General Average - An overview

This article is generously contributed by Mr Yim from Puncak Jupiter Management Services Sdn Bhd. Further to a write-up on General Average posted some time back in here, this document (in PDF format) is one of Yim’s presentation outline. He’s now a trainer / author and management consultant. Has years of experience in the shipping industry behind (yes, with this statement, you should be able to tell he’s a very “matured” / “senior” man).

Thanks Yim.

Cheers!
Shipping Slave

Note: Understand the PDF doc loads up very slowly. So, for the benefit of all, i’ve transferred the content into text as follows (minus the design):

Introduction to General Average

Your facilitator
• Yim Choong Chow is a trainer, success coach, management consultant and author. His interests are in soft skills revolving around leadership, management, selling, negotiation, service delivery, interpersonal communication, performance improvement and success strategies.
• Yim is the Executive Director of Puncak Jupiter Management Services Sdn Bhd (PJMS) - a company he established in 2001 after a long and illustrious career in a major international shipping company where he held, interalia, the position of Managing Director.
• His hobbies include martial art, gardening, trekking, and writing. Yim holds a third degree black belt in Karate, has trekked to the Everest Base Camp and is the author of 5 books.
• PJMS offers customized training solutions, consultation services & one-on-one coaching to help clients in especially the Shipping, Forwarding, Logistics & Port sectors drive & accelerate performance improvement.
• Some of the clients who regularly use PJMS expertise include
DHL
Evergreen
JardineShipping Services
JohorPort
Mitsui OSK
Northport
NYK
OVCL
PDZ Lines
PTP
Sea Consortium
Tri-Mode Services

YIM CHOONG CHOW
Executive Director
Puncak Jupiter Management Services Sdn Bhd (536457-D)
T2, 27A, The Boulevard,, Jalan SS12/1,
47500, Subang Jaya, Selangor, Malaysia
Tel: +6012 3767883 Fax: +603 56363523
Email: yimchoongchow@yahoo.com

General Average
• G.A. is an unwritten, non statutory international maritime law which is universally recognized & applied.
• Practiced since time immemorial.
• Based on the principle that vessel and goods are parties to the same venture and share exposure to the same perils, which may require sacrifice or the incurring of extraordinary expenses on the part of one for the benefit of the whole venture

10 Criteria to Qualify

1. Extraordinary in nature - Normal expense or damage is excluded
2. Voluntarily
3. Deliberately - Accidental damage (particular average) is excluded
4. Reasonably incurred
5. In time of general peril - where the whole venture (cargo and ship) is threatened
6. For the common safety - Expenses aimed at saving only part of the venture is excluded
7. Of a maritime venture - GA is unique to maritime
8. The danger must be real - Imagined danger does not qualify
9. The danger must be imminent - Expenses foreseeing and avoiding danger does not quality
10. Must succeed in saving some part of the venture - Otherwise nothing is left to contribute

• Each of these criteria is essential
– If one is missing, the sacrifice or expense involved is not allowable

• G.A. is the process by which those parties to the venture, whose interests have been sacrificed or who have incurred extra expense, are proportionately recompensed by the contribution of those whose interest have been saved

• Example:
– Cargo jettison to lighten a grounded vessel in order to refloat
– Water damage to goods to put off fire
– Essential repair to complete voyage

Average Adjusters

• Appointed to assist the process & calculate the contribution from each interest - Vessel, containers, goods and bunkers will contribute according to their salved value

Before cargo is released…

• Merchant to sign an Average Bond (A promise to pay)
• Underwriter to provide Average Guarantee Or Cash Deposit
• Bank Guarantee - If cargo is uninsured

Salvage
• A vessel in distress may receive assistance from a third party to save the adventure
- Towage of distressed vessel to a place of safety
- Assistance in putting off a fire
- Other services valuable to the vessel and its cargo

• In such cases, the party rendering assistance is entitled to claim Salvage from the vessel and its cargo once it has completed valuable service and it is entitled to exercise a lien on vessel and cargo for its Salvage reward

• Salvage is usually undertaken subject to LOF 95
– Lloyd’s Open Form of Salvage Agreement 1995

• LOF 95 is ‘No Cure – No Pay’
– Salvor only gets paid if he succeeds in saving the vessel and its cargo (or part thereof)

• If LOF 95 is used, security for Salvage, usually in addition to separate security for GA, must be lodged with Lloyd’s of London by an appointed Cargo Insurer

General Average & Salvage – Essential Difference
• GA involves voluntary sacrifice or expenses by a party to the venture

Whereas…

• Salvage involves assistance by a third party independent of the contract to the venture in order to save it (or part thereof) in time of peril.