GA Guarantees and GA Bonds – Find the Difference
The English High Court recently issued a useful judgment which confirms the market’s long-held view on the use of bonds and guarantees issued following a General Average (GA) statement.
When GA is declared, the owners of the vessel have a possessory lien on the cargo they are entitled to hold until the owners are secured against any potential claims under an GA adjustment. This guarantee is usually issued by the cargo owners in the form of a bond which is then counter-guaranteed, usually by a first-class insurer, with the provision of a guarantee.
In the BSLE Sunrise, bond and guarantee were based on amended standard wording. The question the court had to resolve was whether the collateral could be used when the adjustment was released regardless of any defenses that the cargo interests themselves might have had.
This was a preliminary issue and the court was therefore asked to presume certain facts. What was most important in this case was that the interests of the cargo could assert a defense of unseaworthiness provided for in Rule D of the York-Antwerp Rules.
The court ruled that GA guarantees were meant to work in tandem with GA obligations and that, at least in this case, the GA guarantee could be assumed to have been provided to secure the GA bond for the interest in the cargo.
The GA is adjusted without determining the fault, these arguments being retained for the execution phase. If at this point the interests of the cargo are able to establish a defense under Rule D and the owners are responsible for the incident, no contribution is due (and no claim can be made. under the deposit). The publication of an adjustment therefore does not settle anything between the contributing parties.
Nevertheless, in this case, the owners pleaded for a construction of the GA guarantee which would allow them to draw on the funds of the guarantee before the execution phase, and to charge interest from the cargo or from their insurers that they issue a claim for recovery of funds in light of the Rule D defense. They argued that they had the right to effect full and unqualified recovery, even if the interests of the cargo had a defense under the GA surety and despite the fact that the GA surety had been provided to secure the obligations under the surety.
The court accepted that the owners were entitled to a reasonable guarantee, but had conceptual difficulties as to why they would be entitled to a guarantee under the GA guarantee that would give them a greater advantage than they would have had in circumstances where they were secured by a cash deposit subject to the York-Antwerp rules, or even the GA bond. Indeed, if the owners’ construction was correct, the court had difficulty seeing why a GA bond was requested or provided.
Applying the usual rules of contractual interpretation, the court concluded that if the language of the surety differed from that of the guarantee, this did not in itself lead to a principal obligation under the guarantee greater than the obligation under the guarantee. bail. It was not appropriate to examine the wording of the bond without considering it in the context of the bond.
Having adopted this approach, it was clear from its wording that the guarantee replaced the cash deposit provided for in the York-Antwerp rules and that the sums under the guarantee did not become due until they were due under the title. bond, and therefore after determining the airworthiness issue under Rule D. There was no good business reason for insurers to take a more pro-owner position by essentially giving up their own security (i.e. (i.e. determining the airworthiness issue before any money becomes due under the warranty).
The court was also asked to consider what the word “due” meant in this context. This question was previously asked at Maersk Neuchâtel, which involved a form of bridging security. However, the court found that the circumstances of this case were quite different from these. In the context of BSLE Sunrise, “due” meant legally due or payable and there was no good reason to distinguish between GA surety and collateral. If a Rule D defense were available under one of them, it would be available under both. Moreover, since the payment under the guarantee was made on behalf of the owners of the cargo, it would make no sense if the insurers providing the guarantee did not allow themselves to use these same defenses. On top of that, the inclusion of the word “properly” in the GA warranty seemed to put the issue beyond doubt.
The preliminary question has therefore been resolved in favor of freight insurers, which confirms the point of view set out in the 15th edition of Lowndes and Rudolf.
Source: WFW, by David Handley, Senior Partner and London Master Seaman