General Average.ppt

8/10/2019 General Average.ppt

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What is General Average?


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General Average

A form of international maritime law/ practice - firstincorporated in York Rules 1864.

Exists irrespective of insurance or fault of any party.

All parties contribute to sacrifices and expenditure for thecommon safety/ safe prosecution of the voyage.

Contribution based on values at end of voyage.

Property lost subsequently on voyage does not contribute.

Security = Underwriters Guarantee or cash deposit orBank Guarantee + Average Bond signed by Consignees.

Terms incorporated in Charter Parties & Bills of Lading.


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Typical GA Sacrifices

For common safety:

Jettison of cargo at a time of peril

Loss/ damage to ship or cargo extinguishing afire

Damage to main engines refloating a laden

vessel which is aground and in peril Loss/ damage to property owned by thirdparties in consequence of refloating operations


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Typical GA Expenditure

Salvage costs

Port charges at port of refuge

Crew wages at port of refuge

Cargo discharge for repairs

Cargo storage/ reloading costs

Temporary repairs Overtime on repairs


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Expenditure allowable

York Antwerp Rules:

1974/ 1994

Expenditure for common safety and for common

benefit (safe prosecution of voyage)

2004For common safety but certain expenditure for

common benefit now limited


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Reasons leading to 2004 Rules

Perceived widening of scope of GA in 1994, such as anti-pollution measures

Cargo often contribute more than Vessel due to higher values

Reapportionment of Salvage in GA considered unnecessary and expensive

Desire to restrict GA to Common Safety and to limit Common Benefit

First set of YAR Rules introduced without consensus between Shipowning and

other interests

2004 Rules only applicable if incorporated in Charter Parties/ Bills of Lading.


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Effects of 2004 Rules

Who wins?

Who loses?


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Salvage awards in

General Average

Salvage based on values at termination of salvageservices.

Contribution to General Average based on valuesat end of voyage.

Further losses/ damage/ sacrifices aftertermination of salvage services and before end of

voyage affect contributions ultimately payable forsalvage in GA.

Limits under YAR 2004.


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Salvage allowable in GA

York Antwerp Rules..1974/1994 2004

LOF/ negotiated settlements

paid by all parties Yes No

Paid by one party on

behalf of all Yes Yes


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Independently negotiated Salvage awards

1974/ 1994 Rules

Salved value Settlement GA

Ship $ 3,000,000 $200,000 (6.7%) $250,000

Cargo 9,000,000 800,000 (8.9%) 750,000

$12,000,000 1,000,000 1,000,000= 8.3%

Under 2004 Rules payments remain as settled


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LOF Salvage award

SHIP Sound value US$10,000,000

Deduct fire damage 1,000,000 Salvage

US$ 9,000,000 pays US$468,750

CARGO1stconsignment Sound value US$3,250,000

Deduct fire damage 250,000

US$ 3,000,000 pays US$156,250

2ndconsignment

Sound value US$3,250,000

Deduct:-Fire damage US$250,000

Extinguishing damage 600,000

850,000

US$ 2,400,000 pays US$125,000

US$14,400,000 pays US$750,000

= 5.2% of values


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Reapportionment of salvage in GASHIP Sound value US$10,000,000

Deduct fire damage 1,000,000 GA (Salvage)

US$ 9,000,000 pays US$450,000

CARGO

1stconsignment Sound value US$3,250,000

Deduct fire damage 250,000

US$3,000,000 pays US$150,000

2ndconsignment

Sound value US$3,250,000Deduct:-

Fire damage US$250,000


850,000

US$2,400,000

Add back


US$3,000,000 pays US$150,000

US$15,000,000 pays US$750,000

= 5% of values


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Excluding

Salvage from GA Underwriters savethe costs and time required to reapportion salvage

although still necessary to collect GA security.

Individual Hull or Cargo Underwriters could gain or lose as a

favourable salvage settlement or disproportionate legal costs notshared.

Hull and Cargo Underwriters losebecause uninsured/ unrepresentedinterests do not share salvage arbitration costs.

Beneficial for Ownersas exclusion makes GA absorption clauses inHull policies more effective.


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Crew wages

York Antwerp Rules 1974/1994 2004

Crew wages:

Deviating to port of refuge

and resuming voyage Yes Yes

While detained effecting

repairs Yes No

Likely considerable losses to Shipowners under YAR 2004


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Temporary repairs (1974/1994)

Temporary repairs to complete voyage US$100,000

Assumed savings:-

Cost of handling cargo.US$50,000

Extra detention expenses to

effect permanent repairs. 25,000

Allowance in GA..US$75,000

Excess US$25,000 not allowable.


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Temporary repairs (2004)

Temporary repairs ..US$100,000

Permanent repairs 400,000

US$500,000

If estimated permanent repairs at port of refuge:-

A. If US$500,000 = no GA allowance

B. If US$450,000 = US$50,000 allowable, subject to GA savings.

2004 Rules result in higher claim PA claim on Hull Underwritersbut lower costs to Cargo Underwriters.


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GA Commission and Interest

2004 Rules No commission allowable under 2004 Rules to party paying GA

expenditure.

Benefit to Underwriters but considerable loss to Shipownersas theyusually incur the expenditure (previously 2% excluding crew wages

and fuel replaced after the voyage).

Rate of interest on GA expenditure and sacrifices to be set annually by

CMI under 2004 Rules. Previously 7% fixed rate under 1974/ 1994Rules.

Likely benefits to Underwriters but considerable losses to Shipowners.


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Time Bar

New rule in 2004Subject to mandatory rule on timelimitation under any applicable law:

- Rights to GA contribution cease unless party claimingbrings legal action within 1 year of GA Adjustment issuedate.

- No action can be brought after 6 years from terminationof GA voyage.

- These periods can be extended by agreement of theparties.

- Rule does not apply between the GA parties and theirUnderwriters.


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Summary of changes in 2004

Salvage excluded except when

paid by one party.

No crew wages during detention

at port of refuge.

Different treatment of temporary

repairs.

No commission (previously 2%)

CMI set rate of interest annually

(previously 7% p.a.).

Time bar provision.


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General Average in future

Shipowners may continue to insist on YAR 1974or 1994 as more favourable than 2004.

B/Ls providing for 1994 YAR still apply asYAR 2004 are new set of rules, not anamendment or modification of 1994 Rules.

Absorption clauses could reduce number of GA

claims against cargo. BIMCO Average Bond Clause may reduce timeand costs of collecting GA security.


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End of Voyage

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General Average.ppt

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