The Rotterdam Rules and General Average Svante O. Johansson AMD Forum Marrakesh November 6, 2009

Fault concept and General Average Fault is outside the scope of General Average Article 84 RR Nothing in this Convention affects the application of terms in the contract of carriage or provisions of national law regarding the adjustment of general average. Rule D YAR Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure; but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault. General average is drawn up according to YAR. No provision of law, national legislation, or rule in international conventions has any saying in respect of General Average. The parties are left free to dispute any issues of fault and its effect at a later stage. This two step system has been criticized. The system is never the less confirmed in the Rotterdam Rules. In article 84 it is stated that nothing in the convention affects the adjustment of General Average. Expenses made for the common safety will continue to be apportioned over the ship, freight and cargo. Forwarding chargers from port of refuge to destination will continue to be allowed in General Average under the principle of common benefit as substituted expenses up to savings obtained to General Average. Cargo jettison or damaged by extinguishing operation will have the loss or damage distributed as General Average. This is so because it is not the Average Adjuster’s task to pinpoint the question of fault and put the blame on one of the parties. On the contrary the York Antwerp Rules expressly say that he or she shall not do so. See Rule D YAR.

No contribution to a party at fault Even if no loss or damage occur the carrier, as it often is, might be at (actionable) fault The test is whether the owner, if the GA-act had not been instigated, would have been liable Exemptions that exclude fault No legal responsibility arises “Fault of master always excepted” Excluding liability (also only loss or damage) Art. 17.3 RR Nautical fault exemption not included Exemptions or limitations that do not exclude fault Limited monetary liability Notice of claim Limitation of action The general rule in relation to collection of contribution in General Average is that the party at fault cannot claim contribution from others not at fault. However, there must be a fault that is actionable towards the damage averted. The test of actionable fault is whether, if the general average act had not been performed with the result that the peril had operated, the person claiming contribution would have been legally liable to the person against whom contribution is claimed for. Example from The Law of General Average D.03: The contract impose an obligation on the shipowner to exercise due diligence to make the ship seaworthy. Nevertheless, the ship is unseaworthy at the commencement of the voyage due to want of due diligence on the part of her owner. When the ship encounter danger the master engages towage assistance to get her out of it. That act prevents also loss or damage to the ship and cargo in respect of which an action could be maintained. The cargo is thus not damaged an no claim will be supported. If the shipowner will collect contribution for the towage hire it might be argued that the cargo owner would have no defense against this. However, if the towage had not been instigated the ship and cargo might have been severely damaged. Let’s say that the ship and her cargo was salved and the shipowner claimed contribution for salvage award. Under such circumstances the cargo owner would have a valid claim for damages and in addition a defense against contribution to the General Average. Under these circumstances the cargo owner is entitled to the defense also against contribution to General Average grounded on towage hire.

Empiric (but non scientific) data Causes to 100 cases of General Average Statements Grounding 38 Collision 19 Engine damage 16 Springing a leak 6 List 4 Fire 16 Other causes 3 100

Consequences GA caused by grounding Human factors 66 % Mostly considered as nautical faults Nature of fairway or other ship 25 % Remaining (technical faults or unknown) 8 % Owner can not rely on nautical fault Multiple factors causes the grounding Recover part of contribution Not likely to instigate litigation apart from exceptional circumstances Grounding: As can be seen from the figures above the waste majority of cases are attributable to human factors, which include mistakes, misjudgments shown by those aboard. Generally speaking this is nautical fault caused by the human factor. If that is so the owner will under the Rotterdam Rules not be able to rely on any nautical fault exemption and thus no contribution can be sought from cargo interests. However, if one examines the causes of grounding one can see that many grounding cases (74 cases and 230 different causes) involve multiple factors as causes to the grounding. Grounding thus results from more than one factor. According the RR the owner might be interested in invoking the rule in article 17.6 RR in order to resist claims for loss or damage or for collecting partial contribution to General Average. If the owners would be inclined to invoke these rules remain to be seen. In my experience chances of success in such endeavors would be far from bright. The question is if it would be worthwhile to initiate a General Average knowing that you in the end would be able only to collect a very uncertain proportion of the contribution.

Consequences GA caused by collision Normally attributable to nautical fault If nautical fault, the owner is at fault and cannot recover from cargo interest. However, GA can be adjusted and the owner can collect contribution from cargo in proportion to the fault of the other ship. Collision: Normally collision is said to be attributable to nautical fault. Thus the owner will be liable in fault for the collision and can not recover contribution in General Average. However, the liability in a collision situation is in a waste majority of cases divided between the parties according to the degree of fault. Thus, our owner might turn out only to have a small share of the fault. In such circumstances the owner will not be held liable according to art. 17.2 RR as the provision in art. 17.6 RR confer liability only in the portion it had contributed to the damage. The shipowner might therefore be able to collect contribution in proportion to the fault of the other ship. This might lead to the conclusion that GA will be declared very much in the same way as today even if the RR were to apply.

Consequences GA caused by Engine damage Technical failure Human factors Fire On the face of the facts the owner seems to have a good chance to collect contribution from cargo. However, Was the ship seaworthy according to 15.5 RR? The cargo interests are, and will be alert, when an engine damage occurs Request for explanations What about contributing events in 17.6 RR? Probably little more difficult. Seaworthy through out the entire sea leg might also influence. Engine damage. As regards engine damage, that can be attributed to either technical failure, human factors, or sometimes fire. Under such circumstances there are good chances for the owner to collect contribution in GA. A couple of noteworthy memorandums has to be made. First a word on fire. Fire is in RR totally excluded from the carriers liability according to 17.3 (f) RR. However, if the claimant establishes negligence at the hand of the owner or its servants according to 17.4 RR, then the fire exception is no longer available for the owner. The claim for contribution will thus fall. The owners obligation to keep the ship seaworthy is extended through out the entire sea leg. This might also influence the chance of getting contribution in GA. Although I am not sure if this have any immediate impact on the GA. The cargo interests are already today, and will in the future be alert, when engine damage happens. They will request explanations and inquiries in order to establish if the owner has exercised due diligence in this respect. What about 17.6 RR? Engine damage can mostly be attributed to a combination of faults. About 2/3 of the cases were not involving human factors as cause of the damage. It might be that the contribution has to reduced due to the different causes of the engine To sum up. It will probably be a little bit more difficult to claim contribution due to engine damage.

Consequences GA caused by springing aleak or list A vessel that springs a leak on the high sea normally will be considered unseaworthy Owner must prove either Intervening circumstances, or that he or she has exercised due diligence in making and keeping the ship seaworthy If he succeed contribution can be collected. As today? List Why developed the list? In many aspects similar to springing a leak NB! Jettison of goods Carrier not liable even if unseaworthiness shown? Art. 17.3(o) and 17.5 cf. art. 16 Can the owner collect contribution? Springing a leak on high seas. A vessel that springs a leak on the high sea will normally be considered unseaworthy. The owner has the burden of proving either that other circumstances has intervened, e.g. sever weather conditions, or that due diligence has been exercised. This might prove to be hard in many cases at least with new tonnage of today. Thus the owner might have problem with breaking the presumption of fault. Under these circumstances it might be hard to collect contribution to GA. The situation will, us I understand it, not be changed by the RR. Maybe the shipowner will have a better standing as it is possible to prove that a circumstance or event might have contributed to the springing a leak. He will thus be able to collect contribution in a proportion. List. NB! Jettison of goods. As Regina points out (at p. 154) the relationship between art. 17.5, 17.3(o) and 16 is far from clear. The carrier is not liable for sacrifices of the goods according to 17.3(o). If the sacrifice is due to unseaworthiness the carrier is notwithstanding 17.3(o) liable according to 17.5. Art. 16 relives probably the carrier that would have been liable, also for damages due to unseaworthiness. Thus no liability on the carrier for loss or damage due to jettison (maybe a bit wider scope as “sacrifice” is the word in RR), which seems to be in line with The Gratitudine (1801) C.Rob. 340 (although unseaworthiness is not mentioned the ship sprang leak in that case, see attachment). In relation to GA this means that the ship owner cannot collect contribution from other contributing values, i.e. other values than the sacrificed goods, because of the unseaworthiness. In relation to the sacrificed goods contribution can be collected if it has any value at destination, i.e. scrap value or similar, if any. If jettisoned it will normally not have any value as it is lost. The owner of the sacrificed goods can of course claim contribution both from the shipowner and other values of the common adventure. Complicated?! Phew! I hope it is correct.

Challenges Hard to foresee if and to what extent there will be any fault on the owner ‘s side according to Rotterdam Rules. The Rotterdam Rules will most likely result in a decline in the numbers of declared General Averages. Will the General Average disappear because of Rotterdam Rules? The Rotterdam Rules rest on a somewhat impenetrable presumed fault based liability system. It will be hard to foresee when and to what proportion the owner will be held liable. Key conceptions in order to escape liability will be burden of proof, fault or negligence and due diligence in making the ship seaworthy. What impact might this have on General Average? The investigation into different standard cases described above show that the Rotterdam rules will have impact on the risk apportionment represented by General Average. One thing is clear: the situation and environment in which General Average operate has become more complicated and complex. Just a glance on the rules on the carrier liability in Rotterdam Rules will make that conclusion apparent. It may be that the cases when General Average are restored to, become less frequent because of the difficulty of collecting full or part contribution. Many may think that this would be a good result of the Rotterdam Rules. However, many Average Adjusters already today encourage to declare General Average only in important or major cases. This practise may be strengthened if the Rotterdam Rules becomes a reality. Will General Average disappear as a result of the Rotterdam Rules? I hold that it will not. Even where the Rotterdam rules will prevent the distribution of money between ship, cargo, freight and other contributing values foreseen in the General Average Statement, there will have to be an apportionment between the two sets of underwriters, viz. H&M and P&I.