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General Average in Maritime Law: Definition, History & Application

Writer's picture: AdminAdmin

Updated: Feb 4

In the domain of maritime law, General Average emerges as a pivotal principle, ensuring equitable apportionment of losses during maritime crises. This concept, deeply rooted in the York-Antwerp Rules, has undergone significant transformations to accommodate the complexities of contemporary shipping.


Our exploration into General Average's historical context, its enduring relevance, and its contemporary applications aims to offer a thorough grasp of this essential component of admiralty law.


A collection of maritime law books and legal documents scattered on a wooden table
Exploring the depths of maritime law through a collection of books and documents spread across a wooden table, with navigational maps adding a historical touch.

The York-Antwerp Rules, initially formulated in 1890, have undergone multiple revisions to align with the dynamic evolution of maritime commerce. These regulations define general average act as "any extraordinary sacrifice or expenditure 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".


In essence, General Average mandates that all stakeholders in the voyage, encompassing shipowners, cargo owners, and insurers, collectively bear the financial weight of losses incurred during a maritime emergency.


The activation of General Average is triggered by occurrences such as grounding, capsizing, fire, cargo shifting during severe weather, collision, or machinery failure. In these scenarios, the shipowner must secure General Average security for the benefit of cargo owners who have incurred recoverable losses. This security typically encompasses a General Average Bond and a cash deposit or a General Average Guarantee from a reputable insurer. The Comité Maritime International (CMI) has crafted standardized forms for these documents to expedite the process.


Key Takeaways

  • General Average is a fundamental principle in maritime law that ensures fair distribution of losses during a maritime emergency.

  • The York-Antwerp Rules, first established in 1890 and revised multiple times, govern the application of General Average.

  • A general average act involves extraordinary sacrifices or expenditures made for the common safety of the ship and cargo.

  • Shipowners are required to obtain General Average security from cargo owners in the event of a recoverable loss.

  • The CMI has developed standard forms for General Average Bonds and Guarantees to facilitate the process.


What is General Average in Maritime Law?

General Average is a maritime principle that has been in place for centuries. It dictates how losses and expenses are divided when a sacrifice is made to save a ship, its cargo, and crew from danger. This principle is based on the idea of shared risk in maritime trade, long before the advent of marine insurance.


Definition of General Average

The York-Antwerp Rules of 1974 outline what constitutes a General Average act. It involves an extraordinary sacrifice or expenditure made intentionally to protect the property involved in a maritime venture. This definition emphasizes the intentional nature of the sacrifice, the presence of peril, and the goal of ensuring the safety of all parties involved.



Key Elements of General Average

There are three critical elements of General Average:

  1. A common danger to the vessel, cargo, and crew

  2. A voluntary jettison of a portion of the whole to avoid imminent peril

  3. The successful attempt to avoid the common peril


Events that might lead to a General Average declaration include stranding, cargo damage, fire, bunker shortages, cargo shifting, collisions, and machinery failures. In such cases, the ship's master may choose to make sacrifices to protect the ship and its cargo.


Event

Year

Outcome

Ever Given grounding

2021

Potentially one of the largest General Average cases, with a lengthy process estimated to last up to 7 years

CMA CGM Libra incident

2011

92% of cargo interests contributed to the General Average fund, while 8% refused, sparking a debate about ship seaworthiness and responsibility allocation

Maersk Honam fire

2018

Cargo owners paid 54% of cargo value (42.5% for security, 11.5% as a deposit) to release their goods following a General Average declaration


The process of General Average adjustment involves calculating the value of each property at risk. This ensures that the financial burden of the General Average contribution is distributed fairly among all parties. This approach to maritime risk management promotes fairness and cooperation in the face of shared risks.


Historical Origins of General Average

The concept of general average traces its roots back to ancient times. This principle of shared risk and loss in maritime ventures has evolved over centuries. It has shaped modern maritime legal principles and practices.


Lex Rhodia and Ancient Maritime Law

The Lex Rhodia, the maritime code of Rhodes from around 800 BC, marks the beginning of general average. This ancient law codified the practice of shared risk in maritime trade. It stipulated that losses incurred during a voyage would be distributed among all parties involved. The Rhodian Sea Law, from the 7th or 8th century AD, further developed these principles in the Eastern Roman Empire.


Other notable ancient maritime laws include:

  • Italian cities formulated their own maritime laws as early as 1063

  • The Consolat de Mar, compiled in Barcelona in the 13th century, significantly influenced modern maritime law development


Rolls of Oléron and Medieval European Maritime Law

In medieval Europe, the Rolls of Oléron, dating from the 12th century, became a cornerstone of maritime law. These rules provided guidance on what is now known as general average. They were widely adopted in England, France, Scotland, Flanders, Prussia, and Castile. The Rolls of Oléron showcased the importance of equitable loss sharing in maritime ventures.


Other significant maritime codes from this era include:

  • The Maritime Code of Christian XI of Sweden (1667)

  • The Marine Ordinances of Louis XIV of France (1681)

  • The Code of Christian V of Denmark (1683)


These historical developments laid the foundation for the modern application of general average principles in maritime law cases.


The York-Antwerp Rules

The York-Antwerp Rules, formulated in 1890, serve as a cornerstone in the maritime legal framework. These guidelines, spanning over a century, encapsulate the ancient maritime principle of general average. This principle mandates the equitable distribution of losses incurred during a voyage to save cargo.



The essence of the York-Antwerp Rules revolves around imminent danger to the ship, voluntary cargo jettisoning to avert peril, and successful danger avoidance. In perilous maritime scenarios, all participants must share the financial responsibility for losses. This principle is pivotal in maritime law, ensuring fairness in the distribution of costs.


The York-Antwerp Rules are integral to maritime contracts, including bills of lading and insurance policies. They delineate liability and cost allocation for cargo loss or damage. Since their inception, these rules have undergone revisions in 1994, 2004, and 2016, reflecting evolving maritime practices.


Rule Version

Key Changes

YAR1994

Allows 2% commission on general average disbursements (Rule XXI)

YAR2004

No commission allowed; interest on losses decided by annual CMI meetings

YAR2016 (proposed)

Discussions ongoing regarding Salvage Remuneration allowance


The Process of Declaring General Average

The first step involves appointing a neutral third-party, the Average Adjuster. These professionals, tracing back to the 13th century in the Mediterranean Sea, determine the costs owed to and by each party. They assess losses qualifying for General Average, calculate the total costs, and determine each stakeholder's contribution.


To release cargo, owners must provide a financial guarantee, typically a deposit, to the General Average fund. This ensures all parties are committed to the settlement process. Without adequate insurance, cargo owners face significant risks, including financial losses, delays, and legal disputes.


Year

Event

Significance

1890

York-Antwerp Rules first adopted

Established the foundation for General Average in maritime law

2018

Maersk Honam fire incident

Cargo owners required to contribute a portion of their cargo's value under General Average

2021

Ever Given grounding in the Suez Canal

High-profile case involving a declaration of General Average


The Role of the General Average Adjuster

The vessel's owner designates a neutral third-party, the General Average adjuster, upon encountering a general average situation. This professional is pivotal in apportioning the costs among stakeholders, ensuring a just and balanced outcome.


The General Average adjuster evaluates which losses qualify for general average, computes the total incident costs, and assigns each party's contribution based on their venture share. This task requires a deep understanding of the York-Antwerp Rules, the foundational principles of general average in maritime law since 1890. The rules have undergone revisions in 2004 and 2016.


Appointment of the Adjuster

The General Average adjuster must remain impartial throughout the process. The adjuster's proficiency in maritime insurance and cargo claims is crucial for managing the complexities of general average scenarios.


Determining Applicable Costs and Losses

The General Average adjuster's main duty is to ascertain which costs and losses fall under the York-Antwerp Rules. This encompasses various expenses such as:

  • Towing and salvage operations

  • Berthing and discharging operations

  • Cargo sacrifices and damages

  • Fuel and supplies consumed during the incident


An ancient maritime scene depicting a ship at sea in distress, surrounded by stormy waves, with sailors working together to save cargo
Amidst tempestuous seas, a distressed ship battles stormy waves as sailors work tirelessly to secure their precious cargo.

The adjuster must then calculate the proportional contributions due from each stakeholder, based on their venture share. Cargo insurance is vital in reducing the financial burden of general average, covering losses, expenses, and contribution shares according to internationally recognized insurance standards.


General Average Guarantees and Cargo Release

General Average is crucial for addressing maritime emergencies and ensuring equitable loss distribution. When a ship faces peril at sea, the captain may declare a General Average. This requires all parties with cargo on board to contribute proportionally to the losses incurred during the incident.



Before cargo can be released to its owners following a GA declaration, cargo owners must provide General Average guarantees. These guarantees, typically in the form of surety bonds or cash deposits, ensure that all parties fulfill their financial obligations as determined by the GA adjuster. Cargo remains held until these securities are provided.


A maritime scene depicting a general average adjuster working on calculations, surrounded by nautical charts, a vintage ship in the background, waves crashing against the hull
A general average adjuster focuses on calculations amidst nautical charts, while a vintage ship braves the crashing waves in the background.

Cargo Insurance and General Average

Cargo owners with "All Risk" insurance policies are well-equipped to handle the complexities of a general average scenario. Upon notification of a general average declaration, insured shippers should immediately contact their underwriters. Underwriters will then provide the necessary guarantees and cover the cargo owner's share of the costs. This proactive approach minimizes delays and losses, ensuring a swift resolution.


Notifying Underwriters

Prompt communication with insurance underwriters is essential in a general average situation. Cargo owners must provide detailed information about the incident, including the vessel, voyage details, and the nature of the cargo jettison or other sacrifices made. Underwriters will then collaborate with the appointed average adjuster to determine the extent of the losses and the proportional contributions required from each party.


Insurance Company Payments

Once the general average adjustment is complete, insurance companies will cover the insured cargo owner's portion of the costs. This financial protection is a key benefit of having comprehensive cargo insurance, as it shields shippers from potentially significant out-of-pocket expenses. Uninsured shippers, on the other hand, face the daunting task of posting deposits on their own, often at higher rates than those with insurance.


"All Risk" cargo insurance is recommended for loss-protection against General Average incidents.

A maritime scene depicting a ship at sea, surrounded by scattered cargo and debris, with crew members assessing the situation
A ship navigates through choppy seas as crew members evaluate scattered cargo and debris, reflecting a maritime situation in need of resolution.

Modern Applications of General Average

Despite advancements in maritime technology and safety, the principle of general average remains relevant today. Recent cases show its continued importance in ensuring fair sharing of losses and expenses during voyages.


The 2023 Logistics Risk Report reveals a 15% rise in general average claims incidents. This underscores the need to grasp and apply the concept of general average contribution effectively in response to unexpected maritime events.


The MV Hyundai Fortune (2006)

In 2006, the MV Hyundai Fortune encountered an explosion and fire off Yemen's coast. The crew's actions, including flooding the engine room, saved the ship and cargo. This led to a general average claim, requiring all parties to share the losses proportionally.


The M/V MSC Sabrina (2008)

The M/V MSC Sabrina ran aground in the Saint Lawrence River in 2008, prompting a general average declaration. This incident highlighted the role of maritime loss sharing in reducing financial burdens on stakeholders.


The Hanjin Osaka (2012)

In 2012, the Hanjin Osaka suffered an engine room explosion, necessitating a general average declaration. This case reinforced the enduring relevance of general average history in contemporary maritime trade.


Companies with effective general average strategies face 30% fewer financial disruptions during maritime incidents. Businesses with comprehensive general average insurance also see a 25% decrease in out-of-pocket losses during such events.


Case

Year

Incident

Outcome

MV Hyundai Fortune

2006

Explosion and fire

General average declared

M/V MSC Sabrina

2008

Grounding

General average declared

Hanjin Osaka

2012

Engine room explosion

General average declared


Criticisms and Calls for Reform

In recent years, the general average process has faced criticism from various stakeholders in the maritime industry. The concept, a cornerstone of maritime law for centuries, is now seen as outdated and inefficient by some. This perspective suggests that it may not align with the needs of modern maritime trade.


One major concern is the high administrative costs of the general average settlement process. The involvement of highly trained 'average adjusters' and the complexity of procedures lead to significant expenses. These costs may be disproportionate to the actual losses incurred, sparking discussions about their impact on freight rates and system efficiency.


The time-consuming nature of the average adjustment process is also under scrutiny. The intricacies of the procedures can cause delays in cargo release, leading to further financial losses. This has prompted calls for simplifying the general average process to reduce administrative burdens and expedite claim settlements.


A ship navigating turbulent seas, surrounded by floating cargo and rescue boats, symbolizing collective sacrifice and shared financial responsibility in maritime law
A ship bravely faces tumultuous seas, flanked by floating cargo and vigilant rescue boats, embodying the principles of collective sacrifice and shared financial responsibility inherent in maritime law.

Equity and Fairness in General Average

Another point of contention is the perceived lack of equity in the distribution of costs under the current system. Critics argue that the practice may not always result in a fair allocation of expenses. This is often due to questionable or biased actions by the Master, leading to concerns about fairness.


Criticism

Description

High Administrative Costs

Complex procedures and involvement of specialized adjusters lead to significant expenses

Time-Consuming Process

Delays in cargo release and settlement of claims due to intricate adjustment procedures

Equity Concerns

Questions raised about the fairness of cost distribution among parties involved


These concerns have led to discussions among maritime law experts about potential reforms to the general average system. Some have suggested alternative schemes for distributing costs. Others have called for a more fundamental review of the practice, considering factors such as uninsured interests and legal implications of general average clauses in bills of lading and international conventions like the Hague Rules.


"The discussion surrounding the abolition of general average altogether for a more equitable distribution of costs was raised." - WGISL, 1990

As the maritime industry continues to evolve, the debate surrounding the future of general average will persist. The concept has played a crucial role in maritime law's development. Yet, adapting to the changing needs and expectations of modern trade may require a reevaluation of its principles and application in the 21st century.


An abstract representation of maritime risk management, featuring a large cargo ship navigating turbulent seas, surrounded by symbols of insurance and financial protection
Navigating Risk: A cargo ship braves turbulent seas, symbolizing the intricate world of maritime risk management amid insurance and financial safeguards.

Conclusion

General Average stands as a fundamental pillar in maritime law, ensuring losses are equitably shared among all involved in a maritime endeavor when a sacrifice is made for the collective benefit. Despite criticism regarding its high administrative costs and relevance in contemporary shipping, its significance in admiralty law remains unchallenged.


The rise in container ship sizes has magnified the financial impact of General Average losses on cargo owners and freight forwarders. With thousands of parties involved on a single vessel and over half of shipments uninsured, the financial stakes are high. A recent instance saw a General Average demand exceeding 60% of the contributory values, illustrating the significant burden on stakeholders.


Shipowner liability and the marine salvage laws are also pivotal in mitigating risks and rewarding efforts to save vessels and cargo from danger.

As the maritime sector evolves, grasping and applying General Average's principles is crucial for all participants.


FAQ

What is General Average in maritime law?

General Average is a maritime law principle. It mandates that all participants in a sea venture share losses. These losses occur when cargo or ship materials are voluntarily sacrificed to save the entire venture in an emergency.


What are the key elements of General Average?

General Average's core elements include:

  • a shared danger to the vessel, cargo, and crew

  • a voluntary sacrifice of part of the whole to avert peril

  • the attempt to mitigate the peril must be successful


What are the historical origins of General Average?

General Average's roots trace back to the Lex Rhodia, circa 800 BC. It also draws from the medieval Rolls of Oléron. These sources provided foundational guidance on General Average.


What are the York-Antwerp Rules?

The York-Antwerp Rules are international guidelines for General Average. First established in 1890, they have undergone several revisions. The most recent updates were in 1994, 2004, and 2016, reflecting modern maritime practices.


What happens when a vessel owner declares General Average?

Upon a vessel owner's declaration of General Average, a neutral adjuster is appointed. This adjuster determines the costs owed by and to each party involved in the voyage.


What is the role of the General Average adjuster?

The General Average adjuster assesses which losses qualify for General Average. They calculate the incident's total costs. Then, they determine each party's liability based on their venture share.


What are General Average guarantees, and how do they affect cargo release?

After a maritime incident, stakeholders must provide General Average guarantees for cargo release. These guarantees are essential before cargo is released to the owner. They can be provided by the owner or their insurance company.


How does cargo insurance relate to General Average?

Cargo owners with insurance should inform their underwriters immediately upon a General Average declaration. The insurance will then provide the necessary guarantees. This covers the owner's share of General Average costs.


Is General Average still relevant in modern times?

Yes, General Average remains relevant today, despite technological advancements. Notable cases include the MV Hyundai Fortune (2006), the M/V MSC Sabrina (2008), and the Hanjin Osaka (2012).


What are some criticisms of the General Average process?

Critics argue that General Average is outdated and inefficient. They point to high administrative costs. These costs often exceed the actual losses incurred, making the process inefficient.

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