Workshop on Force Majeure
and General Average
The Greenspoint Club June 16th 2009
1
Justin Renshaw- Attorney
Justin Renshaw received his Bachelor of Arts degree in Religion and Philosophy
from Emory University in Atlanta, Georgia in 1995, and his Juris Doctorate from the
University of Houston Law Center in 1999.
Over the course of his career, Justin has represented a variety of interests in
transactional, corporate, and regulatory matters, as well as in litigation, most
notably in transportation and energy related industries both domestically and
internationally. He is admitted to practice before all Texas state courts, the United
States District Court for the Southern District of Texas, the United States District
Court for the Eastern District of Texas and the United States Fifth Circuit Court of
Appeals. Justin has also represented clients in arbitrations and has successfully
negotiated the resolution of disputes through mediation.
Justin is a member of the State Bar of Texas, the Houston Bar Association, the
Maritime Law Association of the United States, the Houston Mariner’s Club and the
U.S.-Mexico Bar Association.
2
Captain Dave Scruton- Surveyor
CAPTAIN DAVID SCRUTON, Master Mariner, BScc (Comm), M.C.I.T., M.N.I.
Has been employed in the Maritime Industry his whole working career with 16 years of
practical seagoing experience, his extensive knowledge of Dry Cargo operations was obtained
while employed by one of the United Kingdoms most respected Ship owners. He served on a
variety of vessel types, particularly General Cargo (including heavy lift vessels), Bulk Carriers
and Container Vessels. He served in the North Sea and other locations internationally on
Offshore Support Vessels (OSVs), Towing, Anchor Handling and Pipe Carriers. His degree
specialized in Marine Operations and included courses covering Business and Maritime Law
for the Shipmaster, Maritime Economics, Sea Transport Practices, and Maritime Safety at
Liverpool Maritime College. Since graduating he has been continuously employed within the
Marine Industry gaining valuable across the board knowledge. During the past twenty-one
(21) years as Marine Consultant and Surveyor, he has become experienced in other areas of
the maritime industry, including Dredging Operations, Crude Oil Carriers, Chemical Tankers,
etc. and has been retained in numerous legal proceedings, including, but not limited to,
expert testimony in collision cases, personal injuries, steel and general cargoes and safety
procedures on board vessels. He has been appointed by Cypriot Government to carry out
Safety Administration surveys. Additionally, he has extensive experience with a variety of
Pleasure Craft including Sail and Power Yachts, Ski Boats and Personal Water Craft (PWC). He
has been appointed as Expert Witness in a variety of legal cases concerning personal injuries
whilst using Personal Water Craft. He is a certified Boaters Education Instructor by The Texas
Parks and Wildlife Department. He also serves on the Board of Governors of The Downtown
Club at the Met and the Board of Directors of the Houston Squash Racquets Association. He
has also served as an Arbitrator in Maritime disputes. Additionally, he is on the Board of
Directors of the Houston Maritime Arbitrators Association (HMAA).
3
Mark Bernas- Insurance Underwriter
Mark Bernas is a graduate of the University of Illinois at Champaign-Urbana.
He spent the first twelve years of his career on the insurance agency/brokerage
side of the business. His main area of concentration centered around shipper's
interest cargo insurance and freight forwarder liability programs. Currently he is
Ocean Marine Underwriting Director for CNA Marine/MOAC.
CNA’s underwriting division specializes in the following areas… Commercial Brown
water Hull and P&I coverage's (tug boats, barges, offshore supply vessels, crew
boats and similar).
Marine General Liability Coverage (ship repairer legal, wharfingers legal, stevedore
legal liability, dry terminal operators legal liability, charterers legal) Excess Liability
(above primary marine exposures and ancillary liability coverage). Shipper's
Interest Cargo Insurance.
4
Ed Bastian- Carrier
Ed Bastian has 32 years of international transportation and finance experience.
He began working in San Francisco in 1976 and lived and worked in San Francisco,
Portland, Chicago, London, New York, Long Beach and Houston. Ed has held
management positions with the following companies: Evergreen Marine Corp.,
Jones Stevedoring, Port of Long Beach, Nautilus Leasing UK, Morgan Stanley, NYK
Line, and currently BBC Chartering USA.
Mr. Bastian is married with one daughter living in Sugarland, Texas.
5
Dennis Mottola- Shipper
Dennis Mottola is Bechtel’s Corporate Manager of Traffic and Logistics and
Manager of Bechtel Global Logistics, Bechtel’s internal resource for leveraging
ocean freight purchases across projects. Dennis re-joined the company in
November 2006 to continue his nine-year career with Bechtel after a brief time in
the shipping industry establishing a U.S. office for an Italian ocean shipping
company. Previously, Dennis was Bechtel’s corporate functional manager of
expediting, supplier quality and traffic and logistics, and General Manager of the
Bechtel Global Supply Group.
Dennis has worked his entire 33-year career in a variety of assignments in the
international supply chain and logistics management field, including 15 years with
Westinghouse Electric Corporation. Dennis is a graduate of the Pennsylvania State
University with a degree in business logistics. He is a member of several industry
associations and serves on the Advisory Board of the University of Houston Center
for Logistics and Transportation Policy. Dennis and his wife Patti have two boys, Dan
and Matthew, and reside in Spring, Texas.
6
John Vogt- Shipper
John Vogt started his career in the chemical manufacturing sector in Africa and
Europe. He moved on to managing as the C EO chemical import and export
terminals. To grow these terminals he started doing land transport contracts and
large chemical ship charters. From these actions he developed his love of Global
Logistics. He moved on to managing a portfolio of operations globally for a range of
products from grocery, chemicals, automotive CKD build kits, consumer electronics,
apparel, paper and general cargo.
John is now the Global Logistics Director for Halliburton, a major oil and gas
services company. The work is even more interesting as oil and gas is found in
difficult places for logistics, be it Africa or Siberia where infrastructure and
communications are difficult. These enormous challenges are what he enjoys and
Halliburton is embarking on significant change and growth of logistics to enable the
company to able to claim logistics are a competitive advantage.
John has a Ph.D. (Logistics), an MBA, and a B.Sc. (Engineering), holds the title of
European Engineer (Eur. Ing), is a Chartered Engineer (UK) and has been elected as
a Fellow of the Institute of Engineering and Technology (UK).
7
John Hark – Freight Forwarder
John Hark has been in the maritime industry for 20 years. He graduated from
Texas A&M University in 1989 with a BS in Maritime Administration. He started
with Bertling Logistics in 2002 as the Americas Director over the company’s USA
vessel operations and is now the Regional Director with responsibility over the
group’s North America operation. Bertling is a fully integrated asset-based
transport/logistics company and is active in Ship owning & Operating,
Project/General Forwarding, Ship Brokerage, and Domestic Transport. In addition
to his position with Bertling, he has also been an Adjunct Professor with Texas A&M
University for the past 8 years.
Prior to joining Bertling, Mr. Hark was with Enron Industrial Markets as a Supply
Chain Manager, spent 5 years with Argosy Shipping/BBC Chartering & Logistics and
was Branch Manager for the international NVOCC Damco Maritime.
8
Part One:
The Definition of
Force Majeure
9
Force Majeure Defined
 “An event . . . that can neither be anticipated or controlled.
The term includes both acts of nature (e.g. floods or
hurricanes) or of people (e.g. riots or wars)”
 The term "force majeure" (a superior force) applies to an
event or effect that can be neither anticipated nor controlled.
It can include both acts of nature and humans.
 Force Majeure clauses are in contracts to allocate risk “if
performance becomes impossible or impracticable as a result
of an event or effect that the parties could not have
anticipated or controlled.”
 Black’s Law Dictionary
10
Force Majeure Defined
 “After all, classifying an event as a force majeure has powerful
ramifications -- at the very least, receiving notice that an event
is considered a force majeure allows a party to evaluate the
validity of a claimed force majeure event and permits it to
make other arrangements to mitigate its damages if it suspects
the event is serious and will persist.”
11
Contract/Tort Distinction
 Contract: Largely defined by the terms of the contract itself.
 Tort: Governed by common law concepts of
negligence/reasonableness.
 Fact questions.
 Jury may decide (if a jury is available, which is not always the
case).
12
Act of God Defined
 “The direct, immediate, and exclusive operation of the forces
of nature, uncontrolled and uninfluenced by the power of
man, and without human intervention, and . . . of such a
character that it could not have been prevented or escaped
from by any amount of foresight or prudence, or by any
reasonable degree of care or diligence.”
 Black’s Law Dictionary
13
Act of God Defined
 “For by its very definition, an ‘act of God’ implies ‘an entire
exclusion of all human agency’ from causing the loss or
damage.”
 “From a realistic standpoint, [however], we think decisions in
this type controversy should turn not upon technical,
meteorological definitions, but upon the issue of whether the
disturbance causing the damage, by whatever term it is
described, is of such unanticipated force and severity as
would fairly preclude charging a carrier with responsibility
for damage occasioned by its failure to guard against it in the
protection of property committed to its custody.”
14
Additional Concepts
Impossibility
Impracticability
Frustration of Purpose
15
The Bottom Line
“The question whether negligence exists must
be determined by the facts in the very case in
which the question arises.”
16
Part Two:
The history of
Force Majeure
17
History of Force Majeure
 “The theory of force majeure has been existent for many years. Often
likened to impossibility, it historically embodied the notion that parties
could be relieved of performing their contractual duties when
performance was prevented by causes beyond their control, such as an
act of God.”
 “But, much of its historic underpinnings have fallen by the wayside.
Force majeure, is now little more than a descriptive phrase without
much inherent substance. Indeed, its scope and application, for the most
part, is utterly dependent upon the terms of the contract in which it
appears. . . . In other words, when the parties have themselves defined
the contours of force majeure in their agreement, those contours
dictate the application, effect, and scope of force majeure. . . . More
importantly, [courts] are not at liberty to rewrite the contract or
interpret it in a manner which the parties never intended.”
18
Does it matter?
19
Part Three:
Force Majeure
General to Specific
20
The General
 Force majeure clauses are creatures of contract.
 Meaning and scope are dependent upon the meaning
and scope assigned by the parties in their agreement.
21
The Specific
 Always look to the contract first and determine your
ability to claim under it.
 Is there a “Himalaya Clause” or similar extension for
agents and others assisting the carrier?
22
Air Carriers
The Warsaw Convention/Montreal Protocol
23
Air Carriers
The Warsaw Convention/Montreal Protocol
 The carrier shall not be liable if he proves that he and his
agents have taken all necessary measures to avoid the damage
or that it was impossible for him or them to take such
measures.
 Warsaw Convention Art. 20(1)
 Montreal amends Warsaw and applies to cargo whose place of
origin and destination are both within the jurisdiction of
member states, notwithstanding reference to Warsaw in the
conditions of carriage.
 Liability without fault – the fact of a loss is enough to impose
liability (the limit of which may be capped)
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Ocean Carriers and COGSA
25
Ocean Carriers and COGSA
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Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from;
Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the
management of the ship;
Fire, unless caused by the actual fault or privity of the carrier;
Perils, dangers, and accidents of the sea or other navigable waters;
Act of God;
Act of war;
Act of public enemies;
Arrest or restraint of princes, rulers, or people, or seizure under legal process;
Quarantine restrictions
Act or omission of the shipper or owner of the goods, his agent or representative;
Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or general: Provided, That
nothing herein contained shall be construed to relieve a carrier from responsibility for the carrier's own acts;
Riots and civil commotions;
Saving or attempting to save life or property at sea;
Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods;
Insufficiency of packing;
Insufficiency or inadequacy of marks;
Latent defects not discoverable by due diligence; and
Any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the
agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception
to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the
carrier contributed to the loss or damage
26
46 U.S.C. Sec. 1304 (the “Laundry List”)
Motor Carriers
Carmack Amendment
27
Motor Carriers
Carmack Amendment
 Codifies the common-law rule that a carrier is liable for
damage to goods transported by it unless it can show that
the damage was caused by:
 The act of God
 Public enemy
 The act of the shipper himself
 Public authority or
 Inherent vice or nature of the goods.
28
Forwarders and NVOCCs
29
Forwarders and NVOCCs
 Himalaya Clauses
 When an intermediary contracts with a carrier to transport
goods, the cargo owner's recovery against the carrier is limited
by the liability limitation to which the intermediary and carrier
agreed. The intermediary is certainly not automatically
empowered to be the cargo owner's agent in every sense. That
would be unsustainable. But when it comes to liability
limitations for negligence resulting in damage, an intermediary
can negotiate reliable and enforceable agreements with the
carriers it engages.
 Privity of contract may or may not be required. Plain language
of the Himalaya Clause will govern.
30
Hague-Visby and Through Bills
 1924 International Convention for the Unification of Certain
Rules of Law Relating to Bills of Lading (the “Hague Rules”)
 Hague-Visby Amendments of 1968 (the “Hague-Visby Rules”)
 Can COGSA still apply?
 Probably – “An intermediary stop en route pursuant to a
multimodal maritime contract with an ultimate destination in
the United States, regardless of whether the stop is during the
sea stage of transport or between the sea and land legs,
should not prevent the application of COGSA liability rules as a
matter of federal common law.”
31
Sample Contract Provisions
32
AIR (Warsaw or Montreal)
Except as the Convention or other applicable law may otherwise
require, the Carrier is not liable for any loss, damage, or delay,
directly or indirectly arising out of compliance with laws,
government regulations, orders, or requirements, or from Act of
God, - e.g. earthquake, cyclone, storm, flood, fog, Force
Majeure, - e.g. war, plane crash or embargo, Vis Major or, any
other cause or event which the Carrier is unable to control or
avoid and the consequences whereof the Carrier is unable to
prevent by the exercise of reasonable diligence. (emphasis
added).
33
AIR (Warsaw or Montreal)
We shall not be liable for the direct or consequential Loss
arising from complying with the Conventions, Laws and
Regulations or caused by Force Majeure. When the Consigned
Cargo is prohibited by us or applicable Laws and Regulations,
we will refuse to accept it and shall not be under any liability
with respect thereto. We shall not be liable for the destruction,
loss or damage of the Cargo caused by the following reasons:
Force Majeure; The inherent nature, quality or defect of the
Cargo; Improper packaging of the Cargo by anyone other than
us or our employee or Agent; Loss or damage of the inner
pieces with intact package and unbroken seal; Acts relevant to
inbound or outbound or transit of the Cargo as implemented
by national administrative authorities. (emphasis added).
34
OCEAN (COGSA)
Without prejudice to any rights or privileges of the Carriers under covering Bills of
Lading, dock receipts or booking contracts or under applicable provisions of law, in the
event of war, hostilities, warlike operations, embargoes, blockades, port congestion,
strikes or labor disturbances, regulations of any governmental authority pertaining
thereto or any other official interferences with commercial intercourse arising from the
above conditions and effecting the Carrier's operations, the Carriers reserve the right to
cancel any outstanding booking or contract of carriage. At carrier’s option, cargo in
transit may be enrouted to a different discharge port or destination for cargo
delivery. Any additional cost associated to this arrangement shall be for account of
cargo.
In the event that threat, existence or continuance of any present or future war or warlike
condition or hostilities or civil commotion or the existence or continuance of conditions
or cessation or prohibition of intercourse (commercial or otherwise) between nations or
measures taken by any Government or Governments which, in the opinion of the
carriers indicate that there is a danger of any of the foregoing which may render
impossible performance of its obligations due to the requisition, seizure or loss of any of
the carriers' vessels, or any other cause whatsoever, whether similar or dissimilar, or
which in the carrier's sole judgment may directly or indirectly result in the imposition
upon the carriers of any undue financial or other hardship or burden in the performance
of its obligations or in an increase in rates of freight charged for ocean transportation
generally, or in this trade, the carriers reserve the right of forthwith canceling or
suspending any or all of the obligations expressed under this engagement and/or tariff
and/or relative contracts and/or booking notes. So far as cargo actually shipped may be
concerned, the provisions of the carrier's Bill of Lading shall apply. This clause shall not
affect or supersede any provision in any contract for carriage which permits the carrier
to cancel such contract in the event of hostilities breaking out or threatening to break
35
out. (emphasis added).
OCEAN (COGSA)
The Carrier shall not be liable in any capacity
whatsoever for any delay, non-delivery, misdelivery,
acts of thieves, hijacking, act of God, force majeure,
quarantine, strikes or lockouts, riots or civil
disobedience or any other loss or damage to or in
connection with the Goods or Containers or other
packages occurring at any time contemplated under
[this agreement].
36
OCEAN (COGSA)
(1) The GSM will waive the requirement for the notice of arrival
required by Form CCC-106 by a written notice to the supplier of ocean
transportation on the receipt of evidence satisfactory to the General
Sales Manager that the vessel is lost or unable to proceed to
destination after completion of loading as a result of one or more of the
following causes: Damage caused by perils of the sea or other waters;
collisions; wrecks; stranding without the fault of the carrier; jettison; fire
from any cause; Act of God; public enemies or pirates; arrest or restraint
of princes, rulers or peoples without the fault of the supplier of ocean
transportation; wars; public disorders; captures; or detention by public
authority in the interest of public safety. The supplier may substitute
such waiver for the notice of arrival.
(2) The determination of a force majeure by the GSM shall not relieve
the participant from its obligation under the Agricultural Commodities
Agreement to pay CCC, when due, the dollar amount of ocean freight,
plus interest (exclusive of ocean freight differential), financed by CCC.
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OCEAN (COGSA)
 Charter Parties?
 The act of God, enemies, fire, restraints of princes, rulers or
people, and all dangers and accidents of the seas, rivers,
machinery, boilers, and steam navigation and errors of
navigation, throughout this charter party, always mutually
excepted.
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GROUND (Carmack)
 Significant deregulation
 Surface Transportation Board
 Short form bills
 Tariffs
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GROUND (Carmack)
This company is not liable or responsible for
accidents, delays in handling caused by strikes, labor
disputes, any other cause beyond its control,
concealed damage, water packs, gin falls, interior
damage, dampness, any irregular condition not
apparent, acts of Providence,or acts of the public
enemy except as otherwise required by United States
Warehouse Act and Regulations there under.
40
GROUND (Carmack)
Subject to the limitations set forth herein and as provided by applicable law, [the Carrier] agrees to pay for loss or
physical damage to the shipments described on the Waybill which may be caused by its negligent or willful conduct.
Where shipments have Declared Values, [the Carrier’s] liability for shortage or damage shall be prorated by weight
when part of a shipment is lost or damaged. Otherwise, [the Carrier’s] liability shall be determined by multiplying
the weight of the lost or damaged article by fifty cents ($0.50) per pound. All claims must be filed within nine (9)
months of recovery at destination or shall be forever barred. Claims will be presented and adjusted in accordance
with the guidelines established by the Interstate Commerce Commission and successor agencies and set forth in
49CFR1005. ICC Administrative Rulings 65 and 128 shall apply. The Shipper understands and agrees that the rates do
not include insurance or other compensation for loss, other than as expressly provided herein and limited hereby.
[The Carrier] shall not be liable for damage caused by force majeure, Act of God, or the inherent vice of the
shipment.
Shortages and/or damage must be noted on the Waybill or Electronic Recovery Device by the Consignee or the
Consignee's agent at the time of delivery. Notice of intent to file a claim for concealed damage must be filed in
writing with [the Carrier] within fifteen (15) days of delivery. The actual claim, whether for loss, apparent damage,
or concealed damage, must be filed in writing with [the Carrier] within nine (9) months of delivery, and the claim
must include the following as minimum for support:
Date of shipment;
Waybill number;
The names and addresses of the Shipper and Consignee;
A description of the property; and
A copy of the original invoice for the property lost or damaged.
Receipt of the shipment by the Consignee or the Consignee's agent without notation of shortage, loss or damage will
be prima facie evidence that the shipment was delivered in good condition. No claim will be processed by [the
Carrier] until all transportation charges have been paid. Amounts of claims may not be deducted from
transportation charges. Shipments and their containers and packaging materials must be retained and made
available to [the Carrier] for the purpose of inspection for up to fifteen (15) days after notification to [the Carrier]
that a claim is pending. [The Carrier] reserves the right to repair or replace damaged property with no further
liability for consequential damage such as, but not limited to, out of service time during repair. (emphasis added). 41
Notice/How Declared?
 What does the contract call for?
 When is too late?
 How much detail is needed?
 What is the anticipated delay?
 What has been done to avoid or minimize the event?
 Waiver issues?
 Can the parties agree on what constitutes force majeure?
 What due diligence is required after declaring force majeure?
 Mitigation?
42
Sample Notice
September 6, 2005
NOTICE OF FORCE MAJEURE
To all Customers,
As a result of damage caused by Hurricane Katrina and it's aftermath, [Carrier] is unable to
safely operate in the affected region and no cargo is being moved in, out or through the Port
of Gulfport, MS for the foreseeable future.
In accordance with Clause 16 of [Carrier’s] Bill of Lading, Exceptions Clause, and/or any similar
provisions contained in an applicable Ocean Shipping Service Contract, [Carrier] is unable to
meet any obligations, because of this Act of God or "Force Majeure" event. Accordingly,
performance under any such Bill of Ladings of contracts is, to that extent frustrated and no
cause of action for breach of liability will arise as a consequence of this Force Majeure. We are
unable to determine how long this Force Majeure will continue and regret any inconvenience
this tragic event has caused you due to these circumstances beyond our control.
Customers who believe they may have had in transit cargo affected by Hurricane Katrina
should immediately notify their cargo underwriters. If any information is needed from
[Carrier], customers may contact XXX at (123) 456-7891
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Part Four:
Force Majeure Claims and
Examples
44
Force Majeure Claim Examples
from the perspective of:
1. Shipper – Dennis Mottola
2. Carrier - Ed Bastian
3. Freight Forwarder – John Hark
4. Surveyor - Captain Dave Scruton
5. Attorney - Justin Renshaw
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Part Five:
Mitigation Of Losses
46
Mitigation of Losses
 Steps to take for successful mitigation
 Awareness
47
What do I do when there’s a loss?
 Notify all interested parties – underwriters, all carriers,
shipper, lawyers (your own), and surveyors.
 Arrange for surveys independently and/or jointly.
 Demand satisfaction.
 Is there a commercial resolution to be had?
 Sue the bastards.
 Spend $$$. Commercial resolution?
 Lessons learned? Huddle with risk management and
implement.
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How do I avoid it in the first place?
 Risk Management
 Company Policies and Procedures
 Monitor Potential Hazards
 Re-Route
 Subcontract? (i.e., make the other guy bear the risk
of loss)
 Any other reasonable precautions?
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Q&A Session
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Part Two:
What is General Average
51
General Average Defined
 “There is a general average act where any extraordinary sacrifice or
expenditure is voluntarily and reasonably made or incurred in time of peril
for the purpose of preserving the property imperiled in the common
adventure.”
 “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 a common maritime adventure.”
Business and Law for the Shipmaster
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Factors Determining General Average
1. The sacrifice or expenditure must be of an extraordinary nature. Damage to a
ship, her machinery, or equipment whilst being used for the purpose for which
they are intended would not amount to general average. On the other hand,
using a ship’s engines in an effort to refloat when stranded would, if the engines
were damaged as a result, be an extraordinary sacrifice.
2. There must be a common adventure. That is to say, the ship, freight and cargo
must all be involved. In any case, there must be more than one interest.
3. The common adventure must be in peril. That is, all interests must be
imperiled.
4. There must be a sacrifice (of property) or an expenditure (of money).
5. The sacrifice or expenditure must be made or incurred reasonably and
intentionally for the sole purpose of preserving the adventure from the
immediate peril.
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Factors Determining General Average
Or, put simply:
General Average requires three (3) elements which are as follows:
“1st: A common danger: a danger in which vessel, cargo and crew all
participate; a danger imminent and apparently “inevitable”, except by
voluntarily incurring the loss of a portion of the whole to save the
remainder.
2nd: There must be a voluntary jettison, jactus, or casting away, of some
portion of the joint concern for the purpose of avoiding this imminent peril,
periculi imminentis evitandi causa, or, in other words, a transfer of the peril
from the whole to a particular portion of the whole.
3rd: This attempt to avoid the imminent common peril must be successful.”
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Most Common GA Scenarios
I. ACTS
• Putting into a port of refuge to effect necessary repairs.
• Voluntary stranding to avoid sinking.
• Working of engines when a steamship is ashore in a position of peril.
II. SACRIFICES
• Jettison, for the common safety, of cargo from under deck.
• Jettison of cargo from the deck if carried on deck by virtue of a well recognized
custom of the trade.
• Slipping of anchor and cable to avert fire or other imminent peril.
• Flooding of a cargo hold to extinguish a fire, thus causing water damage to cargo.
III EXPENDITURES
• Cost of discharging cargo to refloat a stranded ship or to carry out necessary repairs
at a port of refuge.
• Hire of tug to assist refloating a stranded ship with cargo.
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Contributors Regarding General Average
When there is a general average loss, the party on whom it falls is entitled to a rateable
contribution from the other interested parties. The parties benefiting by the sacrifice or
expenditure may be:
•
•
The Ship owner, for the value of the ship saved;
Cargo Owners, for the value of their cargo saved;
•
The Ship owner, in respect of freight payable by charter-party or bills of lading or
charter hire money; and
The Charterer, under a time charter, for freight payable under bills of lading.
•
Each will be called upon to contribute according to the value of his interest saved as a result of
the sacrifice or expenditure. The main contributing interests are, therefore, ship, freight and
cargo. Broadly speaking, all these contribute on their net values at the place where the
voyage ends or is abandoned.
Such values are called “contributory values”. The sum necessary to reimburse the interest which
has suffered the general average loss is called the “amount made good” or “general average
allowance”.
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Examples of Amount Made Good
I. SHIP
• The reasonable cost of repairing the damage, less deductions “new for
old”, if the ship is over 15 years old.
II. FREIGHT
• The gross freight loss by the sacrifice of goods, less any charges saved. Any
additional freight earned by carrying other goods in place of those sacrificed
must be credited.
III. CARGO
• For goods lost the allowance is the net value they would have had on the day of
discharge at the place where the voyage ends, less freight and other charges
that would have been payable had the goods not been sacrificed. If thee
remaining cargo arrives damaged from causes that would equally have affected
the sacrificed goods, the probable extent of such damage must be taken into
account.
• For goods arriving damaged through General Average sacrifice, the allowance is
the difference between the net sound and damaged values.
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Examples General Average
Example 1:
A vessel is stranded and as such containers are jettisoned overboard
to lighten the load and free the vessel to open water. In this case, all
parties to the voyage, including cargo owners whose cargo was
unaffected, must contribute to the general average loss
contribution.
Example 2:
During a voyage, a vessel develops engine trouble (i.e.
malfunction/fire) and must be towed into an unscheduled port of
refuge for repairs, all parties to the voyage, including cargo owners,
must contribute to the loss.
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Sample GA Calculation
Vessel and freight value $100 million
Saved cargo value
$100 million
Contributing value (total) $200 million
 $40 million in cargo was sacrificed
 The loss represents 20 percent of the contributing value
 Cargo owners must contribute 20 percent of respective
cargo values
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Ship owner's Duty in General Average
Where claims for General Average contribution have arisen, the
amounts of such contribution are usually ascertained at the port
of first discharge.
The Ship owner has the duty of appointing the Average
Adjuster and of collecting the contributions due from the various
cargo owners.
The ship typically has a lien on cargo for General Average
contributions.
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General Average Adjusters
An average adjuster is a kind of arbitrator, with an expert knowledge of the law
and practice relating to insurance and average whose task is to decide what is
and what is not by law or contract allowable in general average, and to assess
the various contributory values and general average allowances.
The outcome of his findings, is called the “Average Statement” and in a
complex case may take many months to prepare.
Professional adjusters will be found in all the major ports of the world, but it is
not essential for the ship owner to appoint an adjuster practicing in the port
where the adventure ends. To enable the adjuster to carry out his task, he will
require to be supplied with all the relevant documentation and various
information.
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Appointing a General Average Surveyor
In order that the General Average Adjustor obtains all the
relevant information regarding the loss, he typically
appoints a General Average Surveyor.
The role of the General Average Surveyor is to be
completely impartial, even though appointed by the
General Average Adjuster ,who has been appointed by the
Ship owner.
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General Average Surveyor’s Role
The General Average Surveyor’s role is to document as accurately as
reasonably possible, the full extent of damages to the ship and cargo, and to
distinguish between the extent of damages (where practically possible)
caused by the initial peril and damages caused by the sacrifice. For example,
fire damage in a cargo hold of plywood extinguished by flooding the cargo
space and thus damaging the plywood.
Surveyors should distinguish between the fire damage and the water damage
and what is ordinary wear and tear to the vessel.
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Documentation Needed by the General Average Adjuster
Typical documentation required by the General Average
Adjuster includes the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
A Manifest of Cargo on board at time of occurrence.
Copies of the Bill of Lading forms used for the cargo.
Signed average bonds.
Counterfoils of general average deposit receipts.
Copies of general average guarantees, if any.
Deck and engine log books in respect of the voyage during which the general average
act occurred.
Copies of extended protests.
Original vouchers in respect of any additional expenses incurred.
The portage account for the voyage.
Damage survey reports in respect of any hull and/or machinery damage.
Original accounts for any hull and/or machinery repairs and expenses incidental
thereof.
Survey reports giving details of any cargo lost or damaged by General Average sacrifice.
Account sales of any cargo sold on the recommendation of a surveyor.
Copies of shipping invoices.
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General Average Security
Owing to the time required for general average adjustment in order to avoid delay in
delivering the cargo and consequent loss, it is usual for cargo owners (or their
underwriters) to provide some form of security in order to obtain release of their cargo.
The Ship owner or Average Adjuster will advise the Master or Agents of the form the
security is to take. It will usually consist of an average bond signed by each receiver of
cargo, or an underwriter’s guarantee or bank guarantee.
The Master of a ship should never deliver cargo which is liable for a general average
contribution until he is satisfied that such contribution is adequately secured by bond or
deposit or both.
In foreign ports especially, and in all cases where the ship has suffered a General Average
loss, the extent of which it is difficult to assess, the Master should insist on a deposit which
he would judge to be more than the consignee will ultimately be called upon to pay. The
consignee will not lose by it in the long run, but once the cargo has been parted with the
Ship owner's right of lien is lost.
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Settlement of General Average
Unless the contract of carriage provides otherwise, the rule is that general
average is settled in accordance with the law and practice of the place where the
adventure ends, that is to say, the place where the cargo is discharged.
Evidently, if a ship had a mixed cargo for discharge in ports in several different
countries, the case would be affected by several different national law systems,
and adjustment and settlement would become excessively complicated. To
avoid such a state of affairs, it is usual for charter-parties and bills of lading to be
claused to the effect that “General average is to be settled according to YorkAntwerp Rules, 1974”.
In modern practice, when insured property suffers a general average loss, it is
customary for underwriters to make good the loss as particular average in the
first place. They then, being subrogated to all rights and remedies of the assured
so far as the latter have been indemnified, are afterwards reimbursed out of the
general average fund. In effect, all general average settlements are in the long
run made between underwriters.
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Photographs
Vessel on fire – subsequently grounded to extinguish fire.
67
Conclusion
Although General Average may have been
declared, dispute may still arise as some parties
may attempt to show that the act was not a
General Average Act.
Consequently, this leaves the topic very
subjective.
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General Average Examples from
the perspective of:
1. Shipper – Dennis Mottola
2. Carrier - Ed Bastian
3. Freight Forwarder – John Hark
4. Surveyor - Captain Dave Scruton
5. Attorney - Justin Renshaw
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Closing Statements
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