A demise charterer let in 2004 the container vessel The Maersk Neuchatel to a time charterer in liner trade by a charterparty in an amended BIMCO BOXTIME form. The charterparty required the demise charterers to give a temporary security in the event of a general average or salvage, to cover all goods and containers, which may subsequently be replaced with a full security from the interested party. On 20 July 2007, whilst on a laden voyage from South East Asia to various South and West African ports, the vessel grounded off the port of Tema, Ghana. Eight attempts were made to refloat her between 20 July 2007 and 31 August 2007. On 31 August 2007, upon lightered, the vessel was refloated by the salvors. In the course of the attempts to refloat and refloating, the vessel’s bottom suffered serious damage and resulting in numerous attempts to refloat and serious damage to her bottom. On 25 July 2007, general average was declared. Upon this incident, the parties negotiated the terms of the letter of undertaking (LOU) by way of the security to be given by the time charterers to the demise charterers, assisted by their respective solicitors and the general average adjusters. The terms were finalised, and the LOU was issued in September 2007. The relevant terms were that the demise charterer would:

pay the proper proportion of any General Average and/or Special Charges which may hereafter be ascertained to be due from the Cargo … under an Adjustment prepared by the appointed Average Adjusters in accordance with the Charterparty …

make one or more payment(s) on -account of such sum or sum(s) as will be certified by the General Average Adjusters to be due from Cargo …

The LOU included a non-separation agreement. Upon the LOU, the remaining containers were discharged at Tema and the vessel was then put to Gdansk for repairs. The demise charterers, time charterers and the general average adjusters all surveyed/inspected the vessel. In December 2010, the adjusters gave a draft adjustment to the time charterers, whereby about 80% of the bottom damage and 100% of the propeller damage were classified as general average sacrifice resulting from the refloating exercise. The adjusters published the final adjustment in January 2012, whereby about 82% of the bottom damage was classified as general average sacrifice. The total sum ascertained to be due from the cargo interests was about USD6.3 million (including liability under the non-separation agreement). The time charterer contended that the right amount of contribution was only about USD3.5 million. The time charterers, having earlier paid USD2.5 million on a without prejudice basis, made a further payment of about USD1 million as per the time charterer’s account. Hamblen J construed the construction, in strict terms, to mean that the time charterers had agreed to pay the proper portion of whatever sum is ascertained by the adjusters to be due from the Cargo, although the Cargo is not bound by the ascertainment. His lordship treated this as an on-demand guarantee dependent on certification. This was because the usual words like “payable in respect of the goods by the Cargo” was missing. His Lordship distinguished The Jute Express [1961] 2 Lloyd’s Rep 55, where such words appeared in the average bond and Sheen J held that the undertaker only agreed to pay what is legally and properly due and payable. His lordship disagreed with the time charterer’s argument that the mere words “pay proper portion of any General Average” had the effect of usual words like “payable by the Cargo”.

It appears that there was a consensus that if the liability of the Cargo is subsequently established in lesser amount than that ascertained by the adjudicators and paid by the time charterers, then the excess amount can be recovered. But if the ascertained amount turns out to be lesser than that subsequently held due from the Cargo, the demise charterers will have no recourse to the time charterers for the excess amount but have to claim the same from the Cargo. Attempts by the time charterers to have the LOU rectified failed.

It is observed that in Navalmar UK Ltd v Ergo Versicherung AG and another company (The BSLE Sunrise) [2019] EWHC 2860 (Comm), Judge Pelling QC held that the insurers guaranteeing the payment by the cargo interest under a bond was entitled to all defences available to the cargo interests and was in the same position as the cargo interests to challenge the general average adjustment.