DMC Category Rating: Confirmed

This case note is based on an Article in the June 2006 Edition of the ‘Marine Bulletin’, published by the Marine team at the international firm of lawyers, DLA Piper. DLA Piper is an International Contributor to this website.

Background
On 10 July 2004, the Olympic Galaxy grounded while under pilotage off Tricomalee, Sri Lanka. The vessel was carrying a cargo of Australian wheat owned by Prima Ceylon.

In January 2005, Prima issued proceedings in Sri Lanka, claiming that Galaxy had entered into a salvage agreement with salvors in Lloyd's Open Form without notice, without authority and acting unreasonably. In order to obtain discharge of its cargo, Prima had had to give security by way of a Lloyd's average bond and an average guarantee. Subsequently, Prima added to its pleadings to seek declarations that it had no liability to Galaxy because the grounding had been caused by the owners' negligence.

Galaxy issued proceeding in England for declarations that Prima was liable to make a contribution towards general average and/or salvage charges and obtained leave to serve out of the jurisdiction. Prima applied to the English court to set aside the proceedings on the grounds that it had no jurisdiction and England was not the appropriate forum.

The contractual situation
The cargo was shipped under two Austwheat bills of lading, under which Prima was the notify party. The bills provided that all terms and conditions in the charterparty (including the arbitration clause) were incorporated and that general average would be settled according to the York-Antwerp Rules 1974 as amended 1990.

The voyage charterparty stated general average was "settled and payable in London" according to the York-Antwerp Rules. The arbitration clause provided for arbitration in London if the events giving rise to the dispute occurred outside Australia.

The situation was complicated, however, in that, three days before the grounding, ownership of the vessel had been transferred from the original owners to Galaxy. This meant that Galaxy could not invoke the arbitration agreement because it had not been a party to it.

The only contractual relationship between Galaxy and Prima was a Lloyd's average bond dated 14 July 2004 addressed to the agents of the vessel, under which Prima agreed to pay the proper proportion of any salvage or general average ascertained to be due under an adjustment "prepared in accordance with the provisions of the contract of a freightment [sic] governing the carriage of the goods or, failing any such provision, in accordance with the law and practice of the place where the common maritime adventure ended..".

The average guarantee was given on 16 July 2004. Shortly afterwards, Prima disputed any liability on the grounds of Galaxy's alleged breach of authority.

First instance
The judge at first instance held that Galaxy was making its claim under the Lloyd's average bond. There was a good arguable case that the bond was governed by English law, so jurisdiction was established under Rule 6.20.5(c) of the Civil Procedure Rules.

The court retains a discretion to set aside proceedings if it considers England is not the most appropriate forum, but the judge was satisfied that the matter should be heard in the English court. In his view, the dispute would have to be determined under English law, since English law was the proper law of the Lloyd's average bond, which was the only contract between the parties.

Prima appealed, arguing that judge was wrong to have accepted that the relationship as a whole was governed by English law, merely because the Lloyd's average bond was, arguably, governed by English law.

Exercising discretion afresh
The Court of Appeal agreed. The Lloyd's average bond referred to an adjustment prepared in accordance with the provisions of the contract of affreightment "or failing any such provision in accordance with the law and practice of the place where the common maritime adventure ended". There was, therefore, a substantial argument that, even if the Lloyd's average bond was governed by English law, the rights and wrongs of the claims in general average would be determined in accordance with Sri Lankan law, where the adventure ended.

Even if English law applied to the general average claim, it did not necessarily follow that the dispute should be determined in England. The Sri Lankan courts are accustomed to applying English law. The fact that England has enacted the International Salvage Convention 1989 and Sri Lanka has not was only one factor amongst others to be taken into account. In the Court of Appeal's view, the judge had not given appropriate weight to the fact that the Sri Lankan proceedings, which had been issued first, would continue in any event, giving rise to a risk of inconsistent decisions.

The Court of Appeal, therefore, having decided the judge had exercised his discretion wrongly, considered the pros and cons of the two jurisdictions afresh.

The onus was on Galaxy to show that the English proceedings should continue. But the parties had no connection with England. The facts of the dispute had little to do with England and everything to do with the grounding off Sri Lanka and the signing of the salvage agreement there. The proceedings in Sri Lanka had been issued first and were likely to continue. The pilot, a potentially important witness, was based in Sri Lanka. Expert witnesses on navigation would be available whether the matter was heard in England or Sri Lanka.

Taking these factors into account, the Court of Appeal had little doubt that the balance came down substantially in favour of setting aside the English proceedings so as to enable the Sri Lanka proceedings to determine the rights and liabilities of the parties.

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