1. INTRODUCTION TO GENERAL AVERAGE
Average adjuster Bjørn Slaatten, Oslo
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2. Bjørn Slaatten
P. O. Box 1252 Vika 0111 Oslo Telephone Mobile
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3. Literature.
Lowndes and Rudolf: General Average and York-Antwerp Rules Geoffrey Hudson: The York-Antwerp Rules MarIus 214 (1994 Rules) MarIus 329 (2004 Rules)
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4. General average.
What is General Average? Sacrifice in order to save ship and cargo from a common peril. Apportionment over the interests – Normally ship, cargo, bunkers and freight. Particular average – damage to ship or goods. ”The loss stays where it falls”.
Example: Fire breaks out in a ship carrying cargo. The fire is extinguished by the use of water. The fire damage is a particular damage however the damage caused to the ship and cargo by water is a sacrifice which shall be apportioned over the various interests concerned.
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5. General average – long traditions
Rhodian Law – More than 2000 years old. ”If in order to lighten a ship merchandise has been thrown overboard, that which has been given for all should be replaced by the contribution of all”. Glasgow Rules 1860, revised in 1864 ”York-Rules” Antwerp 1877 (”York-Antwerp Rules”) 1890, 1924, 1950, 1974, 1990, 1994 and Focus on the 1994 Rules.
This short sentence contains both the principle and a perfect example of the peculiar communism to which seafaring men are brought in extremities. The principle has been followed by the seafaring community from the oldest recorded times and was most probably already a widespread practice when this sentence was formulated.
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6. General average
General average – average adjustment. Average adjuster Norway - Felleshavari – Dispasje - Dispasjør Denmark – Havari Grosse – Dispache - Dispacheur Sweden – Gemensamt haveri – Dispasch - Dispachör Finland – As Sweden
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7. General average
Not insurance, but a provision in the freight contract. Private set of rules administrated by CMI. Incorporated in Norwegian Maritime Law Chapter 17. In most countries the average adjustment can be tried in court.
The Rules are interpreted differently from country to country however there are a lot of uniform interpretation as well not least thanks to the work by the international association of average adjusters.
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8. General average
Lettered rules A - G Numbered rules I – XXII Rule of interpretation: In the adjustment of general average the following Rules shall apply to the exclusion of any Law and Practice inconsistent therewith. Except as provided by the Rule Paramount and the numbered Rules, general average shall be adjusted according to the lettered Rules.
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9. Rule Paramount
In no case shall there be allowance for sacrifice or expenditure unless reasonably made or incurred. Court case ”Alpha” 1991
Alpha grounded on a sandbank in the river Zaire. The Master used the engines in order to refloat the vessel with the consequence that the cooling system was clogged. Damages were incurred in the amount of USD GA was declared and owners claimed the engine damage under Rule VII. Cargo interests claimed that his actions were gross negligent and rejected to pay. The court was in agreement with cargo owners but as there were no requirement of the act being reasonable the claim for compensation was admitted.
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10. Common safety / Common benefit.
Rule A – Common safety Numbered Rules – Common benefit
Example: A ship enters a port of refuge for repair of engine damage sustained to the ship. The deviation costs are admitted in GA as are the discharging of cargo necessary to repair the damage thus enabling the vessel to continue her voyage. These allowances are made although it is a question of a particular damage to the ship and common safety has been restored.
Important to bear in mind - Shipowners obligations under the freight contract.
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11. Rule A
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. General average sacrifices and expenditures shall be borne by the different contributing interests on the basis hereinafter provided.
First section defines the term ”general average”. When considering if there is a G.A. situation and the answer cannot be found in the numbered rules one will see if it falls within Rule A section one. First condition is that there must be a peril. The peril must not be imminient, a grounding in fair weather may well form basis for a general average. The key issue is if there is a possibility that ship and cargo can be damaged due to the incident (future damage). The definition of peril differs somewhat around the world. In case of a grounding requiring extraordinary measures to refloat the ship there is normally a presumption that the reqiurements have been met.
The sacrifice must be made to avoid a common peril for ship and cargo. If a ship manouvering in port is set aground in order to avoid strucking another ship which could cause extensive damages however not for the cargo there is probably not a G.A. situation because the cargo was not in peril.
If a freezer ship deviates to port to repair the freezer engine there is not a G.A. situation. Only the cargo was in peril.
The sacrifice must be intentionally made. If the anchor is stuck on the seabed and cannot be heaved and it is decided to cut the chain there is not a G.A. sacrifice as the anchor was already lost.
The point of departure is that the carrier has accepted to deliver the cargo at a certain port or place and conditions that will normally face during the voyage (e.g. ice in the Baltic) will not give cause for declaring G.A.
It is not a condition that the efforts are successfull or the damage intentionally made. E.g. efforts to refloat the vessel by own engine. If the engine is damaged during the attempts the damages will be allowed in G.A.
There is also a requirement that the sacrifice etc. is reasonable. This can cause discussion. A grounded ship can by waiting for the tide and using her own means be refloated but instead the master contracts an expensive tug. The additional costs can be disallowed.
Imaginary dangers – e.g. the crew mistakenly belives there is a fire onboard and pours water on the cargo. In U.K. the water damage is not allowed whereas in the US and Norway this will be allowed if the measures taken is considered as fair and reasonable.
It is not necessary that both ship and cargo are saved by the measure taken.
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12. Perils
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13. GA situations
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14. GA situations
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15. GA situations
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16. GA situation?
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17. ”Crew negligence”?
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18. Rule C Only such losses, damages or expenses which are
the direct consequence of the general average act shall
be allowed as general average.
Exclusions:
Damage to the environment.
Loss of market, due to delay etc.
Only the adequate or foreseeable consequences of the G.A. act can be claimed. E.g. if cargo during lightering of cargo to refloat the vessel is damaged by lightning, this is not foreseeable. Damage by rainwater or seawater may be an expected peril and thus allowed.
”Losses, damages or expenses” includes liability.
Pollution damage is not recoverable in G.A. but Rule XI has an exception. P & I.
Financial losses e.g. delay due to cargo being sacrificed which in turn causes a factory to reduce its activity is not allowed in G.A.
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19. Rule D, E and F.
Rule D – Fault on one of the parties to the adventure does not affect right to contribution.
Rule E – Onus of proof is on the party claiming in G.A. to show that the loss or expense claimed is properly allowable.
Rule F – Expense versus expense. Often ”abused” provision. Not expense versus damage.
Substituted expenses.
Substituded expenses – e.g. additional costs by drydocking with cargo (saves cargo handling costs, storage etc.). Use of extraordinary overtime saves port expenses etc.
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20. Rule G.
General average shall be adjusted as regards both losses and contribution upon the basis of values at the time and place when and where the adventure ends.
Section 2 – ”Non separation agreement”.
Two important principles in Rule G – the time and place for determining the value of ship and cargo.
Non Separation Agreement – Both parties can be interested in such a solution. The cargo owners will not have to wait. The shipowner will get rid of the cargo and get paid upon delivery.
It is a requirement that the carrier can keep the cargo in their custody during the repairs, either due to the freight contract or legally. Frustration. As long as ”justifiable”.
Perishable cargo – cannot be temporarily stored or there are no storage facilities. Then there is no alternative to forwarding the cargo, cargo must be brought forward to final port.
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21. General average – practical steps
Who is involved, what has happened?
B/L / Freight contract – YAR version? Place for issuance of GA statement.
Notification to cargo owners that GA is declared.
Concerned in cargo – B/L.
Manifest of cargo.
Cargo insurers? Non-insured – Cash deposit?
Guarantees – Average bond / average guarantee.
Carriers obligations under the freight contract.
Forwarding of the cargo?
Non-Separation Agreement.
Collection of security – next page.
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22. Average bond / average guarantee
Collection of security.
Copy of the B/L and the commercial invoice.
Power of signing guarantees
Insured / uninsured cargo – collection of deposits - Rule XXII
Forwarding of cargo – time pressure. NSA
Customers – relationship
Average bond / average guarantees - Lien in cargo, not personally. Concerned in cargo only liable for the value of the cargo. If further treated into other products or sold etc. the security is lost.
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23. The numbered rules.
Special rules – Conflict with the lettered rules - See Rule of interpretation.
Rule III Extinguishing Fire on Shipboard.
Rule VI Salvage Remuneration.
Rule VII Damage to Machinery and Boilers.
Rule X Expenses at Port of Refuge etc.
Rule XI Wages and maintenance of crew and other expenses bearing up for and in Port of Refuge.
Rule XVII Contributory values.
I will not og into details about all these rules but expect each of you to read through them while trying to solve the case I have handed out. I will however guide you through a few of the rules to better understand the principles.
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24. Rule III Extinguishing Fire on Shipboard.
Fire onboard will normally be a particular damage but damage done to ship and or cargo in extinguishing the fire shall be made good in general average.
Also beaching or scuttling a burning ship.
No compensation for:
Damage by smoke however caused
Damage by heat of the fire
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25. Rule VI Salvage Remuneration
Salvage remuneration is redistributed in GA.
2004 Rules – The costs stays were it falls
Previously it was quite common that Hull insurers or Owners paid the salvage award for cargo as well up front. This is no longer the situation.
When the salvage award is included in the adjustment as a cost the costs will be redistributed based on the calculation on contributions.
The 2004 solution will certainly not make Owners more willing to pay salvage award on behalf of the community. Salvage award paid will be deducted from the contributory value. It may also be that the use of the absorption clauses will increase since the award will no longer be part of the GA costs.
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26. Rule VII Damage to Machinery and Boilers
Refloating – damage to machinery.
Afloat - no compensation howsoever caused.
Refloating by own engine can save large sums in way of salvage
Proof that the engine was damaged by a general average act.
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27. Rule X Expenses at a Port of Refuge etc.
”Port or place” – not defined in the Rules.
Loading port can be port of refuge.
In consequence of accident, sacrifice or other extraordinar circumstances.
Must be for the common safety.
Section (a) – Costs of entering and leaving the port.
A port is a place either created by nature or because of the existence of certain shore facilities is suitable for loading and discharging cargo. A natural sheltered anchorage can also be accepted.
Loading port – e.g. the ship has to return for repairs due to damage incurred shortly after departure.
What is covered? The expenses of entering the port of refuge as well as the costs of leaving the same port or place.
Section 2 – if necessary to remove the vessel to a secondary port of refuge because repairs cannot be carried out in the first port. Costs that can be admitted is not only the port expenses but also the costs of towage and temporary repairs if required.
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28. Rule X Expenses at a Port of Refuge, etc.
Section (b) – Costs of handling on board or discharging cargo, fuel or stores.
Necessary for the common safety, or
to enable repair of damage caused either by sacrifice or accident.
Necessary for the safe prosecution of the voyage.
Damage discovered in port of loading or call.
Section (c) Reloading and storage costs.
When ship is condemned or voyage is abandoned.
This provison includes both the common safety as well as the common benefit principle. The damage can be caused by a general average act, e.g. throwing over board cargo damaging the propeller or rudder but can also be a particular damage to the ship, e.g. machinery damage.
As a general rule Rule A will also allow compensation in these cases.
If the ship springs a leak and cargo has to be discharged to lighten the ship this is for the common safety.
If the cargo has to be discharged to enable repair of a particlar damage to the ship this is a common benefit expense (which is contradictory to the general principle).
Under Hull insurance, NSPL, discharge of cargo to enable repairs is not recoverable.
Damage discovered in port of loading or call without any accident or other extraordinary circumstances having taken place during the voyage cannot be claimed in G.A. One cannot load one self into a GA situation.
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29. Rule XI Wages and Maintenance of Crew and other Expenses bearing up for and in a Port of Refuge, etc.
Wages and maintenance of crew
Fuel and stores consumed
During deviation to / from the port (section a) and in the
port of refuge (section b).
Section (c) – definition of ”wages”.
Section (d) – The cost of measures undertaken to prevent or minimise damage to the environment.
Perhaps one of the provisions that anoys cargo interests most. YAR 2004.
Build up as a parallell to Rule X.
XI (d) – Allows compensation in certain situations for costs incurred in order to prevent pollution damage, however costs due to pollution is not allowed. The idea is that the shipowner or cargointerests shall be placed in the same position as would a salvor or any one else outside the common maritime adventure.
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30. Damage to cargo, ship etc.
Rule XII Damage to cargo in Discharging
Rule XIII Deduction from Cost of repairs
”New for old” – >15 years – deduction of 1/3.
No deductions in way of anchors and chain cables, provisions and stores.
Drydock and slipway dues – allowed in full.
Painting of bottom – Paint not older than 12 months – 50% allowed.
Damage to cargo during lightering operation (e.g. a grounding situation) shall be made good if the measure is allowable in GA.
Damage to ship allowed in GA will often be due to refloating – important that the surveyor is aware of and describes the damage (grounding and refloating). Damage to bullwark or equipment on deck due to towline.
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31. Rule XIV Temporary repairs.
Temporary repairs at a port of loading, call or refuge shall be admitted if
Necessary for the common safety, or
Of damage caused by general average sacrifice.
Section 2:
Temporary repairs of particular damage in order to complete the voyage
What is a temporary repair? A repair that is not intended to be permanent.
No deduction ”new for old” in these situations.
3 examples (page 50) LØSE OPPGAVEN?
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32. Rule XVII Contributory values
Contribution to a general average shall be made upon the actual net values of the property at the termination of the adventure (ref Rule G).
Cargo – the commercial invoice or shipped value including freight and insurance.
Including freight and insurance? Freight contract / sales terms. FOB, CIF CIP etc.
Ship - value to be assessed without taking into consideration any effect of a charterparty.
Freight
Bunkers
Deducton shall be made for all damage to e.g. cargo or ship however amounts made good in GA shall be added. Cargo sacrificed will be allowed 100 % which is also the contributory value.
Freight – If at risk deduction shall be made for contingent costs, i.e. costs they would have saved if ship and cargo were lost. E.g. crew costs, port expenses. Examples? What about bunkers?
Section 3 - If NSA (Rule G) it is the value at the original destination that shall be applied.
Section 4 – If cargo is sold short of destination it is the actual net proceeds that contributes plus any amount made good in GA.
Section 5 – Mails, passengers luggage and personal effects, privat motor vehicles shall not contribute. Lorries etc. contributes even when accompanied by a driver.
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33. Rule XX Commission 2 % commission on general average disbursements.
Except crew wages and maintenance and fuel and stores not replaced during the voyage.
Section 3 – Average disbursements insurance.
Section 2 – Bunkers and stores must have been replenished / replaced during the voyage. Not bought for the first time.
Section 3 - Average disbursements insurance. Example: A ship deviates to port of refuge due to severe damage. Total GA expenses incurred is USD (crew expenses, discharging storage and reloading of the cargo etc.). The voyage continues and after a few days the ship encounters heavy weather and sinks. There are no contributory interests any longer and thus no one to claim in GA. This is where the average disbursement insurance comes in handy. Replaces the lost items.
Guarantee for salvage costs – commission. Ship / cargo / both?
2004 rules – no commission – Who shall / accepts to pay up front? E.g. salvage remuneration.
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34. Rule XXI Interest on Losses made good in General Average.
Interest rate is 7 % p.a.
Until three months after the date of issue of the GA adjustment.
2004 Rules – The interest rate is determined every year (by CMI) based on certain principles.
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35. York-Antwerp Rules 2004
IUMI – Working Group - ”How should it be changed”?
Proposal - Limit the rules to ”Common safety” situations.
IUMI - Vancouver meeting 2004
IUMI was dissatisfied with the 1994 revision of the Rules. During its conference in Berlin in 1998 a Working Group submitted a paper: ”G.A. – How should it be changed?” This was followed up with a request to CMI for further reform of the YAR to be given consideration, i.e. the rules should be restricted in way of categories of loss or expense that would be made good by general average contributions.
During the meeting in Vancouver in 2004 there was little support for the radical restrictions to the common safety concept. The existing system was well and widely known and the advantage was that actions could be taken promptly within a known framework leaving the legal issues to be sorted out later. An amendment would no doubt lead to increase in the number of costly disputes, not least with regard to abandonment of voyages.
However, there was a majority in favour of many of the changes proposed by IUMI – Changes see next slide
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36. York-Antwerp Rules 2004 The exclusion of salvage from general average
Rule XI – Crew wages would no longer be allowed while at a Port of Refuge
Rule XIV – Temporary repairs
Commission
Interest rate
Time bar
Many minor amendments were made, however of the more important amendments were:
Salvage – Credit shall still be given for any salvage paid by one of party on behalf of others.
Temporary repairs – savings to ship interests achieved by effecting temporary repairs to accidental damage at a port of refuge to be accounted for first before any allowance in GA is considered.
No allowance for commission
The rate of interest shall be reviewed and set annually by CMI.
A time-bar provision was introduced where national jurisdiction permits.
The changes in the 2004 Rules are not just an amendment to or modification of the 1994 Rules, in that respect they are to comprehensive. Hence if the freight contract states ”YAR 1994 or any subsequent modification thereof” the 1994 rules will still apply.
It is important to note that the 2004 rules represented the first occasion when a new set of rules were approved without a consensus between shipowning and other interests. It is worth noting that e.g. BIMCO in their charterparties still only refer to the 1994 rules. To avoid any misunderstandings they have removed the wording ”or any subsequent modification thereof”.
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37. General average – Hull policies
G.A. – salvage costs
The Norwegian Plan § 4-8
ITCH – Section 11
International Hull Clauses 01/11/02 - Section 8
General average ”Absorption Clauses”
NSPL § 4-8,3 (a).
”Any loss, damage, liability or costs which would have been recoverable in the general average up to a fixed sum stipulated in the policy”
The G.A. Absorption Clauses have removed a considerable number of G.A. cases and was part of the argument against restricting the Rules at the Vancouver meeting. The Absorption Clauses comes in a variety of wordings.
It is worth noting that the Plan presupposes that the ajustment is made up in accordance with YAR 1994 (not interest and commission)
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38. General average – Hull adjustment
GA adjustment - Implemented in the PA adjustment
Cargo’s contribution deducted
Interest on GA contributions falling on hull insurers –
YAR 1974, 1994
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39. Introduction to general average
Thank you for your attention.
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