General Average – an overview

The Shipping Companies working under present global shipping environment are very much familiar with the term ‘General Average’. The term refers to a situation / event where the ship and cargo are exposed to common danger and some part of the cargo or of the ship is intentionally sacrificed, or extra expenditure is incurred, to avert such danger. Such loss or extra expenditure is addressed within the per view of general average contribution and the contribution is apportioned between ship and cargo in proportion to their saved values.

The basic principle behind general average is that when a sacrifice is made to save the interests of all the parties involved in a maritime adventure, the sacrifice or loss made by ship or cargo interest must be compensated by the contribution of all.

General average law is an important part of marine insurance. It actually originated many years before the idea of marine insurance came into being. During the period of ancient Greeks, the concept of general average was applied to deal with the problem of jettison of cargo and related losses due to sea peril.

The principles of GA had been adopted by maritime nations from time immemorial, but the pace of growth of  law and  practice of GA in different leading maritime countries was not uniform.  It was observed that during latter part of 19th century, substantial differences existed in law and practice of GA throughout the world. These differences created great hindrances in the functioning of international trade. This grave situation led the world shipping community to formulate the York- Antwerp Rules in order to achieve uniformity in the practice of GA law within global shipping industry.

Rule A of the York-Antwerp Rules 1990 (latest revised rule) defines a general average act as follows:

“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.”

Like York-Antwerp rule, a statutory definition of general average as mentioned in the British Marine Insurance Act 1906, section 66(2) shows that the subject of general average contribution has a close relationship in letter and spirit with marine insurance.

To confirm the sacrifice or loss to be the subject of general average contribution, Marine Insurance Act 1906, section 66(3) states as under:

“Where there is a general average loss, the party on whom it falls is entitled, subject to the conditions imposed by maritime law, to a rate able contribution from the other parties interested, and such contribution is called a general average contribution.”

Conditions necessary for ship to declare general average:

There must be a danger common to the whole adventure

The danger must be in fact, a real one and not merely imagined to exist by the master and it should be common to all parties involved in the adventure. The implication of the condition is explained with following examples:

Hypothetical example-1 – A vessel is carrying some refrigerated cargo and the refrigerating machinery breaks down while she is proceeding through the tropical zone. The ship calls a nearby port to arrange repairs of refrigerating machinery. In such case, threat of loss or damage is limited to the refrigerated cargo only and there is no common danger for the ship and the remaining cargo on board to continue the voyage safely. Thus the deviation to the unscheduled port for repair work cannot be treated as common danger to all parties and thereby no scope to include the incident as general average.

Hypothetical example-2 – Ship carrying wheat, is stranded on the coast of say Ireland during a period of great scarcity of food in that area. The inhabitants of the area compel the Captain to sell wheat at less than its value. In this case a part of wheat cargo has been discharged. Can the owners of balance wheat cargo claim general average contribution from the ship owner? As the inhabitants of Ireland intended no injury to the vessel, the incident cannot be accepted as common danger. Hence it is rejected from general average.

General Average

General Average

The sacrifice or expenditure must be real and intentional

Property cannot in reality be said to have been ‘sacrificed’ if it was already lost at the time of the so-called sacrifice. For example an abandoned ship’s mast, if it is lost during danger is no real sacrifice. Consequently shipowner cannot claim for contribution against such loss. Rule IV of York-Antwerp Rule 1974, illustrates that the sacrifice or expenditure must be ‘intentionally’ made. This rule explicitly implies that damage caused by cutting away of   wreck or parts of ship, if it is lost during sea peril, cannot be made good as general average.

The sacrifice or expenditure must be necessary

Generally it is the duty of the master to decide whether a sacrifice or expenditure is necessary or not. If the actual order is given by some  other competent authority and the master sanctions the order, it means that the order has legal binding to follow. The following example would make the idea clear. Suppose a fire has broken out on board and the master entered into a port of refuge. The fire increased and the harbour ordered that ship should be scuttled. The master considered this course of action to best in the interest of ship and cargo. The master raised no objection. That means master has sanctioned the scuttling of the ship. This expenditure is necessary and as such it constitutes as a general average sacrifice.

The danger must not have arisen through the fault of the person claiming contribution when it exposes legal liability for the damage

A person can be prevented from recovering a general average contribution, if it is found that the fault done by him, constitutes an actionable wrong. From this perspective, a shipowner cannot claim a general average contribution where he allowed a vessel to sail with smoke in her holds or where she was unseaworthy on sailing. For example a vessel carrying coal cargo, caught fire through spontaneous combustion. This incident of spontaneous combustion of coal during voyage shows deliberate negligence on the part of ship. So shippers are entitled to a general average contribution from shipowner for damage to coal cargo due to extinguishing fire.

Only direct losses are recoverable

The condition says that the loss must be directly caused by the general average act. Since consequential losses are not directly connected with general average act, there is no scope to admit these losses under GA. For example, to safeguard ship from sea peril, if some cargo are jettisoned, the losses or sacrifice is admitted as general average. But at the time of jettison operation, if water enters into the holds/hatches and damages cargo, this water damage being a consequential loss, cannot be considered as general average. The York-Antwerp Rule also illustrates the above situation as under – “Only such losses, damages or expenses which are the direct consequence of general average act shall be allowed as general average. Loss or damage sustained by the ship or cargo through delay, whether on voyage and subsequently, such as demurrage, and any indirect loss whatsoever, such as loss of market, shall not be admitted as general average.

The sacrifice or expenditure must be extraordinary and reasonably

Under this situation, normal expenditure incurred or losses suffered by the shipowner to fulfill his obligation under contract of affreightment, cannot be admitted as general average. Only extraordinary expenditure incurred reasonable for the common safety of the ship & cargo, deserve to be included as general average contribution. The following examples give some idea about extraordinary expenditure:

  • The expense of hiring lighters for storing cargo in which efforts to refloat a vessel take place.
  • The expense of hiring a tug with fire-fighting equipment to extinguish a fire on board a vessel.
  • Port of refuge expenses – A vessel usually has to enter a port of refuge in consequence of a casualty or because of general average damage to the ship.
  • Salvage charges (as established in the 1990 amendment to the York Antwerp Rules).

The property which was in danger must have been actually benefitted by the sacrifice

Under this condition master while declaring GA, has to ensure that the property facing the danger must be compensated by the sacrifice undertaken.

Summary of common events which give rise to general average, is shown in the  table below – at a glance:

 

SL No Casualty / Event Type of sacrifice or expenditure

 

01 Stranding
  • Damage to vessel and   machinery through efforts to refloat.
  • Loss of or damage to cargo through jettison  or forced discharge.
  • Cost of discharging, storing and reloading any cargo so discharged.
  • Port of refuge expenses.

 

 

02 Fire
  • Damage to ship or cargo due to efforts to extinguish the fire.
  • Port of refuge expenses.

 

 

03 Shifting of cargo in heavy weather
  • Jettison of cargo.
  • Port of refuge expenses.

 

 

04 Heavy weather, collision, machinery breakdown, or other accident involving damage to ship and resort to detention at a port

 

  • Port of refuge expenses.

 

 

 

 

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  2. International Maritime Organization-a specialized agency for safety in shipping and sea
  3. Possible impact of “BREXIT” on Britain’s economy and shipping

 

 

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