QCR Winter 2017:Clarification of Owner's duty to exercise due diligence under the Hague Visby Rules in the context of a main engine breakdown.
MT "Cape Bonny" Tankschiffahrts GmbH & Co KG v Ping An Property and Casualty Insurance Co of China Ltd (The "Cape Bonny") - QBD (Comm Ct) (Teare J)  EWHC 3036 (Comm) - 4 December 2017
On 14 July 2011, in the course of a laden voyage from Argentina to China, the oil tanker Cape Bonny suffered an engine breakdown. At the time the vessel was seeking to avoid typhoon Ma-on. Towage assistance was required. On 18 July 2011 she was taken in tow by Koyo Maru. She was not permitted to enter a Japanese port of refuge or to discharge her cargo in the Chinese port of discharge. Therefore she was towed to South Korea where the cargo was transhipped for onward delivery. Due to the approach of another typhoon, the vessel had to be towed out to sea again in South Korea. She was thereafter released and berthed for repairs on 9 August 2011.
General Average was declared. The defendants provided a General Average guarantee on behalf of cargo interests in favour of the owners. The subsequent adjustment assessed cargo's contribution to general average at approximately US$2.1 million.
The defendants contested liability under the guarantee based on Rule D of the York-Antwerp Rules. They claimed that the casualty was caused by actionable fault on the part of the owners, namely a failure to exercise due diligence to make the vessel seaworthy.
Mr Justice Teare who heard the case listened to evidence from seven witnesses of fact and four expert witnesses who all dealt with technical matters.
The owners accepted that the vessel was unseaworthy at the commencement of the voyage by reason of the presence of metal particles in the luboil system. Under Article III rule 1 of the Hague-Visby Rules (which had been incorporated in the contract of carriage), owners have to prove that they exercised due diligence to make the vessel seaworthy before or at the commencement of the voyage.
The owners contended that they had fulfilled their responsibility under Article III rule 1 as the main engine failure was caused by sudden and catastrophic damage to the no 1 main bearing caused in turn by a latent defect - referred to as residual weld slag from when the vessel was built in 2005.
Mr Justice Teare however dismissed the owners' explanation above as improbable. He concluded instead that the cause of the main engine breakdown in July 2011 was that foreign particles which should have been filtered out from the luboil were not removed because of damage to filters and these particles caused damage to the main bearing no 1. The owners failed to conduct a proper inspection of the vessel before the commencement of the voyage.
However, Mr Justice Teare was not able to conclude that the foreign particles could definitely have been detected had such a proper inspection been conducted. Hence, he decided that the failure to exercise due diligence was not causative of the engine breakdown.
Notwithstanding the above, the court held that a prudent engineer or superintendent would have recognised and acted on the unexplained and significant crankweb deflection readings taken by the crew. This failure to do so, which was a failure to exercise due diligence, was causative of the subsequent engine breakdown. This actionable fault on the owners' part results in cargo interests being exempt from liability to make a general average contribution. The owners' claim was therefore dismissed.
Having dismissed the owners' claim, Mr Justice Teare nevertheless proceeded to deal (obiter) with the issues on quantum.
The owners had relied on commentary on Rule A of the York-Antwerp Rules in Lowndes & Rudolf suggesting that the sacrifice or expenditure will be deemed to have been reasonable unless the contrary is proved. The owners argued that the burden was therefore on the defendants to show the quantum of their claim was unreasonable.
The defendants however relied on Rule E of the York-Antwerp Rules which provides that the onus of proof is on the party claiming in general average to show that the loss or expense claimed is properly allowable in general average. From this the defendants argued that the burden of proof was on the owners.
There is to date no authority on this point. Mr Justice Teare expressed his view that the owners had the burden of proving that the expenditure was reasonably incurred. He relied on Rule E and the Rule Paramount in reaching this conclusion. Whilst Rule E did not expressly deal with the question of reasonableness, it states a general rule which had to encompass that question. The Rule Paramount makes clear that the person claiming a contribution in general average has to allege and therefore prove that the expenditure or sacrifice is reasonably made.
General average cases do not usually reach the Commercial Court. In this decision, Mr Justice Teare has helpfully clarified certain key points relating to Owners' duty and responsibility under the Hague Visby Rules. He has also provided useful guidance, albeit obiter, on which party bears the onus of proof under Rule A and Rule E of the York-Antwerp Rules for deciding whether any expenditure claimed is reasonable.