Saturday 23 July 2011

GENERAL AVERAGE



General Average Clauses- Charter Party Law
By: Jeffrey A. Weiss
One of the most ancient aspects of maritime law is general average. When an intentional sacrifice of 
property is made onboard ship to avoid a common peril, or when an intentional expenditure is 
made, also to avoid a common peril, general average requires all of the parties to the marine 
adventure that benefited by the intentional sacrifice or expenditure to contribute money on a pro 
rata basis.
Who are the parties to the marine adventure?
They are of course, the vessel's owner, the charterer, 
as well as other parties such as the cargo interests.

In this article, I will discuss two clauses that concern general average that are routinely found in 
charter parties and bills of lading. The first clause refers to the York Antwerp Rules. The second is 
the New Jason Clause. However, I will first provide a quick review of the principles of general 
average.
Prerequisites for a General Average.
Imagine that a fully laden vessel is sinking. She is trading under a time charter party and bills of 
lading have been issued to various cargo interests. The master of the vessel must act quickly. In 
order to save the vessel and her cargo, the master orders that the vessel be lightened by tossing 
part of the cargo overboard (jettison). The intentional sacrifice promotes the saving of the vessel. 
Days later, the ship and her remaining cargo arrive safely at destination. Who suffers the loss arising 
out of the jettison? Is it the owner of the jettisoned cargo? The shipowner? The charterer?
It seems natural that the most equitable solution will be to allocate the loss among the many parties 
that benefited by the intentional sacrifice.
This is general average. It shifts part of the loss suffered 
by the owner of the jettisoned cargo onto the various other parties that benefited by the intentional 
sacrifice   in this case, the vessel's owner, the charterer, as well as the other cargo interests 
onboard. All of the parties to the marine adventure that benefited by the sacrifice must share in the 
loss.
Everyone must contribute to the loss on a pro rata basis. The calculation is complicated.
However, contributions are more or less determined by comparing the value of an individual's 
interest onboard a vessel (such as the value of your cargo) with the overall valuation of the marine 
adventure (ship and all of her cargo, bunkers, freight, etc.).
General average is not limited to cases involving jettison of cargo. Nor is the sacrificed interest 
always the vessel's cargo. In fact, most of the time it is the vessel and her owners that seek 
contributions. In short, there are many intentional sacrifices and/or expenditures of an extraordinary 
nature that may give rise to general average contributions. Examples of general average sacrifices or 
expenditures include: 1) A vessel that is in danger of sinking is intentionally grounded. The hull 
damage arising out of the grounding is general average. This will require contributions from the 
other parties to the marine adventure. Everyone must pay their fair share of the hull damage. 2) A 
distressed vessel may require the skill and efforts of professional salvors. The salvage award earned 
by the salvors is typically shared by all of the benefited parties to the marine adventure. 3) The 
shipowner incurs expenses in calling a port of refuge in order to avoid extremely heavy weather. All 
parties must contribute to the intentional expenditures incurred.

The law of general average is very old. It has its historical basis in the ancient sea codes of the early 
Mediterranean civilizations. It is part of the maritime law of virtually every seafaring nation.
The York  Antwerp Rules
The fundamental application of general average is remarkably consistent throughout the world's 
maritime community. However, there are differences from nation to nation. In order to provide 
uniformity, the international shipping community created the York Antwerp Rules. These Rules are 
routinely merged into the contract of carriage by a charter party or bill of lading clause. An example 
follows:
"General Average shall be adjusted, stated and settled according to the York Antwerp Rules 1994, 
and, as to matters not provided for by those rules, according to the laws and usages at the port of 
New York...."
By the middle of the nineteenth century, the rules of general average were incorporated into the 
statutory laws of most European nations and were fully recognized in the common law of the United 
States. However, as suggested before, the practice of general average throughout the world, and 
most particularly in the European and Anglo-American systems, still differed to some extent. For 
this reason, attempts were made during the latter half of the nineteenth century to establish 
uniformity.
his was accomplished with the adoption of the York  Antwerp Rules of 1890. The Rules were 
quickly accepted by most seafaring nations and are now universally incorporated into contracts for 
the carriage of goods. They were since modified numerous times.
The Rules are used to identify those sacrifices, acts and expenditures that should be considered 
general average. They also provide guidelines for valuing property in order to determine the various 
contributions required by the parties.
Let's look at a couple of the Rules. Rule A of the York   Antwerp Rules reiterates the basic 
requirements for a general average:
"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. General average sacrifices and 
expenditures shall be borne by the different contributing interests on the basis hereinafter provided
Rule III is more specific and states:
'Damage done to ship and cargo, or either of them, by water or otherwise, including damage by 
beaching or scuttling a burning ship, in extinguishing fire on board the ship, shall be made good as 
general average except that no compensation shall be made for damages by smoke howsoever 
caused by heat of the fire."
Therefore, in accordance with Rule 111, damage done to the vessel arising out of efforts to fight a 
shipboard fire (such as seawater damage to the vessel's machinery) is general average and is to be 
shared by all parties to the marine adventure. However, the shipboard damage caused directly by 
the fire (and not due to the voluntary act of firefighting) is particular average, which is strictly for the 
shipowner's account.
The York Antwerp Rules do not have the force of law, unless they are expressly incorporated into 
the contract of carriage, which they almost invariably are. Thus, the Rules represent a consensus of 
the international shipping industry as to how a general average should be adjusted.
The New Jason Clause
This standard clause read substantially as follows:
"
In the event of accident, danger, damage or disaster before or after commencement of the voyage 
resulting from any cause whatsoever, whether due to negligence or not, for which, or for the 
consequences of which, the Carrier is not responsible by statute, contract or otherwise, the goods, 
shippers, consignees, or owners of the goods shall contribute with the carrier in general average to 
the payment of any sacrifices, losses or expenses of a general average nature that may be incurred, 
and shall pay salvage and special charges incurred in respect of the goods."
The maritime law of the United States denies the shipowner the right to seek general average 
contributions when the peril avoided by the sacrifice or expenditure was occasioned by the carrier's 
fault, such as the fault of the master or crew. The classic example would be when a vessel grounds 
because of an error in navigation and the shipowner subsequently makes expenditures and 
sacrifices to save the vessel and her cargo. Under the law, the shipowner will not be entitled to 
seek general average from cargo interests and/or the charterer, even if the remaining property is 
indeed saved.
This rule was affirmed by the U. S. Supreme Court in an old case involving the vessel 
IRRAWADDY. She grounded due to the negligent navigation of her master. It was conceded that 
the shipowner was not liable for any direct damage to the cargo due to the vessel's stranding 
because of the protection afforded the shipowner under the terms of the Harter Act and the bill of 
lading. The Harter Act is an old statute that provides (as does the subsequent Carriage of Goods 
By Sea Act of 1936) protection for the shipowner against being held responsible for cargo loss or 
damage arising out of certain causes, such as an error in the navigation or management of the vessel.
The owner of the IRRAWADDY also sought general average contributions from cargo interests, to 
help pay for the sacrifices and expenditures that it made after the grounding to save the vessel and 
her cargo.
The Supreme Court rejected owner's general average claim. The Court opined that while the bill of 
lading and the Harter Act shielded the shipowner from liability for cargo loss or damage, it could 
not be used as "a sword by which he might attack the cargo by claiming general average ......
This result was unacceptable to shipowners. They began to insert special clauses into bills of lading 
and charter parties (then called "General Average Negligence Clauses") that attempted to 
overcome the adverse precedent established by the Supreme Court in the URRAWADDY.
These clauses essentially provided that if the shipowner exercises due diligence to make the ship 
seaworthy, he was not only exonerated for cargo loss or damage arising out an error in the 
navigation or the management of the ship, but was also entitled to general average contributions.
The legality of these clauses was suspect until a small vessel called the JASON ran aground on the 
south coast of Cuba in 1904. The vessel stranded because of negligent navigation. The contracts of 
carriage for the JASON contained a General Average Negligence Clause similar to the one 
described above.
There was no question that at the outset of the voyage the vessel was seaworthy and was properly 
manned, equipped and supplied. The shipowner incurred considerable salvage charges and sought 
general average contributions from cargo interests. The cargo interests refused alleging that under 
the rule of the HUUWADY, no such contribution was allowed. Additionally, cargo interests argued 
that the General Average Negligence Clause was unenforceable and against public policy.
The Supreme Court ruled that it was not against public policy or the law for a carrier to provide in 
its contract of carriage a clause that requires contributions into a general average even if the need 
for the general average sacrifice or expenditure arose out of a cause for which the carrier is 
exonerated, such as an error in the navigation of the vessel. The General Average Negligence 
Clause was thereafter given its present name, the Jason Clause (it has been modified over the years 
and is now referred to as the New Jason Clause).
The clause survived succeeding legal challenges and has been expanded in application. The basic 
rule today is that the New Jason Clause gives the shipowner the right to seek general average 
contributions if the accident, danger, damage or disaster occurs with or without the negligence of 
the shipowner or his employee, so long as the need for the intentional sacrifice or expenditure is a 
cause for which the carrier is not responsible for cargo loss or damage under the terms of the 
contract of carriage or the maritime law.
However, you should realize that under U. S. law, the shipowner must still expressly provide in the 
contract of carriage for a "Jason" result by including a Jason Clause. Otherwise, the rule of the 
IRRAWADDY will control and the shipowner will be denied contributions in general average when 
the need for the sacrifice or expenditure was due to the negligence of the shipowner or its 
employees.


Chapter Seven
GENERAL AVERAGE
Introduction
The principles of general average have evolved from ancient times as a means of compensating parties with a common interest in a maritime venture, if property has to be sacrificed or expenditure incurred, to save the venture as a whole. From its simple origin as an agreement between merchants, general average has matured into a complex branch of shipping law governed by precise rules and conventions.
This chapter deals with the followmg:-What is General Average?;
Who   are   interested   parties   and   how   is   General   Average assessed?;
When is General Average declared?; Ship Agents and Surveyors; The Master's role
What is General Average?
The main principles of genera average are contained in the York-Antwerp Rules, 1974. The Rules define 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."
In the context of marine insurance, the word "average" means a partial loss. General average must be distinguished from "particular average" which means an insured loss. For example, if fire is discovered on board a laden vessel, the following items make up the general average loss:
1.    Cost of damage caused by water or any other methods used to extinguish the fire;
2.    Cost of repair if ship's structure has to be altered to gain access to fire;
3.    Value of any cargo damaged or jettisoned during efforts to control fire;
4.    Cost of using the ship's equipment and the wages of the crew during the general average incident.
 
GENERAL AVERAGE
In another example, if a vessel runs aground in a dangerous position, the following items would make up the general average loss:
1.    Cost of tugs to refloat the vessel, including the value of any salvage award;
2.    Cost of running ship's engines and other equipment to assist refloating;
3.    Cost of discharging cargo into lighters and the cost of reloading;
4.    Cost of pollution removal if cargo has been jettisoned and the value of the lost cargo;
5.    Stores consumed and wages paid to crew during the general average incident.
It is important to note that items of particular average are not calculated as part of the general average loss. In the grounding and fire situation, for example, damage caused to vessel as a consequence of the grounding would not be a part of the general average loss, but would form a hull and machinery claim
Who are the Interested Parties and how is General Average assessed?
The general average incident will necessarily involve some part of he cargo or ship being sacrificed or extra expenditure being incurred to save the entire venture. The interested parties to the maritime venture, normally the ship owner, the cargo owner, and the charterer, will compensate the party who has suffered the general average loss by making contributions in proportion to the value of their relative interests in the venture as a whole.
The ship owner's interest in the venture is determined by the current value of the vessel at the termination of the venture. Time charter hire is normally excluded from owner's total interest but may be included depending on the terms of the charter. In voyage charters, the amount of bunkers onboard would be included in the ship owner's valuation.
The time charterer's interest in the venture is determined by the value of bunkers remaining onboard at the time of the incident, plus the freight at risk on the voyage.
The cargo owner's interest is determined by the sound market value of the cargo on the last day of discharge.
The assessment of each party's contribution is called an "average adjustment". In recent times, the principles by which an adjustment is made are generally governed by the "York-Antwerp Rules, 1974". The rules ensure that all average adjustments conform to an international standard.
The adjustment is made by an average adjuster. The average adjuster is appointed by the ship owner to collect all the facts surrounding the incident, to collect
 
GENERAL AVERAGE
guarantees from various parties before cargo is discharged, and to ensure payment of the contributions. The adjuster will have all the facts and figures at his disposal, and thus, in addition to calculating the contributions due from each party, he will be requested frequently to adjust any resulting hull claim.
When is General Average declared?
The declaration is normally made by the ship owner, but in certain countries any one of the interested parties may initiate an adjustment. A declaration must be made before the delivery of the cargo. Ship owners usually will allow delivery of the cargo when the other interested parties to the venture provide suitable security (usually in the form of average bonds), sufficient to cover their contribution.
Ship Agents and Surveyors
Following a general average incident, ship agents and surveyors play a significant role. A ship agent, in addition to the normal duties of port and husbandry agency, will assist the Master in the aftermath of a general average incident to make a declaration which complies with the local law and custom of the port. Once the average adjuster has confirmed that security has been obtained from all the interested parties, the agent is instructed by the ship owner to permit delivery of the cargo. If cargo has been discharged to lighten the vessel, or cargo has been trans¬shipped to a final destination, the agent will be responsible for keeping full and complete records of all movements and expenditure attributable to the general average.
After any incident, a large number of surveyors representing various interests will descend on the vessel. Some of these surveyors will not be involved directly in the general average process, for example, those acting on behalf of hull underwriters, the classification society, or state officials. However, if it has become necessary to sacrifice or discharge a part of the cargo before arrival at the final destination stated on the bill of lading, the ship owner will appoint surveyors to report on the condition and quantity of cargo. Such surveyors, usually called general average surveyors, will act in the interests of all the parties involved (and may also represent hull and machinery interests). If possible, the account representing expenditure incurred should be examined and approved by the general average surveyor before settlement.
On the other hand, surveyors appointed by cargo interests only represent the interests of their client. They may criticise the action taken by the Master or allege that the vessel was unseaworthy (unseaworthiness is discussed in detail in chapter 1). Therefore, if an incident occurs which may give rise to a general average act and, if time permits (for example, in a grounding incident), the Master should consult owners and cargo interests to discuss the best possible course of action. Prior consultation may resolve disagreements and help to avoid later disputes.
The Master's Role
The Master must be prepared to assume the widest possible role in solving all the problems created by an incident if there is an urgent need to do so and assistance is not readily available. Apart from good seamanship and reasonable judgment, the
 
GENERAL AVERAGE
Master must ensure that the history of the incident is recorded accurately and fully. The record should include details of all actions taken by the various parties involved and include their names and organisations. If possible, the Master should ensure that a photographic record of the events is made. The Master's evidence will be crucial as it is usual for a year or more to elapse between the incident and issue of the "Statement of General Average".
If salvage services are involved, the Master should ensure that a full record is made of the salvor's actions and the equipment used. This evidence, together with an assessment of the dangers involved, will determine the level of the salvage award (further information on salvage may be found in chapter 8).
In most cases of general average, the main evidence used for the adjustment is obtained from the various survey reports. The Master should ensure that a clear and accurate account of events is given to surveyors. The survey reports will be supported by witness statements and the vessel's records. When draft surveys and other calculations are being performed, it is advisable for the Master to ensure that a responsible officer is on hand to guide and assist the surveyor.
Examples of documentation used to prepare the adjustment are as follows:
1.     Casualty reports prepared by the Master;
2.     Survey reports prepared by attending surveyors;
3.     Log extracts and other available records from the vessel;
4.     Copies of communications/instructions relating to the incident,
5.     Statements, which are prepared by owner's solicitors, taken from personnel involved in the incident;
6.     Details of all expenses incurred as a consequence of the general average act fully supported by invoices (including onward charges for cargo if transshipped);
7.    Salvage award;
8.    Copies of all port papers covering the period during which the incident occurred;
9.    Full cargo manifest and valuation information for cargo;
10.   Vessel’s valuation adjusted for any damage repairs allowable in general average;
11.   Statement of fuels and stores consumed and labour used during the general average act;
12.   All documentation covering the security provided by all interested parties.
 
GENERAL AVERAGE
APPENDIX
Case History
The subject vessel was a large bulk carrier with nine holds and with the bridge, engine room, and accommodation aft. She was let on an N Y P.E. time charier and was carrying a cargo of wheat, loaded in all holds, from the U.S Gulf to Europe. The general average adjustment in this case was made according to the "York-Antwerp Rules, 1974".
Day 1
The vessel sailed from the load port during the morning and proceeded downstream under the Master's orders and the pilot's advice. At 1626 hours, the vessel touched bottom. The various attempts to free her using the helm and engines failed. With the assistance of the pilot boat, it was established that the vessel was aground 200 feet to the west of the channel, resting on a bottom of soft mud and silt. It was also established that two channel buoys used to position the vessel were 300 feet west of their charted location. It was calculated that the vessel was 17.000MT aground.
Owners retained a local Salvage Master and tugs to try and free the vessel.
Days 2-4
Three attempts to free the vessel using up to eight tugs failed.  The owners terminated the services of the local Salvage Master.
Days 5-13
During this period, a local firm was contracted to remove a portion of the cargo with            vacuvators into a lightering vessel, chartered by owners. Due to the poor
performance of the vacuvators and a dispute over the employment of stevedores, this method was abandoned. The small amount of cargo discharged was reloaded.
 An international salvage company was then retained to take charge of the operation
on the basis of cost plus fifteen percent. A program was planned to dredge a channel
from the bow of the vessel to the main navigational channel and also to create a
channel along the port side of the vessel. Additional dredging was proposed around
the ship's side to break the suction imposed by the mud.
 Days 14-20
The dredging operations were commenced and completed.
Day 21
Five tugs were engaged to pull the vessel into the dredged channel and into the main channel. The attempt failed as the ground reaction was too great to allow the vessel to float free.
Days 22-27
All the interested parties agreed that the best course of action was to discharge 17.000MT of cargo to enable the vessel to refloat. A crane barge and two cargo barges were located, inspected, and brought to the vessel.

Days 28-36
The discharge of the cargo into approved barges began. The parties decided to load both barges while the weather was fine rather than risk a twenty-four hour delay in a refloating attempt in which time the weather may have deteriorated.
Day 37
A total of 15.000MT of cargo was discharged. Four tugs were engaged, and the vessel was successfully refloated.
Days 38-43
The vessel berthed at the nearest facility which could accommodate her for reloading of the discharged cargo. Extensive survey work was undertaken to ensure that no damage had occurred to the hull, machinery, or cargo during the grounding. After bunkering, the vessel sailed for her original destination.
The following parties were involved in this particular salvage operation: 
    Owners' representatives and Master - from owners' staff; 
    Salvage Association representative - hull and machinery underwriters; 
    Salvage Association representative - loss of hire underwriters; 
    Salvage Association representative - general average interests; 
    Independent surveyor - cargo underwriters; 
    Salvage Master - owners' consultant; 
    Class surveyor - vessel's classification society; 
    Ship's agent - local co-ordination and representation; 
    Contractors' representatives - various firms involved throughout operation; 
    Local state officials - environmental interests.
During all stages of the discharge and reloading operation, a strict watch was kept on the condition, quantity, and quality of the cargo. The resulting surveys showed that 90MT of cargo had been lost during handling, and that 20MT had been contaminated by water in the barges. The value of the lost cargo was made good in the adjustment and credited to cargo owners. The value of the contaminated cargo was made good by a claim on distressed cargo underwriters.
The expenditure allowed in the general average adjustment included the following: 
    Cost of pilotage/towage and launch service;
 
GENERAL AVERAGE 
    Salvage Master's fees and expenses;
    Cost of helicopter services and local transportation; 
    Hire of vacuvators/equipment and labour; 
    Charter expenses for lightering vessel;
    Insurance premiums for all stages of the operation   (cargo, vacuvators, disbursements, and other vessels);
    Hire of dredging equipment; 
    Agent's fees and expenses;
    Expenses incurred obtaining permits and clearance from the local authorities; 
    Owners' surveyor's and representatives' fees and expenses; 
    Salvage company's fees and expenses; 
    Hire of floating barges and equipment;
    Port charges incurred during reloading operation;
    Stevedores' fees as per union rules; 
    Cost of underwater survey and diver services;
    Legal fees and expenses incurred during negotiations with stevedores; 
    Wages and provisions of Master, officers, and crew;
    Cost of fuel, diesel oil, water, and stores used by vessel during efforts to refloat;
    Allowance for cargo lost during handling;   
    Cost of valuation of the vessel;
    Payment to Owners for assistance in assembling documents and accounts; 
    Cost of adjustment, printing, and miscellaneous expenses; and 
    Cost of salvors' mark up on direct expense (15%).
Total amount of extraordinary expenditure
The total amount of extraordinary expenditure incurred as a consequence of the general average act was $3,175,143.44. The adjustment was as follows:
 
GENERAL AVERAGE
Contributing Interests and Appointment of General Average
Contributory Value    General Average
Vessel:    Value in
sound
condition    $ 14,600.000.00              $    1,430,938.26
Freight:    None at risk
Cargo:    Delivered value
of 75.978.39MT
of wheat    $ 17.775,236.77
Amount made
good-90MT    $  21,055.50
$  17,796,292.27    $    1,744,205.18
$ 32,396,292.27              $    3,175,143.44

1 comment:

  1. Thank you for this valuable information. Really a help . Rahul rastogi

    ReplyDelete