TTM15230 - Background material: General average

Officers may meet with ‘general average’ in either income or expenditure of a shipping company.  As a legal concept, it dates back to the time of the Phoenicians, but most modern contracts of affreightment refer to a particular set of rules, the York - Antwerp Rules:

• An actual danger must exist to the ship or cargo
• There must be an ‘extraordinary’ act to escape or reduce the danger; perhaps by jettisoning part of the cargo, or incurring additional expenditure, such as entering into a salvage agreement
• The sacrifice or expenditure must be voluntary, and not, for example, as a direct result of the peril
• The sacrifice or expenditure must be reasonable
• The sacrifice or expenditure must have been undertaken for the common safety, of ship and cargo
• The loss must have occurred while on a voyage, or loading or unloading
• The loss must be a direct consequence of the action taken
• The action taken must have been successful

Examples

(1) A ship on a voyage becomes in danger of sinking, and to avert this peril the master and crew jettison part of the cargo, thereby saving both the ship and remaining cargo.

The immediate loss is to the owners of the jettisoned cargo, but that loss, under general average, has to be shared by the owners of the ship and the surviving cargo.

(2) A ship is severely damaged and in danger of sinking but is saved by a salvage tug with which the master agrees a salvage contract.

Both shipowner and cargo owner have to pay towards the cost of salvage.

Who is liable?

Only shipowners, ship operators (who stand to lose freight income) and cargo owners have to contribute. Passengers and crew (whose lives might be saved) are not charged.

References

Marine insurance – TTM15220