From: Sarah Derrington
Dear Karl
I set out below the only comments that have been received by MLAANZ (from a New Zealand average adjuster) in relation to the proposed amendments.
I look forward to seeing you in Beijing
Best wishes
Sarah
1. Under proposed Rule VI(b), the amount which has to be compared with the “total sums allowable in general average” is the “Salvage payments including interest and legal costs”.
a) I would understand the latter statement to be the salvage payment, salvage interest and legal costs incurred in negotiating the salvage. Do the terms need to be defined more explicitly so that it is only salvage interest and salvage negotiation legal costs which are being considered? The devil is always in the detail and whilst I cannot immediately think of where this would go wrong, I can imagine that it will. If the intention is that “interest” should include both salvage interest and GA interest, then it ought to be the last item in the list (so that it obviously includes GA interest on legal costs) and possibly be explicit that it is covering both salvage and GA interest.
b) The “total sums allowable in general average” would include allowances for GA interest on the salvage payments, salvage interest and legal costs. However, I would have thought that the % comparison should be made prime cost of the “salvage” verses the prime cost of the rest of the GA (excluding interest). Otherwise, in close cases, if there was benefit to one party in having the GA below the percentage threshold, withholding the timely provision of information to the adjuster could crank up the GA interest and reduce the percentage which the salvage, interest and legal costs represents.
2. In H&M policies with a small GA clause, life is going to get difficult. One can imagine a number of cases where the non- salvage GA is relatively small and the “small GA clause” will be adequate to pick it all up. However, where an LOF has been signed and all one knows is that there is a “significant” salvage award in the offing, who is going to make the call that the salvage award + interest (for how long?) + legal costs (how much?) will or will not exceed the specified percentage before the decision has to be made on whether to incur the expense of collecting GA security or not?
All sorts of factors come in to play:-
a) Someone will have to estimate the salvage, interest and legal costs based on:-
a. Limited knowledge of the salvors efforts
b. Limited knowledge of the salved values of ship
c. Almost no knowledge of the sound (let alone the salved) value of the cargo
d. No knowledge of how long the salvage settlement may take (and therefore the interest element to be added)
e. Limited knowledge of likely legal costs.
b) Will H&M insurers be impressed in being asked to paying for the costs of GA security collection under a small GA clause where the salvage turns out to be above the % threshold and the owner elects to claim the GA in full under the small GA clause? Will H&M insurers pay the collection costs?...... or will we see GA claims for the small bits and pieces being pursued anyway? Will cargo then be happy with that where the cost of security collection and adjustment charges to manage the collection are the largest element of a GA because the shipowner got his sums wrong (or was, quite reasonably, not willing to take the chance) that the salvage etc. would be below the % threshold.
There are going to have to be some very big calls made in a very tight time frame based on very limited information.
3. Cargo can be left in a very interesting position especially if the % decided upon in Rule VI(b) is quite low (say 75%). Take the example of a large amount GA sacrifice to the ship (Example 3 in the papers). This can happen where there is a major grounding and significant damage is done to the vessel in working the engines whilst aground or bottom, propeller or tailshaft damage incurred in efforts to refloat.
The decision is made (by the shipowner) not to declare GA because they believe that the salvage will (at the time) exceed 75% of the total GA. They have a sizeable “small” GA clause which they believe will be enough to cover all the remaining GA allowances.
The salvage runs it’s course during which time the extent to the refloating damage becomes evident and consequently the ship “salved value” is relatively low. Cargo therefore picks up an increased significant of the salvage.
If GA included the salvage then this would be addressed in GA as the GA sacrifice would be made good in assessing the contributory value of the ship for GA. However, in this case the cargo pay their share of the salvage and then do they have a right to demand disclosure of the final GA adjustment on H&M insurers to ensure that the salvage did truly exceed the 75% threshold?
If the salvage would actually falls below the threshold, will the cargo interest have a claim for clawing back any excess contribution in the event that their proportion of the salvage exceed what their GA contribution ought to have been? We all know that if the case is big enough, all questions get asked and this is just creating a mess and an area which is ripe for litigation.
I understand and applaud the concept but I think that the practical application of the proposed Rule VI will be a nightmare for all concerned. As stated on the phone, this looks like a poorly conceived band aid on a self-inflicted wound. Salvage should be either in or out.
Dr Sarah C Derrington
President
Maritime Law Association of Australia and New Zealand
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