The General Average Rule - Research Paper Example

The General Average Rule The General Average Rule Introduction to the General Average Rule The books written on the law of insurance and the ordinance of foreign countries inform us that there are three kinds of Average. These are General Average, Particular Average and Petty Average (Stevens, 1835: 1). The word “Average” when applied to maritime Commerce is said by Stevens (1835: 3) to mean “a certain contribution that merchants and others proportionally make with respect to the losses of such as have their supplies thrown overboard for the safety of the ship, of the goods and of the lives of those in the ship, in a tempest.” On the other hand, Average when applied to maritime commerce, means, a payment made by all the persons involved in a sea adventure, to make good an identifiable loss or expense incurred by one or more of them for the general benefit (Stevens, 1835: 4). Definition of General Average The law of general average is an accepted form of spreading the risk of sea transport that existed before marine insurance. It rests on the principle that loss or expenditures incurred in a maritime venture for the benefit of all should be shared ratably by all who participate in the venture. Heimer (1989: 123), states that general average means “general loss.” It stipulates that if a ship was in any peril and shipment was jettisoned to rescue the ship, then the ship and residual shipment were obligated to make a payment to the owner of the lost shipment. According to Hopkins (1859: 6), general average means a contribution according to value made by the associated interests which form a marine adventure, these parties being the ship itself, the merchandise she carries and the freight she earns.Baughen (2009: 325), defines general average as a right of contribution as between the various interests in a sea voyage: the ship; the cargo owners; and the party entitled to freight. It is imposed throughout the world as part of the law of the sea. It is a form of mutual insurance that developed before the emergence of marine insurance. According to Tudor (1868: 102), general average refers to all loss which arise in consequence of extraordinary expennses incurred in the presevation of the ship and cargo. That is, all the expenses incured from the misadventure, till all the cargo had been discharged, confessedly constituted. In order to give rise to a charge as general average, it is imporatant that there should be a voluntary sacrifice to preserve more subjects than one exposed to a common jeopardy. The purpose of this contribution is the repayment of some expense incurred or the restitution of something valuable sacrificed for the benefit of the whole (Hopkins, 1859: 6). The right to general average arises whenever extraordinary sacrifices have been made or extraordinary expenses incurred by one interest for the preservation of the other interests in the common adventure. The cost of such sacrifices or expenses must be borne proportionately among all of the interests in the voyage, including the interest that made the sacrifice or bore the expense. That interest will then have a direct action against the other interests in respect of their proportionate contributions. The aim of general average is to spread the cost of such sacrifices equitable among all of the interests in the voyage. A General Average Act According to the York-Antwerp rules 1994, a general average act has been defined in rule A (1). It states and defines a general average act as follows; “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 the common maritime adventure.” The maritime insurance act, 1906 of the United Kingdom explains and defines a general average act in practically identical terms at sect. 66(2). It states: “There is a general average act where any extraordinary sacrifice or expenditure is voluntary and reasonably made or incurred in time of peril for the purpose of preserving the property imperiled in the common adventure.” Thus, a general average act occurs when a vessel encounters such grave difficulty at sea that a sacrifice of part of the vessel or part of the cargo seems necessary to save the rest. The captain may order cargo to be thrown overboard, or he may order that part of the vessel be thrown overboard, or both. If the sacrifice enables the vessel to complete its voyage, the owners of the sacrificed cargo and the sacrificed portion of the ship will have claim against the owners of saved cargo and the ship for part of their loss. His deed constitutes a general average act. The York-Antwerp Rules As commerce advanced, general average emerged as a practice of marine insurance, a sharing of the peril, risk and of losses for the period of the common maritime venture. Not only the shipment owner, but also the ship-owner could claim for losses not attributable to his fault (Heimer, 1989: 119). The entitlements of the parties increasingly grew to be so demanding and the principle and its application so diverse and divergent that the Glasgow resolutions of 1860, the York rules of 1864 and the York/Antwerp rules of 1877 were agreed to as a standardized method of computing the contribution of the involved parties. The York-Antwerp rules contain detailed provisions for the adjustments of the general average. However, they are not an international convention. They take effect only when expressly incorporated into a contract (Chircop & Lindén, 2006: 350). Elements of the York-Antwerp Rules The York-Antwerp rules are lettered A to G and numbered I to XXII, preceded by a rule of interpretation. The general principles provided for in the lettered rules would govern whenever the numbered rules are silent. Rule A provides for the four of the conditions required for an act to be regarded as general average (Mankabady, 1987: 289-290). These four elements must be proved to substantiate a claim in general average before the process of adjustment of the loss can be made amongst the parties to the voyage (Chircop & Lindén, 2006: 352). The requirements for a valid claim in general average are set out by the York-Antwerp rules in Rule A (1). These four essential elements that must be present four an act to be considered to fall under the general average acts are a follows; - The act must be an extraordinary sacrifice or expenditure; - The act must have been voluntary, intentionally and reasonably made or incurred; - The act must be made or incurred in a time of peril; and - The expenditure incurred as a result of the act must be made or incurred for the specific principle of preserving the material goods imperiled in the collective adventure or for the common safety of the voyage. A loss that does not satisfy each of these conditions would amount to particular average and the party sustaining it will have no right to contribution from the other interests. Purpose and Application of the General Average Rule The idea of the general average rule is to get the captain and crew to engage in a loss-reduction program that would minimize the losses of the group as a whole rather than sacrifice the interests of some to those of others (Heimer, 1989: 124). It forces the captain and crew to consider the interests of cargo owners as well as the interests of the ship-owner. Presumably, without this sort of rule, the captain and crew would jettison more cargo than they would with the general average rule, since it would be in the short-run, interest the ship-owner whose agents they are, to save the hull at the expense of the cargo. If the sue-and-labor clause is intended to force the policyholder to act in the interest of the insurer, the general average rules are designed to force the ship-owner, the captain and the crew to consider the interests of the cargo owners who have entrusted their goods to them (Schaffer, et al., 2008: 219). Example A general average act ensues when in the occasion a vessel encounters such grave difficulty at sea that a sacrifice of part of the vessel or part of the cargo must be made in order to save the rest, the captain may order cargo to be thrown overboard, or he may order that part of the vessel be thrown overboard, or both. If the sacrifice enables the vessel to complete its voyage, the owners of the sacrificed cargo and the sacrificed portion of the ship will have claim against the owners of saved cargo and the ship for part of their loss. For example: Edward has shipped cargo worth $100,000 aboard a vessel. The vessel gets into trouble at sea not caused by its own un-seaworthiness and the captain orders that The General Average Rule aboard reaches its destination, such is an act is what is referred to as a general average act. Critique and Drawbacks of the General Average Rule General average was a valuable conception prior to the advent of marine insurance. However, according to Zweigert & Drobnig (1981: 151), it has developed far clear of its original consideration and has become to a greater extent oriented in favor of ship-owners and the average adjusting profession. Zweigert & Drobnig go on to state that it serves little beneficial use, while at the same time, it is a convoluted and complex, costly, often unjust and time-consuming means and out of step with modern thinking and practice in other disciplines of transportation law. Another criticisms stems from its applicability. Schaffer, et al., (2008) asserts that general average is required in order for the captain at sea to take crucial steps towards saving the ship and freight which he may possibly not do if the law of general average was not in existence. Most captains, however, he adds on, do not have the principle on their minds when trying to save a ship and indubitably the argument cannot be exercised in circumstances of artificial general average. Other drawbacks which have been associated with the general average is that it is extremely lengthy, too expensive, unnecessarily complicated and subject to abuse. Conclusion In conclusion, in as much as the law of general average as a form of spreading the risk of sea transport has attracted a lot of criticism with regards to its applicability, cost and lengthiness and time-consuming nature, it has been imperative in ensuring that there is collective responsibility in the occasion that a ship was in danger while at sea. As a result of its enforceability, the crews of the ship are forced to engage in a loss reduction program that minimizes the losses of both the parties as a whole as opposed to sacrificing the interests of some. That is, it forces the captain to consider the interests of cargo owners as well as the interests of the ship owner and treat them just as. Thus the overall impact of general average can be said to be progressive and a step forward in the increasing difficult endeavor of making sea transport a just and fair affair. References Baughen, S., 2009. Shipping Law. 4, revised ed. New York: Routledge-Cavendish. Chircop, A. E. & Lindén, O., 2006. Places of Refuge for Ships: Emerging Environmental Concerns of a Maritime Custom. illustrated ed. The Netherlands: Martinus Nijhoff Publishers,. Heimer, C. A., 1989. Reactive Risk and Rational Action: Managing Moral Hazard in Insurance Contracts. reprint ed. California: University of California Press. Hopkins, M., 1859. A Handbook of Average, for the use of Merchants, Agents, Ship-owners, Masters and Other. 2 ed. London: Smith, Edler, . Mankabady, S., 1987. The International Maritime Organization: Accidents at sea. 2, revised ed. New Hampshire: Routledge. Schaffer, R., Agusti, F. & Earle, B., 2008. International Business Law and Its Environment. 7 ed. New York: Cengage Learning. Stevens, R., 1835. An essay on average; and on other subjects connected with the contract of marine insurance. 5 ed. London: A.H. Baily and Co.. Tudor, O. D., 1868. A Selection of Leading Cases on Mercantile and MaritimeLlaw. 2 ed. London: W. Maxwell & Son, Henry Sweet, and Stevens & Sons. Zweigert, D. K. & Drobnig, U., 1981. International Encyclopedia of Comparative Law. Berlin: Martinus Nijhoff Publishers. Read More