In brief - Ownership required to give rise to obligation to contribute 

Declaration of interest: Colin Biggers & Paisley acted for the first and second respondents in the proceedings, whose claims were resolved earlier on confidential terms.

In Offshore Marine Services Alliance Pty Ltd v Leighton Contractors Pty Ltd [2017] FCA 333, Justice McKerracher of the Federal Court of Australia provided clarification regarding the issue of "ownership" of cargo as a basis to seek contribution in general average for expenditure arising out of general average events.

Principle of general average in maritime law

Contribution in general average is an ancient concept and one which has developed over many decades such that it is a well-established (and now codified) principle of maritime law. 

At its simplest it is a concept whereby in circumstances where there has been a sacrifice or expenditure intentionally and reasonably made for the common safety and to preserve from peril the property involved in a common maritime adventure, then those who have had the benefit of that sacrifice or expenditure ought to contribute to it. 

Put another way, all losses arising from extraordinary sacrifices made or expenses incurred for the preservation of a ship and cargo come within general average and must be borne proportionately by all interested parties. The interest claiming contribution and the interest from which it is claimed must have been exposed to a common danger. The expenditure must be intentional and reasonable and occasioned by the jeopardy.

The facts of this case are perhaps a convenient way to illustrate how the concept works in practice. 

OMSA incurs cost and expenses for Barge's common safety and cargo after Barge grounded on reef during bad weather

On about 29 November 2012, Barge JMC 2822 which was being towed by a vessel (the "Miclyn Venture") on time charter to the applicant (Offshore Marine Services Alliance (OMSA)) was carrying approximately 1,800 tonnes of cargo including (amongst other things) materials and equipment for use in the Gorgon Project at the Barrow Island LNG Plant, in Western Australia.

The Barge was carrying cargo for 10 different parties.

During the course of the voyage, the weather and conditions freshened and deteriorated significantly with the result that the tow line between the Barge and the "Miclyn Venture" let go. The Barge ultimately grounded on the reef approximately 3km from Cervantes, off the coast of Western Australia. The salvage operation concluded on 16 December 2012 with the Barge having sustained damage on its bottom plating while grounded on reef and limestone. 

No cargo was lost but OMSA incurred costs and expenses in excess of AU$4 million said to have been for the common safety of the Barge and the cargo on board, including the costs associated with stabilising the damaged hull of the Barge and refloating and towing the Barge back to port. 

Preliminary question arises on ownership versus responsibility for care, custody and control of cargo

The judgment of McKerracher J arose out of a preliminary question identified by the parties with regards to the law of general average in Australia. That question related to the nature of the interest in imperilled cargo that gives rise to an obligation to contribute in general average. Put simply, the question at issue was whether "ownership" of the cargo was required or whether the perhaps lesser concept of responsibility for the "care, custody and control" of the cargo was sufficient to give rise to an obligation to contribute in general average. 

The preliminary question came about as both Leighton and Thiess maintained that pursuant to the terms of their contracts with third party entities, they were not the "owners" of the cargo aboard the Barge. They maintained that under the terms of those contracts, by the time the cargo was loaded on board the Barge, title had already passed to the third parties with whom they had contracted. 

His Honour ultimately held that "ownership" was required.

OMSA argues that shared risk of maritime adventure is basis for obligation to contribute

OMSA argued that the obligation to contribute in general average under Australian law was not limited to cargo owners and that it had long been recognised that the basis for the obligation to contribute was on the "shared risk" of the maritime adventure.

Developing that proposition, OMSA argued that ordinarily risk passed with property but that in this case—by virtue of their contracts with the third parties—Leighton and Thiess had elected to retain the risk of damage to the cargo, notwithstanding that title to it had passed to the third parties. 

By way of illustration, OMSA argued that, had the cargo been lost at sea, Leighton and Thiess could have been liable and bore the risk pursuant to their contracts to replace the lost cargo.

On the basis that all those that shared the "risks" of a maritime adventure should contribute to any extraordinary sacrifice or expenditure to ensure its success, OMSA argued that Leighton and Thiess ought to contribute in general average to the expenditures made with regards to the foundering of the Barge. 

Leighton and Thiess argue that ownership is central to determining obligation to contribute

Leighton and Thiess maintained that as a starting proposition, liability to contribute in general average could only arise from one of two sources:

  1. ownership of the property that benefited from the general average sacrifice, or
  2. by way of contractual obligation to the general average claimant 

Leighton and Thiess argued against OMSA's proposition on the basis that there were no cases in which a non-owner who did not otherwise have a contract with the general average claimant, had been held to have had an obligation to contribute in general average. 

By way of example and to illustrate the difficulties that would be presented if OMSA's arguments were accepted, Leighton and Thiess pointed out that many parties can have variable interests in cargo that do not amount to ownership of cargo, including actual and contractual carriers, freight forwarders, insurers, financiers and subsequent purchasers. To accept OMSA's arguments that concepts of "risk" in the absence of "ownership" could give rise to obligations to contribute in general average would be to make the issue of who (and in what proportion) is liable to contribute in general average exceedingly complex. Conversely, the concept of "ownership" was uniform and indivisible.

Judge determines that liability to contribute in general average attaches to the owner

His Honour considered numerous authorities in reaching his conclusion and ultimately held that the language in the applicable legislation and relevant cases would appear to be absolute.

His Honour acknowledged that concepts of "ownership" as used in maritime commerce were flexible and covered a range of relationships. 

However, His Honour held that (at paragraphs 83 and 84 of the judgment):

…every case indicates that liability will attach only to an owner or someone contractually liable. 

There is no case in which a party who bears some contractual risk in cargo in relationship to its owner, but which is not the owner and does not have any contract with a general average claimant, has been held liable to contribute to general average.

In my view, the liability to contribute in general average attaches 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.

The decision will provide further certainty to those involved in shipping and other maritime adventures where circumstances arise that result in general average events.

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