General Average (PDF)

APARNA M. N. TILAKARATNE MBA (UK), ATTORNEY-AT-LAW CHIEF LAW OFFICER – SRI LANKA PORTS AUTHORITY  General Average General Average is a principle of maritime law that essentially establishes that all sea cargo stakeholders (owner, shipper, etc.) evenly share any d...

APARNA M. N. TILAKARATNE MBA (UK), ATTORNEY-AT-LAW CHIEF LAW OFFICER – SRI LANKA PORTS AUTHORITY  General Average General Average is a principle of maritime law that essentially establishes that all sea cargo stakeholders (owner, shipper, etc.) evenly share any damage or losses that may occur as a result of voluntary sacrifice of part of the vessel or cargo to save the whole in an emergency. Basis behind this principle is that a party who has suffered extreme financial loss in order to save property belonging to others has the right to be compensated for such loss. The origins of General Average begins with York-Antwerp Rules of 1890 and been modified numerous times since to adapt to modern supply chain conditions. “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.” - York-Antwerp Rules, 2016 Update From this, General Average is calculated, and each party who suffered a loss will be credited for the value of said loss, and will be charged a percentage of their own interests’ value to pay for shared costs and others’ loss of interests. Once a vessel owner declares General Average, a neutral third-party (the General Average adjuster) is to be appointed by the owner.  Adjuster will determine the applicable costs owed to and by each stakeholder involved in the vessel voyage. The adjuster will determine which losses qualify for General Average, total costs of the incident, as well as the amount each party owes, etc. After the maritime incident, stakeholders with cargo aboard the ship will need to provide General Average guarantees as any affected cargo will not be released to the cargo owner until the General Average guarantee has been provided. Cargo owners carrying cargo insurance should notify their Underwriters immediately so the guarantee is paid by the Insurance Company or will be faced with making payment on their own.  Requisite elements to prove a general average sacrifice Vessel must be in imminent danger; There must be an intentional, voluntary sacrifice of property by the crew or owners to avert that peril; and By that intentional sacrifice, the safety of the vessel, the remaining cargo, or the voyage must be secured.  General Average Documentation If the cargo is insured; Average Bond to be completed, signed, dated, and stamped with the company stamp by the receivers/owners of the cargo. General Average Guarantee: to be passed to the cargo insurers for their completion and should be signed, dated, and include the company stamp. Copies of the relevant Bills of Lading. Copies of commercial and freight invoices to establish the value of the cargo. Complete contact details of the cargo insurers to allow Adjusters to coordinate with them directly, which is the usual procedure in cases of General Average. If the cargo is not insured; Average Bond: to be completed, signed, dated, and stamped with the company stamp by the receivers/owners of the cargo. Cash Security. Copies of the relevant Bills of Lading. Copies of commercial and freight invoices to establish the value of the cargo.  The role & function of average adjusters Average Adjusting has been suggested to be the second oldest profession, but as reflected in the rhyme which appeared many years ago in the magazine Punch. Average adjusters are marine claims experts in the law and practice of general average and marine insurance and are responsible for adjusting and providing the general average statement. Average adjusters prepare claims under marine insurance policies which generally involve loss or damage to marine craft, their cargoes or freight. An average bond guarantees that a cargo owner will pay his/ her contribution to the general average loss, once it has been determined by the average adjuster. Average Adjusters may also be called upon to prepare statements of claim against third parties and to deal with the division of recoveries from third parties for such casualties as collisions. Average Adjusters may be appointed by any party involved in a marine claim but are bound to act in an impartial and independent manner, irrespective of the identity of that party. Using an adjuster to present the claim to insurers should ensure prompt agreement of the fair claim by both ship owner and insurer, and prevent undue delay in settlement of claims. Adjuster’s fees will form part of the claim against insurers.  SALVAGE AND GENERAL AVERAGE Under the Law of Salvage, strangers to the maritime venture who succeed in saving maritime property from loss or damage from perils of the sea or other waters are entitled to an award for their efforts and have a maritime lien on the salvaged property. Elements taken into account in fixing the amount of the award: – the extent of the efforts required – the skill and energy displayed by the salvors – the amounts involved, including both the value of the vessel or other property employed by the salvors in rendering the service and the value of the vessel, cargo, or other property salvaged – the risks incurred by the salvors; and the degree of danger from which the property was rescued. Accounting and other expenses incurred in administering a General Average are often quite out of proportion to the amounts involved and because the same underwriters sometimes insure both hull and cargo. If cargo can be salvaged, the expense of salvage operations should be split among the affected parties using general average. If damaged cargo can be sold at a lower rate, the difference between the price of the undamaged cargo and the damaged cargo is the general average. Now some men go to sea – ho, ho! And some work on the land, But I’ve a job that – s’welp me bob! You’ll never understand. For I am an Average Adjuster, And nobody knows what I do. Do I add one here, subtract one there? To make the sum come True? Now that’s a secret I won’t tell, For if I did I know full well, Any Tom or Dick who had the trick, Could adjust an average too. - From Magazine “Punch” THANK YOU !!!!!