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An Introduction to General Average

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An Introduction to General Average AN INTRODUCTION TO GENERAL AVERAGE Origin and Development of General Average and the York Antwerp Rules Principle 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 intended that this paper be a history of general average but there are two points which are of significance. First, general average has 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 by means of insurance. This underlines an important fact in 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 principle 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 a series of attempts to obtain international uniformity which resulted in the adoption of the York Antwerp Rules. Rule A of the York Antwerp Rules defines a general average act as follows: There is a General Average Act when, and only when, an extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril a property involved in a common maritime adventure . It will be seen that there are four essential features. 1. The sacrifice or expenditure must be extraordinary. Ordinary expenses incurred or losses suffered by the shipowner in fulfilment 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 7 of the York Antwerp Rules which deals with damage to the ship’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. 2. 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 over the so called sacrifice. 1 3. There must be a peril. This need not be imminent but it must be 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. Two practical examples may serve to illustrate the distinction. A ship adrift without motored 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 ship in an anchorage because of reports of an approaching storm this would not normally be regarded as giving rise to general average. 4. The action must be for the common safety and not merely for the safety of part of the property involved. An example of this is a ship carrying refrigerated cargo and the refrigerating machinery breaks down 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 are concerned, the voyage could quite safely continue. Therefore, the deviation to the port of repair would not give rise to general average. Three further examples of a general average situation are as follows: 1. A ship is aground in a position of peril and in order to refloat her: (a) Tugs are engaged. (b) Ship’s machinery is used. (c) Part of the cargo is discharged into lighters, and/or is jettisoned. (d) After the ship is refloated any discharged cargo is reloaded. All expenditure and damage arising out of one or more of these operations is general average. 2. A fire breaks out on board ship, and in order to extinguish it: (a) Water is poured on or chemicals are used. (b) Holes are cut in the ship’s structure for this purpose. (c) Cargo is discharged or jettisoned to get at the seat of the fire. (d) Ship’s equipment is lost ore damaged in these operations. All expenditure and damage arising out of one or more of these operations, including loss of and damage to cargo on board by the water or chemicals applied is general average. 3. Following a casualty: (a) The ship puts into a port of refuge or is detained in port for repairs. (b) The cargo is discharged to enable repairs to the ship to be effected. (c) The cargo is reloaded on completion of repairs. Provided that the repairs are necessary for the common safety, or to enable the voyage to be prosecuted with safety, the expenditure incurred on the above operations is G.A. 2 All expenditure incurred as a direct result of one or more of these operations is general average; also the wages and maintenance of crew incurred and fuel and stores consumed during prolongation of the voyage and/or extra detention of the ship brought about as a result. Distinction between General Average and Particular Average As distinct from general average, loss or damage caused by the accident or peril is particular average, which is borne by the actual interest damaged. In the above examples, the grounding damage in example 1 is not general average, but particular average. In case 2 damage to the ship and cargo caused by fire and smoke is particular average and in case 3 damage to the ship and cargo directly resulting from the casualty is particular average. The sharing of the loss The total of the general average, both sacrifice and expenditure is shared by all the interests (ship, freight and cargo, etc.) at risk at the time of the General Average Act, in proportion to the actual arrived values of the property at the termination of the adventure, i.e. on completion of discharge of cargo. The value of the cargo is to be ascertained from the commercial invoice rendered to the receiver, and is inclusive of the cost of insurance and freight, except insofar as freight was at risk of other parties. If the cargo has sustained loss or damage on the voyage this is taken into account in arriving at the value for contribution. Security for payment of the general average The shipowner is responsible for the adjustment and collection of general average and, for this purpose, is invested with a right of lien upon the cargo for general average. The shipowner’s duty in this respect is not limited to recovering his own general average losses from the other interests, but includes the obligation to protect the right of the concerned in such cargo as has sustained a general average loss to recover from the other interests at risk. In practice the shipowner will probably not need to make use of this right of lien, although he is entitled to refuse delivery of the cargo until adequate security has been provided by the receivers or cargo owners. What is adequate is for the shipowner to decide, but it must be reasonable. The form which such security may take will be considered later in this paper. Instructions concerning the provision of security for general average will normally be communicated to the ship’s agents at the port of discharge, either by the shipowner direct, or by the average adjuster on his behalf. 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 and a contract 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 risk.
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