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Brief introduction to General Average 20th May 2014
Keith Jones
2
General Average
Who or what is General Average???
Brief History
Rhodian Law definition 2,500 years ago
The Ancient Greeks drew up formal agreements between the parties
involved in a maritime adventure – amazingly takings at sea were quite
common resulting in payments of ransom – piracy today
Brief History Cont..
“That which has been sacrificed for all, shall be made good by the
contributions of all”
Brief History Cont..
General average developed
alongside the growth of
international trade
Brief History - York/Antwerp Rules 1877
First trace of reference to „General Average‟ in English courts in 1799
By the 19th century an international agreement was needed for uniform international practice. Meetings at Glasgow/York and finally in Antwerp.
York-Antwerp Rules 1877 – took 17 years to formalise – Lloyd‟s opposed to GA – subsequent amendments. Latest 2004
Peculiar to Maritime Voyages
International GA Congress York – September 1864
8
Sacrifice - Deliberate loss of property for the common safety
Jettison of cargo
Extinguishing damage – water fighting fire
Ship intentionally run ashore for common safety
Expenditure – Involves monetary expense
Salvage award
Detention costs at a port of refuge
General Average Sacrifice or Expenditure
General Average
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Fire
Examples of General Average Cases
General Average
11
Fire
Stranding
Examples of General Average Cases cont’d
General Average
13
Fire
Stranding
Heavy Weather
Shifting of cargo in heavy weather
Examples of General Average Cases cont’d
General Average
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21/05/2014 14
15
Fire
Stranding
Heavy Weather
Shifting of cargo in heavy weather
Collision/contact
Examples of General Average Cases cont’d
General Average
Examples of General Average Cases cont’d
Examples of General Average Cases cont’d
19
Fire
Stranding
Heavy Weather
Shifting of cargo in heavy weather
Collision/contact
Main engine Breakdown
Examples of General Average Cases cont’d
General Average
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View of the Cracked Main Engine Frame
General Average
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Examples of General Average Cases cont’d
Fire
Stranding
Heavy Weather
Shifting of cargo in heavy weather
Collision
Machinery Breakdown
Piracy
22
General Average
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Piracy cont’d
General Average
General Average - Definition
Rule A of York-Antwerp Rules (my underline)
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.
Essential Features
Voluntary or Intentional Loss (as contrasted with accidental)
Stranding
Accidental - damage to ship and cargo - Particular Average (PA)
Intentional - Jettison of cargo and damage to engines, plus salvage expenses - General Average (GA)
Essential Features cont‟d
Fire
Accidental - damage to ship and cargo - Particular Average (PA)
Intentional - damage by water to extinguish - General Average (GA)
Essential Features cont‟d
Time of Peril
Real and substantial and not imagined (Watson v. Firemans Fund - 1922) but need
to be immediate (Vlassopoulos v. British & Foreign - 1928)
Peril must affect all interests
Common Adventure
More than one interest i.e. ship and cargo/tug and tow
Essential Features cont‟d
Extraordinary
Not something which cargo have right to expect under Contract of
Affreightment
(Harrison v. Bank of Australia 1872)
Reasonable
Cory v. Coulthard 1876
“Alpha” 1991 – Rule Paramount in 1994 Rules
Decision left to man on the spot – modern day communications obviously
help – in most cases !!
29
Covers General Average expenditure and sacrifice in full under the
Hull & Machinery Policy, without the need to collect contributions from
other parties, but subject to a limit specified in the policy.
Example wording
If the Assured chooses not to claim contributions from the other
interests in the General Average, the Insurer is, at the Assured’s
option, liable either for any loss, damage, liability or costs which
would have been recoverable in the General Average up to the
amount stipulated in the policy, or, for the ship’s General Average
contributions.
Ballast GA provisions in hull clauses
General Average Absorption Clause
(Small General Average Clause)/Ballast GA
Declarations of GA
No real need for actual declaration – some countries, however, written
notification to local insurance institute or publication in local
newspapers is required, lodging Masters Note Of Protest etc. Time bar
Ship owner – bailee of cargo
Cargo sacrifice cases – Crooks v. Allen (1879) – Strang v. Scott (1889)
Appointment of General Average Adjuster
Message from owners to charterers advising of GA situation plus
appointment of adjuster
Contracts of affreightment/provisions on reverse of Bill/CP as to adjustment (which rules/what place)
Details of port agents at discharge port(s)
Manifest
Collection of GA security from cargo interests – prior to release Average Bond, Average Guarantee, Cash Deposit, Bank Guarantee + ideally commercial invoice involved in shipment
Loss by delay/No fault
GA does not cover loss by delay, market etc.
1994 Rules – exclude „damage to „environment‟ – e.g. pollution
No Fault – Rule D
Adjuster states the GA without regard to fault/security lodged without guarantee of payment if vessel in breach of contract of carriage
Needs to be wary of including documents in adjustment which may be „privy‟.
Contribution to GA
M.I.A 1906 Section 66 (3) all property on board at time of General Average Act i.e.
Ship Cargo Freight
Occasionally other interests such as Time Charterers‟ Bunkers, Shops on
board, possibly works of art, containers but not personal effects,
luggage, mail etc
A simplified example: G.A. P.A.
Cost of P.A. grounding damage repairs 2,000,000
Cost of refloating damage repairs 750,000
Dry-dock dues, general services 500,000
Dry-dock dues attaching to G.A. 50,000
Class attendance fees 2,000 5,000
Owner‟s superintendent 1,000 2,500
Jettisoned cargo 500,000
Discharge cargo 150,000
Store cargo 50,000
Reload cargo 150,000
Detention/crews‟ wages & maintenance 75,000
Salvage 3,500,000
5,228,000 2,507,500
Grounding with refloating damage
General Average
Ship Contributory Value
(less damage plus Made Good)
16,325,000 pays 3,892,685
Cargo Contributory Value
(less damage plus Made Good)
5,500,000 pays 1,311,470
Freight at risk
100,000 pays 23,845
21,925,000 5,228,000
(General Average equals 23.84492% of total contributory values)
General Average Apportioned
General Average
36
Ship “JOLLY ROGER”, sound value: 100
Carries 5 similar cargo consignments (BLUE, RED, YELLOW, GREEN,
PURPLE), value of each: 10
Encounters a storm and runs aground
Salvor “P.P.” is contracted and refloats the ship. Remuneration of salvor: 20
During salvage operation, the BLUE and RED cargoes are jettisoned
Ship suffers grounding damage (repair costs 40), but is able to proceed on the
voyage
During remainder of the voyage, the YELLOW cargo is lost overboard during
another storm
At destination, the GREEN and PURPLE cargoes are delivered sound
Made good - Simple Practical Example
General Average
37
General Average Expenditure
Salvage services of “P.P.” 20
General Average Sacrifice
Jettison of the BLUE and RED cargoes 20
------
40
Total General Average Claim
General Average
38
Total General Average: 40 Contributing Interests Contribution at 50% Ship 100 Less: Damages (40) 60 pays 30 Cargo GREEN 10 pays 5 PURPLE 10 pays 5 ------------------------------------------------------------
--- 80 40
WRONG!!
Total General Average Apportionment
General Average
39
Total General Average: 40
Contributing Interests Contribution at 40%
Ship 100
Less: Damages (40)
60 pays 24
Cargo
GREEN 10 pays 4
PURPLE 10 pays 4
BLUE (made good) 10 pays 4
RED (made good) 10 pays 4
100 40
General Average Apportionment
York Antwerp Rules 2004/16
2004 - Attempt to restrict GA to English common law – „common safety’ – no further GA allowances.
2004 - First time new set of rules published without consensus between ship-owning and other interests.
2004 - Unlikely to be put into practice as needs to be incorporated into bills of lading/charter parties which owners unlikely to do.
Attempt to re-enact 2004 Rules in Beijing in 2012 - Next revision due 2016
Brief introduction to General Average 20th May 2014
Keith Jones
