1. GENERAL AVERAGE Prepared by: Norazimah Mazlan

2.  It is a form of mutual insurance that developed before the emergence of marine insurance.  Rhodian law – “if in order to lighten a ship merchandise has been thrown overboard, that which has been given for all should be replaced by the contribution of all.”  This concept retained in other major legal systems. INTRODUCTION

3.  If A’s cargo has to be jettisoned to prevent the ship from sinking with the loss of both the ship and the other cargo, the value of A’s cargo will be apportioned among all of the other cargo owners and the ship in accordance with the value of their respective interests. Example of situation

4.  The aim of GA is to spread the cost of the sacrifice equitably among all of the interests in the voyage.  The process of assessing the contributions of the interests is called an ‘adjustment’. It is usually performed by professional average adjusters.

5. “There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in the time of peril for the purpose of preserving the property imperilled in the common adventure”.  Although articulated in 1906 Act, GA is a distinct concept. Section 66(2) MIA 1906:

6.  In most cases, GA is governed by express provision in bills of lading or charterparties, which will usually incorporate York Antwerp Rules.  The YAR have been updated and amended in 1974, 1994, and 2004.  The rules consists of: seven lettered rules (A to G) which establish principles and 22 numbered rules (I to XXII) which detail with particular instances of GA. The numbered rules must override the lettered ones in case of any inconsistency between them. YORK ANTWERP RULES (YAR)

7. 1.There must be an extraordinary sacrifice or expenditure. 2.The loss is intentionally / voluntarily and reasonably incurred. 3.It arises in a time of peril. 4.The loss is made for the common safety of the voyage.  A loss that does not satisfy all the elements is particular average and no right to contribution from the other interests. ELEMENTS OF GA

8.  Losses sustained by reason of the ordinary incidents of the voyage cannot amount to GA.  The losses are not ordinarily expected of the shipowner to incur. 1. There must be an extraordinary sacrifice or expenditure. GA EXTRAORDINARY SACRIFICE EXTRAORDINARY EXPENDITURE

9. EXAMPLES OF EXTRAORDINARY SACRIFICE BY SHIP/PART OF HER EQUIPMENTS  Using a sail to stop a leak  Covering up a hatch broken by shipping a sea in storm.  Damage to a steamer’s propeller and shafting, due to the working of her engines whilst aground in position of danger.  Parts of the ship’s equipment used as fuel to maintain the constant working of pumps due to a leak.  Scuttling of a vessel in order to admit water to extinguish fire. Extraordinary Sacrifice

10. EXAMPLES OF EXTRAORDINARY SACRIFICE BY CARGO  Jettison (e. throwing overboard of cargo or part of it in order to lighten the ship and keep her afloat). jettison of deck cargo will give rise to GA with a condition that it is carried in accordance with a recognised custom of the trade/with the agreement of all interests in the voyage). E.g it is the custom of timber trade to carry the cargo on deck.  Burning of cargo as fuel when the coal supply has run short (provided that the original supply was sufficient).  Damage / loss of cargo during operations to extinguish a fire on board.

13.  EXTRAORDINARY SACRIFICE BY FREIGHT Freight will be sacrificed when it is payable on delivery of cargo that is itself sacrificed or that sustains such damage that it cannot be carried to its destination.

14.  EXAMPLES OF EXTRAORDINARY EXPENSES BY CARGO  Salvage Payment made to salvors engaged by the shipowner when the safety of the whole adventure is imperilled. YAR 1974 – Rule VI- salvage expenditure is allowed under GA provided that the salvage operations were carried out for the common maritime adventure. YAR 1994 - salvage expenditure is NOT allowed under GA YAR 2004 - salvage expenditure is allowed under GA  Port of refuge costs. Incurred when a vessel is put into a port of refuge for the common safety. The expenses include: Inward & outward port charges Pilotage Harbour dues Cost of unloading and warehousing cargo Extraordinary Expenses

15.  Extraordinary sacrifice and expenses will not constitute GA unless they are made intentionally.  Rule Paramount in YAR 1994: “in no case shall there be any allowance for sacrifice or expenditure unless reasonably made or incurred.” The intentional act must be done either with the master’s intention or his sanction/consent. 2.The loss is intentionally / voluntarily and reasonably incurred.

16.  Example: Fire occurred by accident and the use of water to extinguish fire is an intentional act. Therefore, water damage may be allowable in GA but damage due to fire itself is not allowed in GA and remains particular average. Smoke damage is not allowable in GA as it is impossible to distinguish between smoke damage due to fire itself and smoke damage due to application of water

18.  The master’s intentional act must be reasonable i.e. done in the interests of all concerned in the voyage, even though it is hazardous.  E.g. The Seapool : A ship at anchor was caught up in a sudden gale and was at risk of losing her propellers and breaking her back. The master engaged in a risky manouevre to get her out to sea. Although he was successful, he caused damage to the ship and the pier. This losses are allowed in GA.

19.  The master’s intentional act must be made at a time of actual peril or real danger.  Danger must be “substantial and threatening and something more than the ordinary perils of the seas”: (Societe Novelle d’Armement v. Spillers & Baker Ltd.)  If the master is mistaken as to the existence of a peril, losses sustained in consequence of his actions is not allowed under general average. 3. It arises in a time of peril.

20.  Expenses and sacrifices must be made for the common safety of the adventure.  Once an interest (e.g. cargo) has been brought to safety, it does not oblige to contribute for any extraordinary expenditure or expenses incurred afterwards. 4. The loss is made for the common safety of the voyage.

21.  Where there is a general average loss, the party on whom it falls is entitled to a rateable contribution from the other parties interested.  Such contribution is called a general average contribution.  The insurer is not liable for any general average loss or contribution where the loss was not incurred for the purpose of avoiding, or in connection with the avoidance of, a peril insured against. General Average Contribution

22.  The owner of jettisoned cargo will never receive reimbursement in full, as the aim of GA is to spread the loss equally among all interests.  E.g. The common adventure consists of ship, cargo A and cargo B, all worth USD 300, 000 at the port of discharge and cargo B is jettisoned.  Equal contribution means that each ship and cargo contribute USD 100,000 to the loss. B will receive USD 200,000 and bear USD 100,000 of the sacrifice itself.

23.  Baughen, S. (2012). Shipping Law. UK: Routledge.  Templemen, F. (2008). Marine Insurance: Its Principles and Practice. UK: Qureshi Press. REFERENCES