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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/244.html
Cite as: [2000] EWCA Civ 244
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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
LORD JUSTICE PILL
LORD JUSTICE CLARKE
and
MR JUSTICE BENNETT
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COMATRA
LIMITED |
Claimants/ | |
- and - |
||
VARIOUS UNDERWRITERS |
Defendants/ |
(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)
- - - - - - - - - - - - - - - - - - - - -
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.)