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Casualty

General average

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General average is the oldest surviving rule in shipping and the one that surprises cargo owners most. If a sacrifice is made deliberately, and reasonably, to save the ship and cargo from a common peril, the loss is not left where it falls. Everybody whose property was saved contributes in proportion to what was saved. A shipper whose containers were never touched, on a ship that never grounded, can receive a demand for money, and the demand is perfectly good.

What the rule is

General average is a contractual and legal regime, not an insurance product and not a convention. It applies because the bill of lading and the charterparty say it does, and what they almost always say is that adjustment shall be in accordance with the York-Antwerp Rules, which are maintained by the Comite Maritime International.

The definition is in Rule A of the 2016 text: 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.

Each word in that is a filter, and the filters do most of the work in practice:

The classic examples still explain it best: cargo jettisoned to lighten a stranded ship, damage done extinguishing a fire aboard, a ship voluntarily run aground to stop her sinking, and the expenses of putting into a port of refuge. Modern casualties usually turn on the last of those, where salvage, lightening, tug hire and re-stow expenses are the numbers that reach the adjustment.

How the Rules are put together

Seven lettered rules set out principles and twenty-three numbered rules deal with specific allowances. The Rule of Interpretation states the order: the Rules apply to the exclusion of any inconsistent law and practice, and except as provided by the Rule Paramount and the numbered Rules, general average is adjusted according to the lettered Rules. A specific numbered rule beats the general principle, and the reasonableness requirement beats both.

Some limits are express. Only losses which are the direct consequence of the general average act are allowed. Environmental damage and the escape of pollutants are excluded. So are demurrage, loss of market and any loss arising by reason of delay, which disposes of most of what a cargo owner would actually like to claim.

One rule cuts the other way. Rights to contribution are not affected merely because the event was caused by the fault of a party to the adventure, but that does not prejudice any remedy or defence in respect of that fault. So the shipowner can still declare general average after a casualty its own crew caused, and the cargo interests answer by arguing the ship was unseaworthy and that due diligence was not exercised, which is a Hague-Visby question rather than a York-Antwerp one. That defence is the real battleground in most contested adjustments.

Versions, and why the year matters

The 1994 Rules were widely used and are still met in older contracts. The 2004 revision reduced what owners could recover, was not supported by shipowning interests, and was very rarely adopted. The 2016 Rules were approved by the CMI conference in New York in May 2016, with a technical change to the interest provision made in 2022, and BIMCO moved its standard contracts onto them. The practical rule is the same one that applies to charterparty forms: name the year, because three different texts remain in circulation and they do not produce the same figures.

Three 2016 changes show up in real adjustments. Salvage remains allowable, but where the parties have separate contractual liability to salvors it is brought into the adjustment only in defined circumstances, which regularises the adjusters' practice of leaving it out where re-apportionment would change little. Low value cargo may be excluded from contributing where including it would cost more than its contribution is worth. The commission formerly allowed on general average disbursements was dropped.

Security, and why the cargo does not move

The shipowner has a lien on cargo for its general average contribution, and the contribution cannot be calculated for months or years. The gap is bridged with security taken before delivery:

That last line is the one to remember commercially. A cargo owner with ordinary cargo insurance passes the whole thing to underwriters and pays nothing out of pocket, because general average contribution is a covered head under standard cargo cover. An uninsured cargo owner puts up cash against a cargo they have already paid for, and waits.

An average adjuster, appointed by the owner, collects the security and produces the adjustment. Contributory values are the actual net values of the property at the termination of the adventure, with cargo taken at its value at the time of discharge from the commercial invoice, and the ship valued without regard to whether a charter attached to her is a good one or a bad one. The party claiming carries the burden of proof, and values and claims are to be notified within twelve months or the adjuster may estimate them.

The time bar

Rule XXIII in the 2016 text extinguishes rights to contribution, including rights under general average bonds and guarantees, unless an action is brought within one year after the date the adjustment is issued, and in no case more than six years after the adventure ended. The periods can be extended by agreement after the adventure has terminated. The rule does not apply between the parties and their own insurers, and it is subject to any mandatory limitation rule in the applicable law. Adjustments run long, so a claim that has waited for one is closer to the deadline than it feels.

What it means on a working desk

A declaration of general average freezes things. Cargo is not released until security is lodged, receivers who have never heard of the concept have to be walked through it, and a voyage that was going to complete in a fortnight becomes a file that stays open for years. The chartering consequences follow from that rather than from the adjustment itself: the ship is off the market, the next fixture does not happen, and the paperwork from the casualty voyage has to survive long enough to be produced when the adjuster asks.

References

P&I clubs and marine insuranceA ship carries several insurances that do not overlap, so is the ship insured is not a question with one answer. Bills of ladingA receipt, evidence of a contract and a key to the cargo, all on one piece of paper, and most disputes come from confusing the three. Hague-Visby, Hamburg and Rotterdam RulesOne regime governs most of world trade, one is in force but nowhere that matters, one is not in force at all, and the ancestor is still the law in the United States. Liens, cesser and deadfreightProving the claim is the easy half. These are the clauses that decide whether an owner can actually collect.

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