Written by Capt Rajeev Jassal on October 7, 2016

It is not uncommon these days for people to share the spendings of a group
equally. For example, for a group of five friends having lunch together, they
share the bill in five equal parts. Each one contributes one fifth of the total
amount.

Or for example three to four people sharing a ride back home from office.

This is so easy. Right ? Dividing the fare or food bill is easy and everyone saves
some money. But this looks easy because of two reasons.

One because the amount is divided in equal parts. And second because the
money involved is not so big to draw a controversy. It would be much more
difficult to draw an average if one person said that he has eaten less so he
should pay less.

Or for that matter one person said he weighs less so he will pay less for the cab
ride.
Oh!! I was supposed to talk about York Antwerp rules, right ? Why am I even
talking about sharing a ride and food bill.

Well the York-Antwerp rules are also about sharing the expenditures with certain
conditions attached.

Take this example.

A hold on a bulk carrier with cargo in it catches fire. The hold is flooded with
water to extinguish the fire and to avoid the fire spreading in other parts of the
ship.

We have saved the ship and we have saved the cargo in other holds of the ship.
What have we lost ? The cargo loaded in one hold.

Now who would pay for the cargo lost in this case ?

Both the cargo interests as well as the ship owner has saved themselves
damages which could have been more. If it was up to me and you to decide, it
could be almost impossible to draw a balance on who should pay how much.
After all it isnt as simple as averaging for the food bill or cab fare.

This is what York Antwerp rules aims to do. The process of averaging the
contribution of each party (who benefitted) to make up one partys loss (Sacrifice
as well as expenditures) is called general average.

General average is based upon the principle

That which has been sacrificed for the benefit of all shall be made good by the
contribution of all
So not all sacrifices and expenditure qualify to be averaged and shared by other
parties.

York Antwerp rules sets the guidelines of which all sacrifices and expenditures
can be included during General Average and which all cannot.

How General Average works ?

Let me give an example. A loaded ship is hijacked in Somalian waters and pirates
demanded the ransom for release of the ship. After much of negotiations the
ransom was brought down to 30,00,000 (3 Million) US dollars.

The ransom amount was delivered and the ship was released. Let us see the
break up of total expenses incurred in releasing the ship.
Now who do you think will pay this huge amount ?

The principle of general average says that all the parties that benefit from this
sacrifice of the ship owner should pay. But how much each one need to pay ?

Cargo owner who had small parcel on board the ship should not pay same as
other cargo owners who had huge amount of cargo on board.

So the break up need to be in proportion of how much each party saved from this
sacrifice.

As per general average, each party will pay the same percentage of amount that
they have saved. For example of the total value saved, 60% belongs to the ship
owner. So ship owner need to contribute 60% of the expenditures or amount
sacrificed.

Here are the general average contributions from each party in this example.

Now in this example, I have over simplified this for the sake of understanding but
in realty these calculations can be extremely complex.

Some can even argue if the ransom paid for piracy can give rise to claims
under general average ? All this may not be that simple.

For example it may be that ship was taken to Somalia and then upon release ship
joined its planned route after one day sailing.

In this case the ship owners expenses like fuel cost and ship staffs wages etc for
this period also need to be shared.

But if we do not have a pre defined set of rules, the cargo owners may refuse to
share the fuel costs or crew wages. They may say that we will only share the
ransom amount.

So there need to be rules which each party will agree upon before the start of
voyage. These rules already exists and are known as York Antwerp rules.
York Antwerp rules

The first version of York Antwerp rules were issued in 1890. But it was second
version of York Antwerp rules that got much of applaud. Even though the latest
version of the rules were issued in 2004, most companies use 1994 version of
the rules.

Recently a new version of rules were issued in 2016.

York Antwerp rules has two sections. First section has rules that are identified by
the letters (Rule A, Rule B .. ). These rules give general guidelines on what can be
included in the general average.

Second section has rules that are identified by numbers (Rule I, Rule II .. ). These
rules give specific situations, sacrifices and expenditures that can be included in
the general average.
Let is discuss few of the important rules.

Rule Paramount

While all the rules in York Antwerp rules are named either with a number or an
alphabet, this one rule is named differently. This is because this rule is
paramount to all the rules.

Sacrifices made by ship owners should be reasonable and they cannot over
spend. For example let us say the vessel was towed even when the ships engine
were working.

This would be considered as not -reasonable and this amount will not be
included in the general average.

What is General average act (Rule A)

What expenditures will be shared by all parties ? When we talk about general
average and York Antwerp rules, this is most important question.

If ship owner places armed guards on board, can this be considered as general
average act ? Will these expenses be shared between ship owner and cargo
owners ?

Rule A of the York Antwerp rules defines the limits of general average act. It says
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

So there are four essential requirements for an action to fall under General
average.

1. The expenditure or sacrifice need to be extraordinary

The ship owner is bound by his duty to deliver the cargo safely at the
destination. There is nothing extraordinary in any actions that a ship owner
performs to fulfill this duty.
This also answers my earlier question if placing the armed guards would come
under general average act. It wont. Ship owner is placing the armed guards to
fulfill his duty of delivering the goods safely.

2. The act must be intentional

If the ship ran over a wreck and to release the ship a part of ship or the wreck
need to be cut away. The expenditure involved in this will not come under
general average because this was not intentional.

Jettisoning part of cargo to re-float the ship or flooding the water in a hold to
extinguish the fire are intentional acts.

3. The Action must be for the common safety

Let us understand the term Common safety: with an example.

Let us say a container ship has few of the refrigerated containers. The
referigeration system of the ship failed and ship had to be diverted to a nearest
port for repairing it to avoid damaging this cargo.

Will the expenditures incurred by the ship owner in this case come under general
average ?

No, because the action is only for saving part cargo and not for the common
safety of ship owners and for other cargoes loaded on ship.
For the general average, the action has to be for the common safety.

The action of Jettisoning some cargo to avoid sinking of entire ship is for common
safety.

4. There must be a peril

If the master jettison a cargo to save the ship from sinking, it is a peril. But if the
master jettison the cargo because he feels that the ship is overloaded, is not a
peril.

Dictionary meaning of peril is Grave danger. If there is no grave danger,

general average cannot apply.

But in the context of York Antwerp rules and General average, the
interpretation of grave danger can be different.

In fact that is the difference between a ship in distress and a ship in peril.

For example take a ship that has broken engine in the mid sea with calm
weather. The ship is not in distress but the ship is in peril.

General average Sacrifices

The sacrifices that can be made and are included in the general average fall
under three categories.

The numbered rules gives the examples of the sacrifices that can be included in
the general average.

Jettison of cargo: Jettison of cargo will include in the general average if the cargo
was carried as per customary trade. For example if the deck cargo was loaded on
a ship that is not allowed to load on deck, sacrifice of such cargo will not include
in the general average.

Extinguishing fire: General average will include the damages (to ship or the
cargo) because of extinguishing fire on board.

Voluntary stranding: Damage and loss because of intentional stranding in

common safety is allowed to be included in general average.

General Average Expenditures

Apart from the sacrifices, one party may spend lot of money in the common
interest of saving the ship and the cargo. As per York Antwerp rules, these
expenditures also can be included in the general average.

Some of these expenditures can be

Salvage expenses

Port of refuse expenses

Wages of master and crew during the prolongation period because of port of
refuse

Fuel during the prolongation period because of port of refuse

No general average for environmental pollution (Rule C)

As per Rule C of the York Antwerp rules, the costs involved in handling
environmental pollution cannot be included in the general average.

This is a logical rule as if the general average was to include the environment
damage claims, it would have taken the domain of the general average too far.

It does not matter whose fault it is (Rule D)

Let us say a vessel ran aground. The vessel had to sacrifice (Jettison) some of the
cargo to re-float it. As per rule D, the cargo owners cannot claim that the
grounding was due to the fault of ship owners and they would not contribute to
the general average.

Irrespective of the fault which led to the event (in this case grounding), all parties
have to contribute to the general average.

But this will not be the case if the ship was unseaworthy. If the grounding
resulted because the vessel was unseaworthy, then ship owner cannot benefit
from the general average.

In spite of the rule D of the York Antwerp rule, US law does not allow the
navigation fault of the ship owner to be neglected. As such most of the ship
owners make sure to include new Jason Clause in the bill of lading and charter
party agreement.
Application of York Antwerp rules and General average

In most countries these rules do not have any legal force in themselves. The York
Antwerp rules and principle of general average have legal force only if these are
included in the bill of lading or charter party agreement.

If you get to see an actual bill of lading, read the term, conditions and clauses on
the back side. Most likely you will find a clause regarding York Antwerp and
General average there.

Recovery of general average contribution

In taxi fare example, if one person refuse to pay his share what options one
can have to recover it.

May be we can let it go as the amount will not be that big.

In the perils at sea, in most of the situations it will be ship owner who would
make sacrifices and expenditure to come out of these situations.

So how can a ship owner ensure that everyone will contribute to general average
amount that ship owner should get.
In the maritime law a ship owner has the lien on the cargo for the general
average contribution. So ship owner will only release the goods once he receives
a guarantee that he will get his dues. This guarantee can be in form of

General average bond

Guarantee from the underwriter

Guarantee from the bank

Cash deposit

Role of Average adjuster

Dont go by the name. Average adjuster are not average people. They are the
expert in one field of marine insurance, that is general average.

During a general average situations, usually a average adjuster is appointed by

one party. The role of the average adjuster is to

Collect all the information following a general average action

Make a statement of general average contribution of each party

Collect general average security from each party

Assist in effective settlement of the general average

Irrespective of which party has appointed average adjuster, it is the duty of the
average adjuster to be impartial towards general average settlement.

Association of average adjusters sets the standards for the training of average
adjusters.

Conclusion

General average allows sharing of loss in an unfortunate incident. General

average is a good old maritime practice. Not only for ship owners and other
parties involved but also for ships masters.

To some extent it allows the master of the ship to be a boss and take actions
what he believes is the best for that situation.

Take an example where master need to beach the ship to save it from
sinking. Because of general average, master would face lesser resistance from all
the parties as the loss would be shared.

In the absence of general average, condition would be different. Master may

have to convince all parties that beaching is the only option.

Another example where master has to jettison some cargo to save the ship. In
the absence of general average, the cargo owner might object to why his cargo
was jettisoned and not the other cargo ?
York Antwerp rules and General average has something good for everyone
involved with a ship and carriage of cargo.

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