The law of General Average is a principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. It is a unique maritime concept. One of the most
ancient aspects of shipping is the general average. When an intentional sacrifice of property is made onboard a ship to avoid a common peril, the general average law requires all of the parties to the maritime adventure that benefited by the intentional sacrifice to contribute money on a pro-rata basis.
Who are the parties to the maritime adventure? They are of course, the
vessel's owner, the charterer, as well as other parties such as the cargo
interests.
General Average is old – it was referred to in the Digest of Justinian, in the
6th century A.D. Justinian attributed the following principle to the Rhodian Sea
Code:
The Rhodian Law decrees that if, to lighten a ship,
merchandise has been thrown overboard, that which has been
given for all should be replaced by the contribution of all.
The principle of general average contributions was repeated in other old
sea codes, such as the Rules of Oleron, and has found its way into the maritime
law of nations worldwide.
General Average is not limited to the carriage of goods under a charter
party. It applies equally to the transport of goods under other forms of contract,
such as a bill of lading.
Cargo ship ran aground
Imagine that a fully laden vessel is sinking. She is trading under a time
charter party, and bills of lading have been issued to various cargo interests. The
master of the vessel must act quickly. To save the vessel and her cargo,
the master orders that the vessel is lightened by tossing part of the cargo
overboard (jettison). The intentional sacrifice promotes the saving of the vessel.
Days later, the ship and her remaining cargo arrive safely at the destination. Who
suffers the loss arising out of the jettison? Is it the owner of the jettisoned cargo?
The shipowner? The charterer?
It seems natural that the most equitable solution will be to allocate the loss
among the many parties that benefited by the intentional sacrifice. It is the rule of the general
average. It shifts part of the loss suffered by the owner of the jettisoned cargo
onto the various other parties that benefited by the intentional sacrifice, in this
case, the vessel's owner, the charterer, as well as the other cargo interests
onboard. All of the parties to the maritime adventure that benefited by the
sacrifice must share in the loss. Everyone must contribute to the loss on a pro-rata basis.
General average contributions are, roughly speaking, determined by
comparing the value of an individual's interest on board a vessel (such as the
value of your cargo) with the overall valuation of the maritime adventure (ship
and all of her cargo, bunkers, freight, etc.).
The general average is not limited to cases involving jettison of cargo. Nor is
the sacrificed interest always the vessel's cargo. Most often, it is the
vessel and her owners that seek contributions. In short, many
intentional sacrifices and expenditures of an extraordinary nature may
give rise to general average contributions.
Examples of general average sacrifices or expenditures include:
- A vessel that is in danger of sinking is intentionally grounded. The hull damage
arising out of the grounding is the general average. It will require contributions
from the other parties to the marine adventure. Everyone must pay their fair
share of the hull damage.
- A vessel is removed from the ground by a tug. The costs of the tug will be a
general average as ship and cargo were both in peril.
- The shipowner incurs expenses in calling a port of refuge to avoid
extremely heavy weather. All parties must contribute to the intentional
expenditures incurred.
The York Antwerp Rules
The fundamental application of the general average is now remarkably
consistent throughout the world's maritime community. By the middle of the
nineteenth century, the general average rules were incorporated into the
statutory laws of most European nations, and they were fully recognized in the
common law of the United States. However, the practice of general average
throughout the world, and most notably in the European and Anglo-American
systems still differed to some extent. For this reason, attempts were made
during the latter half of the nineteenth century to establish uniformity.
To provide the desired uniformity, the international shipping
community created the York Antwerp Rules. These Rules are routinely merged
into the contract of carriage by a charter party or bill of lading clause. An example
follows:
General Average shall be adjusted, stated and settled according to the York
Antwerp Rules 1994, and, as to matters not provided for by those rules,
according to the laws and usages at the port of New York...."
The York Antwerp Rules are used to identify those sacrifices, acts, and
expenditures that should be considered a general average. They also provide
guidelines for valuing property to determine the various contributions
required by the parties.
Let us look at a couple of the Rules. Rule A of the York Antwerp Rules
reiterates the basic requirements for a general average:
"There is an average general act when, and only when, any extraordinary sacrifice
or expenditure is intentionally and reasonably made or incurred for the common
safety to preserve from peril the property involved in a common
maritime adventure. General average sacrifices and expenditures shall be borne
by the different contributing interests on the basis starting now provided
Rule III is more specific and states:
'Damage done to ship and cargo, or either of them, by water or otherwise,
including Damage by beaching or scuttling a burning ship, in extinguishing fire on
board the ship, shall be made good as general average except that no
compensation shall be made for damages by smoke howsoever caused by heat
of the fire.
Therefore, under Rule III, Damage done to the vessel arising
out of efforts to fight a shipboard fire (such as seawater damage to the vessel's
machinery) is general average and is to be shared by all parties to the marine
adventure. However, the shipboard damage caused directly by the fire (and not
due to the voluntary act of firefighting) is a particular average, which is strictly for
the ship owner's account.
The York Antwerp Rules do not have the force of law unless they are
expressly incorporated into the carriage contract, which they almost invariably
are. Thus, the Rules represent a consensus of the international shipping industry
as to how a general average should be adjusted.
The general average is a very specialized area of the shipping business. The
general average adjuster, usually appointed by the shipowner, is the specialist
that is called on to adjust.
It is the job of the general average adjuster to:
- Identify the general average scenario and advise the parties (shipowner,
charterer, cargo interests, underwriters, etc.) on all the steps that need to be
taken to finalize accounts. It, by way of example, includes the posting of
security by cargo interests for any general average contributions that cargo
interests may have to pay. The shipowner has a lien on cargo for any general
average payable and security for that contribution (letter of undertaking or cash
escrow) will be required for the shipowner to release the cargo. The
the general average adjuster will help facilitate this process.
- Prepare the general average adjustment according to the terms of the relevant
contract of carriage, as evidenced in the bill of lading or charter party. To do so,
the adjuster must understand the York Antwerp Rules, the shipping contract
under which the general average arose, cargo documentation and values, vessel
valuations, in terms of trade, etc.
- Collect contributions due under the general average adjustment.
- Provide advice to ship owners, charterers, etc. on language that might be
found in charter parties, marine insurance policies and other shipping documents
regarding the general average.
- All of the above, among other duties, to be performed by the average adjuster
while maintaining the highest standards of ethics.
The general average adjuster is a highly specialized expert that ship
owners, charterers, cargo interests, and their insurers rely upon to create a timely
and fair adjustment in the event of a general average.
Resources
- Further guideline available on the web site for the Association of Average Adjusters of the United States and Canada
. Its purpose is to maintain the honor and dignity of the profession of Average Adjusting, and to promote correct principles in the adjustment of marine hull claims and uniformity of practice among Average Adjusters.
- Charles Taylor and Co. provides general average and other adjusting services
with offices in New York and worldwide.
- Charles Taylor and Co. Guide to General Average
has been available for free for years on the internet.
Related articles
- Anchor chain damages that can be treated as General Average
When the anchor and chain were damaged by Dropping in an emergency to avoid an Urgent Danger such as Collision with another ship at sea.
Or when the weather suddenly changed to extraordinary Rough Weather while the vessel was in port and the anchor chains were cut intentionally as an urgent measure to avoid danger because there was not sufficient time to heave the anchor.
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P&I Clubs guideline
The P&I Clubs are correctly called Protection and Indemnity Associations and number around 20 worldwide with the majority being United Kingdom based. The ship owner in taking out insurance with a particular association becomes a member of that Club. The Clubs are mutual in nature, which means that all costs involved in providing cover or paying out a claim to any one member is shared by all members. This is achieved by setting a rating or premium for the owner, known as an “advance call”, and is based on the owner’s history and exposure to risk.
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Marine cargo insurance underwriters
Ships operate in a difficult environment and cargo may be lost or damaged
during domestic and/or international transit. However, ocean carriers are well protected under the law
against responsibility for loss or damage to cargo that might arise during the
transportation of goods.
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Hull & Machinery underwriters
A hull and machinery underwriter provides insurance coverage for boats, ships, and other naval assets. It gives protection to shipowners against hull, machinery and onboard equipment damages in the event of any perils encountered while on the water, including collision with another vessel, natural obstacles and other structures as well as storms and other natural disasters.
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Procedure for insurance claim
A ship is insured against various risks by the Owner taking out different insurance policies. But for many reasons insurance claims often being denied by marine insurance providers. So that a shipowner can prosecute a claim accurately and successfully, the Master needs to send full details and documentation relating to any accidents or incidents resulting in damage to the ship, property, cargo, or personal injury. Nautical Institute publication, “The Mariner’s Role in Collecting Evidence” is a good source of guidance to shipmasters.
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The role of a insurance broker
Marine insurance brokers play a significant role in helping companies and individuals procure marine cargo insurance, hull and machinery insurance, P and I cover, and other forms of insurance as the case may be. They are able to canvas the worldwide marine insurance market. The goal is to assist in getting the best terms of insurance cover at the most competitive premium rates.
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Marine salvage procedures
Marine salvage contracts fall into two main categories. First, those which enable salvage services to be rendered on the basis that the compensation to be paid to the salvors will be determined after the completion of the services, either by settlement or if the parties cannot agree, then by a court or by an arbitrator
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Role of a freight forwarder
A freight forwarder, forwarder, or forwarding agent, is a person or a business entity that organizes shipments for individuals or corporations to get the goods from the point of origin to the desired market or from a producer directly to the customer or a distribution center. A freight forwarder dispatches shipments via a common carrier and books or otherwise arranges space for those shipments on behalf of shippers.
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How a Non Vessel Operating Common Carrier ( NVOCC) differs from a freight forwarder?
A NVOCC (Non vessel Operating Common Carrier) is "a common carrier that holds itself out to the public to provide ocean transportation, issues its own bills of lading or equivalent documents, but does not operate the vessels that transport cargo”. A NVOCC is a carrier. It enters into a contract of carriage with the cargo shipper. It undertakes responsibility for the carriage like a ship owner that owns a vessel. However, the NVOCC is a carrier that does not own or operate the vessel used to perform the carriage.
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P & I Insurance cover and Members of IG club
At the heart of P and I is the concept of “mutuality”. Shipowners form a nonprofit association to protect and indemnify one another against third party liabilities. Unlike commercial insurance, the insured ship owners, meaning the “members” of the Club, are both the insurer and the insured. Each P and I Club is controlled by its members.
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Role of shipbrokers
London and New York have always been viewed as major shipbroking centers. In recent years, many U.S. ship brokerage firms have relocated to offices in Stamford and Greenwich, Connecticut, and nearby communities. Of course, there is a large shipbroking presence in Singapore, Hamburg, as well as other cities.
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Sale & purchase brokers
Sale and Purchase Brokers (S and P Brokers) are highly specialized shipbrokers. Their clients are typically ship owners. S and P Brokers serve as intermediaries in the business of selling and buying ships. They assist in the sale and purchase of second-hand tonnage and newbuilding. Their compensation is normally in the form of a commission.
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Ship agency services
A ship’s agent works on the front lines and there might involve an unlimited number of issues in port. The agent must work towards solving these problems. An agent needs to learn a lot fast about ships and cargo.
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Role of a ship management company
Ship management companies are located in the world’s maritime centers. Many companies manage large fleets on behalf of numerous ship owners. Many of the larger management companies also own vessels. Essentially, the decision to outsource a ship management function is a financially driven one. In most cases, outsourcing of ship management services means that the shipowner can conduct business at a reduced cost, primarily due to the reduction of in-house staff and resources.
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Ship finance considerartions
Ship finance is somewhat different from other asset-based lendings such as real estate finance. After all, shipping business earnings can be quite volatile and therefore less predictable. Additionally, the collateralized asset (the ship) is extremely mobile. The traditional method for ship finance was private resources.
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Ship recycling industry
Scrapping ships (also known as ship breaking or ship demolition) is a dangerous and controversial part of the shipping business. Ships have a life span of 20 – 30 years – sometimes a little more -sometimes a little less. Ships wear out and/or there may be a lack of spare parts. After a while they no longer make sense economically. The shipowner needs to make a decision – continue to repair or scrap.
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Ship registry procedure
To trade internationally a ship must have a nationality. Without being registered under certain flag state a ship cannot enter the geographic limit of another state. Once registered a ship becomes subject to the laws of a registering nation. Registration makes the ship entitled to military protection and therefore it is an extension of that nation anywhere in the world.
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Maritime security concerns
Maritime security issues affect the way ship owners, charterers, cargo interests, ports and terminals, and their insurers do business. There is the added expense to deal with. There has also been an increase in the number of international conventions and domestic legislation geared towards furthering maritime security.
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How maritime law works in the United States?
Maritime law used to apply only to American waters within the ebb and flow of the tide. However, it now covers any waters navigable within the United States for interstate or foreign commerce. Admiralty jurisdiction also includes some maritime matters not involving interstate commerce, for example, recreational boating.
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The Master’s Responsibility during Salvage Operation
Request for Salvage -
The Master shall normally request salvage after consultation with the Company. However he has complete authority to seek salvage assistance without reference to the Company if he considers this necessary.
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Requirement of towing arrangement in oil tankers, readyness, & training onboard
All Oil, Chemical and Gas Tankers above 20000 DWT, constructed on or after 1st July, 2002, are equipped with an “Emergency Towing Arrangement (E.T.A.) both Forward And aft to provide the ship with a rapidly deployed towage capacity in an emergency.
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