General Average (GA)
“Extraordinary sacrifice made voluntarily and prudently, to save a common maritime adventure from imminent peril,” is GA sacrifice. This principle developed over centuries, meant that if few merchants sent a ship to sea for common gain, any sacrifice made or expanse incurred for good of all, was shared between them in proportion to each merchant’s stake in the common maritime adventure.
Even though we inherited all this in modern times, and differences in procedure and detail existed in laws of different countries, which created uncertainty, complications and disputes especially since Sovereign Laws of a country always take precedence.
First set of internationally applicable rules were drawn up in 1860 to govern GA Latest version of York Antwerp Rules 1994, is in force today, after many amendments.
Most C/Ps & B/Ls provide GA to be payable in accordance with York Antwerp Rules 94. There are 7 lettered and 22 numbered rules. If a numbered rule negates it, no claim can be made under lettered rules even if facts fall within their scope.
Definition of GA under Rule A is: -“There is a general average act when, and only when any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for common safety the purpose of preserving from peril, property involved in a common maritime adventure”.
For General Average to apply, there must be: –
- An imminent marine peril.
- An extraordinary sacrifice.
- Made voluntarily and prudently, AND
- Common maritime adventure saved
Governing factor is state of mind of Master. Was there an imminent marine peril and did Master believe that unless he made THAT sacrifice at THAT time, it could not have been averted to save his ship and cargo?
It must be a sacrifice and not destruction, e.g. “throwing cargo overboard, which is already destroyed and is of no commercial value”, is NOT a sacrifice. Throwing a broken mast overboard, even if it would cause more damage to the ship, is not GA Sacrifice.
GA is not payable, if common danger arises out of default of Master or Owner, unless protected by exceptions and negligence clauses in Contract of Affreightment.
Term General Average Act includes both GA sacrifice and GA Expenditure. Term common maritime adventure includes value of the ship plus value of cargo plus value of freight if not already paid. Master has a duty to exercise possessory lien against cargo owners for GA contribution.
There is no General Average if: –
Any extraordinary sacrifice is made to save life without saving property, which was in imminent peril.
If sacrifice is made and common maritime adventure in not saved from imminent peril.
If there was no imminent marine peril to warrant the extraordinary sacrifice even if Master believed bonafide, which it exists.
Case Study 1
If cargo in a hold catches fire, and endangers the ship & the rest of cargo AND Master decides to flood the hold, Loss of cargo on fire, is NOT GA Loss caused to that cargo which was damaged by water through flooding the hold, is GA and must be made good proportionately by value of the ship saved, plus value of REST of the cargo saved, plus value of unpaid freight. Principle is that if cargo damaged by water were not sacrificed, ship and all cargo onboard would have been lost!
But if cargo was damaged by water when there was no fire, property was not in peril and therefore there was no GA even if Master believed bonafide that was fire.
In one case, a master saw some fumes coming out of No 2 hold and believed bonafide that cargo in that hold was on fire. He flooded the hold. When the hold was opened, no fire was found. Held that there was no GA
Case Study 2
Vessel with full cargo of grain loaded at New Orleans was sailing down Mississippi River, when Pilot saw two vessels in collision, blocking his Navigable channel ahead.
With strong down river current, a shallow patch to starboard, river bank close to port, helm was ordered hard starboard with engines Full ahead, in an effort to stem vessel to current and anchor.
Objective was achieved but with heavy damage to propeller, rudder and stern, which did not fully clear the River Bank on port, during the swing. Vessel was towed back to New Orleans for repairs and unloaded. Owners completed the voyage with two smaller vessels. General Average was declared. This meant that value of cargo, plus value of ship saved must bear proportional costs of:
Repairs to the ship, including cost of time lost.
Extra cost to charterers to substitute vessels after offsetting freight received. travel etc.
Legal costs, crew wages, fees of experts and adjusters, plus ancillary costs of travel etc.
Crucial points were firstly, whether the ship was in imminent peril if she continued sailing down river. Secondly, the state of mind of Master (Pilot) when full starboard helm was Ordered. Was it – “My ship and cargo are in imminent Peril and I must do everything possible to avert it and THIS can best be done by turning the ship round to anchor even if the stern gets damaged in the process”? OR was it just an ordinary decision of navigation to turn the ship round and anchor till the navigate channel was clear?”
GA experts, underwriters and lawyers in India, UK and USA, decided that it was GA act when Master (Pilot) deliberately and prudently ordered helm hard Starboard prudently ordered and risked damage to propeller and stern to save the ship and cargo which was in an imminent marine Peril.
Cargo owners did not risk arbitration in Britain as per York Antwerp Rules (YAR) to contest owner’s claim. Cargo’s contribution to GA was USD 1.2 million. It was amicably settled out of court for USD 750000.
This is a classic example, out of many because a hairline divided General Average from Particular Average. Knowledge of issues involved in that decision of Master (Pilot) saved owners/insurers a lot of money.
Under rule C of YAR, cost of pollution clean up and third party liabilities following a discharge, is excluded from GA. But cost of preventive measures incurred prior to a spill, and cost of preventing or minimising environmental damage is allowable under Rule 11 (d) regardless of whether a spill has actually occurred, are included.
Principle of General Average is that when a common maritime adventure is in imminent peril, even if a sacrifice is made prudently and deliberately, but the maritime adventure is not saved, there is no General Average.
This follows the age-old principle of NO CURE NO PAY. GA Contribution is paid out of value of the property saved. Therefore it can never exceed the total value of Ship, Cargo and Freight. And if they are not saved, there is no property from the value of which GA can be paid.