1. Principle of General Average:
That which has been sacrificed for the benefit of all shall be made good by the contribution of all.
The principle of general average was first formulated by the ancient Greeks in a maxim dealing with the question of jettison, but it is probable that the idea itself was of still more ancient origin. As the doctrine developed various types of losses were added to that of jettison, perhaps the most important step being the recognition that expenditure of money was in principle no different from the sacrifice of property if it was incurred in similar circumstances and for the same purpose.
It is not possible to trace here the history of this development, but there are two points which are of significance.
First, general average had been an established feature of marine commerce for many hundreds of years, before shipowners and merchants conceived the idea of protecting themselves from the financial risks involved in that commerce by means of insurance. This underlines an important fact that general average exists and must be considered quite independently of marine insurance. In modern commercial conditions underwriters on ship and cargo almost invariably pay proportions of general average losses and contributions under their policies, but their interest in general average is nonetheless a secondary one. The principles and practice of general average cannot properly be understood unless considerations of insurance are, in the first instance, left out of account.
Secondly, general average varied in its development in the different leading maritime countries, so that by the latter part of the 19th century substantial differences existed in the law and practice throughout the world. In view of the international character of shipping the disadvantages of this were obvious, and there began the series of attempts to obtain international uniformity which resulted in the adoption of the York-Antwerp Rules.
Rule A of the York-Antwerp Rules 1974 defines a general average act as follows:
There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.
It will be seen that there are four essential features.
2.The sacrifice or expenditure must he extraordinary.
Thus ordinary expenses incurred or losses suffered by the shipowner in fulfillment of his contract of affreightment are not admitted as general average. A specific example of the application of this principle can be seen in Rule VII of the rules, which deals with damage to a vessel’s machinery. Under that rule a distinction is drawn between damage to machinery where the vessel is aground and in peril and damage which occurs when the vessel is afloat. Working the engines of a ship ashore is considered to be an ‘abuse’ of the machinery and therefore extraordinary, whereas working the engines when the vessel is afloat, however much the adventure may have been in peril and ship and cargo may have received benefit from the action taken, is considered as part of the normal function of the machinery and any resultant damage is not admitted as general average.
The act must be intentional or voluntary and not inevitable. Property cannot in reality be said to have been ‘sacrificed’ if it was already lost at the time of the so-called sacrifice.
Rule IV illustrates that principle in its application to the cutting away of wreck.
1. There must be peril. This need not be imminent but it must he real and substantial. The distinction between action taken for the common safety in time of peril and a measure which, however reasonable, is purely precautionary is a very fine one which cannot be pursued in detail here. However, two practical examples may serve to illustrate the distinction. A vessel adrift without motive power in mid-ocean would be held to be in peril for this purpose, even though the weather might be calm at the time and there was no immediate risk of further loss or damage. On the other hand if a master decides, quite prudently, to seek shelter for a sound vessel in an anchorage because of reports of an approaching storm, this would not normally be regarded as giving rise to general average.
2. The action must be for the common safety and not merely for the safety of part of the property involved. Suppose a vessel is carrying refrigerated cargo and the refrigerating machinery breaks down whilst she is proceeding through the tropics, making it imperative for her to put into a port to effect repairs. In such a case any threat of loss or damage would be limited to the refrigerated cargo and so far as the ship and the remaining cargo were concerned, the voyage could quite safely continue. Thus the deviation to the port of repair would not give rise to general average.
Example; A ship carrying a valuable cargo consigned to a number of different merchants, strands on a reef. By order of the master a part of the cargo is jettisoned and in the result the vessel refloats and, after repairs, is able to complete her voyage with the rest of her cargo.
From the facts above there would obviously have been other alternatives open to the master. He might have engaged tug assistance to tow the vessel off the reef, risking additional damage to the vessel’s bottom and consequently to the cargo through leakage. He might, on the other hand, have tried forcing her off using the main engine and ground tackle, with similar risks as well as probable damage to such machinery and equipment. Each of these alternatives might have given rise to loss or prejudice to different owners of property involved in the adventure.
Thus, in situations of peril following marine casualties, a conflict of interest will often arise naturally from the need to choose means for saving the situation. The owner of the cargo jettisoned in the example might well have preferred the master to choose one of the other alternatives mentioned or, for that matter, that some cargo other than his own had been selected for sacrifice. General average owes its origin to that conflict of interest and is a device whereby, so far as possible, the conflict is eliminated. Through general average the owner of the cargo jettisoned has his loss shared by all the other interests involved; the owner of the property sacrificed is placed as nearly as possible in the same financial position as the owners of the property saved by that sacrifice.
The acceptance of the principle of general average and its enactment in the York-Antwerp Rules means a master is free to act, in cases of this kind, solely in accordance with his judgment as a seaman as to what is best for ship and cargo as a whole, without regard to the conflicting rights and interests of the various owners of the property in his charge.
Examples of events giving rise to general average
Casualty: Type of sacrifice or expenditure
Stranding: Damage to vessel and machinery through efforts to refloat.
Loss of or damage to cargo through jettison or forced discharge.
Cost of discharging, storing and reloading any cargo so discharged.
Port of refuge expenses.
Fire: Damage to ship or cargo due to efforts to extinguish the fire.
Port of refuge expenses.
Shortage of Bunkers: Loss of ship’s materials or cargo burnt as fuel.
Port of refuge expenses.
Shifting of cargo in heavy weather: Jettison of cargo.
Port of refuge expenses.
Heavy weather, collision,
machinery breakdown, or
other accident involving
damage to ship and resort
to or detention at a port: Port of refuge expenses.
In addition to the sacrifices and expenditures listed (and others not mentioned), any of the above occurrences may give rise to a claim for salvage services. Although under the law of many countries salvage charges proper (that is, salvage incurred independently of any contract) fall strictly into a separate category, distinct from general average, Rule VI of the York-Antwerp Rules 1974 provides that any payments made in that respect should he treated as general average.
3. Adjustment of general average
The calculation of contributory values and assessment of general average losses is of course a task for the average adjuster and is often a complicated one. However, there are certain aspects of this which might well be explained briefly here, since they illustrate certain fundamental principles and often have implications of some importance in practice.
- All property which is at risk in the common adventure at the time of the occurrence giving rise to the general average act and is saved by that act contributes to general average according to its value at the termination of the adventure.
- Cargo discharged prior to the occurrence, or loaded thereafter, does not contribute. If, for example, a fire breaks out during loading of cargo, it will be necessary to have accurate particulars in due course of the cargo on board at the time of the outbreak. If the general average consists of detention of the vessel at a port for repairs which are necessary for the safe prosecution of the voyage, cargo destined for that same port will not contribute even though it was on board at the time of the occurrence giving rise to the detention, since it will not benefit by the safe prosecution of a voyage with which it is no longer concerned.
- In general terms the basis for calculation of contributory values and general average losses is the value of the property to its owner at the termination of the adventure. In the case of goods there is an exception to this, under the York-Antwerp Rules 1974, in that they contribute on the basis of their invoice or shipped value. This departure from strict principle was agreed for reasons of practical convenience and economy.
- Since values are assessed as at the termination of the adventure it follows that the incidence of contribution may be varied by further loss or damage to the property between the time of the general average act and the termination of the adventure. In the case of general average expenditure it is customary to protect the parties concerned against the effects of this by means of a special insurance, known as insurance on average disbursements.
- Normally, the adventure is considered as terminated on completion of discharge of cargo at the port of destination. If there is an abandonment of the voyage at an intermediate port then the adventure terminates at that port. If, because of a casualty, the whole cargo is forwarded from an intermediate port by another vessel values should, in the absence of special agreement, be calculated as at the time when the original ship and the cargo are parted at the intermediate port. It is a frequent practice in such cases to provide, by what is known as a ‘non-separation agreement’, that the general average shall be treated as if the forwarding had not in fact taken place. Non-separation agreements are often incorporated in the general average security documents, but may be signed separately.
- Charges incurred in respect of the property subsequent to the general average act (other than charges which are themselves allowed in general average) must be deducted in arriving at the contributory value, so as to ensure each owner of property contributes according to the actual net benefit he has received by deducting all the expenses he has to bear to realize that benefit. Attention is however referred to paragraph 2 above regarding the special case of goods where the York-Antwerp Rules 1974 are applicable.
- Equality of contribution must be achieved between the owner of property sacrificed and the owner of property saved. In practice this is achieved by the device of adding to the contributory values of property lost or damaged by general average sacrifice the amount allowed in general average in respect of that sacrifice. If this were not done the owner, for example, of goods jettisoned would receive benefit in the form of money from the general average as indemnity for loss of his goods without participating in or contributing to the general average losses. The owner of an identical parcel delivered sound from the same ship, however, whilst receiving the goods themselves and no money from the general average would still have to pay his contribution.
- The calculation of allowances in general average for sacrifices of ship, cargo and freight is dealt with in Rules XV XVI and XVI11 of the York Antwerp Rules 1974.
The mount allowed in general average for general average expenditure is, of course, the actual amount of expenses incurred.
4. Enforcement of rights in general average
(a) Protection of rights under the contract of carriage
The parties to the adventure usually make special provisions in the contract of affreightment regarding general average, the most common being a clause to the effect that general average is to be adjusted in accordance with the York-Antwerp Rules. Such stipulations may be contained in the charter party, if any, or the bills of lading, or in both documents.
Rule D of the York-Antwerp Rules gives explicit recognition to the fact that general average exists irrespective of fault or breach of contract by any of the parties and it follows that normally the procedures for protecting the rights of the parties in general average must be observed even when it is known or suspected that such a fault or breach has been taken.
(b) Responsibility of shipowner
Usually it is the shipowner who is primarily concerned to see that rights in general average are protected since it is usually he who is called upon to pay the general average expenses. The shipowner has a lien on the cargo whilst in his custody for its contribution as a condition of delivery of the goods. In practice, however, the amount of the contribution can never be assessed at that time and the lien is therefore used to enforce the giving of a satisfactory security instead of payment. This usually consists of the signature by the parties to the Lloyd’s form of average bond, together with (when warranted by the amounts involved) payment by the cargo owner of a cash deposit or a provision of a satisfactory guarantee, usually by underwriters, instead of a deposit.
Rights of recovery for general average contribution from cargo may exist even though, owing to a mistake or oversight, no general average security has been obtained. However, considerable difficulties are likely to be encountered in enforcing those rights, more especially if the cargo changes ownership during the voyage or immediately thereafter. It should be assumed, in practice, that it is essential to obtain general average security if a claim for general average contribution is subsequently to be enforced. Where it is the shipowner’s disbursements which have been incurred or sacrifices which have been made, the shipowner has the option of deciding whether or not to collect general average security in order to facilitate recovery.
(c) Duty of shipowner to protect cargo sacrificed
Cases occur where the general average expenses and sacrifices incurred by the shipowner are relatively small in amount whereas allowances in general average for damage to cargo to be credited to cargo owners are very heavy. There may in such cases be little or no incentive from the shipowner’s point of view for him to enforce his lien and obtain general average security. However, if he acted (or failed to act) accordingly this would leave the owners of cargo sacrificed with no redress, in practice, against their fellow cargo owners for general average contributions. The law therefore imposes a duty upon the shipowner to obtain general average security not only for his own benefit but also for the benefit of other parties, eg cargo owners who have incurred general average losses.
Where it is the cargo which has been sacrificed or where the cargo has incurred general average disbursements, the shipowner has no option but to collect security from the other cargo interests, unless he is willing himself to reimburse the cargo for their losses. The need for general average security, therefore, and the form in which it is required has to be considered irrespective of whom are the parties claiming in general average.
(d) Salvage security
A clear distinction needs to be made between security for general average and security for salvage.
Security for general average is provided to the shipowner by the cargo at destination, whereas security for salvage is provided to the salvors by both ship and cargo at the time and place where the salvage services terminate.
When a salvor has brought the salved property into a place of safety he is able to exercise a lien on the property until either his salvage award has been paid or security given. It is not usually possible for the salvage award to be immediately determined (unless it has been performed under a contract which states the sums payable) as there will be negotiations, arbitrations or legal proceedings.
The shipowner is responsible to the salvors for providing security in respect of his ship and any freight at his risk. Each consignment of cargo is responsible for the provision of its own security, the time charterers are responsible for the security demanded in respect of fuel at their risk and if it is a container ship, the container owners will be responsible to the salvors in respect of the salved containers. If for any reason the shipowner gives security to the salvors on behalf of the cargo, he will be protected by his lien on cargo, and will collect salvage security from the cargo at the time he collects his security for general average.
The security provided to the salvors under Lloyd’s Open Form of Salvage Agreement must be given to Lloyd’s in London, by persons acceptable to Lloyd’s, such as banks, Lloyd’s insurance brokers, underwriters etc.
It is usually the solicitors representing the salvors who will undertake the salvage security collection, but it sometimes happens that they request the assistance of the average adjusters. The adjuster is usually well placed to assist in this way as he will be in communication with cargo interests regarding general average security formalities.
Takis Kalogerakos
Marine Underwriter
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Dear Mr. Takis,
I have a question regarding to General Average (G/A) in Marine Insurance as below:
if there are two General Average acts happening with a voyage, for example: a voyage from Hamburg to Singapore via Antwerp, on its voyage Hamburg-Antwerp, ship collided then first G/A happened, then on Antwerp-Singapore, ship was grounded/ stranded then second G/A happened, how can we calculate the general average for the whole voyage Hamburg to SIN?
Can we consider sacrifice of the first G/A is the particular loss when calculating Contribution value G/A for the second G/A ?
Thank you very much for your kind explaination.
Best regards
James
Dear James, it’s a good case study, obviously is not a case “constantly” arise, falling into to GA rules could be misdirected, as the GA practice is a labyrinth. But I’ll try to get through in the case in question, as far as my knowledge can help. Of course it should be taken into consideration that my observations will be on the basis of a Marine Underwriter’s point of view.
The intention that insurers will assume responsibility for general average sacrifice and expenditure is clearly expressed in the current clauses.
In the Institute Cargo Clauses the first part of the General Average Clause (No. 2) makes provision as follows:
2. This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice. … and any adjustment being drawn up according to York-Antwerp Rules, the option of a statement being drawn up according to some other governing law or practice is clearly to prevent any prejudice to the assured by reason of a stipulation in the bill of lading or charterparty.
Underwriters on ship, however, are not prepared to agree to a statement being drawn up on terms which are revolting to them, simply because the shipowner has freedom to incorporate his own provisions in the contract of affreightment with cargo owners.
In hull policies, therefore, if the contract of affreightment does not provide for the application of York-Antwerp Rules, liability is restricted to that determined by the law and practice obtaining at the place where the adventure is terminated.
Therefore when an adventure is terminated, even though following a GA procedures and a new adventure is in operation and a 2nd GA could happen, in my opinion is another case which can consist potential provisions for such an exploit.
There are several provisions in the Marine Insurance Act, 1906, under Section 66, relating general average losses to marine policies. Sub-sections (1) and (2) give a broad description of the ingredients necessary to constitute a general average loss, and it will be noted that these blend very well with the lettered York-Antwerp Rules:
66.—
(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 imperiled in the common adventure.
It will be observed that a “general average loss” can consist of either sacrifice or expenditure, and sub-section (3), which follows, explains that the rateable proportion due from each of the interested parties is called a general average contribution:
(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.
Therefore as a practitioner I would state that each case in question could be treated separately, as per above MIA definition.
It is applicable to evoke that Section 39(5) of the Marine Insurance Act, in relation to the effect of unseaworthiness, relieves the insurer from losses attributable to unseaworthiness if the ship is sent to sea in an unseaworthy state with the privity of the assured. It must be appreciated, however, that the fact that the assured is not privy to the unseaworthiness does not automatically render
Clearly, if sacrifice or expenditure is necessary in time of peril for the common safety, there is general average even if the emergency has arisen from wear and tear or unseaworthiness. It was for this reason that attempts by Underwriters to amend Rule X(a) of the York-Antwerp Rules in 1950 to exclude port of refuge expenses from general average, when the detention arose from ship repairs necessitated by wear and tear, did not succeed. Thus, under the Rule, the expenses can be recovered if they have been incurred in consequence of an accident, or if the damage to the ship was caused by an accident. Of course, the question of cargo’s contribution will still be the subject of contractual obligations, but so far as the Hull Underwriters are concerned liability for general average will depend on whether an insured peril has been avoided, although the antecedent circumstances in themselves might not provide grounds for a claim.
Therefore, cases will arise where the casualty occurs during the currency of one set of hull policies, but the general average act does not occur until a different set is in operation. In the situation where the vessel is in immediate peril and the subsequent voluntary actions save her, the Underwriters on the first set of policies will be liable for their proportion of the G.A. sacrifices or expenditure despite such actions having taken place after the expiry of these policies. In other words, the “death blow principle” will serve to bind the claim to the original policies if the casualty takes charge of the ship and measures are required to remove her from the presence of insured perils. However, it frequently happens that the full extent of the damage is not appreciated at the time of the casualty, and the adventure can be safely completed without such damage being discovered.
My Best Takis
Dear Takis,
CC: All participants
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SUBJECT: Differency of Exclusion clause 4.3 in ICC 1982 & ICC 2009
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Pls kindly help me to explain below issue:
On Exclusion clause 4.3 in ICC 1982 and ICC 2009 which are stated as below:
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ICC 1982:
4 In no case shall this insurance cover:
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4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured (for the purpose of this Clause 4.3 “packing” shall be deemed to include stowage in a container or liftvan but only when such stowage is carried out prior to attachment of this insurance or by the Assured or their servants)
ICC 2009:
4.3 loss, damage or expense caused by insufficiency or unsuitability of packing or preparation of the subjectmatter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and
“employees” shall not include independent contractors)
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I would like to know if on ICC 1982: loss and damage caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured which is carried out by the Assured or their servants will not be covered, but on ICC 2009 will be covered if insufficiency or unsuitability of packing or preparation of the subject-matter insured which is NOT carried out by the Assured himself?
For an example: on ICC 2009, if an importer in VN buy a shipment from UK under FOB terms, the importer arrange Insurance by himself. He is not the person who prepare packing but the exporter in UK does. On its transit from UK to VN, cargo is damaged due to insufficiency packing. Will the case be covered by insurer? Or the Insurer will not cover same as in ICC 1982, the importer then will claim to the exporter?
Thank you and best regards
James