Ulgener LC/LO was founded in 2000 with the aim to serve the maritime industry and still
continuing on the same track, not only with the same excitement but also with daily enhanced knowledge and experience. Our main fields of expertise:
P&I matters, such as cargo claims / disputes arising from bills of lading, crew claims, pollution; as well as accidents, such as collisions, salvage, wreck removal and general average matters, etc.
FD&D matters, such as disputes arising from voyage and time charter-parties, including but not limited to forced freight & demurrage collection, liening on cargo, etc.
H&M matters, such as salvage, general average, etc., Assisting Turkish Chamber of Shipping and Turkish Ship Owners Association also representing Turkish shipping at the Bimco Documentary Committee.
In this issue:
1. Ga Bonds And Guarantees Under Turkish Law
2. Prof. Ulgener's new book "The liability of the Marine Insurer and Causa Proxima" is out!
Ga Bonds And Guarantees Under Turkish Law
Dr. Metin Uğur Aytekin Senior Associate Lawyer
1.Applicability of York Antwerp Rules under Turkish Law
Under Turkish law the main rules regarding the General Average (GA) are given within the Turkish Commercial Act of 2012 (“the TCA”). According to the Article 1273 of the TCA, unless the parties agreed differently, general average contributions will be adjusted according to the most recent version of the York Antwerp Rules (YAR) published by CMI which currently is the 2016 version. Therefore, as long as there is no contract or agreement that refers to a different set of rules, 2016 version of the YAR will be governing the GA.
On the other hand, as Turkish law makes it possible for the GA to be governed by private contracts, contractual agreements regarding GA on bills of lading or charter parties will be the main source to check to understand which rules to be applied to GA.
It is not uncommon when a ship arrives to a Turkish port and a GA declaration is made. Therefore, in order to proceed with the necessary steps for the GA adjustment, average bonds and average guarantees are requested in exchange of delivery of the cargo. In practice, in some of these documents reference is made to Turkish law to be applied to the disputes stemming from average bonds and guarantees and we would like to focus these documents legal status as per Turkish law.
Within this context we will first mention the main statutory legal framework in terms of the securities of the GA contributions. Following this, there will be an analysis on the average bonds and guarantees as per Turkish law.
2.Debtors of General Average Contributions
Personal debtors of the GA contributions are the subject matter ship’s shipowners at the time when GA took place; payee of the freight; and the owner of the other properties other than the cargo at the time of unloading of the cargo.
The consignee of the cargo which will be part of the GA adjustment could also be personally liable for as a debtor if the consignee knows there is GA participation related with their cargo when they receive the cargo.
3.Cargo Lien over the Cargo on Board as a Security for the GA Contribution Payees
The payees of the GA contributions have right to exercise lien on the cargo on board the ship. However, in contrast to common law lien in English law, cargo lien in Turkish law gives also right to get the cargo sold to discharge the debt. So, the payees could apply to the Bailiff’s Office within the jurisdiction area of the port where the ship arrives and ask the Bailiff to start the procedure to record the cargo on board, to value it by an official surveyor and following this the payee could start an execution procedure which could end up getting the cargo sold by an auction unless the payees are paid.
Cargo lien procedure requires some rules to be followed. Therefore, a shipowner who faces non-payment for their claims must know that;
i. Once there is another security for the claim, cargo cannot be liened, otherwise the cargo interest could sue for compensation and ask arrest on the ship.
ii. Shipowner may exercise lien on the whole cargo for the GA contributions even if the cargo’s value is higher than the accumulated sum of the GA contributions (this is an exception in terms of the general lien right which generally does not permit the shipowner to lien an amount of cargo that exceeds the quantum the claim).
iii. When only a part of the claim is paid or a partial security has been provided by the cargo interests, the shipowners cannot be forced to accept the partial payment/security to release the cargo which brings us to the last point.
iv. The shipowner can apply lien on the cargo even if there is disagreement on the amount of the GA contribution of the cargo interests.
Captain has an important role and duties in terms of securing the GA contributions. Because he acts not only as the agent of the shipowner but also as an agent of the other payees of the GA contributions. What this means in practical is that the captain must retain the cargo and exercise lien until the GA contributions are paid for all payees. Failing such duty will make the captain personally responsible for unpaid GA contributions.
Even if the captain received an instruction from the shipowner not to fulfil such duty, the captain cannot free himself of the personal liability to the payees of GA contributions. For that matter, the shipowner may be found personally liable as well along with the captain based on the relevant provisions under the TCA (Art. 1089).
However, captain could release the cargo if he secures the GA contributions with average bonds and guarantees.
4.Effect of the Average Bonds and Guarantees on the GA Contributions
Once GA is declared there will be cargo interests asking their cargo to be released, be complaining about the situation, trying to find ways to receive the cargo as early as possible. This most of the time triggers a legal proceeding to arrest the ship at the local court due to the captain’s rejection to discharge and deliver the cargo to secure the GA contributions which may complicate the situation.
In the middle of such legal complication, the important question is how to process a guarantee from the cargo interests or their cargo insurers. When the cargo interests or the cargo insurers provide a guarantee to secure their contribution to GA, the question will be asked whether such guarantee is sufficient to release the cargo from retaining and exercising lien by the captain.
As mentioned earlier, TCA mainly refers to cargo lien procedure to secure the GA contributions. In terms of the relevant provisions of the TCA, against a guarantee, the captain may release the cargo. Releasing the cargo against a guarantee will not mean the dispute come to an end or cargo interests are freed from GA contribution. It will only mean that the cargo could be released and GA contributions will be adjusted without a further delay in delivery of the cargo.
From a strategic point of view, before accepting such a guarantee to release the cargo, asking the cargo interests to take necessary steps at the local court to lift the arrest on the ship is crucial.
The type of such guarantee is not defined under TCA or any other statutory law. However, from the general principals it is understood that it could be a bank letter of guarantee or a personal letter of guarantee. Most of the time, average bond and average guarantees would suffice to affect such transaction and release the cargo.
Therefore, once the average bonds and guarantees are obtained from the cargo interests, captain must release the cargo and deliver it to the cargo interests. Otherwise, the cargo interests could claim compensation due to the rejection of delivery.
When the ship arrives at a port of refuge, instead of the port of discharge, under GA conditions, the ship may need serious repairs. However, at times when the cargo must be discharged from the ship for repairs and stored and loaded again, there will be too much costs and delay before the ship is ready after the intended repairs.
Despite this, as a security for the GA contributions the shipowners may insist to keep the possession of the cargo, but this will cause excessive tension with the cargo interests and the shipowner may face claims regarding the cargo.
As a solution to this, cargo could be transported to the discharge port by another ship instead of being kept on board or stored at the refuge port and reloaded to the ship. Non-separation agreement makes the shipowner secured in terms of the GA contributions of the cargo interests because non-separation agreements have the cargo interests undertaken responsibility for the GA contributions as if the cargo had been carried to discharge port in the agreed ship on charter party.
Non-separation agreement is a commercial solution which is regulated under TCA as a general rule, saying that all merchants must act prudently in their all actions. For that reason, once the shipowners ask average guarantee or average bond even if the cargo cannot be carried on the original ship to the discharge port, the cargo interests are expected to fulfil such request. Otherwise, the cargo interest would be breaching this main principle of the TCA and they could be found liable to the shipowner for their potential damages.
Prof. Ulgener's new book "The liability of the Marine Insurer and Causa Proxima" is out!
In the first part of the book, the rule of Causa Proxima and the theories in this field in general and in marine insurance are analysed. In the second part, which is mainly focused on practice; global topics on maritime trade and insurance, English Law and legislation are examined in detail.
The book sheds light on all types of marine insurances such as hull insurance (h&m), freight and loss of profit insurance and cargo insurance as well as liability insurance, more commonly known as club (P&I) insurance. Also the importance of companies which are the members of “The International Group” is underlined.
The following are some of the topics covered in the book;
- the meaning of force majeure in terms of marine insurance,
- third party's right to apply to the club,
- the payment of insurance indemnity where there is more than one cause giving rise to the damage,
- problems caused by the difference between the value of the ship stated in the policy and the current value in the market,
- the effects of inaccuracy of information provided to the insurer prior to the contract
Legal issues arising from such practices are examined and explained in parallel with English Court Decisions.
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