Navigating the Perils of the General Average | Benesch
Sealift supply teams and ship owners would do well to pay close attention to the effects of recent notable maritime perils that have triggered general average claims. The grounding of the Ever Given in the Suez Canal in March 2021 and the Ever Forward in the Chesapeake Bay in March 2022 are the latest losses to make headlines. Although the principle of general average dates back to the ancient Greeks, these perils have breathed new life into what were recently standard general average provisions. Shippers and their carriers are looking to learn how to deal with these revitalized conditions and how to prepare for the impact that general average claims can have on their legal and business interests.
The law of the general average
The York Antwerp Rules set out the rights and obligations of shipowners and cargo owners when an extraordinary sacrifice or expense is intentionally and reasonably made to save from peril the ship, crew or cargo involved in a maritime enterprise common. For a particular occurrence to constitute general average, the following elements must exist: (1) a common danger to the ship, cargo or crew, which is imminent and apparently unavoidable unless there is a voluntary loss of a certain cargo to keep the rest of the cargo; (2) intentional jettisoning or discarding of part or all of the cargo to avoid imminent peril to the vessel; and (3) any attempt to avoid imminent peril to the ship must be successful. In such circumstances, if the vessel is damaged or any part of the cargo is lost or jettisoned, the loss or damage shall be shared by all parties involved in the voyage in proportion to the value of the interest of each . It is important to note that carriers can claim general average even when their own negligent navigational errors give rise to the circumstances that triggered the loss, as was the case with Ever Given and Ever Forward.
General average declaration
The shipowner may claim general average at any time after the ship has incurred extraordinary expenses to save the ship, crew or cargo from peril, including expenses for common security to complete the voyage, which would include the costs of ports of refuge, harbor dues, salvage, maintenance and emergency repairs. After the filing of a general average report, a party’s interest in the proceeds of the general average fund arises and becomes enforceable when the voyage is completed, i.e. when the ship arrives at its port of destination or calls at a port of refuge. Once the declaration is made, the shipowner acts as trustee of the general average fund, and the adjustment of general average claims is determined in accordance with the rules of York Antwerp, which is carried out by a general average adjuster appointed.
General Average Best Practices
General average claims must be submitted in writing by the shipowner’s insurers to the general average adjuster within 12 months from the date of termination of the business. Since the process of handling claims and the intricacies of recovery under a general average report can be time-consuming and costly, shippers and carriers will be well served to implement best practices and pragmatic processes to prepare for a general average claim by: (1) engaging in remote negotiations around the legal and business terms of general average; (2) securing and maintaining adequate levels of freight, property, and general average insurance; and (3) keep and retain documents and records related to each movement, which will be necessary to substantiate a general average claim.
While major supply chain disruptions have become pervasive with the effects of COVID-19 and the eruption of war in Ukraine, recent headline-grabbing maritime perils and disruptions involve well-established principles that shippers and carriers seek to manage these losses as best as possible.