GENERAL AVERAGE- ANCIENT AND MODERN
“O hear us when we cry to thee for those peril on the sea”
The stirring words of the well-known hymn remind us that the transport of products over the ocean from one country to the other is still a hazardous undertaking. Although there have been a lot of advances in ship construction and marine engineering, the sea continues to take its toll on the ships and cargoes which ply their trade on the great waves. Therefore, any system which has the objective of prevention of loss by maritime peril, deserves the support and understanding of all those who are involved in maritime trade.
One such system is General Average. It is the process of averaging the contribution of each party to make up one party’s loss, incurred in order to prevent a greater loss during a sea peril.
THE ORIGIN OF GENERAL AVERAGES
Historical records tell us that the Principle of General Averages, in which all the parties that have an interest in the maritime adventure, contribute towards the loss of one party; this has been in existence since very early days of waterborne transport. The objective of this Principle is to give confidence to the ship master and other who sail with them to take reasonable steps to save the ship and its cargo whenever a peril threatened the joint adventure.
The simple example of this Principle is the consent given by the owner of goods to the shipmaster to make a reasonable and judicious sacrifice of the goods, in order to prevent a greater loss, having the knowledge that the loss will be made good by proportionate contribution by the all the parties having an interest.
An example of legal recognition of this consent appeared in Justinian’s Digest, which read as follows:
‘The Rhodian Law provides that if in order to lighten a ship merchandise is thrown overboard, that which has been given for all shall be replaced by the contribution of all.”
GENERAL AVERAGES IN THE MIDDLE AGES AND AFTER
Despite the change in time, this Principle changed little and the notion that sacrifice of goods or properly for safe guarding the rest of the property should be made by general contribution, is one custom which is present in all recorded sea laws and which still stands valid. Of course that this Principle developed in a different way in different time and trade, as that can be seen from the analysis of the various decisions done by writer in the nineteenth and twentieth century.
The custom for maritime law, laid importance to the point that before a sacrifice of property could be made in time of a peril, the shipmaster had to consult the other merchants accompanying him. This led to a community of interest between the master and the merchants, and they incurred other type of losses and expenses which has as there objective the successful prosecution of there joint adventure. Ultimately, the expenditure was divided into 2 types:
1) Those which derived from an accident which threatened the adventure
2) Those which were incurred merely for the inconvenience of the voyage
The prior was considered as a part of the General Averages while the latter class of expenditure came to be known as petty averages, which was borne in the proportion of 1/3 to the ship and 2/3 to the cargo.
With the increase in commerce, the merchants no longer considered it to be necessary to accompany the good and relied on the trust they had in the master of ship, who was backed by the legal obligation under the bill of lading. But the concept of consulting the members of the crew before taking a decision by the shipmaster, before making a sacrifice of the property continued to be valid.
The Principle of General Average under went development and refinement in the 19th as well as the 20th century, because of the adoption of the York Antwerp rule, which was a result of commercial interests and not of the dictate of governments.
GENERAL AVERAGES IN ENGLISH LAW
Around 16th century, majority of European counties started codifying maritime law and inculcated the Principle of General Average in them. This is not what common law countries did. The Principle of General Averages is not codified in England. From the very early times, the English law has depended upon the decisions of the courts of law for the development, combined with the rules of Practice of the Association of Average Adjusters, based on the knowledge acquired by actual behavior.
However, there is a definition of General Averages in section 6 of the Marine insurance Act, 1906.
VARIANCE OF THE LAWS AND PRACTICES IN DIFFERENT COUNTRIES.
Laws of different countries are the same but go in different directions. For example, the laws of most European countries favour the admission in General Average of expenses at a port of refuge, which have as their object the continuation of the voyage in good safety. On the other hand, Anglo-Saxon jurisdiction looks to the attainment of safety as the objective of a General Average act, so that once the common adventure is in position of safety, no further allowance can be made in General Average.
One was of the most important feature of York-Antwerp Rules was to harmonize the laws of various countries on the Principle of General Averages.
One of the important terms to implement General Averages Rule is to determine the shares of the different parties, which have interest in it. Once again that prior to York-Antwerp Rules there was no uniformity between the laws of different parties to decide the values of contribution.
However, there was uniformity in the laws relating to maritime law in one aspect, which is, the state of facts taken into consideration for the purpose of General Average adjustment, and hence the law to be applied in the absence of any law to contrary, is that which obtains at the time and place where the common maritime adventure terminates. There might be case, in which due to uncontrollable circumstances there is a premature termination of the adventure like in case of outbreak of war and the delivery port being taken over by the enemy, etc and in such cases the Principle of General Average has to be adjusted according to the laws and state of facts prevailing at the place where the voyage is abandoned. Due to this reason, during the expansion of commerce in the middle 19th century, the ship owners and merchants became very uncertain of their rights and liabilities, whenever the case of General Average occurred.
For example if the ship has to go through 3-4 countries, the General Average could be done according to 3-4 different adjustments depending on the place of termination. This created a lot of confusion.
It was this kind of confusion that led to the clamor for uniformity in maritime laws which led to the establishment of the York-Antwerp Rules.
THE YORK ANTWERP RULES- VEHICLE FOR UNIFORMITY
The York Antwerp Rules occupy a unique position in international maritime law. Unlike The Hague Rule and other conventions, it does not depend upon conventions, but on the voluntary acceptance by maritime community. Although in a number of cases, they have been imported into domestic legislature, but the universal application of the York Antwerp Rules in cases of General Averages has come about by their being incorporated in by reference in bill of lading, contracts of affreightment and marine insurance policy. Professor Knut Selmer said, “It may be safely said that the General Average is the field of maritime law where the international unification effort has succeeded to the greatest degree.”
THE QUEST FOR UNIFORMITY
It all began with an open letter by the Association for the Promotion of Social Sciences under the signature of lord Brougham and the chairman of the ‘Lloyd’s , to the maritime countries of Europe in may 1860. The following sentence from the letter reflects the objective the aim of the letter:
“The system of General Averages is one which, to prevent confusion and injustice, pre-eminently requires that the same Principle should be acknowledged amongst the chief maritime nations. A conference was assembled at Glasgow in 1860, as a result of the letter and it adopted a number of resolutions, which would assist parliamentary draftsmen to draw a bill.
THE YORK RULE 1860
The next step took place at York in 1864, where the third international General Averages Congress met to discuss the draft bill and the important points towards the achievement of uniformity in the adjustment of General Averages. At the end of the conference, 11 rules were agreed to.
A resolution was passed to make all the interested parties to persuade the legislatives of their own countries to incorporate the rules into their domestic laws, by passing a bill.
THE YORK AND ANTWERP RULES 1877
In those days, there was no rush to implement the Principle and they were not for the perseverance of the reforms their idea to achieve uniformity by operation of contract might have been attended with as little success as their efforts to provoke legislation. The reformers, had a conference in Antwerp in 1877, in which the York rules were amended and a twelfth rule was added. The date of January 1879 was decided for incorporation of the rules into the bill of lading and policies of insurance. In 1881 at a conference of the Association for The Reform and Codification of the laws of nations, it was reported that “the rules have become all but universally adopted”.
THE YORK-ANTWERP RULES 1890
This was the time that York Antwerp rule has arrived and the discussions had begun on how to develop it as an efficient instrument of commerce.
The next step in this direction took place in 1890 on the initiative of the Association of Averages Adjusters who drafted a report for submission to the conference of the Association for the Reform and Codification of the laws of nation, held at Liverpool in 1890. Majority of proposals were accepted and the number of rules were increased to 18.
At a conference in 1903, a new rule providing that “Rights to contribute in General Averages shall not be affected through the danger which gave rise to the sacrifice or the expenditure” was introduced. As this rule did not convey anything new, and just embodied the general Principle, it had to wait for the introduction of lettered rules in 1924 to be included in the general body of York Antwerp rules.
THE YORK-ANTWERP RULES, 1924
There was a further revision of the York-Antwerp rule and the movement was assisted by the publication in early 1924 of two drafts texts, one produced by the French branch of the International Law Association and the other by the Association of Averages Adjusters, which were prepared separately but had a lot of points in common. Both French and British texts also had significantly similar statements of general Principles. The proposal was adopted by the International Conference at Stockholm later in 1924 and this statement of Principle became the Rules of the York Antwerp Rules.
In the year 1928, in the famous case of Maki’s Case, an eminent English Judge concluded that the lettered Rules were the General Rules and the numbered rules were the Particular Rules.
The 1924, Rules were not approved by the United States. American Ship owner, also anticipated the result of Maki’s rule, and held that this was insufficient to cover all the areas. Therefore, most of the American shipping companies claused their bill of lading to provide only for partial application of York Antwerp Rules.
THE YORK ANTWERP RULES 1950
The review process was repeated after the World War II, but this time it was done by the International Law Association to the Comite Maritime International. The important amendments made were:
1. Introduced the rule of on interpretation, to solve the dispute created by the Maki’s decision.
2. An alteration in wording of rule F to permit the allowance in General Average od substituted expenses.
3. A change in the method of calculating the amount to be paid to the party, to be made good for the sacrificed goods.
THE YORK-ANTWERP RULES 1974
Due to the paucity of time during the previous review, a number of expert voices were being heard in the late part of 1960s, who wanted to change the Ancient Principle of The General Averages. They considered it to be a cumbersome process which involved movement of money from one underwriters pocket to the other. Others, like the average adjusters, recognized that there was much more that can be done to simplify the process.
In September 1967, the Association Internationale des Dispacheurs Eurporean (AIDE) set up a commission to study proposals for the simplification of the YAR.
The General Averages Committee of the International Union of Marine Insurance (IUMI) did a parallel study which was not limited to the YAR and was covered to whole field of General Average. Some of recommendations were same from both the institutes whereas there was no agreement of some factors.
All this led to the conference, set up by the Comite Maritime International at Hamburg in April, 1974. The main aim of the conference was to simplify the rules and the techniques of adjustment. Several important changes were approved by the Hamburg Conference. Though the leterred rules remained unaltered, there was a significant change in the numbered rules. Some of the changes are:
1. New rule was introduced which brought within the General Average expenditure incurred on account of salvage.
2. Rules X and XI were amended in order to exclude from General Average the cost of cargo handling and expenses incurred at a port of call or loading.
3. Rule III, relating to the allowance of damage sustained in the course of fire extinguishing operations was amended in a manner to simplify the calculation of allowance.
4. The calculation of contributory value and amounts made good to for loss or damage to good will calculated on invoice and not on market value.
THE 1990 AMENDMENT TO THE 1974 RULES
The next step towards the development of this Principle was at the conference of the Comite Maritime International held in Paris in 1990. During which the contents of rule VI were substantially changed due to the recommendation by the International Maritime Organization. The text of the rules incorporating this amendment was known as the York-Antwerp Rules 1974, as amended 1990.
Author: Navin Kumar Jaggi