Grounded Container Ship - General Average Contributions and the Unseaworthiness Defence
A 3,200 TEU container vessel grounds on an uncharted rock while approaching Colombo. She is refloated after three days by tugs and by jettisoning 40 containers valued at USD 2,500,000; bunkers are transferred and the vessel is taken to a port of refuge. Salvors under Lloyd's Open Form are awarded USD 3,000,000, and port-of-refuge expenses are USD 500,000. General average is declared and adjusted under the York-Antwerp Rules 2016. The adjuster's contributory values are: ship USD 20,000,000; cargo on board and delivered sound USD 25,000,000; jettisoned cargo, made good, USD 2,500,000; freight at risk USD 500,000. The hull policy is for USD 20,000,000 with a USD 200,000 deductible. Cargo's survey shows the vessel's chart folio was not updated and the passage plan was never approved, and cargo interests are refusing to pay their contribution until their containers are released.
1. Compute the general average contributions of ship, cargo and freight, and state the net sum payable by cargo owners.
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Step 1 - the general average fund. Allowances are the salvage award (3,000,000), the port-of-refuge expenses (500,000) and the jettisoned cargo made good as a sacrifice (2,500,000). The general average total is USD 6,000,000.
Step 2 - contributory values. Ship 20,000,000; cargo delivered 25,000,000 plus jettisoned cargo at its made-good value 2,500,000 = 27,500,000; freight at risk 500,000. Total = USD 48,000,000. The jettisoned containers contribute on their made-good value because they are treated as having arrived.
Step 3 - the rate. 6,000,000 ÷ 48,000,000 = 12.5% of contributory value.
Step 4 - apportionment.
- Ship: 20,000,000 × 12.5% = USD 2,500,000
- Cargo: 27,500,000 × 12.5% = USD 3,437,500
- Freight: 500,000 × 12.5% = USD 62,500
- Check: 2,500,000 + 3,437,500 + 62,500 = USD 6,000,000.
Step 5 - net position of cargo owners. They are liable for USD 3,437,500 but are simultaneously entitled to USD 2,500,000 as made good for the jettisoned containers. The net sum payable by cargo owners collectively is therefore USD 937,500, in addition to receiving their sacrifice.
2. Advise the cargo insurer on the unseaworthiness allegation and on how the containers can be released.
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The fault question. Rule D of the York-Antwerp Rules 2016 provides that rights to contribution are not affected by the fault of one of the parties to the adventure, but that a party paying a contribution retains any legal defence or recourse he may have against the party at fault. So cargo cannot simply refuse to contribute: the adjustment stands, and cargo pays under protest and with full reservations, preserving its right of recourse against the carrier.
Strength of the recourse. The carrier will point to the nautical fault defence in Article IV rule 2(a) of the Hague-Visby Rules, incorporated in India by the Carriage of Goods by Sea Act 1992. But an out-of-date chart folio and an unapproved passage plan go to the carrier's duty to exercise due diligence before and at the beginning of the voyage under Article IV rule 1 and Article III rule 1. If due diligence was wanting, the carrier loses the Article IV defences and cargo has a strong subrogated claim for the contribution it has paid, and for the value of the jettisoned containers.
Cover and security. The cargo insurer pays the contribution and the sacrifice under clause 2 of the Institute Cargo Clauses, which covers general average and salvage charges adjusted under the contract of affreightment or the applicable rules. It then issues the general average guarantee required by the shipowner's lien - normally in the form approved by the average adjuster, countersigned by the insurer and without prejudice to the fault defence - so the containers are released without payment of cash. Payment of the guarantee should be recorded as made under reserve, and the subrogation letter taken before settlement.
3. How does the ship's own general average contribution and sacrifice fall under the hull policy?
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The ship's contribution of USD 2,500,000 is a loss recoverable under clause 11 of ITCH 1/10/83, which covers the vessel's proportion of salvage, salvage charges and general average as adjusted according to the law and practice at the place where the adventure ends - here the York-Antwerp Rules 2016. Because the insured value of USD 20,000,000 equals the contributory value of USD 20,000,000, clause 11.1 produces no reduction for under-insurance and the full USD 2,500,000 is admitted.
The deductible of USD 200,000 is then applied once to the aggregate of the claims arising from this one accident, including the general average and salvage claim under the 1983 wording, giving a net payment of USD 2,300,000. The underwriter should check that the casualty was caused by an insured peril (stranding clearly is) and confirm that no navigation-limit or class warranty was breached.
Two cautions should be recorded on the file. First, paying the ship's general average contribution does not extinguish the shipowner's liability to cargo for want of due diligence; the hull underwriter's payment may be followed by a subrogated claim against its own assured, and rights of set-off should be reserved. Second, the owner's general average sacrifice - the ship's own damage accepted as a general average sacrifice - is recoverable in full without first enforcing contribution from cargo, which can matter where cargo's solvency or willingness to pay is in doubt.