West of England SERVICE IS OUR STRENGTH. General Average Seminar

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1 West of England SERVICE IS OUR STRENGTH General Average Seminar

2 GA & Club Cover Due Diligence & Unseaworthiness Technical Management Underwriter Claims Lawyer Loss Prevention

3 Christopher South

4 A form of what is now called general average was included in the Lex Rhodia, the Rhodes Maritime Code of circa 800 BC. The loss of one was divided among several Middle Ages law was still based on Rhodian principals encapsulated in Libre Consolat de mar of Barcelona which dealt with ownership of vessels, the duties and responsibilities of the masters or captains thereof, duties of seamen and their wages, freight, salvage, jettison, average contribution

5 All parties to a common maritime adventure who share in profits in that adventure share in losses and expenses incurred for common good or in seeking common goal

6 Extraordinary sacrifice or expenditure Made intentionally Made reasonably Against a peril For benefit of common venture

7 Is the peril obvious? a GA act (it) must have been undertaken to preserve ship & cargo which, might or could develop into an actual or commercial total loss of the ship & cargo other than by mere delay before arrival at her destination ( Lowndes & Rudolf)

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9 Stranding Fire Shifting of cargo in heavy weather Heavy weather, collision, machinery breakdown, other incident with damage to ship and or resort to or detention at a port Salvage Piracy Damage to vessel through efforts to refloat Loss or damage to cargo through Jettison Costs of discharging storing and reloading cargo Port of Refuge Expenses Damage to ship & cargo through fire fighting Jettison of cargo Port of Refuge Expenses Port of Refuge Expenses Rule VI of the YAR provides for salvage payments to be treated as GA Ransom, Negotiation costs, Operating Expenses whilst negotiating (YAF Rule F)

10 Hicks v Palington (1590) was quoted, holding that where cargo is voluntarily given up to pirates by way of composition, the sacrifice is a subject for general average contribution. Royal Boskalis Westminster NV v Mountain (1999), in circumstances where a ransom is paid for the release of the vessel, cargo and crew with no specific payment being identified and made for the saving of crew lives, the courts are not prepared to review the payment to apportion the payment between the saving of life and the saving of property, thus treating the whole payment made as being a payment for the objective of saving the vessel and its cargo. It is entirely natural that there should be concern that money paid to criminals for this same purpose should be allowed in General Average. However, the payment of a ransom complies with the defined tests for General Average and has the support of the courts. RHL

11 Covers situation where cargo is onforwarded to destination by different means. Purpose to allow GA to continue although Ship & cargo have parted Usually obtained by Adjusters N-SA to be provided by cargo receivers & underwriters

12 If adjustment under YAR 1994 no need for Non-Separation Agreement 94 Rule G Para.3 incorporates NSA wording 94 Rule G Para.4 adds Bigham Clause wording A Bigham clause guarantees that the cargo owner's share of any general average contribution payable under a non-separation agreement may not exceed the cost that the cargo owner would have incurred had his cargo been delivered to him at the port of refuge and then been forwarded to destination at his/her expense (reduces potential P&I exposure)

13 WoE Rule 2 Section 17 The proportion of GA expenditure, special charges or salvage which the member is or would be entitled to claim from cargo or from some other party to the marine adventure and which is not legally recoverable by reason only of a breach of the contract of carriage

14 Rule 2 Section 17 (b) GA shall be adjusted to the YAR 1974, 1994 or 2016 So what is not covered? Which word is missing? GA expenditure, special charges or salvage

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16 Who has suffered Sacrifice? Cargo? - Jettisoned to aid refloating Vessel? - Damage to engines during refloating

17 Rule 12 excludes Sums Insurable under Hull Policies Vessel is required to be fully insured on terms no less wide than Lloyd s Marine Policy with Institute Time Clauses (Hulls) 1/10/83

18 Clause 11..covers the Vessel s proportion of salvage, salvage charges &/or GA, reduced in respect of under-insurance, but in the case of GA sacrifice of the Vessel the Assured may recover in respect of the whole loss without first enforcing their right of contribution from other parties

19 Marine Insurance Act 1906 Section 66 para.(4) states: in case of a GA sacrifice he (the assured) may recover from the insurer in respect of the whole loss without having enforced his right of contribution from other parties liable to contribute

20 Conclusion: Under Hull Policies H&M underwriters have a direct obligation to the owner to pay for Sacrifice of vessel Sacrifice of vessel appears to have been specifically excluded from P&I Rules

21 Institute Cargo Clauses (A) 1/1/82 Clause 2 provides: GA and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice In 1st instance cargo recovers sacrifice from their own underwriters Subrogated cargo underwriters present claim to Club dealt with under Club Rule 2 Section 16

22 Vessel s contributory value for GA > sum insured under Hull policy P&I cover extends to ship s proportion of GA, Special Charges and Salvage Tailors with hull policy position on under-insurance. due from the ship Hull Clauses 1/11/95 - under-insurance provision Hull Clauses 1/11/03 - no reduction for underinsurance No claim on Club

23 GENERAL RULE DO NOT LET CARGO GO WITHOUT OBTAINING SECURITY Many liner operators may elect, at its option, to make arrangements to move cargo container to yards, inland terminals or on carriage before GA security provided Line agrees not to release custody of cargo until GA security provided In the event the Line prematurely releases or delivers any such cargo, and as a result Owners are unable to obtain satisfactory general average security, bonds or financial undertakings from cargo interests, the Line shall indemnify Owners for the contribution such cargo would have contributed to the general average, in accordance with the final determination of the general average adjuster.

24 Is full-blown GA warranted? GA Absorption clause in hull policy? Ask adjuster for estimates Don t Panic!

25 Average Adjusters are experts in marine insurance and law, who may be appointed by any party in a marine claim or dispute. Irrespective of the identity of the instructing party, the Average Adjuster is bound to act in an impartial and independent manner. Mrs South!

26 Shipowner has a lien for cargo s proportion of GA. Cargo receivers sign an Average Bond Cargo underwriters sign an Average Guarantee Unlimited agreements to pay Both documents require disclosure of cargo values Uninsured cargo - cash deposit When cargo doesn t pay, these are the document you turn to

27 The GA Surveyor s role is to document as accurately as possible the full extend of damages to the ship, and cargo and to distinguish between the extent of damages caused by the initial peril and damages caused by sacrifice. E.g. Distinguish between fire damage to a cargo of plywood and damage caused by the water used to extinguish the fire

28 1.A Manifest of Cargo on board at time of occurrence. 2.Copies of the Bill of Lading forms used for the cargo. 3.Signed average bonds. 4.Counterfoils of GA deposit receipts. 5.Copies of GA guarantees, if any. 6.Deck and engine log books in respect of the voyage during which the GA act occurred. 7.Copies of extended protests. 8.Original vouchers in respect of any additional expenses incurred. 9.The portage account for the voyag e. 10.Damage survey reports in respect of any hull and/or machinery damag e. 11.Original accounts for any hull and or machinery repairs and expenses incidental thereof. 12.Survey reports giving details of any cargo lost or damaged by GA sacrifice. 13.Account sales of any cargo sold o n the recommendation of a surveyor. 14.Copies of shipping invoices

29 Correct Version? Copies of correspondence between Adjusters, Shipowners and cargo interests Obtain copies of C/P & B/L The GA Text Book

30 Where? Generally an adjustment is separated from law governing contract of carriage so express choice of law in B/L etc will not extend to GA Not strait forward Is there a jurisdiction clause in Average Bond? Time Bar may vary in different jurisdictions check in advance what time bar applies where you might have to sue cargo

31 York-Antwerp Rules 2016 has done away with the commission, (gone is 2% commission) Interest, is pegged at 4% above LIBOR (or US Dollar ICE LIBOR where the adjustment is prepared in a currency for which no ICE LIBOR is announced) and is, as such, no longer fixed but floating (old YAR 94 pegged at 7% penal & unrealistic) Constitution by the average adjuster of a special account to be held separately from its own funds. This replaces the previous practice of setting up of joint accounts, a practice which was not routinely followed and which had been made more problematic by recent anti-money laundering legislation.

32 GA can be very technical but the principles are straightforward Don t wait until adjustment is published - think and act early Collect evidence on causation at the time Remember to differentiate between GA sacrifice of the vessel & expenditure Check time bars in possible jurisdictions

33 What are the cargo values? How many bs/l? What resources needed to adjust? If cargo do not pay who absorbs the proportion they should have paid? Hardly mutual. Even without GA there remains salvage and salvors rights WHAT IS THE SOLUTION?

34 A West of England Production