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Jagan - June 30, 2023 - 2 comments

  1. Background:
    1. THE SAFIR 1, a container vessel owned by Safeen Feeders 30 Ltd, whilst on charter loaded containers at Nhava Sheva and then sailed to Mundra for both discharge and loading of containers. On 22nd Feb 2023 after loading of some containers, a fire was noted on board and subsequently actions were taken to deal with the fire which included both firefighting operations and discharge of all the containers loaded (both of Nhava Sheva and Mundra) at DP World Mundra International Container Terminal. The Owners declared General Averagei (“GA”) and appointed Richards Hogg Lindley (‘RHL”) as the Average Adjusters and asked for the interested parties to provide securities as may be sought. SAFIR 1 then proceeded for repairs and sailed from Mundra on or about 08th April 2023.
    2. When RHL were contacted by some of the cargo interests over the provision of security, they advised that they (RHL) had no instructions from Owners (on the collection of securities). They further advised that
      1. Owners were exercising their lien (in GA and otherwise) over the cargo and were in discussion with Charterers to reach a commercial resolution.
      2. If a commercial resolution was achieved, Owners intention was that they would not seek contributions in GA as originally advised.
        The negotiations between Owners and Charterers continue till dateii such that the underlying container operators have no access to their containers and therefore are unable to proceed further with the voyage.
  2. Is it a GA?
    1. The Owners GA declaration states that the extinguishing operations were commenced for the common safety and accordingly, they have a valid claim in GA principally for the cost of fire extinguishing operations. On the basis that the contracts of carriages provide for the incorporation of York Antwerp Rules 1994 “YAR 1994” (which is the most commonly used version), R III of YAR 1994 does provide for “ Damage done to a ship and cargo, or either of them, by water or otherwise, …, in extinguishing a fire on board the ship, shall be made good as general average; except that no compensation shall be made for damage by smoke however caused or by heat of the fire.” Accordingly, Owners do have an entitlement to seek contributions not only for the costs of fire extinguishing operations conducted for the common benefit but also for any damage caused to the cargo or hull, unless the cargo/hull was already on fire and say destroyed.
    2. It appears to us based on the prevailing circumstances that Owners wish to hold lien on the cargo purely as a negotiating tool with Charterers (which may not only be for the extinguishing expenses but also for breach of contractual provision’s in the charterparty resulting in the loss or damage to the hull due to the fire, loss of hire, etc.). The genesis of GA is on the basis of equity with one of the maxims being “He who comes into equity must come with clean hand”. This being the case, would this result in cargo interests being entitled to deny Owners right to seek contributions? We submit that given the contractual incorporation of YAR 1994 on the contracts of carriage, equitable provisions may not apply and therefore Owners would continue to have a right to seek GA contributions.
    3. Delay claims:
      1. Rule C of the YAR 1994 (and other editions) provides “…any loss or damage sustained or expense incurred by reason of delay, whether on the voyage or subsequently, and any indirect loss whatsoever, shall not be admitted as general average”. This simply means that the delay related losses cannot be included in the GA. However, this does not bar parties from pursuing the party at fault for losses arising out of delay.
      2. Pursuit of Owners: The question would then be whether Underlying Carriers and Cargo interests pursue Owners for their losses arising from the Owners delay in both collecting the securities promptly and releasing the cargo and containers? We submit that this is indeed an option and should be considered by the parties involved. However, given that there would be costs for pursuing, it does seem that all of the interested parties are taking a wait and watch approach to see if this matter is resolved without the necessity of incurring additional costs.
    4. Average Adjuster: While the Average Adjuster is engaged by the Owners, their fees are a part of the GA expenditure as provided in Rule C. This being the case, the Average Adjuster is engaged on behalf of all of the interested parties such that they (Average Adjuster) have an independent duty to all parties involved in the adventure. In this case, given that there appears to be no intention to collect securities and adjust the GA, the question which appears to us is what then is the role of the Average Adjuster? Can they be still engaged to deal with the matter? While we do have some thoughts on this issue, we would prefer that the Average Adjusting community debate on this issue and deal with it so as to ensure that their independence and impartiality is preserved in all circumstances.
  3. Further thoughts:
    1. Issues such as these regularly arise in Sea Transport/International Trade. Hence, parties should actively consider risk management measures including insurance to deal with such risks. If insurance is not an option (due to ongoing sanctions in some trades), parties should consider having some sort of fund to deal with such issues as and when they arise. This (insurance or fund) would help parties to seek professional assistance early on to deal with the issues as they arise.
    2. Given the immense delay, it is possible that both the underlying carriage and cargo sale may become frustrated. The question would then be whether cargo interests can pursue their contractual carriers for recovery. Given that there is no fault on the part of the underlying carrier and further provisions in the Bill of Lading terms which may exclude delay related claims, they (underlying carrier) would have a defence to any such claims. However, these contractual defences may not be available to a third party, in this case, the owners such that the underlying carriers/cargo interests may indeed be able to pursue them for their losses.
    3. Cargo interests are regularly blamed for not participating in the GA process in good faithiii. While there is some truth to this comment, we believe that it would be unfair to put the blame on only the cargo interests! It would therefore be best to make the process more robust so that the intention/sanctity of GA is preserved in all circumstances.

i. Owners GA declaration which can be viewed by clicking the hyperlink. GA was declared on 02nd March 2023 and therefore Owners continue to hold lien on the cargo for nearly 3 months without seeking any security.
ii. This is the situation as on date i.e. 30th June 2023.
We recall a comment being made on cargo interests  during the Association of Average Adjusters Annual Conference in May 2023.

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    Please share regarding General average M V SAFIR

    • Jagan

      We understand that the containers with cargo finally were shipped out of India to final destination.

      We further understand that Owners and Charterers came to a settlement and in turn, Charterers/Operators sought contribution from the cargo interests to release the cargo at destination. We are not aware of the latest status given that we are not engaged by any of the cargo interests.

      Trust this assists.

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