DMC Category Rating: Confirmed

This case note is based on an Article in the October 2005 Edition of the ‘Marine Bulletin’, published by the Marine team at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website

Background
On 14 February 2003, the "Vitoria" sustained serious bottom damage after grounding on the River Plate while carrying a cargo of vegetable oil en route for India and Bangladesh. The demise charterer, Mora Shipping (a Liberian company), was the carrier under the contracts of carriage and incurred expenditure of a general average nature as a result of the incident. It appointed average adjusters to collect security and carry out the general average adjustment.

The combined effect of the various bills of lading and charterparty terms was that general average would be stated and settled in London under the York/Antwerp Rules 1994. In this context "settled" means "paid". In other words, it was agreed that general average would be paid in London.

The defendants were the cargo insurers of the whole cargo and were domiciled variously in France, Belgium, the UK and Switzerland. Between 6 March and 7 April 2003, each subscribed for its respective proportions to a general average guarantee covering cargo interests’ liabilities.

Under the guarantee, cargo insurers undertook to pay "to the shipowners or to the Average Adjusters, Richards Hogg Lindley Limited, on behalf of various parties to the adventure as their interests may appear, any contribution to General Average…which may hereafter be ascertained to be legally due in respect of the said goods" and the average adjusters’ address in London was given. It was not disputed that "shipowners" in this guarantee was a reference to the claimant.

On 2 January 2004, the adjusters issued a general average adjustment, which stated that "those concerned in cargo" were liable to pay general average of US$1,053,302. This they sent to cargo insurers by letter dated 10 February 2004, stating "your remittance should be sent direct to us at the following account …".

Cargo insurers, however, disputed that cargo owners had any liability in general average, claiming that the vessel was unseaworthy and that the grounding and subsequent general average expenditure were caused by the shipowner’s breach of the contract of carriage.

The claimant issued these proceedings, but cargo insurers argued that the English court had no jurisdiction to hear the claim. They said that, in the case of the first four insurer defendants, EU Regulation 44/2001 (the Jurisdiction Regulation) applied and, in the case of the fifth and sixth defendants, the Lugano Convention applied. Both require defendants to be sued in the country of their domicile, unless some special ground of jurisdiction applies. The only special ground relevant to this case was that a person domiciled in one member state may be sued in another member state "in matters relating to a contract in the courts for the place of performance of the obligation in question" (Article 5.1(a) of the Regulation, Article 5.1 of the Convention).

Was England the place of performance of the obligation to pay under the general average guarantee? At first instance, the judge found it was not. Cargo insurers had a choice whether to pay the claimant or the average adjusters. Since there was nothing in the guarantee requiring them to pay the claimant in London, they were entitled to pay wherever the claimant could be found.

The claimant appealed, arguing that the right to choose between the two alternative modes of payment was vested in the parties to whom the guarantee was addressed. Once the average adjusters had instructed cargo insurers on behalf of those parties to pay the average adjusters in London, the cargo insurers’ obligation was to pay in London.

Judgment
In the Court of Appeal's view, the issue was purely one of construction. It had to have regard to the language used, in the context of the guarantee as a whole and in the light of the circumstances surrounding it. Part of that context was that, under the contracts of carriage, general average was to be settled, that is, paid, in London. But, under the express terms of the guarantee, cargo insurers undertook to pay "to the shipowners or to the Average Adjusters". The natural meaning of the language was that cargo insurers had the choice whom to pay.

The claimant argued that this conclusion ignored commercial reality because cargo insurers had no interest in having such a choice. But the Court of Appeal disagreed. There might be very good reasons why insurers would want to have the choice of paying the average adjusters instead of the shipowners, if, for instance, the shipowners were insolvent or potentially insolvent.

As the first instance judge commented, no construction was free from potentially unfortunate consequences for someone. But, the Court of Appeal noted, the claim for English jurisdiction was based only on the special jurisdictional ground of place of performance. The moral of the story was that, if shipowners wish to have the choice as to whom is to be paid, they should ensure that the average guarantee expressly says so. More importantly, if they want issues of liability and general average to be determined in England, they should include an exclusive jurisdiction clause.

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