In General Average cases it is necessary to establish the General Average community which is quite obvious with the presence of cargo on board the vessel at the time of General Average act. Where the vessel is proceeding in ballast under charter, the General Average community can be brought about by the presence of the charterer’s bunkers on board and/or chartered freight at risk, as the case may be. Where the vessel is proceeding in ballast and not under charter, there is no General Average community but Hull Underwriters under Clause 11 of ITC – Hulls 1/10/83 agree to pay GA expenses:
“When the vessel sails in ballast, not under charter, the provisions of York-Antwerp Rules, 1974 (excluding Rules XX and XXI) shall be applicable, and the voyage shall be deemed to continue from the port or place of departure until the arrival of the Vessel at the first port or place thereafter other than a port or place of refuge or port or place of call for bunkering only. If at any such intermediate port or place there is an abandonment of the adventure originally contemplated the voyage shall thereupon be deemed to be terminated.”
Where the vessel is proceeding under Charter
For the position under English law and practice, the leading guide is the Association of Average Adjusters Rules of Practice no.B26 which reads as follows:
“For the purpose of ascertaining the liability of Underwriters on British policies of Insurance, the following provisions shall apply:-
When a vessel is proceeding in ballast to load under a voyage charter entered into by the shipowner before the general average act, the interests contributing to the general average shall be the vessel, such items of stores and equipment as belong to parties other than the owners of the vessel (e.g. bunkers, wireless installation and navigational instruments) and the freight earned under voyage charter computed in the usual way after deduction of contingent expenses subsequent to the general average act. Failing a prior termination of the adventure, the place where the adventure shall be deemed to end and at which the values for contribution to general average shall be calculated is the final port of discharge of the cargo carried under the charter but in the event of the prior loss of the vessel and freight, or either of them, the general average shall attach to any surviving interest or interests including freight advanced at the loading port deducting therefrom contingent expenses subsequent to the general average act.
When a vessel is proceeding in ballast under a time charter alone or a time charter and a voyage charter entered into by the time charterer, the general average shall attach to the vessel and such items of stores and equipment as are indicated above. Failing a prior termination of the adventure, the adventure shall be deemed to end and the value for contribution to general average calculated at the first loading port upon the commencement of loading cargo.
Where the charter to which the shipowner is a party provides for York-Antwerp Rules, the general average shall be adjusted in accordance with those Rules and British law and practice and without regard to the law and practice of any foreign port at which the adventure may terminate; and in the interpretation of Rule XI it shall be immaterial whether the extra period of detention takes place at a port of loading, call or refuge, provided that the detention is in consequence of accident, sacrifice or other extraordinary circumstance occurring whilst the vessel is in ballast.
In practice neither time charter hire, as such, nor time charterer’s voyage freight shall contribute to general average.“
As will be noted, the Rule clearly defines the General Average voyage where the vessel is proceeding in ballast “to load” under voyage charter which shall be deemed to end at the final port of discharge of cargo carried under the (voyage) charter. It therefore provides a clear guide that cancellation or frustration of the original voyage under the charter forms a prior termination of the adventure. This is because the other interest at risk, chartered freight, will have disappeared as soon as the fixed voyage is cancelled, resulting in there being no further common adventure.
However, the Rule makes no reference to any specific cargo voyage where the vessel is proceeding in ballast (without the words “to load”) under time charter. It provides for the termination of the adventure being at the first loading port upon the commencement of loading cargo, but without reference to any specific cargo voyage. The sub-voyage charter party has no relevance at all, noting that any time charterer’s voyage freight shall not be brought in to contribute to General Average. Furthermore, if it had been intended to give similar effect that cancellation or frustration of the original intended voyage under the sub-voyage charter would form a prior termination of the adventure, it would have been so easy to simply add the same words “carried under the charter” as in the preceding paragraph or even better, the words “originally contemplated” after “at the first loading port upon the commencement of loading cargo”.
Having noted the construction of the Rule B26 in respect of the vessel proceeding in ballast under Time Charter being clearly different from that in respect of Voyage Charter, the Editor will consider further what constitutes “prior termination of the adventure” in cases where the vessel is proceeding in ballast under Time Charter.
The General Average community in the case of the vessel proceeding in ballast under time charter is established by the presence of the time charterer’s bunkers on board the vessel, which are always on board for resuming the ballast passage. The common adventure would therefore continue until, as provided by the AAA Rules of Practice, upon commencement of loading of cargo at the first loading port (except where there is a prior termination of the adventure).
For vessels trading under time charter, the ship-owner has virtually no say on where the vessel is to proceed to load cargo as this is dictated by the time charterer. In real life it is not uncommon that time charterers make alterations of loading and/or discharging port(s). Indeed, in most cases involving considerable General Average detention, the originally intended voyage would almost certainly be cancelled as soon as it is apparent that the original cargo fixed by the time charterers can no longer wait and often the time charterers do not advise the ship-owners and merely instruct the Master to proceed to a new port/location until shortly before the completion of repairs. In the circumstances, whilst the voyage is altered the common adventure insofar as the General Average community, i.e. the vessel and the bunkers, continues and it is not right that when the General Average allowance will terminate will depend on when the time charterers bother to advise of the voyage cancellation or alteration during the detention whilst the vessel is under repairs.
It is worth noting the following submission on page 216 of the 3rd edition of “Marine Insurance And General Average In The United States – An Average Adjuster’s Viewpoint” by Leslie J. Buglass:
“… in practice it is sometimes difficult to determine if and when the voyage is terminated for general average purposes. A broad view is taken in this regard and even if a charter under which the vessel was proceeding in ballast is cancelled while the vessel is in a port of refuge, assuming the vessel proceeds to the same geographical destination within a reasonable time, it is considered that there has been no termination of the adventure in a geographical sense. In such circumstances, the general average continues until the vessel is ready to proceed from the port of refuge…”
The Editor believes that most, if not all British fellow adjusters recognize and have been adopting this approach throughout since the publication of the first edition of this book in 1973 by an internationally recognized average adjuster.
The very first experience of the Editor in ballast General Average under time charter was in July 1973 in a vessel which was proceeding in ballast from Japan to the USA under a time charter and a voyage charter entered into by the time charterer. The original chartered voyage was cancelled shortly after the collision giving rise to a detention for repairs at a port of refuge for some 2 months. After completion of the necessary damage repairs, the vessel continued in ballast to the USA. The vessel was insured with Underwriters at Lloyd’s and Institute of London Underwriters and both approved the Adjustment and settled the claim promptly without query. The Editor has since been adjusting similar claims on that basis throughout without yet encountering any adverse comments from underwriters.
Apparently some average adjusters following the Buglass approach are concerned about lengthy detention, which, with due respect, does not sound logical since the principle would be consistent whether the detention is 1 month, 3 months or longer. In this connection (regarding lengthy detention), the Editor experienced a vessel which was proceeding in ballast from Taiwan to load a cargo under a voyage charter at Richards Bay (for delivery in Taiwan). Her engine-room flooded in November 1989 and the vessel was towed to Singapore where she detained for necessary repairs for some 4.5 months. There was no cancellation date in the voyage charter party and whilst the original cargo intended to be loaded on this vessel was shipped by other vessel, the vessel did continue her ballast passage to Richards Bay to load another cargo under the same charter party, the charter hire (?) being earned by the ship-owner. The whole period of detention was allowed in General Average, which was queried by Underwriters who after discussions eventually settled the claim in full. This is not a ballast General Average under time charter but it demonstrates that the principle would not be affected by the detention period.
In view of the foregoing, it has been suggested throughout (until recently) that the circumstances under which there is a “prior termination of the adventure” for the purposes of General Average ballast under time charter would be either
(a) the complete diminishment of the bunkers on board, thus exiting the common adventure, or
(b) the frustration by agreement or otherwise of the contract between the ship-owner and the time charterer, i.e. the time charter party, whichever occurs first.
This approach was challenged by some average adjusters a couple of years ago, who would be against continuing to make allowance as soon as the time charterer makes the decision to change the voyage or communicates his decision to the ship-owner.
The subject was indeed discussed in the London market last year and apparently the market is in favour of a rule of practice to achieve uniformity of practice amongst average adjusters. A sub-committee of the Association of Average Adjusters was therefore set up for this purpose. We shall in due course report on the outcome in this respect.
(Do you have a specific problem on a marine insurance claim? Then, write to “AA Talk” – email: firstname.lastname@example.org)
111 Issue Autumn, 2015 Journal of the Institute of Seatransport