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Workshop on Force Majeureand General Average

The Greenspoint Club June 16th 2009

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Justin Renshaw- Attorney Justin Renshaw received his Bachelor of Arts degree in Religion and Philosophy

from Emory University in Atlanta, Georgia in 1995, and his Juris Doctorate from the University of Houston Law Center in 1999.

Over the course of his career, Justin has represented a variety of interests in transactional, corporate, and regulatory matters, as well as in litigation, most notably in transportation and energy related industries both domestically and internationally. He is admitted to practice before all Texas state courts, the United States District Court for the Southern District of Texas, the United States District Court for the Eastern District of Texas and the United States Fifth Circuit Court of Appeals. Justin has also represented clients in arbitrations and has successfully negotiated the resolution of disputes through mediation.

Justin is a member of the State Bar of Texas, the Houston Bar Association, the Maritime Law Association of the United States, the Houston Mariner’s Club and the U.S.-Mexico Bar Association.

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Captain Dave Scruton- Surveyor CAPTAIN DAVID SCRUTON, Master Mariner, BScc (Comm), M.C.I.T., M.N.I. Has been employed in the Maritime Industry his whole working career with 16 years of

practical seagoing experience, his extensive knowledge of Dry Cargo operations was obtained while employed by one of the United Kingdoms most respected Ship owners. He served on a variety of vessel types, particularly General Cargo (including heavy lift vessels), Bulk Carriers and Container Vessels. He served in the North Sea and other locations internationally on Offshore Support Vessels (OSVs), Towing, Anchor Handling and Pipe Carriers. His degree specialized in Marine Operations and included courses covering Business and Maritime Law for the Shipmaster, Maritime Economics, Sea Transport Practices, and Maritime Safety at Liverpool Maritime College. Since graduating he has been continuously employed within the Marine Industry gaining valuable across the board knowledge. During the past twenty-one (21) years as Marine Consultant and Surveyor, he has become experienced in other areas of the maritime industry, including Dredging Operations, Crude Oil Carriers, Chemical Tankers, etc. and has been retained in numerous legal proceedings, including, but not limited to, expert testimony in collision cases, personal injuries, steel and general cargoes and safety procedures on board vessels. He has been appointed by Cypriot Government to carry out Safety Administration surveys. Additionally, he has extensive experience with a variety of Pleasure Craft including Sail and Power Yachts, Ski Boats and Personal Water Craft (PWC). He has been appointed as Expert Witness in a variety of legal cases concerning personal injuries whilst using Personal Water Craft. He is a certified Boaters Education Instructor by The Texas Parks and Wildlife Department. He also serves on the Board of Governors of The Downtown Club at the Met and the Board of Directors of the Houston Squash Racquets Association. He has also served as an Arbitrator in Maritime disputes. Additionally, he is on the Board of Directors of the Houston Maritime Arbitrators Association (HMAA).

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Mark Bernas- Insurance Underwriter Mark Bernas is a graduate of the University of Illinois at Champaign-Urbana.

He spent the first twelve years of his career on the insurance agency/brokerage side of the business. His main area of concentration centered around shipper's interest cargo insurance and freight forwarder liability programs. Currently he is Ocean Marine Underwriting Director for CNA Marine/MOAC. CNA’s underwriting division specializes in the following areas… Commercial Brown water Hull and P&I coverage's (tug boats, barges, offshore supply vessels, crew boats and similar). Marine General Liability Coverage (ship repairer legal, wharfingers legal, stevedore legal liability, dry terminal operators legal liability, charterers legal) Excess Liability (above primary marine exposures and ancillary liability coverage). Shipper's Interest Cargo Insurance.

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Ed Bastian- Carrier Ed Bastian has 32 years of international transportation and finance experience.

He began working in San Francisco in 1976 and lived and worked in San Francisco, Portland, Chicago, London, New York, Long Beach and Houston. Ed has held management positions with the following companies: Evergreen Marine Corp., Jones Stevedoring, Port of Long Beach, Nautilus Leasing UK, Morgan Stanley, NYK Line, and currently BBC Chartering USA.

Mr. Bastian is married with one daughter living in Sugarland, Texas.

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Dennis Mottola- Shipper Dennis Mottola is Bechtel’s Corporate Manager of Traffic and Logistics and

Manager of Bechtel Global Logistics, Bechtel’s internal resource for leveraging ocean freight purchases across projects. Dennis re-joined the company in November 2006 to continue his nine-year career with Bechtel after a brief time in the shipping industry establishing a U.S. office for an Italian ocean shipping company. Previously, Dennis was Bechtel’s corporate functional manager of expediting, supplier quality and traffic and logistics, and General Manager of the Bechtel Global Supply Group.

Dennis has worked his entire 33-year career in a variety of assignments in the international supply chain and logistics management field, including 15 years with Westinghouse Electric Corporation. Dennis is a graduate of the Pennsylvania State University with a degree in business logistics. He is a member of several industry associations and serves on the Advisory Board of the University of Houston Center for Logistics and Transportation Policy. Dennis and his wife Patti have two boys, Dan and Matthew, and reside in Spring, Texas.

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John Vogt- Shipper John Vogt started his career in the chemical manufacturing sector in Africa and

Europe. He moved on to managing as the C EO chemical import and export terminals. To grow these terminals he started doing land transport contracts and large chemical ship charters. From these actions he developed his love of Global Logistics. He moved on to managing a portfolio of operations globally for a range of products from grocery, chemicals, automotive CKD build kits, consumer electronics, apparel, paper and general cargo.

John is now the Global Logistics Director for Halliburton, a major oil and gas services company. The work is even more interesting as oil and gas is found in difficult places for logistics, be it Africa or Siberia where infrastructure and communications are difficult. These enormous challenges are what he enjoys and Halliburton is embarking on significant change and growth of logistics to enable the company to able to claim logistics are a competitive advantage.

John has a Ph.D. (Logistics), an MBA, and a B.Sc. (Engineering), holds the title of

European Engineer (Eur. Ing), is a Chartered Engineer (UK) and has been elected as a Fellow of the Institute of Engineering and Technology (UK).

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John Hark – Freight Forwarder John Hark has been in the maritime industry for 20 years. He graduated from

Texas A&M University in 1989 with a BS in Maritime Administration. He started with Bertling Logistics in 2002 as the Americas Director over the company’s USA vessel operations and is now the Regional Director with responsibility over the group’s North America operation. Bertling is a fully integrated asset-based transport/logistics company and is active in Ship owning & Operating, Project/General Forwarding, Ship Brokerage, and Domestic Transport. In addition to his position with Bertling, he has also been an Adjunct Professor with Texas A&M University for the past 8 years. Prior to joining Bertling, Mr. Hark was with Enron Industrial Markets as a Supply Chain Manager, spent 5 years with Argosy Shipping/BBC Chartering & Logistics and was Branch Manager for the international NVOCC Damco Maritime.

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Part One: The Definition of Force Majeure

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Force Majeure Defined“An event . . . that can neither be anticipated or controlled.

The term includes both acts of nature (e.g. floods or hurricanes) or of people (e.g. riots or wars)”

The term "force majeure" (a superior force) applies to an event or effect that can be neither anticipated nor controlled. It can include both acts of nature and humans.

Force Majeure clauses are in contracts to allocate risk “if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled.”

Black’s Law Dictionary

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Force Majeure Defined

“After all, classifying an event as a force majeure has powerful ramifications -- at the very least, receiving notice that an event is considered a force majeure allows a party to evaluate the validity of a claimed force majeure event and permits it to make other arrangements to mitigate its damages if it suspects the event is serious and will persist.”

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Contract/Tort Distinction

Contract: Largely defined by the terms of the contract itself.Tort: Governed by common law concepts of

negligence/reasonableness.Fact questions.Jury may decide (if a jury is available, which is not always the

case).

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Act of God Defined

“The direct, immediate, and exclusive operation of the forces of nature, uncontrolled and uninfluenced by the power of man, and without human intervention, and . . . of such a character that it could not have been prevented or escaped from by any amount of foresight or prudence, or by any reasonable degree of care or diligence.”

Black’s Law Dictionary

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Act of God Defined“For by its very definition, an ‘act of God’ implies ‘an entire

exclusion of all human agency’ from causing the loss or damage.”

“From a realistic standpoint, [however], we think decisions in this type controversy should turn not upon technical, meteorological definitions, but upon the issue of whether the disturbance causing the damage, by whatever term it is described, is of such unanticipated force and severity as would fairly preclude charging a carrier with responsibility for damage occasioned by its failure to guard against it in the protection of property committed to its custody.”

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Additional Concepts

ImpossibilityImpracticabilityFrustration of Purpose

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The Bottom Line

“The question whether negligence exists must be determined by the facts in the very case in which the question arises.”

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Part Two: The history of Force Majeure

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History of Force Majeure “The theory of force majeure has been existent for many years. Often

likened to impossibility, it historically embodied the notion that parties could be relieved of performing their contractual duties when performance was prevented by causes beyond their control, such as an act of God.”

“But, much of its historic underpinnings have fallen by the wayside.

Force majeure, is now little more than a descriptive phrase without much inherent substance. Indeed, its scope and application, for the most part, is utterly dependent upon the terms of the contract in which it appears. . . . In other words, when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure. . . . More importantly, [courts] are not at liberty to rewrite the contract or interpret it in a manner which the parties never intended.”

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Does it matter?

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Part Three: Force Majeure

General to Specific

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The General

Force majeure clauses are creatures of contract. Meaning and scope are dependent upon the

meaning and scope assigned by the parties in their agreement.

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The Specific

Always look to the contract first and determine your ability to claim under it.

Is there a “Himalaya Clause” or similar extension for agents and others assisting the carrier?

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Air Carriers The Warsaw Convention/Montreal Protocol

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Air Carriers The Warsaw Convention/Montreal Protocol

The carrier shall not be liable if he proves that he and his agents have taken all necessary measures to avoid the damage or that it was impossible for him or them to take such measures.

Warsaw Convention Art. 20(1)Montreal amends Warsaw and applies to cargo whose place of

origin and destination are both within the jurisdiction of member states, notwithstanding reference to Warsaw in the conditions of carriage.

Liability without fault – the fact of a loss is enough to impose liability (the limit of which may be capped)

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Ocean Carriers and COGSA

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Ocean Carriers and COGSA Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from; Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the

ship; Fire, unless caused by the actual fault or privity of the carrier; Perils, dangers, and accidents of the sea or other navigable waters; Act of God; Act of war; Act of public enemies; Arrest or restraint of princes, rulers, or people, or seizure under legal process; Quarantine restrictions Act or omission of the shipper or owner of the goods, his agent or representative; Strikes or lockouts or stoppage or restraint of labor from whatever cause, whether partial or general: Provided, That nothing

herein contained shall be construed to relieve a carrier from responsibility for the carrier's own acts; Riots and civil commotions; Saving or attempting to save life or property at sea; Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality, or vice of the goods; Insufficiency of packing; Insufficiency or inadequacy of marks; Latent defects not discoverable by due diligence; and Any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the agents or

servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage

46 U.S.C. Sec. 1304 (the “Laundry List”)

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Motor CarriersCarmack Amendment

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Motor CarriersCarmack Amendment

Codifies the common-law rule that a carrier is liable for damage to goods transported by it unless it can show that the damage was caused by:

The act of GodPublic enemyThe act of the shipper himselfPublic authority or Inherent vice or nature of the goods.

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Forwarders and NVOCCs

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Forwarders and NVOCCsHimalaya ClausesWhen an intermediary contracts with a carrier to transport

goods, the cargo owner's recovery against the carrier is limited by the liability limitation to which the intermediary and carrier agreed. The intermediary is certainly not automatically empowered to be the cargo owner's agent in every sense. That would be unsustainable. But when it comes to liability limitations for negligence resulting in damage, an intermediary can negotiate reliable and enforceable agreements with the carriers it engages.

Privity of contract may or may not be required. Plain language of the Himalaya Clause will govern.

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Hague-Visby and Through Bills1924 International Convention for the Unification of Certain

Rules of Law Relating to Bills of Lading (the “Hague Rules”)Hague-Visby Amendments of 1968 (the “Hague-Visby Rules”)Can COGSA still apply?Probably – “An intermediary stop en route pursuant to a

multimodal maritime contract with an ultimate destination in the United States, regardless of whether the stop is during the sea stage of transport or between the sea and land legs, should not prevent the application of COGSA liability rules as a matter of federal common law.”

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Sample Contract Provisions

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AIR (Warsaw or Montreal)

Except as the Convention or other applicable law may otherwise require, the Carrier is not liable for any loss, damage, or delay, directly or indirectly arising out of compliance with laws, government regulations, orders, or requirements, or from Act of God, - e.g. earthquake, cyclone, storm, flood, fog, Force Majeure, - e.g. war, plane crash or embargo, Vis Major or, any other cause or event which the Carrier is unable to control or avoid and the consequences whereof the Carrier is unable to prevent by the exercise of reasonable diligence. (emphasis added).

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AIR (Warsaw or Montreal)We shall not be liable for the direct or consequential Loss arising from complying with the Conventions, Laws and Regulations or caused by Force Majeure. When the Consigned Cargo is prohibited by us or applicable Laws and Regulations, we will refuse to accept it and shall not be under any liability with respect thereto. We shall not be liable for the destruction, loss or damage of the Cargo caused by the following reasons: Force Majeure; The inherent nature, quality or defect of the Cargo; Improper packaging of the Cargo by anyone other than us or our employee or Agent; Loss or damage of the inner pieces with intact package and unbroken seal; Acts relevant to inbound or outbound or transit of the Cargo as implemented by national administrative authorities. (emphasis added).

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OCEAN (COGSA)Without prejudice to any rights or privileges of the Carriers under covering Bills of Lading, dock receipts or booking contracts or under applicable provisions of law, in the event of war, hostilities, warlike operations, embargoes, blockades, port congestion, strikes or labor disturbances, regulations of any governmental authority pertaining thereto or any other official interferences with commercial intercourse arising from the above conditions and effecting the Carrier's operations, the Carriers reserve the right to cancel any outstanding booking or contract of carriage. At carrier’s option, cargo in transit may be enrouted to a different discharge port or destination for cargo delivery. Any additional cost associated to this arrangement shall be for account of cargo.In the event that threat, existence or continuance of any present or future war or warlike condition or hostilities or civil commotion or the existence or continuance of conditions or cessation or prohibition of intercourse (commercial or otherwise) between nations or measures taken by any Government or Governments which, in the opinion of the carriers indicate that there is a danger of any of the foregoing which may render impossible performance of its obligations due to the requisition, seizure or loss of any of the carriers' vessels, or any other cause whatsoever, whether similar or dissimilar, or which in the carrier's sole judgment may directly or indirectly result in the imposition upon the carriers of any undue financial or other hardship or burden in the performance of its obligations or in an increase in rates of freight charged for ocean transportation generally, or in this trade, the carriers reserve the right of forthwith canceling or suspending any or all of the obligations expressed under this engagement and/or tariff and/or relative contracts and/or booking notes. So far as cargo actually shipped may be concerned, the provisions of the carrier's Bill of Lading shall apply. This clause shall not affect or supersede any provision in any contract for carriage which permits the carrier to cancel such contract in the event of hostilities breaking out or threatening to break out. (emphasis added).

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OCEAN (COGSA)

The Carrier shall not be liable in any capacity whatsoever for any delay, non-delivery, misdelivery, acts of thieves, hijacking, act of God, force majeure, quarantine, strikes or lockouts, riots or civil disobedience or any other loss or damage to or in connection with the Goods or Containers or other packages occurring at any time contemplated under [this agreement].

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OCEAN (COGSA) (1) The GSM will waive the requirement for the notice of arrival required by Form CCC-106 by a written notice to the supplier of ocean transportation on the receipt of evidence satisfactory to the General Sales Manager that the vessel is lost or unable to proceed to destination after completion of loading as a result of one or more of the following causes: Damage caused by perils of the sea or other waters; collisions; wrecks; stranding without the fault of the carrier; jettison; fire from any cause; Act of God; public enemies or pirates; arrest or restraint of princes, rulers or peoples without the fault of the supplier of ocean transportation; wars; public disorders; captures; or detention by public authority in the interest of public safety. The supplier may substitute such waiver for the notice of arrival. (2) The determination of a force majeure by the GSM shall not relieve the participant from its obligation under the Agricultural Commodities Agreement to pay CCC, when due, the dollar amount of ocean freight, plus interest (exclusive of ocean freight differential), financed by CCC.

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OCEAN (COGSA)Charter Parties?

The act of God, enemies, fire, restraints of princes, rulers or people, and all dangers and accidents of the seas, rivers, machinery, boilers, and steam navigation and errors of navigation, throughout this charter party, always mutually excepted.

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GROUND (Carmack) Significant deregulation

Surface Transportation Board

Short form bills

Tariffs

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GROUND (Carmack)

This company is not liable or responsible for accidents, delays in handling caused by strikes, labor disputes, any other cause beyond its control, concealed damage, water packs, gin falls, interior damage, dampness, any irregular condition not apparent, acts of Providence,or acts of the public enemy except as otherwise required by United States Warehouse Act and Regulations there under.

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GROUND (Carmack)Subject to the limitations set forth herein and as provided by applicable law, [the Carrier] agrees to pay for loss or physical damage to the shipments described on the Waybill which may be caused by its negligent or willful conduct. Where shipments have Declared Values, [the Carrier’s] liability for shortage or damage shall be prorated by weight when part of a shipment is lost or damaged. Otherwise, [the Carrier’s] liability shall be determined by multiplying the weight of the lost or damaged article by fifty cents ($0.50) per pound. All claims must be filed within nine (9) months of recovery at destination or shall be forever barred. Claims will be presented and adjusted in accordance with the guidelines established by the Interstate Commerce Commission and successor agencies and set forth in 49CFR1005. ICC Administrative Rulings 65 and 128 shall apply. The Shipper understands and agrees that the rates do not include insurance or other compensation for loss, other than as expressly provided herein and limited hereby. [The Carrier] shall not be liable for damage caused by force majeure, Act of God, or the inherent vice of the shipment.

Shortages and/or damage must be noted on the Waybill or Electronic Recovery Device by the Consignee or the Consignee's agent at the time of delivery. Notice of intent to file a claim for concealed damage must be filed in writing with [the Carrier] within fifteen (15) days of delivery. The actual claim, whether for loss, apparent damage, or concealed damage, must be filed in writing with [the Carrier] within nine (9) months of delivery, and the claim must include the following as minimum for support:

Date of shipment; Waybill number;The names and addresses of the Shipper and Consignee;A description of the property; andA copy of the original invoice for the property lost or damaged.

Receipt of the shipment by the Consignee or the Consignee's agent without notation of shortage, loss or damage will be prima facie evidence that the shipment was delivered in good condition. No claim will be processed by [the Carrier] until all transportation charges have been paid. Amounts of claims may not be deducted from transportation charges. Shipments and their containers and packaging materials must be retained and made available to [the Carrier] for the purpose of inspection for up to fifteen (15) days after notification to [the Carrier] that a claim is pending. [The Carrier] reserves the right to repair or replace damaged property with no further liability for consequential damage such as, but not limited to, out of service time during repair. (emphasis added).

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Notice/How Declared?What does the contract call for?When is too late?How much detail is needed? What is the anticipated delay?What has been done to avoid or minimize the event?Waiver issues?Can the parties agree on what constitutes force majeure? What due diligence is required after declaring force majeure?Mitigation?

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Sample NoticeSeptember 6, 2005

NOTICE OF FORCE MAJEURE

To all Customers,

As a result of damage caused by Hurricane Katrina and it's aftermath, [Carrier] is unable to safely operate in the affected region and no cargo is being moved in, out or through the Port of Gulfport, MS for the foreseeable future.

In accordance with Clause 16 of [Carrier’s] Bill of Lading, Exceptions Clause, and/or any similar provisions contained in an applicable Ocean Shipping Service Contract, [Carrier] is unable to meet any obligations, because of this Act of God or "Force Majeure" event. Accordingly, performance under any such Bill of Ladings of contracts is, to that extent frustrated and no cause of action for breach of liability will arise as a consequence of this Force Majeure. We are unable to determine how long this Force Majeure will continue and regret any inconvenience this tragic event has caused you due to these circumstances beyond our control.

Customers who believe they may have had in transit cargo affected by Hurricane Katrina should immediately notify their cargo underwriters. If any information is needed from [Carrier], customers may contact XXX at (123) 456-7891

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Part Four: Force Majeure Claims and

Examples

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Force Majeure Claim Examples from the perspective of:

1. Shipper – Dennis Mottola 2. Carrier - Ed Bastian3. Freight Forwarder – John Hark 4. Surveyor - Captain Dave Scruton 5. Attorney - Justin Renshaw

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Part Five: Mitigation Of Losses

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Mitigation of Losses

Steps to take for successful mitigation

Awareness

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What do I do when there’s a loss?Notify all interested parties – underwriters, all carriers,

shipper, lawyers (your own), and surveyors.Arrange for surveys independently and/or jointly.

Is there a commercial resolution to be had?

Demand satisfaction.

Spend $$$. Commercial resolution?

Sue the bastards.

Lessons learned? Huddle with risk management and implement.

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How do I avoid it in the first place?Risk Management Company Policies and ProceduresMonitor Potential HazardsRe-RouteSubcontract? (i.e., make the other guy bear the risk of loss)

Any other reasonable precautions?

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Q&A Session

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Part Two: What is General Average

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General Average Defined

“There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperiled in the common adventure.”

“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.”

Business and Law for the Shipmaster

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Factors Determining General Average1. The sacrifice or expenditure must be of an extraordinary nature. Damage to a

ship, her machinery, or equipment whilst being used for the purpose for which they are intended would not amount to general average. On the other hand, using a ship’s engines in an effort to refloat when stranded would, if the engines were damaged as a result, be an extraordinary sacrifice.

2. There must be a common adventure. That is to say, the ship, freight and cargo must all be involved. In any case, there must be more than one interest.

3. The common adventure must be in peril. That is, all interests must be imperiled.

4. There must be a sacrifice (of property) or an expenditure (of money).

5. The sacrifice or expenditure must be made or incurred reasonably and intentionally for the sole purpose of preserving the adventure from the immediate peril.

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Factors Determining General AverageOr, put simply:

General Average requires three (3) elements which are as follows:

“1st: A common danger: a danger in which vessel, cargo and crew all participate; a danger imminent and apparently “inevitable”, except by voluntarily incurring the loss of a portion of the whole to save the remainder.

2nd: There must be a voluntary jettison, jactus, or casting away, of some portion of the joint concern for the purpose of avoiding this imminent peril, periculi imminentis evitandi causa, or, in other words, a transfer of the peril from the whole to a particular portion of the whole.

3rd: This attempt to avoid the imminent common peril must be successful.”

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Most Common GA ScenariosI. ACTS• Putting into a port of refuge to effect necessary repairs.• Voluntary stranding to avoid sinking.• Working of engines when a steamship is ashore in a position of peril.

II. SACRIFICES• Jettison, for the common safety, of cargo from under deck.• Jettison of cargo from the deck if carried on deck by virtue of a well recognized

custom of the trade.• Slipping of anchor and cable to avert fire or other imminent peril.• Flooding of a cargo hold to extinguish a fire, thus causing water damage to cargo.

III EXPENDITURES• Cost of discharging cargo to refloat a stranded ship or to carry out necessary

repairs at a port of refuge.• Hire of tug to assist refloating a stranded ship with cargo.

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Contributors Regarding General Average

Each will be called upon to contribute according to the value of his interest saved as a result of the sacrifice or expenditure. The main contributing interests are, therefore, ship, freight and cargo. Broadly speaking, all these contribute on their net values at the place where the voyage ends or is abandoned.

Such values are called “contributory values”. The sum necessary to reimburse the interest which has suffered the general average loss is called the “amount made good” or “general average allowance”.

• Cargo Owners, for the value of their cargo saved;• The Ship owner, in respect of freight payable by charter-party or bills of lading or

charter hire money; and • The Charterer, under a time charter, for freight payable under bills of lading.

When there is a general average loss, the party on whom it falls is entitled to a rateable contribution from the other interested parties. The parties benefiting by the sacrifice or expenditure may be:

• The Ship owner, for the value of the ship saved;

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Examples of Amount Made GoodI. SHIP• The reasonable cost of repairing the damage, less deductions “new for

old”, if the ship is over 15 years old.

II. FREIGHT• The gross freight loss by the sacrifice of goods, less any charges saved. Any

additional freight earned by carrying other goods in place of those sacrificed must be credited.

III. CARGO• For goods lost the allowance is the net value they would have had on the day

of discharge at the place where the voyage ends, less freight and other charges that would have been payable had the goods not been sacrificed. If thee remaining cargo arrives damaged from causes that would equally have affected the sacrificed goods, the probable extent of such damage must be taken into account.

• For goods arriving damaged through General Average sacrifice, the allowance is the difference between the net sound and damaged values.

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Examples General Average Example 1:

A vessel is stranded and as such containers are jettisoned overboard to lighten the load and free the vessel to open water. In this case, all parties to the voyage, including cargo owners whose cargo was unaffected, must contribute to the general average loss contribution.

Example 2:During a voyage, a vessel develops engine trouble (i.e. malfunction/fire) and must be towed into an unscheduled port of refuge for repairs, all parties to the voyage, including cargo owners, must contribute to the loss.

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Sample GA CalculationVessel and freight value $100 million

Saved cargo value $100 millionContributing value (total) $200 million

$40 million in cargo was sacrificedThe loss represents 20 percent of the contributing valueCargo owners must contribute 20 percent of respective

cargo values

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Ship owner's Duty in General AverageWhere claims for General Average contribution have arisen, the amounts of such contribution are usually ascertained at the port of first discharge.

The Ship owner has the duty of appointing the Average Adjuster and of collecting the contributions due from the various cargo owners.

The ship typically has a lien on cargo for General Average contributions.

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General Average AdjustersAn average adjuster is a kind of arbitrator, with an expert knowledge of the law and practice relating to insurance and average whose task is to decide what is and what is not by law or contract allowable in general average, and to assess the various contributory values and general average allowances.

The outcome of his findings, is called the “Average Statement” and in a complex case may take many months to prepare.

Professional adjusters will be found in all the major ports of the world, but it is not essential for the ship owner to appoint an adjuster practicing in the port where the adventure ends. To enable the adjuster to carry out his task, he will require to be supplied with all the relevant documentation and various information.

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Appointing a General Average Surveyor

In order that the General Average Adjustor obtains all the relevant information regarding the loss, he typically appoints a General Average Surveyor.

The role of the General Average Surveyor is to be completely impartial, even though appointed by the General Average Adjuster ,who has been appointed by the Ship owner.

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General Average Surveyor’s Role

The General Average Surveyor’s role is to document as accurately as reasonably possible, the full extent of damages to the ship and cargo, and to distinguish between the extent of damages (where practically possible) caused by the initial peril and damages caused by the sacrifice. For example, fire damage in a cargo hold of plywood extinguished by flooding the cargo space and thus damaging the plywood.

Surveyors should distinguish between the fire damage and the water damage and what is ordinary wear and tear to the vessel.

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Documentation Needed by the General Average Adjuster

Typical documentation required by the General Average Adjuster includes the following:

1. A Manifest of Cargo on board at time of occurrence.2. Copies of the Bill of Lading forms used for the cargo.3. Signed average bonds.4. Counterfoils of general average deposit receipts.5. Copies of general average guarantees, if any.6. Deck and engine log books in respect of the voyage during which the

general average act occurred.7. Copies of extended protests.8. Original vouchers in respect of any additional expenses incurred.9. The portage account for the voyage.10.Damage survey reports in respect of any hull and/or machinery damage.11.Original accounts for any hull and/or machinery repairs and expenses

incidental thereof.12.Survey reports giving details of any cargo lost or damaged by General

Average sacrifice.13.Account sales of any cargo sold on the recommendation of a surveyor.14.Copies of shipping invoices.

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General Average SecurityOwing to the time required for general average adjustment in order to avoid delay in delivering the cargo and consequent loss, it is usual for cargo owners (or their underwriters) to provide some form of security in order to obtain release of their cargo.

The Ship owner or Average Adjuster will advise the Master or Agents of the form the security is to take. It will usually consist of an average bond signed by each receiver of cargo, or an underwriter’s guarantee or bank guarantee.

The Master of a ship should never deliver cargo which is liable for a general average contribution until he is satisfied that such contribution is adequately secured by bond or deposit or both.

In foreign ports especially, and in all cases where the ship has suffered a General Average loss, the extent of which it is difficult to assess, the Master should insist on a deposit which he would judge to be more than the consignee will ultimately be called upon to pay. The consignee will not lose by it in the long run, but once the cargo has been parted with the Ship owner's right of lien is lost.

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Settlement of General AverageUnless the contract of carriage provides otherwise, the rule is that general average is settled in accordance with the law and practice of the place where the adventure ends, that is to say, the place where the cargo is discharged. Evidently, if a ship had a mixed cargo for discharge in ports in several different countries, the case would be affected by several different national law systems, and adjustment and settlement would become excessively complicated. To avoid such a state of affairs, it is usual for charter-parties and bills of lading to be claused to the effect that “General average is to be settled according to York-Antwerp Rules, 1974”.

In modern practice, when insured property suffers a general average loss, it is customary for underwriters to make good the loss as particular average in the first place. They then, being subrogated to all rights and remedies of the assured so far as the latter have been indemnified, are afterwards reimbursed out of the general average fund. In effect, all general average settlements are in the long run made between underwriters.

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Photographs

Vessel on fire – subsequently grounded to extinguish fire.

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ConclusionAlthough General Average may have been declared, dispute may still arise as some parties may attempt to show that the act was not a General Average Act.

Consequently, this leaves the topic very subjective.

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General Average Examples from the perspective of:

1. Shipper – Dennis Mottola 2. Carrier - Ed Bastian3. Freight Forwarder – John Hark 4. Surveyor - Captain Dave Scruton 5. Attorney - Justin Renshaw

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Closing Statements