Known as one of the most ancient systems in the maritime trade, General Average is intriguingly unique, a system that finds place only in maritime trade. The earliest mention of the principle that allows jettisoning of goods over the vessel to avert further peril, loss of which shall be contributed by all the parties concerned appears in the Rhodesian Maritime Code.[1]
Average can have one of two meanings depending on its use; either it could mean “loss or damage sustained by a ship” or “its cargo” or both together; such loss can either be “general” sustained by one or more parties to the adventure for larger common safety, or it may be “particular”, in that it was caused by a specific peril.
An English Court judgment[2] first constructed a definition, that, “All loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo comes within general average and must be borne proportionately by all who are interested.” However, this definition falls short as it fails to consider the essential aspect of volition of interests and further fails to consider that the general average act must be “reasonable”[3]. English law only ever recognised general average relating to the property being placed safely and upon achieving safety, under then Common Law, General Average ceased. Maritime Trade being international in character, different interpretations from differing laws defining General Average differently would prove impractical.
Addressing this, seafaring nations concluded the York-Antwerp Rules in 1864;[4] defining the circumstances under which General Average can be declared[5], the types of sacrifices[6] and expenditures(sacrifice) that qualify for General Average and the method for apportionment of liabilility.[7] The fundamental essence of general average is the element of “extraordinary sacrifice and/or expenditure”. The word “sacrifice” implies intentionally giving something valuable up. Inasmuch, particular average is partial loss incurred by chance and general average loss is a partial/total loss deliberately sustained to avoid a total loss of the whole adventure.
A master upon encountering a non-remediable perilous situation declares General Average. Upon declaration of General Average, the Ship Owner acts as an agent of the GA Community and appoints an Average Adjuster that apportions the liability each individual participant is liable to contribute to level the field of loss incurred. This declaration must be communicated to all interested parties, including cargo owners, insurers, and any other stakeholders at the earliest possible avenue. It is important to understand the ‘peril’ which is the yardstick for declaration of General Average. Fear of a peril which in fact is non-existent does not justify a “general average act”.
It is trite practice that before any sacrifices or expenditure is committed; they must have been necessitated by a peril – present or imminent which threatens the “common safety”. Therefore, a predetermined threshold cannot exist. A vessel disabled at sea in calm weather unable to manoeuvre is not a grave peril; nevertheless, if a tow is engaged the cost of towage is admissible as general average[8]. In another case, a vessel carrying timber on and under deck encounters heavy weather causing instability and threatening of the capsizing of the vessel. The only course then available to the master may be to sever the lashing and allow the on-deck cargo to slide overboard.
This loss is also admissible to general average[9]. Pursuant to a general average declaration the shipowner has a common law obligation firstly to keep the cargo until security is provided, secondly prepare an adjustment and finally contribute in general average.[10] If shipowner is in breach of the contract of carriage, cargo interest is at liberty to challenge the inclusion in general average adjustment claiming actionable fault, however this is subject to court discretion. One must note that in absence of a contractual obligation the Average Adjustment is non-binding and can be challenged before the appropriate admiralty court.
General average retains its significance in maritime trade since it ensures equitable distribution of losses and forms a basis on fairness although commercial efficiency remains questionable, It is prudent that if a structured mechanism for sharing the financial burden which is also commercially viable will be successful in promoting cooperation and stability in maritime commerce and ensure continued application of general average as the industry evolves.
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[1] Proshanto Mukherjee, ‘Maritime Law Perspectives Old and New’ 2023.
[2] Birkley vs Presgrave 102 ER 86
[3] Rule Paramount, York Antwerp Rules| Hellenic Bank of Greece SA v. Trade Green Shipping Co SA [2000] 2 Lloyd’s Rep 451
[4] Revised in 2004 but due to operational impracticality are rejected unanimously and 1994 rules continue.
[5] Rule A
[6] Rule B
[7] Rules D-G
[8] Dimitrios N. Rallias v. Western Steamship Co Ltd [1922] 2 AC 501
[9] Ralli Brothers v. Compania Naviera Sota y Aznar [1920] 2 KB 287
[10] Crooks v Allan (1879) 5 QBD 38
The Author
Mr Harsh B Buch
Maritime Lawyer
Mr Buch is a dedicated and accomplished Maritime Lawyer having graduated from the World Maritime University in Sweden. Beyond his practice, Mr. Buch is a regular speaker at various institutions and law schools and professes that academicians are the architects of a successful society.