General Average Ms.

. Adriana Padovan 07/01/08 General average is an ancient legal principle ancient because it has existed for a very long time it dates back to the ancient maritime law called lex maritima. It is one concept that is peculiar to marine transport you cannot find such a legal concept anywhere else. It is peculiar for marine transport of goods carriage of goods by sea. The basic principles of general average are recognized by most maritime nations by their laws or customs and it is the following: 1. Any sacrifice of property or an extraordinary expenditure which is made for the common safety of all property (the ship, cargo and everything that is carried including bunkers) engaged in the common maritime adventure. That is a term which you will always find when you talk about general average. 2. Such sacrifice or expenditure then must be contributed to by all the surviving property (the property which survived the peril) which has been preserved by this sacrifice or expenditure. This contribution is made on the basis of the value of such saved property at the end of the voyage. This is a basic principle it is found in similar terms in all laws and customs of maritime nations. If you have a ship which carries a cargo there you have a common maritime adventure. You have different properties belonging to different interests you have different cargo owners, a ship owner, a charterer whose freight is at risk and you may also have a different owner of the bunkers. You have to take into consideration all the different interests, all their properties and once they are on a ship and they start their voyage, they are considered to be a common maritime adventure because they are together exposed to the same risks. The principle is really one of solidarity of all interests engaged in one common maritime adventure. When something happens a peril which is inherent in the sea carriage then the master and the crew must take certain steps to avoid that peril or to mitigate that peril. Their duty is to save the ship but also property carried on the ship and in taking such steps they might have to

deliberately sacrifice a part of the cargo or a part of the ship 1 or they might have to deliberately strand the ship to save that property (or all the property) from a bigger loss or damage than that done deliberately to avoid the imminent peril. You can also have extraordinary expenditure you might have to engage a tug to tow the ship because the ship lost its propulsion and in order to save the common adventure they had to engage a tug. So, that is not a sacrifice but an extraordinary expenditure which can be regarded as a general average act. That is the basic concept of general average. You have a common maritime adventure that is the ship and cargo. You have a peril threatening that property so that property is at risk and then you have a voluntary sacrifice or extraordinary expenditure made to avoid that peril threatening damage or even total loss of the property engaged in the common maritime adventure. In practice why is it like that? In such situations, master has to reach a decision quickly and crew have to react quickly. The oldest example of general average is the jettison of cargo. Because you would normally have cargo belonging to different cargo owners carried on the same ship the crew would jettison part of the cargo to lighten the ship. They could not afford quarreling whose cargo to throw overboard! They would jettison the best and easiest cargo to lighten the ship. The principle was that not only that cargo interest should bear the loss but proportionately all interests whose cargo was carried on board would have to participate proportionately in that loss. When the general average act happens, the level of loss is not yet known. You cant really know how much loss there was and you cannot really know surely whose cargo was jettisoned. But, what happens is that the moment a general average act happens, usually a ship owner will appoint a general average adjuster. This is a marine specialist and his duty is as follows: An adventure ends when the ship and the cargo arrive to their port of destination. Then only will he be able to determine the values of the arrived property (the saved/preserved property). He will be able to determine also the amount of loss sustained because of the general average act.

Eg. burning the masts for fuel

Then the adjuster will form the general average statement or adjustment which is basically a calculation of the individual contributions of all the different interests engaged in the common maritime adventure. He will determine how much each of these interests is bound to contribute to the general average sacrifice or expenditure. Systems of general average involving a contribution from the interests involved in a common maritime adventure which are usually ship cargo and freight they have been in existence since the earliest days of seaborne trade. The origins can be found in the earliest days of seaborne traffic in the Mediterranean. These were the oldest records which doesnt necessarily mean that there werent any other older examples but there is a record of a general average principle found in Justinians Digest. This Digest quotes of an old Rhodian law / principle and therefore it can be assumed that general average already existed around the years of 900 to 700 BC. This particular provisions of Rhodian law talks about the situation where cargo had to be thrown overboard to lighten the vessel. So, if cargo was thrown overboard to lighten the vessel then that which had been given by one for all must be replaced by the contribution of all. General average as a part of ancient law as such it is incorporated in common law in the common law countries2 and it is also to be found in the statutes of civil law countries or else it is recognized as legal custom. On one side you have the value of the general average loss (sacrifice or expense) and on the other hand you have the contributory values (the value of all the property that was preserved and arrived to the destination and you get a total contributory value). Then you have to see how much each of the interests bears in percentages to the total contributory value at the end of the voyage. Eg. Cargo A is 2%, Cargo B is 3% of the total contributory value. Then that means that Cargo A will pay 2% of the general average loss, while Cargo B pays 3% of the loss. General average Common law definition (UK) All loss which arises in consequence of extraordinary sacrifice made or expenses incurred for the preservation of the ship and cargo comes within

There is common law, equity and statutes

general average and must be borne proportionately by all who are interested Justice Lawrence in Birkley v. Presgrave, 1801 Common law (US) definition: 1. Common danger in which vessel. Cargo and crew all participate; imminent and apparently inevitable, except by voluntary incurring the loss of a portion of the whole to save the remainder;
2. Voluntary jettison, jactus or casting away of some portion of the joint

concern for the purpose of avoiding this imminent peril or in other words a transfer of the peril from the whole to a particular portion of the whole.
3. This attempt to avoid the imminent common peril must be successful.3

(Justice Grier in Barnard v. Adams, 1850) Basic principles similar to laws and customs of all maritime nations: Any sacrifice of property or any extraordinary expenditure that is made for the common safety of all property engaged in a common maritime adventure (usually hip, cargo and freight) is contributed to by the surviving property on the basis of the arrived values. General average is a system of making good maritime losses deliberately incurred for the safety of the property at risk in a common maritime adventure.

However, detailed application of the principle differs from law to law. It is regulated through national laws and different national laws although adopting this same principle may have different rules of application of that principle in practice. These divergences complicate matters a lot in practice. This problem was recognized in the 18th century with the development of trans-Atlantic trades. The rule was that applicable law regarding the law of general average is the law of the port of destination. You determine the port of destination, what is the law of that port, and then those laws apply to the general average adjustment. If there is no port of destination because the voyage was abandoned (the contract of affreightment was not entirely fulfilled) then the applicable rules of general average are the
3

Some of the property concerned must have been preserved

law of the port of abandonment (the last port where the ship and the cargo were together). That gives a lot of legal insecurity to the interests involved and it is very inconvenient for trade. That is why international efforts were undertaken first time in 1860. There were meetings of experts from maritime law circles organized and the idea was to come up with a uniform code for the adjustment of general average. There were a number of meetings in different States but finally in 1860 they came up with the first uniform code which was given the name York-Antwerp Rules. They were first published in 1890. It was a voluntary code it was not an international convention. It is a codification, to a large extent, of the existing principles but then certain modifications and improvements were made to make it complete code by the application of which all the questions regarding general average adjustments could be resolved. It was designed to maintain worldwide uniformity in the treatment of general average. They are not enforced through the laws. They are a voluntary code which is given force by its insertion in the contract of affreightment. In the rules there are no provisions as to a body which is competent to interpret those rules or a single body that would be competent for applying the rules. Therefore, different courts of different countries went into different interpretations of these rules and because of that there was in need of a number of revisions of the rules to bring them and make them uniform worldwide. The first revision was in 1924. Then there was another revision in 1950, 1974, 1994 and then 2004. The custodian of the rules is the CMI since 1924. They remain a voluntary code but there are a number of countries that have actually incorporated the rules in their laws. Some countries opted to incorporate a revision of the York-Antwerp Rules into their national laws. However, you have a contract of affreightment either a bill of lading or charterparty and that contract of affreightment will usually make reference to the applicable law regarding general average. If there is no reference whatsoever in the contract of affreightment, what would happen in cases of general average? Then the same old rule of conflict of laws will apply whereby the law of the port of destination or the port of abandonment of the voyage will apply to general average. Because all maritime nations do have certain rules or customs regulating general average, then there will certainly be a law or custom of the relevant port (port of destination or port of abandonment) which will apply.

In most of the contract of affreightment you will find such clause incorporating some revision of the York-Antwerp Rules. What happens if the contract of affreightment is silent as to the York-Antwerp Rules? If the country of the port of destination incorporates the York-Antwerp Rules in its national law, then they will apply although they might not be called the York-Antwerp Rules as such. 08/01/08 The Rules are intended as a voluntary code not an international convention which becomes operative by virtue of their insertion in a contract of affreightment. If the contract of affreightment doesnt make any reference as the rules which are to govern any general average, then the applicable law will be the port of final destination where the voyage should end. If alternatively the ship does not eventually come to its final destination if the common maritime adventure is abandoned at some time prior to this final destination then the applicable law would be the law of the port of abandonment. The port of abandonment would be the last port where the cargo and the ship were still together. However, if the contract of affreightment does make reference to either a specific domestic law or to one of the revisions of the York-Antwerp Rules then such clause of the contract of affreightment will be operative as regards general average which will happen on the voyage regulated by such contract of affreightment. What you have to keep in mind that when we talk about general average we are in the field of carriage of goods by sea there has to be at least two interests - a common maritime adventure and there has to be cargo. Then you can have more interests such as charterers interest such as the the interest of freight. In that case, you would distinguish between ship interests, cargo interests and freight interests. There has to be a contract of affreightment, a common maritime adventure and there has to be a sacrifice or extraordinary expenditure for the common safety of all interests involved in the maritime adventure. There has to be a peril threatening the safety of this common maritime adventure so that all interests of the common maritime adventure are exposed to that danger and then the sacrifice or expenditure is made for the common safety to avert, avoid or minimize such peril. Once you have a general average, then the party who made such sacrifice or expenditure will appoint a general average adjustor and this adjustor is

a marine specialist whose role is to determine the level of all general average sacrifices and expenses in one word general average losses and this person will also determine the so called contributory values. Last time said that contributory values are the values of the properties saved by such a general average act in other words the values of the property as they are when they have arrived at the destination where the common maritime adventure comes to an end. These adjustors are specialized marine experts. They are gathered under an association which is called Association of Average Adjustors and this association is a UK based association but the average adjustors are found worldwide. However, to be internationally recognized they will have to be part of this association. Or you could have local adjustors but these could only work where you have to apply local law. IN cases where you have conflict of laws and international interests then the parties involved want to have an adjuster belonging to the Association because there is a guarantee that they will have all the qualifications and all the exams that are imposed on them internationally. This association has Rules of Practice which are in addition, rules which clarify in more detail the customary general average rules and in particular the York-Antwerp Rules. So, they are an additional source for the adjusters to interpret the York-Antwerp Rules and customary general average rules. Once the general average adjustor has determined the contributory values and the general average losses he forms a general average statement and this document will be binding on all the parties involved and it will contain the calculation of individual contributions of each separate interest to the general average losses. Obviously the parties can object to any of the parts of this general average adjustment and then firstly it will be up to them to try to settle things out of Court. But if they do not manage to agree about the general average adjustment then obviously the matter would be resolved through the competent Court or the competent arbitration? You have to check the contract of affreightment general average does not arise from the contract of affreightment it exists in customary law and it might be codified in the statutes of some countries. General average really arises ex-lege. But these issues of what rules you should

apply you can contract a specific law to govern these rules of general average: either a domestic law or the York-Antwerp Rules. If you have a clause in the contract designating a competent Court, then that Court will also have jurisdiction on general average matters. General average is nowadays covered by insurance policies. Marine insurance, both cargo and hull/machinery covers general average risks. Basically, hull insurance will cover also the ships contribution to general average. Likewise, cargo insurance policy will cover the cargo contribution to general average. Institute Clauses They are standard insurance clauses their custodian is the Institute of London Underwriters. These clauses take up the largest part of marine insurance worldwide. There are other standard clauses in marine insurance like Norwegian Plan, etc. Institute Clauses Hull Policies Clause 10 Usually, the insurance policy states that the insurance policy will cover the ships contribution to general average but the adjustment will be made either according to the applicable law or if there is no such mention in the contract of affreightment then you apply the York-Antwerp Rules. Institute Clauses Cargo A Clause 2 this refers to the cargo contribution in general average. General average nowadays has become an issue that is between the insurers rather than between other interests themselves. The insurers take over that risk from the interested parties. That is why in English law you can find a statutory definition of general average in the Marine Insurance Act of 1906 in Section 66 and not the Merchant Shipping Act of 1995. General Average loss Section 66 of The UK Marine Insurance Act of 1906 1. A general average loss is a loss caused by or directly consequential on a general average act. It includes a general average expenditure as well as a general average sacrifice.
2. There is a general average act where any extraordinary sacrifice or

expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving .

Let us start to analyse the York-Antwerp Rules. There were a number of revisions. The oldest version was of 1890. Then there were 1924, 1950, 1974, 1994 and 2004 revisions. The structure of the rules is that you have a rule of interpretation and a rule paramount. The second part consists of lettered rules (from A to G) . Then you have numbered rules (from 1-22). In the first part, from these two preliminary rules you will see which is the order of precedence of these other two groups of rules. The Rule of Interpretation says that in the adjustment of general average, the following Rules. If you insert the York-Antwerp Rules you will exclude any other law and practice and all your potential general average relationships will be governed by these rules. So what is the order of precedence? Rule Paramount, numbered rules and then lettered Rules. The lettered rules apply only if you cant fit your situation under a numbered rule. If your situation applies to a numbered rule then you apply it before applying a lettered rule. But before anything at all, you have to see if your situation corresponds to the Rule Paramount. The Rule Paramount states that in no case shall there be . So, a general average has to pass the first test that it was reasonably made or incurred. Then you see if that specific sacrifice or expenditure falls under any of the numbered rules and if it does that numbered rule will govern it. If it does not, then you will try to fit it under any of the lettered rules. Lets see what lettered rules state. These are general rules and they apply to the extend that they are not excluded by the numbered rules. Rule A is basically a definition of a general average act. It reads: There is a general average act... The terms in this definition we have discussed in our last lecture. They are the key elements of general average. To have a general average act, it has to be an extraordinary sacrifice or expenditure and it can be so on part of the ship (for example you can have a voluntary stranding of the ship for the purpose of saving the common maritime adventure which will inevitably cause damage to the ship and that damage would be general average loss). This would be a sacrifice on part of the ship. Expenditure on the part of the ship would be for example hiring a tug to tow the ship to a port of refuge. This is a pure towage contract which is for the purpose of common safety for example, if the engines break down. If you do not hire a tug, the whole marine adventure could be lost. In that case, this

expenditure will be an expenditure on part of the ship interest but it is not a sacrifice, it is an extraordinary expenditure. Then you could have a sacrifice or expenditure on part of the cargo. You could have jettison or damaging a cargo by trying to extinguish a fire. A typical expenditure on the part of the cargo is where a ship had to go into a port of refuge and certain repairs would have to be made on that ship in order to resume the voyage. During those repairs, the cargo might be unloaded and stored in a warehouse and loaded again afterwards. The expenses of those procedures of unloading, storage and loading would be an expenditure on the cargo the cargo. Freight can also be sacrificed because the loss of freight on cargo which has been lost by sacrifice is also allowable in general average. This is in those cases where freight and ship are not the same interest. Rule A mentions intentionally and reasonably made this is a further element. This means that there has to be a foreseeable consequence of such act. You have to know what youre doing and why youre doing it and what you want to achieve with that. That is the element of intention. There must be a foreseeable consequence. Reasonableness really has to be tested according to the circumstances at the time. This usually a masters act. It is enough that he acts reasonably according to his best judgment even if later on it shows that what he had done did not really help much or if he has caused damage which is more than it would have happened had he done something else it would still be considered a reasonable act if at the time he was making it, at the critical time, he was acting according to his best judgment. It has to be successful in the sense that some property must have been saved because the contributions are calculated on the basis of the property saved so if you dont have any cargo saved, you dont have contributions. However, one might say that because the master jettisoned three times as much as was necessary to avoid the peril 4, then the question would be was that act done by the master reasonable? We use the rule of best judgment at the time. Common safety you have all the marine interests ship, cargo and freight all of them have to be in peril and the act has to be made in their common safety. They all have to benefit form such act.
4

It has to be a real peril and not just a state of mind

The peril is another element and this has to be real and actual, and not just a state of mind. There is a good case the master thought that the cargo in one of the holds was catching fire and he ordered the injection of steam in that hold. You are not allowed to open the hold because oxygen will fuel the fire. The first time you are allowed to open it is when the ship is berthed in a safe port and enough time has passed for the steam to eradicate the fire and when they opened the holds they found there was not even a trace of fire. Finally we examine contributing interest the interests contribute on the values that were preserved and that arrived at the destination at the end to the termination of the adventure. This will be assessed at the termination of the marine adventure. Then you have to determine the level of general average loss and then each interest will contribute proportionally. Rule B of the York-Antwerp Rules is there a common adventure between a tug and a tow? This provision actually talks about that situation and answers in the affirmative a tow and tug during towage are considered to be a common maritime adventure and general average could work between these interests too. However, this is very unusual because in any of the towage contracts you rarely have provisions dealing with general average. Rule C deals with direct losses it limits the consequences of general average act only to those that are directly arising from that act. It states Only such losses. There has to be a direct link. Imagine the situation where you have fire in a cargo hold. In that fire, a portion of cargo is damaged. You inject steam in a hold to put out the fire. The part of the cargo damaged by the fire is particular damage which falls and lies only on the cargo and is not general average loss. Only loss on the part of the cargo arising directly from that act, ie. from the injection of that steam, which are considered to be general average losses. 08/01/08 We said general loss is limited to that which is a direct consequence of a general average act. Let us say you have, for example, a ship which runs aground accidentally. It is seriously damaged in the accident. You engage tugs to refloat it and you tow the ship into a port of refuge. There, the ship is repaired in order to resume the voyage. There you have damage caused to the ship because it

ran aground because it ran aground. Repairs are done to a damage which was caused by accident and not by the general average act. So, repairs are particular average which lies fully in the risk of the ship owner or carrier. However, the expenses of towage and entry into the port of refuge such as port charges and extra cost of maintenance of crew because of that deviation or also expenses of pilots are all extra expenses which are considered to be a general average expenditure. However, the damage to the ship is not a general average act because it was caused by accident. A different example you strand the ship intentionally all damage caused to the ship by such stranding is a general average sacrifice and even the repairs done are a general average act in case they are done temporarily. If you are doing repairs permanently, you are fixing your sacrifice. So it is either or. So distinguish what damage is caused by a general average act and what damage is caused by accident.

Another example if you are saving a ship in distress because it is damaged due to a collision and you are towing it. In towing it, you have to cause further damage such damage is caused by the towage and not by collision that will be a general average sacrifice. Rule C Direct losses 1. Only such losses, damages or expenses which are the direct consequence of the general average act shall be allowed as general average. 2. In no case shall there be any allowance in general average for losses, damages or expenses incurred in respect of damage to the environment or in consequence of the escape or release of pollutant substances from the property involved in the common maritime adventure. 3. Demurrage, loss of market, and any loss or damage sustained or expense incurred by reason of delay, whether on the voyage or subsequently, and any indirect loss whatsoever, shall not be admitted as general average

Paragraph 2 is an exception to the Paragraph 1. Even if it is not a direct consequence, whatever you do to repair that damage is not a general average act and is to be borne by the P&I cover. Paragraph 3 deals with loss of time and pure consequential loss these are not allowed as general average losses. We have to jump to Rule XI (11) Paragraph (d) this talks about wages and maintenance of crew and other expenses putting in to and at the port of refuge, etc. (d) The cost of measures undertaken to prevent or minimise damage to the environment shall be allowed in general average when incurred in any or all of the following circumstances: (i) as part of an operation performed for the common safety which, had it been undertaken by a party outside the common maritime adventure, would have entitled such party to a salvage reward; (ii) as a condition of entry into or departure from any port or place in the circumstances prescribed in Rule X(a); (iii) as a condition of remaining at any port or place in the circumstances prescribed in Rule X(a), provided that when there is an actual escape or release of pollutant substances the cost of any additional measures required on that account to prevent or minimise pollution or environmental damage shall not be allowed as general average; (iv) necessarily in connection with the discharging, storing or reloading of cargo whenever the cost of those operations is admissible as general average. Remember that a salvor has to be a third person not a person who is involved in the common maritime adventure. If there is a salvor who conducts a successful salvage then he earns a salvage reward. If he is not successful due to no cure, no pay he wouldnt earn a salvage reward. Then there is the Salvage Convention which introduces a special provision which secures the position of a salvor in such cases where there is no property salved but efforts have been done to preserve the environment and he can get special compensation. That special compensation is never part of general average. However, salvage reward might be a part of general average. If the salvage reward includes expenses which were made to

prevent or minimize the environment, then that part will be allowed as a general average expense. In Paragraph D (iii) the port authority orders of the port of refuge you to undertake certain measures before entering, in order to prevent damage to the environment or minimize pollution then the cost of these extra measures can be allowed as a general average expense. But when there is an actual escape or release of the pollutant then the cost of any additional measures required on that account to prevent or minimize pollution or environmental damage this is not allowed as a general average expense and in fact it is a P&I risk. In Paragraph D (iv) wat is the web site . necessarily in connection with the discharging, storing or reloading of cargo whenever the cost of those operations is admissible as general average. it may be necessary during the procedures to move the cargo temporarily. These expenses are allowed as general average expenses. Rule D Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure; but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault. This means that if the circumstances fit under Definition of general average under Rule A or any of the numbered rules, then you will have general average and all the consequences will take place including the general average and the apportionment of contributions, but once there is a claim based on general average then the interested parties will be able to use all their remedies or defences that they might have because there was a fault of any of the parties to the common maritime adventure which gave rise to the general average act. The raison detre is that neither the ship owners nor the cargo owners can properly ask the other to contribute to losses and expenditures which have been incurred as a result of his own fault. So if any of the parties is claiming in general average was at fault and that fault gave rise to the general average act then the party cannot ask the other to pay for the contribution. Then you might ask why do you have this rule? This is to

save time because establishing fault is a complicated and long winded procedure. You have this rule to remain in the system of general average to have all the apportionments made accordingly. Once the claim is made for contribution if the party making the claim was in fault of the incident which gave rise to the general average act, then the other party can use their defences. These are the defences arising from the fault of the party claiming. You can raise your defences the defences arise from relationship which exists under the contract of affreightment and statutory defences that you can raise against a party at fault claiming from you. An example of a clause introduced in time charterparties BIMCO General Average Clause 05.02.05 General average shall adjusted, stated and settled according to the York-Antwerp Rules 1994 in London unless another place is agreed in the Charter. Cargos contribution to general average shall be paid to the Carrier even when such average is a result of a fault, neglect or error of the Master, Pilot or Crew. This clause excludes from liability of the carrier any fault on the side of master, crew or pilot. Here you are excluding vicarious liability purposely. Rule E (onus of proof) 1. The onus of proof is upon the party claiming in general average to show that the loss or expense claimed is properly allowable as general average. 2. All parties claiming in general average shall give notice in writing to the average adjuster of the loss or expense in respect of which they claim contribution within 12 months of the date of the termination of the common maritime adventure. 3. Failing such notification, or if within 12 months of a request for the same any of the parties shall fail to supply evidence in support of a notified claim, or particulars of value in respect of a contributory interest, the average adjuster shall be at liberty to estimate the extent of the allowance or the contributory value on the basis of the information available to him, which estimate may be challenged only on the ground that it is manifestly incorrect.

 Paragraph 1 If you are claiming in general average for the loss or

expense incurred then you have to prove to establish that it is allowable as general average. The second paragraph is technical it deals with how written notice given to the adjuster of expenses which you claim are general average expenses and the third paragraph deals with failure to do so. Then the general average adjuster will assess on his own judgment the contributory values and the expenses. Rule F we will cover this sooun Rule G basis of valuation General average shall be adjusted as regards both loss and contribution upon the basis of values at the time and place when and where the adventure ends. This rule shall not affect the determination of the place at which the average statement is to be made up. When a ship is at any port or place in circumstances which would give rise to an allowance in general average under the provisions of Rules X and XI, and the cargo or part thereof is forwarded to destination by other means, rights and liabilities in general average shall, subject to cargo interests being notified if practicable, remain as nearly as possible the same as they would have been in the absence of such forwarding, as if the adventure had continued in the original ship for so long as justifiable under the contract of affreightment and the applicable law. The proportion attaching to cargo of the allowances made in general average by reason of applying the third paragraph of this Rule shall not exceed the cost which would have been borne by the owners of cargo if the cargo had been forwarded at their expense. The rule just refers to the place where the common adventure ends. You do not find an indication in the Rules as to when a common maritime adventure comes to an end. Read Rules III and IV in connection with Rule 17 and also General Average Law and Practice pages 106-107 Rule F substituted expenses

Any additional expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided. This rule allows as general average expenditures those expenses that were undertaken in lieu of an original customary or intended act so that depending on the circumstances, the master can decide to deal with the situation alternatively. A typical example of substituting expenses are towage of the ship and its cargo to the destination. You have situations where the ship (for whichever reason) loses propulsion and in that case the usual case would be to tow it to a port of refuge, undertake repairs and continue the voyage towards the destination. However, the ship owner can alternatively decide to tow the vessel together with the cargo to the destination instead of entering the port of refuge. [See Examples 1 and 2 from overhead slides.] 10/01/08 One comment I want to add to that rule is that the rule is important because it implicitly tells us that act that has been done as a general average act has to be successful ie. some value preserved has to arrive to the destination or at least some preserved value at the time when the adventure is terminated has to exist. If there is no value at the end, then there is nothing to contribute to. If you imagine the situation where you had a general average act and it was successful but once the voyage was resumed after the general average act and the ship has continued on its way to destination but then you had another accident wherein you had a total loss of the property. What happens to the expenses that were allowed as general average prior to the voyage being resumed? The general average lasts until the termination. What is important is what has arrived to the final destination or what has been preserved once the common adventure has been terminated. So if you have a total loss after one general average act, you dont have anything to contribute from. Another example is transshipment of cargo. You leave your ship in the port of refuge but then you arrange for the goods to be transshipped to destination. This is a substituted expense like when you tow your cargo to the destination.

Another example of substituted expense are temporary repairs in the port of refuge. Temporary repairs are a substituted expense. Just read Rule 14 we are not going to go into it.

Let us see the numbered rules. Rule I relates to jettison of cargo. No jettison of cargo shall be made good as general average, unless such cargo is carried in accordance with the recognised custom of the trade. This rule was drafted primarily because of deck cargo. You have deck cargo which is carried on deck but this is not in accordance with the recognized custom of trade then its jettison cannot be allowed as general average. Carrier who has jettisoned deck cargo which he carried contrary to the custom in the trade then he is fully liable for it. This loss is not distributed proportionately between other interests. Normally, deck cargo is the first to be jettisoned and if the carrier is carrying anything on deck which he is not supposed to then you cannot justify him jettisoning it. If you apply only Rule A then any cargo jettisoned for the cargo safety would be allowed, but Rule I creates an exception. Rule II regards loss or damage by sacrifices for the common safety. Loss of or damage to the property involved in the common maritime adventure by or in consequence of a sacrifice made for the common safety, and by water which goes down a ship's hatches opened or other opening made for the purpose of making a jettison for the common safety, shall be made good as general average. This is self-explanatory. The rule talks about one specific situation so that there would be no doubt that these losses would be allowed as general average sacrifices. Both damage by water but also if you have to force the way to open the hatches then any opening, drilling or damage done to the ship for that purpose of opening the way is allowed as general average. Rule III extinguishing fire on board

Damage done to a ship and cargo, or either of them, by water or otherwise, including damage by beaching or scuttling a burning ship, in extinguishing a fire on board the ship, shall be made good as general average, except that no compensation shall be made for damage by smoke however caused or by heat of the fire. This is because the heat and smoke are the consequence of the fire itself and not of the general average act. It is a specific situation specifically referred to under this rule but is basically in line of Rule C with regard to limiting the consequences of the general average act to the direct consequences. If you have any deformation in the ships hull because of the fire, that is particular average on the ship and not a general average loss. But, cargo damaged by water which was used to extinguish the fire would be a general average sacrifice. Then we come to Rule IV on cutting away wreck. Loss or damage sustained by cutting away wreck or parts of the ship which have previously been carried away or are effectively lost by accident shall not be made good as general average. This is just the expense of cutting away the wreck of parts which had previously been carried away or effectively lost. The value of the lost part is a general average sacrifice but if you have to incur any expense for cutting away their wreck then that expense is not a general average loss. However, this rule just talks about accidental loss and in that case if it is an accidental loss which is not linked to the actual general average act, then it is not a sacrifice. They have simply been lost in the accident. They will just work as a deduction on the contributory value. They can be claimed as a particular average by the individual interests as against the insurance. If you lose a part as part of a general average act then that is a sacrifice and the value is allowed as a general average loss. Rule V deals with voluntary stranding. It reads: When a ship is intentionally run on shore for the common safety, whether or not she might have been driven on shore, the consequent loss or damage to the property involved in the common maritime adventure shall be allowed in general average.

Such damage caused by the voluntary stranding to the ship or to the cargo will be allowed in general average. The part driven on shore refers to when the master strands the ship but then the ship is stranded much before he has originally envisaged. So the ship is stranded basically differently from what the master has envisaged it is still allowed as general average. Now one complicated rule on salvage remuneration. This is Rule VI. Before 2004, in the 1994 Rules, salvage remuneration was allowed as a general average expense. Effectively, it complicated the adjustments because the general average adjuster had to adjust the proportions / contributions twice. Salvage remuneration is apportioned on the basis of the values of the values salved at the end of salvage as soon as the property has arrived at a position of safety. General average continues until the termination of the adventure. So at the time when salvage remuneration was a general average expense it had to enter first into a calculation of apportionment according to salvage rules and then it had to be calculated a second time according to general average rules. The new rule does not make the salvage remuneration a general average loss. It just says that where there was salvage remuneration and if it was paid by one of the parties only on behalf of all the others then the general average adjuster will have to just enter this remuneration for the purpose of its calculation but he wont be adjusting it as a general average loss. He will still be adjusting it as a salvage remuneration. With 2004, they have purposely excluded salvage remuneration from general average contribution but they only include them for the purposes of calculation. The rule reads: Rule VI - Salvage Remuneration

(a) Expenditure incurred by the parties to the adventure in the nature of salvage, whether under contract or otherwise, shall be allowed in general average provided that the salvage operations were carried out for the purpose of preserving from peril the property involved in the common maritime adventure.

Expenditure allowed in general average shall include any salvage remuneration in which the skill and efforts of the salvors in preventing or minimising damage to the environment such as is referred to in Article 13 paragraph 1(b) of the International convention on Salvage, 1989 have been taken into account.

(b) Special compensation payable to a salvor by the shipowner under Article 14 of the said Convention to the extent specified in paragraph 4 of that Article or under any other provision similar in substance shall not be allowed in general average.

Another rule is Rule VII damage cause to machinery and boilers because the master has decided to refloat the stranded ship. By such extraordinary use of the machinery, damage from the strain is likely to occur. That damage is considered to be a general average sacrifice. Damage caused to any machinery and boilers of a ship which is ashore and in a position of peril, in endeavouring 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. As long as the ship is afloat, any use of machinery is considered to be a normal use of machinery you owe duty to the cargo as long as the ship is afloat to use all means to continue the voyage. Damage to machinery has to be caused by the efforts to refloat the ship. Rule VIII regards Expenses lightening a Ship when Ashore, and Consequent Damage. It reads: When a ship is ashore and cargo and ship's fuel and stores or any of them are discharged as a general average act, the extra cost of lightening, lighter hire and reshipping (if incurred), and any loss or

damage to the property involved in the common maritime adventure in consequence thereof, shall be admitted as general average. The rule is self-explanatory. This deals with a situation where you have to discharge cargo, fuel or stores for the common safety any damage resulting from doing so including the extra expense if you have to hire barges to unload cargo. Rule IX Cargo, Ship's Materials and Stores used for Fuel Cargo, ship's materials and stores, or any of them, necessarily used for fuel for the common safety at a time of peril shall be admitted as general average, but when such an allowance is made for the cost of ship's materials and stores the general average shall be credited with the estimated cost of the fuel which would otherwise have been consumed in prosecuting the intended voyage. This is self-explanatory. Rule X - Expenses of Port of Refuge, etc.

(a) When a ship shall have entered a port or place of refuge or shall have returned to her port or place of loading in consequence of accident, sacrifice or other extraordinary circumstances which render that necessary for the common safety, the expenses of entering such port or place shall be admitted as general average; and when she shall have sailed thence with her original cargo, or a part of it, the corresponding expenses of leaving such port or place of refuge consequent upon such entry or return shall likewise be admitted as general average. When a ship is at any port or place of refuge and is necessarily removed to another port or place because repairs cannot be carried out in the first port or place, the provisions of this Rule shall be applied to the second port or place as if it were a port or place of refuge and the cost of such removal including temporary repairs and towage shall be admitted as general average. The provisions of Rule XI shall be applied to the prolongation of the voyage occasioned by such removal. (b) The cost of handling on board or discharging cargo, fuel or stores whether at a port or place of loading, call or refuge, shall be admitted

as general average, when the handling or discharge was necessary for the common safety or to enable damage to the ship caused by sacrifice or accident to be repaired, if the repairs were necessary for the safe prosecution of the voyage, except in cases where the damage to the ship is discovered at a port or place of loading or call without any accident or other extraordinary circumstances connected with such damage having taken place during the voyage. The cost of handling on board or discharging cargo, fuel or stores shall not be admissible as general average when incurred solely for the purpose of restowage due to shifting during the voyage, unless such restowage is necessary for the common safety. (c) Whenever the cost of handling or discharging cargo, fuel or stores is admissible as general average, the costs of storage, including insurance if reasonably incurred, reloading and stowing of such cargo, fuel or stores shall likewise be admitted as general average. The provisions of Rule XI shall be applied to the extra period of detention occasioned by such reloading or restowing. But when the ship is condemned or does not proceed on her original voyage, storage expenses shall be admitted as general average only up to the date of the ship's condemnation or of the abandonment of the voyage or up to the date of completion of discharge of cargo if the condemnation or abandonment takes place before that date. This rule is long but very clear and self-explanatory. Rule XI talks about the Wages and Maintenance of Crew and other expenses bearing up for and in a port of refuge, etc. (a) Wages and maintenance of master, officers and crew reasonably incurred and fuel and stores consumed during the prolongation of the voyage occasioned by a ship entering a port or place of refuge or returning to her port or place of loading shall be admitted as general average when the expenses of entering such port or place are allowable in general average in accordance with Rule X(a).

(b) When a ship shall have entered or been detained in any port or place in consequence of accident, sacrifice or other extraordinary circumstances which render that necessary for the common safety, or to enable damage to the ship caused by sacrifice or accident to be repaired, if the repairs were necessary for the safe prosecution of the voyage, the wages and maintenance of the master, officers and crew reasonably incurred during the extra period of detention in such port or place until the ship shall or should have been ready to proceed upon her voyage, shall be admitted in general average. Fuel and stores consumed during the extra period of detention shall be admitted as general average, except such fuel and stores as are consumed in effecting repairs not allowable in general average.

Port charges incurred during the extra period of detention shall likewise be admitted as general average except such charges as are incurred solely by reason of repairs not allowable in general average. Provided that when damage to the ship is discovered at a port or place of loading or call without any accident or other extraordinary circumstance connected with such damage having taken place during the voyage, then the wages and maintenance of master, officers and crew and fuel and stores consumed and port charges incurred during the extra detention for repairs to damages so discovered shall not be admissible as general average, even if the repairs are necessary for the safe prosecution of the voyage.

When the ship is condemned or does not proceed on her original voyage, the wages and maintenance of the master, officers and crew and fuel and stores consumed and port charges shall be admitted as general average only up to the date of the ship's condemnation or of the abandonment of the voyage or up to the date of completion of discharge of cargo if the condemnation or abandonment takes place before that date.

(c) For the purpose of this and the other Rules wages shall include all payments made to or for the benefit of the master, officers and crew whether such payments be imposed by law upon the shipowners or be made under the terms of articles of employment.

(d) The cost of measures undertaken to prevent or minimise damage to the environment shall be allowed in general average when incurred in any or all of the following circumstances:

(i) as part of an operation performed for the common safety which, had it been undertaken by a party outside the common maritime adventure, would have entitled such party to a salvage reward;

(ii) as a condition of entry into or departure from any port or place in the circumstances prescribed in Rule X(a);

(iii) as a condition of remaining at any port or place in the circumstances prescribed in Rule X(a), provided that when there is an actual escape or release of pollutant substances the cost of any additional measures required on that account to prevent or minimise pollution or environmental damage shall not be allowed as general average;

(iv) necessarily in connection with the discharging, storing or reloading of cargo whenever the cost of those operations is admissible as general average.

Rule XII Damage to cargo Rule XIII Deductions from cost of repairs when you do repairs you deduct any improvements made or repairs themselves. There are no deductions in general average unless the ship is more than 15 years old. Rule XIV Temporary Repairs Rule XV Loss of freight loss of freight arising from damage to or loss of cargo shall be allowed as general average either when it is caused by a general average act or when the damage to or loss of cargo is so allowed. The deduction is made from the amount of gross freight lost and what amount of freight would have been earned were it not for the act. The rule reads: Loss of freight arising from damage to or loss of cargo shall be made good as general average, either when caused by a general average act, or when the damage to or loss of cargo is so made good. Deduction shall be made from the amount of gross freight lost, of the charges which the owner thereof would have incurred to earn such freight, but has, in consequence of the sacrifice, not incurred. Rule XVI - Amount to be made good for Cargo Lost or Damaged by Sacrifice The amount to be made good as general average for damage to or loss of cargo sacrificed shall be the loss which has been sustained thereby based on the value at the time of discharge, ascertained from the commercial invoice rendered to the receiver or if there is no such invoice from the shipped value. The value at the time of discharge shall include the cost of insurance and freight except insofar as such fright is at the risk of interests other than the cargo. When cargo so damaged is sold and the amount of the damage has not been otherwise agreed, the loss to be made good in general average shall be the difference between the net proceeds of sale and the net sound value as computed in the first paragraph of this Rule.

So basically, the discharge value is the CIF value. Rule XVII Contributory Values needs to be read together with Rule G the basis of valuation.