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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
Extinguishing damage 600,000
850,000
US$2,400,000
Add back
Extinguishing damage 600,000
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