Australia: General Average In Offshore Construction Projects: Salient Lessons

Last Updated: 8 May 2017
Article by Maurice Thompson, James M Cooper and Joel Cockerell

The recent Federal Court of Australia decision of Offshore Marine Services Alliance Pty Ltd v Leighton Contractors Pty Ltd [2017] FCA 333 provides some salient lessons for parties involved in transporting project cargo associated with offshore oil & gas projects by sea and the impact of a general average event.

Background

The respondents in this proceeding were involved with the construction of the Barrow Island LNG Plant as part of the Gorgon Project in Western Australia (the Project), and had signed contracts with Chevron Australia Pty Ltd (Chevron) in that regard. The applicant, Offshore Marine Services Alliance Pty Ltd (OMSA), had a contract with Chevron for the provision of various services, including the supply of tugs and barges for the transportation of project cargo to Barrow Island.

On 27 November 2012, the Miclyn Venture (time chartered to OMSA) departed Henderson for Barrow Island towing a barge (demise chartered by OMSA) laden with project cargo, including that notionally belonging to the respondents. On 29 November 2012 during forecast heavy weather, the towing pennant parted, resulting in the loss of the tow. Some hours later, the barge grounded on rocks.

OMSA incurred significant costs and expenses re-floating the barge and towing it back to Henderson with the cargo intact and undamaged. OMSA alleged that it incurred costs of some AUD 4 million in securing the common safety of the barge and project cargo and commenced the subject legal proceedings to claim the asserted contributions in general average (GA) from the respondents.

Decision

As there were no carriage contracts between the respondents and OMSA that incorporated any clause dealing with GA, the GA event and contributions had to be assessed as a matter of common law and pursuant to the Marine Insurance Act 1909 (Cth) (the Act) without the benefit of the incorporation of any version of the York-Antwerp Rules.

There were provisions in the respondents' contracts with Chevron that provided for the transfer of title (ownership) to Chevron upon the project cargo first being appropriated (or identified) to the works. That transfer occurred before the GA event, such that the respondents were arguing that they were not "owners" of the cargo. However, the contracts provided that the respondents would remain "responsible for the care, custody, control and safekeeping and preservation" of the cargo.

The court was therefore called upon to consider whether the respondents had a sufficient "interest" in the project cargo to attract liability to contribute in GA.1

OMSA argued that as the respondents shared the risks of the maritime adventure, and as the fundamental philosophy regulating GA contributions is that all those sharing the risks of a maritime adventure should contribute ratably to any extraordinary sacrifice or expenditure necessary to ensure its success, the respondents should be liable to contribute in GA. The position advanced on behalf of the respondents was that all of the cases that examine who is liable to contribute in GA, both in Australia and elsewhere, supported the argument that liability in GA would only attach to an "owner" and/or someone contractually liable through a contract with a general average claimant.

The honourable McKerracher J expressed the view that there was no reason to depart from the consistent line of authority, including Scaife and Ors v Sir John Tobin, Knight (1832) 110 E.R. 189 (Scaife), Hain Steamship Co Ltd v Tate & Lyle Ltd [1936] 2 All ER 597 and Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1984] 1 AC 226 (Castle), which do not raise any suggestion that the basis for contribution is some interest in the cargo less than ownership where there is no contractual obligation with the GA Claimant to contribute.

In Castle, Lord Diplock explained that liability to contribute in GA rested with ownership, or as a matter of contract, where the contract was either a bill of lading or an average bond given for the release of the cargo from the carrier's GA lien. In Scaife, the language used was even more absolute. Scaife dealt with the question as to whether a consignee who was not the owner of the goods could be liable in GA absent any contractual obligation. Littledale J held that "...a mere consignee who has a special property in the goods is not so chargeable."

McKerracher J was similarly not persuaded by OMSA's submission that, as a consequence of the many different meanings that are attributed to the words "owner" and "ownership" in a diverse selection of Australian maritime law related statutes, that "owner" should be read broadly in relation to the Act. His Honour made the point, that as far as the word "owner" was concerned in the Act, that where the word "owner" was used, "owner" was meant, and that where another type of interest was intended, that was expressed.

Dismissing OMSA's arguments and finding in favour of the respondents, His Honour concluded that:

"In my view, the liability to contribute in general average attached to one who is the owner of the relevant freight or cargo that benefited from the general average, sacrifice and expense or contractual obligation to the general average claimant in circumstances governed either by a bill of lading or by a general salvage bond."

Comment

Had OMSA's arguments been accepted by the court it would have opened a pandora's box of problems because there may be a number of parties who have an "interest" of different sorts in the cargo which would make the issue of liability and the proportion of any contribution exceptionally complex.

Consider the relationship between a shipper and its marine cargo insurer. While the insurer may be "on risk" vis a vie the insured, the insurer has no direct obligation to contribute in GA. Had OMSA's arguments been successful, relevant insurers would be directly liable to contribute subject to the policy wording.

OMSA's argument would also effectively turn on its head the long-established law with regards to the relationship between international sales contracts on "shipment terms" (eg. FOB, CIF and CFR) and international carriage contracts.

Consider a CFR sale. The CFR Seller is obliged to procure the carriage contract. That carriage contract may be evidenced in a bill of lading or a charterparty. It is typical in both, that the contracting party, as the shipper and typically the holder of the "title" to the cargo, will be liable to make contribution in GA in the event of a GA event and GA expenditure. The most common transfer of title provision in a sales contract would provide for title to pass at the discharge port as against the seller's production of the relevant shipping documents against the buyer's payment of the sales price. However, "risk" in the cargo, as between the seller and the buyer under the sales contract, passes to the buyer over the ship's rail at the load port (eg. assume INCOTERMS 2000 applied). Now consider that a GA event occurred during the ocean transit and the ocean carrier exercised a contractual lien over the cargo at the discharge port and refused to release the cargo until someone put up an average bond or guarantee.

The ocean carrier's carriage contract would be with the CFR seller, so the ocean carrier would typically seek to hold the seller liable to make contribution in GA under the carriage contract evidenced by the bill of lading. In practice, however, the ocean carrier could exercise a contractual lien over the cargo at the discharge port and refuse to release the cargo until someone put up an average bond or guarantee. In other words, the ocean carrier would not care who put up that security. However, if the buyer chose to breach its contract of sale and refused to accept delivery of the cargo at the discharge port and refused to put up any GA security, then the ocean carrier would simply turn to the CFR seller, as the party contractually bound under the bill of lading contract, to contribute in GA. The CFR seller could certainly sue the CFR buyer for breach of the sales contract, but that is a completely separate claim to the claim by the ocean carrier under the carriage contract.

On OMSA's argument, the CFR buyer should have been liable to the ocean carrier in GA if the GA event occurred after the buyer came "on risk" for the cargo, even though there was no contract between the two. If the sales contract was on CIF terms, OMSA's argument would produce an even more illogical result, in that the parties liable to contribute in GA would be jointly and severally the seller, the buyer and the marine cargo insurer. Further, if there was a bank involved if payment was to be via letter of credit, they too would be liable in GA for their interest and "risk".

This case reinforces the position, that the "risk" of loss or damage to the goods as assumed in an international sales contract on shipment terms, does not equate to "risk" of liability to the ocean carrier for losses associated with the goods as carried.

Footnote

1 It is noted, that Chevron was not named as a respondent in the proceeding.

General Average In Offshore Construction Projects: Salient Lessons

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Authors
Maurice Thompson
James M Cooper
Joel Cockerell
 
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