Dolphin Maritime and Aviation Services

 
International specialists in all aspects of inland, marine and aviation transport cargo claims.

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International specialists in all aspects of inland, marine and aviation transport cargo claims.

OCEAN VOYAGER

Date: 8th December 2017    Type: Grounding  Voyage: Spain to Norway ... Read more
 
 

A strategy followed by some shipowners, which appears to be becoming more common, has seen a material change in the wording of some General Average Guarantees and Bonds. This change can mean that cargo insurers are deprived of their right to challenge a General Average claim until after payment of the claim, by which time it may be too late.

This is a circular message which is being sent to our various clients and contacts in the cargo insurance industry worldwide.

Most recipients of this email will be familiar with the terms “average bond” and “average guarantee.” These are documents which, after a shipowner has elected to declare general average (GA), the shipowner will request from cargo receivers (or sometimes shippers) and cargo insurers respectively before the shipowner allows the cargo receiver to take delivery of the cargo.

An average bond is an undertaking by the cargo receiver to pay the future GA contribution when due and is given in consideration of the shipowner delivering the cargo without first insisting upon a cash deposit, as security, from the cargo receiver.

An average guarantee, whose terms will usually mirror the average bond to a large extent, is an undertaking that the cargo insurer will guarantee payment under the bond, paying any GA contribution which the cargo receiver may be found liable to pay.

The obligation on the cargo receiver to contribute in GA will usually already be established under the terms of the bill of lading (or other contract of carriage) or by application of the law at the port of discharge. But the average bond will take that further and oblige the cargo receiver to provide the adjusters with information and documents that might be necessary to allow preparation of the GA adjustment. The average bond will often also include:

• an agreement to a specific law and jurisdiction (which may be different from that in the contract of carriage);
• an agreement to extend the time limit to claim in GA;
• an obligation on the cargo receiver to make payments on account in GA;

Importantly, average bonds and guarantees will also usually state that the cargo receiver/insurer is only obliged to make payment of a GA contribution that is properly and legally due (or words of a similar effect). This means that, if the accident giving rise to GA was the fault of the party claiming GA (usually, but not always, the shipowner), then the cargo receiver/insurer is entitled to refuse to contribute in GA. What constitutes fault must of course usually be seen in the light of the terms of the contract of carriage. Most commonly, cargo owners/insurers will have grounds to refuse to contribute in GA if the accident was caused by a failure on the part of the shipowners to exercise due diligence to ensure that the vessel was seaworthy before the voyage began. Dolphin has successfully assisted clients in defending the majority of GA claims placed into their hands, reducing (or sometimes completely avoiding) contributions.

However, we have noticed that some shipowners, on the advice of their lawyers, have been altering the usual wording of average bonds and guarantees in an attempt to try to ensure that cargo interests are prevented from raising any defence to the GA claim. In particular, the words “properly and legally due” (or similar terminology) have been removed. This would often mean that payment of the claim would have to be made by cargo insurers immediately on publication of the GA adjustment, regardless of the cause of the accident. Whilst cargo insurers would at least in theory retain the right to sue the shipowner for re-payment of the GA, this is likely to be an unattractive option for most cargo insurers, not least because of the probable lack of security from the shipowners and also because of the time that is likely to have passed since the GA incident. Furthermore, recovery negotiations rarely result in full re-payment.

It is unfortunately the case that, at the time average bonds and guarantees are demanded, cargo insurers are usually under pressure to issue average guarantees quickly, in order to avoid delay in delivery of the insured cargo. It can therefore be difficult in practice to resist the provision of the guarantees on the terms that the shipowners demand. Nevertheless, if practical, cargo insurers should always give close consideration to the average bond and guarantee wordings requested, and seek advice from us if necessary.

Matthew Robinson
Dolphin Maritime and Aviation Services Ltd
October 2017