their share
or proportion of general average under the non-separation agreements, including
the Bigham excess amount of US$787,426.28. I would therefore allow the appeal
and answer the question posed by the preliminary issue `Yes'.
Mr Justice Bennett
I agree
Lord Justice Pill:
43. Section 66(4) of the Marine Insurance Act 1906 lays down what the owner of
a ship may, subject to any express provision in the policy, recover from his
insurer where the owner has incurred a general average expenditure. He may
recover in respect of the proportion of the loss which falls upon him.
44. This is a claim by shipowners against hull underwriters. For the
underwriters, Mr Schaff QC submits that liability can be passed on to the
underwriters only for the actual adjustment of the respective portions of
general average expenditure, in accordance with rateable principles augmented
by the then prevailing York-Antwerp rules. That is the effect of the statutory
provision and the actual adjustment excludes the underwriters' liability for
the sum claimed.
45. By agreeing a Bigham clause, the owners and the cargo interests are
purporting to increase the liability of the underwriters to one of the parties
to their contract, to which the underwriters are not party. It is submitted
that the owners and the cargo interests cannot, by a cap of their own choosing,
reallocate general average exposure to achieve that result. The underwriters
are required to meet what is adjusted as general average and not the sum which
the owners and cargo interests limit by capping what would otherwise be general
average.
46. This submission has obvious attractions but I agree with Clarke LJ, for the
reasons he gives, that it should not prevail. The non-separation agreement,
which included the Bigham clause as paragraph 3, was a reasonable one in the
circumstances. It was by virtue of the provisions of paragraphs 1 and 2 of the
agreement that general average was adjusted in a way which decreased the
owners' (and underwriters') liability. It had the effect, for example, of
transferring the substantial towing charges from the port of refuge to the port
of repair, from particular to general average.
47. I agree that the non-separation agreement must be read and applied as a
whole and paragraph 3 takes effect with paragraphs 1 and 2, so that the Bigham
cap applies. If it is a reasonable agreement in the circumstances, the
shipowners and cargo interests are not excluded from making an agreement after
the casualty which has the effect of defining the extent of the underwriters'
liability under section 66(4). The underwriters' protection is in the right to
challenge the reasonableness of the agreement made by the assured. The assured
has to show that the agreement is proximately caused by and a reasonable
reaction to the insured peril. An assessment of reasonableness must have regard
to the insurer's statutory obligation under section 66(4). That obligation
does not permit the assured to use the device of an agreement with another
interest so as to increase the insurer's liability and benefit that other.
48. In this case, the owners are claiming to the extent of general average loss
which fell upon them in accordance with their agreement (including the Bigham
clause). It is not disputed that they suffered the loss and it is not disputed
that the loss was caused by an insured peril. The agreement was plainly a
reasonable attempt to limit the extent of the owners' (and their underwriters')
liability in the light of the casualty.
49. I agree that the appeal should be allowed.
Order:
1. The appeal from judgment and order of Mr. Justice David Steel dated
28th October 1999 be allowed and paragraphs 1, 3 and 4 therefore, be
set aside.
2. Preliminary issue (1) be answered `yes'; preliminary issue (2) be
answered `no'.
3. The Appellants costs of the appeal to be paid by Respondents. Such costs
are assessed at £33, 500.
4. The Respondents to repay the Appellant's costs of and occasioned by the
preliminary issues and the trial thereof below, such costs to be assess if not
agreed.
5. The Respondents to repay to the Appellants within 28 days the
£58,000 paid by the Appellants to the Respondents in respect of their
costs below.
(Order does not form part of approved judgment.)
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