The BSLE Sunrise carried a cargo of pipes from Jebel Ali to Antwerp under three bills of lading, which incorporated YAR 1974. En route, the vessel grounded off Valencia on 28 September 2012. The owners had the vessel re-floated and temporary repairs done to continue with the voyage to Antwerp. On 5 October 2012, the owners declared general average.

Insofar as two of the three bills were concerned, on the same day, 5 October, the cargo insurers furnished a general average guarantee on the following terms:

In consideration of the delivery in due course of the goods specified below to the consignees thereof without collection of a deposit, we the undersigned insurers, hereby undertake to pay to the ship owners … on behalf of the various parties to the adventure as their interest may appear any contributions to General Average … which may hereafter be ascertained to be properly due in respect of the said goods.

These are wordings approved by the Association of Average Adjusters and the Institute of London Underwriters.

Thereafter on 8 October 2012, the cargo insurers furnished a general average bond in Lloyd’s form as follows:

In consideration of the delivery to us or our order, on payment of the freight due, of the goods noted above we agree to pay the proper proportion of any … general average … which may hereafter be ascertained to be properly and legally due from the goods or the shippers or owners thereof …”

There was no express reference in the guarantee to the bond. The guarantee was issued before the bond was issued.

Insofar as the other bill was concerned, the bond was issued on 11 October 2012 and the guarantee was issued on 15 October 2012 and there as an express reference in the guarantee to the bond.

The vessel arrived at Antwerp on 26 November 2012 and all the cargo was discharged. The general average adjusters issued general average adjustment whereby the cargo interests were to pay a general average contribution to the owners. The adjusted amount not having been paid, the owners instituted action against both the insurers.

It was the position of the insurers that no general average contribution was payable, by Rule D of the YAR, because the grounding happened as a result of an actionable fault of the owners, namely the failure of the owners to exercise due diligence to ensure the vessel’s seaworthiness at the commencement (i.e. breach of the Hague-Visby Rules Art III(1) obligation). It was the case of the owners that the insurers liable under the guarantee was not entitled to Rule D defence in the event of an actionable fault on the part of the owners, although the cargo interests would be entitled to the defence. Judge Pelling QC rejected the argument of the owners and decided as a preliminary issue that the insurers were entitled to Rule D defence as much as the cargo interest would be entitled. This is so despite, in the case of two of the bills, that the guarantee was issued even before the bond and that no express reference was made in the guarantee to the bond. The judge noted that the guarantee is issued in conjunction with the bond, as it has been done in the past 200 years. The guarantee is for payment of the due general average, while no general average may be due when Rule D is triggered. The guarantee merely replaces the requirement of a cash deposit. In the event a deposit is lodged, the question of liability is always preserved. By the guarantee, the insurers have no commercial interest to confer on the owner any greater benefit than that conferred by the bond.