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Transport

Shipping line responsible for cargo owner’s General Average contribution

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Legal news
calendar 14 August 2020
globus Denmark

In this case, the Court was to decide whether there was a general average event following water damage to carried goods and whether the carrier and owner was liable to the cargo interest for this. The damage occurred as a result of extinguishing a fire on board the vessel. Also, it was to be decided whether the Danish courts were competent even though the bill of lading contained a jurisdiction clause in favour of the English courts.

A cargo owner had a container of cargo carried from Thailand to Denmark. A contract of carriage was made with the cargo owner’s usual shipping agent as the contracting carrier. The shipping agent then contracted with a shipping line. During the carriage, a fire broke out on the container ship carrying the cargo which ended up being damaged by extinguishing water.

The cargo insurer paid the claim and exercised recourse against the contracting carrier and the vessel’s registered owner as performing carrier. This was rejected since the damage occurred as a result of fire and by reference to the fire exemption. The insurer then claimed that the contracting carrier and the shipping line were to pay general average contribution because the cargo was sacrificed for the common benefit of the adventure.

The insurer also asserted that the defendants were liable because they had chosen to ignore the rules stating that the carrier is to collect security from the other cargo interests for their general average contribution even though general average had not been declared. The carrier did not do this and had not notified the cargo owners about the fire, so the cargo owners were unable to protect their interests.

The contracting carrier and the shipping line contested Danish venue as the contracting carrier’s affiliated company had issued a bill of lading. This bill of lading included a clause stating English venue.

The defendants asserted that the fire did not form a common peril and that there was no claim for general average contribution, as general average had not been declared. Finally, they stated that the claim was time-barred as it concerned damage to cargo.

The Maritime and Commercial High Court’s verdict

The Court found that the contracting carrier only objected the Maritime and Commercial High Court’s jurisdiction in their final pleading.  It was concluded that the court had jurisdiction. As for the carrier, the Court found that the contract of carriage with the contracting carrier was governed by NSAB 2015. It was not proven that the terms in the bill of lading had been agreed upon or could be seen as common transport conditions, which meant that they were not relevant in this case. In conclusion, the defendants could not rely on the jurisdiction clause and the Maritime and Commercial High Court was competent.

The Court found that there was a general average event since the fire could have spread and formed danger and so the cargo was sacrificed in order to save other interests in the common adventure. The Court found that the defendants had to cover the insurer’s loss, since the shipping line was aware of the fire. Even though the shipping line was not obliged to declare general average, they should have informed the affected owners. By not doing this, the shipping line was responsible for having neglected their obligation to maintain the cargo owner’s interests.  

The contracting carrier was jointly and severally liable with the shipping line as subcontractor whom the shipping line had appointed to perform the task.

The claim regarded general average contribution and not compensation for damage to the cargo as the defendants had claimed. The 1-year limitation period regarding damage to cargo during sea transport did then not apply. Instead, the general limitation period of 3 years applied and the claim was not barred in relation to either party.

IUNO thinks

This decision clarifies a number of matters, which have not previously been settled under Danish law, especially after formal role of the average adjusters was repealed in 2015. Now after this decision, it has been clarified that the shipping line is not obliged to declare general average. However, it is confirmed that the shipping line is under a duty to protect cargo interests and that they can be liable for omitting to do so. Furthermore, it is confirmed that the limitation period for general average contribution claims is 3 years.

The decision is the first of its kind after the formal role of the average adjusters was repealed. After this, the parties in general average are assumed to solve the matter amicably, through an umpire or by judgment. It does not answer all the issues raised by the repeal, particularly regarding the procedures to be followed by the courts in deciding – or preparing – complicated general average adjustments.

General average will not always be suitable for judicial review. In order to avoid situations like the ones in this case, shipping lines should consider taking out hull insurance with Absorption Clauses. They should also make sure that cargo interests are notified in time about situations that could give rise to general average.

[Maritime and Commercial High Court Case no. BS 42889/2018

A cargo owner had a container of cargo carried from Thailand to Denmark. A contract of carriage was made with the cargo owner’s usual shipping agent as the contracting carrier. The shipping agent then contracted with a shipping line. During the carriage, a fire broke out on the container ship carrying the cargo which ended up being damaged by extinguishing water.

The cargo insurer paid the claim and exercised recourse against the contracting carrier and the vessel’s registered owner as performing carrier. This was rejected since the damage occurred as a result of fire and by reference to the fire exemption. The insurer then claimed that the contracting carrier and the shipping line were to pay general average contribution because the cargo was sacrificed for the common benefit of the adventure.

The insurer also asserted that the defendants were liable because they had chosen to ignore the rules stating that the carrier is to collect security from the other cargo interests for their general average contribution even though general average had not been declared. The carrier did not do this and had not notified the cargo owners about the fire, so the cargo owners were unable to protect their interests.

The contracting carrier and the shipping line contested Danish venue as the contracting carrier’s affiliated company had issued a bill of lading. This bill of lading included a clause stating English venue.

The defendants asserted that the fire did not form a common peril and that there was no claim for general average contribution, as general average had not been declared. Finally, they stated that the claim was time-barred as it concerned damage to cargo.

The Maritime and Commercial High Court’s verdict

The Court found that the contracting carrier only objected the Maritime and Commercial High Court’s jurisdiction in their final pleading.  It was concluded that the court had jurisdiction. As for the carrier, the Court found that the contract of carriage with the contracting carrier was governed by NSAB 2015. It was not proven that the terms in the bill of lading had been agreed upon or could be seen as common transport conditions, which meant that they were not relevant in this case. In conclusion, the defendants could not rely on the jurisdiction clause and the Maritime and Commercial High Court was competent.

The Court found that there was a general average event since the fire could have spread and formed danger and so the cargo was sacrificed in order to save other interests in the common adventure. The Court found that the defendants had to cover the insurer’s loss, since the shipping line was aware of the fire. Even though the shipping line was not obliged to declare general average, they should have informed the affected owners. By not doing this, the shipping line was responsible for having neglected their obligation to maintain the cargo owner’s interests.  

The contracting carrier was jointly and severally liable with the shipping line as subcontractor whom the shipping line had appointed to perform the task.

The claim regarded general average contribution and not compensation for damage to the cargo as the defendants had claimed. The 1-year limitation period regarding damage to cargo during sea transport did then not apply. Instead, the general limitation period of 3 years applied and the claim was not barred in relation to either party.

IUNO thinks

This decision clarifies a number of matters, which have not previously been settled under Danish law, especially after formal role of the average adjusters was repealed in 2015. Now after this decision, it has been clarified that the shipping line is not obliged to declare general average. However, it is confirmed that the shipping line is under a duty to protect cargo interests and that they can be liable for omitting to do so. Furthermore, it is confirmed that the limitation period for general average contribution claims is 3 years.

The decision is the first of its kind after the formal role of the average adjusters was repealed. After this, the parties in general average are assumed to solve the matter amicably, through an umpire or by judgment. It does not answer all the issues raised by the repeal, particularly regarding the procedures to be followed by the courts in deciding – or preparing – complicated general average adjustments.

General average will not always be suitable for judicial review. In order to avoid situations like the ones in this case, shipping lines should consider taking out hull insurance with Absorption Clauses. They should also make sure that cargo interests are notified in time about situations that could give rise to general average.

[Maritime and Commercial High Court Case no. BS 42889/2018

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Mads

Poulsen

Partner

Aage

Krogh

Partner

Lars

Rosenberg Overby

Partner

Mads

Christopher Whitta-Jacobsen

Associate

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