UNDERSTAND THE GENERAL AVERAGE

GENERAL AVERAGE

General average refers to those rules and principles of maritime law which govern the sharing of losses caused to the interests of ship and cargo by the intentional sacrifice of cargo or extraordinary expenditure by one or other of those interests in the face of exposure to a common danger. The concept of general average was known as early as 900 BC when under Rhodian Law it was provided that if one party’s cargo had to be jettisoned to save ship and cargo in a situation of common danger, the ship and remaining cargo had to contribute to those losses.

A general average loss is said to give rise to the duty to make a general average contribution but the definition of loss and the extent of the duty have not been without controversy. While the laws of most mercantile States made (and make) provision in one form or another for general average, there were considerable divergences. In the second half of the 19th century various international efforts culminated in the adoption of the York-Antwerp Rules of 1877. These rules established a uniform approach to the calculation of general average contribution and remain, as periodically amended, the most important source on general average today. The latest rules known as the York- Antwerp Rules 1994 were adopted during a meeting of the Comité Maritime International (CMI) held in Sydney, Australia.

The words ‘general average’ are used to refer to the act which gives rise to the loss, the loss itself and the contribution which is claimed. The process of establishing the extent of the loss is known as general average adjustment and the professional adjusters who are employed for this purpose are average adjusters.

Examples of general average sacrifices include the jettison of cargo to enable a vessel to float off after being grounded and water damage caused by attempts to put out a fire. Expenses can include port of refuge expenses and other third party expenses such as those payable for towage.

Disquiet in the insurance market about the scope of general average has prompted calls for reform of the York-Antwerp Rules.

1 The York-Antwerp Rules 1994

The York-Antwerp Rules 1994 consist of a rule paramount, a rule of interpretation, seven lettered rules setting out general principles and 22 numbered rules covering particular issues. The Rules have been amended over the years, principally to take account of technological changes, and while they now cater for most situations they are not free from problems of interpretation, as the cases below will reveal. The Rules have always been a voluntary code and never an international treaty. They are thus only relevant to the regulation of a claim for general average if the contractual documentation for the voyage (usually the charterparty or bill of lading) incorporates them.

York-Antwerp Rules 1994

The Rules

Rule of interpretation. In the adjustment of general average the following Rules shall apply to the exclusion of any Law and Practice inconsistent therewith. Except as provided by the Rule Paramount and the numbered Rules, general average shall be adjusted according to the lettered Rules.

Rule Paramount. In no case shall there be any allowance for sacrifice or expenditure unless reasonably made or incurred.

Rule A. 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. General average sacrifices and expenditures shall be borne by the different contributing interests on the basis hereinafter provided.

Rule B. There is a common maritime adventure when one or more vessels are towing or pushing another vessel or vessels, provided that they are all involved in commercial activities and not in a salvage operation.

When measures are taken to preserve the vessels and their cargoes, if any, from a common peril, these Rules shall apply.

A vessel is not in common peril with another vessel or vessels if by simply disconnecting from the other vessel or vessels she is in safety; but if the disconnection is itself a general average act the common maritime adventure continues.

Rule C. Only such losses, damages or expenses which are the direct consequence of the general average act shall be allowed as general average.

In no case shall there be any allowance in general average for losses, damages or expenses incurred in respect of damage to the environment or in consequence of the escape or release of pollutant substances from the property involved in the common maritime adventure.

Demurrage, loss of market, and any loss or damage sustained or expense incurred by reason of delay, whether on the voyage or subsequently, and any indirect loss whatsoever, shall not be admitted as general average.

Rule D. Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure, but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault.

Rule E. The onus of proof is upon the party claiming in general average to show that the loss or expense claimed is properly allowable as general average.

All parties claiming in general average shall give notice in writing to the average adjuster of the loss or expense in respect of which they claim contribution within 12 months of the date of the termination of the common maritime adventure.

Failing such notification, or if within 12 months of a request for the same any of the parties shall fail to supply evidence in support of a notified claim, or particulars of value in respect of a contributory interest, the average adjuster shall be at liberty to estimate the extent of the allowance or the contributory value on the basis of the information available to him, which estimate may be challenged only on the ground that it is manifestly incorrect.

Rule F. Any additional expense incurred in place of another expense which would have been

allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided.

Rule G. General average shall be adjusted as regards both loss and contribution upon the basis of values at the time and place when and where the adventure ends.

This Rule shall not affect the determination of the place at which the average statement is to be made up.

When a ship is at any port or place in circumstances which would give rise to an allowance in

general average under the provisions of Rules X and XI, and the cargo or part thereof is forwarded to destination by other means, rights and liabilities in general average shall, subject to cargo interests being notified if practicable, remain as nearly as possible the same as they would have been in the absence of such forwarding, as if the adventure had continued in the original ship for so long as justifiable under the contract of affreightment and the applicable law.

The proportion attaching to cargo of the allowances made in general average by reason of applying the third paragraph of this Rule shall not exceed the cost which would have been borne by the owners of cargo if the cargo had been forwarded at their expense.

Rule I. Jettison of cargo. No jettison of cargo shall be made good as general average, unless such cargo is carried in accordance with the recognised custom of the trade.

Rule II. Loss or Damage by sacrifices for the common safety. Loss of or damage to the property involved in the common maritime adventure by or in consequence of a sacrifice made for the common safety, and by water which goes down a ship’s hatches opened or other opening made for the purpose of making a jettison for the common safety, shall be made good as general average.

Rule III. Extinguishing fire on shipboard. 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 made good as general average; except that no compensation shall be made for damage by smoke however caused or by heat of the fire.

Rule IV. Cutting away wreck. Loss or damage sustained by cutting away wreck or parts of the ship which have been previously carried away or are effectively lost by accident shall not be made good as general average.

Rule V. Voluntary stranding. When a ship is intentionally run on shore for the common safety, whether or not she might have been driven on shore, the consequent loss or damage to the property involved in the common maritime adventure shall be allowed in general average.

Rule VI. Salvage remuneration.

(a) Expenditure incurred by the parties to the adventure in the nature of salvage, whether under contract or otherwise, shall be allowed in general average to the extent that the salvage operations were carried out for the purpose of preserving from peril the property involved in the common maritime adventure.

Expenditure allowed in general average shall include any salvage remuneration in which the skill and efforts of the salvors in preventing or minimising damage to the environment such as is referred to in Article 13 paragraph 1(b) of the International Convention on Salvage, 1989 have been taken into account.

(b) Special compensation payable to a salvor by the shipowner under Article 14 of the said Convention to the extent specified in paragraph 4 of that Article or under any other provision

similar in substance shall not be allowed in general average.

Rule VII. Damage to machinery and boilers. Damage caused to any machinery and boilers of a ship which is ashore and in a position of peril, in endeavouring to refloat, shall be allowed in general average when shown to have arisen from an actual intention to float the ship for the common safety at the risk of such damage; but where a ship is afloat no loss or damage caused by working the propelling machinery and boilers shall in any circumstances be made good as general average.

Rule VIII. Expenses lightening a ship when ashore, and consequent damage. When a ship is ashore and cargo and ship’s fuel and stores or any of them are discharged as a general average act, the extra cost of lightening, lighter hire and reshipping (if incurred), and any loss or damage to the property involved in the common maritime adventure in consequence thereof, shall be admitted as general average.

Rule IX. Cargo, ship’s materials and stores used for fuel. Cargo, ship’s materials and stores, or any of them, necessarily used for fuel for the common safety at a time of peril shall be admitted as general average, but when such an allowance is made for the cost of the ship’s materials and stores the general average shall be credited with the estimated cost of the fuel which would otherwise have been consumed in prosecuting the intended voyage.

Rule X. Expenses at port of refuge, etc.

(a) When a ship shall have entered a port or place of refuge or shall have returned to her port or place of loading in consequence of accident, sacrifice or other extraordinary circumstances which render that necessary for the common safety, the expenses of entering such port or place shall be admitted as general average; and when she shall have sailed thence with her original cargo, or part of it, the corresponding expenses of leaving such port or place consequent upon such entry or return shall likewise be admitted as general average.

When a ship is at any port or place of refuge and is necessarily removed to another port or place because repairs cannot be carried out in the first port or place, the provisions of this Rule shall be applied to the second port or place as if it were a port or place of refuge and the

cost of such removal including temporary repairs and towage shall be admitted as general average. The provisions of Rule XI shall be applied to the prolongation of the voyage occasioned by such removal.

(b) The cost of handling on board or discharging cargo, fuel or stores whether at a port or place of loading, call or refuge, shall be admitted as general average, when the handling or discharge was necessary for the common safety or to enable damage to the ship caused by sacrifice or accident to be repaired, if the repairs were necessary for the safe prosecution of the voyage, except in cases where the damage to the ship is discovered at a port or place of loading or call without any accident or other extraordinary circumstance connected with such damage having taken place during the voyage.

The cost of handling on board or discharging cargo, fuel or stores shall not be admissible as general average when incurred solely for the purpose of restowage due to shifting during the voyage, unless such restowage is necessary for the common safety.

(c) Whenever the cost of handling or discharging cargo, fuel or stores is admissible as general

average, the costs of storage, including insurance if reasonably incurred, reloading and stowing of such cargo, fuel or stores shall likewise be admitted as general average. The provisions of Rule XI shall be applied to the extra period of detention occasioned by such reloading or restowing.

But when the ship is condemned or does not proceed on her original voyage, storage expenses shall be admitted as general average only up to the date of the ship’s condemnation

or of the abandonment of the voyage or up to the date of completion of discharge of cargo if

the condemnation or abandonment takes place before that date.

Rule XI. Wages and maintenance of crew and other expenses bearing up for and in a port of refuge, etc.

(a) Wages and maintenance of master, officers and crew reasonably incurred and fuel and stores

consumed during the prolongation of the voyage occasioned by a ship entering a port or place

of refuge or returning to her port or place of loading shall be admitted as general average when the expenses of entering such port or place are allowable in general average in accordance with Rule X(a).

(b) When a ship shall have entered or been detained in any port or place in consequence of accident, sacrifice or other extraordinary circumstances which render that necessary for the common safety, or to enable damage to the ship caused by sacrifice or accident to be repaired, if the repairs were necessary for the safe prosecution of the voyage, the wages and maintenance of the master, officers, and crew reasonably incurred during the extra period of detention in such port or place until the ship shall or should have been made ready to proceed upon her voyage, shall be admitted in general average.

Fuel and stores consumed during the extra period of detention shall be admitted as general average, except such fuel and stores as are consumed in effecting repairs not allowable in general average.

Port charges incurred during the extra period of detention shall likewise be admitted as general average except such charges as are incurred solely by reason of repairs not allowable in general average.

Provided that when damage to the ship is discovered at a port or place of loading or call without any accident or other extraordinary circumstance connected with such damage having taken place during the voyage, then the wages and maintenance of master, officers and crew and fuel and stores consumed and port charges incurred during the extra detention for repairs to damages so discovered shall not be admissible as general average, even if the repairs are necessary for the safe prosecution of the voyage.

When the ship is condemned or does not proceed on her original voyage, the wages and maintenance of the master, officers and crew and fuel and stores consumed and port charges shall be admitted as general average only up to the date of the ship’s condemnation or of the abandonment of the voyage or up to the date of completion of discharge of cargo if the condemnation or abandonment takes place before that date.

(c) For the purpose of this and the other Rules wages shall include all payments made to or for the benefit of the master, officers and crew, whether such payments be imposed by law upon the shipowners or be made under the terms or articles of employment.

(d) The cost of measures undertaken to prevent or minimise damage to the environment shall be allowed in general average when incurred in any or all of the following circumstances:

(i) as part of an operation performed for the common safety which, had it been undertaken by a party outside the common maritime adventure, would have entitled such party to a  salvage reward;

(ii) as a condition of entry into or departure from any port or place in the circumstances prescribed in Rule X (a);

(iii) as a condition of remaining at any port or place in the circumstances prescribed in Rule  XI (b), provided that when there is an actual escape or release of pollutant substances the  cost of any additional measures required on that account to prevent or minimise          pollution or environmental damage shall not be allowed as general average;

(iv) necessarily in connection with the discharging, storing or reloading of cargo whenever     the cost of those operations is admissible as general average.

Rule XII. Damage to cargo in discharging, etc. Damage to or loss of cargo, fuel or stores sustained in consequence of their handling, discharging, storing, reloading and stowing shall be made good as general average, when and only when the cost of those measures respectively is admitted as general average.

Rule XIII. Deductions from cost of repairs. Repairs to be allowed in general average shall not be subject to deductions in respect of ‘new for old’ where old material or parts are replaced by new unless the ship is over 15 years old in which case there shall be a deduction of one third. The deductions shall be regulated by the age of the ship from 31 December of the year of completion of construction to the date of the general average act, except for insulation, life and similar boats, communications and navigational apparatus and equipment, machinery and boilers for which the deductions shall be regulated by the age of the particular parts to which they apply.

The deductions shall be made only from the cost of the new material or parts when finished and ready to be installed in the ship.

No deduction shall be made in respect of provisions, stores, anchors and chain cables. Drydock and slipway dues and costs of shifting the ship shall be allowed in full.

The costs of cleaning, painting or coating of bottom shall not be allowed in general average unless the bottom has been painted or coated within the twelve months preceding the date of the general average act in which case one half of such costs shall be allowed.

Rule XIV. Temporary repairs. Where temporary repairs are effected to a ship at a port of loading, call or refuge, for the common safety, or of damage caused by general average sacrifice, the cost of such repairs shall be admitted as general average.

Where temporary repairs of accidental damage are effected in order to enable the adventure to be completed, the cost of such repairs shall be admitted as general average without regard to the saving, if any, to other interests, but only up to the saving in expense which would have been incurred and allowed in general average if such repairs had not been effected there.

No deductions ‘new for old’ shall be made from the cost of temporary repairs allowable as general average.

Rule XV. Loss of freight. Loss of freight arising from damage to or loss of cargo shall be made good as general average, either when caused by a general average act, or when the damage to or loss of cargo is so made good.

Deduction shall be made from the amount of gross freight lost, of the charges which the owner thereof would have incurred to earn such freight, but has, in consequence of the sacrifice, not incurred.

Rule XVI. Amount to be made good for cargo lost or damaged by sacrifice. The amount to be made good as general average for damage to or loss of cargo sacrificed shall be the loss which has been sustained thereby based on the value at the time of discharge, ascertained from the commercial invoice rendered to the receiver or if there is no such invoice from the shipped value. The value at the time of discharge shall include the cost of insurance and freight except insofar as such freight is at the risk of interests other than the cargo.

When cargo so damaged is sold and the amount of the damage has not been otherwise agreed,

the loss to be made good in general average shall be the difference between the net proceeds of sale and the net sound value as computed in the first paragraph of this Rule.

Rule XVII. Contributory values. The contribution to a general average shall be made upon the actual net value of the property at the termination of the adventure except that the value of cargo shall be the value at the time of discharge, ascertained from the commercial invoice rendered to the receiver or if there is no such invoice from the shipped value. The value of the cargo shall include the cost of insurance and freight unless and insofar as such freight is at the risk of interests other than the cargo, deducting therefrom any loss or damage suffered by the cargo prior to or at the time of discharge. The value of the ship shall be assessed without taking into account the beneficial or detrimental effect of any demise or time charterparty to which the ship may be committed.

To these values shall be added the amount made good as general average for property sacrificed, if not already included, deduction being made from the freight and passage money at risk of such charges and crew’s wages as would not have been incurred in earning the freight had the ship and cargo been totally lost at the date of the general average act and have not been allowed as general average; deduction being also made from the value of the property of all extra charges incurred in respect thereof subsequently to the general average act, except such charges as are allowed in general average or fall upon the ship by virtue of an award for special compensation under Article 14 of the International Convention on Salvage, 1989 or under any other provision similar in substance.

In the circumstances envisaged in the third paragraph of Rule G, the cargo and other property

shall contribute on the basis of its value upon delivery at original destination unless sold or otherwise disposed of short of that destination, and the ship shall contribute upon its actual net value at the time of discharge of cargo.

Where cargo is sold short of destination, however, it shall contribute upon the actual net proceeds of sale, with the addition of any amount made good as general average.

Mails, passengers’ luggage, personal effects and accompanied private motor vehicles shall not contribute in general average.

Rule XVIII. Damage to ship. The amount to be allowed as general average for damage or loss to the ship, her machinery and/or gear caused by a general average act shall be as follows:

(a) When repaired or replaced.

The actual reasonable cost of repairing or replacing such damage or loss subject to deduction

in accordance with Rule XIII.

(b) When not repaired or replaced.

The reasonable depreciation arising from such damage or loss, but not exceeding the estimated cost of repairs. But where the ship is an actual total loss or when the cost of repairs of the damage would exceed the value of the ship when repaired, the amount to be allowed as general average shall be the difference between the estimated sound value of the ship after deducting therefrom the estimated cost of repairing damage which is not general average and the value of the ship in her damaged state which may be measured by the net proceeds of sale, if any.

Rule XIX. Undeclared or wrongfully declared cargo. Damage or loss caused to goods loaded without the knowledge of the shipowner or his agent or to goods wilfully misdescribed at time of shipment shall not be allowed as general average, but such goods shall remain liable to contribute, if saved.

Damage or loss caused to goods which have been wrongfully declared on shipment at a value

which is lower than their real value shall be contributed for at the declared value, but such goods shall contribute upon their actual value.

Rule XX. Provision of funds. A commission of two per cent of general average disbursements, other than the wages and maintenance of master, officers and crew and fuel and stores not replaced during the voyage, shall be allowed in general average. The capital loss sustained by the owners of goods sold for the purpose of raising funds to defray general average disbursements shall be allowed in general average.

The cost of insuring general average disbursements shall also be admitted in general average.

Rule XXI. Interest on losses made good in general average. Interest shall be allowed on expenditure, sacrifices and allowances in general average at the rate of seven per cent, per annum, until three months after the date of issue of the general average adjustment, due allowance being made for any payment on account by the contributory interests or from the general average deposit fund.

Rule XXII. Treatment of cash deposits. Where cash deposits have been collected in respect of cargo’s liability for general average, salvage or special charges, such deposits shall be paid without any delay into a special account in the joint names of a representative nominated on behalf of the shipowner and a representative nominated on behalf of the depositors in a bank to be approved by both. The sum so deposited, together with accrued interest, if any, shall be held as security for the payment to the parties entitled thereto of the general average, salvage or special charges payable by cargo in respect to which the deposits have been collected. Payments on account or refunds of deposits may be made if certified to in writing by the average adjuster. Such deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

2 CAUSATION

Two crucial questions arise in the law of general average: (1) what is a general average act?; (2) what losses may be claimed in general average? Rule A of the York-Antwerp Rules defines ‘general average act’ and Rule C provides that only losses, damages and expenses which are ‘the direct consequence of the general average act shall be allowed as general average’. Not all sacrifices and expenditures give rise to valid claims for general average contribution however, and both under the York-Antwerp Rules 1994 and at common law, certain conditions must be met. Very generally the act giving rise to the loss alleged to found the duty to contribute must be: extraordinary in nature; voluntarily and deliberately undertaken but reasonably incurred at a time of general peril caused by a real and imminent danger; undertaken for the common safety of a common maritime adventure and resulting in some saving from which contribution can be made.

The extent to which expenses incurred in the aftermath of the occurrence of a general average act are recoverable can be difficult to define. The case below deals comprehensively with these causation issues and decides that a payment made under an indemnity in respect of damages to a tug may be a general average loss.

Australian Coastal Shipping Commission v Green [1971] 1 QB 456,CA

Facts

The motor vessel, the Bulwarra, was fully laden and moored when a violent storm arose. The shipowner employed a tug to come to the aid of the Bulwarra. The tug was retained on the basis of an indemnity by the shipowner to the tugowner for any damage or loss to the tug. The tug towed the Bulwarra for about 10 minutes before the towline parted and wrapped itself around the tug’s propeller. The tug was a total loss but the Bulwarra got to safety. The tugowners claimed under the indemnity despite the tug being lost by their own negligence. In a similar case, the tug employed to rescue the Wangara after its grounding was damaged after the towline wrapped itself around the propeller. The tugowners claimed the amount they had to pay for salvage under their indemnity. The question for the court was whether the payments made by the shipowners to the tugowners under the indemnities were general average losses.

Held

Lord Denning MR:

1 Introductory

We so rarely have to consider the law of general average that it is as well to remind ourselves of it. It arises when a ship, laden with cargo, is in peril on the sea, such peril indeed that the whole adventure, both ship and cargo, is in danger of being lost. If the master then, for the sake of all, throws overboard some of the cargo, so as to lighten the ship, it is unjust that the owner of the goods so jettisoned should be left to bear all the loss of it himself. He is entitled to a contribution from the shipowner and the other cargo owners in proportion of their interests. See the exposition by Lord Tenterden quoted in Hallett v Wigram (1850) 9 CB 580, at pp 607 to 608; and Burton & Co v English & Co (1883) 12 QBD 218. Likewise, if the master, for the sake of all, at the height of a storm, cuts away part of the ship’s tackle (as in Birkley and Others v Presgrave (1801) 1 East 220); or cuts away a mast (as in Atwood and Others v Sellar & Co (1880) 5 QBD 286), or, having sprung a leak, puts into a port of refuge for repairs and spends money on them (as in Svendsen and Others v Wallace Bros (1885) 10 App Cas 404), it is unfair that the loss should fall on the shipowner alone. He is entitled to contribution from the cargo owners for the loss or expenditure to which he has been put. In all such cases the act done by the master is called a ‘general average act’: and the loss incurred is called a ‘general average loss’…

3 The general average act

The ‘general average act’ was I think the contract made by the shipowners with the tug. In each case the vessel was in dire peril and the shipowners called upon the tug for help. If the tug had rendered salvage services on the usual terms of ‘no cure-no pay’, the contract would undoubtedly have been a ‘general average act’. If the services had been successful, the owners would have been liable to pay a very high reward: which would count as ‘general average expenditure’. If the services had been unsuccessful, they would have had to pay nothing, see NV Bureau Wijsmuller v Tojo Maru (Owners) [1969] 2 Lloyd’s Rep 193, at p 199; [1969] 3 WLR 902, at p 913. Instead of entering into such a contract, the shipowners made a towage contract on the United Kingdom Standard Towage Conditions. That was a very reasonable contract to make for both sides. It is well known that there is a substantial risk in towage operations that the towrope may break and foul the propeller of the tug: and that, if that happens, the tug may run aground or be damaged and have to be rescued. In a salvage agreement, the tugowners take that risk on themselves in return for the chance of a very high salvage reward. In a hiring agreement, at a fixed rate of hire, they cannot be expected to take the risk on themselves. It is only right and fair that they should ask for andreceive an indemnity. The benefit to the shipowners is that, if the service is successful, he pays much less than he would under a salvage award: but, in return, he has to give an indemnity to the tugowner. In these circumstances, I have no doubt that the towage contract is a ‘general average act’. It was intentionally and reasonably made for the common safety.

4 The general average loss

The next question is: What was the general average loss? If the towline had not parted, and the tug had completed her task in safety, the hiring charge would certainly have been a general average expenditure. But the towline did part. It wrapped itself round the propeller of the tug. The result was that, in the case of the Bulwarra, the tug became a total loss; and, in the case of the Wangara, the tug was salved at great expense. The shipowners have become bound under the indemnity clause to indemnify the tug owners. Is this expenditure under the indemnity clause, a ‘general average loss’?

This depends on whether the expenditure was the ‘direct consequence’ of the general average act within rule C of the York-Antwerp Rules. At the time when the rules were made in 1924, all lawyers thought that they could tell the difference between ‘direct’ and ‘indirect’ consequences . . . But 40 years later the Privy Council poured scorn upon it. It was in Overseas Tankship (UK) Ltd v Morts Dock & Engineering Company Ltd (The Wagon Mound) [1961] AC 388, when Viscount Simonds said (at pp 423 . . .) that the test of the ‘direct consequence’ leads to nowhere but the never-ending and insoluble problem of causation. To add to the confusion, rule C of the York-Antwerp Rules gives ‘loss of market’ as a typical instance of indirect loss, following, no doubt, The Parana (1877) 2 PD 118; whereas in Koufos v C Czarnikow Ltd [1969] 1 AC 350, at p 385 . . . Lord Reid says that the

loss of market there was ‘directly caused’ by the defendants’ breach of contract.

In these circumstances I propose to go back to the concept, as I understood it in 1924, when the York-Antwerp Rules were made.’ Direct consequences’ denote those consequences which flow in an unbroken sequence from the act: whereas ‘indirect consequences’ are those in which the sequence is broken by an intervening or extraneous cause. I realise that this is not very helpful: because the metaphor of ‘breaking the chain’ of causation means one thing to one man and another thing to another. But still we have to do the best we can with it.

Direct consequences

Applying this test, I would start with the engagement of the tug on the towage conditions. That was the ‘general average act’. From that act we have this sequence: (i) the making fast of the towline and the subsequent towage; (ii) the snapping of the towline and its fouling the propeller; (iii) the loss, or salvage, of the tug; (iv) the claim for indemnity.

Is that a direct sequence in unbroken line? Or is the sequence broken? The only two points at

which it may be broken are at (ii) and (iv). I will consider them separately.

(i) The subsequent accident: It was a most unfortunate thing that the towline snapped and fouled the propeller. That was an intervening cause of much importance. Without it, the loss and expenditure would never have happened. But did it break the chain of causation? There is a passage in the German author Ulrich (Grosse-Haverei) which seems to say that, when, after a general average act, there is a ‘subsequent accident’ which results in loss or damage, it breaks the chain of causation: so that such loss or damage is never the direct consequence of the general average act. It was quoted with approval by Bigham J in Anglo-Argentine Live Stock and Produce Agency v Temperley Shipping Company [1899] 2 QB 403, at p 410; and by Bailhache J in Austin Friars Steamship Company Ltd v Spillers & Bakers Ltd [1915] 1 KB 833, at p 836.

I cannot accept this view. If the master, when he does the ‘general average act’ ought reasonably to have foreseen that a subsequent accident of the kind might occur – or even that there was a distinct possibility of it – then the subsequent accident does not break the chain of causation. The loss or damage is the direct consequence of the original general average act.

… If, however, there is a subsequent accident which was only a remote possibility, it would be different. Thus Lowndes (Lowndes & Rudolf: Law of General Average) gave the illustration of a sailing vessel, when the master cuts away the mast and thus reduces her speed; and afterwards she is captured by the enemy. Her loss is not the direct consequence of the general average act. It is due to the intervening capture.

In both cases before us, the master, when he engaged the tug, should have envisaged that it was distinctly possible that the towline might break and foul the propeller. When it happened,

therefore, it did not break the chain of causation.

(ii) The indemnity clause: The indemnity clause was most stringent. It was an extraneous cause of much importance. Without it, the expenditure by the shipowners would never have been incurred. But did it break the chain of causation?

If the indemnity clause had been unreasonable and such that the master ought never, in justice to the cargo owners, to have agreed to it, then I think that the expenditure would not flow from the general average act. It would flow from the onerous clause in the towage agreement: … [S]eeing that the indemnity clause here was reasonable, and such that the master, quite justly and fairly, agreed to it, then I think the expenditure flowed directly from the general average act . . . The indemnity was quite reasonable. So was the expenditure under it. It was the direct consequence of the general average act and must be accepted as a general average loss . . .

3 WHO CAN SUE AND WHEN?

At common law a cargo owner’s liability to contribute to general average accrues at the time of sacrifice or when the expense is incurred. The Privy Council’s decision in the following case demonstrates the significance of when liability accrues in the context of a time limitation clause. It also highlights that the effect of the general average clause in the bill of lading is to transfer liability to the consignee (as endorsee of the bill). Where, as is usually the case, the consignee has undertaken a fresh contractual liability to the shipowner by executing a Lloyd’s standard form average bond in exchange for the release of the cargo to him, time runs from the date of completion of the general average statement as provided in the bond.

Castle Insurance v Hong Kong Islands Shipping [1984] 1 AC 226, PC

Facts

The Potoi Chau, a general ship, ran aground in October 1972. Salvage operations followed and included jettison. Salvage operations lasted until the end of November 1972. The preserved cargo was released by the ship managers to the various (74) consignees between November 1972 and February 1973 but only upon execution of Lloyd’s average bonds and insurer’s letters of guarantee as security. The ship was a constructive total loss and the average adjustment and statement were completed in August 1977. In October 1978 the ship managers sued the consignees and cargo insurers, claiming general average contributions. This case concerned the application made in July 1979 to join the shipowners as additional plaintiffs. Under the bills of lading, general average was to be adjusted in accordance with the York-Antwerp Rules1950.

Held

Lord Diplock: . . . the original writ was issued within six years of the first general average act and within six years of the execution of the average bonds by each of the consignees and of the letters of guarantee by each of the cargo insurers. On the other hand the application to join the shipowners as plaintiffs in the action was made more than six years after the last of these events.

Under that branch of English common law into which the lex mercatoria has long ago become absorbed, the personal liability to pay the general average contribution due in respect of any particular consignment of cargo that had been preserved in consequence of a general average sacrifice or expenditure lies, in legal theory, upon the person who was owner of the consignment at the time when the sacrifice was made or the liability for the expenditure incurred. In practice, however, the personal liability at common law of whoever was the owner of the contributing consignment of cargo at the time of the general average act is hardly ever relied upon. There are two reasons for this. The first is that the contract of carriage between the shipowner and the owner of the consignment, whether the contract be contained in a charterparty or a bill of lading, invariably nowadays (so far as the decided cases show) contains an express clause dealing with general average and so brings the claim to contribution into the field of contract law. The second, and this has in practice been the decisive reason, is that there attaches to all cargo that has been preserved in consequence of a general average sacrifice or expenditure a lien in favour of those concerned in ship or cargo who have sustained a general average loss. The lien attaches to the preserved cargo at the time when the sacrifice is made or the liability to the expenditure incurred. The lien is a possessory lien and it is the duty of the master of the vessel to exercise the lien at the time of discharge of the preserved cargo in such a way as will provide equivalent security for contributions towards general average sacrifices made or expenditure incurred not only by those concerned in the ship but also by those concerned in cargo in respect of which a net general average loss has been sustained. The lien, being a possessory one and not a maritime lien, is exercisable only against the consignee, but it is exercisable whether or not the consignee was owner of the consignment at the time of the general average sacrifice or expenditure that gave rise to the lien: a fact of which the shipowner may well be unaware. At the time of discharge the sum for which the lien is security (save in the simplest cases, which do not include that of a general ship) is unquantifiable until after there has been an average adjustment. Indeed in the case of some consignees of cargo that has been preserved in part only or damaged in consequence of a general average loss, so far from being liable to a net general average contribution they may eventually turn out to be entitled to a net payment in general average . . .

 [The bills of lading created] a contractual liability on the part of the consignee as indorsee of the bill of lading to pay general average contribution, if there be any chargeable on the cargo shipped, whether it was he, the shipper or some intermediate indorsee of the bill of lading, who happened to be owner of the goods at the time when a general average sacrifice took place or a liability for a general average expenditure was incurred. Since this liability arises under a simple contract, the period of limitation is six years from the accrual of the cause of action; but the clause is intended to regulate, and to transfer to whoever acquires title to the consignment of cargo under the bill of lading, what would otherwise be a common law liability of the owner of the cargo at the time of the general average act; so for the purposes of the instant case a necessary starting point is first to determine when, at common law, a cause of action for a general average contribution would have accrued against the owner of cargo, and then to see whether the wording of the clause is apt to postpone the accrual of a cause of action for such contribution against a holder of the bill of lading or to create some different cause of action accruing at a later date than that of the general average act in respect of which contribution was claimed.

… as a matter of law, in the absence of any agreement to the contrary, the publication of the

average statement settles nothing: it has no other legal effect than as an expression of opinion by a professional man as to what are the appropriate sums payable to one another by the various parties interested in ship and cargo. It is just not capable of giving rise to any fresh cause of action or of postponing the accrual of an existing cause of action for an unliquidated sum.

Causes of action for unliquidated sums that, in the absence of earlier agreement as to quantum reached between the parties themselves, will only become quantified by the judgment of a court or the award of an arbitrator, accrue at the time that the events occur which give rise to the liability to pay to the plaintiff compensation in an amount to be subsequently ascertained … in their Lordships’ view it was rightly decided in Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65, that claims for contributions in general average under contractual provisions which do no more than require general average to be adjusted according to York-Antwerp Rules fall within this class and that, accordingly, the cause of action under such a contractual provision in a bill of lading accrues at the time when each general average sacrifice was made or general average expense incurred.

[The effect of a general average bond] … The average bonds, to give them their common though legally inaccurate description, were in the usual Lloyd’s forms which appear to have been in use in substantially the same terms for well over a century: Svendsen v Wallace (1885) 10 App Cas 406, 410.There are two varieties one of which provides for security in the form of a cash deposit on joint account in a bank, the other does not call for any cash deposit but it is stated on its face that it is: ‘To be used in conjunction with underwriters’ guarantee’. In both varieties the wording of the preamble and the mutual promises is the same.

… In their Lordships’ view, although, from the point of view of clarity, the draftsmanship of the Lloyd’s forms of average bond leave much to be desired, the application of commercial common sense to the language used makes clear the intention of the parties to it as respects payments by the consignees. The contractual obligation assumed by the consignee is to make a payment of a liquidated sum at a future date which will not arrive until the general average statement has been completed by an average adjuster appointed by the shipowners. That in the instant case, where no question of the issue by the adjuster of certificates for interim reimbursements arose, was the earliest date at which the shipowners’ cause of action against the consignees under the average bond for payment of general average contribution arose. It was not time barred at the date of the application of 19 July 1979 to add the shipowners as additional plaintiffs . . .

4 FAULT/RULE D/UNSEAWORTHINESS/JASON CLAUSES

The extent to which the shipowner may claim for general average contribution where his own negligence has caused the loss and the opposability of limitation clauses are the subjects of the following cases. Rule D of the York-Antwerp Rules provides that rights to contribution in general average are not to be affected by fault of one of the parties but that ‘this shall not prejudice any remedies which may be open against that party for such fault’. The court in Goulandris had to decide if the equitable defence that a person should not recover from any other person in respect of the consequences of his own wrong was one preserved by the Rule. It found that it was.

The extract below from Guinomar of Conakry v Samsung Fire & Marine Insurance Co Ltd, The Kamsar Voyager [2002] 2 Lloyd’s Rep 57 considers the effect of a Jason clause on the question of whether or not there needs to be a causal link between unseaworthiness and the loss where the shipowner cannot prove he exercised due diligence.

Goulandris Bros v Goldman & Sons [1958] 1 QB 74

Facts

A bill of lading issued for shipowners in respect of goods on the Granhill at Lagos provided that general average was to be payable in accordance with the York-Antwerp Rules 1950, and incorporated the Hague Rules. The ship was found to be unseaworthy on departure from Lagos and was towed in the Bay of Biscay in Januay 1951. The shipowners incurred general average expenditure owing to their failure to make the ship seaworthy. Cargo owners’ goods did not incur any actual loss or damage.

Held

Pearson J: … In my view the manifest objects of rule D [of the York-Antwerp rules 1950] are to keep all questions of alleged fault outside the average adjustment and to preserve unimpaired the legal position at the stage of enforcement. The effect of the first part of the rule is that the average adjustment is compiled on the assumption that the casualty has not been caused by anybody’s fault. The convenience of this arrangement appears when regard is had to the size and complexity that an average adjustment may attain. The average adjustment in the present case covers 183 pages and the compilation would involve much collection of information and many calculations . . . The average adjustment shows X owing to Y £100, but that showing is without prejudice to any remedies which may be open to X for Y’s fault having caused the casualty. In my view that is clearly the intended mode of operation of the two parts of rule D, and it affords the clue to the interpretation of the rule. The first part refers to the rights to contribution in general average as they will be set out in the average adjustment, and these are properly and naturally called ‘rights’, because normally the holder of such rights is entitled to receive payment. But the second part of the rule provides that the first part is not to prejudice remedies for faults. That implies that in some cases the remedies referred to in the second part of the rule will override the rights referred to in the first part; in other words, the second part operates as a proviso, qualifying, overriding, cutting down or derogating from the first part. The rights may be nullified or defeated or diminished or otherwise affected by the remedies. In that sense the rights referred to in the first part of the rule are prima facie rights because they are subject to the remedies.

The position, therefore, is that the claimants have their prima facie right to recover from the

respondents contribution in general average, but the respondents may be able to defeat that right by using their ‘remedies’ for the claimants’ ‘fault’. As I have said, the York-Antwerp Rules are silent as to what are the remedies and what is a fault, and for elucidation of those matters it is necessary to have resort to the English law.

 [Pearson J reviewed the relevant authorities and concluded:] . . .The question which is disputed at this stage of the argument is whether the word ‘remedies’ in rule D is wide enough to cover the so-called ‘equitable’ defence, that the casualty was caused by the claimants’ own fault …

. . . Mainly I am influenced by the evident objects of rule D, which are to keep the whole question of alleged fault outside the average adjustment and to leave the legal ‘remedies’ in respect of fault unimpaired. There is no reason to suppose an intention to destroy defences while keeping alive cross-claims. The intention which may reasonably be inferred is an intention to preserve the legal position intact at the stage of enforcement. Suitable effect is given to that intention by construing the word ‘remedies’ in rule D as wide enough to cover defences as well as cross-claims, shields as well as spears, pleas as well as counts.

Next one has to consider what is, for the purposes of a case such as this, the meaning of the word ‘fault’ in English law. [Pearson J considered the relevant authorities and concluded:] … It appears, therefore, in my opinion, from the citations which have been given, that for the relevant purpose a ‘fault’ is a legal wrong which is actionable as between the parties at the time when the general average sacrifice or expenditure is made. In the present case there was a legal wrong, and it was actionable as between the parties at the time when the general average expenditure was made. There was, therefore, a ‘fault’ in this case. Whatever effect the third paragraph of article III, rule 6, of the Hague Rules may have upon the rights of the parties in other ways, it did not deprive the legal wrong of its character as a ‘fault’.

Now I have to consider what effect, if any, the third paragraph of article III, rule 6, of the Hague Rules has had upon the legal position. Has it destroyed the respondents’ equitable defence, and has it destroyed their cross-claim? In my view clearly it has not destroyed the equitable defence because it brings about only a discharge of liabilities and not a barring of defences. Therefore, if I am right in my conclusion that the equitable defence is one of the ‘remedies’ preserved by the second part of rule D of the York-Antwerp Rules, that defence is unaffected by the third paragraph of article Ill, rule 6, of the Hague Rules, and defeats the claimants’ claim . . .

5 RULE XIV AND RULE X

Where temporary repairs are all that is required, can a shipowner claim permanent repairs as general average?

Marida Ltd v Oswal Steel,The Bijela [1994] 1 WLR 615,HL

Facts

In November 1985, the Bijela loaded a cargo of scrap iron in Providence, Rhode Island for carriage to an Indian port, pursuant to contracts of carriage that incorporated the York-Antwerp Rules 1974. The vessel sailed but while still in Rhode Island Sound she grounded and seriously damaged her double bottom tanks. Temporary repairs were completed at Jamestown, the nearest anchorage, and the vessel proceeded to her original destination of Kandla and discharged her cargo. She then sailed to Singapore where permanent repairs were carried out.

    The plaintiff shipowners alleged that the cost of temporary repairs were allowable in general average as substituted expenses under the second paragraph of Rule XIV of the York-Antwerp Rules 1974. The shipowners’ argument was that if temporary repairs had not been completed at Jamestown, the vessel would have had to proceed to New York for permanent repairs which would have entailed discharging, storing and reloading the cargo at a cost of more than US $500,000. They argued that this cost would have been allowed under Rule X(b) and (c), whereas doing the temporary repairs at Jamestown resulted in a very substantial saving, and that they were entitled to recover the appropriate proportion of the sum actually incurred in carrying out the temporary repairs as substituted expense under the York-Antwerp Rules 1974.

   The defendants argued that had permanent repairs been carried out at New York none of the expenses of such repairs would have been recoverable in general average because the alternative of the temporary repairs existed and was all that was required to enable the vessel to complete the original voyage.

Held

Lord Lloyd of Berwick: My Lords, the issue in this appeal is whether the owners of Bijela can claim general average contribution in respect of the cost of temporary repairs carried out in the course of a voyage from Providence, Rhode Island to Kandla, in India. The question turns on the construction of the second paragraph of rule XIV of the York-Antwerp Rules 1974.

. . . It is accepted that the cost of entering Jamestown, as a port of refuge, and her detention there, is allowable in general average under rules X and XI of the York-Antwerp Rules. The question is whether the cost of the temporary repairs should also be admitted. This depends, as I have said, on the second paragraph of rule XIV.

. . . The second paragraph of rule XIV obliges us to suppose that the temporary repairs had not been effected at Jamestown. What then would have happened? The answer is simple. She would have gone into drydock in New York. Was the discharge of the cargo necessary to enable the damage to the ship to be repaired in drydock? The answer is clearly yes.Were those repairs necessary to enable the vessel to proceed safely from New York to India, always assuming that she had not already been repaired in Jamestown? The answer, again, is clearly yes. The assumption required by rule XIV must be carried through when applying rule X. It is not necessary to assume that the vessel could not have been repaired in Jamestown in order to give effect to the two rules. It is necessary only to assume that she was not so repaired, as rule XIV requires. In this way effect can be given to the clear intention of the opening words of the second paragraph of rule XIV, that the cost of temporary repairs of accidental damage are admissible in general average, subject only to the limit imposed by the second half of the paragraph.

6 RULE A AND RULE XI(b)

The following case considered the much debated question of whether in order to claim tug towage expenses as port charges under Rule XI(b) of the York-Antwerp Rules it was necessary to establish that the expenses were intentionally and reasonably incurred for the common safety, for the purposes of preserving the ship and cargo from peril within Rule A of the same rules.

   The case also considers the relationship between ‘voyage’ and ‘common maritime

adventure’.

Trade Green Shipping Inc v Securitas Bremer Allgemeine Versicherungs AG and Another, The Trade Green [2000] EWHC 104; [2000] 2 Lloyd’s Rep 451

Facts

A fire broke out in the engine room of the Trade Green as she was discharging a cargo of rice at Aqaba. The vessel was towed from the berth by two tugs, with a third tug on standby on the instructions of the port authority. The vessel was taken to an anchorage outside port while the fire was brought under control. She was towed back to anchorage the following evening to complete discharging. The shipowners argued that for the purpose of allowing wages, maintenance and port charges in general average there had been a relevant ‘detention within the port’ under Rule XI(b) of the York-Antwerp Rules 1974. It was accepted that the steps, which gave rise to the tug expenses, were not taken by the master to preserve the property involved in the common adventure or to enable the vessel to complete the voyage.

Held

Moore-Brick J:

…Was there a detention?

7 As became clear in the course of argument, one of the central issues between the parties was whether the word ‘detention’ in r XI(b) bears the meaning which the owners sought to put on it.

… [Counsel for the first defendants] submitted that the reference to detention is concerned only with the vessel’s physical movements and is not apt to cover interruption to ordinary cargo handling operations as the port of discharge.

… Rule XI is the counterpart of r X which deals with expenses of entering and leaving a port of refuge and handling and storing cargo, fuel and stores. Rule XI deals with other kinds of expenses incurred as a result of making for and entering a port of refuge which are not themselves covered by r X. It is quite true that r XI refers to ‘any port or place’ and that that expression is capable of including the port of discharge, but I think it is apparent from the language of these two rules as a whole that they are concerned with the consequences of an unexpected interruption of the vessel’s progress towards her destination rather than any interference with routine cargo operations once she has reached it. In particular, the phrases ‘when she shall have sailed thence with her original cargo’ in r X(a),‘when the ship does not proceed on her original voyage’ in r X(c) and ‘until the ship shall or should have been made ready to proceed upon her voyage’ in r XI(b) all point strongly to that conclusion.

… [Counsel for the plaintiffs’] response to this argument was that references in the rules to the ‘voyage’ are intended to denote the whole of the operation involved in the carriage of cargo by sea from the moment when the first parcel is loaded until the moment when the last parcel is discharged. In other words, she submitted that the ‘voyage’ is the same as the ‘common maritime adventure’ and that the use of the different expressions can be explained by the development of the rules in a piecemeal fashion over a period of many years. In my view the word ‘voyage’ is capable of bearing different meanings in different contexts and it is therefore necessary to examine the particular way in which it is used in the rules. However, the suggestion that the use of these two different expressions is simply the result of inadvertence on the part of those who framed successive editions of the rules does not in my view do them justice. From the Glasgow Resolutions of 1860 to the York-Antwerp Rules, 1974 one finds the words ‘voyage’ and ‘adventure’ being used in a manner which suggests that they are intended to refer to quite different concepts . . .Throughout the successive editions of the rules ‘voyage’ has been used in a way which naturally refers to the passage of the vessel from her first loading port to her final discharging port; ‘adventure’ has been used in a way which naturally describes the common enterprise represented by the carriage of goods by sea in which ship and cargo are both involved.

[Common Safety] . . . a vessel may lose her propeller at sea and thereby be rendered unfit to encounter the ordinary perils of the sea. A resort to a port of refuge will be justified for the ‘common safety’, but once within a port where repairs can be effected, safety will have been attained and some alternative expression is required if (as was intended by the early framers of the Rules) general average allowances are to continue. The alternative expression chosen was ‘necessary for the safe prosecution of the voyage’, and it merely provides for a situation in port which, if the ship were at sea, would endanger the ‘common safety’. In the same way, when the vessel is berthed at her final port of discharge she has reached a place of safety, at least so far as the perils of the sea passage are concerned, even though the adventure is not finally over until the whole of the cargo has been discharged. While the adventure persists it is still possible for a general average sacrifice to be made for the common safety in accordance with the principles embodied in r A … but it does not follow that expenses incurred for reasons unconnected with the common safety in order to enable the cargo to be discharged are to be allowed. Expenses of that kind could only be allowed if they fell within one of the numbered rules, but if that had been intended it would have been easy for the draughtsman to have used the expression ‘for the completion of the adventure’ in r XI(b) rather than referring to the ‘safe prosecution of the voyage’. Since in many respects rr X and XI involve a departure from the basic principles of general average embodied in the lettered rules, I can see no grounds for construing them more generously than the natural meaning of the words used would indicate.

13 … in my opinion the language of the rules and the principles which underlie them all point to the conclusion that r XI(b) is only intended to apply to the detention of the ship in the course of her voyage, that is, to situations in which the common safety requires that for the time being she should not proceed on her passage towards her port of discharge … Read in that way it is unnecessary to give the word ‘detention’ an extended meaning of the kind suggested by the owners in the present case. The fact that the owners are unable to recover the towage charges under r XI(b) in the present case does not seem to me to be anomalous. If they had been incurred to preserve the ship and cargo from the common peril they would be recoverable under r A. As it is, it is difficult to see that they were in any sense incurred for the common benefit since the vessel was already at her discharging berth and was capable of extinguishing the fire without leaving it.

… ‘Port or place’

… I would agree with the comment in par 10.34 of Lowndes & Rudolf that any place, which

provides the shelter, needed for the common safety would fall within these words.

‘Port charges’

… 17 The rules themselves contain no definition of ‘port charges’ and the ambit of the expression does not appear to have been considered in any of the authorities. One is therefore thrown back on the language of r XI(b) itself and the context provided by rr X and XI as a whole. Under r X the expenses of entering and leaving a port of refuge are to be allowed in general average when an accident, sacrifice or other extraordinary circumstances render that necessary for the common safety. Rule XI appears to be designed to extend the same treatment to other expenses which will inevitably be incurred as a result of the need to make use of a port of refuge, primarily the additional cost of wages and maintenance of the crew and the consumption of stores and fuel. In this context I think that the natural meaning of the expression ‘port charges’ in r XI(b) is apt to include any charges which the vessel would ordinarily incur as a necessary consequence of entering or staying at the port in question. That would obviously include standard charges and levies of all kinds and may also extend to charges for standard services such as garbage removal which may or may not be optional but would be regarded as ordinary expenses of being in port … I do not think that r XI(b) can be construed so as to cover all sums charged by the port authority regardless of the circumstances; in my view it is much more limited in its scope …

‘The extra period of detention’

… I think [counsel for the first defendants] was right in submitting that the ‘extra period of

detention’ in r XI(b) is the period during which the vessel is detained after she would otherwise have been ready to leave the port. In the case of a vessel which is detained in a port of call for the common safety that period will begin when she would, but for the accident, have been ready to continue her voyage. In the case of a ship which has entered a port of refuge for the common safety, that period will begin as soon as she enters the port: see Lowndes & Rudolf, par 11.28. In the present case, however, there was no such detention. If, as I think is the case, r XI(b) merely extends only to the ordinary expenses of being in port, the rule works perfectly well when construed in this way . . .