The law of General Average is a legal principle of maritime law to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship and cargo to save the whole in an emergency. The tenet of General Average is that a party who has suffered some extraordinary expenditure or loss in order to save property belonging to others has the right of compensation for its loss from all parties to the voyage who have benefited from it.
A History of General Average and Maritime Law
Due to the international nature of shipping and the differences in the law‘s application, however, as a means to introduce international uniformity, General Average was formally codified into the York-Antwerp Rules, in 1890. The rules have been updated numerous times, most recently in 2004. The rules state: “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.” While general average traces its origins back to ancient maritime law, it still remains a part of admiralty law today.
Conditions for General Average
The claim is adjusted by an average adjuster who calculates the value of each saved interest. Each interested party is then obliged to contribute towards the general average loss or expenditure proportionately. An important point is that the voyage must be saved for General Average to apply. The four essential prerequisites for a General Average declaration are:
- Incurrence of an extraordinary sacrifice or expenditure
- Occurrence of an intentional or voluntary, but not necessarily inevitable, act
- Presence of a real and substantial, but not necessarily imminent, peril
- Resolution must be for the common safety and not merely for part of the property involved
Calculation of General Average
Calculation of General Average contributions is quite a complex task. Given the somewhat hybrid development of the rules, correct interpretation continues to be a specialized task for correct interpretation continues to be a challenging task left to experts who specialize in General Average adjusting.
General Average security usually takes the form of a General Average Bond signed by cargo owners, together with either a cash deposit for the amount determined by General Average adjusters or a General Average Guarantee provided by the cargo insurers.
Guarantees are usually only accepted from reputable insurers with a strong financial backing. Where the insurer does not meet the minimum financial strength criteria, additional security may be required before release of cargo.
Therefore, cargo owners and their brokers, in the current global financial climate, are advised to deal with a respected marine insurer with a healthy solvency margin and a strong international credit rating.
What types of marine casualties can give rise to General Average?
The following are some examples of events and expenditures that are likely to be involved in a General Average loss:
- Grounding or stranding
- Capsizing in inclement weather
- Cargo shifting during heavy weather causing heavy listing
- Collision or machinery breakdown
Enforcement of rights in General Average
Under international shipping law, the shipowner has a duty to obtain General Average security not only for their own benefit but also for the benefit of other cargo owners who have suffered a loss recoverable under General Average.
The shipowner enforces this duty through a lien held over the cargo while in custody for cargo owners‘ General Average contributions.
This lien enables the shipowner to demand lodgement of acceptable security for estimated General Average contribution before release of the cargo.