General Average – The Importance of Due Diligence

A recent UK court decision has found cargo insurers not liable for general average contributions as the owner failed to exercise due diligence, leading to the breakdown of a vessel’s main engine.

The 2005 built crude oil tanker CAPE BONNY was on passage between Argentina and China in 2011 when No.1 main bearing failed catastrophically. The breakdown occurred when the vessel was trying to avoid a tropical storm and towage assistance was needed. The shipowner declared general average and contributions were sought from the parties to the common maritime adventure, which naturally included cargo interests. Cargo’s contribution was assessed at about US$ 2.5 million.

General Average

General average is governed by the York-Antwerp Rules and is commonly incorporated by reference into charterparties and bills of lading. However, parties to the maritime adventure are not liable to contribute if they can successfully prove a breach of contract.

There will be a breach of contract if the vessel was unseaworthy before and at the beginning of the voyage and the owner had failed to exercise due diligence to make her seaworthy. The cargo interests must prove unseaworthiness and the owner must prove due diligence.

Cause of Damage

The engine manufacturer’s representative was unable to conclusively determine the root cause of the bearing failure. The owner and cargo interests therefore had to demonstrate what they believed to be the cause.

The shipowner alleged that the damage to the bearing was caused by welding slag within the lubricating oil pipework that had been dislodged during the bad weather experienced during the voyage. This was rejected by the court as it was not supported by metallurgical analysis and it was judged that any slag from the building process would have detached long before 2011, some six years after newbuild.

The court agreed with the cargo interests’ allegation that the cause was the presence of metal particles in the lubricating oil, most probably from spark erosion or chain drive gear damage, which had not been removed because the automatic blowdown filters were defective.

The court therefore held the ship was unseaworthy before and at the beginning of the voyage.

Exercising Due Diligence

Arguments over due diligence centred on the proper response to notable increases in crankshaft deflections in way of No.1 unit taken one month prior to the incident.

This could have been an indication of bearing wear but it did not prompt the crew to investigate further. The owner was unable to show that anyone had considered the significance of the increases but argued that it was generally reasonable not to investigate further as the deflection was still within allowable limits.

The cargo interests argued that it was the rapid increase that was important, not that the deflection was still within limits and that if the increase had been investigated, it is likely that the bearing wear would have been found and steps taken to repair the bearings.

The court concluded that “a prudent engineer or superintendent would have decided, in the light of the May 2011 deflection readings, that bearing clearance measurements should be taken. The failure to do so was a failure to exercise due diligence to make the vessel seaworthy.”

The effect of that finding was the owner could not recover general average contributions from cargo interests. 

This decision serves as a useful reminder to shipowners and operators of the importance of exercising due diligence to make a vessel seaworthy and – just as importantly – being able to provide evidence of exercising this due diligence.

It also shows shipboard engineers and shore-based superintendents that their actions and inactions can have far-reaching economic consequences.

Authors: Alvin Forster and Peter Scott