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How General Average works
What you need to know if your cargo is caught up in a maritime disaster and a General Average is declared
General Average (GA) is widely recognised in all maritime jurisdictions and is as old as maritime transport itself. GA is a legal principle of maritime law according to which all interested parties to a ‘maritime adventure’ proportionally share any losses resulting from a voluntary and intentional sacrifice of part of the ship or cargo in order to save the remainder in an emergency. A GA event is defined in the York-Antwerp Rules (YAR) as “when, and
only when, any extra ordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for preserving from peril the property involved in a common maritime adventure”. An example of a GA sacrifice would be a carrier jettisoning cargo to help the ship deal with a grounding incident. An example of GA expenditure would be the employment of salvage tugs if the ship suffers an engine breakdown. Similarly, piracy ransoms securing the release of the ship and cargo are recoverable by this mechanism. Following an incident, the master will make an initial assessment and
inform shipowners. Provided the incident meets all the required attributes, GA may be declared. Whilst the combined cargo (rather than the ship) will often proportionally
hold the greatest value, it is the master, via owners/charterers who will generally declare GA; it is they who are usually the party directly handling the ‘event’ that is threatening the ‘maritime adventure’. In such circumstances, it is the owners who therefore will appoint an average adjuster, who thereafter operates independently and in the interests of all parties. The adjuster will compile the total value of the sacrifice and expenditure that is allowable and establish the total value of the assets of all the interested parties that have been rescued or saved. Contributory values are calculated against the net value of all these assets at the
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termination of the voyage. The GA contributions from each stakeholder will together provide sufficient funds to cover the total value of the sacrifice or expenditure. This process, inevitably, takes a long time – typically several years. To ensure that payment will be received, the adjuster will require each
party interested in the voyage to provide a GA bond, which is effectively a promise to pay the correct contribution as security. Since this is done at the outset, before the full value of the sacrifice and expenditure is known, the adjuster will estimate the amounts. All GA bonds are supported by a GA guarantee from a bank or insurance company. Additionally, the adjuster will request landed values of carrying equipment, and bills of lading and commercial invoices detailing CIF values for cargo in order to work out the contributions for all interested parties.
GA bond distribution The adjuster will distribute GA bond and guarantee documentation to all known interested parties. If the freight forwarder is identified on the ocean bill of lading, it is not uncommon that such documentation, effectively intended for several cargo interests, will be received. Such documentation should be forwarded to the cargo interests at the earliest opportunity. It is recommended a proof of postage/email receipt is secured. Commercially, it can prove beneficial to follow up with the cargo interests to ensure they have understood the requirements, and completed and returned the necessary documentation. The freight forwarder’s client may no longer be the cargo owner, and therefore the documents will need passing on to his customer – the buyer or consignee. Where the cargo is insured, standard marine policies cover the costs of GA contributions and the insurer will take over dealing with the adjuster.
June 2018
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