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Describe how General Average is settled.

When there is a general average act on a voyage, all parties who have
benefited shall contribute towards the loss. The ship has a possesory lien on
the cargo for its contribution to G.A.
At the discharging port, GA SETTLEMENT (calculation of losses,
contribution according to value etc.) shall be done. But this process is
complex and takes months to complete. During this settlement process, the
cargo will have to be delivered to cargo owners.
To ensure that cargo owners contribute towards the GA loss when the
GA settlement process is complete, the ship requires the cargo owner to sign
an AVERAGE BOND which is a promise to pay their GA contribution when
settlement is complete.
The ship thus exercises the “POSSESORY LIEN” on cargo in some form
of promise and guarantee that cargo owners will pay. In case of GA, it is
important that ‘AVERAGE BOND’ be signed by cargo owner before cargo is
delivered to him. ‘LLOYD AVERGE BOND’ is the standard form used.
GENERAL AVERAGE DEPOSIT is the amount of money deposited in a
special GA account in bank (joint account between ship and cargo owners). It
is based on arrived value of the property (usually about 10% of value) and
deposited after ‘Average Bond’ was signed. In case of GA act on a voyage the
ship shall never release the cargo until ‘Average Bond + Deposit’ completed.
Average Adjuster is a person appointed by ship owners for the
purpose of assessment and adjustment of GA Losses and claims following a
general average act.
The ship owner has the duty to appoint average adjuster and
collecting the contributions due from various cargo owners in case of GA.
An average adjuster will act as an ARBITRATOR and because of his
knowledge of the law and practice relating to insurance and average, will be
able to decide and assess.
1. What is allowable as GA? What is not allowable? & Amount allowed.
2. The contribution from each party towards GA.
3. The estimate of loss/damage due to GA and the approximate rate of
contribution from each cargo owner so that GA deposits can be
arrange. This will enable cargo to deliver to cargo owner without
waiting for final GA settlement. In some cases, GA guarantee given by
underwriters may be accepted.
On completion of GA assessment, the adjuster will issue a GENERAL
AVERAGE SETTLEMENT consisting of all details of losses, damages allowable
as GA on one side and contribution based on value by all parties (ship owner,
cargo owners etc.) on the other side.
This average adjustment is a complex process which takes time, some time
month of even years.
The usual practice for average adjustment is base on the “YORK-ANTWERP
RULE” and “ADJUSTER RULE OF PRACTICE”
A ship has a fire in No.1 hold, and cargo A was destroyed by fire.
Cargo B was badly damaged by the water which was used to
extinguish the fire, and cargo C was not damaged. Would the owners
of cargo C require paying an average contribution in respect A and B?

Cargo A is destroyed due to fire which is one of the insured perils under
marine insurance. The indemnity for damage / loss of cargo in this case will
be pay by underwriters of cargo A. It is due to accidental fire and thus shall
be Particular Average which is to be settled between cargo A owners and
cargo A underwriters.
Thus, cargo C owners shall not contribute towards loss of A.
Cargo B was badly damage due to water used to extinguish the fire. This is
an intentional act in times of Real Peril (fire) for the common benefit of
all interests in the common adventure.
Proved that it is reasonable, the loss to B shall be termed a GENERAL
AVERAGE SACRIFICE and this shall be settled according to rules agreed
between the parties to the adventure when the bill of lading or charter party
was signed.
Thus, according to GA settlement terms and average adjustment by average
adjuster, cargo C will contribute rateably towards the loss/ damage of cargo
B which was a GA loss.
To ensure that cargo owners who have benefited from the GA sacrifice shall
contribute to cover the loss, cargo owners such as owner of C shall sign
average bond or deposit, guarantee before the cargo C is delivered to them.

A ship bound for Africa from London ran into heavy weather and
became listed. The hatches are opened to have the cargo jettisoned.
Part of the cargo from No.1 hold were jettisoned, while some
remaining cargo inside the hatch were damaged by sea water which
entered the hatch. Some cargo from No.2 hold, which happened to be
illegal goods are also jettisoned. State which cargo is entitled to
General Average and which is not.

The act of jettisoning to save the voyage in times of extraordinary Peril is


General Average act.
Cargo from No.1 hold which were jettisoned.
This is GA sacrifice and the cargo owners are to be compensated from GA
funds as the loss is a General Average loss. (Rule I- York-Antwerp Rules)
Other cargo from No.1 hold direct consequence of jettisoning, and thus
allowed as GA loss. The damaged cargo will be compensated from GA funds
after settlement of GA.( Rule II –York-Antwerp Rules)
Cargo from No.2 hold. Which was jettisoned but is illegal goods.
The cargo owners of cargo from No.2 hold which happened to be illegal
goods shall
1. contribute towards GA (if some cargo saved)
2. But are not entitled to any compensation because of the fact that the
goods are illegal.(Rule XIX- York-Antwerp Rules)