High Court Rules on Interpretation of General Average Adjustment Clause in Bills of Lading Regarding York-Antwerp Rules versions

Citation: [2023] EWHC 2784 (Comm)
Judgment on

Introduction

The High Court of Justice King’s Bench Division case of Star Axe I LLC v Royal and Sun Alliance Luxembourg SA - Belgian Branch & Ors ([2023] EWHC 2784 (Comm)) addresses the interpretational dispute of the general average adjustment clause in bills of lading. This case presents the question of which version of the York-Antwerp Rules (YAR) applies for general average settlement pursuant to the standard Congenbill 1994 form: the YAR 1994 or the YAR 2016.

Key Facts

The Claimant, Star Axe I LLC, issued bills of lading for cargoes shipped on the M/V ‘Star Antares’. Following damage to the vessel, a general average was declared. The Defendants, cargo insurers, issued Average Guarantees. Disagreement arose over whether YAR 1994 or YAR 2016 govern their rights and obligations in general average adjustments. The Claimant argues for YAR 1994 based on the text ‘or any subsequent modification thereof’ in the Congenbill form while the Defendants press for YAR 2016 as the latest version.

The judgment pivots on contract interpretation principles, especially the meaning of ‘modification’ in the context of a standard form that predates the latest versions of the YAR. The court relied on the principle that contractual terms are to be given their natural and ordinary meaning in the context of the contract as a whole and against the factual matrix existing at the time of contracting. The specific interpretive issue raised concerns whether a new version of the YAR constitutes a ‘modification’ of the previous version as per the contract’s wording.

The principles outlined by Lord Hoffmann in Investors Compensation Scheme v West Bromwich BS ([1998] WLR 896) and Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd (The ‘Ocean Neptune’) ([2018] EWHC 163) were applied, noting that the factual matrix accessible to the parties at contract time is vital. This matrix only includes material that a reasonable person would have expected both parties to know at the time of the contract. Importantly, the court distinguished between background knowledge that influences understanding of contractual language and mere opinion on the meaning of words.

Reference was made to other cases such as McCarren & Co. Ltd v Humber International Transport Ltd (The ‘Vechscroon’) ([1982] 1 Lloyd’s Rep 301) and Noranda Inc v Barton (Time Charter) Ltd (The ‘Marinor’) ([1996] 1 Lloyd’s Rep 301), to understand the use of terms like ‘amendment’ and ‘modification’ in similar contexts.

Outcomes

The court ruled that the phrase ‘or any subsequent modification thereof’ in the Congenbill 1994 includes the YAR 2016, thereby rejecting the Claimant’s contentions. The court observed that the word ‘modification’ has a broad meaning and can encompass new versions of the YAR. The judge underscored that if a narrower meaning were intended, more precise language should have been used. It was held that a reasonable person, aware of the trade context, would not have discerned the Claimant’s distinction between the ‘amendment’ of the rules and a ‘new set’ of rules. Since YAR 2016 represented a consensually accepted set of rules and introduced no significant departures from the essence of YAR 1994, it was found to fall under the scope of ‘subsequent modification’.

Conclusion

The High Court’s decision in Star Axe I LLC v Royal and Sun Alliance Luxembourg SA reaffirms the flexibility and future-proof nature of contract clauses referencing ‘modification’, highlighting the importance of drafting precision in commercial agreements. The judgment provides clarity on interpreting standard form contracts within the shipping industry, ensuring that general average adjustments align with contemporaneous practices and rules as embodied in the latest YAR versions. This decision guides legal professionals to pay due regard to the natural meaning of the wording of a contract alongside the factual matrix prevailing at the time of contracting, ensuring up-to-date and harmonious application of commercial practices.