GENERAL AVERAGE: Origin, Principle & Examples.
What is General Average?
General Average is a term used in the maritime insurance industry to outline the shares of all parties concerned for any damage or losses that may occur as a result of any extraordinary sacrifice or expenditure that is intentionally & reasonably made or incurred for the common safety, for the purpose of preserving from peril the property involved in a common maritime adventure.
The Origin of General Average:
The basic assumption of the General Average was first formulated by ancient Greeks while dealing with the question of jettison. As the rule developed other types of losses were added to that of jettison.
The General Average had been established much before the marine insurance concept but there was a substantial difference in law and practice of general average with different maritime nations. As the shipping industry expanded many attempts were made to have an international uniformity, thus leading to York -Antwerp rules.
Click here to read more about York- Antwerp Rules.
Principle of General Average:
There are four essential features for defining a General Average Act, which is mentioned in York – Antwerp Rules.
-There must be peril & the peril need not be imminent but must be real and considerable. The following example explains the distinction between action taken for common safety in time of peril and action taken purely as a precautionary measure for safety. A vessel that is adrift without propulsion after engine breakdown would be considered to be in peril for this purpose, even if the weather might be calm at the time and there was no immediate risk of further damage or loss. On the other hand, when the Master of a sound ship decides to seek shelter in an anchorage because of a reported approaching storm, would not normally be considered as giving rise to General Average.
-The act must be intentional or voluntary & not inevitable. The point to note here is that the property cannot be said to have been sacrificed if it was already lost at the time of said sacrifice. Rule IV clarifies the principle in its application to cutting away the wreck.
-The sacrifice or expenditure must be extraordinary. The ordinary expenses incurred, or losses suffered by the shipowner in complying with his contract of affreightment are not admitted as General Average. An example of the application of principle can be found in Rule VII of the Y-A rules, which deals with damage to a vessel’s machinery or boiler.
quote-Damage caused to any machinery and boilers of a ship which is ashore and in a position of peril, in endeavoring to refloat, shall be allowed in general average when shown to have arisen from an actual intention to float the ship for the common safety at the risk of such damage; but where a ship is afloat no loss or damage caused by working propelling machinery and boilers shall in any circumstances be made good as general average-unquote
Under the rule, a clear difference is drawn between damage to machinery where a vessel is aground and is in peril & damage which occurs when the vessel is afloat.
Running the engine when a ship is aground is considered as an abuse of machinery & therefore extraordinary, but using engine when the ship is afloat, however much the adventure may have been in peril and ship & cargo may have received a benefit from the action taken, is considered as part of the normal function of the machinery and any consequential damage is not considered as General Average.
-The action must be for the common safety and not merely for the safety part of the property involved. Assume a ship carrying refrigerated cargo and during the voyage her refrigeration machinery breakdown, making it necessary for her to put into the port of refuge for repair. So any loss or damage would be limited to the refrigerated cargo & as for the ship and other remaining cargo were concerned, it would be safe to continue the voyage. Hence the deviation to the port of repair would not give rise to General Average.
Examples of General Average:
Following are some examples of casualties that often give rise to the General Average.
a)Fire: Damage to ship or cargo due to efforts to extinguish the fire. Port of refuge expenses.
b)Shortage of Bunkers: Loss of ship’s materials or cargo burnt as fuel.Port of refuge expenses.
c)Shifting of cargo in heavy weather: Jettison of cargo. Port of refuge expenses.
d)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.
e)Collision, heavy weather, a machinery breakdown, or other accidents involving damage to ship and resort to or detention at a port: Port of refuge expenses.
In addition to the expenditure or sacrifices listed, any of the above events may give rise to a claim for salvage services. Under many countries’ law salvage charges fall strictly into a separate category, distinct from General Average, Rule VI of York-Antwerp Rules provides that any payment made in that respect should be treated as General Average.
Remarks on Port of refuge expenses:
Rules X & XI of the York-Antwerp Rules define the circumstances in which putting into a port of refuge may give rise to a claim in General Average as well as expenses which may be allowed when those circumstances apply.
From the rules it can be seen that a claim in General Average for similar expenses can also arise in some cases where a vessel is detained at a normal port of call, either for the common safety or in certain limited conditions, to enable repairs of accidental damage which are necessary before she can proceed, to be carried out.
Rules (General principles, application for calculation & contributory values) for adjustment of General Average:
Rule G of York Antwerp rule states the general principle upon which General Average losses and contributions are assessed.
Rule XVII describes something of detailed application of that principle to the calculation of contributory values.
Rules XVIII, XVI & XV its application to the contribution of General Average sacrifices of the ship, cargo, and Freight respectively.
The calculation of contributory values and assessment of General Average losses are carried out by the Average Adjusters. The process is often a complicated one. It will be explained in a separate blog.
Frequently Asked Questions (FAQs).
Who announces the GA decision?
-The General Average (GA) decision is typically declared by the shipowner. However, in the case of a container liner service, it may also be referred to as the shipping line making the declaration.
Who are Average Adjusters?
-Average adjusters are highly skilled professionals specializing in marine insurance, responsible for assessing and calculating losses incurred during a voyage. They are appointed by shipowners or cargo owners; they play a crucial role in adjusting claims and resolving disputes. Their expertise ensures accurate evaluation of damages and fair distribution of costs among stakeholders. One of their key responsibilities is determining the general average. By applying established principles and industry regulations they assess the losses and determine the contribution required from each party involved. The adjuster then issues the General Average Adjustment, which finalizes the distribution of costs among stakeholders, ensuring transparency and efficiency in maritime claims resolution.
At what stage in the General Average process is the shipper or consignee prevented from claiming the cargo?
-In most jurisdictions, the shipowner has the right to hold onto the cargo at the destination until the cargo owner provides security for its share of General Average (GA) costs. This means the cargo cannot be collected until an acceptable financial guarantee is given. If salvage services were also involved (such as a rescue operation), the salvors—those who assisted the vessel—also have a right to claim a lien on both the ship and cargo. In such cases, cargo owners must provide security not only for GA contributions but also for the salvors’ fees before the cargo is released.
If the ship is forced to dock at a different port instead of its intended destination, who is responsible for covering the cost of delivering the cargo to its final destination?
-The shipowner is generally responsible for delivering cargo to the named destination under the bill of lading at no extra cost. If a General Average event occurs, the vessel may stop for repairs before continuing. However, if severely damaged, the voyage may be terminated, leaving cargo owners to arrange onward delivery.
Must read articles:
DRY BULK CARGO – Claims Prevention & Claims Handling for Shortages
GENERAL CARGO – Claims Prevention & Claims Handling for Shortages.
DRY BULK, GENERAL & REEFER CARGO – Claims Prevention & Claims Handling for Damages
