Defending claims for General Average: Tactical Considerations

In a recent case, we successfully settled a significant demand for General Average (“GA”) on behalf of underwriters by taking a proactive stance against Shipowners and seeking a declaration of non-liability.

Background and liability 

The event which gave rise to Shipowners’ declaration of GA was a fire in the vessel’s engine room.  As a result of the fire, the engine room suffered serious damage and lost all power. Extensive repairs were carried out. The key issue to be determined was whether the fire which led to the GA expenditure being incurred was caused by the Shipowners’ actionable fault.  

There was nothing to suggest the fire had been caused by any event external to the vessel. Therefore, the fire must have been caused by a defect which existed before the voyage commenced.  

Any prudent owner, had he known that there existed a defect which put the vessel at risk of a disabling engine room fire, would not have allowed the vessel to be sent to sea until the defect had been made right. Having established the vessel was unseaworthy at the commencement of the voyage, the burden of proof shifted to Shipowners to show that they had exercised due diligence.

The difficulty for Shipowners in this case was that they were unable to identify the cause of the problem which led to the fire. They could not point to a latent defect which had caused the fire, nor had they produced any evidence as to a due diligence regime that would have identified any non-latent defect.  As such, it was virtually impossible for Shipowners to prove they had exercised due diligence. This was a remarkable position given the substantial sums being demanded of underwriters in GA.  

Letter of claim

In order to drive the case to a conclusion, we took the decision to go on the front foot and seek declaratory relief. Rather than continuing to defend the claim in pre-action correspondence (during which time underwriters were forced to maintain a significant reserve), we sent a letter of claim to Shipowners’ solicitors setting out the legal basis for a declaration of non-liability.

In the context of the Civil Procedure Rules, which govern civil litigation in England and Wales, the letter before claim is an essential step in the pre-action protocol process. Shipowners had to respond substantively, or risk consequences, including potential cost sanctions.  

In the event, the parties agreed to settle. By advancing a case for a declaration of non-liability not only did this bring about a settlement which was on terms hugely favourable to underwriters, but it also brought about the result much earlier.  

Conclusion 

Representing the defendants in this case, sending a letter of claim seeking a declaration of non-liability turned the negotiations on Shipowners. We followed the route normally taken by a claimant’s solicitor by seeking such a declaration.  In so doing, we forced Shipowners to focus their minds and ultimately brought about a resolution much earlier, freeing the reserves that had been maintained by Underwriters.

The Clyde & Co team was led by Partner Andrew Nicholas, Legal Director Craig Bird and Senior Associate Jessica Reed.

If you have insured cargo on board a vessel involved in a casualty resulting in a declaration of GA and would like assistance defending claims for salvage, GA and/or pursuing a recovery of losses, please contact us.

Our marine lawyers have extensive experience of salvage and GA claims from a cargo perspective. In addition, we have Master Mariners with practical, first-hand experience in all areas of casualty work. We can help you navigate all aspects of a GA defence including advising on the prospects of a causative unseaworthiness defence and driving long-standing matters to a conclusion.