A cargo of steel coils was carried under four bills of lading by The Lehmann Timber. The vessel was first detained by pirates and released by a payment of ransom by the owners. Subsequently, the vessel suffered an engine breakdown, which put the owners to the cost of towing. Finally, the vessel arrived the destination port of St Petersburg. The owners declared general average and appointed the general average adjusters.

The cargo carried under one of the bills were insured, while the other three were uninsured. The general average adjusters, on behalf of the owners, demanded the usual general average bond secured by an insurer’s general average guarantee or cash deposit. The cargo receiver refused to give the bond in respect of any of the bills, while the insurer gave its guarantee in respect of the one bill covered by insurance. The owners exercised the lien over all the cargoes for general average contribution and discharged all the cargo in a nearby warehouse. The owners subsequently claimed the general average contribution as well as the cost of storage.

The dispute was first arbitrated. The arbitral tribunal allowed the owner’s claim. On appeal, Popplewell J held that the owners were entitled to exercise the lien in respect of all the cargoes including the one in respect of which the insurers had given the guarantee as no bond was given by the cargo receiver. However, his lordship held that the owners were not entitled to the storage costs, following the decision of the House of Lords in Somes v British Empire Shipping Co (1860) 8 HL Cas 338 where it was held that an artificer was not entitled to the storage cost when exercising his lien. On further appeal by both parties, Sir Bernard Rix delivering the judgment of the Court of Appeal held that the owners were entitled to exercise the lien in respect of all the cargoes as the guarantee without the bond was insufficient or at least it was reasonable for the owners to require a bond in addition to the guarantee. His lordship also held that Somes principle was not applicable outside the context of an artificer and that in any event it was not applicable in the current context of a lien for general average. Accordingly, his lordship reversed the decision of Popplewell J on this point and held that the owners were entitled to the storage cost, after finding that the conduct of the owners in incurring the storage costs in the circumstances was reasonable.

Sir Bernard Rix observed the significance and benefits of a bond to the owners, which possibly include limitation period running from the date of the bond, law and jurisdiction clause and an undertaking to make payment on interim certificate on account.

It is observed that a guarantee in essence guarantees the discharge of the cargo interests’ obligation under a bond. In Navalmar UK Ltd v Ergo Versicherung AG and another company (The BSLE Sunrise) [2019] EWHC 2860 (Comm), Judge Pelling QC tied up the guarantee with the bond although the guarantee was issued before the bond was issued.