Navalmar UK Ltd v Ergo Versicherung AG & Anor (BSLE SUNRISE)

General average guarantees issued by cargo insurers are ordinarily construed with the average bonds they secure and against the established shipping practice in which both instruments operate. An undertaking to pay contributions that are “properly due” ordinarily means sums legally owing or payable by the cargo interests. It therefore preserves a Rule D defence under the York-Antwerp Rules unless the contract uses sufficiently clear language to exclude that defence. The guarantee’s primary nature does not, without more, make the insurer’s obligation wider or more onerous than the secured obligation of the cargo interests.

The claimant, owner of the BSLE Sunrise, sought payment under two general average guarantees issued by the defendants as cargo insurers. The guarantees secured average bonds provided by cargo interests after the vessel grounded, underwent temporary repairs and completed its voyage.

The parties agreed that the cargo interests would have a defence under Rule D of the York-Antwerp Rules if the casualty resulted from the owner’s breach of the seaworthiness obligation in article III.1 of the Hague/Hague-Visby Rules. The preliminary issue was whether that defence was nevertheless unavailable against the insurers under the guarantees.

1. Preliminary issue resolved for the defendants. Nothing was payable under the guarantees if the loss was caused by the owner’s actionable default, and no payment became due until that issue had been resolved.
2. The guarantees had to be construed in their documentary, factual and commercial context. That included the standard relationship between average bonds, guarantees and cash deposits under the York-Antwerp Rules 1974. The guarantees were intended to operate in conjunction with, and not as an effective substitute for, the average bonds.
3. The guarantees’ reference to delivery without collection of a deposit showed that they were supplied in place of the cash deposit otherwise required to secure release of the cargo. A deposit under Rule 22 was held without prejudice to ultimate liability. The guarantees should provide equivalent reasonable security, not a greater benefit than the owner would have obtained from a deposit or possessory lien.
4. The word “due”, applied to a monetary obligation, meant legally owing or payable. The undertaking to pay on behalf of the parties to the adventure contributions “properly due in respect of the said goods” therefore referred to sums legally payable by the cargo interests. No such sum arose while a Rule D defence remained unresolved, and none arose if that defence succeeded.
5. The court followed the reasoning in The Jute Express and treated The Cape Bonny and The Kamsar Voyager as supporting the same construction. Maersk Neuchâtel was distinguished because it concerned a different undertaking, factual context and wording, including the absence of “properly”.
6. The contrary construction would depart from settled industry practice. Only very clear wording could justify that result, and the guarantees contained no such wording. The preliminary issue was accordingly determined in favour of the defendants.