The Concept of General Average: What Cargo Interests Should Know.

The concept of General Average is a legal principle in Maritime law and Marine Insurance where all stakeholders, including the Shipowner, Charter party and Cargo Interests involved in a maritime journey, proportionately share the losses caused by a voluntary sacrifice of part of a ship or cargo to save the whole in an emergency. An example would include cargo jettisoned to prevent a ship from becoming a total loss, or cargo damaged by water used in extinguishing a fire on board the ship falls under a general average sacrifice. At this point, it is essential to note that the cargo does not have to be jettisoned for a general average to be declared by the Ship’s master. If there is a situation where the Master of the vessel must act, for example, damaging a part of the ship’s machinery to make an extraordinary sacrifice for the common safety of all on board, a general average can be declared. This is allowed under Rule VII of the York Antwerp Rules. Throughout this article, I will refer to the York-Antwerp Rules 2016, the default contractual regime governing the ascertainment of general average contributions.

According to the York-Antwerp, 2016 Rule A

"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."

”Section 66 (1), (2) of the Marine Insurance Act 1906 General Average is defined as:

(1) 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 the property imperilled in the common adventure.

A look at both definitions show a repeat of certain words.

extraordinary sacrifice or expenditure, intentionally and reasonably, common safety, peril, and common maritime adventure.

A general average can only be properly declared if the presence of these words can be demonstrated in the situation that led to the general average incident.

Under Rule XVII of York Antwerp Rules, the amount a Cargo Interest will pay is pro-rated with the share of their cargo. The Shipowner, who may not necessarily have any cargo on the ship, will share some liability too and this would be based on the value of the vessel taking into account any damage sustained in the incident (York-Antwerp Rule XVII). When a general average is declared by the Owner of the ship under advisement by the Master of the ship, they appoint an Average Adjuster who is an expert in the law and practice of general average and marine insurance to calculate and estimate the percentage of contribution which the Ship’s owner may request from the other Stakeholders in the journey. Experts such as Marine Surveyors are critical in the adjustment process because they assess damage/loss to the cargo and protect the interests of their clients. Maritime Lawyers can also be consulted to give legal advice. As stated earlier, Cargo Interest would be required to pay their pro-rated share. Before this is done, it is important to take any damage or losses to the cargo sustained in the incident into account.

The Cargo Interest may not have the expertise, surveying knowledge, and know-how that should apply in the adjustment process, hence the need for a Marine Surveyor. The damage to the cargo or any part of the ship must be assessed properly by the Marine Surveyor, who raises this with the Average Adjuster as this will form an allowance in the General Average adjustment under Rule XVI of the York Antwerp rules, potentially saving the Cargo Interest some money. Depending on the size of the ship and amount of cargo, calculating the value of all the goods onboard the ship to work out the amount owed by each Cargo Owner and assessing other Stakeholder's liability according to their stake in the journey could be a mammoth task and could take a few years. The Ever Given blocking the southern end of the Suez Canal for six days in March of 2021 comes to mind.

Under the York-Antwerp rules XVII and XXII, the Ship Owner can put a lien on the Cargo, and until the Cargo Interest lodges adequate security to the satisfaction of the Ship’s owner, the Cargo will not be released from the Ship. Here, Marine Insurance becomes critical! If the Cargo is insured, the Insurer can guarantee the due payment to the Ship’s Owner for any contribution for the general average incurred and chargeable against the cargo in return for the immediate release of the cargo to the Cargo Interest. The challenge here, however, is that not all Cargo Interests take out Marine Insurance coverage and, therefore, may be unable to meet their share of the average contribution without an insurer’s intervention. Although some freight forwarders may have liability cover for damage to their client’s Cargo, the terms in such cover usually limits the carrier's liability under the Hague-Visby Rules (1968) which provides for standard trading conditions determining settlement per kilogram instead of the real value of the goods. For example 666.67 units of account per package or unit or 2 units of account per kilogram of gross weight of the goods lost or damaged.

Cargo Interests who are not insured or are underinsured may have a couple of options with regard to defence against contributing or limiting contributions to the general average cost.

In CMA CGM Libra [2021] UKSC 51, the Supreme Court handed down a judgment with the implication that the Ship Owner cannot declare a general average if the Ship’s unseaworthiness clearly caused the incident that led to the general average. The Cargo Interest must be able to demonstrate an actionable fault by the Ship Owner or the Pilot. Litigating general average disputes is a separate and complex area of law, different from the adjustment process that would be determined by the court. It is important to note that while the Cargo Interest may protest against the general average contribution, they are by law obliged to provide security commitment via cash deposit or bank guarantee for the cargo to be released while the Average Adjuster finalises the adjustment process, which could take several years. This was established in St Maximus Shipping Co. Ltd v A.P. Moller-Maersk A/S, “Pay now, argue later.”

Secondly, as stated earlier, Cargo Interest can engage the services of an expert Marine Surveyor who can provide an unbiased expert assessment of whether the actions that led to the declaration of the general average were necessary and reasonable. The Marine Surveyor's physical investigation and report of the cargo condition can help the Cargo Interest save costs. Furthermore, the Average Adjuster’s calculation should be scrutinised and contributory costs should be fair and follow the rules in XVII of the York Antwerp Rules. Any ambiguity should be questioned.

Finally, a Maritime Solicitor or Lawyer should be consulted to review the bill of laden for clauses or terms that could affect the Cargo Interest's contribution or liability. There could be terms that may affect the sharing formula and this should be explored. Maritime Solicitors can also challenge unfair requests for general average contributions.

Uche is a Development Marine Adjuster at Sedgwick International's UK Office in Manchester & a Nigerian qualified Solicitor.

Sedgwick maintains one of the industry's largest and most experienced marine claims operations and provides Adjusting and Surveying services. Our global network means we have specialists with the in-depth technical expertise to support any claim anywhere in the world.