Steps to be taken at the ‘Port of Delivery’ after a casualty happens & general average is declared

Once casualty happens & general average is declared, it is the ‘Port of Delivery’, where necessary steps are to be taken on priority basis.

Under this situation, the master/ agent has to take necessary steps as per instructions of shipowner and the average adjuster. to ensure delivery of goods after obtaining appropriate securities and documentation from consignees towards settlement of general average claim. It is important on the part of shipowner to retain lien on the cargo through the securities before final delivery of cargo to the receivers.

Declaration of general average

Considering extraordinary sacrifice or expenditure likely to be incurred due to casualty, it is the responsibility of the master of the vessel to declare general average and inform shipowner accordingly as soon as possible. Destination agents should be well conversant about the local requirements regarding what formalities to be observed to inform cargo receivers about general average and follow-up action afterwards i.e. security collection from cargo interest for settlement of claims.

Decision to obtain security

The decision to obtain security is to be taken by shipowner on top priority basis in consultation with general average adjuster. It is the duty of the adjuster to assess the likely size of general average sacrifice or expenditure related to ship and cargo with their professional knowledge and calculates corresponding general average contributions to be made by all the parties involved. On completion of this assessment, adjuster advises shipowner to proceed with the task of security collection for adjustment and settlement of claim.

Form of security required

It is the core responsibility of the shipowner to decide what type and form of securities to be obtained from cargo interests at the port of discharge through consultation with adjuster. Then full details of instructions have to be sent to the agents at port of discharge for strict compliance.

Generally the form of security needed is to obtain consignee’s signature to Lloyd’s form of average bond together with either payment of cash deposits or provision of satisfactory guarantees from reputable insurers in lieu of such deposits. Average adjuster will send appropriate instruction to sign non-separation agreements to agents if 1974 Rules are applied in the Contracts of carriage.

Cargo for which security required

If no specific advice is received from shipowner or adjuster on the contrary for any particular cargo, securities have to be obtained for all the cargoes that are liable to contribute in the general average claims. In this connection, average adjuster will send clear and detailed instructions to the agents to act accordingly. In case of jettison of cargo which is totally lost, the shipowner will not be in a position to deliver the cargo to the consignee at the port of discharge. The parties concerned may be reluctant to sign an average bond or provide an insurer’s guarantee in such situation. Even then an attempt should be made to obtain signature of party to Lloyd’s average bond with a view to get the identity of the party as well as value of the goods for settlement purpose. In practice, however, shipowner does not want to hold cargo for failure to provide general average security because this action is likely to result in additional charges being incurred.

Average bonds

One of the important instruments used in general average for obtaining security is ‘average bonds. Printed forms of average bond are sent by shipowners or average adjuster to the destination port for use. If this is not done, agent should collect Lloyd’s form of average bond from local Lloyd’s agents for doing needful. It is important for the agents to record full details of cargo in average bond highlighting full name and address of the consignee, shipment wise bill of lading number including port of shipment & destination and container no etc. The agents should ensure that a photocopy of invoice is attached with average bond duly signed.

Insurers guarantees

It is also an important means of security which shipowner accepts as an alternative to cash deposit against general average claim. Guarantees should be accepted only from reputable insurers. The form in which guarantees are provided varies but agents should use any special form, if it is provided by the average adjuster. Many insurance companies have their own printed form of guarantee and this is acceptable if it is in no way limited, i.e. provided the insurers guarantee covers the total liability of the consignee towards general average, salvage and other relevant charges. Thus a guarantee limited to the insured value of the goods cannot be acceptable.

Cash deposits

It is the most secured form of security taken from the cargo interest for settlement of general average claim of all parties involved, for release of cargo at the destination port. Normally the rate of cash deposit is determined as a percentage of arrived values of cargoes at destination port based of invoice values. If goods are damaged in the casualty and proper assessment of damage in terms of cost have not been done, then cash deposit has to be collected on full value of cargo. A deposit receipt is issued against cash deposit and the holder of the deposit is entitled to get refund when applicable. Refunds of deposit prior to final adjustment and settlement may be considered in special circumstances.

It is the usual practice that when the deposits are held other than the country of adjustment, then the agent is appointed as trustees on behalf of the ship and Lloyd’s agents as trustees on behalf of the cargo. The funds are placed in an interest earning account as per instruction of shipowner or  adjuster. Deposit of funds should be kept in the country and currency where  they are deposited and transfer of funds to another country should never be made without prior consent from the shipowner as well as concerned depositor in writing. Rule XXII of the York-Antwerp Rules provides detail instructions how to deal with  cash deposits.

Security from other interests

It is necessary to obtain security in the form of average bond, insurer’s guarantee or letter of undertaking to safeguard the loss of substantial value of the containers on board of a container vessel, as the same is allowed under general average act. This is particularly considered when container cargo has been sacrificed for the common safety.


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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