“Actionable fault” defence under York Antwerp Rules available to GA guarantee issuer

In a judgment handed down on November 4th following a hearing on a preliminary issue, the Commercial Court in England has held that the “actionable fault” defence under Rule D of the York Antwerp Rules was available to the issuer of a general average guarantee in the standard AAA / ILU form.

Ruth Hosking of Quadrant Chambers appeared for the claimant shipowner. Benjamin Coffer appeared for the defendant insurers, instructed by Andrew Nicholas and Cameron Boyd of Clyde & Co in BSLE Sunrise [2019] EWHC 2860 (Comm).

(Navalmar UK Ltd as Claimant: Ergo Versicherung AG and Chubb European SE as Defendants).

The dispute arose from the grounding of the BSLE Sunrise off Valencia in September 2012. The owners declared general average (GA). Cargo interests issued GA bonds. The defendant insurers provided security for those bonds on the standard form GA guarantee, which is approved by the Association of Average Adjusters and the Institute of London Underwriters.

Owners brought a claim under the guarantees for contribution in GA and it was agreed that the question of whether the wording of the guarantees made a Rule D defence available in principle to the guarantors would be decided by way of preliminary issue.

The guarantees provided that the insurers undertook to pay ‘“any contribution to GA and/or Salvage and/or Special Charges which may hereafter be ascertained to be properly due in respect of the said goods.”

HHJ Pelling QC, siting as a High Court Judge, held that, if the actionable fault defence was available to the receivers, then no sums were payable under the guarantees. The standard form wording preserved the insurer’s right to rely on the defence available to the receivers under Rule D if the loss was caused by the shipowner’s actionable fault.

The Judge considered that the word “due” in the bonds signified a sum that was legally owing or payable. He relied on the judgment of Sheen J in The Jute Express [1991] in holding that “and which is payable” means “and which is legally due.” He noted that the payment was to be made “on behalf” of the cargo interests concerned, suggesting that what the insurer was agreeing to pay was what the parties to the adventure would otherwise have had to pay themselves.

The Judge said that the inclusion of the word “properly” served to put the point beyond doubt. He noted the success of insurers resisting claims under similarly worded guarantees in The Cape Bonny [2017] and The Kamsar Voyager [2002].

Owners relied upon the case of the Maersk Neuchatel [2014] in support of their interpretation. In that case Hamblen J had held a that Letter of Undertaking assumed an obligation to pay the sum determined under the average adjustment.

The Judge distinguished the case on the basis that the wording of the LOU in that case was different.

Conclusion

Quadrant concluded that it was “now clear that actionable fault is a defence available to insurers under the standard form ILU / AAA guarantee. The same is also likely to be true for most other forms of guarantee: the Judge considered that his conclusion was in accordance with the settled practice and understanding of the shipping industry, and that only very clear wording could justify departing from that practice and understanding”. The Maersk Neuchatel looked to be the exception rather than the rule.

https://www.quadrantchambers.com/news/general-average-guarantees-and-the-actionable-fault-defence-the-blse-sunrise-2019-ewhc-2860-comm

https://www.quadrantchambers.com/images/uploads/documents/The_BLSE_Sunrise_2019_EWHC_2860_(Comm).pdf