TALLINN UNIVERSITY OF TECHNOLOGY

Estonian Maritime Academy

Centre for Maritime Studies

Margarita Kirpitsenko

PRACTICAL SETTLEMENT AND EXAMINATION OF

GENERAL AVERAGE CASES
Bachelor's Thesis

Supervisor: Lecturer Yrjö Saarinen

Tallinn 2015
I declare I have written the diploma thesis independently.
All works and major viewpoints of the other authors, data from other sources of literature and
elsewhere used for writing this paper have been referenced.
Margarita Kirpitsenko

……………………………………………
(signature, date)
Student’s code: 141075VDSR
Student’s e-mail address: margo15@windowslive.com

Supervisor Yrjö Saarinen:

The thesis conforms to the requirements set for the diploma thesis.

……………………………………………
(signature, date)

Chairman of defence committee:

Permitted to defence.

……………………………………………
(Title, name, signature, date)
TABLE OF CONTENTS

ABSTRAKT ............................................................................................................................... 4
INTRODUCTION ..................................................................................................................... 5
1. LEGAL REGULATION FOR GENERAL AVERAGE ........................................................ 8
1.1. General average develoment and York-Antwerp Rules ................................................. 8
1.1.1 Main principles and features of General Average ..................................................... 9
1.2. York-Antwerp Rules..................................................................................................... 12
1.2.1. York-Antwerp Rules 1994 ...................................................................................... 12
1.2.2. York-Antwerp Rules 1994 in comparison to 2004.................................................. 18
2. PROCESS OF SETTLEMENT AND ADJUSTMENT OF GENERAL AVERAGE ........ 21
2.1. General Average declaration ....................................................................................... 21
2.1.1. Documentation for settlement of the general average claim .................................. 23
2.2. Process of adjustment .................................................................................................. 25
2.2.1. Calculation of contributory value ........................................................................... 27
3. GENERAL AVERAGE CASE STUDY .............................................................................. 31
3.1. Vessel “Maria” case study ............................................................................................ 31
3.2. Vessel “Viljany” case study ......................................................................................... 35
3.3. Conclusion ................................................................................................................... 38
4.ARGUMENTS TO RETAIN AND SUBSTANTIALLY AMEND THE
GENERAL AVERAGE ........................................................................................................... 40
SUMMARY ............................................................................................................................. 44
RESÜMEE ............................................................................................................................... 46
BIBLIOGRAPHY .................................................................................................................... 48

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TABLES .................................................................................................................................. 28
Table 1.Expenses and losses................................................................................................. 28
Table 2.Contributory value ................................................................................................... 28
Table 3.Pilotage charge ........................................................................................................ 34
Table 4.Apportionment of General Average for vessel “Maria”.......................................... 35
Table 5.Assessment of expenditures and loss ...................................................................... 37
Table 6.Apportionment of General Average for vessel “Viljany” ....................................... 48
APPENDIXES .......................................................................................................................... 50
Appendix 1. BIMCO Special Circular ................................................................................ 50
Appendix 2. BIMCO Average Bond Clause ....................................................................... 52

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ABSTRAKT

The purpose of this thesis is to analyze the most import alterations to the York-
Antwerp Rules that were made in 2004, which are not favorable to the shipowners and
provide the conclusion of the arguments to retain and to substantially amend the York-
Antwerp Rules.
In the thesis the author observes two general average cases in order to present the
calculations of contributory value and prove the importance of such calculations. Noteworthy
of the case study is to show how the average adjuster draws up the average statement and
what documents need to be collected.
The most important part of the thesis is the explanation of the most important rules of
York-Antwerp Rules 1994 with the examples in order to show the use of some of the rules in
practice. In the last chapter the author provides reasons of the amendments to York-Antwerp
Rules in 2004.
Keywords: York-Antwerp Rules, Average Bond, BIMCO Special Circular,
contribution value, average adjuster, average statement.

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INTRODUCTION

Not only nowadays but also hundreds years ago the marine transportation of the goods
have been subject to all kinds of dangers such as piracy, casualties, heavy weather, etc., the
solution to this problem was the introduction of general and particular average.
The main difference between particular and general average is that during the
particular average the losses are accidental (collisions, fire, grounding) and in case of general
average extraordinary expenditures and sacrifices are intentionally and reasonably made.
General average is an ancient practice that was first put in writing by the Greek
Rhodians in the Digest of Justinian. Their basis for this primitive law was common benefit:
“that which has been given for all should be replaced by the contribution of all” (Law Firm of
Maloof Browne & Eagan LLC, 2013, 2).
As the growth of international trade developed it became necessary to also develop
general average. Therefore, there was need for international uniformity since general average
varied in its development in different countries, so that substantial differences existed in the
law and practice. Thus in the end of 19th century the York-Antwerp Rules were created.
These Rules were revised many times. The latest changes were made at Vancouver in 2004
where the York-Antwerp Rules 2004 were approved by the Comité Maritime International
(CMI). Unfortunately, the revised Rules are less favorable to shipowners and is not frequently
used in practice.
“In the recent years the whole concept of general average has come under scrutiny
primarily by cargo insurance underwriters, some of who would like to see the system
abolished or substantially amended” (BIMCO Special Circular, 2002).
The definition of the general average is clearly indicated in Rule A of the York-
Antwerp Rules either the 1974, 1994 or 2004 as following:

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 "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."
The main principle of general average is when the casualty occurred and extraordinary
expenditures or sacrifices were intentionally and reasonable made, all the parties involved in
adventure shall proportionally contribute.
“General average is an intentionally accepted principle of equity relating to the
apportionment of loss due to losses sustained for the common safety during a marine
adventure” (BIMCO Special Circular, 2002).
The aim of this thesis is to show the necessity of existence of General Average in
maritime law and analyze the most import alterations to the York-Antwerp Rules that were
made in 2004, which are not favorable to the shipowners. Moreover, the author will specify
the arguments to retain and to abolish general average. It is also aimed to observe general
average cases presenting methods of calculations of contributory value and prove the
importance of the calculations.
The process of settlement and adjustment of general average is quite complicated and
time consuming task. Moreover, nowadays, the volume of the cargo transported and the
number of cargo owners is growing. For example, container vessels taking thousands of
shipments on board imply that there could be also hundreds and thousands of cargo owners.
When a casualty occurs the shipowner is the party which usually claims in general
average. A shipowner’s responsibility is to make sure that all necessary steps are taken when
declaring the general average claim. The shipowner should provide all necessary documents
to an average adjuster who will prepare the average adjustment and will make calculations of
the contributory value.
In the first part of the thesis will be given explanations to the legal regulation of
general average. This includes the development of general average and York-Antwerp Rules.
Also great importance is given to the explanation of four main features of general
average as well as supporting patterns of sacrifices and expenditures that may occur during
common adventure.
The most noteworthy is considered explication of some most important rules of York-
Antwerp Rules 1994 with the accompanying pattern cases helping to better understand each

6
rule. Since the revised York-Antwerp Rules were created in 2004 the comparison of the Rules
1994 and 2004 will be made with the comments.
The next part of the thesis offers the view at the process of settlement and adjustment
of general average cases. The party which is claiming in general average should provide the
average adjuster with certain documents, for instance, Average Bond, Guarantee, Sea Protest,
copies of appropriate pages in the log book in order to enable the average adjuster to make
calculations of contributory values. The author gives special attention to importance of
presenting the designated documents and offers his explanations to the methods the
calculations of contributory values are made.
In order to understand the process of drawing up the average statement the two
patterns of the general average cases are considered. The first one is 1994 case has been
kindly provided by Estonian insurance company “Kominsur”. The casualty occurred when the
vessel was leaving the port of Tallinn in 1994 on 23rd of October. The vessel “Maria” (the
name of the vessel has been replaced due to confidentiality) grounded and sustained damage
to her keel, port and starboard side bottom plating. She had to sail back to Tallinn where she
was drydocked and all necessary permanent repairs were carried out. The author will
scrutinize in details the casualty and provide the calculations that were made by the average
adjuster. Thereafter are following extracts from the calculations for the average adjustment. In
order to compare the average adjustments thought years the author has installed the 1970
adjustment with calculations and to disclose the methods the adjustments were made 45 years
ago.
The last part of the thesis stipulates the arguments to retain and arguments to
substantially amend the York-Antwerp Rules. The author provides the example of the 2006
general average case which shows that the reason why nowadays the settlement of general
average is time-consuming. Also the author will mention that the York-Antwerp Rules will be
amended in 2016.
The thesis will include qualitative method of research meaning tha the author will
analyze the articals, guides, documents and literature. Also the cases will be examined and the
author will provide the case studies with the detailes.

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1. Legal Regulation for General Average

1.1 General average development and York-Antwerp Rules

General Average dates back for more than 3 000 years before shipowners and
merchants conceived the idea of protecting themselves from financial risks by means of
insurance. This historical events reveal the important fact that general average exists and
must be considered independently of marine insurance. General average was recognized and
put in writing by the Greek Rhodians in the Digest of Justinian. Since no record of Rhodian
law exists it can be found in Roman law. The Rhodian Law reads as follows:
„If in order to lighten a ship, merchandise is thrown overboard, that has been given for all
shall be replaced by the contribution for all.“
The ancient Greeks formed the principle “which has been sacrificed for all shall be made
good by the contribution for all.”
As the growth of international trade developed it became essential to also develop
general average. Thus, it was important to arrange for international uniformity as general
average varied in its development in different countries resulting in substantial differences
existing in the law and practice.
Therefore, in the end of 19th century the York-Antwerp Rules were created. Firstly,
the York Rules were established in York in 1864 at International conference and that were
revised in Antwerp in 1877 and became York-Antwerp Rules. Since 1924 the changes to the
Rules have been made by the Comité Maritime International. CMI is non-governmental
international organization that was formally established in 1897. The Comité was founded to
deal with unification of maritime law and commercial practices.
The York-Antwerp Rules have been revised several times over the years. The latest
amendments were agreed at general assemblies of the Comité Maritime International (CMI) at
Hamburg in 1974, at Paris in 1990 and at Sydney in 1994.

8
 One of the latest changes was made at Vancouver in 2004 where the York-Antwerp
Rules 2004 were approved by the Comité Maritime International (CMI). However, the new
Rules is less favorable to shipowners and is not frequently used in practice.
It must be clearly understood that York-Antwerp Rules have no international
convention status as for example Hague Rules and Hague-Visby Rules have. Nevertheless,
these rules are imposed by special clause in standard form contracts such as Bill of Lading
and Charter Parties. The clause usually stipulates the place where a general average should be
adjusted. It might read as follows:
„General Average shall be adjusted, stated and settled according to York-Antwerp Rules
1994, or any subsequent modification thereof, in London unless another place is agreed in the
Charter Party“.
It is utterly important to make sure that both the Bill of Lading and the Charter Party have the
same clause and the same York-Antwerp Rules are mentioned.General Average clause in
Time Charter reads as follows:
“General Average shall be adjusted and settled at a port or place in the option of the Carrier
according to York-Antwerp Rules 1994 or any subsequent amendment thereto.”

1.1.1 Main Principles and Features of General Average

The main principle of general average is when the casualty occurred and extraordinary
expenditures or sacrifices were intentionally and reasonable made, all the parties involved in
adventure shall proportionally contribute. The party who has suffered these losses to save the
property (a vessel, cargo, freight) involved in maritime adventure has to receive the
compensation from other parties.
The definition of the general average is clearly stated in Rule A of the York-Antwerp
Rules either the 1974, 1994 or 2004 as following:
"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."

9
 According to this rule there are five essential features:

1. The sacrifice or expenditure is considered to be extraordinary provided that incurred expenses

shall not be expected under contract of affreightment. For example, when a vessel is aground
the vessel’s machinery is used to refloat the vessel, if in this case damage to the machinery
has occurred and it has to be mage good as general average since the loss is considered
extraordinary.
2. The general average act should be intentionally made and should not be accidental.
This means the actions were taken intentionally and there was no accidental loss. For
example, the losses incurred due to intentional stranding of a vessel shall be allowable in
general average. However, if a vessel ran on shore accidently the losses shall not be made
good as general average.
3. There must be peril to the common maritime adventure. Such peril must be real and not
imagined. For example, a vessel is adrift without steering since there is no motive power of a
vessel, and the weather is calm at that moment meaning that there is no peril. However, the
captain decides to enter the port of refuge since as per the weather forecast the storm is
approaching. In this situation, the expenses shall not be made good as general average.
4. The action must be for the common safety and not merely for the safety of part of the property
involved. For example, a vessel is carrying refrigerated cargo, but the refrigerating machinery
breaks down. In this case the machinery must be repaired and all the loss and damage to the
cargo shall not be allowable in general average since the vessel can safely continue the
common adventure.

It is necessary to make difference between sacrifices and expenditures. The sacrifices imply
the following:
 The damage to vessels machinery, winches, gear when refloating
 The damage to a vessel and cargo when extinguishing the fire
 Jettison of cargo from underdeck and from deck
 Discharge the cargo in order to refloat a stranded vessel
The expenditure cases include:
 Port of refuge expenses ( entering a port of refuge)

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  Salvage expenses
 Expenses incurred during floating a stranding vessel
 Expenses of discharging a cargo at a port of refuge

These all sacrifices and expenditures can be found in York-Antwerp Rules.

Sacrifices:
 Rule I - Jettison of Cargo
 Rule II - Loss or Damage by Sacrifices for the Common Safety
 Rule III - Extinguishing Fire on Shipboard
 Rule IV - Cutting away Wreck
 Rule V - Voluntary Stranding
 Rule VII - Damage to Machinery and Boilers
 Rule IX - Cargo, Ship's Materials and Stores Used for Fuel
 Rule XII - Damage to Cargo in Discharging, etc.
 Rule XV - Loss of Freight

Expenditures:
 Rule VI - Salvage Remuneration
 Rule VIII - Expenses lightening a Ship when Ashore, and Consequent Damage
 Rule X - Expenses of Port of Refuge, etc.
 Rule XI - Wages and Maintenance of Crew and other expenses bearing up for
and in a port of refuge, etc.
 Rule XIV - Temporary Repairs

Noteworthy is to understand the difference between general and particular

average. The particular average is accidental loss caused to cargo, vessel or other
property. Such loss would be borne by the damaged property. For example, damage to
the vessel’s engine or damage to the cargo by fire, collisions of the vessels.

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1.2 York – Antwerp Rules

1.2.1 The York-Antwerp Rules 1994

The York-Antwerp Rules consist of seven lettered rules from A to G and numbered
rules from I to XXII. Lettered rules stipulate general principals and the numbered rules
specify circumstances and subjects and provide guidance regarding allowances, for example
provide specific definitions of general average losses, damages and expenditures. Further, the
author offers explanations for some of the most important rules of York-Antwerp Rules 1994
and gives the examples in order to show the use of some of the rules in practice.

Rule A
The Rule A consists of definition of general average.
“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.”
This definition of the rule points out that there should be four essential features:
1. The sacrifice or expenditure must be extraordinary
2. The act must be intentional or voluntary
3. There must be peril.
4. The action must be for the common safety

Rule C
This rule specifies that indirect losses for example demurrage, loss of market and
losses incurred by delay cannot be allowed as general average. Also the other part of Rule C
stipulates that there shall be no allowance in general average for damages, losses or expenses
arising from damage to the environment or from the release of pollutant substances from the
property involved in the common adventure. However, it is important to remember that there
are numbered rules in which the above mentioned circumstances can be allowed as general
average.

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Rule D
There can be the situations during common maritime adventure when the event that
gives rise to general average is caused by one of the party. In this case the rights to
contribution shall not be effected. On the other hand, it also does not prejudice the possible
remedies against or in favour of the party.

Rule E
The party claiming that general average arouse must provide all necessary
documents and other evidence to average adjuster. The notice in writing to the average
adjuster should be given within 12 month of the date of the termination of the common
adventure. If any of the party fails to provide supporting documents the adjuster has the
right to estimate the contributory value using the information available to himself.

Rule I - Jettison of Cargo

The cargo can be stowed only in the holds of the vessel. It would not be allowed on
general average if the cargo on a deck should not have been stowed there, but is jettisoned.
However, there can be circumstances when the cargo stowed on deck (for example, container
ship) needs to be jettisoned in order to lighten the vessel, for example to refloat.

Rule II - Loss or Damage by Sacrifices for the Common Safety

Rule II makes it clear that the sacrificed property shall be made good in general
average in circumstances when the sacrifice was made in order to save the common maritime
adventure. It is also important to notice that damage or loss caused by water from the vessel’s
hatches in order to make sacrifice for the common safety shall be also made good as general
average.
Example:
During the average the hatches were opened in order to jettison the part of the cargo. Due to
this seawater or rainwater penetrated in the hold of the ship and damaged the other part of the
cargo in the hold. In this situation the damaged cargo by seawater will be recognized in
general average.

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Rule III - Extinguishing Fire on Shipboard
Fire on board of the ship which caused damage or loss to the cargo and the vessel
itself shall not be made good in general average. However, it is important to notice that the
fire is a peril for common maritime adventure. Hence, all the damages caused by
extinguishing the fire on board of a ship will be made good as general average since this
action is made intentionally. However, damages caused by smoke or heat from the fire is not
allowed as general average as are unintentionally made.

Rule VII - Damage to Machinery and Boilers

Rule VII specifies that the damage of vessels machinery and boilers shall be allowed
in general average only in situation when ships engine is used to refloat the vessel. However,
damages of engine cannot be allowed in general average if it is not used for the ordinary
exploitation.

Rule VIII - Expenses Lightening a Ship when Ashore, and Consequent Damage
The Rule VIII specifies that when a vessel is aground and the cargo or fuel are
intentionally discharged to lighten the vessel, all the costs of lightening the vessel and
discharging of the cargo shall be allowed as general average.

Rule IX - Cargo, Ship's Materials and Stores Used for Fuel

Rule IX stipulates that in the circumstance of the common peril cargo, ships materials
or stores can be used as a fuel for the common safety of the maritime adventure that shall be
made good as general average. The estimated cost of such materials and stores shall be
credited with the estimated cost of the fuel that would have been consumed during the
intended maritime adventure.

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Rule X - Expenses of Port of Refuge, etc.
There can be many different situations when the vessel needs to enter the port of
refuge. The port of refuge can be also the port of loading or any other port on the
expected route of the adventure.
A vessel enters the port of refuge on the following reasons:
 Damages or problems with ships engine
 Damages to a vessel due to collision or running aground
 Need to shift the cargo for the common safety
 Fire on board of a ship
The Rule X specifies the expenses which can be allowed as general average:
 The expenses of entering the port of refuge
 Correspondence expenses of leaving the port of refuge after the vessel has sailed
 The expenses of removing the vessel from port of refuge to another place of
refuge in order to make repairs which cannot be carried out in the first place of
refuge
 The cost of discharging cargo, fuel or stores only if such actions were necessary
for the common safety and to enable the damage to be repaired
 The cost of storage, reloading and stowing of the cargo, fuel an stores discharged
for the common safety
 When the vessel is condemned or cannot proceed on her original voyage, the
storage expenses incurred up to the date of completion of discharge of the cargo
and up to the date of the vessel’s condemnation or abandonment of the voyage.

Rule XI - Wages and Maintenance of Crew and other expenses bearing up for and in a
port of refuge, etc.
This Rule stipulates that the wages and maintenance of the crew, fuel and stores
consumed during the stay at the port of refuge are treated as general average. The Rule
specifies the circumstances when the maintenance of the crew and stores are allowable in
general average.
The following expenses shall be allowable in general average in the following
circumstances:

15
  The wages and maintenance of the crew are allowable when the vessel has
entered the port of refuge in consequence of extraordinary circumstances that
render the necessity of the common safety.
 These costs are also allowable if there is a need to enable damage to the vessel to
be repaired that are necessary for the common safety.
 Fuel and stores consumed during the extra period of detention, except fuel and
stores consumed during repairs not allowable in general average.
 Port charges incurred during the extra period of detention, except port charges
incurred by the reason of repairs not allowable in general average
However, it is important to notice that the wages and maintenance of the crew,
fuel and stores consumed and port charges shall not be allowable in general average if
the damage to the vessel was discovered at a port of loading or call without any accident
or extraordinary circumstances connected with such damage during the voyage.
Another part of Rule XI stipulates that the wages and maintenance of the crew
and fuel and stores consumed and port charges shall be made good as general average
when the vessel is condemned or does not proceed on original voyage. These expenses
are allowable:
 only up to the date of the vessels condemnation or of the abandonment of the
voyage
 up to the date of completion of discharge of the cargo if such discharging took
place after the condemnation or abandonment.
Rule XI also defines the certain circumstances when the cost of measures
undertaken to prevent or minimize damage to the environment are allowed as general
average.

Rule XII - Damage to Cargo in Discharging, etc.

The Rule XII stipulates that damage caused to the cargo, fuel or stores shall be
made good as general average only if the expenses of handling, discharging, reloading,
restowing and storing of the cargo are allowable as general average. In any other
circumstances these charges shall be allowable as particular average.

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Rule XIV - Temporary Repairs
The temporary repairs are allowable as general average in the circumstances
when these repairs were made at a port of refuge due to accidental damage to a vessel in
order to complete the common adventure. However, no deductions “new for old” shall be
made allowable as general average.

Rule XV - Loss of Freight

During the calculation of the freight the deduction shall be made from the amount of
gross freight lost of the expenses that would have been incurred.

Rule XVI - Amount to be made good for Cargo Lost or Damaged by Sacrifice
The Rule XVI defines that the value of the damage, loss or sacrifice of the cargo
should be based on the value of the cargo at the time of discharge which is based
on commercial invoice rendered to the receiver of the cargo. If there is no such invoice
the value shall be based on shipper’s value. In the rule it is also mentioned that the value
of the cargo at the time of discharge should include the cost of insurance and the freight.
In the circumstances when the damaged cargo is sold and the value of the damage was
not agreed the value of such cargo would be the difference between the net proceeds and
the net sound value.

Rule XVIII - Damage to Ship

The Rule stipulates that if the damage or loss to the vessel, machinery and gear
was caused by the general average act the following expenses shall be allowable:
 when such damage or loss was repaired or replaced the actual reasonable cost of
such repairs are allowable
 when such damage cannot be repaired or replaced the reasonable depreciation
which does not exceed the estimated cost of repairs shall be allowable
 when there is the actual total loss of the vessel or the cost of the repairs exceed
the value of the vessel when repaired the allowable value shall be the difference
between the sound value of the vessel after deducting therefrom the estimated

17
 cost of repairing damage and the value of the ship in the damaged state which
may be measured by the net proceeds of sale.

Non-separation agreement
There can be situations where cargo is forwarded from the port of refuge to the
original port of destination aboard substitute vessel or by other means of transport. The
situation like this can take place when a vessel arrives to the port of refuge under general
average to undergo some repairs to continue the common adventure safely. In some cases
cargo should be discharged and stored leading to the costs of reloading. To avoid these
expenses it can benefit the general average and all the parties if the cargo would be forwarded
by other means of transport to the port of destination.
However, this would mean that the common maritime adventure has come to an end as
the vessel and cargo are separated from each other. Also this would mean that expenses
incurred after the separation of the vessel and cargo could not be allowable as general
average. Therefore, to resolve this problem, it was agreed to incorporate Non-Separation
Agreement (NSA) which can be also signed separately. When signing this agreement the
cargo owner agrees that the cargo would be forwarded on another vessel and agrees to
contribute in general average as if the cargo would not have been delivered to destination by
other vessel.

1.2.2 York-Antwerp Rules 1994 in comparison to 2004

The general average is more than 3000 years old and is incorporated into the contracts
of affreightment. As it was already mentioned York-Antwerp Rules are imposed by special
clause in standard form contracts such as Bill of Lading and charter parties. The clause
usually stipulates the place where general average should be adjusted. It might read as
follows:
„General Average shall be adjusted, stated and settled according to York-Antwerp Rules
1994, or any subsequent modification thereof, in London unless another place is agreed in the
Charter Party“

18
General Average clause in Time Charter reads as follows:
“General Average shall be adjusted and settled at a port or place in the option of the Carrier
according to York-Antwerp Rules 1994 or any subsequent amendment thereto.”
The clause is usually imposed by the shipowner, who decides what terms and
conditions should be applied in their Bill of Lading.
It is understood that the shipowner will impose the rules that are more favorable for
himself. “The 2004 Rules were introduced after sustained pressure from marine property
insurers and others and the present confusing situation creates contract uncertainty which is
anathema to the shipping industry and its insurers” (Brown, 2012). Unfortunately, the new
York-Antwerp Rules 2004 are not favorable for a shipowner.
In 2005 Baltic and International Maritime Council (BIMCO) issued and published
BIMCO Special Circular according the revision of York-Antwerp Rules 2004. The circular
gives the recommendations regarding YAR 2004. “BIMCO Charter Parties currently contain
General Average Clauses that refer either to the York-Antwerp Rules 1974 or to the York
Antwerp Rules 1994” (BIMCO Circular, 2005). However, from 1st January 2005 the new
revised York-Antwerp Rules 2004 were available to use for adjustment of general average
claims. “For the reasons set our below BIMCO is of the view that the new set of Rules is less
favorable to shipowners than the 1994 or 1974 Rules” (BIMCO Circular 2005). Of course it is
necessary to notice that it is only up to the parties to make the choice of which YAR should be
used and applied, however BIMCO stipulate the reasons why the revised rules are not
favorable for shipowners. It is also mentioned in the circular that the revised BIMCO Charter
Parties will refer to YAR 1994 and the text “or any subsequent modification thereto” will be
removed. “In particular, BIMCO strongly recommends that its members remove references to
“any subsequent amendments thereto” (or similar wording) after “York-Antwerp Rules 1994”
in any charter parties they conclude” (BIMCO Circular 2005). The above mentioned circular
will be shown in Appendix 1.

These Rules contain the following changes and amendments:

 Amendment to the Rule VI – Salvage Remuneration
The amendment to the Rule VI is one of the most important. The new Rule stipulates that in
the situation when one party, usually a shipowner, has paid all salvage expenses or any

19
proportion on behalf of other party, the salvage payments from the parties that have not paid
these payments would be credited to the party that has paid for salvage. Usually, these salvage
expenses are paid by shipowner in order to continue and complete the common adventure.
 Rule XI - Cargo, Ship's Materials and Stores Used for Fuel
This rule is less favorable for the shipowner. As per new Rule XI the wages and maintenance
of the crew during the vessels stay at port of refuge are no longer allowable in general
average. However, the fuel and stores shall be still made good as general average.
 Rule XIV - Temporary Repairs
The amendment of the Rule XIV stipulates that the savings to the shipowner achieved
when the temporary repairs of accidental damage to a vessel are done at a port of refuge
shall be counted for first, before any allowances are considered in general average.
 Rule XX – Provision of Funds
The first part of this rule was removed meaning that the 2% commission will not be allowable
in general average under the Rule 2004.
 Rule XXI - Interest on Losses Made Good in General Average
The Rule specifies that the rate of interests added to general average allowances will be
published each year by the Assembly of the Committee Maritime International. Under
the Rule 1994 this rate was 7% per annum.
 Rule XXIII - Time Bar for Contributions to General Average
This is the new rule added to York–Antwerp Rules 2004. The rule stipulates that a general
average claim will be time barred if such claim was not made within one year. Moreover, a
claim shall not be made after six years after the date of the termination of the common
adventure. Nevertheless, the parties can make an agreement and extend the time bar.

20
2. Process of settlement and adjustment of General Average

The process of settlement and adjustment of general average is rather complicated and
time consuming. Nowadays, the volume of the cargo transported is growing and therefore, the
number of cargo owners. For example, container vessels which can take thousands of
shipments on board meaning that there could be also hundreds and thousands of cargo
owners.
Undoubtedly, every general average case and claim shall be settled as a unique.
However, the process of adjusting and calculating the general average claim could be
relatively easy task in the circumstances when the general average expenditures are made, for
example expenses at the port of refuge, salvage costs, expenses of discharging. The amount of
such costs and expenditures are usually determined on the basis of the documents provided by
the parties, for example invoices and confirmations of the payments. However, difficulties
may occur in the cases, when the sacrifices were made, for example jettison of a cargo vessels
grounding.

2.1 General Average Declaration

In the circumstances when the casualty occurs the shipowners responsibility is to make
sure that all necessary steps are made when declaring the general average claim. More
important in the case of casualty is to bring the common maritime adventure to an end
meaning that the voyage should be brought to a conclusion.
Usually, the shipowner is the party claiming the general average. Under the York-
Antwerp Rules the Rule E stipulates the following:
“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.”

21
 First of all, it is the master’s responsibility to inform a shipowner of the casualty and
steps that were taken. Soon after the shipowner or the party claiming general average must
notify all the parties which can be affected by the casualty and make an appointment of
average adjuster who is an expert in the maritime law and marine insurance. Average adjuster
has a duty to make necessary calculations of contributory value and prepare an average
adjustment or statement.
Under Rule E it is also specified that the party claiming in general average shall give
notice in writing to the average adjuster within 12 month of the termination of the voyage.
Moreover, the party shall provide the average adjuster with evidence or particulars of value to
support the notified claim.
In the circumstances when the sacrifices were made, for example jettison of cargo,
damage to the cargo and the vessel when extinguishing the fire, damage to a vessel when
refloating, it is necessary to appoint a surveyor. The surveyor shall be appointed by the
shipowner who will be responsible for the payments made to the surveyor. However, in some
cases the surveyor may be appointed by the average adjuster but this would be made on behalf
of the shipowner. The surveyor in his report must determine what sort of damage occurred
due to accidental casualty and which has occurred from general average act. In the cases when
a surveyor is appointed at the port of refuge his duty is to supervise the process of reloading,
storing and discharging of the cargo and also to determine damages to cargo caused by these
acts.
The surveyor’s role and duties are the following:
 To advise and control the parties when declaring the general average
 To advise the average adjuster whether the expenses and expenditures are reasonable
and decent.
 To examine and analyze the damages to a vessel and cargo
 If needed the invoices of expenses shall be approved by the ship and cargo surveyor as
being reasonable and fair.
It is not less important to the shipowner to notify the agent at the port of discharge.
Agent’s responsibility is to inform cargo owners or receivers of the delay of the delivery and
to advise that the casualty occurred.

22
2.1.1 Documentation for Settlement of the General Average Claim

During and after the casualty has occurred the certain documents must be provided by
a shipowner and by cargo receivers. These documents will be used and added by the average
adjuster when making the average adjustment. The required documents are as follows:

Sea protest
Sea protest is a written statement issued by the vessel’s captain in order to provide the
evidence in the cases when during the maritime adventure the casualty occurred which can
lead to a claim against the shipowner. The sea protest is usually issued in order to prove that
damage to a vessel and cargo occurred due to such consequences of which the shipowner is
not responsible, for example bad weather.This document contains a description of the
circumstances and measures taken by the captain in order to save the property.

Average bond
Average Bond is stipulating that the cargo owner has an obligation to contribute in
general average. The information provided in the average bond should be appropriate. For
example, Lloyd’s Average Bond contains description of the goods and quantity, port of
shipment, port of discharge and the full name of the consignee. Most important is the
signature of the consignee since by signing average bond the party agrees to provide
particulars of the value of the cargo. In order to save time and costs the Average Bond Clause
could be inserted in the contract of carriage. “The aim of the Average Bond Clause is to
reduce, as far as possible, the time it takes to obtain such security and, thereby, speed up the
delivery of the cargo following a GA event. This will be achieved by inserting in the contract
of carriage the terms of an Average Bond, thus eliminating the need to obtain the Consignee’s
or the Shipper’s signature to such a document after the event which gives rise to the GA
claim” (BIMCO Average Bond Clause, 2007). BIMCO Special Circular regarding Average
Bond Clause was firstly published in 2005 and afterwards revised in 2007. The Circular
stipulates the reason why the Clause shall be inserted in the contract of carriage and also
provides the wording of the Clause. The BIMCO Special Circular regarding Average Bond is
added in the Appendix 2.

23
Average guarantee form
Average guarantee is provided by the underwriters of the cargo which is an alternative
of the cash deposit, however is not an alternative of an average bond. The average guarantee
and the average bond must be provided to the shipowner and signed before the cargo can be
released by the shipowner. Average guarantee must contain bill of lading number, quantity of
the cargo and its value. This guarantee must be signed by the underwriters of the cargo to
avoid the collection of deposits.

Deposit
Deposit is provided to the shipowner in the case when the cargo has not been insured
or if the shipowner does not accept the guarantee from the cargo insurer. Lloyd’s deposit
receipt should be used where the nature and date of the accident and the sum of the deposit
must be written, also the description of the goods and provisional contributory value. In the
cases of entering the port of refuge, fire on board of a vessel or grounding, the certain
documents are required. It should be noticed by the owner that all the accounts and
commercial invoice which are provided to average adjuster must specify the date they were
paid.
The below mentioned documents are usually required in order to examine the general
average case and make settlement under adjustment. However, there are documents which are
required in certain cases. The Members of the Association of Average Adjusters, George
Hughes and Richard Cornah, have specified such documents as the following.

Documents required in the cases when a ship has entered the port of refuge:
 Copy of the log book and other reports form the master of the vessel or form agent
which specifies the dates and times of the vessel’s arrival and departure from the port
of refuge
 Surveyor’s reports stipulating the details of the repairs made at the port of refuge and
specifying if the repairs were permanent or temporary
 Accounts showing the costs of such surveys
 The details of discharging, reloading and storing of the cargo in order to proceed the
repairs or for common safety and also the invoice covering expenses occurred.

24
  Portage bill which is a statement of wages and allowances of the members of the crew
 The details of the consumed fuel and stores during the stay at the port of refuge
In the cases of the fire on shipboard:
 Invoices for fire-fighting equipment used to extinguish fire, for example fire-fighting
costs, extinguishers
 The reports specifying the damage to the cargo and to the vessel caused by a fire and
by the attempts to extinguish a fire
 Invoices for repairs to the vessel

In the cases when the vessel grounded:

 The survey reports showing the damage caused by grounding and caused by refloating
the vessel and the invoices for repairs of such damages
 The copy of the salvage contact in the cases when the refloating of the vessel was
done with tugs
 The invoice for expenses occurred when lightening the vessel.

It is noteworthy to mention that all the documents and accounts provided to the
average adjuster are needed in order to support the general average claim. The average
adjuster will use the documents to calculate the contributory value and apportion the total
general average.

2.2 The Process of Adjustment

The general average act is adjusted at the place stipulated in the contract of
affreightment as the place of adjustment also it is mentioned the Bill of Lading. The Charter
Party also provides that the adjustment shall be settled according to York-Antwerp Rules.
General Average clause in Time Charter could read as follows:
“General Average shall be adjusted and settled at a port or place in the option of the Carrier
according to York-Antwerp Rules 1994 or any subsequent amendment thereto.”

25
Or it may also specify the place of adjustment:

“General average to be adjusted according to the York-Antwerp Rules 1994 in London.”

The aim of the average adjuster is to calculate the contributory value and issue an
average adjustment in order to advise the parties of the contribution they should make. It is
important to remember that the proportional contribution must be made by all the parties
involved in common maritime adventure.
In order to make such calculations it is necessary to determine the value of the
property. According to Rule XVII of the York-Antwerp Rules 1994 the contribution value of
the property is the value at the termination of the adventure. The Rule XVII states:
“The contribution to a general average shall be made upon the actual net values 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.”
Since the contribution must be made usually by three parties – ship, cargo and freight,
the author will explain below in what way the value of the property should be determined.
Ship value
The value of the vessel in damaged condition is determined at the termination of the
common adventure. The shipowner shall provide the average adjuster with certificate from the
vessel sale and purchase broker where the market value of the vessel is settled.

Cargo value
According to Rule XVI of the York-Antwerp Rules 1994 the cargo value is based on
the value at the time of discharge. This value should be confirmed by the commercial invoice
or ascertained from the shipped value and also include the insurance cost and freight if at the
risk of the cargo interest. In other words, the invoice should be the CIF invoice – cost,
insurance and freight. It is also noteworthy to mention that if the damaged cargo is sold
shortly after the arrival to the place of destination the commercial invoice will be still required
as if this cargo would have been delivered to the destination.

26
Freight value
The freight value will not contribute as a separate party in the cases when the freight is
included in the value of the cargo. However, if the freight should be paid at the place of
destination it is liable to contribute on its value since on the carrier’s risk.

2.2.1 Calculations of Contributory Value

In order to calculate the contributory value and to apportion general average amount
not only the average adjuster should know the value of the property but also the contributory
dividend.
The contributory dividend shall be calculated by dividing all general average expenses
by the total sum of contributory values of the vessel, the cargo and freight. Afterwards, the
proportion that must be paid by the parties is calculated multiplying separately the value of
the vessel, the cargo and freight by the contributory dividend.
It is noteworthy to understand the process of calculating, therefore the author is giving
the example of calculations. The below example stipulates the refloating expenses that
occurred when the vessel grounded and the refloating operation was needed. All possible
expenses and losses that may occur when refloating a vessel are shown in Table 1.

27
Table 1. Expenses and losses

Expenses Expenses value in US Dollar

Cost of refloating damage repairs 500 000
Jettisoned cargo 600 000
Discharge cargo 90 000
Owner’s superintendent 1500
Dry-docks dues 40 000
Storage of cargo 30 000
Reloading cargo 90 000
Salvage 700 000
Crews wages and maintenance 50 000
Total 1 201 500

Contributory dividend will be calculated by dividing the total value of expenses and
total contributory value. In this example the contributory dividend will be 0,128 % meaning
that the vessel owner pays in proportion $704 000, cargo pays $486 400 and freight $12 800.
The contributory value of the vessel, cargo and freight are shown in Table 2 below.

Table 2. Contributory value

Contributory value In US Dollar

Vessel value 5 500 000
Cargo value 3 800 000
Freight 100 000
Total 9 400 000

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 After all the necessary calculations and apportionment are made, average adjuster will
sent the copies of the average adjustment to all the parties. In some situations average adjuster
will also supervise the collection of general average contributions from the parties after
average statement is issued. This simple example clearly shows the calculations that are made
by average adjuster. However, in practice such calculations are much more complicated.
Therefore, in the next part of this work the author will show and explain on the case
that occurred in 1994 in what way the contributory values are calculated and how the
adjustment is written.

Small general averages

There can be the circumstances when general average expenditures and sacrifices are
insignificant or when there are a few cargo receivers meaning that the average adjustment
would take time while the amount of contribution is small. In these cases the shipowner can
resolve the issue in several ways. One of them and the main way to resolve the issue like this
is to insert in the shipowner’s Hull and Machinery Policy a small general average clause, or
general average absorption clause, that allows Hull and Machinery underwriters to avoid the
costs of adjusting general average claims and time if the expenses where relatively small.
“Insurance underwriters and average adjusters have acknowledged that the
development of an acceptable standard absorption clause would help promote a broad move
away from declaring general average for small and uneconomic claims in all sectors of the
industry.” (BIMCO, 2002)
This clause states that the Hull and Machinery Insurers is to pay general average
expenses up to the agreed amount. The Clause can be used and inserted in policies by bulk
carriers, tankers and also cruise vessels. The general average absorption clause is widely used
by container ship owners in order to resolve general average cases with several contributing
parties.
The clause reads as following:
"General average expenditure and/or sacrifice up to (US$100,000) to be paid in full at
Owner's option according to York-Antwerp Rules 1994 excluding Rules XX and XXI without
recourse to cargo and/or other contributors. Adjusters' charges not deemed to be part of the

29
(US$100,000) referred to above. Claims under this clause are subject to the policy
deductible". (Taylor, 2003)
BIMCO Standard General Average Absorption Clause can be also used in the polices.
Both parties, the shipowner and insurer, are to decide the amount which would be paid in full
by the insurer. This limit is determined by the size and type of a vessel. Therefore, for
example the container vessel would have higher limit than bulk carrier or tanker since the
number of Bill of Lading is higher and collection of security would take more time.
The use of General Average Absorption Clause has reduces the number of general
average claims. It has also benefited to container shipowners since the long process of
collecting the securities and contributions from the cargo owners is avoided.

30
3. Case Study

It is noteworthy to understand the whole process of calculating the contributory value

of a vessel and a cargo. The theory part of the thesis gives the overall picture the general
average, however it is necessary to see how the above information is used in practice.
Therefore, the author will provide patterns of general average cases that clearly show the
information provided to the average adjuster and the process of calculation.

3.1 Vessel “Maria” Case Study

In the case study the author will explain the casualty which occurred in 1994 and
provide the information that was used in order to make an average adjustment for this case.
Since the case is provided by the insurance company some of the details, including vessel’s
name, will be replaced due to confidentiality. The average adjuster for this particular case was
the adjuster from the company “Richard Hogg Limited” in London.
The adjustment of this case provides the summary of material facts; adjusters’
explanatory notes; the copy of the documents provided to the average adjuster; apportionment
of the general average; application of the claim to the policies of insurance on the vessel;
balance explanatory of the cash position under adjustment.
The documents provided to the adjuster were the following:
 Extract form Log-Book
 Master’s, chief engineer’s and senior navigator’s reports
 Statements of facts form the agent
 Surveyor’s report
 Accounts from the surveyor
 Invoice for divers inspection costs
 Ship valuation certificate from ship sale and purchase broker

31
The facts of the casualty

The vessel “Maria” is a single screw motor general cargo vessel of 6 876 gross register
tonnage which was built in 1975. It was transporting used secondary rail tracks from Wismar,
Germany via Tallinn, Estonia to Karachi, Pakistan.
The casualty occurred when the vessel was leaving the port of Tallinn. The vessel
grounded and sustained damage to her keel, port and starboard side bottom plating. In order to
proceed repairs the vessel returned to Tallinn where she was drydocked. On board the vessel
“Maria” the cargo of 4 995, 440 mt of used secondary rail tracks was loaded at Wismar,
Germany in October 1994. The vessel proceeded to the port of Tallinn, Estonia in order to
carry out repairs to her cargo equipment before sailing to Karachi, Pakistan the port of
destination. After all necessary repair work of the cargo equipment was carried out the vessel
proceeded outwards with assistance of a pilot and two tugs. The same day on 23rd of October
it was found that the vessel had no headway and had grounded. In order to refloat the vessel
two tugs were pulling her at their full speed, however she could not be moved. The vessel was
able to move and refloat only with the assistance of four tugs and by pumping the ballast
water out from the tanks in order to reduce the draft.
The vessel proceeded back to the port of Tallinn where she was pending examination.
After underwater inspection by the divers it revealed that the bottom plating was damaged. It
was decide to drydock the vessel in order to proceed further examination and repairs. Due to
some limitations of the drydock it was needed to discharge 2 700 m.t. of cargo.
The survey in drydock was attended by Classification Society Surveyor who was
acting on behalf of the vessel’s underwriters which has shown that there was damage to keel,
port and starboard side bottom plating.
After the repair was completed on 12th of November the vessel was undocked and was
awaiting to berth for reloading of the discharged cargo. On 19th of November the cargo was
reloaded and the vessel sailed on 20th of November to Karachi.

32
Adjuster’s explanatory notes

After the summary of material facts the adjuster gives some explanatory notes. Firstly,
that the refloating operation was necessary for the common safety and the repairs to the
damage bottom were needed for safe prosecution of the voyage. The adjuster explains that the
general average expenses include refloating operations, the shifting, forced discharge, storage
and reloading of the cargo, and the detention expenses. Secondly, it is mentioned that the
vessel “Maria” was operating under Voyage Charter Party which provided that the general
average should be adjusted in the terms of the York-Antwerp Rules 1974 and stipulated
London as the place of adjustment. Moreover, the adjuster states that Lloyd’s Average Bond
and Average Guarantee were received. The important note was made regarding the freight
which is saying that freight does not form a separate contributory interest, however is
included in the value of the cargo.

Calculations of contributory value and apportionment

The average adjustment contains the table with all the expenses and charges which
occurred in order to make the repairs to the vessel. Under each charge it is specified the
number of invoice and the value of the charge. “Table 3” is an exact example of how the
charges are written in the average adjustment.

33
Table 3. Pilotage charges

U.S. $ U.S. $
1,179.00 PILOTAGE CHARGES. (4 Invoices.)

23rd October 1994. Pilotage from berth to roads of Tallinn (1 mile). No

charge (grounded).
196.65
2nd November 1994. Pilotage from N.15 to Dock No.3
393.30
th
18 November 1994. Pilotage from roads of Tallinn to Berth No. 7
(2250/0020 hrs)
589.95
20th November 1994. Pilotage from Berth No. 7 to roads of Tallinn.
(1800/1920 hrs).
U.S. $
1,179.90

Apportionment of the general average is calculated on the separate page. In the case of
the vessel “Maria” the total value of the expenses is $136 660.92. The vessel’s contribution
value is $1 442 017 and the cargo value is $1 004 777. In order to make apportionment it is
necessary to calculate the contributory dividend which in this case is $5,585%. This
percentage is also written in the adjustment as “The General Average equals U.S$5,585% on
the Contributory Values.” The following is the extract form the adjustment for the vessel
“Maria”. “Table 4” stipulates the apportionment of general average.

34
Table 4. Apportionment of General Average for vessel “Maria”

SHIP: U.S.$ proportion U.S.$

Valued to contribute in damaged condition based 1,442,017 80,541.05

on the advice of London Ship Yard Valuers
including U.S. $4,976 made good in General
Average.

CARGO: 1,004,777 56,119.87

4,995.44 m.t. Steel rail track. Calculated CIF
value.

FREIGHT AT RISK. Nil -

U.S.$ U.S.$
2,446,794 proportion 136,660.92

(The General Average equals U.S$5,585% on the Contributory Values.)

Afterwards, the average adjuster would prepare the application of the claim to the
policies on the vessel which specifies the amount paid by the underwriters of the vessel.
The last part of average statement would be “balance explanatory of the cash position
under adjustment” where adjuster states the amount of credit required by the shipowner for
disbursements and allowances and fees required by adjuster.

3.2 Vessel “Viljany” Case Study

However, the process of adjusting and calculating the general average claim is not
changing through years, the author feels that the year 1970 general average case should be
shown and explained. Also there still are some differences in general average statement which
will be mentioned.
The average adjustment contains average adjuster’s resolution on the nature of
average, rates of exchange, contributory value of the property taking part in making good
general average losses, general average expenditures and losses to be made good by

35
contributing interests, apportionment of General Average losses between ship, cargo and
freight, general account, settlement between the parties.
The documents provided to the average adjuster are the following:
 Assessment of market value of the vessel
 Average bond
 Sea protest
 Copy of the Log book pages

The facts of the casualty

The m.v. “Viljany” proceeded from Novorossiysk on 21st of April 1970 with 106
m/tons of general cargo to Dakar and 3450 m/tons of cement to Lagos. The casualty happened
near Sicilia Island when the vessel started rapidly vibrate with her whole hull. It was
presumed that the heavy vibration was caused by either a blade being damaged or totally lost.
In order to save the common maritime adventure it was decided to put the vessel in a port of
refuge for repairs which was Gibraltar. After the completion of the repairs the vessel sailed on
2nd of May 1970 from Gibraltar to port of destination – Dakar and Lagos. On 7th of May she
arrived to Dakar and Lagos without any adventure.

Adjuster’s comments

After the explanation of the casualty the average adjuster states that as per clause 25 of
the Bills of Lading the general average shall be settled in accordance with York-Antwerp
Rules 1950. Moreover, it was mentioned that according to Rule X and Rule of Interpretation
this case can be defined as general average. In general average statement average adjuster
specified the rates of exchange since the soviet roubles are used in the adjustment.

Calculations of contributory value and apportionment

The contributory value of the vessel was stated in accordance with assessment of
expert engineer and cargo value is stated according to average bond. The freight and

36
insurance is included in cargo value. Therefore, the freight does not contribute separately. The
losses and expenditures are given in “Table 5” as per below.

Table 5. Assessment of expenditures and losses

Nos Total amount Denomination of expenditures Amount to be

roubles made good

1 578,30 Port dues and charges at Gibraltar (made good

under Rule Xa of York-Antwerp Rules,1950) 578,30
2 1116,36 Crew’s wages from 23/4/70 till
2/5/70 (Rule XI a,b) 1116,36

The “Table 5” contains the nature of expenditure, total amount in roubles and amount
which shall be made good.
The contributory percentage is mentioned in the adjustment and is calculated in the
same way as in the previous case study – the total value of expenses is divided by total
contributory value. The below “Table 6” is showing the apportionment and also the
calculation of contributory percentage.

37
Table 6. Apportionment of General Average for vessel “Viljany”

Seeing General Average contributory percentage is equal to –

4059,17
= 0,4848241%
837245,89

The ship on value in roubles 722259,78 Pays roubles 3501,69

The cargo on value in roubles 90942,11 440,91
of cement
The cargo on value in roubles 24044,00 116,57
of general merchandise

837245,89 4059,17

The apportionment of general average in this case not only stipulates the proportion
but also the calculation of the contributory percentage,
The last part of the average adjustment will be the summary from the average adjuster
stating the date of completion of adjustment and the rights to dispute.

3.3 Conclusion

All the calculations that are made in average adjustment are not complicated, however
the most important part of the adjustment is to examine all provided documents and take in
consideration the clauses written in the contract of carriage and Bill of Lading. The extracts
form the average adjustment show that the information should be written accessibly and
clearly.

38
 Having compered two general average cases the author has found a few differences in
the average adjustments. Firstly, in the 1970 case the adjuster separately states and calculates
the contributory percentage while in the 1994 case the percentage was only mentioned in
apportionment. Secondly, the losses and expenses are written more precisely in 1994 case.
Noteworthy to mention that it is 24 years difference between these two cases and some
parts of the adjustment could be changed. However, the process of drawing up the adjustment
and making calculations does not change.

39
4. Arguments to retain and substantially amend the general
average

In this chapter of the thesis the author stipulates the conclusion which was made
after the examination of the theory of general average. The aim was to investigate the reasons
why the York-Antwerp Rules 2004 are less favorable than 1994 Rules and make a
comparison of these rules.
In order to make a conclusion it was necessary to study BIMCO Special Circular
regarding the revision of the York – Antwerp Rules which was firstly published in 2005 and
then revised in 2007.
“Ever since the 1994 revision of the York-Antwerp Rules (YAR), cargo underwriters,
through the International Union of Marine Insurance (IUMI), have been pressing their case for
further reductions in the scope of allowable recoveries. At a meeting in Vancouver in 2004 a new
set of York-Antwerp Rules were published, mainly with the support of insurance interests.”
(BIMCO, 2007)
Matthew Marshall, who is Technical Director, Institute of London Underwriters, has
analyzed over 1700 general average cases and adjustments in 1990s and published the report
which stipulates the following:
 The annual cost of General Average claims to insurers was approximately US$300
million. 10% (US$30m.) was made up of adjusters’ fees and a further 12% was
comprised of interest and commission;
 Almost two-thirds of adjustments were published in the first two years after a casualty
but these accounted for only one third of the money apportioned in General Average.
Even after seven years only 95% of General Average adjustments had been published;
and

40
  80% of General Average cases were acknowledged to have been caused or were likely
to have been caused by the fault of the shipowner or his crew. Nevertheless 60–65%
of the total cost of General Average claims is charged to innocent cargo interests

The author stipulates below the arguments to retain and to abolish or amend the general
average.

Arguments to abolish or substantially amend the general average

Nowadays, the amount of container vessels has increased. Most of them have the
capacity of more than 8000 TEU and some can load over 18 000 containers. Therefore, when
such vessel declares general average the average adjuster would require the documents
(Average Bond, Guarantee, Bill of Lading, Deposit) from each cargo party meaning that there
could be hundreds of cargo owners. It is not only time consuming but also could lead to high
general average costs. In this case numerous insurance settlements would occur. The above
mentioned can be explained by providing the following general average case which occurred
in 2006.
The 5,551 TEU vessel “Hyundai Fortune” proceeded from Asia to Europe on 21st of
March 2006 with 3173 containers on board. In the Gulf of Aden the vessel suffered the
explosion and fire occurred in aft on deck. The fire on board the Hyundai Fortune have
started in a container stowed close to the ship's engine room. Numerous containers were
thrown overboard. The vessel was severely damaged by a fire which also caused cargo loss
and damage. After the fire was extinguished the vessel was towed to Salalah, Oman. The
vessel was insured for $70 000 000 by Hyundai Marine & Fire Insurance of South Korea.
Underwriters received enormous cargo claims as the vessel was sailing from the Far East to
Europe and was carrying high value cargo. In order to draw up the average adjustment the
adjuster has received 1808 Bills of Lading from 4436 cargo interests. The value of the cargo
on board was $145 million.
Hyundai Fortune case shows that when such casualty occurs the settlement of general
average can take years.
Another disadvantage is that the shipowner would not discharge the cargo until the
guarantees are received by the average adjuster. This means that if there are hundreds cargo

41
parties it will take time to them to provide the documents to the adjuster and therefore the
expenses would occur at the discharge port. However, BIMCO published the General
Average Absorption Clause which can be inserted in the vessel’s Hull and Machinery
policies. The clause allows to save time and avoid the costs of adjusting the general average.
Also the majority of the casualties occurred due to negligence in maintenance of the
vessel or machinery which lead to damage of engine meaning that the shipowner did not
provide the seaworthy vessel for a maritime adventure. In the situation when the machinery is
damaged as a result of lack of maintenance, the expenses of refloating or staying at the port of
refuge can occur.

Arguments to retain general average

The main argument to retain the general average is that the even though the vessels
became more safe and modern the risks remain during the voyages. These risks are not only
for the shipowners, but also for cargo.
Also the shipowners are claiming that sacrifice of a cargo is made in order to save the
common adventure and the York-Antwerp Rules are the protection of this action.
Moreover, during the casualty the Master of a vessel can concentrate only on the
safety of a vessel and make necessary decisions in order to save the voyage.
Another argument is that if the general average is abolished another way of resolving
such issues should exist. Otherwise, this will lead to uncertainty. There is an opinion that in
this case the party suffered the loss or expenses can seek recovery from the party at fault
under the contact of affreightment. However, this would also mean that such recovery is time
consuming and some expenses may occur.
In conclusion of the above the general average cases should be retained, however both
the shipowners and cargo owners arguments should be taken into account when making
amendments to York-Antwerp Rules. Unfortunately, York-Antwerp Rules 2004 were
developed and adopted by the request of the International Union of Marine Insurance (IUMI).
This was the adoption of the new Rules without taking into account the interests of
shipowners and other parties, for example Baltic and International Maritime Council
(BIMCO). However, the working group was formed in 2012 by CMI in order to make

42
revision of the York-Antwerp Rules in 2016. This group involves not only CMI delegates but
also representatives of shipowners, underwriters and other parties.

43
SUMMARY

The main purpose of this thesis is to provide enough information regarding the general
average and provide the examples of the general average cases which should help to
understand the process of calculating the values and apportionment of general average.
The noteworthy aim of this thesis is to specify most important amendments that were
made to York-Antwerp Rules in 2004. These revised rules are less favorable to shipowners
compared to 1994 and 1974 rules, therefore they are rarely used and implemented in Bill of
Lading and Charter Party. In order to make the conclusion author has also examined BIMCO
Special Circulars.
The author specifies the documents required for the adjustment and also explains the
calculation of the values and apportionment. Moreover, the author brings simple example of
how the values and contributory dividend should be calculated. Since it is usually not enough
to read only the theory, the author brings the examples of the general average cases. The
author explains in details the casualty and provides the calculations that were made by the
average adjuster. Also the noteworthy would be the extracts of the calculations from the
average adjustment of the 1970 and 1994 cases.
The author brings the arguments showing why the general average should be retained
in practice and why the significant amendments should be made in future. The general
average should be abolished or amended since the process of settlement of general average
cases is time-consuming and expensive. Since modern vessels, for example container ships,
have the capacity of more than 17 000 containers it can take years for average adjuster to
collect all necessary documents and make calculations. However, if the general average is
abolished the parties suffered the loss will seek the recovery from the party at fault which will
also lead to time-consuming settlements and high costs. Noteworthy, is the fact that the even
though the vessels are nowadays more safe the risks are still remain. The cases studied by the
author can also show that the losses and expenses may occur in different situations. However,

44
most of the expenses made by the shipowner are made in order to save common maritime
adventure.
The amendments to York-Antwerp Rules 1994 were made mainly because the cargo
underwriters would like to abolish or amend the general average. Therefore, in order to amend
the system which would be favorable not only to the cargo owners but also to the shipowners
the arguments of both parties should be taken into the account. Noteworthy to mention that
the working group was formed in 2012 in order to make amendments to York-Antwerp Rules
in 2016 which involves not only CMI delegates but also representatives of shipowners,
underwriters and other parties.

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RESÜMEE

ÜLDAVARII JUHTUMITE LAHENDUSTE PRAKTIKA JA

ANALÜÜS

Margarita Kirpitsenko

Antud lõputöö eesmärk on käsitleda muudetud York-Antverpeni reegleid aastal 2004

ning analüüsida muudatuste iseloomu. Eesmärgiks on ka argumenteerida miks reegleid
peavad olema muudetud või isegi ära võtud ja miks on vaja tulevikus neid kasutada ning
lisada üldavarii klaused sisestada konossementidess ja tšarterisse.
Käesolevas töös autor kirjeldab üldavarii juhtumeid erinevatel aegadel ja teeb ülevaate
juhtumite praktilistest lahendustest ning näitab kuidas jagatakse üldavarii kulud. Näideteks on
toodud kaks erinevat üldavarii juhtumid ning nende dispaššid. Autor toob välja nende
juhtumite võrdluse ning teeb järeldusi, milles seisnevad aasta 1994 ja 1970 dispašši
vormistamise erinevused. Ka töös on toodud aasta 2008 kontainer laeva üldavarii juhtum, kus
eriseisus on see, et tegemine oli tuhandete kauba omanikutega ning dispašöör vormistas
tuhandeid dokumente. Selle juhtumi näitel oli näidetud, et „Standard General Average
Absorption Clause“on vajalik et vähendata aja ja finants kulud üldavarii juhtumite
vormistamisel.
Et paremini aru saada kontributsiooni väärtuse arvutuste protsessi ning üldavarii
kulude jagamise kalkulatsioon autor sisestas mõlema juhtumi lahendusprotsessi tabelite näol.
On oluline täpsustada miks York-Antverpeni reeglid muudatused mis oli tehtud aastal
2004 on laevaomanikutele mitte kõige kasulikumad, isegi ebasoodsad.

46
 Kahjuks, need muudatused olid tehtud International Union of Marine Insurance
(IUMI) palvel ning vastu võetud arvestamata laevaomaniku ning teiste osapoolete huvidetele,
näiteks Baltic and International Maritime Council (BIMCO).
Töös teeb autor teeb järeldusi, mis aitavad mõista, et YAR on ka edaspidi tähtis
instrument mereveonduses esinevate suurte riskide maandamisel. Üldavarii juhtumite
lahendamine on tähtis aspekt laevaomanike seisukohast lähtudes ka tulevikus ning üldavarii
klausel peab eksisteerima nii konossemendis kui ka tšarteris. Selle poolt töötab eriti
intensiivselt BIMCO, väljastades vastavate klauslitega üldtunnustatud mereveodokumente.

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BIBLIOGRAPHY

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Hughes, G.S., Cornah R.R. (1989) A Guide to General Average. s.l.

General Average in 21st Century: What are the Arguments (2013) / The Law Firm of Maloof
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Marshall M. (1996) General Average- Statistics Update. Oslo: IUMI

Principles of General Average. Chapter 15. s.a. Lloyd’s List Intelligence. s.l.

Standard General Average Absorption Clause.(2002) BIMCO Special Circular. s.l.

Sullivan E. (1980) The Marine Encyclopaedic Dictionary. Malta: Gulf Publishing Ltd

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BIMCO Average Bong Clause. (2005) BIMCO Special Circular.

https://www.bimco.org/~/media/Chartering/Special_Circulars/SC2005_06_15_06.ashx
(05.04.2015)

BIMCO Average Bond Clause (2007) BIMCO Special Circular.

https://www.bimco.org/en/Chartering/Clauses_and_Documents/Clauses/Average%20Bond%
20Clause%202007.aspx (05.04.2015)
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BIMCO Special Circular №2. General average: revision of York-Antwerp rules. BIMCO
Special Circular
https://www.bimco.org/~/media/Chartering/Special_Circulars/SC2005_02.ashx (05.04.2015)

BIMCO Special Circular №1. General average: revision of York-Antwerp rules. BIMCO
Special Circular
https://www.bimco.org/~/media/Chartering/Special_Circulars/SC2007_01.ashx (05.04.2015)

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Appendixes
Appendix 1. BIMCO Special Circular

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51
Appendix 2. BIMCO Average Bond Clause

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53
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