What it means
The York-Antwerp Rules 2016, published by the Comite Maritime International, define the idea in Rule A. There is a general average act when, and only when, an extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety, to preserve from peril the property involved in a common maritime adventure.
Rule A adds that general average sacrifices and expenditures are borne by the different contributing interests on the basis the rules set out. So a cargo owner whose goods were not harmed may still be asked to pay a share.
Rule C limits what counts. Only losses, damages or expenses that are the direct consequence of the general average act are allowed.
The rules also do not allow general average for damage to the environment or for escape of pollutants from the property involved. Rule G sets the timing for valuation.
General average is adjusted for both loss and contribution on the basis of values at the time and place where the common maritime adventure ends. Rule XVII covers contributory values.
Contribution is made upon the actual net values of the property at the end of the adventure, except that cargo is valued at the time of discharge, worked out from the commercial invoice or the shipped value. Cargo value includes the cost of insurance and freight unless the freight is at the risk of others, less any damage before or at discharge.
The American Club, a marine insurer, explained in a 2016 circular that the 2016 version was adopted by the Comite Maritime International after four years of consultation. Whether the rules apply to a voyage depends on the contract and the governing law, so a real case needs the shipping documents and an average adjuster.
In practice
Real-world examples.
Example
A fictional ship loses power in a storm and the master tows it into a port of refuge to save the voyage. The port costs are an extraordinary expenditure made for the common safety. They are shared among ship and cargo interests.
Example
A fictional master jettisons some deck containers to keep the ship from capsizing. The owners of the remaining cargo and the ship all benefit. Under general average they contribute to the cost of the lost containers.
Example
A fictional cargo owner receives goods that were never damaged. The adjuster asks for a contribution toward the port expenses of a diversion. The owner cannot refuse simply because the goods arrived safely.
Formula
Calculation
Contribution rate = general average loss / total contributory values.
Each interest pays = its contributory value x contribution rate.
Worked example with assumed figures: a general average expenditure of $400,000. Contributory values are the ship $6,000,000, cargo owner A $3,000,000 and cargo owner B $1,000,000, so the total is $10,000,000.
Rate = $400,000 / $10,000,000 = 4%.
Ship pays $6,000,000 x 4% = $240,000, owner A pays $3,000,000 x 4% = $120,000 and owner B pays $1,000,000 x 4% = $40,000, which adds up to $400,000.
Now suppose, illustratively, that the $400,000 includes $100,000 for containers of owner B's cargo that were jettisoned. Owner B is allowed that $100,000 for the sacrifice but must still contribute its own $40,000, so its net recovery is $100,000 - $40,000 = $60,000, while the ship and owner A pay their shares as above. The figures are assumptions for illustration.Case study
Seen in the real world.
This case study is fictional and illustrative. A cargo ship carrying goods for two importers suffers an engine failure and a fire in heavy weather. The master takes extraordinary steps to save the voyage, including a tow to a port of refuge. The shipowner declares general average.
An average adjuster is appointed. Each importer notifies its cargo insurer. The adjuster values ship and cargo at the end of the adventure. Cargo is valued on the commercial invoice at discharge, as the rules provide.
The adjuster then sets one contribution rate and issues a statement showing each party's share. If the policies respond, the insurers pay the importers' shares. The policy wording decides. The shipowner is paid the sacrifice allowed, and the adventure is closed.
Watch out
Common mistakes.
- Assuming a cargo owner pays nothing because its goods were not damaged, when contribution is based on value saved.
- Counting every loss as general average, when only direct consequences of the act are allowed.
- Using the wrong valuation date, since the rules use values at the end of the adventure and cargo at discharge.
Questions
People also ask.
What is general average?
It is a maritime principle under which ship and cargo interests share a loss that was deliberately incurred for the common safety. Each contributes in proportion to value.
Who works out the shares?
An average adjuster prepares the adjustment. The York-Antwerp Rules set how losses are allowed and how values are taken.
Does insurance cover a general average contribution?
It may, depending on the policy wording. Check the cargo or hull policy.
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