The Principle of General Average - Assignment Example

Word Count: 2,247 including bibliography and open paragraph MV "Rustbucket" was on her way to Singapore and suddenly caught fire in the cargo hold due to combustion heat ignited by one of the dangerous cargo. Master and crew successfully put out the fire but some other cargoes were reduced to ashes. Not only were some cargoes burnt, the ships cargo hold was badly deformed and needed repair immediately. The Principle of General Average The above example brings into consideration the principle of general average, a principle under maritime law that relates to loss of cargo. Though the principle itself dates back to a time before marine insurance was standard, general average has been defined by both the Marine Insurance Act of 1906 and the English courts as “any extraordinary sacrifice or expenditure intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril property involved in a common maritime adventure” (Freight Transport Association). To put the definition of general average into simpler terms, if it is determined that the only way to avoid a total loss of the ship, cargo, and crew was to voluntarily sacrifice part of the cargo, general average could then be declared. The object of general average is to place all owners of the cargoes being carried by the ship, as well as the owner itself, on equal footing (Roanoke Trade Services, Inc.). General average is usually established via contract of affreightment, and usually states that the adjustment will be made in accordance with the rules of a certain port; in the event that the port does not have jurisdiction, then the general average adjustment will be made according to York-Antwerp Rules (Roanoke Trade Services, Inc.). Thus, there is always a consistent way to determine general average for any ship, and whether or not it applies to a given situation and can be declared. Under the principle of general average, the word “average” is read to mean “loss”, and thus a general loss must occur for general average to be declared (Ship Inspection Maritime Guide). Also, as stated above, the loss must be unavoidable and the ship would incur a total loss if such sacrifice was not undertaken, e.g. a sinking ship tossing cargo overboard to lighten the load and enable the ship to float again, at least long enough to get into port (Roanoke Trade Services, Inc.). When general average is declared, it is required by all parties who did not suffer any loss to compensate, equally and fairly, the party that did incur the loss (Ship Inspection Maritime Guide). The owner or owners of the cargo themselves are not liable, but will receive a proportionate share of costs from the owner of the vessel as well as the owners of the other cargoes (Roanoke Trade Services, Inc.). In other words, all groups that did not lose any cargo must give an equal proportion to the one that did, in order that they may not incur total loss themselves. Each shipper having cargo aboard the ship that was not damaged, therefore, must either make payment in the form of a security, or post a bond showing that they can cover their portion of the loss to the owner whose cargo was damaged (Freight Transport Association). Though this action seems easy and straightforward, and was probably thought of as easy and straightforward in the days when the main purpose of ships on was to ferry cargoes from one point to another, in actuality today the principle of general average can be harder to decide, and must take into account several principles and rules. There are four common principles that must be adhered to for general average. First, there is a common danger/peril to the ship, her cargo and her crew, a danger which cannot be avoided and the only way to avoid total loss of the ship is to lose part of the cargo (Spencer 4-5). Second, the loss and/or expenditure must be ‘extraordinary’, or not foreseen in the course of the sea adventure (Spencer 4-5). This applies to such situations as rough weather or engine failure. Third, the loss or expenditure occurred must be voluntary, or made by choice, without contractual obligation (Spencer 4-5). Since there is almost never a reason whereby ship and master are required by contract to destroy the very freight that they are carrying for payment, this condition is arguably the most easily met. Finally, the loss must be of common benefit to the sea adventure undertaken (Spencer 4-5). Again, since it is hard to imagine master and crew destroying cargo voluntarily for no purpose whatsoever, this condition can easily be seen as necessary in times of peril to save the ship. All of these conditions must be met before general average is declared or initiated. General Average and the MV Rustbucket In deciding whether or not general average can be declared in the case of the MV Rustbucket, the first thing that must be considered is if the principles of general average are indeed met. In this case, there was indeed a common peril to the ship, which was the fire. This action was not foreseen in the course of the sea adventure, therefore it is extraordinary. The loss of expenditure, in this case the cargo, was indeed made since the choice before the master and crew of the ship was either to put out the fire, thereby destroying the cargo, or let the fire burn, in which case the entire ship might have been lost. Master and crew chose the action that would be of common benefit to the entire adventure, allowing the adventure to continue, albeit after repairs were made. All general average conditions appear to be met; however, in looking at the York-Antwerp Rules of 2004, Rule III, Extinguishing Fire Aboard Ship finds that: “Damage done to a ship and cargo, or either of them, by water or otherwise, including damage by beaching or scuttling a burning ship, in extinguishing a fire on board the ship, shall be allowed as general average; except that no allowance shall be made for damage by smoke however caused or by heat of the fire.” It is stated specifically in the example concerning MV Rustbucket that the fire in the cargo hold was caused by combustion heat that was ignited. Therefore, the damage to the cargo hold was not made in the course of putting out the fire by the water used, nor was the damage done by beaching or scuttling the ship. By this example, general average cannot be initiated or declared, because the damage was due to the heat of the fire, and not the means used to put it out. The fact that “several cargoes were reduced to ashes” indicates that, indeed, this was damage due to the heat of the fire, and not the water used to put out the fire; therefore, there is no allowance for replacement of said destroyed cargo under general average. It is reasonable to assume that, in the course of putting out the fire that water was used and damaged other cargoes. These cargoes can be declared under general average, but not the cargo itself that was burned to ashes and/or destroyed due to the heat or smoke of the fire. General average may have been declared had the MV Rustbucket taken the step of jettisoning, or casting away, the cargo that was on fire, thus completing the third necessary step to qualify for general average in the first place, as per the York-Antwerp Rules of 2004. It may also have been declared in the event that, to fight the fire, holes were cut in the walls of the hold to get to the cargo (Ship Inspection Maritime Guide). Neither of these things occurred; therefore, again, general average may be declared for any cargo damaged due to water used to fight and put out the fire, but not to the cargo that was burnt and declared a loss due to direct fire damage. Times When General Average Can Be Declared There are clear and definable terms for general average and times when it can be declared. Such examples include engine failure, as well as the ship running aground, in addition to the example stated towards the MV Rustbucket, whereby her cargo was damaged due to water being used to put out the fire, but not the cargo damaged by the fire itself. For example, if it becomes necessary to jettison cargo in regards to common safety in times of peril, e.g. when a ship has run aground and/or is listing, then general average may be declared (Ship Inspection Maritime Guide). When the bulk carrier Hans ran aground on a reef off of the Dominican Republic, it declared general average; the exact terms are not stated, but it can be inferred that it either engaged to tug to assist it to a port, which is a general average expense, or was obliged to throw cargo overboard in order to lighten its load and allow it to refloat and then proceed to port (Roanoke Trade Services, Inc.). In doing so, the Hans was able, for the common benefit of all, to continue the adventure and bring it to completion. Engine failure is also a cause for general average to be declared, such as in the case of the bulk carrier Zim Itajai in January 2011, when it experienced such engine failure in the Caribbean Sea (Roanoke Trade Services, Inc.). Again the exact facts are not stated beyond the exact need for general average, which was engine trouble, but it can be inferred that, due to this loss, a tugboat was needed to enable the ship to enter port for repairs to become seaworthy again. In particular to the example of the MV Rustbucket, if she had found it necessary to hire a tug with firefighting equipment, then that may have been covered under general average, as again, general average would cover water-damaged cargo, even if it did not cover the cargo actually damaged by the fire (Ship Inspection Maritime Guide). Of particular concern to claims of general average currently is the threat of piracy, which has been increasing steadily. It was reported by the International Maritime Bureau that, between 2008 and 2009, piracy attacks increased from 114 to 240 (Roanoke Trade Services, Inc.). Though most cargo insurance policies do provide for theft and loss against pirates, the ransom payments that are made are not covered (Roanoke Trade Services, Inc.). These payments can be covered under general average as they meet all of the required specifications; pirates on board do indeed put the ship at peril, they were not foreseen in the course of the adventure and therefore the expenditure was extraordinary, there is no contractual obligation to pay a ransom, which makes the payment voluntary, and doing so allows the adventure to continue (Spencer 4-5). Also, paying a ransom is in the best interests of the master and crew to allow the adventure to continue (Spencer 4-5). Therefore, all conditions for general average have been met, and ransom payments may be declared under the general average condition. However, on April 13, 2010, an executive order was issued preventing United States entities from making payments to “certain individuals” (Roanoke Trade Services, Inc.). Another concern is that piracy may be tied to terrorism, which would prevent ransom payments from being made in the first place, as worldwide anti-terrorism laws then apply (Roanoke Trade Services, Inc.). Though it is generally agreed that, for the moment, the ransom payments do fall within the scope of general average and meet all conditions, it remains to be seen exactly how the future will progress with these payments in mind. Conclusion General average is a standard term under maritime law, covered by both marine insurance and York-Antwerp Rules, which by their very nature were designed and accepted by most countries in order to provide coherent and consistent standards for replacement of cargo and other disasters that could occur at sea. Under the terms of general average, cargo holders whose freight arrives at its destination undamaged must pay the owners of lost cargo an equal portion of costs, so that in a way, all are paying for the loss. Though the MV Rustbucket could not declare general average for all of her lost cargo, it would be reasonable to state that they could declare general average for the cargo that was damaged in the course of putting out the fire. The other cargo directly damaged in the fire and “reduced to ashes” would not qualify, since it was damaged by the heat of the fire, and therefore has no provision under York-Antwerp Rules for replacement under general average. Works Cited Association of Average Adjusters of the United States. “York-Antwerp Rules 2004.” The Association of Average Adjusters of the United States. The Association of Average Adjusters of the United States, 19 Nov 2011. Web. 4 Jan 2012. Freight Transport Association. "General Average." Freight Transport Association: Delivering Safe, Sustainable, Efficient Logistics. Freight Transport Association, 2012. Web. 4 Jan 2012. Roanoke Trade Services, Inc. “General Average - An Ancient Concept Taking on New Exposures.” Roanoke Trade: International Insurance Brokers since 1935. Roanoke Trade, Mar 2011. Web. 5 Jan 2012. Ship Inspection Maritime Guide. “General Average.” Ship Inspection Maritime Guide. Ship Inspection, 2010. Web. 4 Jan 2012. Spencer, Johnathan. “Piracy in 2009.” Newsletter - Committee on Marine Insurance and General Average. (2009): 4-5. Web. 5 Jan. 2012. Read More