Case No: QBCMF 1999/1228/A3.

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT
Mr Justice David Steel
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 31 July 2000

Before:

LORD JUSTICE PILL

LORD JUSTICE CLARKE
and
MR JUSTICE BENNETT
---------------------

COMATRA LIMITED Claimants/

ARABIAN BULK TRADE LIMITED Appellant
- and -
VARIOUS UNDERWRITERS Defendants/
Respondents

---------------------
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
---------------------

Mr Peter Gross QC and Mr Adam Fenton,

(instructed by Clifford Chance appeared for the Appellants)

Mr Alistair Schaff QC,

(instructed by Clyde and Co, appeared for the Respondents)

---------------------

Judgment
As Approved by the Court
Crown Copyright

LORD JUSTICE CLARKE:

 Introduction

1. In this action the owners of the ship ABT RASHA claim the sum of

US$787,426.28 plus interest from the defendants who are hull underwriters.

As I shall try to explain in a moment, that sum is known as the excess

Bigham amount. This is an appeal from an order made by David Steel J on

the 28th October 1999 on the determination of a preliminary issue in the action.

The appeal is brought with the permission of the judge, no doubt because he

regarded the issue (as he put it) as an interesting and nicely balanced one.

2. The issue was formulated as follows

whether the amount of US$787,426.28 (the excess Bigham

amount) is recoverable by the claimants from the defendants
pursuant to clause 11.1 of the Institute Time Clauses and/or
section 66(4) of the Marine Insurance Act 1906 as part of their
proportion of general average.

The judge answered that question No. His judgment is reported at [2000] 1 Lloyds Rep 8.

The issue raises a somewhat arcane point which involves both a consideration of what are

fairly standard general average non-separation agreements (which include what is known as

the Bigham clause) and a consideration of clause 11.1 of the Institute Time Clauses Hulls

and section 66, especially section 66(4), of the Marine Insurance Act 1906.

The Facts

3. The issue was determined on assumed facts (as directed by the order of Moore-Bick dated the

16th July 1999) together with some uncontroversial expert evidence.

4. The facts (which I take largely from the judgment) may be summarised as

follows. The ABT RASHA is a ULCC. She arrived off Durban on the 4 th

August 1992 in the course of a voyage from Saudi Arabia to Rotterdam

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 carrying 312,424 tonnes of crude oil. She came to anchor in order to replace

two hydraulic steering pumps which had been damaged during the course of

the voyage. She was able to resume her voyage at 2000 hours on the 7 th

August, but shortly afterwards she encountered severe weather. During the

course of the 8th August the replacement hydraulic pumps became so heavily

damaged that by about 1940 hours the vessel was no longer navigable.

Attempts to carry out repairs were only partially successful and the vessel

diverted towards Port Elizabeth as a port of refuge, such deviation being for

the common safety of ship and cargo. As a further precaution the services of a

large professional salvage tug were engaged on salvage terms.

5. Inspection at Algoa Bay made it evident that extensive repairs were required to

both the steering gear and the rudder for which purpose the vessel needed to be

moved to a suitable dry dock facility. To this end the cargo was transshipped

between the 19th and 22nd August into another ULCC called the

HELLESPONT CAPITOL, which was chartered by the shipowners. She

proceeded to Rotterdam where she arrived in September and the cargo was

successfully discharged.

6. Before commencing the transhipment operation and in order to

establish rights to claim a contribution in general average from cargo after

discharge of the cargo, the owners of the ABT RASHA entered into a number

of non-separation agreements with cargo interests. They were all in the same

terms as follows:

It is agreed that in the event of the vessels cargo or part

thereof being forwarded to original destination by other vessel,
vessels or conveyances, rights and liabilities in general average
shall not be effected by such forwarding, it being the intention
to place the parties concerned as nearly as possible in the same
position in this respect as they would have been in the absence
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 of such forwarding and with the adventure continuing by the
original vessel for so long as justifiable under the laws
applicable or under the Contract of Affreightment.
The basis of contribution to general average of the property
involved shall be the values on delivery at the original
destination unless sold or otherwise disposed of short of that
destination; but where none of her cargo is carried forward in
the vessel she shall contribute on the basis of her actual value
on the date she completes discharge of her cargo.
It is understood that the amount payable by cargo under this
agreement shall not exceed what it would have cost the cargo-
owners if cargo had been delivered to them at Algoa Bay (+ or
off Port Elizabeth South Africa) and forwarded by them to
destination.
For convenience, like counsel, I shall refer to the paragraphs of the agreements as paragraphs

1, 2 and 3 respectively. In addition, because all the agreements were in the same terms, I shall

refer to them as if there were only one.

7. At the end of August the ABT RASHA left Algoa Bay in tow bound for Dubai where there

was a suitable dry dock at which the necessary repairs could be performed. The vessel arrived

at Dubai on the 19th September. The permanent repairs were completed on the 23rd November.

8. The defendants were the underwriters of the vessel on terms evidenced by a cover note dated

the 22nd July 1992. The insurance was subject to the Institute Time Clauses Hulls (Oct 1

1983), which included the following provisions:

11 GENERAL AVERAGE AND SALVAGE

11.1 This insurance covers the Vessels proportion of
salvage, salvage charges and/or general average, reduced in
respect of any under-insurance, but in the case of general
average sacrifice of the Vessel the Assured may recover in
respect of the whole loss without first enforcing their right of
contribution from other parties.
11.2 Adjustment to be according to the law and practice
obtaining at the place where the adventure ends, as if the
contract of affreightment contained no special terms upon the
subject; but where the contract of affreightment so provides the
adjustment shall be according to the York-Antwerp Rules.
11.4 No claim under this clause shall in any case be allowed
where the loss was not incurred to avoid or in connection with
the avoidance of a peril insured against.

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 16 WAGES AND MAINTENANCE
No claim shall be allowed, other than in general average, for
wages and maintenance of the Master, Officers and Crew, or
any member thereof, except when incurred solely for the
necessary removal of the Vessel from one port to another for
the repair of damage covered by the Underwriters, or for trial
trips for such repairs, and then only for such wages and
maintenance as are incurred whilst the Vessel is under way.

It is common ground (for the purposes of the preliminary issue) that the damage to

the vessel was caused by an insured peril. It is also common ground that the owners

liability in respect of general average, including that arising from the execution of the

non-separation agreement with the cargo interests, was proximately caused by the

same insured peril.

9. The owners appointed Messrs Manley Hopkins as average adjusters.

They produced an adjustment which showed total general average

expenditure of US$3,582,593.35, which included expenses arising both

out of the breakdown at Durban (the first casualty) and out of the

damage to the replacement hydraulic pumps (the second casualty).

The adjusters assessed the respective contributions in respect of the

second casualty as US$757,630.29 for ship, US$129,133.84 for freight

and US$2,695,829.22 for cargo. The hull underwriters were not happy

with that adjustment because they said that the adjusters had failed to

treat the cost of towing the vessel to Dubai for repairs as general

average in accordance with paragraph 1 of the non-separation

agreement. Following those complaints, an amended adjustment was

produced in which the total figure was increased to US$5,077,038.32.

In order to arrive at that figure the adjusters added the total sum of

US$1,494,444.97 to the original sum of US$3,582,593.35 in the first

adjustment. They did so by transferring the sum of US$1,288,147.57

in respect of the cost of towage from particular average to general

5
 average and adding the further sum of US$206,297.40 in respect of

general average commission and interest, making a total sum added to

general average of US$1,494,444.97.

10. The effect of those alterations was to increase the potential

contribution of cargo-owners in respect of the second casualty, if

calculated pro rata to values assessed in accordance with paragraph 2

of the non-separation agreement, from US$2,695,829.22 to

US$3,601,776.22. The contributions of ship and freight in respect of

the second casualty were increased to US$1,134.054.05 and

US$172,529.92 respectively. The position of the shipowners was thus

that their potential liability to contribute in general average increased

(if I have understood the figures correctly) from US$757,630.29 to

US$1,134,054.05, but the position of hull underwriters had improved

(or potentially improved) because the effect of the adjustment (if

carried over to the policy) would be to deduct the sum of

US$1,288,147.57 from the sum for which they would otherwise have

been liable for particular average.

11. On those figures the position of hull underwriters was potentially

improved by some US$952,723.27 as between the two adjustments.

Even if the figures are not precisely accurate, it is clear that, subject to

one potentially important consideration, underwriters position would

be substantially improved by applying paragraphs 1 and 2 of the non-

separation agreement, not only as between shipowners and cargo-

owners, but also as between shipowners and themselves. The

potentially important consideration is, however, that there must be set

against that figure the extra liability which falls or would fall on

6
 underwriters as a result of the non-separation agreement, namely the

cost of wages and maintenance which would have been excluded from

particular average because of clause 16 of the Institute Time Clauses,

but which form part of general average expenses under the agreement

and the shipowners proportion of which is recoverable under clause

11.1. In the first adjustment, as I understand it, the adjusters included

wages and maintenance as general average expenses even though they

excluded the cost of towage, so that it is not easy (at least for me) to

work out the precise figures on the material available to us, but it is not

in dispute that hull underwriters are or would be much better off if

general average is adjusted in accordance with paragraphs 1 and 2 of

the non-separation agreement on the facts of this case.

12. Curiously, in the part of the second adjustment which deals with the

position as between ship and cargo, the figures are set out as above and

are presented without reference to the effect of paragraph 3 of the non-

separation agreement and thus without reference to the Bigham cap. In

the final part of the adjustment, entitled Policy, the adjusters

calculate the effect of the Bigham clause. They assess the cost to the

cargo-owners if they had taken delivery at Algoa Bay and then

forwarded the cargo themselves to the original port of destination as

US$2,814,349.94. That sum is greater than the sum of

US$2,695,829.22, which would have been the cargo interests

contribution if the cost of towage to Dubai had been excluded (as it

was in the first adjustment), but it is less than the sum of

US$3,601,776.22 which would have been the cargo interests

contribution but for the Bigham cap. That is it is more than would

7
 have been the case if there had been no non-separation agreement, but

less than it would have been if cargos contribution were assessed by

reference only to paragraphs 1 and 2, but not to paragraph 3 of the

agreement. The effect of the Bigham clause was to cap the cargo-

owners contribution at US$2,814,349.94.

13. The difference between the cargo-owners contribution as capped and

their contribution without the Bigham clause is the sum of

US$3,601,776.22 less the sum of US$2,814,349.94, namely

US$787,426.28. It is that sum which is known as the excess Bigham

amount, or the Bigham cap. The position in summary is, however, that

if cargos position under the whole agreement is compared with its

position if there had been no agreement, its liability in general average

is greater, although not so much greater as it would have been if the

non-separation agreement had contained only paragraphs 1 and 2 and

not paragraph 3. Although (for the reasons given above) I do not have

the precise figures, the net liability of underwriters if it is calculated by

reference to all the terms of the non-separation agreement, including

the Bigham clause, is less than it would have been if it is calculated

without regard to the agreement at all.

The Question

14. The question is simply whether, on those assumed facts, the

shipowners are entitled to recover the amount of US$787,426.28 from

hull underwriters under the terms of the Institute Time Clauses-Hulls in

addition to the amount of the ships contribution calculated by

reference only to paragraph 2 of the non-separation agreement.

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15. It is common ground that, as the judge held, the scope of the

cover provided in clause 11 of the Institute Time Clauses must be

considered in the light of the relevant provisions of the Marine

Insurance Act 1906. Section 66 of that Act provides:

(1) A general average loss is a loss caused by or directly

consequential on a general average act. It includes a general
average expenditure as well as a general average sacrifice.

(2) There is a general average act where any extraordinary

sacrifice or expenditure is voluntarily and reasonably made or
incurred in time of peril for the purpose of preserving the
property imperilled in the common adventure.

(3) Where there is a general average loss, the party on whom it

falls is entitled, subject to the conditions imposed by maritime
law, to a rateable contribution from the other parties interested,
and such contribution is called a general average contribution.

(4) Subject to any express provision in the policy where the

assured has incurred a general average expenditure, he may
recover from the insurer in respect of the proportion of the loss
which falls upon him; and, in the case of a general average
sacrifice, he may recover from the insurer in respect of the
whole loss without having enforced his right of contribution
from the other parties liable to contribute.

(5) Subject to any express provision in the policy where the

assured has paid, or is liable to pay a general average
contribution in respect of the subject insured, he may recover
therefor from the insurer.

(6) In the absence of express stipulation, the insurer is not liable

for any general average loss or contribution where the loss was
not incurred for the purpose of avoiding, or in connection with
the avoidance of, a peril insured against.

(7) Where ship, freight, and cargo, or any tow of those interests,
are owned by the same assured, the liability of the insurer in
respect of general average losses or contributions is to be
determined as if those subjects were owned by different
persons.

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16. The shipowners say that under the non-separation agreement,

including the Bigham clause, the proportion of the loss which falls

upon them within the meaning of section 66(4) of the 1906 Act

includes the Bigham excess amount of US$787,426.28. The

underwriters, on the other hand, say that it does not and that the

expression the proportion of loss which falls upon them in section

66(4) means rateable proportion, that is rateable in accordance with the

values which must be taken for general average purposes. Before

attempting to resolve that question, it is I think appropriate to consider

briefly the history of non-separation agreements and the Bigham clause

in the context of the development of the York-Antwerp Rules.

Non-Separation Agreements and the Bigham Clause

17. As the judge observed at page 10, when a vessel is forced to

call at a port of refuge, there are obvious attractions in entering into a

non-separation agreement from the point of view of both shipowners

and cargo-owners. I consider first the benefits of such an agreement

without a Bigham clause. The benefit to cargo-owners is that they can

promptly recover their cargo in circumstances where substantial delay

might otherwise ensue while the shipowners, anxious to earn their

freight, store the cargo, carry out repairs and then resume the voyage.

In this case it would have involved considerable delay and large

storage costs. The freight, which was payable at destination, was of

the order US$1,800,000.

18. From the shipowners point of view, the advantage of entering

into a non-separation agreement is that they are able to treat the general

average situation as continuing when otherwise it would terminate with

10
the result that they can recover contribution pro rata to value for post-

separation expenses which would otherwise fall entirely on them

during both the period leading up to repairs and the repair period itself.

There is the added attraction of converting some ordinary running

expenses, which would be excluded by clause 16 of the Institute Time

Clauses, into general average expenditure, which in turn would render

them recoverable in part from hull underwriters. As the judge

observed (and as appears above), with the benefit of hindsight these

attractions were enhanced in the present case given that the total sums

involved were in the region of US$5 million and the value of the cargo

was nearly three times that of the vessel.

19. The expert evidence showed that, in circumstances such as the

present, non-separation agreements have been invariably executed for

the past 100 years or more. So far as I am aware, although they did not

become part of the York-Antwerp Rules until 1994, they were acted

upon by adjusters and accepted by underwriters without demur for very

many years. The history and advantages to ship and cargo interests of

non-separation agreements are described in a similar way to that set

out above in Lowndes & Rudolf on The Law of General Average and

the York-Antwerp Rules, 12th edition (1997) at paragraphs G10 to G14;

see in particular paragraph G12, which describes the position where

the delay for repairs is not sufficient to frustrate the adventure, and

paragraphs G13 and G14, which focuses on the position where the

delay or prospective delay is sufficient to do so. There are similar, if

not identical, passages in the 11th edition (1990), which was the current

edition in 1992, at paragraphs G20 to G24.

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20. The problem in the present case has arisen from the fact that the

non-separation agreements included paragraph 3, namely the Bigham

clause. The Bigham clause has been introduced into non-separation

agreements only comparatively recently. We were told that its name

derives from Mr Bigham of Bigham, Englar and Jones, who were the

New York lawyers representing the successful consignees in the

Domingo De Larrinaga [1928] AMC 64. In that case it was held by

the United States Federal Court for the Southern District of New York

that consignees of damaged cargo, which had been discharged at a port

of refuge to permit inspections of the hull, were entitled, on paying full

freight, to refuse to have their goods reloaded so that the vessel could

be towed to destination and to demand their goods at the port of refuge,

even where the shipowners had arranged for towage of ship and cargo

to destination.

21. I am not sure when the Bigham clause was first devised, but the

evidence shows that the practice of including it in non-separation

agreements was first introduced at the instance of United States cargo

underwriters during the 1970s. Again, as the judge put it, the rationale

was that, since as a matter of United States law (as demonstrated in the

Domingo De Larrinaga) a cargo-owner could insist on taking

possession of his cargo at a port of refuge, he should not be in any

worse position than if he had done so. The practice was not

immediately introduced in England, but the judge said at page 10 that

it was probably introduced in the 1980s. He added that it has now

become a commonplace, although not invariable, practice to include

the Bigham clause in non-separation agreements. The expert evidence

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shows, however, that it is rare for the cap to be invoked. Indeed one of

the experts said that he had never known it happen.

22. Although of considerable interest (albeit perhaps of a an arcane

nature), it seem unlikely that there are now many cases which will give

rise to the same question. That is because similar, if not identical,

provisions to those in this case were introduced in the York-Antwerp

Rules 1994. Additions have been made to rules G and XVII.

Paragraph 1 of rule G essentially provides that general average shall be

adjusted as regards both loss and contribution upon the basis of values

at the time and place when and where the adventure ends. The second

paragraph is not relevant, but third and fourth paragraphs have been

added as follows: :

When a ship is at any port or place in circumstances which

would give rise to an allowance in general average under the
provisions of Rule X and XI, and the cargo or part thereof is
forwarded to destination by other means, rights and liabilities in
general average shall, subject to cargo interests being notified if
practicable, remain as nearly as possible the same as it would
have been in the absence of such forwarding, as if the
adventure had continued in the original ship for so long as just
viable under the contract of affreightment and the applicable
law.
The proportion attaching the cargo of the allowances made in
general average by reason of applying the third paragraph of
this rule shall not exceed the cost which would have been borne
by the owners of the cargo if the cargo had been forwarded at
their expense.

In addition the following paragraph has been added to Rule XVII:

In the circumstances envisaged in the third paragraph of Rule
G, the cargo and other property shall contribute on the basis of
its value upon delivery at original destination unless sold or
otherwise disposed of short of that destination, and the ship
shall contribute on its actual net value at the time of completion
of discharge of cargo.

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It can thus be seen that the paragraphs added to rule G are essentially

paragraphs 1 and 3 of the non-separation agreements in the instant case

and that added to rule XVII is the equivalent of paragraph 2.

23. The fact that those provisions were added in the York-Antwerp

Rules 1994 shows that the market viewed non-separation agreements

including the Bigham clause as reasonable agreements to make. That

view is reflected in the following extract from the 12 th edition of

Lowndes & Rudolf at paragraph G15:

The Clause is a sensible addition to the Non-Separation

Agreement from the point of view of cargo interests and it calls
into question whether the cargo interests have the right, if they
consider that it will be cheaper for them to take delivery of their
cargo at the port of refuge rather than contribute to any
continuing general average expenses incurred after the
discharge of their cargo, to refuse to sign a Non-Separation
Agreement in any form, but to insist upon taking delivery at the
port of refuge and to pay there the freight and any other charges
due upon the goods. Under the laws of Canada and the United
States it is clears that the cargo owner has this right
In paragraph G16 the editors give the Canadian and United authorities

for that proposition including The Domingo de Larrinaga and in

paragraph G17 they say that, while there is no English authority on the

point, there is much to recommend it, provided that cargo-owners pay

the freight. Paragraphs G25 to G27 of the 11 th edition of Lowndes &

Rudolf are in the same terms as paragraphs G15 to G17 of the 12 th

edition.

24. In all these circumstances, it appears to me that a non-

separation agreement with a Bigham clause is in principle a reasonable

agreement for shipowners and cargo-owners to make in a case of this

kind. Whether it will be reasonable on the facts of a particular case

may depend upon the facts, but, so far as this preliminary issue is

14
concerned, it has been assumed that it was a reasonable agreement

here. Also, importantly, as already stated, it has been assumed, not

only that the agreement was reasonable, but that it was caused by an

insured peril.

Discussion.
25. In the instant case it is common ground that the contract of

carriage provided for general average to be adjusted in accordance with

the York-Antwerp Rules 1974 as amended in 1990, which did not of

course include the paragraphs which I have quoted above because they

were not included until the York-Antwerp Rules 1994. Mr Schaff

submits that it is a crucial aspect of this case that the non-separation

agreements including the Bigham cap were not part of the York-

Antwerp Rules referred to in the contract of affreightment because

clause 11.2 provides that the adjustment shall be in accordance with

the York-Antwerp Rules only where the contract of affreightment so

provides. He recognises that the position would be different under the

York-Antwerp Rules 1994 because of the express terms of section

66(4) of the Marine Insurance Act 1906, which make sub-section (4)

subject to any express provision in the policy. He submits, however,

that the position is different in the instant case because the York-

Antwerp Rules referred to in the contract of affreightment (and thus in

the policy) do not include reference to non-separation agreements

containing the Bigham clause and that there is no principle upon which

underwriters can be bound by agreements made only between

shipowners and cargo-owners.

26. It might be thought that the logical application of that principle

would lead to the conclusion that underwriters liability in respect of

15
general average should be assessed without reference to agreements

between ship and cargo which are not expressly recognised by the

York-Antwerp Rules in accordance with the policy. On that basis

underwriters liability would be assessed without reference to the non-

separation agreement at all. However, underwriters argument does not

go so far. Mr Schaff accepts that the effect of the non-separation

agreement is to extend the scope of the expenses which fall within

general average and that the liabilities of ship and cargo underwriters

respectively should be calculated on that basis, but he submits that the

liability of hull underwriters should be calculated pro rata as to values

in accordance with paragraph 2 of the non-separation agreement, and

not on the basis of the Bigham clause. The judge accepted that

submission and it undoubtedly has force. It is not, however, to my

mind an attractive submission, especially on the facts of this case.

27. The reason why underwriters accept that their liability to

reimburse the shipowners should be assessed by reference to general

average expenditure calculated in accordance with paragraph 1 of the

non-separation agreement is that (as stated above) the effect of that

paragraph is to treat as general average substantial expenditure which

would otherwise have been regarded as particular average. It was for

that reason that the underwriters objected to the first adjustment. As I

said earlier, it excluded over US$1.28 million in respect of the cost of

towage to Dubai for repairs. The advantage to them of including that

figure as general average expenditure was that, instead of being liable

for the whole of it as particular average, they were liable for only a

16
proportion of it as general average, given that (as is often the case) the

value of cargo was considerably greater than the value of the ship.

28. Mr Schaff submits that that consideration is irrelevant as a

matter of principle. He submits that it will or may be a matter of

chance whether hull underwriters will be better or worse off. That is

because, while some expenditure will become general average and be

contributed to by cargo with the result that hull underwriters liability

will be reduced, other expenditure, namely wages and maintenance,

will become general average which would otherwise have been

excluded by clause 16 of the Institute Time Clauses. In this regard it is

fair to say that I am not sure what the precise result is on the figures

here.

29. I see the force of that submission, but it seems to me in

principle that if paragraph 1 of the non-separation agreement has the

effect, both as between shipowners and cargo-owners and as between

shipowners and their hull underwriters, of treating certain expenses as

general average expenses, it makes no sense to treat the other

paragraphs of the non-separation agreement differently, provided of

course that it was reasonable to enter into the whole agreement and that

entering into the agreement was caused by an insured peril. As I

understand it, it is accepted by underwriters that paragraph 2 of the

non-separation agreement had effect both as between shipowners and

cargo-owners and as between shipowners and their hull underwriters.

Thus it is accepted that general average should be adjusted on the basis

of the values assessed as set out in paragraph 2 of the non-separation

agreement. As I understand it, (leaving on one side the possibility of

17
an assessment on the basis of substituted expenses under rule F) values

would not be assessed on that basis but for the non-separation

agreement: see rule XVII and the necessity to add the new paragraph

to that rule which is quoted above.

30. I accept the submission of Mr Gross that paragraph 3 of the

non-separation agreement is just as much a part of the whole

agreement as paragraphs 1 and 2. All three paragraphs are part of one

indivisible agreement. He submits on that basis that the correct view

of the agreement is that the parties to it agreed that certain expenditure

was to be treated as general average, that their respective contributions

were to be assessed rateably in accordance with values assessed as set

out in paragraph 2 and that they were to pay contributions as so

assessed unless cargo-owners contribution as so assessed was more

than the amount which it would have cost them if the cargo had been

delivered to them at Algoa Bay and forwarded by them to Rotterdam. I

accept that submission.

31. Mr Gross further submits that in these circumstances the

shipowners proportion of the general average expenses assessed in

accordance with the agreement must be arrived at by taking the whole

of the expenses defined as general average expenses by paragraph 1 of

the agreement, assessing what proportion of those expenses was

attributable pro rata to ship and what pro rata to cargo by reference to

the values calculated by reference to the formula in paragraph 2 and

dividing them between ship and cargo on that basis unless cargos

proportion assessed on that basis would be more than the Bigham cap

(or the Bigham excess amount), in which case cargos share or

18
proportion would be the amount of the cap and the ships share or

proportion would be the remainder. Again, I accept that submission.

32. Mr Schaff accepts that that is the correct approach as between

ship and cargo. The question is whether it is also the correct approach

as between the shipowners and their underwriters. In principle I would

accept the submission of Mr Gross that it is. It seems to me that, if

underwriters liability in respect of general average expenditure (and

indeed in respect of particular average) is to be calculated by reference

to expenditure which is to be treated as general average expenditure

because of paragraph 1 of the non-separation agreement and, if the

assessment of the shipowners and cargo-owners share is to be made

(for any purpose) by the formula set out in paragraph 2, principle and

logic lead to the conclusion that, where appropriate on the facts, their

respective shares should be calculated by reference to paragraph 3.

Any other view would involve treating part of an indivisible agreement

as defining underwriters liability but not the whole.

33. Mr Schaff submits that such a conclusion is inconsistent with

section 66(4) of the Marine Insurance Act 1906, which I have set out

above. He submits that section 66(4) must be construed in its context,

which includes section 66(3) and indeed the whole basis upon which

contributions are assessed in general average, namely rateably as to

value. He submits that in these circumstances the expression he may

recover from the insurer in respect of the proportion of the loss which

falls upon him means, and can only mean, rateable proportion. Mr

Gross submits, on the other hand, that there is no reference to rateable

proportion in section 66(4), that proportion simply means share and

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that there is no reason to restrict the ordinary meaning of the word

proportion to rateable proportion.

34. I accept of course that every statutory provision must be

construed in its context and in accordance with its statutory purpose. I

also accept Mr Schaffs submission that the draftsman of section 66(4)

had in mind the ordinary principles of general average, which are set

out in section 66(1) to (3). There is no doubt that the draftsman had in

mind the principle that general average contributions are assessed

rateably as to value. However, it does not seem to me that there is any

reason to hold that he meant to limit proportion to rateable proportion,

when the sub-section does not expressly do so. As a matter of ordinary

English, I do not see why the shipowner who, by reason of an insured

peril, reasonably incurs expenses which he reasonably agrees with

cargo should (a) be treated as general average expenses and (b) be

apportioned between them in a particular way, should not say that the

proportion of the expenses (ie the loss) which falls on him is the loss as

so apportioned and that it is recoverable from underwriters under

section 66(4) as his proportion of the loss caused by an insured peril.

In this regard I do not think that it is appropriate to treat the calculation

of the proportion by reference only to paragraph 2 of the non-

separation agreement (which underwriters accept) and not to paragraph

3 (which they do not).

35. The underwriters have not been able to point to any authority

on the construction of section 66(4) which supports their construction

of the word proportion. The shipowners have, on the other hand,

been able to point to the decision of Roche J in Green Star Shipping

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Company Limited v The London Assurance [1933] 1 KB 378. Both Mr

Gross and Mr Schaff recognise that there are some aspects of that case

which are not easy to unravel. I agree, but I do not think that it is

necessary to attempt to do so. The significance of the case for present

purposes is the approach of Roche J to section 66(4). It is sufficient to

note that the vessel sustained two casualties, first a fire and then a

collision. The shipowners were (as the judge put it a page 11) faced

with a shortfall in recovery of general average expenditure because of

the low value of the cargo after the casualty. The shipowners had

entered into an ordinary hull policy before the original voyage, but

after the fire but before the collision they also entered into a special

risks policy to insure cargos proportion of general average. The

owners P&I Club also provided cover in respect of cargos proportion

of general average not otherwise recoverable. We are not concerned

with the special risk insurers.

36. The relevant issue for present purposes was whether the

shipowners were entitled to recover from hull underwriters under or by

reason of section 66(4) that part of their general average expenditure

which they had not recovered from cargo. The statement of the facts at

pages 380-1 includes this:

The salved value of the steamer was about 63,000 dollars, and
the salved value of the cargo was about 44,000 dollars, which
latter sum was paid by cargo owners to the plaintiffs, and to
which the general average liability of the cargo owners was
limited by the law and practice obtaining at Philadelphia where
the adventure terminated.

There was a substantial shortfall as between the amount of cargos contribution as so

assessed under the law and practice of Philadelphia and the amount of its

contribution as assessed in accordance with the York-Antwerp Rules. The relevant

21
question for present purposes was whether the shipowners could recover from hull

underwriters the difference between the part of their general average expenses which

they in fact recovered from cargo and the part which they would have recovered but

for the law and practice of Philadelphia.

37. Roche J expressed his conclusion in this way at page 391:

if a shipowner, being the assured under a policy in the

present form, incurs expenditure for general average and the
cargos contribution falls short of what is hoped or expected by
reason of diminution or extinction of its value before the
adventure terminates, then I think that loss falls into the
category of the proportion of the loss which falls upon the
assured, the shipowner, and is within the meaning of those
words in the Marine Insurance Act s 66, sub-s 4.
Before the judge the shipowners contended that the position there was

directly analogous to the present case, where cargos contribution falls

short, not by diminution of its value, but by a contractual cap

reasonably provided for in the aftermath of the casualty. The judge did

not accept that submission. For my part, I would not hold that the

position there was directly analogous to the position here, but it does

seem to me to be an example of a case where the court permitted

recovery under section 66(4) of general average loss on the basis of an

assessment not carried out pro rata as to values. The loss which the

shipowners were held entitled to recover was not simply that

proportion of its expenditure that the value of the ship bore to the total

value of ship and cargo. I do not think that the basis of the decision

was that the principle of rateable contribution in section 66(3) is

expressed to be subject to the conditions of imposed by the Maritime

Law, whatever that means, as is suggested in the judgment at page 11

The result achieved by Roche J was thus inconsistent with the

argument advanced by Mr Schaff on behalf of underwriters.

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38. In these circumstances, so far as it goes, the decision in the

Green Star Shipping case seems to me to support the shipowners

approach to the meaning of proportion in section 66(4) rather than that

of the underwriters, namely that it is not limited to rateable proportion.

There is no authority to the contrary. The only other case of potential

relevance to which we were referred is The Mary Thomas [1894] P

108, where an attempt to recover from underwriters the contribution to

general average otherwise payable by cargo but which was not

recoverable by reason of the shipowners fault failed. The judge

accepted the submission that the position in the instant case is

analogous to the position where shipowners are prevented from

recovering what would otherwise be cargos proportion by virtue of

actual fault. However I have reached a different conclusion. On the

facts of this case the shipowners were not able to recover cargos

proportion from cargo because of their breach of contract. The

shipowners can recover their proportion from underwriters regardless

of whether they were in breach of the contract of carriage. The

shipowners case is not that they are entitled to recover the cargo-

owners proportion of the general average expenses but that they are

entitled to their own proportion of the expenses. The question is

whether the amount claimed is part of the shipowners proportion

within the meaning of section 66(4) of the Act. I do not think that The

Mary Thomas is of assistance in resolving that question.

39. I agree with the judge that that question is an interesting and

nicely balanced one, but for the reasons which I have tried to give I

23
have reached a different conclusion. My reasons may be summarised

briefly in this way.

a. On the assumed facts all the expenses which have been treated as

general average expenditure, and therefore general average loss,

were both reasonably incurred and proximately caused by an

insured peril.

b. The non-separation agreement, including the Bigham clause,

which is an integral and indivisible part of it, was reasonably

entered into. It was thus reasonable to treat as general average

expenses those expenses which the agreement on its true

construction treats as general average expenditure. In these

circumstances the ships proportion of general average within the

meaning of clause 11.1 of the Institute Clauses includes its

proportion of those expenses, even though, but for the agreement,

the expenses would not have been general average expenses. The

underwriters concession to that effect is correctly made.

c. The ships proportion of those expenses recoverable in general

average is the proportion provided by the agreement. Thus, the

underwriters were correct to concede that, if there were no

paragraph 3 (ie no Bigham cap), the shipowners proportion

would be calculated by reference to the values assessed in

accordance with paragraph 2. That is so, even if the values

assessed in accordance with then York-Antwerp Rules would

provide a different result.

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 d. Since paragraph 3 is part of the non-separation agreement, just

like paragraphs 1 and 2, the proportion of ship and cargo must in

principle be calculated by reference, not only to paragraph 2 but

also to paragraph 3. Thus, where (as here) paragraph 3 applies

on the facts, cargos proportion is the amount of the cap and

(ignoring freight) ships proportion is the rest.

e. In such a case the proportion of the loss which falls on the

shipowner within the meaning of section 66(4) of the Marine

Insurance Act 1906 is the proportion so calculated because there

is no warrant for giving the sub-section other than its natural

meaning and, where a non-separation agreement is entered into in

circumstances such as this, the vessels proportion of general

average within the meaning of clause 11.1 of the Institute

Clauses is the proportion calculated in accordance with the

agreement, either paragraph 2 or paragraph 3, as the case may be.

40. I would add just two further points by way of postscript. The first is

that I do not think that this approach will open the floodgates to all manner of

agreements between shipowners and cargo-owners. It is crucial to the analysis

that the agreement was made after the casualty, that it was reasonably made

and that both the relevant expenditure and the agreement were caused by an

insured peril. The York-Antwerp Rules 1994 and the extracts from Lowndes

& Rudolf to which I have referred show that non-separation agreements

including a Bigham clause are accepted as reasonable in the market, whereas it

will not be possible to say the same of most, if not all, of the other types of

agreement suggested in argument.

25
41. The second point is that I would have expected expenses of the kind

incurred here to be recoverable from underwriters and not left to be met by the

insured shipowners. Thus, as I have already said, the cost of towage would

have been recoverable as particular average but for the agreement. It would be

odd (as it seems to me) if the effect of entering into a reasonable agreement of

this kind was that such expenditure would not be fully recoverable. The

position might be different if the part of the general average expenditure not

recoverable from cargo because of the Bigham cap was recoverable as

particular average, but it is not because of the principle embodies in section

64(1) of the Marine Insurance Act 1906. Section 64(1) provides that a

particular average loss is a loss which is not a general average loss, so that

once it is accepted that expenditure which would be recoverable as particular

average is general average expenditure, it is (as I understand it) common

ground that it cannot be recovered as particular average. Thus if the

underwriters argument were accepted, it would mean that the effect of

entering into the agreement would be to make the cost of towage general

average but, in a case where the Bigham cap has effect, not fully recoverable

from underwriters or cargo. It seems to me that that would be an odd result,

even though I recognise that it would be mitigated by the fact that wages and

maintenance become general average under the non-separation agreement

when they would otherwise be irrecoverable because of clause 16 of the

Institute Clauses.

Conclusion

42. For the reasons which I have tried to give, I would hold that on the

assumed facts the shipowners are entitled to recover the whole of their share

or proportion of general average under the non-separation agreements,

26
 including the Bigham excess amount of US$787,426.28. I would therefore

allow the appeal and answer the question posed by the preliminary issue Yes.

Mr Justice Bennett

I agree

Lord Justice Pill:

43. Section 66(4) of the Marine Insurance Act 1906 lays down what the

owner of a ship may, subject to any express provision in the policy, recover

from his insurer where the owner has incurred a general average expenditure.

He may recover in respect of the proportion of the loss which falls upon him.

44. This is a claim by shipowners against hull underwriters. For the

underwriters, Mr Schaff QC submits that liability can be passed on to the

underwriters only for the actual adjustment of the respective portions of

general average expenditure, in accordance with rateable principles augmented

by the then prevailing York-Antwerp rules. That is the effect of the statutory

provision and the actual adjustment excludes the underwriters liability for the

sum claimed.

45. By agreeing a Bigham clause, the owners and the cargo interests are

purporting to increase the liability of the underwriters to one of the parties to

their contract, to which the underwriters are not party. It is submitted that the

owners and the cargo interests cannot, by a cap of their own choosing,

reallocate general average exposure to achieve that result. The underwriters

are required to meet what is adjusted as general average and not the sum which

27
the owners and cargo interests limit by capping what would otherwise be

general average.

46. This submission has obvious attractions but I agree with Clarke LJ, for

the reasons he gives, that it should not prevail. The non-separation agreement,

which included the Bigham clause as paragraph 3, was a reasonable one in the

circumstances. It was by virtue of the provisions of paragraphs 1 and 2 of the

agreement that general average was adjusted in a way which decreased the

owners (and underwriters) liability. It had the effect, for example, of

transferring the substantial towing charges from the port of refuge to the port

of repair, from particular to general average.

47. I agree that the non-separation agreement must be read and applied as a whole and

paragraph 3 takes effect with paragraphs 1 and 2, so that the Bigham cap applies. If it is a

reasonable agreement in the circumstances, the shipowners and cargo interests are not

excluded from making an agreement after the casualty which has the effect of defining the

extent of the underwriters liability under section 66(4). The underwriters protection is in the

right to challenge the reasonableness of the agreement made by the assured. The assured has to

show that the agreement is proximately caused by and a reasonable reaction to the insured

peril. An assessment of reasonableness must have regard to the insurers statutory obligation

under section 66(4). That obligation does not permit the assured to use the device of an

agreement with another interest so as to increase the insurers liability and benefit that other.

48. In this case, the owners are claiming to the extent of general average loss which fell

upon them in accordance with their agreement (including the Bigham clause). It is not

disputed that they suffered the loss and it is not disputed that the loss was caused by an insured

peril. The agreement was plainly a reasonable attempt to limit the extent of the owners (and

their underwriters) liability in the light of the casualty.

28
 49. I agree that the appeal should be allowed.

Order:

1. The appeal from judgment and order of Mr. Justice David Steel dated 28 th October 1999 be

allowed and paragraphs 1, 3 and 4 therefore, be set aside.

2. Preliminary issue (1) be answered yes; preliminary issue (2) be answered no.

3. The Appellants costs of the appeal to be paid by Respondents. Such costs are assessed at 33,

500.

4. The Respondents to repay the Appellants costs of and occasioned by the preliminary issues

and the trial thereof below, such costs to be assess if not agreed.

5. The Respondents to repay to the Appellants within 28 days the 58,000 paid by the Appellants

to the Respondents in respect of their costs below.

(Order does not form part of approved judgment.)

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