GENCON General Average

GENCON Charterparty Clause 12 Covers General Average (GA)

Another expression with a long history and now covered by an international convention (The York-Antwerp Rules). In essence, General Average (GA) is the procedure whereby if the ship is involved in extraordinary expense in order to avoid damage to the ship and her cargo then the cargo as well as the shipowner contributes to that expenditure; the formal wording reads ‘…. preserving from peril the property involved in the common maritime
venture’.

The York-Antwerp Rules lay down how the various parties’ contributions will be calculated, a procedure known as Average Adjusting. All prudent merchants are careful to include General Average in their insurance cover.

Brokerage is the commission due to the shipbroker or shipbrokers involved in the fixture, and is their reward for succeeding in bringing the negotiations to a satisfactory conclusion. The amount of brokerage involved is usually between one and quarter (1.25%) and two and a half (2.5%) percent of the gross freight, depending on whether one or more brokers are involved. Most charter parties, including GENCON 94 now include brokerage on demurrage and on ‘dead freight’ (freight paid on cargo not supplied by the charterers which should have been). Do not feel unduly distressed if you have trouble understanding such clauses as the Both to Blame Collision Clause (Clause 11). It is unlikely to have any direct impact on chartering brokers and is generally accepted as being a vital component of a charter party but almost incomprehensible to mere mortals.

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What is General Average in Ship Chartering?

General Average (GA) in ship chartering is a principle of maritime law that is particularly relevant in situations where a ship encounters an emergency that requires the sacrifice of some cargo, equipment, or the incurring of extraordinary expenses to preserve the voyage and the remaining cargo. This principle is enshrined in the York-Antwerp Rules, which provide the basis for the adjustment and settlement of General Average (GA) acts.

In essence, General Average (GA) dictates that when a voluntary sacrifice is made for the safety of the ship and the remaining cargo (such as jettisoning part of the cargo to lighten the ship or incurring costs to repair damages from an emergency), the financial burden of that sacrifice or expense is shared proportionately among all stakeholders. These stakeholders include the shipowner, cargo owners, and sometimes other parties such as container owners or charterers, depending on the contractual arrangements in place.

For a General Average (GA) to be declared, the action must be:

1. Intentional: The act must be deliberately taken to ensure the safety of the ship and its cargo.
2. Reasonable: The decision to sacrifice cargo or incur expense must be rational under the circumstances.
3. Successful: The action taken must contribute to the preservation of the ship and the cargo.

Once a General Average is declared, an adjuster is appointed to assess the values of the sacrificed and saved properties. Each party’s share of the General Average is then calculated based on the value of their interest in the voyage. For cargo owners, this often means contributing to the loss based on the proportionate value of their cargo to the total value saved.

To protect against potential General Average (GA) costs, cargo owners often purchase marine insurance, including General Average(GA) Coverage. This ensures that the insurance company will cover the required contribution in case a General Average (GA) is declared.

General Average (GA) is a unique aspect of maritime law that underscores the shared risk and collective responsibility of sea voyages, balancing the interests of all parties involved in the carriage of goods by sea.

 

Application of General Average (GA) in Ship Chartering

The application of General Average (GA) in ship chartering and maritime transport is a reflection of the inherently risky nature of sea voyages, where unforeseen circumstances can necessitate quick decisions and significant sacrifices for the greater good of all involved. This principle encourages solidarity among the maritime community, ensuring that the financial burden of emergencies is not unfairly placed on a single party but is instead distributed according to a formula that considers the value of the saved property.

Key Considerations in General Average (GA)

• Documentation and Declarations: When a General Average (GA) act occurs, the captain or master of the ship typically issues a General Average (GA) Declaration. Following this, detailed documentation, including accounts of the incident, the rationale for the sacrifice or expenditure, and an inventory of the affected cargo, is prepared. This documentation is critical for the adjuster to evaluate the situation and determine the contributions from each party.
• Adjustment Process: The process of adjusting a General Average (GA) can be complex and time-consuming, often taking months or even years, depending on the complexity of the case. The appointed adjuster (or sometimes a firm specializing in such adjustments) will collect all necessary documentation, evaluate the sacrifices made and expenses incurred, and apply the York-Antwerp Rules to allocate costs among the contributing parties.
• Insurance: Insurance plays a crucial role in General Average (GA) situations. Cargo owners are generally required to post a bond or provide a guarantee from their insurers for their share of the General Average (GA) before their cargo is released. This requirement ensures that the ship and other stakeholders are not left bearing the financial burden while the lengthy adjustment process is underway.
• Legal and Contractual Framework: The legal basis for General Average is grounded in centuries of maritime tradition, but its application is also subject to the specific terms of carriage and charter party agreements. These contracts often include clauses that detail how General Average will be handled, including any deviations from the York-Antwerp Rules or specific requirements for declaring and adjusting a General Average.

Modern Implications

In today’s globalized economy, the principles of General Average (GA) remain as relevant as ever, with the increasing size of ships and the value of cargoes elevating the potential financial implications of maritime emergencies. The concept also underscores the importance of cooperation and mutual assistance among parties involved in maritime transport, promoting a collective approach to risk management.

Furthermore, as shipping routes become busier and environmental considerations become more pressing, the maritime industry continues to face significant challenges that may necessitate the invocation of General Average (GA). Advances in technology and global communication have streamlined some aspects of declaring and adjusting General Average, but the underlying principle of shared sacrifice for the common good remains unchanged.

General Average (GA) thus stands as a testament to the enduring principles of maritime law, balancing fairness, shared responsibility, and mutual aid in the face of the perils of the sea.

 

GENCON Charterparty Clause 12 Covers General Average (GA)

The GENCON Charter Party, one of the most widely used standard forms for the chartering of ships for the carriage of cargo, incorporates provisions to address various aspects of maritime transport, including General Average (GA). Clause 12 of the GENCON Charter Party specifically deals with General Average and outlines the responsibilities and obligations of both the shipowner and the charterer in relation to General Average acts.

Key Elements of Clause 12 in GENCON Charter Party Regarding General Average:

1. General Average (GA) Declaration: It specifies the conditions under which General Average can be declared. This includes ensuring that the General Average (GA) act complies with the York-Antwerp Rules or any other specified rules agreed upon in the charter party.
2. Apportionment of Costs: The clause outlines how costs associated with General Average (GA) acts are to be apportioned between the shipowner and the charterer. It takes into consideration the value of the cargo, the ship, and any other relevant property at the time of the incident that led to the General Average declaration.
3. Security and Bonding: GENCON Clause 12 often requires that adequate security be posted by the parties involved to cover their potential contributions towards the General Average. This security could be in the form of a cash deposit, a bank guarantee, or an insurance company guarantee.
4. Adjustment Process: This part of the clause may detail the process for adjusting General Average, including the appointment of an adjuster, the timeline for adjustment, and the basis for calculating contributions. It ensures that the process is carried out in accordance with the agreed-upon rules and standards.
5. Compliance with York-Antwerp Rules: Many GENCON Charter Parties refer to the York-Antwerp Rules as the guiding principles for the declaration, adjustment, and settlement of General Average. These rules provide a detailed framework for handling General Average situations, ensuring fairness and consistency in the distribution of costs.
6. Dispute Resolution: In case of disputes arising from General Average (GA) declarations or contributions, GENCON Clause 12 may also include provisions for dispute resolution, specifying the mechanisms for arbitration or litigation, and the choice of law and jurisdiction.

The purpose of incorporating General Average (GA) provisions in the GENCON Charter Party is to provide a clear, agreed-upon framework that governs the actions and responsibilities of the parties involved in the event of a General Average (GA) situation. This ensures that all parties are aware of their obligations and the procedures that will be followed, thereby facilitating a smoother resolution of any General Average incidents that may arise during the chartering period.

It’s important for both shipowners and charterers to thoroughly understand the implications of GENCON Clause 12 and any other relevant clauses in their charter party agreements to effectively manage the risks associated with General Average (GA).

 

GENCON Charter Party and General Average (GA)

Understanding and navigating the intricacies of Clause 12 in the GENCON Charter Party, or any similar General Average (GA) Clause in maritime charter agreements, requires careful consideration of several key factors:

Preparation and Prevention

• Risk Assessment: Both shipowners and charterers should conduct thorough risk assessments regarding potential General Average (GA) situations. This includes evaluating routes, cargo types, and any specific risks associated with the voyage.
• Insurance Coverage: Ensuring adequate insurance coverage is crucial. This includes not just basic cargo insurance but also specific General Average (GA) Coverage. Parties need to understand what their policies cover and any deductibles or exclusions that might affect their contribution in a General Average situation.

During a General Average Situation

• Immediate Actions: Upon the declaration of General Average (GA), parties must quickly provide the required security to avoid delays in the release of cargo. This often involves coordination with insurance providers to issue General Average guarantees.
• Documentation: Maintaining meticulous records and documentation is crucial. This includes evidence of the emergency, steps taken to mitigate losses, and detailed accounts of expenses incurred. Such documentation is vital for the adjustment process.
• Communication: Effective communication between the shipowner, charterer, cargo owners, and other involved parties is essential for managing the General Average situation. Keeping all stakeholders informed helps to streamline the adjustment process and resolve disputes more efficiently.

After a General Average Event

• Adjustment Process: Participating in the adjustment process requires patience and attention to detail. Parties should review the adjuster’s calculations and determinations to ensure they are fair and in accordance with the York-Antwerp Rules or the agreed-upon terms.
• Legal and Financial Planning: Parties may need to engage legal counsel to navigate complex General Average (GA) disputes or to interpret the terms of the GENCON Charter Party. Financial planning is also crucial to manage the potential impact on cash flow and operations.
• Learning and Adaptation: After a General Average (GA) event, parties should review the incident to identify lessons learned and potential improvements in risk management practices. This might include revising charter party agreements, adjusting insurance coverage, or implementing new safety measures.

Conclusion

The inclusion of Clause 12 in the GENCON Charter Party underscores the importance of General Average (GA) as a foundational principle in maritime law and commerce. It provides a structured approach to dealing with the shared risks inherent in sea transport, ensuring that sacrifices made for the common good are fairly and equitably shared among all parties involved.

For shipowners, charterers, and cargo owners, understanding the nuances of General Average (GA) and the specific provisions of their charter agreements is vital. It not only helps in managing risks more effectively but also ensures that they are prepared to handle the complexities of General Average (GA) situations, thereby safeguarding their interests and facilitating smoother commercial relationships in the maritime industry.

 

What is GA in Ship Chartering?

General Average (GA) is a fundamental principle in Maritime Law that mandates a shared contribution towards losses by all parties benefiting from the salvage of goods during a collective maritime emergency. General Average (GA) operates outside of contractual obligations but is commonly included in both bills of lading and the Marine Insurance Act of 1906. According to the act, a General Average (GA) event occurs when an extraordinary sacrifice or expense is voluntarily and reasonably incurred to save the property involved in a joint maritime venture from peril.

Examples of General Average (GA) sacrifices include cargo jettisoned to avert a ship’s total loss or goods damaged from firefighting efforts on board. Additionally, General Average (GA) expenses may arise from unforeseen circumstances, such as a ship seeking refuge in a port due to severe weather, leading to extra costs like port fees.

By Maritime Law, both the sacrifices made and the expenses incurred to ensure the safety of the ship and its cargo are proportionately divided among the ship and cargo based on their saved values. Parties that have incurred losses are entitled to recover a portion of their losses from those who benefited from the preservation efforts.

General Average (GA) Deposits

In the event of a General Average (GA) act, shipowners require a security deposit for the cargo’s share of the General Average (GA) before releasing it to the consignee. Initially, consignees are asked to sign a GA Bond, acknowledging their agreement to the formulation of a General Average (GA) Adjustment. The adjustment process, often handled by an Average Adjuster appointed by the shipowners, can extend over years. During this period, the exact GA contribution remains undetermined. As a form of security, shipowners typically ask for a deposit based on a percentage of the cargo’s estimated value upon arrival, providing the consignee with a Deposit Receipt in return.

General Average (GA) Guarantees

Rather than collecting deposits, shipowners frequently prefer an Underwriter’s Guarantee. Underwriters commit to covering the General Average (GA) contribution upon adjustment completion. To address potential under-insurance, consignees may need to sign a counter-guarantee, although most policies include a General Average (GA) Clause covering such eventualities.

It’s important to note that General Average (GA) calculations use the net arrived values of the goods, excluding duties and landing fees, and utilize the damaged value of goods instead of their intact value.

When consignees seek reimbursement for their deposit under their insurance policy, they must surrender the Deposit Receipt to the Underwriters, who will refund the deposit amount in full, assuming the goods are fully insured. In cases of under-insurance, the refund will correspond to the insured value’s proportion.

For instance, if goods insured for $9,000 with an arrived value of $10,000 incur a 10% deposit of $1,000, the Underwriter would refund 10% of $9,000, which is $900, reflecting the insured value’s proportion.

 

What are the responsibilities of Charterers in General Average (GA)?

In maritime law, General Average (GA) is a principle that is applied when an intentional and reasonable sacrifice or expenditure is made for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure. This principle requires that the loss be shared proportionately among all parties with a financial interest in the voyage, including the shipowner, cargo owners, and sometimes charterers.

Charterers’ responsibilities in General Average (GA) situations can vary depending on the specific terms of the charter party agreement, but generally include:

1. Financial Contribution: Charterers may be required to contribute to General Average (GA) expenses if their cargo is saved as a result of the sacrifice. The contribution is usually proportional to the value of their cargo saved, in comparison to the total value of all property saved.
2. Providing Security: Charterers might need to provide security for their contribution to the General Average (GA) before their cargo is released. This security can be in the form of a cash deposit or a General Average (GA) Bond.
3. General Average Adjustment: Charterers are expected to cooperate in the General Average (GA) Adjustment Process, which involves the appointment of a General Average (GA) Adjuster to accurately assess the contributions due from each party. This process can be complex and time-consuming, requiring detailed documentation and evidence of the values and sacrifices made.
4. Compliance with York-Antwerp Rules: If the York-Antwerp Rules apply, Charterers must comply with these rules, which provide a detailed framework for determining what constitutes General Average (GA), the method of sharing contributions, and the procedural steps to be followed.
5. Legal and Contractual Obligations: Charterers must adhere to any specific provisions related to General Average (GA) outlined in their charter party agreement. These provisions might detail procedures for declaring General Average (GA), responsibilities for arranging and paying for salvage operations, and any limitations or exclusions on contributions.
6. Insurance: While not a direct responsibility under General Average (GA), charterers often secure insurance (such as cargo insurance) that covers General Average contributions. This insurance ensures that the financial impact on the charterer is minimized, with the insurance company taking over the responsibility for the General Average (GA) Contribution.

The exact responsibilities and obligations can differ based on the governing law of the maritime adventure, the specifics of the charter party agreement, and the nature of the incident leading to the General Average (GA) Declaration. It’s essential for all parties involved in maritime transport to understand these responsibilities and to prepare accordingly through appropriate contractual terms and insurance coverage.

 

General Average (GA) Common Inquiries

General Average (GA) represents a principle of maritime law designed for equitable distribution of intentional and justifiable expenses or sacrifices incurred for the mutual benefit of both ship and cargo during emergencies.

General Average (GA) Common Inquiries Include:

• Is a situation classified under General Average (GA)?
• Who decides its applicability?
• Am I required to contribute, or am I eligible for compensation, and what amount?

Historically, cargo jettison was a typical general average scenario, though it has become less common. Presently, General Average (GA) cases often involve expenses and damages from firefighting on ships, efforts to refloat stranded ships, or towing ships with engine failures to safe harbors for repairs.

The distribution of costs and damages under General Average (GA) is typically managed by an average adjuster, frequently employing the York-Antwerp Rules (YAR) as the global benchmark for adjusting general average disbursements. However, the York-Antwerp Rules’ (YAR) applicability is not guaranteed, with various editions existing and not providing a comprehensive general average framework. The specific York-Antwerp Rules (YAR) version applied can significantly impact the financial outcome for those making or receiving payments. Parties beyond shipowners who incur costs or damages might also be eligible for compensation.

Furthermore, being classified under General Average (GA) doesn’t ensure immediate claim settlement. If the claimant is responsible for the incident leading to the General Average (GA) Costs (e.g., a fire or grounding), legal defenses may be permissible. Courts ultimately determine the existence of a general average situation and the obligation to contribute.

In General Average (GA) cases, security for future payments is typically required. Some jurisdictions mandate carriers to secure such guarantees for all involved parties. The precise language used in security documents, like the General Average (GA) Bond and General Average (GA) Guarantee, is crucial and can influence the case’s outcome. Therefore, scrutinizing the wording of these documents is vital to prevent disadvantage.

 

Why declare General Average (GA)?

General Average (GA) is a principle of maritime law that facilitates the fair distribution of costs and sacrifices made deliberately and justifiably to protect the ship and its cargo from imminent danger. This principle applies universally, whether the ship is a bulk carrier with a single cargo consignment or a container ship transporting 10,000 TEUs. The complexity and scale of the incident and the number of stakeholders involved, however, magnify the practical challenges.

Originating from the Rhodian sea law circa 800 BC, General Average (GA) remains crucial in contemporary marine insurance, despite debates over its application in modern commercial shipping, especially in cases involving multiple Bills of Lading (B/L). General Average (GA)is central to managing losses and expenses during maritime emergencies, a relevance highlighted by recent large container ship incidents reported in the media.

For instance, addressing a fire aboard a ship carrying 10,000 TEUs from Europe to Asia requires immediate and effective action to minimize damage and prevent total loss. This situation underscores the necessity for accessible salvors, suitable ports of refuge, cooperation from local authorities, and significant additional costs borne by the shipowner beyond contractual duties.

Declaring General Average (GA) offers all parties involved in the maritime venture the assurance that efforts to save the property will be recognized and shared. Expenses and losses deemed allowable under General Average (GA) will be distributed among all parties based on the value of the saved property at the destination. This principle ensures that all benefit from the collective effort to mitigate the emergency, including compensation for cargo interests for any sacrifice damages incurred.

Under English law and the York Antwerp Rules, the adjustment of General Average (GA) and fault assessment are distinct processes, allowing for necessary actions during emergencies without immediate fault disputes. Early consultation with an average adjuster is advised for shipowners to explore all options and determine the need for a General Average (GA) declaration based on the specific situation, including incurred expenses, sacrifices made, insurance coverage, and alternative recoupment methods.

Upon declaring General Average (GA), cargo interests are required to provide security through an average bond and guarantee, ensuring commitment to pay any due General Average (GA) contributions. The collection of General Average (GA) security is crucial and must be initiated promptly to avoid delays in cargo delivery. This process becomes more complex with uninsured cargo, which necessitates direct deposit requests from cargo interests as a part of their General Average (GA) contribution.

The completion of General Average (GA) security collection and cargo delivery leads to the final GA adjustment, where all incurred expenses are evaluated, and contributions are calculated based on the contributory value of each party’s property. This final step ensures equitable distribution of costs and reinforces the mutual benefits of the General Average (GA) principle.

In conclusion, as container ships grow in size and the complexity of maritime incidents increases, the General Average (GA) process and its principles continue to evolve to meet these challenges. Advances in technology and information technology are essential in streamlining these processes, highlighting the enduring significance of General Average (GA) in maritime law and insurance.

 

Can a Charterer declare General Average (GA)?

In maritime law, General Average (GA) is a principle that allows the costs and sacrifices made for preserving the maritime adventure from a common peril to be shared among all parties involved in the voyage. This principle is deeply rooted in maritime traditions and is governed by international rules and national laws, most notably the York-Antwerp Rules.

The right to declare General Average (GA) traditionally rests with the shipowner or the party in control of the ship. This is because the declaration of General Average (GA) usually follows an extraordinary sacrifice or expenditure voluntarily made for the common safety for preserving the property involved in a common maritime adventure (e.g., jettisoning part of the cargo to save the ship).

A charterer, who is a person or company that leases a ship or space on a ship, does not typically have the authority to declare General Average (GA). This is because the charterer, while having rights to use the ship, does not assume the legal responsibilities or control of the ship that would include making decisions about the safety and navigation of the ship, which are usually the prerogatives of the shipowner or the master of the ship.

However, there could be specific circumstances or provisions within a Charter Party agreement (the contract between the shipowner and the charterer) that might allow a charterer some influence or involvement in matters related to General Average (GA). For instance, Charter Parties might contain clauses that affect how General Average (GA) contributions are calculated or specify the responsibilities of each party in the event of a General Average act. But the actual declaration of General Average (GA) and the decision to undertake actions that might lead to such a declaration are generally outside the direct authority of the charterer.

It’s important to note that the intricacies of maritime law and the specifics of individual charter party agreements can vary widely, so this general guidance might not apply to all situations. Parties involved in maritime operations should consult with legal experts specializing in maritime law to understand their rights, obligations, and the procedures applicable to their specific circumstances.

 

Prerequisites for a General Average (GA) and The York Antwerp Rules

General Average (GA) is a maritime law principle ensuring equitable loss sharing among all parties involved in a sea voyage when voluntary and necessary actions are taken to avert a common danger, affecting either the ship or cargo. This age-old concept, cited as early as the Digest of Justinian in the 6th century A.D., mandates that all beneficiaries of a deliberate sacrifice contribute to the losses proportionally. The maritime adventure includes the ship’s owner, the charterer, and cargo interests.

General Average’s (GA) foundation lies in ancient maritime codes like the Rhodian Sea Code and the Rules of Oleron, emphasizing collective responsibility for losses incurred during emergency measures taken to save a voyage. The principle applies broadly across various shipping contracts, including charter parties and bills of lading.

In scenarios like a ship at risk of sinking, where cargo is jettisoned to lighten the ship, General Average (GA) principles dictate that the loss be distributed among all who benefit from the sacrifice. This equitable approach ensures that the financial burden of the loss is shared, not borne solely by the individual whose cargo was sacrificed.

General Average (GA) contributions are determined by comparing each party’s interest value aboard the ship to the total value of the maritime venture. General Average (GA) encompasses more than just jettison scenarios; it includes extraordinary acts and expenditures like ship grounding, salvage operations, and emergency harbor visits for repairs.

The York Antwerp Rules (YAR), established to harmonize General Average (GA) practices globally, are incorporated into shipping contracts to define eligible General Average (GA) acts and guide the valuation of contributions. These rules detail the criteria for General Average (GA) acts and expenditures and outline the process for calculating contributions.

Key aspects of York Antwerp Rules (YAR) include:

• Rule A, defining a General Average (GA) act as an extraordinary sacrifice or expenditure made intentionally and reasonably for the common safety.
• Rule III, specifying that damage caused by measures to extinguish a fire on board is considered General Average (GA), while damage directly from the fire itself is not.

The YAR, while not legally binding unless explicitly included in the carriage contract, represent the shipping industry’s consensus on General Average (GA) adjustment.

General Average (GA) adjustment is a specialized field, managed by GA adjusters appointed typically by the shipowner. Their role is multifaceted, involving identifying GA scenarios, advising stakeholders, preparing General Average (GA) adjustments in line with the carriage contract, collecting contributions, and offering guidance on General Average (GA)-related language in shipping documents. Their expertise ensures a fair and timely resolution to General Average (GA) situations, upholding the highest ethical standards throughout the process.