How adjustment and Settlement of general average contribution is done among the parties involved in a common maritime adventure

Adjustment and Settlement of general average contribution is a very complicated task and an average adjuster accomplishes the job with high standard of professionalism and adhering to its strict code of conduct. The marine communities now a day deem it necessary to seek the expertise services of average adjuster to adjust & settle the general average claim due to their unique role.

The basic principle of general average is that when an extraordinary 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.

Adjustment means calculation of general average sacrifice or expenditure, contributory values and apportionment of assessed contribution to ship and cargo interest, as per detail interpretation and guideline provided by the lettered and numbered rules of York-Antwerp Rules 1994. Adjustment is bound by the law of the country where cargo to be discharged and delivered to the consignees unless the contract of carriage includes explicitly York-Antwerp Rules 1994 or 1974 as the guiding law for handling the issue of general average. Another important principle of adjustment is that all the properties that have encountered losses or remained at the risk & saved under general average act, must contribute to GA according to its “arrived value” after the termination of the voyage. Normally cargo discharged prior to occurrence of general average or loaded thereafter, does not contribute to GA.

Evidence of Claims

It is the first and foremost duty of the party to justify any claim of loss or expenses with acceptable documentary evidence which is allowed under general average. In other words, the burden of proof lies on the party who has a claim under general average. According to the guideline of York-Antwerp Rules, claimants must give notice of their claim in writing to the average adjuster within twelve months of the termination of the voyage. A similar twelve months limit also applies for submitting documentary evidence in support of their notified claim. On receipt of notice of claims with supporting documents from parties, the adjuster starts calculating the estimates as per rules.

Documents required from Shipowners

To assess the legitimacy of claims of shipowners, average adjuster requires necessary documentary evidence. The documents for general average claims vary considerably according to the nature of the casualty. The following types of documents are required from shipowners in majority of the cases.

Documents/information required when ship moves to a port of refuge:-

  • Log extracts and reports from the master or other relevant parties on the spot, showing the dates and times when the vessel deviated, arrived at port of refuge, left port of refuge and regained her fitness to proceed to the port of destination.
  •  Survey reports conducted on behalf of insurers, shipowner or the Classification Society, exploring the actual conditions for diverting the vessel to the port of refuge and/or any repairs effected there, together with accounts covering the cost of survey.
  • Details of repairs effected at the port of refuge, stating whether they are temporary or permanent repairs, and also total amount of cost required to carry out the repair works including costs of overtime billed for the repairs.
  • Details of any shifting or discharge of cargo at the port of refuge, stating whether such shifting or discharge was necessary either in order to allow repairs to be effected, or for common safety. Details of accounts, if costs have been incurred in this respect.
  • Agent’s disbursements account covering the detention period at port of refuge together with supporting vouchers.
  • Details of wages and allowances paid to crew of vessel during the period of ship’s stay at the port of refuge.
  • The daily rate of cost of victualling incurred in respect of the crew of the vessel.
  • Details of    fees   and   expenses paid for      any shipowner’s  superintendent/surveyor employed at the port of refuge.
  • Details of fuel and stores consumed by the ship in deviating to the port of refuge, while detained there and upto the regaining position.
  • Details of communications made from ship to shore and vice versa, in connection with the casualty including their costs.
  • All accounts should be marked with the date on which they were paid by the owner.
  • Where the freight is payable at destination, the adjuster will require copies of the accounts showing amount of freight earned and the cost of earning the freight.

Documents required from shipowner / ship under different situation of casualties:-

If a vessel has been on fire –

  • Survey report showing division of damage between fire and efforts to extinguish the fire. Accounts of repairs to the vessel should also be divided in the same way. Accounts for any fire-fighting costs, refilling extinguishers, CO2 bottles etc to be sent.

If a vessel has been aground –

  • Survey report dividing the damage found between that caused by grounding and that caused by refloating.
  • Repair accounts should be similarly divided.
  • If the vessel has been refloated with tugs, a copy of the salvage contract.
  • Accounts for any costs incurred for lightening the vessel, g. lighterage.

Documents required from cargo interests

  • Specimen bill of lading showing front and reverse side.
  • Manifest of the cargo on board at the time of the casualty.
  • Details of the out-turn report regarding cargo delivered.
  • Any survey reports on cargo directly held after the casualty or at the ports of destination.
  • General average security documents furnished by cargo interests, i.e. average bonds, general average guarantees, invoices & non-separation agreement etc.
  • Copies of general average deposit receipts issued.
  • A copy of the C.F. invoice, if not already provided with the G.A. guarantee.
  • Copy of claim documents relating to damage to cargo.

Contributory values and general average losses

As a general principle the property saved by the general average act contributes on its value at the time and place after the termination of the adventure.

Contributory values for Ship

The ship contributes on her arrived value at destination in damaged condition. That means the contributory values of the ship is calculated on the basis of damaged condition of ship  at the termination of the adventure  &  on completion of discharge of cargo at port of destination (unless the voyage is abandoned earlier). To know the arrived value of the ship, shipowner obtains a valuation certificate from a ship’s sale and purchase broker where the estimated market value of the vessel is shown. Contributory value of ship includes arrived value of ship plus cost of repairs of damage to vessel’s machinery sustained in refloating operations.

Contributory values for Cargo

According to Rule XVII of York-Antwerp Rules, cargo contributes to general average on the basis of invoice value after deduction of loss and damage at the time of discharge. If there is no such invoice the value will be ascertained from the shipped value. The invoice supplied by cargo owner for the purpose of adjustment, should be the CIF invoice (cost, insurance and freight),  provided that the freight term is agreed as  prepaid & not payable at destination. Therefore contributory value of cargo includes invoice value after deduction of loss and damage plus allowance in general average in respect of jettison and damage  due to forced discharge.

Contributory values for Freight

Whether the freight earned on the voyage contributes to the general average will depend on the terms of the contract of affreightment. If the freight is payable at destination, the carrier bears the risk of delivering the cargo to the right person at the port of destination and as such it will contribute on its net value, i.e. the gross freight earned, less the cost of earning it which includes port charges & cost of discharging at destinations.

Settlement under adjustment

After examining all the documentary evidences and having obtained satisfactory answers to all the queries regarding the claims of ship and cargo interest, the adjuster will prepare a comprehensive  report stating and highlighting the circumstances of the casualty, the contractual conditions governing the adjustment, the amounts allowable in general average for sacrifices of property and disbursements incurred, the values of the contributing interests, the apportionment of the total general average to the ship & cargo and the final amount of the debit or credit payable by  the parties concerned. Then copies of the adjustment, or extracts from it, will be sent to all cargo interests for information and necessary action.

In accordance with the final adjustment calculation, the debtors group will be asked to send the appropriate amount to the adjuster in settlement of their contribution. On the other hand  adjuster will inform the creditors groups that they are entitled to get amount out of general average contribution and the same will be disbursed to them as soon as all receivable amounts of GA fund is fully collected.

Following Forms are used to obtain securities from owners of cargo for settlement of general average claims and are available in the  below link for ready reference.

  1. average-bond-form_click-here-to-download

 

  1. average-guarantee-form_click-here-to-download

 

 Related Post:

  1. General Average – an overview
  2. Events of sea peril that give rise to general average & application of York-Antwerp Rule
  3. Role of average adjuster and steps to be taken immediately after a casualty happens
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